Showing papers on "Tax reform published in 2008"

Giving Green to Get Green: Incentives and Consumer Adoption of Hybrid Vehicle Technology

Abstract: Federal, state and local governments use a variety of incentives to induce consumer adoption of hybrid-electric vehicles. We study the relative efficacy of state sales tax waivers, income tax credits and non-tax incentives and find that the type of tax incentive offered is as important as the value of the tax incentive. Conditional on value, we find that sales tax waivers are associated a seven-fold greater increase in hybrid sales than income tax credits. In addition, we estimate the extent to which consumer adoption of hybrid-electric vehicles (HEV) in the United States from 2000-2006 can be attributed to government incentives, changing gasoline prices, or consumer preferences for environmental quality or energy security. After controlling for model specific state and time trends, we find that rising gasoline prices are associated with higher hybrid sales, although the effect operates entirely through sales of the hybrid models with the highest fuel economy. In total, we find that tax incentives, rising gasoline prices and social preferences are associated with 6, 27 and 36 percent of high economy hybrid sales from 2000-2006.

India: The Emerging Giant

Abstract: Preface Introduction I Growth and Economic Reforms 1 Distinguishing Four Phases 2 Phase I (1951-65): Takeoff under a Liberal Regime 3 Phase II (1965-81): Socialism Strikes with Vengeance 4 Phase III (1981-88): Liberalization by Stealth 5 Phase IV (1988-06): Triumph of Liberalization 6 A Tale of Two Countries: India and the Republic of Korea II Poverty, Inequality and Economic Reforms 7 Declining Poverty: The Human Face of Reforms 8 Inequality: A Lesser Problem III Macroeconomics 9 Deficits and Debt: Is a Crisis around the Corner? 10 The External Sector: On the Road to Capital Account Convertibility? 11 The Financial Sector: Why Not Privatize the Banks? IV Transforming India 12 International Trade: Carrying Liberalization Forward 13 Industry & Services: Walking on Two Legs 14 Modernizing Agriculture V The Government 15 Tax Reform: Towards a Uniform Goods and Services Tax 16 Tackling Subsides and Reforming the Civil Service 17 Telecommunications and Electricity: Contrasting Experiences 18 Transportation: A solvable Problem 19 Health and Water Supply & Sanitation: Can the Government Deliver? Education: Expenditures or Transfers?

Economic and Political Foundations of Tax Structure

Abstract: This paper derives the essential elements of tax systems as the outcome of rational behavior in a model w here government maximizes expected support and where opposition to ta xation depends on the loss in full income. The analysis treats the le vel of expenditures as endogenous and integrates the influence of adm inistration costs with that of political and economic factors. Tax st ructure is shown to be a system of related components in equilibrium. A final section compares results to two alternative approaches, opti mal taxation and the Leviathan model. Copyright 1988 by American Economic Association.

Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income

Abstract: Federal income tax policy affects the cost of homeowner ship for many households. Popular discussions of the favorable tax treatment of owner-occupied housing usually focus on the tax-deductibility of mortgage interest and prop? erty tax payments, as well as the specialized tax rules that affect housing capital gains. Academic discussions, in contrast, emphasize the exclusion of the imputed rental income on owner-occupied housing as the key tax benefit for homeowners. This paper summarizes the current distribution of the tax benefits associated with the mortgage interest and property tax deductions. It contrasts this with the distribution of tax benefits asso? ciated with the current tax regime for imputed rental income relative to one that taxes home?

Labour supply and taxes

Abstract: In this paper we provide an overview of the literature relating labour supply to taxes and welfare benefits with a focus on presenting the empirical consensus. We begin with a basic continuous hours model, where individuals have completely free choice over their hours of work. We then consider fixed costs of work, the complications introduced by the benefits system, dynamic aspects of labour supply and we place the analysis in the context of the family. The key conclusion of this work is that in order to estimate the impact of tax reform and be able to generalise results, a structural approach that takes account of many of these issues is desirable. We then discuss the 'new Tax Responsiveness' literature which uses the response of taxable income to the marginal tax rate as a summary statistic of the behavioural response to taxation. Underlying this approach is the unsatisfactory nature of using hours as a proxy for labour effort for those with high levels of autonomy on the job and who already work long hours, such as the self employed or senior executives. After discussing relevant theory we then provide a summary of empirical estimates and the methodology underlying the studies. Our conclusion is that hours of work are relatively inelastic for men, but are a little more responsive for married women and lone mothers. On the other hand, participation is quite sensitive to taxation and benefits for women. Within this paper we present new estimates form a discrete participation model for both married and single men based on the numerous reforms over the past two decades in the UK. We find that the participation of low education men is somewhat more responsive to incentives than previously thought. For men with high levels of education, participation is virtually unresponsive; here the literature on taxable income suggests that there may be significant welfare costs of taxation, although much of this seems to be a result of shifting income and consumption to non-taxable forms as opposed to actual reductions in work effort.

Employment, Hours of Work and the Optimal Taxation of Low-Income Families

Abstract: The optimal design of low income support is examined using a structural labour supply model. The approach incorporates unobserved heterogeneity, fixed costs of work, childcare costs and the detailed non-convexities of the tax and transfer system. The analysis considers purely Pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion. We explore the gains from tagging and also examine the case for the use of hours-contingent payments. Using the tax schedule for lone parents in the UK as our policy environment, the results point to a reformed non-linear tax schedule with tax credits only optimal for low earners. The results also suggest a welfare improving role for tagging according to child age and for hours-contingent payments, although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities. Acknowledgements: This study is part of the research program of the ESRC Centre for the Microeconomic Analysis of Public Policy at the IFS. We thank Stuart Adam, Mike Brewer, Roger Gordon, Guy Laroque, Ian Preston, Emmanuel Saez, Florian Scheuer, seminar participants at Harvard, MIT, Jerusalem, NIESR, SOLE and participants in the Mirrlees Review, the editor and the referees for helpful comments. We are alone responsible for all errors and interpretations.

Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions

Abstract: This article describes a revenue and distributionally neutral approach to reducing U.S. greenhouse gas emissions that uses a carbon tax. The revenue from the carbon tax is used to finance a...

Do Tax Structures Affect Aggregate Economic Growth

Abstract: This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are accounted for. The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth. All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.

Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia

Abstract: Using micro-level data, we examine the effects of Russia's 2001 flat rate income tax reform on consumption, income, and tax evasion. We use the gap between household expenditures and reported earnings as a proxy for tax evasion with data from a household panel for 1998-2004. Utilizing difference-in-difference and regression-discontinuity-type approaches, we find that large and significant changes in tax evasion following the flat tax reform are associated with changes in voluntary compliance and cannot be explained by changes in tax enforcement policies. We also find the productivity response of taxpayers to the flat tax reform is small relative to the tax evasion response. Finally, we develop a feasible framework to assess the deadweight loss from personal income tax in the presence of tax evasion based on the consumption response to tax changes. We show that because of the strong tax evasion response the efficiency gain from the Russian flat tax reform is at least 30% smaller than the gain implied by conventional approaches.

A Revenue-Neutral Tax Reform to Increase Demand for Public Transport Services

Abstract: Transportation, energy and environmental tax reforms represent an ongoing debate in contemporary policy. The main aim of this paper is to shed some light on this debate using microsimulation tools to analyse consumer response and welfare effects of environmental policy consisting of an increment of the indirect taxes on fuels to finance the elimination of VAT on the public means of transport. In order to do so, we first estimate an Almost Ideal Demand System for 16 different groups of goods in the Spanish economy, for the purpose of evaluating expenditure and price elasticities. Using this information, we then micro-simulate the abolition of VAT on public transport services and a simultaneous increment on fuel taxes, so that total revenue remains unchanged. The welfare effects of this revenue-neutral tax reform are evaluated. The aim of this simulation is to define a public policy that increases public transportation availability and use in order to bring about decreases in pollution and congestion.

Fiscal Foresight: Analytics and Econometrics

Abstract: Fiscal foresight—the phenomenon that legislative and implementation lags en- sure that private agents receive clear signals about the tax rates they face in the future—is intrinsic to the tax policy process. This paper develops an analytical framework to study the econometric implications of fiscal foresight. Simple theoretical examples show that fore- sight produces equilibrium time series with a non-invertible moving average component, which misaligns the agents' and the econometrician's information sets in estimated VARs. Economically meaningful shocks to taxes, therefore, cannot be extracted from statistical innovations in conventional ways. Econometric analyses that fail to align agents' and the econometrician's information sets can produce distorted inferences about the effects of tax policies. Because non-invertibility arises as a natural outgrowth of the fact that agents' optimal decisions discount future tax obligations, it is likely to be endemic to the study of fiscal policy. In light of the implications of the analytical framework, we evaluate two existing empirical approaches to quantifying the impacts of fiscal foresight. The paper also offers a formal interpretation of the narrative approach to identifying fiscal policy.

The Permanent Tax Revolt: How the Property Tax Transformed American Politics

Abstract: 1 Introducing the Tax Revolt 1 2 A Seedbed of Taxpayer Revolt: The Modernization of the American Property Tax 25 3 The Outbreak of a Tax Protest Movement 50 4 The Two Faces of Federalism 74 5 A New Ball Game: How the Tax Revolt Turned Right 98 6 Welcome to the Tax Cutting Party: How the Tax Revolt Transformed Republican Politics 126 7 American Exceptionalism Reconsidered 146 Epilogue: Lessons of the Tax Revolt 166 Appendix 1: How Great Was the Tax Privilege of Fractional Assessment? 175 Appendix 2: Was Proposition 13 Really a Turning Point? 181 Appendix 3: How Did Tax Limitation Policies Affect the Politics of Taxation? 185 Archival Sources and Their Abbreviations 189

Taxation and State-Building in Developing Countries: Introduction: taxation and state-building in developing countries

Abstract: Introduction Taxation is the new frontier for those concerned with state-building in developing countries. ‘The history of state revenue production’, as Margaret Levi declared, ‘is the history of the evolution of the state’ (1988: 1). Taxes underwrite the capacity of states to carry out their goals; they form one of the central arenas for the conduct of state–society relations, and they shape the balance between accumulation and redistribution that gives states their social character. Without the ability to raise revenues effectively, states are limited in the extent to which they can provide security, meet basic needs or foster economic development. Yet the political importance of taxation extends beyond the raising of revenue. We argue in this book that taxation may play the central role in building and sustaining the power of states, and shaping their ties to society. The state-building role of taxation can be seen in two principal areas: the rise of a social contract based on bargaining around tax, and the institution-building stimulus provided by the revenue imperative. Progress in the first area may foster representative democracy. Progress in the second area strengthens state capacity. Both have the potential to bolster the legitimacy of the state and enhance accountability between the state and its citizens.

Tax Changes and Asset Pricing

Abstract: This paper investigates whether investors were compensated for the tax burden of equity securities over the time period between 1913 and 2006. Effective tax rates on equity securities vary over time due to changes in tax rates on dividends and capital gains and due to changes in corporate payout policies. Effective tax rates also vary cross-sectionally due to persistent differences in propensities to pay dividends, which tend to be taxed more heavily than capital gains. The results indicate an economically plausible and statistically significant tax capitalization over time and cross-sectionally.

Tax Policy in Developing Countries: Looking Back—and Forward

Abstract: We review the changing nature of tax policy in developing countries over the last 30 years and consider what factors determining the level and structure of tax revenues in such countries may have c...

Taxation and Economic Growth

Abstract: This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re-designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising.

Means Testing Retirement Benefits: fostering equity or discouraging savings?*

Abstract: Means testing plays an important role in the UK state pension system. We use a dynamic programming model to consider the effects of a recent policy reform that reduced the marginal tax rates on private income of means tested retirement benefits from 100% to 40%. Our analysis suggests that the policy reform will encourage the poorest third of all households to both save more and delay retirement, and have the opposite effects on richer households. The policy reform provides a reasonable compromise between the distortions associated with high marginal tax rates and the costs of universal benefits provision.

Chapter 11 – Taxes and Corporate Finance

Abstract: This chapter reviews tax research related to domestic and multinational capital structure, debt maturity, payout policy, compensation policy, risk management, earnings management, leasing, pensions, R&D partnerships, tax shelters, transfer pricing, and organizational form. For each topic, the theoretical arguments explaining how taxes can affect corporate decision making and firm value are reviewed, followed by a summary of the related empirical evidence and a discussion of unresolved issues. Tax research generally supports the hypothesis that high-tax rate firms pursue policies that provide tax benefits. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and whether investor-level taxes affect corporate actions.

The political economy of international tax governance

Abstract: Introduction PART I INTERNATIONAL TAX GOVERNANCE: THE ISSUES Research Question and Approach A Baseline Model of Tax Cooperation PART II THE EMPIRICAL RECORD OF GLOBAL TAX GOVERNANCE The Institutional Setup of International Taxation Eradicating the 'Evils of Double Taxation' The Struggle against Under-Taxation PART III EXPLAINING INSTITUTIONAL CHOICE AND DEVELOPMENT Institutional Choice in the Avoidance of Double Taxation Institutional Development in the Avoidance of Double Non-Taxation Conclusion