Financing Public Goods with Income Taxation: Provision Rules vs. Provision Level

Due to the use of distortionary taxation, many believe that real-world economies should attain a lower level of public expenditures than in a situation where lump-sum taxes are available. The present paper examines this hypothesis by means of the two-type self-selection model of income taxation. Based on the findings of Boadway and Keen (1993), I provide sufficient conditions for both a lower and a higher level of public expenditures in second best than in first best. In particular, it is shown that the separability assumption of Christiansen (1981) leads to under-provision of the public good in the income tax optimum.     

The marginal cost of public funds is one at the optimal tax system

This paper develops a Mirrlees framework with skill and preference heterogeneity to analyze optimal linear and nonlinear redistributive taxes, optimal provision of public goods, and the marginal cost of public funds (MCF). It is shown that the MCF equals one at the optimal tax system, for both lump-sum and distortionary taxes, for linear and nonlinear taxes, and for both income and consumption taxes. By allowing for redistributional concerns, the marginal excess burden of distortionary taxes is shown to be equal to the marginal distributional gain at the optimal tax system. Consequently, the modified Samuelson rule should not be corrected for the marginal cost of public funds. Outside the optimum, the marginal cost of public funds for distortionary taxes can be either smaller or larger than one. The findings of this paper have potentially important implications for applied tax policy and social cost–benefit analysis.     

Tax competition and federal equalization schemes with decentralized leadership

Regional governments compete by setting capital taxes in anticipation of the central government’s fiscal equalization and income redistribution policies. I start by demonstrating that the constrained socially optimal allocation satisfies the Pareto efficient conditions; therefore, it may be first best. It is also shown that the subgame perfect equilibrium for the game played by regional and central governments is socially optimal. The anticipation of equalization of marginal utilities of public consumption and equalization of marginal utilities of private consumption provides regional governments with correct incentives in the setting of capital taxes, preventing the phenomenon known as “race to the bottom.”     

Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking

Using 113 staggered changes in corporate income tax rates across U.S. states, we provide evidence on how taxes affect corporate risk‐taking decisions. Higher taxes reduce expected profits more for risky projects than for safe ones, as the government shares in a firm's upside but not in its downside. Consistent with this prediction, we find that risk taking is sensitive to taxes, albeit asymmetrically: the average firm reduces risk in response to a tax increase (primarily by changing its operating cycle and reducing R&D risk) but does not respond to a tax cut. We trace the asymmetry back to constraints on risk taking imposed by creditors. Finally, tax loss‐offset rules moderate firms’ sensitivity to taxes by allowing firms to partly share downside risk with the government.     

Uncertainty and the neutrality of government financing policy

Some ideas from the theory of finance are applied to consider whether debt-financed tax cuts affect desired consumption. It is shown that government financing policy is a matter of indifference to infinitely-lived households, if a perfect substitute for public debt exists. The analysis allows for uncertainty about future taxes, and for missing markets in some kinds of assets. Income redistribution risk, and the public insurance aspects of an income tax scheme, qualify this neutrality result, but in general the net effect is ambiguous. The real resource costs of financial transacting, as well as government superiority in the intermediation process, may be one rationale for activist debt-management policy. A better understanding of functioning capital markets is essential to evaluate these arguments.     

Macro‐Fiscal Volatility and the Composition of Public Spending*

Earlier empirical literature has examined some long‐ and medium‐term aspects of macro‐fiscal volatility while leaving its short‐term fiscal impact unexplored. To help fill that gap, we examine the impact of macro‐fiscal volatility on the composition of public spending. To that end, we analyse a panel of 10 EU countries during 1991–2007. Our results suggest that increases in the volatility of regularly‐collected and cyclical revenues such as the VAT and income taxes tend to tilt the expenditure composition in favour of public investment. In contrast, increases in the volatility of ad hoc taxes such as capital taxes tend to favour public consumption spending, albeit only a little. We interpret such volatility innovations as conveying news to the fiscal policymaker about the underlying economic conditions, with especially regularly‐collected and cyclical taxes prompting short‐term cyclical fine‐tuning.     

Optimal Fiscal Policy with Consumption Taxation

We characterize optimal fiscal policies in a general equilibrium model with monopolistic competition and endogenous public spending. The government can tax consumption, as alternative to labor income taxes. Consumption taxation acts as indirect taxation of profits (intratemporal gains of taxing consumption) and enables the policymaker to manage the burden of public debt more efficiently (intertemporal gains of taxing consumption). We show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labor income taxation. Then, we quantify numerically each of these gains by calibrating the model on the U.S. economy.     

The optimal mix of taxes on money,consumption and income

We determine the optimal combination of taxes on money, consumption and income in transactions technology models where exogenous government expenditures must be financed with distortionary taxes. We show that the optimal policy does not tax money, regardless of whether the government can use as alternative fiscal instruments an income tax, a consumption tax, or the two taxes jointly. These results are at odds with recent literature. We argue that the reason for this divergence is an inappropriate specification of the transactions technology adopted in the literature.     

The Impact of Taxes on Discount Bond Valuation and Risk

If the effective tax rates on ordinary income and capital gains are identical, the assumption of independence or dependence between ordinary income and capital gains tax rates is shown to have no impact on discount bond valuation or risk. However, even if the effective tax rates are identical, the shape and the sensitivity of the bond valuation and risk functions with respect to taxes are not identical under the alternative assumptions. A mathematical and numerical analysis of the sensitivity of changes in the discount bond valuation and risk functions with respect to income tax rates is provided. Comparisons between the sensitivities of changes in the discount bond valuation and risk functions and taxes under conditions of dependence or independence between ordinary income and capital gains tax rates are made.     

规范税费关系 推进地方公共财政制度创新

我国“要逐建立适应社会主义市场经济要求的公共财政框架”。公共财政理论认为，政府的主要职能是提供公共商品，满足公共需要。为提供公共商品，政府要以脱收与收费的形式占有和支配使用一部分经济资源。政府以何形式占有经济资源，是由所提供的公共商品的性质决定的，当前，我国的地方政府收费的膨胀和混乱，背离了公共财政的目标，妨碍了地方公共财政制度的建立，建立地方公共财政，要求一个充分体现公平与效率相结合的收入分配制度，而当前收入分配制度的建立，理顺税费关系，规范地方政府的收入行为是其必然要求。     

我国间接税与收入分配公平关系的实证分析

税收理论认为间接税具有累退性,有利于征管效率但不利于社会公平。采用1994～2009年时间序列数据,计算出库兹涅茨比率以衡量居民收入分配差距,通过对增值税、消费税、营业税、资源税、城建税、全部间接税对库兹涅茨比率影响的实证研究表明,目前我国以增值税为代表的间接税占税收总收入的比重过高,不利于发挥税收调节收入分配差距的作用,需要在今后逐步加以调整;同时间接税中的消费税有一定的缩小我国居民收入分配差距的作用,可以适当加以规范,以发挥其促进社会公平的作用。     

Fiscal policy with banks and financial frictions

We assess the role of banks to the transmission of optimal and exogenous changes in fiscal policy to the economy. We built-up a dynamic stochastic general equilibrium model with patient and impatient agents, banks and a government to find that banks and their associated capital-adequacy constraint mitigate the negative spill-over effects to the economy from higher taxes. Specifically, we confirm that labour income tax is the most distortionary fiscal instrument. The optimal choice of a housing tax is the most favorable funding source to a temporary increase in public spending. The combination of housing and labour taxes is the most preferred tax bundle to be optimally chosen under negative output shocks. Moreover, a permanent increase in housing tax is beneficial if it is welfare enhancing and the existence of banks benefits mainly impatient households under permanently higher consumption taxes. Finally, these results remain robust to various robustness checks.     

Fiscal policy reforms and dynamic Laffer effects

This paper looks at the conditions under which a dynamic Laffer effect occurs. Using a basic model, we explain and reconcile selected findings in the literature. We numerically show that a lower tax rate on capital income is the best candidate for obtaining a dynamic Laffer effect—here defined as an improvement in the long-run budget balance of the government. Moreover, ignoring the stock of initial debt and changes in labor supply lead to an overestimation and underestimation of the effect, respectively. Finally, we show that when lower taxes on factor income are financed by higher taxes on consumption, there exists a wide array of combinations for which there is an improvement in both the long-run government budget balance and lifetime welfare. These combinations, however, differ in their implications for labor supply and immediate welfare effects.     

Market knowledge in managed municipal bond portfolios

In this paper, we analyze the investment performance of two types of open-end municipal bond mutual funds: first, mutual funds that have the objective of generating income free from federal income taxes; second, funds that have the objective of generating income free from not only federal but also a particular state 's income taxes. Our results suggest the following: first, municipal bond fund monthly returns either mirror or lag the Lehman Brothers Municipal Bond Index returns on a risk-adjusted basis; second, when state taxes are significant, such as in California and New York, the investor benefits from investing in state-specific municipal bond funds.     

National income taxation and the geographic distribution of population

We study how different national taxation schemes interact with geographic variation in productivity and consumption amenities in determining regional populations. A neoclassical migration equilibrium model is used to analyze the current nominal income tax system in Norway. The analysis is based on estimated regional income differences accounting for both observable and unobservable individual characteristics and the value of experience. Given regional differences in incomes and housing prices, quality of life and productivity are calibrated to model equilibrium. Compared to an undistorted equilibrium with lump-sum taxation, nominal income taxation creates a disincentive to locate in productive high-income regions. The deadweight loss due to locational inefficiencies is 0.18% of gross domestic product (GDP). We study real income taxation and equal real taxes as alternative tax systems. Both alternatives generate a geographic distribution of the population closer to the undistorted equilibrium, and hence with lower deadweight loss. In an extension of the analysis, we take into account payroll taxes. The existing regionally differentiated payroll taxes to the disadvantage of cities generate a deadweight loss of 0.22% of GDP in an economy with lump-sum income taxation. The two distortionary taxes interact and strengthen each other and the combined distortionary effect of income and payroll taxation in the Norwegian system is 0.46% of GDP.     

间接税亲贫性与代内归宿——穷人从减税中获益了吗?

税收工具作为财政扶贫机制中的重要一环,在推进精准扶贫、精准脱贫上发挥着重要作用。本文基于CFPS2012入户调查数据和中国2012年投入产出表,运用微观模拟方法测算出家庭的间接税负,在此基础上,借鉴衡量经济“涓滴效应”的亲贫增长指数,构建了识别和测度税制“亲贫性”的数量方法,评估间接税的减税政策能否自发惠及穷人,进一步测算家庭不同年龄层的间接税负代内归宿。结果显示:间接税整体上不具有“亲贫性”,其中增值税的“亲富性”最强,减税能让穷人比富人获益更多;儿童、成人以及老人均是间接税的负税人,贫困家庭抚养小孩而承担的间接税负比重高于非贫困家庭,赡养老人而负担的间接税负比重低于非贫困家庭。据此本文认为,继续推动大规模的间接税减税政策、采取差别化的增值税和消费税减免策略、逐步形成以直接税为主的税制结构,是改变间接税"亲富性"和强化税收扶贫职能的有效措施。     

The income elasticity of tax revenue: estimates for income and consumption taxes in the United Kingdom

This paper provides estimates of individual and aggregate revenue elasticities of income and consumption taxes in the UK over the period 1989–2000. It shows how budgetary changes, including changes to income‐related deductions, have substantially affected income elasticities. The estimates of consumption tax revenue elasticities show that changes in consumption patterns over time are important. A merit of the approach used here is that elasticity estimates can be calculated readily from official published sources.     

Tax Incidence in Madagascar: An Analysis Using Household Data

This article discusses tax incidence in Madagascar and askswho pays the taxes that finance government spending. Its mainconcern is to identify the progressivity of different taxeslevied in Madagascar, based on the consumption and income patternsfound in the 1994 Enquête Permanente auprès desMénages, a nationally representative survey. The resultssuggest that most taxes are progressive, meaning that wealthyhouseholds pay proportionately more of these taxes relativeto their expenditures than do poor households. Two notable exceptionsare taxes on kerosene and export duties on vanilla, both ofwhich are regressive. These results are consistent with thoseof a study of Ghana, the only other comparable research on taxincidence in Africa. That study found taxes on kerosene andcocoa exports to be the most regressive taxes in Ghana. Making firm policy recommendations for tax reform would requirean analysis of the economic efficiency and administrative efficacyof different taxes to complement this article's work on theirequity implications. Nevertheless, the results suggest thatthe movement away from trade taxes, especially export duties,and toward broadly based value added or income taxes would bemore equitable and more economically efficient. The only legitimateimpediment to such reforms in Madagascar is administrative,that is, the government's ability to collect different taxeseffectively. Although administrative efficiency may be a problemfor value added or income taxes, taxes on petroleum products(except kerosene) are highly progressive and provide a goodtax handle.     

A welfare comparison of ad valorem and unit tax regimes

This paper strives to merge two strands of the literature. The first group of papers compares ad valorem and unit taxes in a tax competition framework in terms of welfare. The second group of papers regards capital income taxes as a conjunction of taxes on pure profits and taxes on capital income. We find that, given decreasing returns to scale, there always exists a level of the share of deductible capital costs strictly smaller than one, such that for all values larger than this threshold, an ad valorem tax regime unambiguously Pareto-dominates a unit tax regime.     

Trade and domestic tax reforms in the presence of a public good and different neutrality conditions

This paper develops a perfectly competitive general-equilibrium model of a small open economy with production of private traded goods and of a public good which is financed by revenues from trade and domestic taxes. Within this framework we consider the effects on public good provision and on welfare of the following tax reforms: (i) a producer-price-neutral reduction in export taxes and a corresponding increase in production taxes, (ii) a consumer-price-neutral reduction in tariffs and a corresponding increase in consumption taxes, and (iii) a partial tax-revenue-neutral reform in trade and domestic taxes.