Countercyclical taxes in a monopolistically competitive environment

In the context of a neoclassical growth model with monopolistic competition, this paper studies the stabilizing effects of countercyclical tax policy when the income tax rate has an additional role of financing government budget deficits. Consistent with the conventional wisdom, countercyclical taxes generally reduce aggregate volatility, unless the fiscal response to debt accumulation is weak. The presence of monopoly power enhances these effects. Even when automatic stabilizers successfully stabilize business cycle fluctuations, countercyclical taxes are welfare inferior, due to reduced precautionary saving motives. While, if the fiscal response to debt is weak and countercyclical tax policy destabilizing, the increased precautionary saving motive is not welfare enhancing as the asset accumulated is government debt rather than capital. These results are generally robust. Nominal inertia may, however, dominate the precautionary saving mechanism.     

The relationship between tax rates and tax revenues in eurozone member countries - exploring the Laffer curve

We estimate Laffer Curves for direct and indirect taxes for each Eurozone country, using panel data from 1995 to 2011, by means of Seemingly Unrelated Regression (SUR) models. We choose the three taxes that contribute the most to the government tax revenue: the value added tax (VAT), the corporate income tax (CT), and the labour income tax (LT). From our estimated significant parameters, which have the expected signs according to the Laffer Curve theory, we obtained a maximum/optimal tax rate for VAT for Greece, Portugal, and Slovakia and for the majority of the Eurozone countries for direct taxes. We also take into consideration the business cycle. Many countries do not present differences in regime, and when they do, the optimal tax rate is higher during recessions. Finally, we compare the observed tax rates in 2012 to the estimated optimal tax rates, to assess if the 2012 policy was located at the prohibitive range of the Laffer Curve. Our results are important for the discussions about fiscal discipline and harmonization in the Eurozone, since they exhibit important disparities between countries and taxes. We can see that, especially for CT and LT, there is a strong divide between the values of the optimal maximum tax rates for Eastern European countries and Western European economies. Additionally, the economic and financial conditions of each country also influence the value for the tax rate.     

Optimal income taxation with human capital accumulation and limited record keeping

This paper characterizes optimal income taxes in a dynamic economy where human capital is unobservable and the government is restricted to use taxes that depend only on current income. I show that unobservability of human capital tends to decrease the labor wedge, while the effect on the human capital wedge is uncertain. I also analyze the relationship between optimal taxes in economies with and without endogenous human capital and identify two qualitative reasons why the optimal tax codes will differ. I perform numerical simulations to calculate the quantitative relevance of endogenous human capital formation for optimal tax policy. I find that endogenous human capital lowers marginal tax rates by about 9% on average, as compared with a static model without human capital.     

Shifting Taxes from Labor to Consumption: More Employment and more Inequality?

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value‐added tax (VAT) rate, which are compensated by revenue‐neutral reductions in income‐related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.     

Voting over income taxation

A major problem of the positive theory of income taxation is to explain why statutory income tax schedules in practice are marginal-rate progressive. While it is commonly believed that this is but a simple consequence of the fact that the number of relatively poor voters exceeds that of richer voters in general, putting this contention in a voting equilibrium context is not a trivial task. We do this here in the context of nonlinear taxation and attempt to provide a formal argument in support of this heuristic claim. We first establish the existence of mixed strategy equilibria and identify certain cases in which marginal-rate progressive taxes are chosen almost surely by the political parties. Unfortunately, we also find that if the tax policy space is not artificially constrained, the support of at least one equilibrium cannot be contained within the set of marginal-rate progressive taxes.     

The incidence of import liberalization with and without a value added tax: an application to bangladesh

This paper examines the impact of import tariffs and tariff-replacing indirect taxes on the welfare of households grouped by the size distribution of income. A computable general equilibrium model for Bangladesh is simulated to examine the removal of quantitative restrictions and tariffs as well as the replacement of trade taxes with a value added tax (VAT). Import liberalization alone expands the manufacturing sector and increases the welfare of lower income households. If a uniform VAT is placed on both imports and all non-agricultural production in order to replace the lost tariff revenue for the government, some of the gains from import liberalization are diminished. If exports are exempted from the VAT, the gains are sustained to a greater degree. With a combination of tariff liberalization, quota markups, and the VAT, the economy goes through a contraction and the welfare of all households is reduced.     

Fiscal policy and default risk in emerging markets

Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies.     

对我国结构性减税问题的思考

本文认为,结构性减税就是要在税收总规模不变甚至适当增加的前提下，削减一些特定纳税人或特定税收项目的税负，其中最主要的是要削减中低收入者缴纳或负担的税收；在减税的方案上，主要是降低对人民衣食住行课征的增值税和营业税并全面推开“营改增”，适时调减企业所得税税率，并在工薪个人所得税制度中加进个性化的费用扣除标准。上述降税的收入损失可以通过提高消费税和个人所得税最高税率的办法加以弥补。     

Social Comparisons and Optimal Taxation in a Small Open Economy

In this paper, we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption. The main results crucially depend on whether the government can tax returns on savings abroad. If the government can use flexible residence‐based capital income taxes, then the optimal policy rules from a closed economy largely carry over to the case of a small open economy. If it cannot, then capital income taxes become completely ineffective. The labor income taxes must then indirectly also reflect the corrective purpose that the absent capital income tax would have had.     

Taxes,Strikes and Wages

A union and a firm bargain about wage increases. The firm possesses private information about its revenues. A two-period screening model is used to derive equilibrium wage demands by the union and to calculate measures of strike activity. Changes in wage demands and dispute probabilities due to alterations in various taxes are analysed. A more progressive income tax, a lower level of income taxes and higher payroll taxes reduce wages and strike activity. Hence, tax policy can be used not only to affect wages and employment, but lso to influence strike incidence.     

Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis

This paper develops and estimates a new-Keynesian dynamic stochastic general equilibrium (DSGE) model for the analysis of fiscal policy in the UK. We find that government consumption and investment yield the highest GDP multipliers in the short-run, whereas capital income tax and public investment have dominating effect on GDP in the long-run. When nominal interest rate is at the zero lower bound, consumption taxes and public consumption and investment are found to be the most effective fiscal instruments throughout the analysed horizon, and capital and labour income taxes are established to be the least effective. The paper also shows that the effectiveness of fiscal policy decreases in a small open-economy scenario and that nominal rigidities improve effectiveness of public spending and consumption taxes, whereas decrease that of income taxes.     

增值税扩围改革的价格影响与福利效应

"十二五"规划建议明确将"扩大增值税征收范围,相应调减营业税等税收"作为下一步税制改革的重要内容。文章通过建立价格模型分析了不同的扩围方案对减少重复征税和降低产品税负的影响,并利用住户调查数据、投入产出方法和实际税收数据测算了增值税扩围改革的福利效应。研究发现,将增值税扩大到生产性服务业将改善居民福利,但具有累退性;全面扩围的福利改善作用小于生产性扩围,但具有累进性。     

Foreign direct investment in a world of multiple taxes

Governments impose multiple taxes on foreign investors, though studies of the effect of tax policy on the location of foreign direct investment (FDI) focus almost exclusively on corporate income taxes. This paper examines the impact of indirect (non-income) taxes on FDI by American multinational firms, using affiliate-level data that permit the introduction of controls for parent companies and affiliate industries. Indirect tax burdens significantly exceed the foreign income tax obligations of foreign affiliates of American companies. Estimates imply that 10% higher local indirect tax rates are associated with 7.1% lower affiliate assets, which is similar to the effect of 10% higher income tax rates. Affiliate output falls by 2.9% as indirect taxes rise by 10%, while higher income taxes have more modest output effects. High corporate income tax rates depress capital/labor ratios and profit rates of foreign affiliates, whereas high indirect tax rates do not. These patterns reveal the impact of indirect taxes and suggest the mechanisms by which direct and indirect taxes affect FDI.     

The Efficiency of State Taxes on Mobile Labour Income

We model a federation where States levy a tax on the wage income of mobile citizens who shop between States for their preferred tax and public policy package. It is shown that competition between States results in efficient State spending but that the taxes on wage income are inefficient in the sense that mobile taxpayers are allocated inefficiently across States. The implication is that if States tax the wage income of mobile workers, there may be benefits from policy competition (a more competitive federal system) but also costs associated with the inefficiency. The central government can correct for the inefficiency, but this requires a complex system of inter-State transfers that are difficult to implement in practice.     

Involuntary Unemployment and Environmental Policy: The Double Dividend Hypothesis

An environmental tax reform might bring about gains over and above improved environmental quality. In particular, if tax revenues from environmental taxes are used to reduce the tax on wage income, positive employment effects can result in second-best economies. An efficiency wage model is used to analyze the impact of an ecological tax reform on involuntary unemployment. The government controls emissions by selling emission permits. Employment of labor and wages are determined endogenously. Conditions are identified under which an environmental tax reform reduces unemployment and increases welfare.     

Education Policies and Taxation without Commitment

We study the implications of limited commitment on education and tax policies set by benevolent governments. Consistent with real‐world practices, a government can decide to subsidize different levels of education at different rates. A lack of commitment, however, affects the optimal structure of education subsidies. The direction of the effect depends on how labor taxes are designed. With linear labor tax rates and a transfer for redistribution, subsidies become more progressive. By contrast, if the government is only constrained by informational asymmetries when designing taxes, subsidies become more regressive.     

Cyclical wage movements in emerging markets compared to developed economies: The role of interest rates

This paper documents that, at the aggregate level, (i) real wages are positively correlated with output and, on average, lag output by about one quarter in emerging markets, while there are no systematic patterns in developed economies, and (ii) real wage volatility (relative to output volatility) is about twice as high in emerging markets compared with developed economies. We then present a small open economy model with productivity shocks and countercyclical interest rates. The model incorporates a working capital requirement and the Jaimovich and Rebelo (2009) preference that allows for flexible parameterization of the strength of income effects on labor supply. The model can account for the high volatility of wage and consumption relative to output and countercyclical trade balances that characterize emerging-market economies. During economic downturns, rising interest rates in emerging markets induce relatively large income effects on labor supply, so households would not reduce their labor input as much even though wages drop significantly.     

How progressive are indirect taxes in Russia?

The interplay of a differentiated indirect tax structure and the variation in expenditure patterns across households leads to a possibly unequal distribution of indirect tax liabilities across the population. This paper uses the ninth round of the RLMS survey to assess the distributional consequences of the two major components of the Russian indirect tax system: VAT and excise taxes. According to the Kakwani index, the global indirect system can be considered to be progressive overall. Decomposition into constituent terms shows that this is due not only to a progressive VAT structure, but also to progressive excise taxes. This result is partly explained by the progressivity of the excise tax on car fuel, but is also sensitive to peculiarities in the data about alcohol consumption.     

Taxation and Tournaments

This paper analyzes the effects of progressive taxes on labor supply and income distribution in the context of the rank‐order tournament model originally developed by Lazear and Rosen (1981). We show conditions under which a more progressive tax schedule will cause so large general equilibrium effects that the inequality in disposable income will actually increase. We also show that a non‐zero redistributive tax is always optimal if society's welfare function displays inequality aversion; this result always holds, regardless of behavioral responses and general equilibrium effects.     

An Analysis of the Corporate Income Tax Policy of Less Developed Countries

Unlike in developed countries, corporate rather than personal tax is the greater source of public finance for less developed countries (LDCs). This paper analyzes the corporate income tax policy for a large panel of LDCs. The analysis shows that although the corporate tax rate has been decreasing, corporate tax revenues have been increasing. Contrary to standard tax competition theory, there is also strong evidence that corporate income taxes are increasing with respect to the LDCs’ openness, as measured by capital mobility. The analysis also shows that the corporate tax rate is increasing with respect to the personal tax rate, as income‐shifting theory predicts.