The paper discusses the applicability of optimal taxation theory to source-based capital incomes when significant tax evasion is observed. Without tax evasion a modified Ramsey Rule may reduce distortions brought by international capital mobility, leading to levying differentiated tax rates in domestic sectors inversely proportioned to observed elasticities in terms of capital mobility. The introduction of tax evasion brings additional complexity. The viability of optimal tax rates à la Ramsey is explored, and additional requirement (namely that tax evasion is either very low or very homogeneous) are shown to be necessary in order to allow policy-makers to obtain the tax rates minimizing total excess burden. Results are also provided to solve the optimal taxation objective when tax evasion is a relevant phenomenon and is not homogeneous throughout domestic sectors. —
optimal taxation,capital income taxation,tax evasion
Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing
What are the impacts of labor tax reform on wage setting and employment to keep the relative tax burden per low-skilled and high-skilled workers constant in the case of heterogeneous domestic labor markets, i.e. imperfect competition in low-skilled labor and perfect competition in high-skilled labor in the presence of outsourcing? A higher degree of tax progression by raising the wage tax and the tax exemption for the low-skilled workers will decrease the wage rate and increase labor demand of low-skilled workers, whereas it will decrease (increase) employment of high-skilled workers in CES utility function when the elasticity of substitution between consumption and leisure is higher (lower) than one. A higher degree of wage tax progression for the high-skilled worker will have no effect on the high-skilled wage in the presence of CES utility function.
The enforcement of compliance with tax regulation is a complex task. This is particularly the case when the administrative capacity of the tax authority is low, as is often the case in developing and transition countries. In this paper, I first formally model the impact of minimum thresholds by explicitly taking into account the low administrative capacity. The model shows that the introduction of a threshold creates a spike and a « missing middle » in the distribution of declared incomes and highlights under which conditions introducing a threshold is likely to increase net revenues for the tax authority. Then, I draw on some international experiences in fighting tax evasion to identify tools that can be used to reduce underreporting by employed labour, small and medium enterprises, self-employed, and professionals. In particular, I analyze the Italian « Business Sector Analysis » and the Bulgarian « Minimum Social Insurance Thresholds ». <BR>Keywords; Tax evasion; miminum threshold; studi di settore <BR>JEL Classification: H26, K35, K42, P37
The aim of this paper is to re-examine the relationship between fiscal federalism and the size of local governments. Traditionally, the empirical studies have focused on the different accountability power of grants and local taxes, concluding that the former encourages the growth and the latter contributes to contain local public spending. Yet, the existing literature is more silent about the possibility that different types of tax autonomy may still have differential impacts on the expansion of the local public sector. The paper addresses this issue by introducing a new testable hypothesis – the “Tax Separation Hypothesis” (TSH) – according to which tax decentralisation organised on tax bases used only by local governments would favour most the containment of local public expenditures, while that organised on tax base sharing (i.e. piggybacking mechanisms) is not expected to have a significant impact on the local gov ernment size. Using an unbalanced panel data set of OECD countries, we adopt the novel approach of disentangling the impact of local taxes – on income, property, and goods and services – on the size of the local public sector. In particular, property taxes only – mostly based on a “tax separation” scheme – seem to have a negative impact on the size of local government. Instead, both income taxes and general taxes on goods and services – often shared with central governments – have uncertain impacts on the size of local governments (and more frequently positive). We conclude that tax decentralisation is a necessary condition to contain local public expenditures, yet it is not sufficient, as a tax separation scheme would in fact be required.
Fiscal decentralisation; Tax sharing; Tax separation; Property taxes; Local government size.
Distributional effects of a carbon tax on car fuels in France
Benjamin Bureau (CERNA – Centre d’économie industrielle – Mines ParisTech)
This paper analyses the distributional effects of alternative scenarios of carbon taxes on car fuels using disaggregated French panel data from 2003 to 2006. It incorporates household price responsiveness that differs across income groups into a consumer surplus measure of tax burden. Carbon taxation is regressive before revenue recycling. However, taking into account the benefits from congestion reduction induced by the tax mitigates regressivity. We show also that recycling additional revenues from the carbon tax either in equal amounts to each household or according to household size makes poorest households better off.
carbon tax; distributional effects
Voluntary contributing in a neighborhood public good game: An experimental study
In repeated Public Good Games contributions might be influenced by different motives. The variety of motives for deciding between (more or less) free-riding probably explains the seemingly endless tradition of theoretical and experimental studies of repeated Public Good Games. To more clearly distinguish the motives, we try to enrich the choice set by allowing players not only to contribute but also to locate their contribution to one of the player positions. The location choice affects what individual players gain, but not the overall efficiency of contributing, and allows for discrimination, e.g., rewarding and sanctioning co-players differently. Our experimental results show that adding location choice promotes voluntary cooperation, although discrimination itself has no signifficant effect on behavior. —
Public Good Game,Neighborhood,Cooperation,Experimental Analysis
Reducing Rent Seeking by Providing Wide Public Service
Amihai Glazer (Department of Economics, University of California-Irvine)
Stef Proost (Center for Economic Studies, KULeuven)
A winning coalition which sets policy cannot always ensure that members of the coalition will be the ones getting benefits. Different jurisdictions (including members of the winning coalition) may then engage in costly rent seeking. Maximizing the welfare of the winning coalition may therefore require providing services to jurisdictions which are not members of the winning coalition, thereby reducing rent seeking by members of the winning coalition. The paper shows how this mechanism can generate insuffcient supply of public services, and offers another explanation for the use of co-funding requirements by the central government.
Publicly provided goods; Rent seeking
Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age
Behaghel, Luc (CREST-INSEE)
Blau, David M. (Ohio State University)
We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.