HOW SHOULD CAPITAL BE TAXED?

This survey discusses how capital should be taxed in advanced economies. We review the theoretical optimal tax literature, survey empirical studies on the distribution of capital and the distortionary costs of capital taxation, and analyze the desirability of specific taxes on capital income, wealth, property, inheritances, and corporate profits. Our overall conclusion is that capital taxation plays an important role in an optimal tax system, but only certain ways of taxing capital are able to strike a balance between optimality and administrative feasibility.     

Flat tax reform: A quantitative exploration

This paper explores quantitatively the general equilibrium implications of a revenue neutral tax reform in which the current income and capital income tax structure in the U.S. is replaced by a flat tax, as proposed by Hall and Rabushka (1995), (The Flat Tax, 2nd ed. Hoover). The central aspects of such reform, the impact of tax reform on capital accumulation and labor supply, as well as its distributional consequences, are analyzed in a dynamic general equilibrium model. Main results are that, (i) the elimination of the actual taxation of capital income has an important and positive effect on capital accumulation; (ii) mean labor hours are relatively constant across tax systems, but aggregate labor in efficiency units increases; (iii) in all circumstances analyzed, the distributions of earnings, income and especially wealth become more concentrated.     

Taxation, Incentives and Disincentives, and Human Motivation

A bstract . In the national tax debate, many ignore the effect of taxes on human motivation. High—and rising—marginal tax rates must be depressing, hampering and frustrating. They do not spur people on to better performance nor do they reward socially necessary or desirable economic behavior. What they encourage is distortion of resource allocation , legal avoidance and illegal evasion , as well as decline in human and capital resources. At both ends of the income scale they approach confiscation. Land apart from its improvements is taxed lightly when it should be the revenue source of choice taxed the most heavily, while the heaviest exactions discourage labor, enterprise and all human effort as well as savings. Equity and fairness along with the social consequences argue for large cuts in high tax rates at the top and at the bottom of the income scale.     

Climate Change Policies and Tax Recycling Schemes: Simulations with a Dynamic General Equilibrium Model of the Italian Economy

A dynamic general equilibrium model of the Italian economy is used to assess the impact of carbon taxation (or auctioned carbon permits), where additional revenue is used to cut either existing taxes on labor or on capital income. Simulation results do not support the existence of the so-called "double dividend" when labor taxes are reduced, whereas lower tax rates on capital have mild positive effects on growth and welfare, with progressivity properties on income distribution. These findings hinge on the assumptions of open economy, given world interest rate, and capital mobility.     

我国个人所得税改革的误区及其突破

我国个人所得税改革存在一定的误区:税制改革的重点在于流转税、当前个税属于综合与分类相结合的税收模式、劳动所得作为个税的改革核心等。反思改革误区,我国个人所得税改革应实现三点突破:一是个税改革重点应由劳动所得转向资本所得,以股息和红利所得作为资本所得课税的改革核心,取消根据持有时间长短而差别计税的优惠政策;二是不断扩大个人所得综合征税的范围,逐步实现对资本所得的综合课税、以半二元模式作为我国综合与分类相结合的个税改革模式;三是缓步实现对个人所得税的"增税"调整,促进我国税制结构向"双主体"模式合理过渡。     

Reforming or Transforming the Federal Tax System: (A Review Essay)

A bstract . Several proposals to reform the federal income tax system are under active consideration. Professor Richard W. Lindholm has proposed instead that we abolish the individual and corporate income taxes and the estate and gift taxes. To replace the lost revenue he proposes a flat 15 per cent value added tax and a flat 2 per cent net wealth tax. He posits five goals for successful tax reform and discusses his proposed system in terms of them. He finds his system would be simpler and less disruptive of markets than even a simplified income tax structure.     

Factor taxation and labor supply in a dynamic one-sector growth model

This paper studies a class of AK-type growth models with factor income taxes, public capital stock and labor–leisure trade offs. While a higher capital tax rate reduces economic growth in the short run, the long-term growth effect is ambiguous and remains ambiguous even if the level of tax rate is larger than the degree of government externality. A higher labor income tax rate has ambiguous growth effects both in the short and long runs. However, if the intertemporal elasticity of substitution for labor supply is sufficiently small, a higher labor tax rate always lowers economic growth in the long run, despite the existence of productive government taxation.     

Local taxation and the consequences of revenue distribution patterns

The economy of a small region. is modeled as an eighteen-equation system describing production, consumption, income distribution, factor supply, and a government sector. The government uses: independent taxes on land rents and capital rentals to collect revenue equal to 20% of what land rents would be in an untaxed equilibrium and distributes the revenue to local residents in four different patterns. The distribution of the tax revenue, as well as the mobility of the factor taxed, generates distinct patterns of impacts on regional population, capital stock and production structure wages rents and the incidence of the taxes.     

Federal Income Tax Reform in the United States: How Did It Happen? What Did It Do? Where Do We Go from Here?

Abstract . The 16th Amendment to the U.S. Constitution in 1913 provided the legal basis for progressive federal income taxes. They now yield revenues of about $450 billion annually. Tax base erosion eventually produced a levy in serious violation of norms of allocation efficiency, distributional equity, and macroeconomic performance. Vested private interests influenced legislators by propaganda and campaign contributions to minimize their tax burdens at the expense of less wealthy taxpayers. The result was an irrational and badly flawed tax structure. In 1981 the maximum marginal tax rate on income from property and wealth was significantly reduced along with other bracket reductions. The income tax reform movement culminated in 1984 to 1986. It expanded the base of the tax while reducing marginal rates as well as brackets, with little change in the distribution of the burden among different income groups but achieving some greater equity in tax liabilities for those with similar incomes.     

Carbon taxes and the double dividend hypothesis in a recursive-dynamic CGE model for Spain

A carbon tax is potentially a policy that can reduce CO₂ emissions and mitigate climate risks, at lowest economy-wide costs. We develop a dynamic CGE model for Spain to assess the economic and environmental effects of a carbon tax, and test the double dividend (DD) hypothesis. We simulate the impact of three carbon taxes: €10, €20 and €30 per ton of CO₂. For each tax, four ‘revenue recycling’ scenarios are examined: a reduction of taxes on capital, on labor, on value-added tax, and a scenario in which revenues are not recycled. We find a DD for taxes of €10/ton and lower, within five to seven years of implementation. We estimate an annual CO₂ emissions reduction of around 10% with this tax. Under some circumstances, the DD can be achieved for a tax of €20/ton. In any case, recycling revenues to cut pre-existing taxes reduces costs of imposing carbon taxes.     

Sources of Public Revenue that Make Nations Richer

Among sources of public revenue that make nations richer, the most beneficial are charges for harms, such as pollution and congestion, and charges for the private benefits from public services. Increases in the money supply sufficient to keep price changes in line with expectations are also beneficial. Taxes on concentrations of wealth are beneficial if wealth inequality is considered harmful. Properly administered taxes on land do no harm and are beneficial when markets are imperfect. Among taxes that cause harm, the combination of a tax on labour income and a tax on inheritances is probably the least damaging.     

Inequality and catching-up under decreasing marginal impatience

This paper examines how endogenous time preference interacts with inequalities in economic development. We consider two distinct groups of households with intrinsic inequality (e.g., capitalists and workers), and show that (i) under decreasing marginal impatience (DMI), an unequal society may be preferable for poor households than an egalitarian one in which every household owns an equal share of asset; (ii) poor households tend to benefit more under DMI than CMI (constant marginal impatience) from positive shocks; (iii) inequality exhibits a sharp inverted-U shape as more people become rich, which should be good news for developing countries in catching up; and (iv) a tax on capital income reduces poor households’ income when the fraction of the rich is sufficiently small. We also examine immigration and discuss capital mobility.     

How Much Revenue Would a Full Land Value Tax Yield?In the United States in 1981, Census and Federal Reserve Data Indicate It Would Nearly Equal All Taxes

Abstract . Most urban economists and particularly specialists in urban public finance consider the land value tax, because of its economic effects and its influence toward rational development, the tax of choice. But could it replace, in whole or in large part, taxes which now burden labor and capital and distort efficient allocation of resources? How important would a full land rent tax's yield be? The U.S. Bureau of the Census provides data which, adjusted for errors and omissions, indicates that the annual land rent for 1981 was $721 billion. Federal Reserve Board data, similarly adjusted, indicates annual land rent for that year was $590.38 billion Hence we may say that a full land rent tax would yield something around $658 billion in 1981, or 28 percent of the 1981 national income. This is nearly two thirds of all taxes levied by all levels of government in 1981, and, with user charges and similar fees continued, it is probably equal or nearly equal to burdensome taxes.     

Tax Policy for Economic Progress

A bstract . Developing countries , in constructing modern tax systems , would do well to adopt policies based on proven economic principles so that fiscal instruments do not perpetuate stagnant economies and underemployment of labor and resources. To achieve growth and jobs and ever higher levels of living , they should avoid the mistakes of the United States and many other industrially developed countries in burdening business —enterprises production —with heavy and obstrusive taxes. They, and developed countries as well which are committed to progressive change based on tax reform, like the United States, should use land values where possible to finance local governments so as to avoid taxing the other factors of production. And where necessary taxes should be levied on consumption , for taxes on business income misallocate resources and hamper market discipline in promoting output and efficiency.     

Tax evasion and work in the underground sector

A bivariate random effect panel data model is estimated for male labour supply in the taxable and the non-taxable sectors in Denmark. The wage rates and non-labour income have significant effects on labour supply in both sectors. The average own wage elasticity with respect to underground labour supply is found to be small, 0.02, while the cross price elasticity from regular wages is larger, − 0.52. Simulations of potential tax reforms show that a reduction of the marginal taxes has minor effects on male labour supply to the untaxed sector, while the effect on male labour supply to the taxed sector is larger.     

Neighborhood Revitalization and New Life: A Land Value Taxation Approach

When a neighborhood declines, the poor get poorer, crime rises, and those who can leave the area. The tax base shrinks, so the rates paid by those least able to pay increase. The prevailing system of a low tax on land values leads to land speculation and private land banking, assuring that the landowner can hold out for a very high price for a very long time. A higher tax on land values (coupled with reduction in building taxes) creates an incentive to sell that land or do something with it rather than waiting. In cities that use land‐value taxes, real‐estate markets start to work again and neighborhoods recover. Clairton, Pennsylvania's adoption of a land‐value‐taxation system demonstrates the neighborhood revitalization to which it leads, as owner‐occupied residences and multi‐family units saw a relief in their tax burden. In contrast, vacant properties' contribution to the city budget tripled, providing the resources to pay for the education of Clairton's children and liberate working and middle‐class families from the bonds of labor and capital taxation.     

On revenue recycling and the welfare effects of second-best congestion pricing in a monocentric city

This paper examines congestion taxes in a monocentric city with pre-existing labor taxation. When road toll revenue is used to finance labor tax cuts, 35% of the optimal road tax in our numerical model does not reflect marginal external congestion costs, but rather functions as a Ramsey–Mirrlees tax, i.e. an efficiency enhancing mechanism allowing for an indirect spatial differentiation of the labor tax. This adds a quite different motivation to road pricing, since welfare gains can be produced even in absence of congestion. We find that the optimal road tax is non-monotonic across space, reflecting the different impacts of labor supply elasticity and marginal utility of income, which both vary over space. The relative efficiencies of some archetype second-best pricing schemes (cordon toll, flat kilometer tax) are high (84% and 70% respectively). When road toll revenue is recycled lump-sum, the optimal toll lies below its Pigouvian level. Extensions in a bimodal framework show that the optimality of using road toll revenue to subsidize public transport depends on the initial inefficiency in public transport pricing.     

Why truck distance taxes are contagious and drive fuel taxes to the bottom

This paper analyzes the way in which countries with international and local truck traffic decide to switch from a simple fuel tax system to a dual system of fuel and distance charge taxes. We show what drives a country to switch and how this affects the level of fuel taxes as well as incentives for other countries to also adopt the dual system. The model is partially able to explain the gradual extension of kilometer charging for trucks in Europe. The model also shows that, in the absence of diesel cars, the gradual introduction of kilometer charges will make fuel taxation for trucks virtually disappear and will lead to a system where truck use is (1) taxed mainly based on distance, (2) is taxed too heavily, and (3) where highest distance taxes are expected in transit countries with a strong market position. When the fuel tax must in addition serve as an externality tax for diesel cars, the introduction of distance charges for trucks will give rise to diesel taxes that are lower than the external cost of diesel cars. For trucks, this leads to a sum of diesel taxes and distance charges that are higher than the external cost of trucks.     

Delaying integration of immigrant labor for the purpose of taxation

Delayed integration (DI) is a rule for taxing migrants. It requires that immigrants be taxed in the host country only after some period of transition. Conversely, emigrants are released from the obligation to pay taxes only after a certain period. DI is an alternative to the Employment Principle and the Home-Country Principle. The former governs the international taxation of labor. The latter is a close substitute for the Nationality Principle, on which US tax law is based. The paper studies DI in a setting which allows one to trade off the efficiency costs of distortionary taxation and of wasteful government.