Individual welfare,social deprivation and income taxation

Summary. In a homogeneous framework where individuals can only be distinguished on the basis of their incomes, we examine the incidence of taxation on the amount of deprivation felt in the society. We conceive deprivation in terms of utility or well-being rather than just in terms of income and we measure it by comparing the deprivation profiles arising in the different situations. We identify the restrictions to be imposed on the utility function which guarantee that a more progressive system of taxes always results in less social deprivation. We show that, in general, it is not possible to get an equivalence and realize a social improvement in terms of social deprivation by substituting a more progressive system of taxes for a less progressive one. Received: September 20, 1999; revised version: March 6, 2002 RID="*" ID="*" This paper forms part of the research programme of the TMR network Living Standards, Inequality and Taxation [Contract No. ERBFMRXCT 980248] of the European Communities whose financial support is gratefully acknowledged. Chakravarty wishes to express his sincere gratitude to the French Ministry of Education for financing his stay at DELTA during which this paper was written. The authors would like to thank Stephen Bazen, Nicolas Gravel and an anonymous referee, whose comments have helped to improve the paper, but they retain sole responsibility for remaining deficiencies. Correspondence to: P. Moyes     

Capital income taxation,tax criteria,and intergenerational welfare

In a two-period overlapping-generations model, residence criteria are shown to be optimal with lump-sum transfers to the younger generation in a dynamically efficient open economy even if all wage income, corresponding to rent income under exogenous labor supply, is not taxed away. When tax revenues are also distributed to the older generation — which indeed may be desirable for short-term intergenerational welfare distribution reasons — a weighted average rule is derived for optimal international taxation. The taxation of domestic savings income follows the inverse elasticity rule in respect to savings and, surprisingly, higher investment elasticity increases the tax level. Finally, for a small open economy and for large identical economies, tax competition with a mixed scheme of residence-based taxes and source-based subsidies yields the same tax policy as tax cooperation with no restrictions on the domestic and international capital income tax instruments.     

The optimal linear income tax revisited

This paper shows that the Mirrlees-Seade conditions of agent monotonicity and noninferiority of leisure imply the positivity of the optimal marginal income tax rate in Sheshinski's model of linear income taxation as well as in the general model. The optimal marginal tax rate is bounded above by the Rawlsian rate, which in turn is bounded by the revenue-maximizing rate. The optimal marginal tax rate may be arbitrarily close to the Rawlsian rate. However, the optimal marginal tax rate is bounded away from the revenue-maximizing rate whenever the individual with the lowest ability works.     

The optimal linear income tax with tax credits contingent on fertility

The literature on the optimal linear income tax is extended by incorporating tax credits contingent on the number of dependents the taxpayer is responsible for. The choice over how many dependents to be responsible for is made endogenous by allowing taxpayers a choice over their own fertility. Formulae are derived governing the government's optimal choice of the labor income tax rate and the tax credit contingent on fertility. It is also shown that if the government chooses its policy based on the belief that fertility behavior is exogenous when it is actually endogenous, then a suboptimal policy will be chosen. If certain conditions are fulfilled the government will choose a labor income tax rate lower than that which is actually optimal.     

Evaluating social welfare and redistributive effects of Spanish personal income tax reform

Spain has recently concluded a process of wide-ranging reform of its personal income tax (IRPF), in force since 1992. The new IRPF is applicable from 1999 onward. The aim of this article is to analyse the implications of this tax reform for the distribution of personal income, and additionally to provide a comparative evaluation in terms of social welfare of both taxes. Empirical analysis is performed by a simulation exercise, employing the microdata contained in the Institute of Fiscal Studies’?IRPF Panel of Taxpayers. The analysis shows that the new IRPF induces a redistributive effect slightly lower than the old IRPF. The greater redistributive potential of the progressive structure of the new tax proves to be insufficient to compensate for the contrary effect caused by reduction in the level of tax liability. However, this new tax unambigously permits, in an inequality-adverse society, a higher level of social welfare than that attained by the old tax.     

The effect of potential emigration on the optimal linear income tax

This paper amends a standard model of optimal linear income taxation to allow individuals to escape taxation by migrating. The income tax is used only to redistribute income in this model. It is found that, if individuals with low and high ability levels are prevented from migrating, then the optimal marginal tax and poll subsidy increase. But preventing migration at ability levels in some intermediate interval lowers the optimal marginal tax.     

Tax incidence,majority voting and capital market integration

We re-examine, from a political economy perspective, the standard view that higher capital mobility results in lower capital taxes — a view, in fact, that is not confirmed by the available empirical evidence. We show that when a small economy is opened to capital mobility, the change of incidence of a tax on capital–from capital owners to owners of the immobile factor–may interact in such a way with political decision-making so as to cause a rise in the equilibrium tax. This can happen whether or not the immobile factor (labour) can be taxed, and whether or not savings can be subsided under capital mobility.     

The optimal linear income tax: A diagrammatic analysis

This paper clarifies the role of the tax possibility frontier and the social indifference curve in the comparative statics analysis of the optimal linear income tax. By a mostly diagrammatic derivation of the results we confirm the conventional conjecture that the optimal marginal tax rate increases with the government's inequality aversion. On the other hand, we cannot always confirm analytically the conventional conjecture that the optimal marginal tax rate increases with the government's budgetary needs.     

Multistage public education,voting, and income distribution

This paper proposes a theory to study the formulation of education policies and human capital accumulation. The government collects income taxes and allocates tax revenue to primary and higher education. The tax rate and the allocation rule are both endogenously determined through majority voting. The tax rate is kept at a low level, and public funding for higher education is not supported unless the majority of individuals have human capital above some threshold. Although public support for higher education promotes aggregate human capital accumulation, it may create long-run income inequality because the poor are excluded from higher education.     

Cooperation,stability and social welfare under majority rule

We resolve collective irrationality in the stability set, a solution concept for voting games proposed by Rubinstein (J Econ Theory 23:150–159, 1980) to resolve the well-known paradox of voting in the core. A lack of cooperation within winning coalitions prevents their members from eliminating an alternative globally less preferred to another one when they observe the rational behavior defining the stability set. Allowing for the possibility of accompanying a coalitional vote with a binding solidarity agreement is a natural response to this cooperation failure. This leads to a new standard of behavior and a new solution concept called stability set with binding solidarity agreement or S _c -stability set. It is shown that the S _c -stability set and a newly defined version of the Mas-Colell bargaining set for simple games are not comparable with respect to set inclusion. The S _c -stability set includes the core, is included in the stability set and contains only Pareto-optimal alternatives. When individual preferences are complete linear orders, the S _c -stability set is always non-empty.      

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.     

Tax progressivity, income distribution and tax non-compliance

This article examines the determinants of tax non-compliance when we recognise the existence of an imperfectly competitive “tax advice” industry supplying schemes which help taxpayers reduce their tax liability. We apply a traditional industrial organisation framework to model the behaviour of this industry. This tells us that an important factor determining the equilibrium price and hence, the level of non-compliance, is the convexity of the demand schedule. We show that in this context, this convexity is affected by the distribution of pre-tax income, the progressivity of the tax-schedule and the way in which monitoring and penalties vary with income. It is shown that lower pre-tax income inequality as well as a less progressive tax code may cause more tax minimisation activities. Therefore, the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline. One way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions.     

所得税会计核算辨析

《企业会计准则第18号——所得税》在我国大中型企业以广泛应用。但据调查了解,对于企业特殊事项要确认、计量递延所得税有些无所适从。因此,以具体案例的形式着重分析企业发生的特殊交易如何确认、计量递延所得税。相信在会计实践中会有一定的指导意义。     

A note on income tax evasion,labor supply,and nonlinear tax schedules

The existing literature on income tax evasion lays claim to two important implications: one is that higher tax rates induce greater income declarations and the other is that increases in gross income induce a fall in the fraction of income declared. The purpose of this paper is to examine the robustness of these results with respect to three modifications of the standard model. The first involves relaxing the assumption of linear income tax schedules. The second modification is to consider an alternative form for the penalty function. Thirdly, we consider the consequences of the tax payer making a joint hours of work-income declaration decision.     

The effects of tax reform on labor supply, tax revenue and welfare when tax avoidance matters

We examine how tax avoidance in the form of trade in well-functioning asset markets affects the study of labor supply. We discuss the implications for tax policy analysis, and we show that a failure to account for avoidance responses may lead to huge errors when analyzing how tax reform affects labor supply, tax revenue and the welfare cost of taxation. Our model may explain a number of otherwise hard to understand dimensions of taxpayer response.     

Corporate income tax,investment grants,and the cost of capital

While the influence of the corporate tax system on the cost of capital faced by firms in the corporate sector has been studied extensively, these studies generally assume that government intervention is restricted to alterations in the rates and deductibility allowances of the corporate income tax. In this paper the case where government intervention also includes the payment of investment grants to the corporate sector is considered; it is shown that the interactions between the corporate tax system and the grant structure are crucial in determiningthe cost of capital. In particular, conditions are derived under which a higher grant rate will raise the relative cost of capital.     

Tax bases,tax rates and the elasticity of reported income

Tax reforms usually change both tax rates and tax bases. Using a panel of income tax returns spanning the two major U.S. tax reforms of the 1980s and a number of smaller tax law changes, I find that the elasticity of income reported on personal income tax returns depends on the available deductions. This highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers. One implication is that base broadening reduces the marginal efficiency cost of taxation. The results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different (their tax base is narrower). The point estimates indicate that the Tax Reform Act of 1986 reduced the marginal cost of collecting a dollar of tax revenue, with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction. As a by-product, the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income.     

On the welfare effects of tax limitation

Much recent literature has been devoted to providing theoretical and empirical analysis of the proposition that government is ‘too large’. Far less attention has been paid to the issue of whether tax and expenditure limitations, such as those in effect in many U.S. states, are an appropriate remedy to excessive government size. This paper uses conventional tools of welfare economics to analyze the welfare effects of tax limitations in an economy made up of many local governments. The conclusions are mixed: where government charges monopoly prices, tax limitation will reduce welfare; where government provides outputs that exceed those that would be competitively supplied, tax limitation may improve welfare.