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     

Can Capital Income Taxes Survive? And Should They?

The article surveys some main results in the theory of capitalincome taxation in the open economy; reviews recent trends ininternational taxation and discusses alternative blueprintsfor fundamental capital income tax reform from the perspectiveof an open economy faced with growing mobility of capital incometax bases. (JEL code: H21, H25)     

含有负所得税的最优所得税再研究

文章在借鉴已有最优线性和非线性所得税研究成果基础上,结合中国国情提出含有负所得税的最优非线性所得税模型(有缓冲地带),即修正的Mirrlees税收函数,进而得出一些与以往研究不同的结论,从而进一步发展和充实了最优所得税理论。这对于在目前我国日益扩大的收入分配差距尚未根本性扭转的背景下重新审视我国现有的税收政策,通过实施负所得税制度重构收入分配政策具有重要的参考价值和借鉴意义。     

现行税制对劳动力供给影响的理论与实证分析

税收对劳动力供给的影响取决于征税后收入效应与替代效应的对比.然而,不同收入水平的国家以及不同税制结构下所产生的收入效应与替代效应存在一定差异.本文从理论与实证相结合的角度,运用OLS方法,分析了在以商品劳务税为主体的税制结构下,中国现行税制对劳动力供给的影响,认为对劳动所得征税会产生收入效应大于替代效应的结果,最后提出了缓解劳动供求结构性矛盾的税制改革取向.     

构建和谐社会的税收政策研究--以公平收入分配为视角

中国居民收入差距的现状令人堪忧,应遵循“公平优先、兼顾效率”的新财税理念,构建公平居民收入分配的税收对策:转变财税理念,调整税收政策和制度,推进个人所得税征管制度改革。     

Bargaining frictions, labor income taxation, and economic performance

This paper is an attempt to explain differences in economic performance between a subset of OECD countries. We classify countries in terms of their degree of rigidity in the labor market, and use a matching model with labor/leisure choice, bargaining frictions, and labor income taxation to capture these rigidity differences. Added flexibility improves economic performance in different ways depending on whether income taxation is high or low. Feeding income taxation rates estimated from the countries at hand, we find that the model is able to replicate the observed rigidity levels. The model is also shown to reproduce well cross-country differences in non-employment population ratios and the share of part-time jobs. In the absence of rigidity differences, taxation shows little promise to replicate cross-country differences, as it has insufficient quantitative effects on production and productivity. However, the interaction of rigidity and income taxation is crucial in explaining the empirical patterns of the non-employment rate and of the share of part-time jobs.     

Household Taxation, Income Splitting and Labor Supply Incentives - A Microsimulation Study for Germany

We analyze potential labor supply effects of a shift from thecurrent German system of joint taxation of married couples toa system of limited real income splitting on the basis of aneconometric household labor supply model embedded in a tax benefitmodel. Our simulation results show relatively small labor supplyeffects of a shift from the current system to one of limitedreal income splitting system. In the benchmark scenario of ashift to separate taxation labor supply of wives would increasesubstantially in west Germany, while a significant number ofhusbands would drop out of the labor force. (JEL H31, H24, J22)     

On the undesirability of commodity taxation even when income taxation is not optimal

An important result due to Atkinson and Stiglitz (1976) [Atkinson, A.B., Stiglitz, J.E., 1976. The design of tax structure: Direct versus indirect taxation. Journal of Public Economics 6, 55–75.] is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weak separability of utility between labor and all consumption goods). This article demonstrates that this conclusion holds regardless of whether the income tax is optimal. In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in a manner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement. In addition, for commodity tax reforms that neither eliminate nor proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible.     

Tax policy in the presence of emigration

This paper investigates the relationship between utilitarianism and horizontal equity in models of income taxation in particular and self-selection in general. An example involving well-behaved individual preferences is constructed in which a maximization of a utilitarian social welfare function leads via income taxation to horizontal inequities. Sufficient conditions for utilitarianism to bring horizontal equity are derived. The results are applied to the question of whether income tax credits are an appropriate way to treat differences in family size.     

THE WELFARE GAINS OF AGE‐RELATED OPTIMAL INCOME TAXATION

Using an overlapping generations model with skill uncertainty and private savings, we quantify the gains of age‐dependent labor income taxation. The total steady‐state welfare gain of switching from age‐independent to age‐dependent nonlinear taxation varies between 2.4% and 4% of GDP. Part of the gain descends from relaxing incentive–compatibility constraints and part is due to capital‐accumulation effects. The welfare gain is of about the same magnitude as that which can be achieved by moving from linear to nonlinear income taxation. Finally, the welfare loss from tax‐exempting interest income is negligible under an optimal age‐dependent labor income tax.     

The Dynamics of Exclusion and Fiscal Conservatism

This paper studies the impact of income inequality on fiscal conservatism when an increase in inequality essentially affects the bottom of the income distribution. It is argued that, contrary to what is generally assumed in the economic literature, inequality will then be associated with less, rather than more, redistributive taxation. Furthermore, if the poor are liquidity constrained then the positive association between inequality and fiscal conservatism will increase the persistence in the dynamics of income distribution and possibly lead to multiple steady states. Journal of Economic Literature Classification Numbers: E62, H2, H3, J24, J62, O15.     

Union Wage Setting and Capital Income Taxation in Dynamic General Equilibrium

This paper concerns the effects of capital income taxation in a dynamic general equilibrium framework with union wage setting, when households face taxes related to both labor and capital. One purpose is to characterize the general equilibrium solution. Another is to study the effects of increased capital income taxation – in terms of the responses in real wages, employment, capital stock, output and consumption – and relate these behavioral responses to the overall tax structure. We also derive a cost–benefit rule for the purpose of analyzing the welfare effects of a small shift from labor income taxation to capital income taxation.     

Optimal Taxation with a Trade-off Between Income and Children

This paper explores the implications of endogenous fertility for optimal redistributive taxation in the presence of a trade-off between labour income and children. The labour supply is a decreasing function of the desired quantity and quality of children. Since children enter into the parent's budget constraint in a nonlinear form, their shadow prices are directly distorted by the income tax rate. It is shown that the substitution effects of the income tax rate on the quantity and quality of children cannot be signed uniquely although the effect on labour supply is negative. The aggregate substitution effect of the income tax rate on the quantity of children plays an important role in the determination of the signs of the income tax and child subsidy rates at a Rawlsian or Benthamite social welfare optimum.
JEL Classification Numbers: H21, J13, J22     

Withholding taxes or information exchange: the taxation of international interest flows

This paper considers withholding taxes and information exchange as alternative means to tax international interest income. For each regime, we consider the maximum level of taxation of foreign-source income that can be sustained as the equilibrium of a repeated game. The best regime is the one that brings the level of taxation in the repeated game closest to the cooperative level of interest taxation. Sustainable levels of taxation in either regime depend on the importance of bank profits and on the marginal cost of public funds, among other things. Simulations with the model illustrate the choice between withholding taxes and information exchange. An explicit possibility is the emergence of a mixed regime, with one country imposing a withholding tax and the other country providing information. The basic model is extended to allow for size differences between the two countries and to incorporate a third, outside country.     

Optimum taxation with errors in administration

The paper compares the welfare levels which can be achieved by two distinct tax regimes: lump-sum taxation, where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics, and income taxation, where characteristics are not observed but personal incomes are measured and taxed. Where there are no errors in classifying individuals, lump-sum taxation is superior, but, where mistakes are made in the allocation of lump-sum grants or subsidies, income taxation may be more attractive. The level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of Feldstein (1973). Where there is strong aversion to inequality, then income taxation becomes preferable at quite small errors.In analysing income taxation it is shown that in the Feldstein model with endogenous wages the marginal tax rate (in optimum income taxation) on the more skilled is negative and that on the less skilled is positive in contrast to the standard results [see Seade (1977)] with exogenous wages.     

Redistributive policy,inequality and growth

Does redistribution increase inequality? Is inequality harmful for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and inherited wealth can be taxed at different rates. In the model, parents accumulate human capital and a return-bearing, storable good in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth while taxation of inherited stocks increases growth. Effects of both taxes on income inequality are ambiguous. A switch from income to inheritance taxation may increase average utility of all generations involved. I calculate a structure-induced equilibrium of the political process by means of a stochastic simulation of the model. In the short run initial wealth-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmful for growth.     

Taxation of capital income in overlapping generations economies

Whether capital income should be taxed in overlapping generations economies is vividly discussed. It is shown that intergenerational lump‐sum taxes cannot implement the Golden Rule allocation when agents have private information on their earnings potential. Hence, the seminal Atkinson–Stiglitz result that optimal income taxation pre‐empts any role for indirect taxation cannot be interpreted to imply that capital income taxation (affecting intertemporal relative prices) should not be taxed. Specifically, capital income should unambiguously be taxed in small open economies, and the optimal tax rate depends inversely on the elasticity of total savings to disposable income and the after‐tax rate of return.     

Public goods provision and redistributive taxation

This paper studies the relationship between redistributive taxation and tax-deductible charitable contributions. Redistribution has two opposite effects on voluntary giving. The price of charitable giving decreases with the degree of redistribution, and this has a positive effect on the total amount of giving (substitution effect). However, redistribution leads to lower consumption for the contributors and therefore has a negative effect on contributions to the charity (income effect). The theoretical model developed in this paper demonstrates that, under a general class of utility functions, the substitution effect dominates the income effect. Hence, charitable giving increases with the tax rate. In purely egalitarian societies, the public good is provided efficiently and the total welfare is maximized independent of the ex-ante income inequality. However, the positive impact of taxation on charitable giving and welfare may disappear if individuals generate their income levels in anticipation of taxation and redistribution does not take into account the cost of effort.     

Migration and optimal income taxes

The issue addressed in this paper is the optimal taxation of incomes earned in the home economy, and of incomes earned abroad, when people can migrate. As a preliminary, the optimal taxation of home incomes when there is migration and no taxation of foreign incomes, is discussed. Then in a more general setting, we deal with optimal taxation of different kinds of labour when another kind of labour is not taxable, and show how this bears on the taxation of foreign incomes. The last sections of the paper analyse a simple model in which people choose between taxable labour at home, taxable labour abroad, and untaxable labour. A condition is found implying that the optimal tax on foreign income is higher than on the home income of a person of equal utility.     

New evidence on taxes and portfolio choice

Identifying the effect of differential taxation on portfolio allocation requires exogenous variation in marginal tax rates. Marginal tax rates vary with income, but income surely affects portfolio choice directly. In systems of individual taxation – like Canada's – couples with the same household income can face different effective tax rates on capital income when labor income is distributed differently within households. Using this source of variation we find portfolio responses to taxation among more affluent households. The estimated effects are statistically significant but economically modest. In a “placebo” test, using data from the U.S. (which has joint taxation), we find no effect of the intra-household distribution of labor income on portfolios.