Optimal taxes on wealth and consumption in the presence of tax evasion

This article incorporates tax evasion into an optimum taxation framework with individuals differing in earning abilities and initial wealth. We find that despite the possibility of its evasion a tax on initial wealth should supplement the optimal nonlinear income tax, given a positive correlation between initial wealth and earning abilities. Further, even if income and initial wealth are taxed optimally, it is still desirable to levy a tax on commodities, though it can be evaded as well. Thus, our result provides a rationale for a comprehensive tax system. Optimal tax rates on commodities differ in general, however for the special case of a uniform evasion technology equal rates are optimal if preferences are homothetic and weakly separable.     

Income taxation with intergenerational mobility: Can higher inequality lead to less progression?

We introduce the notion of social mobility into an optimal income tax model. This is done by allowing earning abilities to be partly innate and partly acquired through investments in human capital (education). The implications for the optimal re-distributive policy are studied.     

Redistribution with Unobservable Bequests: A Case for Taxing Capital Income

This paper addresses the question of the optimal taxation of labour and interest income in an overlapping generations model with two unobservable characteristics, ability and inheritance. We assume realistically that saving can only be taxed anonymously, whereas the tax on labour earnings can be individualized and made non-linear. In such a setting, we show that a withholding tax on interest income along with a non-linear tax on labour income is desirable. The role of interest income taxation is to indirectly tax inherited wealth.
JEL Classification D 63, H 2     

基于美国遗产税的效应分析

目前中国的贫富差距不断扩大，而现行个人所得税和财产税并未有效发挥其调解财富分配的功能。因此，具有缓解贫富差距作用的遗产税开征与否成为社会各界关注的热点问题。本文通过对美国遗产税的经济效应进行分析，力图得出符合我国国情的开征遗产税的结论，并为关注遗产税的相关人士提供有价值的参考建议。     

An assessment of the impact of tax incentives relative to socio-economic characteristics on charitable giving in Canada

This research examines the effectiveness of the Canadian tax incentive system for charitable giving while attempting to deal with two persistent methodological problems in past research. The Heckman selection model and the ordered probit model are used to examine the Canadian tax incentive system with 2010 survey data. The results imply that the effect of the tax credit systematically increases with an increase in donation expenditure suggesting that the higher tax credit for larger donations is more effective than the lower tax credit for smaller donations. While the results suggest that the current tax policy is effective, socio-economic characteristics, such as wealth, household income, and university education, appear to have a greater impact on donations.     

中国当前开征遗产税的必要性与可能性——以税收正义为视角

中国当前贫富差距日益扩大,需要建立有效的调控机制,抑制财富的不公平分配,个人所得税与消费税虽然具有调整社会财富分配的作用,但二者的税制模式限制了它们在税收正义上的效力,故有必要开征更具社会公平价值的遗产税,并且目前的经济发展水平、政治环境与道德水平以及法律环境为遗产税的开征提供了可能性。     

Labor or consumption taxes? An application with a dynamic general equilibrium model with heterogeneous agents

This study analyzes the effects of tax reform that shifts tax burden from labor to consumption. In this context, I also deal with the issue of progressivity. Even though this kind of tax policy change has recently gained popularity, its positive effects are debatable while the offsetting effect of a consumption tax on labor supply makes the net output change rather ambiguous. I examine these effects using a dynamic general equilibrium model with heterogeneous agents. The model is calibrated to fit certain characteristics of the Finnish economy. In addition to output and employment effects, I study the tax reform's effect on income and wealth distribution. First, I find that eliminating progressivity in labor taxation increases output via increase in capital accumulation that comes, however, in expense of slightly more inequality. Then, tax reform that replaces progressive labor taxes with a flat-rate consumption tax leads to a significant rise in capital accumulation, a negligible change in labor supply and gross labor income distribution, but a relatively considerable increase in wealth concentration.     

Optimal social security tax with myopic agents

Myopic agents lack the foresight to save for their own old age. It is generally believed that correcting myopia is a rationale for a pay-as-you-go (PAYG) pension system. This view has been supported by existing literature showing that the optimal PAYG social security tax should increase when people are more myopic. In this paper we obtain new results opposed to the traditional view. By establishing a very standard general equilibrium OLG model with myopic agents and endogenized marginal product of capital, we show that the optimal social security tax should be lower when people are more myopic. Our numerical analysis also shows that the welfare cost of the social security tax increases with people's degree of myopia. These results suggest that correcting myopia is not a clear rationale for the PAYG social security.     

The Institutionalist Perspective on Recent Theories of Direct Foreign Investment: A Comment on McClintock

This article holistically addresses the effective (relative) income tax contribution of a given income (or, wealth) group. The widely acclaimed standard in public policy is the absolute benefaction of a given income group in filling up the fiscal coffers. Instead, we focus on the ratio of the average income tax rate of an income group divided by the percentage of national income (or wealth) appropriated by the same income group. In turn, we develop the Fiscal Inequality Coefficient which compares the effective percentage income tax payments of pairs of income (or wealth) groups. Using data for the United States, we concentrate on pairs such as the Bottom 90% versus Top 10%, Bottom 99% versus Top 1%, and Bottom 99.9% versus Top 0.1%. We conclude that policy makers with a strong social conscience should re-evaluate the progressivity of the income tax system and make the richest echelons of the income and wealth distributions pay a fairer and higher tax.     

The impact of inheritances on the retirement behavior of older Europeans

The aim of this paper is to study how wealth affects retirement behavior. I use data from the 2004–2012 Survey of Health, Ageing and Retirement in Europe, covering 10 European countries. Inheritances are used as an exogenous change in wealth to estimate the causal effect of wealth/inheritance receipt on retirement. I apply binary choice models for a sample of persons working in 2004/05 to estimate the effect of inheritance receipt during 2005–2011 on the probability of retirement in 2011/12. By comparing data on expected retirement age at the beginning of the sample period with actual retirement age I am able to control for unobserved factors that might be correlated with wealth and affect retirement decisions. The main findings are: (1) Inheritance receipt is quite common for individuals nearing retirement age (50+). About 20 % of the sample aged 50 and older in 2011/12 live in households that received at least one inheritance between 2005 and 2011. (2) Inheritance receipt significantly increases the probability of retirement and the effect increases with the size of the inheritance. (3) In contrast to what life-cycle theory suggests I do not find any evidence that expected and unexpected inheritances affect adjustments of planned retirement age differently. These results are important for assessing the effect of policies that induce changes in wealth, such as pension reforms, tax reforms or reforms of Social Security, on retirement behavior.     

Entrepreneurship in the shadows

I develop a dynamic model of forward-looking entrepreneurs, who decide whether to operate in the formal economy or informal economy and choose how much to invest in their businesses, taking government policy as given. The government has access to two policy tools: taxes on formal business activity and enforcement (or policing) discouraging informality. The main focus of the paper is on transitional dynamics under different initial wealth levels. Whether an initially small business will be trapped in the informal economy and remain small forever or grow quickly and become a large formal business depends on tax and enforcement policies. High tax rates accompanied by loose enforcement – which is mostly the case in less-developed countries (LDCs) – induce tax avoidance, discourage investment in formal businesses, and drive the entrepreneurial activity towards the informal sector even though the initial wealth level is high. Lowering taxes on formal activity joined with strict enforcement can help reducing the magnitude of poverty traps in LDCs – such as the MENA region, Latin America and developing Asia.     

Wealth Distribution and Optimal Inheritance Taxation in Life-cycle Economies with Intergenerational Transfers

Intergenerational transfers are introduced into a general equilibrium life-cycle model in order to explain observed levels of wealth heterogeneity. In our overlapping generations model, heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their children. Furthermore, agents face stochastic employment opportunities. The model is calibrated with regard to the characteristics of the US economy. Our results indicate that bequests only account for a small proportion of observed wealth heterogeneity. The introduction of an inheritance tax increases both welfare, as measured by the average lifetime utility of a newborn, and equality of the wealth distribution.
JEL classification : D 31; D 91; H 21; C 68; E 21     

中国开征遗产税的可行性研究

遗产税是当今世界许多国家都在征收的一种税收.中国已基本具备了开征遗产税的相关条件.开征遗产税,有利于完善中国的税制体系;有利于调节社会成员的财富状态;有利于维护中国的税收权益;还能够增加政府的财政收入.     

Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts*

Annual wealth tax is back on the policy agenda, but discussion of its effect is not well informed. When standard methodology is used and wealth‐tax burdens are measured against annual individual income, it is found that a large share of the tax burden falls on people with low incomes. In this study, we use rich Norwegian administrative data to discuss the distributional effects of wealth tax under several different income concepts, ultimately measuring income over the lifetime of family dynasties. When measured against lifetime income and lifetime income in dynasties, wealth tax is mostly borne by high‐income taxpayers and is seen as clearly redistributive.     

Pure rent taxation and allocation of capital in a two-sector open economy: A long-run analysis

In this paper, the long-run incidence of a tax on pure rent is analyzed in an OLG two-sector small open economy, in which one sector produces a capital good and one sector a consumer good. Contrary to what is obtained in a one-sector closed economy, a land rent tax does not necessarily foster nonhumam wealth accumulation and capital formation. The accommodating scheme for the government budget plays a crucial role for the effects of pure rent taxation. A rent tax stimulates nonhuman wealth if distortionary taxes on wealth or on income from nonland inputs are alleviated. The mechanism spurring capital formation is brought into action, instead, only when the rent tax is matched by a fall in capital taxation or, if the capital sector is capital intensive, by an increase in government spending on the capital good.     

Puerto Rico in the 1970s and 1980s: Crisis of the Development Model

In his institutional economic essay on "Taxation in Chicago and Philadelphia" (published in 1895) John R. Commons addresses property tax assessment. He demonstrates that the revenue is not just a question of the tax rate and the distribution of the tax burden but also one of constitutional requirements and how the taxes are assessed. His essay is reviewed with regard to his later work, subsequent Institutional Economics, and the social provisioning of the market for professional tax advice. The degree of liabilities is defining characteristics of the differences between the United States and Germany.     

The dynamics of inequality and social security in general equilibrium

This paper analyzes the dynamic politico-economic equilibrium of a model where repeated voting on social security and the evolution of household characteristics in general equilibrium are mutually affected over time. In particular, we incorporate within-cohort heterogeneity in a two-period Overlapping-Generation model to capture the intra-generational redistributive effect of social security transfers. Political decision-making is represented by a probabilistic voting à la Lindbeck and Weibull (1987). We analytically characterize the Markov perfect equilibrium, in which social security tax rates are shown to be increasing in wealth inequality. A dynamic interaction between inequality and social security leads to larger social security programs. In a model calibrated to the U.S. economy, the dynamic interaction is shown to be quantitatively important: It accounts for more than half of the social security growth in the dynamics. We also perform some normative analysis, showing that the politico-economic equilibrium outcomes can be fundamentally different from the Ramsey allocation.     

Social norms and economic growth in a model with labor and capital income tax evasion

Empirical evidence suggests that low-income countries are characterized by high levels of labor and capital income tax evasion while the opposite is true for high-income countries. This paper proposes a model to study the relationship between economic growth and both types of income tax evasion. We show that the existence of a social norm towards tax compliance generates a complementarity between capital and labor income tax evasion which explains the decline of both the share of evaders in the population and the amount of tax evasion when countries accumulate capital. The model predicts that the level of tax morale is positively correlated with both types of income tax evasion and the level of income per capita, consistent with recent empirical evidence. Finally, a higher tax rate increases the share of evaders in the population and aggregate tax evasion.     

Macroeconomic effects of family business inheritance tax reduction: Evidence from South Korea

This study examines the macroeconomic effects of family business inheritance tax reduction in South Korea using a theoretical model that addresses the problem of a family member's occupational choice decision between being a worker and being an entrepreneur. In contrast with previous studies, the model considers the distribution of firm size. The effect of the reduction in the family business inheritance tax rate on the macroeconomy is positive in this model, whereas it is negative in a model in the literature that does not consider the distribution of firm size when addressing the occupational choice decision. Calibrated results obtained using data for South Korea show that a 50% reduction in the family business inheritance tax rate increases the total labour demand, total real investment, and total sales by 0.13%, 1.88%, and 0.15%, respectively.     

Upstream and downstream pollution taxations in vertically related markets with imperfect competition

When two markets are vertically related, the government can control pollution at the upstream as well as the downstream market levels. This paper employs the stylized model of input price discrimination and compares the effectiveness of upstream and downstream pollution taxations. We consider the situation in which downstream firms have heterogeneous abatement technologies and an upstream monopolist performs input price discrimination against them. In order to mitigate pollution, the government imposes input tax on the intermediate inputs and emission tax on the pollutant. We show that the degree of input price discrimination decreases with a rise in the input tax and increases with a rise in the emission tax. We further examine the effect of a green tax reform in which the government changes the source of taxation from input tax to emission tax. We argue that although this green tax reform may reduce the tax revenue of the government, it will certainly increase social welfare.