Showing papers on "Tax reform published in 1995"
TL;DR: Taxes have been used as instruments of environmental protection for a long time as mentioned in this paper, and the notion that taxes can improve welfare outcomes by internalizing externalities traces back at least as far as Pigou (1938) and is a central tenet of environmental economics.
Abstract: Economists have long favored the use of taxes as instruments of environmental protection. Many economic analysts assert that in situations involving serious externalities taxes are the most effective mechanism for “getting the prices right” -- that is, for helping prices closely approximate marginal social costs. The notion that taxes can improve welfare outcomes by internalizing externalities traces back at least as far as Pigou (1938) and is a central tenet of environmental economics.
998 citations
TL;DR: In this paper, the authors used a Treasury Department panel of more than 4,000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform.
Abstract: This paper uses a Treasury Department panel of more than 4,000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. The analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply. The evidence shows an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and could be substantially higher. The implications for recent tax rate changes are discussed.
645 citations
TL;DR: The authors assess which model features and parameter values are important for determining the quantitative impact of tax reform and find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and labor supply.
Abstract: Recent estimates of the potential growth effects of tax reform vary wildly, ranging from zero to eight percentage points Using an endogenous growth model, we assess which model features and parameter values are important for determining the quantitative impact of tax reform We find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and the elasticity of labor supply The elasticities of substitution in production, on the other hand, are relatively unimportant The quantitative estimates in several recent papers are compared with each other and with some of the evidence from US experience We find that Robert Lucas's conclusion, that tax reform would have little or no effect on the US growth rate, is theoretically robust and consistent with the evidence
550 citations
TL;DR: In this paper, the authors developed grouping estimators that reveal positive and moderately sized wage elasticities and negative income effects for women with children in the tax system, and found negative income effect for women having children.
Abstract: The 1980's tax reforms and the changing dispersion of wages offer one of the best opportunities yet to estimate labor supply effects. Nevertheless, changing sample composition, aggregate shocks, the changing composition of the tax paying population, and discontinuities in the tax system create serious identification and estimation problems. We develop grouping estimators that address these issues. Our results reveal positive and moderately sized wage elasticities. We: also find negative income effects for women with children.
546 citations
TL;DR: For example, this article showed that for environmental taxes in consumption goods industries, the net welfare change from these two effects is negative unless this good is a relatively weak substitute for leisure.
480 citations
TL;DR: In this article, the authors examine the extent to which costs of a U.S. carbon tax are reduced when its revenues finance cuts in income taxes and show that welfare costs rise significantly with pre-existing tax rates, indicating that models disregarding preexisting taxes may substantially understate the costs of new environmental tax initiatives.
400 citations
Book•
01 Jan 1995
TL;DR: In this paper, the authors present an overview of the institutional economics of taxation and the normative economics of tax reform in the context of game-theoretic tax systems and tax equilibria.
Abstract: Introduction: 1. An overview of chapter 1: the institutional economics of taxation 2. A presentation of the model 3. An overview of chapter 2: positive economics 4. An overview of chapter 3: normative economics of taxation 5. An overview of chapter 4: normative economics of taxation: further issues 6. An overview of Chapter 5: the political economics of taxation 1. Institutional economics of taxation: 1.1. Introduction 1.2. The model 1.3. Allocation via game forms 1.4. Tax systems versus game forms 1.5. More on game forms versus tax systems 1.6. Coming back on the anonymity assumption 1.7. Conclusion 1.8. Bibliographical note 2. Positive economics: the structure of tax equilibria 2.1. The basic model 2.2. The local structure of the set of tax equilibria 2.3. The global structure of the set of tax equilibria 2.4. Positive economics: tax equilibrium and tax incidence 2.5. Bibliographical note 3. Normative economics of taxation: reform and optimization 3.1. Tax reform, the canonical argument 3.2. Tax reform: a closer examination of specific situations 3.3. Tax reform: from infinitesimal to finite changes-algorithms of tax reform 3.4. Tax reform - further discussions 3.5. Second-best Pareto optima 3.6. Bibliographical note 4. Normative economics of taxation: further essays on optimization and reform 4.1. The social values of commodities 4.2. Non-linearities and quotas policies 4.3. Optimal taxes and tax reform in a one-consumer economy 4.4. Mixing linear and non-linear taxation a bird's eye view 4.5. Bibliographical note 5. Political economics of taxation 5.1. Introduction 5.2. The structure of the set of Pareto optimal tax equilibria 5.3. Taxation as a social choice or a game theoretical problem 5.4. A one-dimensional version of the taxation game 5.5. Further remarks on the one-dimensional taxation game 5.6. Bibliographical note Conclusion Mathematical appendix Bibliography Index.
305 citations
TL;DR: This article found that people smooth their giving when transitory income changes but also time their giving to exploit transitory changes in tax prices, suggesting that the tax incentives permanently influence the level, rather than just the timing, of charitable giving by individuals.
Abstract: Using an econometric model of charitable giving and a 10-year panel of tax return data, I find that previous studies have underestimated the effects of permanent income and overestimated the effects of permanent changes in tax prices. The significant statutory tax changes that occurred during the 1980s, especially in 1986, serve to identify the key model parameters. My results imply that people smooth their giving when transitory income changes but also time their giving to exploit transitory changes in tax prices. The results also raise questions about how effectively the tax incentives permanently influence the level, rather than just the timing, of charitable giving by individuals.
302 citations
TL;DR: In this article, the authors measure the impact of government tax policies to encourage residential conservation investment on the probability of making these investments using panel data on individual tax returns and variation in state tax policy.
230 citations
Book•
27 Apr 1995
TL;DR: A survey of recent developments in public economics by taking as a case-study the proposals for a basic income/flat tax scheme can be found in this paper, where the authors discuss various approaches to taxation and present a framework for a system that would affect both personal income and the social security system, replacing the one by a flat-rate income tax and the other by a guaranteed income.
Abstract: This book surveys recent developments in public economics by taking as a case-study the proposals for a basic income/flat tax scheme It discusses various approaches to taxation and presents a framework for a system that would affect both personal income and the social security system, replacing the one by a flat-rate income tax and the other by a guaranteed income This idea has generated wide interest in a number of countries, and is being actively discussed by several political parties This book explains how these changes would benefit a wide variety of social groups, leading to a greater redistribution of income At the same time, it also raises the question of whether a single reform can meet the very different objectives of different supporters The author reviews different areas of public economics in which there has been active research in recent years- namely the theory of optimum taxation, public choice theory, general equilibrium analysis of incidence, numerical tax- benefit modelling, and econometric studies of work incentives-and asks how these contribute to our understanding of this particular policy reform He also indicates the promising directions for future research The author does not argue for or against the basic income/flat tax proposal, but believes it should be on the agenda for any serious discussion of tax and social security reform for the twenty-first century
197 citations
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TL;DR: In this article, the impact of taxation on foreign direct investment (FDI) flows, using data on flows between seven countries for 1984 through 1989, and a sophisticated measure of the cost of capital, is estimated.
Abstract: We estimate the impact of taxation on foreign direct investment (FDI) flows, using data on flows between seven countries for 1984 through 1989, and a sophisticated measure of the cost of capital. We find that the choice between domestic investment and total outward FDI is not significantly affected by taxation but that taxation does affect the location of outward FDI. These results are used to examine the impact of tax integration systems. Giving a tax credit to foreign shareholders may induce a large increase in inward FDI from “exemption” countries but not from “partial-credit” countries. For the United States, the total effect would be small.
TL;DR: In this article, the authors extend the results of Boadway and Bruce (1984, 24, 231−239) and Fane (1987, 33, 95−105) to describe a tax on business profits which is neutral with respect to investment and wind-up decisions, and default outcomes, under uncertainty and bankruptcy risk.
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TL;DR: In this article, the authors employ analytical and numerical general equilibrium models to investigate the costs of such reforms, concentrating on the question of whether these costs can be eliminated when revenues from new environmental taxes are devoted to cuts in marginal income tax rates.
Abstract: There has been keen interest in recent years in environmentally motivated or 'green' tax reforms. This paper employs analytical and numerical general equilibrium models to investigate the costs of such reforms, concentrating on the question of whether these costs can be eliminated when revenues from new environmental taxes are devoted to cuts in marginal income tax rates. A distinguishing feature of the analytical model is its attention to the role of pre-existing inefficiencies in the tax treatment of labor and capital and the associated role of tax-shifting. This model indicates how the prospects for a zero- or negative-cost environmental tax reform are enhanced to the extent that environmental tax reforms shift the tax burden toward the less efficient (undertaxed) factor. Results from the numerical model are interpreted in light of the analytical model's findings. These results indicate that the revenue- neutral substitution of Btu or gasoline taxes for typical income taxes usually entails positive gross costs to the economy. In the case of the gasoline tax, a significant tax shifting effect serves to lower the policy's gross costs. This accounts for the lower gross cost of the gasoline tax compared with the Btu tax. Under neither policy is tax-shifting substantial enough to eliminate the overall gross costs.
TL;DR: In this paper, the impact of international tax rules on the cost of capital is discussed. But the authors focus on the effects of foreign direct investment on the domestic capital stock, and do not consider the effect of transfer pricing and income shifting.
Abstract: Preface Introduction Martin Feldstein, James R. Hines, Jr., R. Glenn Hubbard. 1: Outward Direct Investment and the U.S. Economy Robert E. Lipsey Comment: S. Lael Brainard 2: The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock Martin Feldstein Comment: Kenneth A. Froot 3: Why Is There Corporate Taxation in a Small Open Economy? The Role of Transfer Pricing and Income Shifting Roger H. Gordon, Jeffrey K. MacKie-Mason. Comment: T. Scott Newlon 4: The Impact of International Tax Rules on the Cost of Capital Joosung Jun Comment: Joel Slemrod 5: The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data Jason G. Cummins, R. Glenn Hubbard. Comment: David G. Hartman 6: The Alternative Minimum Tax and the Behavior of Multinational Corporations Andrew B. Lyon, Gerald Silverstein. Comment: Alan J. Auerbach 7: Accounting Standards, Information Flow, and Firm Investment Behavior Jason G. Cummins, Trevor S. Harris, Kevin A. Hassett. Comment: G. Peter Wilson 8: Taxes, Technology Transfer, and the R&D Activities of Multinational Firms James R. Hines, Jr Comment: Adam B. Jaffe 9: Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals Rosanne Altshuler, T. Scott Newlon, William C. Randolph. Comment: William M. Gentry 10: Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals Kenneth A. Froot, James R. Hines, Jr. Comment: Julie H. Collins Contributors Author Index Subject Index
TL;DR: The residence-based principle has been proposed as a second-best measure to the full international coordination of capital tax policies as mentioned in this paper, which requires that tax authorities have full information about the foreign investments of their residents.
Book•
01 Jan 1995
TL;DR: In this article, the authors examined whether inside ownership concentration, a proxy for reduced capital market pressure, influences the balance of these two opposing external reporting incentives and found that managers of firms with lower levels of insider ownership concentration realize larger gains or smaller losses, on average.
Abstract: Managers frequently encounter situations involving a trade-off between financial reporting and tax reporting incentives. This paper examines whether inside ownership concentration, a proxy for reduced capital market pressure, influences the balance of these two opposing external reporting incentives. The empirical tests use a sample of major asset divestitures to show that, for high taxrate firms, managers of firms with lower levels of inside ownership concentration realize larger gains or smaller losses, on average. This work extends previous research by combining insights from the micro-economics tax incentives literature and financial reporting incentives literature, and by considering explicitly the effect of a firm-specific variable on the balance between these two incentives.
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TL;DR: This paper presented an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and non-ge incomes.
Abstract: We present an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and nonwge incomes. Our two‐stage fixedeffects generalized method‐of‐moments approach first extimates intretemporal and then intertemporal preferences. Specification testing domonstrates the value of incorporating joint progressive taxation of labor and nonlabor incomes, Results for prime‐age men emphasize the roles played by hourly wage endogeneity, worker‐specific effects, the measure of the rate of pay, and intemporal budget constaint, nonseparability, Simulations indicate that recent tax reform, while not self‐financing, stimulated made labor supplied by about 3 percent and reduced deadweight loss about 16 percent.
Book•
27 Jan 1995
TL;DR: In this article, the authors examine the causes and consequences of such revolts with a special focus on the California experience with Proposition 13 and examine the consequences of property tax limitations for public finance with a detailed analysis of the tax system put into place in California.
Abstract: Property tax revolts have occurred both in the United States and elsewhere. This book examines the causes and consequences of such revolts with a special focus on the California experience with Proposition 13. The work examines the consequences of property tax limitations for public finance with a detailed analysis of the tax system put into place in California. Theoretical approaches and evidence from a comprehensive empirical study are used to highlight the equity and efficiency of property tax systems. Since property taxes are the primary source of revenue for local governments, the book compares and contrasts the experiences of several states with regard to the evolution of local government following property tax limitations. Finally, the book considers alternatives for reform and lessons to avoid future tax conflicts of this kind.
TL;DR: In this article, the tax price elasticity of demand for welfare has been analyzed for the United States for a panel from 1982-88 using new models for the determination of the recipiency ratio (the tax price) and composite neighbors.
Abstract: Fiscal federalism theory predicts that states will behave strategically in welfare programs because voter demand for welfare is sensitive to tax price, while the tax price itself changes because of welfare-induced migration. This paper tests these propositions on AFDC in the United States for a panel from 1982-88 using new models for the determination of the recipiency ratio (the tax price) and composite neighbors. The data do not support any substantial tax price elasticity of demand for welfare. Estimates of migration effects on tax price are found to be sensitive to specification. Copyright 1995 by MIT Press.
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TL;DR: In this article, the authors developed a procedure for identifying marginal Dalton-improving reforms in the context of indirect taxation and illustrated using data on excise taxes in the United Kingdom, where they used a prior social ranking of households and a transfer is approved if it it distributes from high-ranking ("rich") to low-ranking ('poor') households, without altering the ranking itself.
Abstract: A tax reform is 'Dalton-improving' if it improves social welfare for all possible social-welfare functions that conform to Hugh Dalton's principle of transfers. According to this principle, there exists a prior social ranking of households and a transfer is approved if it it distributes from high-ranking ('rich') to low-ranking ('poor') households, without altering the ranking itself. In this paper, the authors develop a procedure for identifying marginal Dalton-improving reforms in the context of indirect taxation. The methodology is illustrated using data on excise taxes in the United Kingdom. Copyright 1995 by American Economic Association.
TL;DR: In this article, the introduction of the European Community's carbon-energy tax in a small open economy is analyzed by comparing two kinds of revenue recycling, and it is shown that the weak double-dividend hypothesis can fail when equity aspects are taken into account.
Abstract: The introduction of the European Community's carbon-energy tax in a small open economy is analyzed by comparing two kinds of revenue recycling. We use a dynamic general-equilibrium model with different regimes for the labor market, several income groups, and a crude valuation of environmental benefits. This allows for a more comprehensive empirical test of the double-dividend hypothesis, including equity aspects. It is shown that the weak double-dividend hypothesis can fail when equity aspects are taken into account.
TL;DR: In the G7 countries, taxes paid by corporations account for less than 8 per cent of tax revenues raised by governments, except for Japan where the corporation tax yields about 15 percent of government revenue as mentioned in this paper.
Abstract: The corporation tax is arguably the most well-studied tax found throughout the world. Countless numbers of professionals study the impact of corporate tax law on the affairs of the corporation. Yet, despite considerable resources that are expended on compliance, the tax in many countries raises only a small portion of revenue for governments. For example, in the G7 countries, taxes paid by corporations account for less than 8 per cent of tax revenues raised by governments, except for Japan where the corporation tax yields about 15 per cent of government revenue. This low revenue yield and high compliance cost have resulted in some experts and politicians questioning the usefulness of the corporate income tax.
TL;DR: In this paper, the authors examined how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government and proved that differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods.
Abstract: This paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government. There are two categories of goods: the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after. The paper proves that, contrary to A. B. Atkinson and J. E. Stiglitz's (1976) result, differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods. Copyright 1995 by Royal Economic Society.
TL;DR: In this paper, the authors add mobile labor and an alternative tax instrument to the tax competition literature, which shows that local governments keep property tax rates inefficiently low to prevent capital outflows, thereby underproviding local public goods.
TL;DR: In this paper, the authors used financial statement information to estimate three alterantive average effective tax rates for firms domiciled in Canada, Japan, the United Kingdom, and the United States during the period 1982 to 1991.
Abstract: We use financial statement information to estimate three alterantive average effective tax rates for firms domiciled in Canada, Japan, the United Kingdom, and the United States during the period 1982 to 1991. While many of the firms we examine operate worldwide, we use the termdomicile to refer to the legal residence or site of incorporation of the parent company. Our objective is to determine themarginal impact of a company's domicile on its worldwide tax burden, with controls for industry and year. We find both among domestic-only companies and among multinational companies the domiciles are consistently ranked in descending order by average effective tax rates as Japan, the United Kingdom, the United States, and Canada. In comparing domestic-only companies and multinationals domiciled in the same jurisdiction, only U.S. multinationals consistently face a greater tax burden than their domestic counterparts.
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TL;DR: In this paper, the authors apply the ideas of Brennan and Buchanan (1977, 1978, 1980) to local property taxes and show that property taxes provide incentives for adequate amenity provision.
Abstract: This paper applies the ideas of Brennan and Buchanan (1977, 1978, 1980) to local property taxes. When local governments maximize their revenues, property taxes provide incentives for adequate amenity provision. Local amenity provision determines property values which then determine local tax revenues. As long as the demand for housing is inelastic, property-taxes will provide stronger incentives for local governments than lump-sum taxes. As current property values reflect expectations about future amenity levels, property taxes create incentives for even the most myopic government to invest for the future. Local property taxes can also act to limit the incentives of localities to tax; there are cases where higher levels of local property taxes lead to lower overall tax burdens. These ideas are applied to the tax reform in the late 1970s; one reason that tax reform may have been so successful is that in a period where land prices are driven by many forces other than government amenities, property taxes lose their value as incentive devices.
TL;DR: In this article, the optimal design of a carbon tax when a group of countries seeks to maximize its net income minus its environmental costs, which depend on the sum of CO2 emissions from all countries, is studied.