Optimal income taxation and migration

We tackle the issue of optimal dynamic taxation of capital income in an economy with disconnection as in Weil (J Public Econ 38:183–198, 1989), generated by migration and intra-family altruism. We show that, when the government aims at correcting such a disconnection using time-varying weights in the social welfare function, then there is room for nonzero capital income taxation, both in the short and in the long run.     

Optimal taxation and top incomes

In many high-income countries over the past three decades there has been both large growth in inequality of wages and income and a shift in the burden of taxation from the top to the middle of the income distribution. A literature has developed which focuses on optimal tax rates for the top 1 % of the income distribution. In contrast, this paper considers the effect of inequality growth on the structure of a piecewise linear tax system defined over the entire income distribution. Our results suggest that the appropriate response to the increases in inequality would have been a shift towards a tax system with a lower tax rate in the lower half of the distribution together with a highly marginal rate progressive structure in the upper half, a clear differentiation between the top 10 % and the top 1 % and a higher top tax rate. Further inequality growth strengthens these characteristics of the optimal tax structure.     

Optimal taxation and OECD labor taxes

We derive simple expressions for optimal labor taxes under different assumptions about government bond markets. We use these to examine OECD labor taxes, estimate the excess burden of taxation and assess the ability of optimal tax models to match the data.Optimal labor taxes are driven by: (i) a term reflecting Ramsey considerations which makes labor taxes vary positively with employment and (ii) a martingale component, reflecting the excess burden of tax, which shows persistent responses to shocks to the government's intertemporal budget constraint. Under complete markets (when governments can issue a full set of contingent securities) only the first factor is relevant. We find substantial evidence that incorporating incomplete markets into the optimal taxation model is critical for empirical success. However, we find strongest support for the martingale component and only weak evidence for the Ramsey component.     

Optimal taxation with home production

Optimal taxes for Europe and the U.S. are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services. The optimal tax rate on services is substantially lower than the tax rate on goods. Specifically, the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production. The optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large.     

Optimal taxation with monopolistic competition

This paper studies optimal taxation in a Dixit–Stiglitz model of monopolistic competition. In this setting, taxes may be used as an instrument to offset distortions caused by producer markups. Since markups tend to be higher in industries where firms face less elastic demand, tax rates will be pushed lower in these industries. This tends to work against the familiar inverse elasticities intuition associated with the Ramsey tax rule. However, a key feature of the model is that the Ramsey rule responds to the industry demand curve (Chamberlin’s DD) while the monopolistic markup is a response to the demand curve faced by firms (Chamberlin’s dd). Hence, the elasticities of both these curves influence the optimal tax rate, but in opposite directions.     

Optimal commodity taxation with duty-free shopping

International travellers are frequently offered the opportunity to purchase a certain quantity of goods duty-free. Individuals differ in their opportunities to benefit from duty-free shopping, and we focus on the implications of these differences for optimal commodity taxation within a version of the optimal tax model of Mirrlees (Review of Economic Studies, 38, 175–208, 1971). We show how duty-free alters the constraints on the use of commodity taxes to reduce the distortionary costs of income taxation or to reflect externalities. Beyond characterising optimal taxes in the duty-free regime, we discuss conditions under which allowing duty-free would increase or reduce social welfare.      

Scrutinizing local public service provision

Set in the context of an expansion of scrutiny by local authorities of local service provision, this article explores the key challenges ahead for managers and politicians in this area of local governance. Drawing on an evaluation of the development of health scrutiny, it outlines the different types of activities health scrutiny committees are engaging in to fulfil their legislative commitments and suggests lessons for the expansion of external scrutiny.     

Optimal capital structure under corporate and personal taxation

In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium relative prices of debt and equity. The presence of corporate tax shield substitutes for debt such as accounting depreciation, depletion allowances, and investment tax credits is shown to imply a market equilibrium in which each firm has a unique interior optimum leverage decision (with or without leverage-related costs). The optimal leverage model yields a number of interesting predictions regarding cross-sectional and time-series properties of firms' capital structures. Extant evidence bearing on these predictions is examined.     

Optimal taxation in the presence of bailouts

The termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs. A government in the tradition of Ramsey (1927) may be inclined to provide transfers to the firm so as to prevent its liquidation and the associated deadweight costs. It is shown that the optimal taxation policy to finance such transfers exhibits procyclicality and history dependence, even in a complete market. These results are in contrast with pre-existing literature on optimal fiscal policy, and are driven by the endogeneity of the transfer payments that are required to salvage the financial firm.     

Decentralized provision of disaster aid: aid fragmentation and the poverty implications

International Tax and Public Finance - Despite large-scale humanitarian aid, the headcount poverty rate continued to rise after the 2004 Indian Ocean tsunami in Indonesia. Drawing on the unique...     

Optimal factor and commodity taxation in a small open economy

A two-sector trade model with specific factors and perfect international capital mobility is used to analyze the optimal mix of factor and commodity taxation in a small open economy that faces domestic or international constraints on its tax instruments. In the unconstrained benchmark case, the small country will tax specific factors and domestic consumption but chooses zero tax rates for a selective production tax (i.e., an origin-based commodity tax) and a source-based tax on capital income. When commodity taxation must follow a combination of origin and destination principles, then this mixed commodity tax rate will be positive and its production effects are partly compensated in the optimum by a capital subsidy. These international restrictions interact with domestic constraints when rents accruing to fixed factors cannot be taxed by a separate instrument, and a positive tax rate on capital serves as an indirect way of rent taxation.     

Optimal inflation persistence: Ramsey taxation with capital and habits

Ramsey models of fiscal and monetary policy featuring time-separable preferences and a fixed supply of capital predict highly volatile inflation with no serial correlation. In this paper, we show that an otherwise-standard Ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation. The result depends on increases in either the ability to smooth consumption or the preference for doing so. The effect operates through the Fisher relationship: a smoother profile of consumption implies a more persistent real interest rate, which in turn implies persistent optimal inflation. Our work complements a recent strand of the Ramsey literature based on models with nominal rigidities. In these latter models, inflation volatility is lower than in the baseline model but continues to exhibit little persistence. We quantify the effects of habit and capital on inflation persistence and also relate our findings to recent work on optimal fiscal policy with incomplete markets.     

Optimal income taxation and social norms in the labor market

This paper concerns optimal income taxation in a two-type model extended to allow for social interaction and social norms in the labor market. One norm refers to “normal behavior” with respect to work hours (the hours of work norm), whereas another means that “one should earn one’s living by working” (the participation norm). The results show how the hours of work norm gives rise to a corrective motive for using income taxation. We also show how the interaction between the hours of work norm and the private incentive to participate in the labor market (which reflects the participation norm) gives rise to an employment motive for using the income tax.     

Optimal taxation and redistribution in an OLG model with unemployment

This paper concerns redistribution via nonlinear income taxation in an overlapping generations model with two ability-types. We assume that the wage rates are determined by bargaining between unions and firms, meaning that the equilibrium is characterized by involuntary unemployment. We show that the policy instruments that are used to calculate the marginal labor income tax rate for each ability-type give rise to intertemporal tax base effects. In addition, since the relationship between the employment and the capital stock implies intertemporal production inefficiency at the second best optimum, imperfect competition in the labor market may itself justify capital income taxation.      

Optimal taxation and welfare benefits with monitoring of job search

In order to investigate the interaction between tax policy, welfare benefits, the government technology for monitoring and sanctioning inadequate search, workfare, and externalities from work, we incorporate endogenous job search and involuntary unemployment into a model of optimal nonlinear income taxation. In this setting, the government faces a trade-off between boosting employment of low-skilled agents and raising work effort of high-skilled workers. If sanctions for inadequate search effort can be targeted at high productivity types for whom it is socially optimal to search, the government can afford to levy higher labor taxes on marginal workers without discouraging these agents from seeking work. This allows for lower marginal taxes on work effort of agents with a job. In contrast to workfare, job externalities in the private sector raise marginal tax rates, as the government attaches more importance to boosting employment of low-skilled workers.     

世行：反贫困进展依然强劲

世界银行说，改进后的经济估算显示全世界的贫困人口人数超过早先估算，同时显示战胜极度贫困的斗争取得巨大成功。     

Lotteries, public good provision and the degree of rivalry

Under the standard summation technology, pure public goods can be provided via the direct contributions mechanism, even in an arbitrarily large group. However, if the public good exhibits any degree of rivalry, individual consumption of the public good will fall to zero as group size grows large. Thus, the direct contributions mechanism is not robust to the introduction of rivalry. By contrast, Morgan’s (Review of Economic Studies 67:761–784, 2000) lottery mechanism is robust to the introduction of rivalry when the lottery prize is proportional to group size. The lottery mechanism can provide public goods in a large group when the public good exhibits a degree of rivalry, provided that the degree of rivalry is not too high. This suggests that the lottery mechanism can provide a broader range of public goods in a large group than the direct contributions mechanism.     

Free trade taxation and protectionist taxation

The goal of this paper is to seek new insight regarding international tax policy by recasting it in parallel with the theory of international trade. This is accomplished by defining a free trade taxation regime as one that is consistent with an efficient worldwide allocation of capital, and evaluating within this perspective various aspects of tax policy, such as value-added (axes, integration, income shifting, and the choice of worldwide or territorial system of taxes.Compatibility with free trade is not the only standard against which to judge an international tax system. Nevertheless, as national economies become more integrated the importance of international taxation for the efficient functioning of capital markets will become a central policy issue.