Trade in trash: A political economy approach

We study how the opportunity to trade in trash might influence the equilibrium outcome when the tax on the externality is determined by a political economy process. In our model, individuals have heterogeneous preferences for environmental quality, and there is a wastage of real resources when funds are transferred from the pressure groups to the politicians. When hard-core environmentalists and capitalists are organized interest groups while moderate environmentalists are not organized, we find that the politically chosen tax on the externality is below the optimal Pigouvian level. The opportunity to export waste in unlimited quantities, but at a price, is not the environmentalists’ panacea and does not eliminate political social tension and suboptimal results.     

Federal tax policies,congressional voting and natural resources

Can abundance of natural resources affect legislators' voting behaviour over federal tax policies? We construct a political economy model of a federalized economy with district heterogeneity in natural resource abundance. The model shows that representatives of natural resource‐rich districts are more (less) willing to vote in favour of federal tax increases (decreases). This occurs because resource‐rich districts are less responsive to federal tax changes due to the immobile nature of their natural resources. We test the model's predictions using data on roll‐call votes in the US House of Representatives over the major federal tax bills initiated during the period of 1945–2003, in conjunction with the presence of active giant oil fields in US congressional districts. Our identification strategy rests on plausibly exogenous giant oil field discoveries and exploitation and narrative‐based aggregate federal tax shocks that are exogenous to individual congressional districts and legislators. We find that: (i) resource‐rich congressional districts are less responsive to changes in federal taxes and (ii) representatives of resource‐rich congressional districts are more (less) supportive of federal tax increases (decreases), controlling for legislator, congressional district and state indicators. Our results indicate that resource richness is approximately half as dominant as the main determinant, namely party affiliation, in driving legislators' voting behaviour over federal tax policies.     

Income Taxation Rules and Stability of a Small Open Economy

This paper examines the stability of a small open economy under alternative income taxation rules. Using a one-sector real business cycle model with external increasing returns, we show that if the income tax schedule is linear, the small open economy will not generate equilibrium indeterminacy, but it exhibits a diverging behavior under certain conditions. In this case, an appropriate choice of nonlinear tax on the factor income may recover the saddle-point stability. We also reveal that if the taxation on the interest income on financial assets is regressive, then the small open economy may exhibit equilibrium indeterminacy. In this situation, a progressive tax rule on the interest income can contribute to eliminating sunspot-driven fluctuations.     

Voting about immigration policy: What does the Swiss experience tell us?

This paper draws on Swiss direct democracy to review the Swiss experience with immigration, which has been shaped strongly by regular voting on immigration policies. Relying on two unique post-vote data-sets on how Swiss citizens voted on initiatives directed at containing the proportion of foreigners in the population, we improve on past empirical evidence by by-passing the problem of “hypothetical bias” present in the analysis of conventional survey data. Controlling for the participation bias due to non-mandatory voting, we find evidence that the hypothetical bias hampering pre-vote surveys may be large but that turnout does not have a decisive influence on the outcome of a vote. Confirming political–economy predictions, education matters in the shaping of immigration preferences but non-economic arguments also play an important role.     

Electoral and welfare consequences of political manipulation of the economy

This paper examines the long-term electoral and welfare consequences of repeated strategies whereby a political office-holder induces cycles in economic variables to maximize his chances of re-election. Unlike other studies of political business cycles, we focus on questions of the desirability of these cyclical patterns and on the long-run properties of these political economic models. Noting that the welfare costs of vote maximizing in a single term extend beyond that term, we examine in detail the properties of the ‘long-run equilibrium path’ to which such cycles converge. If the economy starts above this path, vote maximizing can lead to increased social welfare and vote margins. However, if the economy starts below this path, vote-maximizing in the present can cause reduced votes and electocal defeat in subsequent terms. This possibility should lead a far-sighted, enlightened politician or political party to eschew vote-maximizing tactics and the political business cycles which accompany them and thus canhelp explain why empirical studies have not found convincing evidence of the existence of such cycles. This paper also quantifies the dependence of this long-run equilibrium path on the important political and economic parameters of the model.     

间接税负担对收入分配的影响分析

本文利用城市住户调查资料考察了中国增值税、消费税和营业税这三项主要的间接税在不同收入群体的负担情况。我们的研究表明 ,低收入家庭收入中负担增值税和消费税的比例大于高收入家庭 ,但高收入家庭收入中负担营业税的比例大于低收入家庭。整个间接税是接近成比例负担的。间接税恶化了收入分配 ,但并不显著     

Tax buoyancy in OECD countries: New empirical evidence

A renewed interest in the link between business cycle and tax revenues has recently emerged, especially during economic crises. In this paper, we provide an empirical analysis on 35 OECD countries over the period 1995–2016 to estimate both short-run and long-run tax buoyancies, taking into account the macroeconomic framework, changes in governments’ tax policies, budgetary and political variables possibly affecting how taxes react to GDP fluctuations. By adopting the dynamic common correlated effects estimator, we find that both short- and long-run tax responses are lower than those reported in previous cross-country studies. We suggest that this slightly lower than expected reaction of tax revenue can be interpreted as a reduced power of both automatic stabilization in the short-run and fiscal sustainability in the long-run. Results are robust to possible endogeneity issues between tax revenues and business cycles.     

Optimal democratic mechanisms for taxation and public good provision

We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases.     

ON THE POLITICAL ECONOMY OF IMMIGRATION AND INCOME REDISTRIBUTION*

In this article, we analyze an economy in which agents vote over immigration policy and redistributive tax policy. We show that natives' preferences over immigration are influenced by the prospect that immigrants will be voting over future tax policy. We also show that changes in the degree of international capital mobility, the distribution of initial capital among natives, the wealth or poverty of the immigrant pool, and the future voting rights and entitlements of immigrants can have dramatic effects on equilibrium immigration and tax policies. Finally, we provide some empirical support for the model's predictions.     

Income segregation and local progressive taxation: Empirical evidence from Switzerland

This study investigates spatial income segregation in fiscally decentralized urban areas. The theoretical part proposes the progressivity of local income taxes as a new theoretical explanation for income segregation. The empirical part studies how income tax differentials across municipalities affect the households' location decisions. I use data from the Swiss metropolitan area of Basel that contains tax information on all moving households in 1997. The location choice of the households is investigated within the framework of the random utility maximization model. Different econometric specifications of the error term structure, such as conditional logit, nested logit and multinomial probit, are compared. The empirical results show that rich households are significantly and substantially more likely to move to low-tax municipalities than poor households. This result holds after controlling for alternative explanations of segregation. Social interactions and distance from the central business district are established as other major factors for income segregation. Households in general tend to choose locations close to other households like themselves.     

The impact of corporate and personal income taxes on the location of firms and on employment: some panel evidence for the Swiss cantons

The impact of corporate income taxes on location decisions of firms is widely debated in the tax competition literature. Tax rate differences across jurisdictions may lead to distortions of firms’ investment decisions. Empirical evidence on tax-induced relocation and subsequent economic development in the US and Europe is still inconclusive. Much the same applies to Switzerland. While there is some evidence on personal income tax competition between Swiss cantons, evidence on the impact of intercantonal corporate income tax differences on the location of business within Switzerland is missing. In this paper, we present econometric evidence on the influence of corporate and personal income taxes on the regional distribution of firms in 1981 and 1991 and on cantonal employment using a panel data set of the 26 Swiss cantons from 1985 to 1997. The results show that corporate and personal income taxes deter firms to locate in a canton and subsequently reduce cantonal employment.     

利息税存废的经济学分析

开征储蓄存款利息税可起到了一定的刺激消费、抑制居民储蓄存款的作用,但征税后对消费和储蓄的总效应为消费减少而储蓄增加。这是利息税对储蓄的收入效应和替代效应在中国具体的市场经济环境中综合作用的结果。为此,政府应采取措施改善居民对未来收支的预期,制定配套保障体系和税收政策,加快建设高效资本市场的步伐,引导一部分储蓄存款进入证券投资领域,合理调整居民消费和投资结构。     

The German Business Tax Reform of 2000: A General Equilibrium Analysis

In the year 2000 Germany enacted a major tax reform involving significant cuts in corporate and personal tax rates and a controversial change in the system of dividend taxation. This paper discusses the effects of the business tax reform on the German economy. The analysis is based on a detailed general equilibrium model of the OECD economy which is designed to illustrate the domestic and international effects of national tax policies. The simulations indicate that the German business tax reform will raise domestic economic activity and welfare, although the welfare gain will accrue disproportionately to households with a high ratio of property income to total income.     

Dynamic legislative decision making when interest groups control the agenda

We consider dynamic decision making in a legislature, in which in each period legislators vote between the status quo (previous period?s policy) and a new bill. However, the agenda formation process is captured by interest groups, that is, the new bill on the agenda is determined by an all-pay auction among these groups. We show that convergence to the median voter of the legislature arises if interest groups are patient enough but not necessarily otherwise. We characterize the bound on the speed of convergence in a family of stationary equilibria in which policy bounces between right-wing and left-wing policies. We also show that convergence may be faster if organized interest groups represent only one side of the policy space, e.g., when only business and not consumer interests are organized.     

Tax system and informal economy: a cross-country analysis

This article analyses determinants of informal economy. By using qualitative aspects of tax systems, first, we create a ‘Smithian’ tax system index based on Adam Smith’s four maxims. Then, using this index and other control variables, we study determinants of informal economy. We use unique panel data set that is constructed by using various sources. After taking into account the endogeneity of tax burden and GDP per capita, our results show that ‘Smithian’ tax system index does not significantly affect informal economy. Our results suggest that rule of law, complexity of a tax system and tax burden affect informal economy negatively, while labour market regulations affect positively.     

不完全市场、不确定性和中国利息税

通过建立具有利息税的不完全市场一般均衡模型对中国均衡利率和均衡资本进行分析,我们可以看到,利息税使得储蓄更低而利率更高。但是,流动性约束和预防性储蓄等不完全市场因素的存在使得资本供给曲线显著向右移动,导致储蓄增高。因此,当我们评价利息税对经济的影响的时候,必须考虑流动性约束和预防性储蓄的逆向作用。     

The Political Economy of the (Weak) Enforcement of Indirect Taxes

The objective of this paper is to understand the determinants of the enforcement level of indirect taxation in a positive setting. We build a sequential game where individuals, who differ in their willingness to pay for a taxed good, vote over the enforcement level. Firms then compete à la Cournot and choose the fraction of sales taxes to evade. We assume in most of the paper that the tax rate is set exogenously. Voters face the following trade‐off: more enforcement not only increases tax collection but also increases the consumer price of the goods sold in an imperfectly competitive market. We obtain that the equilibrium enforcement level is the one most preferred by the individual with the median willingness to pay, that it is not affected by the structure of the market (number of firms) and the firms’ marginal cost, and that it decreases with the resource cost of evasion and with the tax rate. We also compare the enforcement level chosen by majority voting with the utilitarian level. In the last section, we endogenize the tax rate by assuming that individuals vote simultaneously over tax rate and enforcement level. We prove the existence of a Condorcet winner and show that it entails full enforcement (i.e., no tax evasion at equilibrium). The existence of markets with less than full enforcement then depends crucially on the fact that tax rates are not tailored to each market individually.     

The Structural Power of Business and the Power of Ideas: The Strange Case of the Australian Mining Tax

In 2010 the Australian federal government fought and lost an intense and very public battle with the country's mining industry over the introduction of a new ‘super-profits’ tax. The proposed tax was withdrawn and the Prime Minister, Kevin Rudd, was removed from office. Why did the government lose this battle and what can this episode tell us about the nature and determinants of business power? We argue that business power is not an objective condition but is shaped subjectively and inter-subjectively. What counts in the power equation is not whether business investment is essential for growth or whether business will disinvest if a new tax is imposed, but whether actors believe this to be the case. One reason why the structural power of business varies is because actors’ normative and causal ideas about the value and determinants of business investment vary. In the Australian case ministers did not believe that the introduction of a new tax would jeopardise investment. Ministers did however come to believe that the mining industry had successfully persuaded a large number of voters that the introduction of a new tax would jeopardise investment, employment and growth. This is why the tax was eventually abandoned.     

A second chance at success: A political economy perspective

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.     

A general proposition on the design of a neutral business tax

A simple and general means of levying a business tax that is ‘neutral’ in the sense that it does not affect the firm's decisions at the margin is discussed. In particular, we analyze the effect of a business tax of our design on the investment decision of the firm. The well-known ‘imputed income’ and ‘immediate write-off’ methods of levying a neutral business tax are found to be special cases of our general tax design. The implication of our results is that a neutral ‘pure profits’ tax can be levied without the informational difficulties of the imputed income method or the cash flow disadvantages of the immediate write-off method.