the optimal threshold for a value added tax abstract one of the key features of a value added tax and often one of the most contentious is the threshold level of turnover at which firms are obliged to register for the tax despite its importance however the question of the appropriate level at which to set this threshold has received little analytical attention this paper first develops a simple rule characterizing the optimal threshold when firms sizes are fixed in terms of a trade off between tax revenues and collection costs it then considers in principle and by simulation the implications for the optimal threshold of the production inefficiencies implied by the differential treatment of those above and below the threshold

tax innovations and public revenues in sub saharan africa we study the effect of two tax innovations value added taxes vat and autonomous revenue authorities ara on tax revenues in sub saharan africa the dataset consists of 47 countries over 1980 2010 we find that vats have no effect on total tax revenues neither in the short nor in the long run aras lead to higher tax revenues in the short and medium run but the effect dissipates over time the main conclusion is that tax innovations are not a panacea to overcome the revenue shortages in african countries but they are helpful in the short and medium run

the marginal cost of public funds and tax reform in africa abstract in this paper we propose estimates of the marginal cost of public funds mcf in 38 african countries we develop a simple general equilibrium model that can handle taxes on five major tax classes and can be calibrated with little more than national accounts data a key feature of our model is the explicit recognition of the informal economy our base case estimate of the average mcf from marginal increases in all five tax instruments is 1 2 focusing on the lowest cost tax instruments in each country commonly the vat but not always the average mcf is 1 1 finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low mcf source of public funds and a lowering of mcfs on other tax instruments

tax competition between developed emerging and developing countries same same but different abstract this paper analyzes tax competition between countries which differ in their country specific risks we show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits with high costs of profit shifting higher risk countries set lower tax rates than lower risk countries whereas the opposite is true if the costs of profit shifting are low the results provide an explanation for the patterns observed in the corporate income tax policies across countries differing in their level of development moreover for intermediate costs of profit shifting we show that countries absolute risk level plays an important role in tax rate setting these results carry important implication for the empirical tax competition literature

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

the value added tax its causes and consequences almost unknown in 1960 the value added tax vat is now found in more than 130 countries raises around 20 percent of the world s tax revenue and has been the centerpiece of tax reform in many developing countries this paper explores the causes and consequences of the remarkable rise of the vat a key question is whether it has indeed proved as its proponents claim an especially effective form of taxation to address this it is first shown that a tax innovation such as the introduction of a vat reduces the marginal cost of public funds if and only if it also leads an optimizing government to increase the tax ratio this observation leads to the estimation on a panel of 143 countries for 25 years of a system of equations describing both the probability of vat adoption and the revenue impact of the vat the results point to a rich set of determinants of vat adoption this being more likely for example if a country has a program with the imf and the less open it is to international trade in the revenue equation the presence of a vat does indeed have a significant impact but also a complex one with a negative intercept effect counteracted by positive effects that are greater the higher are per capita income and more tentatively openness while the sign of the revenue impact of the vat is thus in general ambiguous most countries that have adopted a vat seem to have gained a more effective tax instrument in doing so though this is less apparent in subsaharan africa and most without it seem likely to gain from its adoption

the response of firms to eligibility thresholds evidence from the japanese value added tax abstract it is common to define benefit eligibility for small business policies by restrictions on the firm size this paper documents the effects of the value added tax vat threshold in japan focusing on the incentives for a large firm to masquerade as many small firms by separately incorporating business segments a comparison of the corporate size distributions before and after the vat introduction of 1989 shows a clustering of corporations just below the threshold a pattern that is attributable to the behavioral responses to rule out the confounding influences of the changes in the company attributes over the years we applied a semiparametric density decomposition technique developed by dinardo fortin and lemieux dinardo j fortin n m lemieux t labor market institutions and the distribution of wages 1973 1992 a semiparametric approach econometrica 1996 64 1001 1044 this study suggests that the masquerading behavior by firms may be commonplace in other settings

estimating tax noncompliance with evidence from unaudited tax returns this article estimates the degree of tax noncompliance using evidence from unaudited tax returns measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self employment farm and other small business income assuming that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source any difference in the relationship between charitable contributions and the source of income can be attributed to relative underreporting by the individual we find that the implied amount of noncompliance is significant and that it varies by source of income as well as between positive and negative values of each type of income tax evasion creates horizontal inequity and if opportunities for evasion are correlated with income complicates the attempt to achieve vertical equity evasion also imposes economic costs because taxpayers expend resources to facilitate evasion and the tax agency expends resources to contain it the equity and efficiency implications of tax evasion and optimal policy to address it depend on its magnitude and nature which for obvious reasons is difficult to ascertain this article contributes to that effort by developing a new method for estimating the extent and nature of tax noncompliance based on evidence from unaudited tax returns this evidence is derived from the relationship between reported charitable contributions and reported taxable income from various sources such as wages and salaries selfemployment nonfarm small business and farm income and is based on the assumptions that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source we find that the implied amount of noncompliance on non wageand salary income is substantial and that it varies among these sources of income as well as between positive and negative values of each type of income on average reported positive self employment nonfarm small business and farm income must be multiplied by a factor of 1 54 4 54 and 3 87 respectively in order to obtain true income even those individuals who report zero income for a specific income source but file the schedule for that source are estimated to have true positive income finally those households that report negative schedule income may actually have greater true income than those households that report positive income

compliance costs vs tax incentives why do entrepreneurs respond to size based regulations abstract this paper studies the mechanisms behind the responses of entrepreneurs to size dependent tax regulation we exploit the value added tax vat exemption threshold in finland both tax incentives remitted vat and compliance costs frequent filing of vat reports understanding the vat system etc change at this sales based threshold in a discontinuous manner we utilize variation in both the vat rate and reporting requirements to show that the large observed sales response is caused by the compliance costs of vat rather than the level of the vat rate highlighting the key role of compliance costs among small firms and entrepreneurs

reducing evasion through self reporting evidence from charitable contributions abstract in absence of third party reporting taxpayers are required to self report information with various degrees of detail ranging from uncorroborated claims to comprehensive records with receipts using a quasi experimental design applied to noncash charitable contribution deductions i show that even basic self reporting requirements are effective at reducing evasion but impose large compliance costs on taxpayers i find that simplified reporting requirements reduce reporting costs by 55 per person and substantially increase claimed donations however half of the new donations are due to evasion thus information reporting should only be imposed on total reported donations above a pre specified threshold

the corona pandemic a game theoretic perspective on regional and global governance we argue that the incentive structure of all individual and coordinated measures across countries to contain the corona pandemic is that of a weakest link public good game we discuss a selection of theoretical and experimental key results of weakest link games and interpret them in the light of the corona pandemic first we highlight that experimental evidence does not support the assumption that coordination can be trivially solved even among symmetric players second we argue that for asymmetric countries the weakest link game does not only pose a problem of coordination but also a problem of cooperation third we show how and under which conditions self enforcing treaties can foster coordination and cooperation we account for the possibility that countries make mistakes when choosing their actions our discussion shows that north south cooperation is relevant and likely to be self enforcing and that regional cooperation e g within the eu will also be important

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

reforming indirect taxes in canada some general equilibrium estimates the current indirect tax system in canada distorts economic activity in a variety of ways and has been the subject of considerable discussion as part of overall tax reform in this paper a general equilibrium model is used to analyze various changes in indirect taxes in canada focusing on possible changes to the federal and provincial sales taxes results suggest that replacing either the federal or provincial sales taxes with a broadly based sales tax yields a small but significant welfare gain the distributional effects from these changes are slightly regressive but appear to be quite small and easily offset by modest income tax credits targeted to low income households results also suggest that a broad based sales tax would be a significantly more efficient revenue source should additional sales tax revenues be required

dual income taxation a promising path to tax reform for developing countries summary the dual income tax combines a progressive tax on labor income and a lower flat tax on income from capital unlike flat tax systems a dual income tax provides developing countries greater flexibility in addressing tax competition while retaining progressivity countries could use the move to a dual income tax system not just as an opportunity to rationalize the taxation of income from business operations and investment but also as a vehicle for broader reform of their tax systems

strategic transfers and private provision of public goods abstract this paper considers strategic monetary transfers between two agents when these contribute to a mutual public good if the agents differ in their contribution productivity then the less productive agent has an incentive to make large unconditional transfers to the more productive agent although agents move simultaneously in each stage of the game the less productive agent becomes a stackelberg leader furthermore the generic subgame perfect equilibrium is characterized by full specialization

consumption patterns of food tobacco and beverages a cross country analysis this study considers the consumption patterns of food tobacco soft drinks and alcohol in 43 developed and developing countries such an analysis is important for policy issues associated with tobacco alcohol and soft drinks the results show that consumers in the developing countries spend a much higher proportion of their income on food than consumers in developed countries the proportion of expenditure allocated to the other three commodities tobacco alcohol and soft drinks are similar in the two groups of countries on average people around the world allocate about one quarter of their income on food 2 6 on tobacco 3 2 on alcohol and 1 2 on soft drinks the income elasticity estimates reveal that food is a necessity in most countries while tobacco and alcohol are necessities in most of the developed countries and luxuries in a majority of developing countries soft drinks are a luxury in a majority of the developing as well as the developed countries the own price elasticities show th

environmental taxation employment and public spending in developing countries this paper investigates the consequences of environmental tax reforms for unemployment and welfare in the case of developing countries with a large informal sector rural urban migration and three different assumptions about public spending 1 as part of a revenue neutral policy 2 fixed and 3 varying endogenously under the indexation of unemployment benefits and informal sector income that give rise to a double dividend a lower level of public spending is associated with a smaller negative impact on the after tax income of households and a higher increase in employment these policies however still lead to a reduction in social welfare even more so in the case of endogenous public spending although it is associated with a higher increase in employment and a smaller reduction in private sector incomes the model implies that complementary policy in terms of lower public spending is unlikely to be socially acceptable and does not support the case for a green tax reforms in developing countries

who pays sales taxes evidence from french vat reforms 1987 1999 the point of this paper is to provide visual evidence of tax shifting and to measure empirically the distribution of the sales tax burden between consumers and producers for that purpose two french reforms are studied these reforms entail steep decreases of the vat rate september 1st 1987 the vat rate on car sales went down from the luxury rate of 33 33 to the full rate of 18 6 september 1st 1999 the vat rate on housing repair services went down from the full rate of 20 6 to the reduced rate of 5 5 the consumer share of the sales tax burden is 57 in the new car sales market and 77 in the housing repair services market

transfers and the weakest link an extension of hirshleifer s analysis abstract with the weakest link social composition function analysed by hirshleifer it is shown that an incentive exists for some agents to transfer resources to others so as to achieve higher quantities of the public good the characteristics of such an equilibrium with transfers are examined together with the implications of differing income distributions for the quantity of the public good some observations are offered as to how well the model can capture co operative behaviour

auctions with a buy price the case of reference dependent preferences abstract in an auction with a buy price the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price this paper develops a model of an auction with a buy price in which bidders use the auction s reserve price and buy price to formulate a reference price the model both explains why a revenue maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders reference price through the auction s reserve price and buy price than when she can affect the bidders reference price through the auction s reserve price only the comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction s buy price have no effect on bidding behavior

quasi experimental analysis on the effects of adoption of a value added tax i introduction the value added tax vat has displaced many different trade sales and manufacturing taxes in the past half century becoming a major source of government revenue for an increasing number of countries the tax has all the desirable non distortionary theoretical properties of a sales tax its incidence ultimately falling on consumers but it is much harder to avoid as the tax is collected at all intermediate steps during the production of a finished retail good rather than at the final sale as a result it has proven incredibly popular as it can collect a great deal of revenue keen and lockwood 2010 toder and rosenberg 2010 while this tax is theoretically less distorting than other taxes for each dollar of revenue collected there is limited analysis regarding its overall impact on the economy demonstrating that the tax also has few negative side effects would make it invaluable for developing countries looking for an effective tax instrument showing that a vat is associated with increases in growth trade or investment would be solid evidence in favor of its adoption however empirical studies of vat are rare this study seeks to fill a hole in the literature analyzing the overall economic impact of a vat which will allow policy makers to make informed decisions of the costs and benefits of this tax understanding the effects of the vat is vital as the importance of the vat is unlikely to decline in the future the imf increasingly suggests that countries raise more revenue through adopting a vat or raising vat rates bird 2010 many countries facing rising pressures on pension programs as a result of changing demographics are funding social programs from general revenues rather than payroll taxes which usually means shifting the overall tax composition of government revenues toward vats bird and smart 2012 a vat is a requirement for eu membership and other international organizations are considering their own mandatory vats with a unified set of rules and repayment systems at an international rather than national level such as the gulf cooperation countries cnossen 1998 kapur 2012 as more countries adopt vats international payment mechanisms for collecting vats will become more efficient ebrill et al 2001 and vats will become more popular in the future as a country chooses when to enact a vat simply estimating the effect of adoption on macroeconomic variables such as trade or growth through normal regression techniques will result in biased estimates as countries that choose to adopt a vat may be fundamentally different from those who do not in order to solve this selection problem i use survival analysis to generate probabilities of vat adoption to be used as propensity score for 192 countries from 1967 to 2012 i then employ matching methods to obtain the causal effects of vat adoption among 112 countries 90 of which do eventually adopt from 1986 to 2007 in the year of adoption and for 5 years after 1 the results of this study reveal that vat adoption is associated with increases in investment and less robustly increases in growth as well as decreases in inflation and government spending there is no evidence of changes in trade once controlling for selection 2 this study is organized as follows section ii covers background on previous studies on the vat and other tax policies section iii describes the adoption equation using survival analysis both its determinants and results section iv introduces the matching process section v describes the results of the matching as well as some robustness checks section vi concludes ii background starting with france in 1954 and reaching its first developing country in 1960 when it was enacted by the cote d ivoire 166 countries have at some point implemented a vat as of january 2013 and once passed nearly all countries retain it figure 1 shows aggregate vat adoption over time and figure 2 shows the adoptions in each year

tariff tax reforms in large economies this paper studies tariff tax reforms in a two region global new keynesian model composed of a developing and an advanced region in our baseline calibration a revenue neutral reform that lowers tariffs in developing countries can reduce domestic welfare the reason is that the increase in developing countries welfare due to higher output is dominated by the welfare losses stemming from the deterioration of the terms of trade on the other hand the reform increases output and welfare in the advanced countries and in the world as a whole the effects that we highlight have not been studied in previous contributions to the literature which looks at tariff tax reforms using a small open economy framework nominal rigidities have important implications for adjustment dynamics in our model in the case of a point for point reform for example price stickiness implies that the international dynamics of output is reversed compared to a revenue neutral reform

why can modern governments tax so much an agency model of firms as fiscal intermediaries we develop an agency model explaining why third party information reporting by firms makes tax enforcement successful while third party reporting would be ineffective with frictionless collusion between firms and employees collusive evasion is impossible to sustain in firms with many employees and accurate business records as any single employee may reveal evasion we embed our agency model into a macro model where the number of employees grows with development showing that the tax take evolves as an s shape driven by changes in third party information we show that our model is consistent with a set of stylized facts on taxation and development

the effects of the value added tax on revenue and inequality this paper examines the impact of the introduction of the value added tax on inequality and government revenues using newly released macro data we present both conventional country fixed effect re

alternative collective goods models of military alliances theory and empirics i introduction in a seminal article mancur olson and richard zeckhauser 1966 characterized the north atlantic treaty organization nato in the mid 1960s as a group of allies who shared a pure public good in the form of deterrence to qualify as a pure public good a good s benefits must be nonexcludable i e available to all group members once provided and nonrival in consumption i e consumption opportunities associated with a unit of the good do not decline with the number of users pure public goods are characterized by free riding behavior owing to non excludability which permits individuals to partake in the benefits of the good without expending their own scarce resources olson and zeckhauser also demonstrated that a pure public good such as deterrence is associated with an exploitation hypothesis whereby the large agents allies shoulder the payment burdens of the small agents allies using data from 1964 olson and zeckhauser 1966 274 77 established that defense burdens are positively correlated with the economic size of the allies as measured by gross national product gnp over the next twenty five years a large literature has generalized and extended the olson and zeckhauser collective goods theory of alliances van ypersele de strihou 1967 recognized that defense expenditures could generate country specific private benefits e g disaster relief protection of colonies management of domestic unrest along with purely public deterrence with the presence of ally specific benefits the strength of the exploitation hypothesis is attenuated since a small ally might willingly shoulder a relatively large burden provided that this ally views its defense expenditures as possessing a large share of nation specific benefits in a series of articles murdoch sandler and others 1 formulated a joint product model in which the military activity of an ally yields pure public impure public and or private jointly produced outputs or benefits if the benefits derived from the allies military expenditures were from a single purely public good then the joint product model would obviously degenerate to the model of olson and zeckhauser 1966 murdoch and sandler 1984 sandler and forbes 1980 and sandler and murdoch 1990 have shown that the joint product model outperforms the pure public good deterrence model for nato during various time periods in recent years a number of important contributions to the collective good analysis of alliances have appeared these include the inclusion of foreign trade considerations wong 1991 marginal cost differentials among allies mcguire 1990 weber and wiesmeth 1991 leader follower behavior bruce 1990 and median voter considerations dudley and montmarquette 1981 murdoch sandler and hansen 1991 and okamura 1991 mcguire and groth 1985 engineered an econometric procedure for distinguishing between allocative processes e g non cooperative and cooperative within an alliance while subsequent work by sandler and murdoch 1990 operationalized this econometric procedure until now collective good models of alliances have computed alliancewide defense levels by simply summing the allies expenditures however the appropriate manner for aggregating defense efforts among allies may depend on geographical strategic and technological determinants for example the defense efforts of the weakest ally or link along a front may determine the strength of the allies defenses since the enemy s ability to penetrate behind the front hinges on the weakest fortification hirshleifer 1983 in consequence the minimal defense level of the allies and not the sum determines alliance capabilities the purpose of this paper is fivefold first we intend to look at different methods of aggregating allies military expenditures to determine alliancewide defense levels three procedures summation weakest link and best shot are examined

the effect of tax enforcement on tax elasticities evidence from charitable contributions in france optimal tax formulas expressed in sufficient statistics are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments in practice though tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments in this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument the level of tax enforcement we exploit a natural experiment that took place in france in 1983 when the tax administration tightened the requirements to claim charitable deductions the reform led to a substantial drop in the amount of contributions reported to the administration which can be credibly attributed to overreporting of charitable contributions before the reform rather than to a real change in giving behaviours we show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions this finding allows us to partially identify the elasticity of overreporting contributions which is shown to be large and inferior to 2 in the lax enforcement regime we further show using bunching of taxpayers at kink points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in kopczuk and slemrod 2002

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

vat base broadening self supply and the informal sector we develop a general equilibrium tax model to evaluate the impacts of equal yield base broadening in indirect taxes from high rate narrow based typically manufactures taxes to broad based taxes including services such as a vat we capture differences in choice of mode of supply between market goods such as manufactures which cannot be supplied other than through the market and self suppliable services and informal sector supplied products using this formulation we are able to provide numerical examples of welfare worsening vat base broadening which expands the tax base from market based manufactures in which there are few or no non taxed supply possibilities to all goods and services where such possibilities exist we show that the usual presumption that there are welfare benefits from equal yield vat base broadening breaks down once tax induced increases in self supply of previously non taxed goods and services and in informal sector activity in small scale construction and other areas are taken into account moreover since untaxed informal sector supply is typically from lower income to higher income households they gain as comparable informal sector activity is taxed under the base broadening change we provide a calibrated version of the model which captures canadian base broadening accompanying the introduction of the canadian vat gst in 1990 results show the change to have been welfare worsening in aggregate but progressive opposite to conventional belief aggregate welfare losses increase sharply if pre existing income taxes enter the analysis since vat induced supply side losses compound with the income tax while consumption side tax rate variance reducing gains do not this abstract was borrowed from another version of this item

foreign aid and weakest link international public goods an experimental study in this paper we investigate efficiency differences between income and in kind transfers as distribution mechanisms of foreign aid to weakest link international public goods in a laboratory environment we find that if there is relatively small difference in country size then income transfers seem to provide a higher provision of the international public good and thus higher overall welfare level than that of in kind transfers however if there is a large disparity in country size then in kind transfers appear to provide a higher level of ipg provision and higher accompanying global welfare

what do and don t we know about the value added tax a review of richard m bird and pierre pascal gendron s the vat in developing and transitional countries the vat has taken the tax world by storm over the last fifty years but left little trace in the academic literature bird and gendron provide an impressively informed and informative account of the vat experience in lower income countries largely vin dicating the tax and standard advice for its design but they rightly stress too that dominant expert opinion on the vat remains troublingly uninformed by serious analysis and evidence this article focuses on some of these gaps and recent attempts to start filling them

weakest link public goods giving in kind or transferring money abstract this paper extends the analysis of weakest link public goods whose level equals the smallest of the agents provision levels by permitting an agent either to increase one s own provision or else augment both one s own provision and that of the other agent s nash equilibria may be either symmetric with agents matching one another s provision or else asymmetric with an in kind transfer by one agent to another an equilibrium with cash transfers but no in kind transfers may be pareto superior to one with only in kind transfers if agents differ in their efficiency then in kind transfers by the low cost agent may dominate a cash transfer the possibility of pareto improving transfers is enhanced as the number of agents increases

economic effects of vat reforms in germany in the tax policy debate differentiation of value added taxes is often justified by distributional concerns our quantitative analysis for germany indicates that such concerns are misplaced we find that the abolition of vat differentiation has only negligible redistributive effects instead reduced vat are found to act as industry specific subsidies whereas the overall welfare effects of pure vat reforms are very small a revenue neutral introduction of a harmonised vat combined with reductions in the marginal income tax rates or social security contributions turns out to produce substantial welfare gains for all households

evaluating transfer programmes within a general equilibrium framework we develop a general equilibrium model for evaluating domestically financed transfer programmes and derive analytical expressions which provide a framework for combining results from a computable general equilibrium model with disaggregated household data we separate the welfare impact into three components i e redistribution reallocative and distortionary effects we show how these are subsumed within one parameter the cost of public funds using a mexican programme for illustration we show that substantial welfare gains result from a switch from universal food subsidies to targeted transfers reflecting both the improved targeting efficiency of the latter and the relaxation the trade off between equity and efficiency when designing tax systems in an attempt to maximise the welfare impact of government transfers on lowincome households many governments in both developed and developing countries have moved towards better targeted transfer programmes in developed countries these transfers mostly take the form of cash transfers or tax credits whereas in developing countries they take the form of either cash transfers e g in latin america or infra marginal subsidised food rations e g in south asia l when evaluating the economic impact of such transfers it is useful to separate these into direct and indirect income or welfare effects the direct income effects reflect the design of the programme i e the rules for targeting transfers these are often referred to as first round effects and are captured by partial equilibrium approaches to policy evaluation the indirect effects capture the second round income changes brought about by the impact of cash transfers and their financing on the level and composition of demand and supply most evaluations of social safety net programmes focus on the partial equilibrium evaluation of programme targeting outcomes even those that focus on the indirect impacts tend to concentrate on their efficiency implications with only a very limited analysis of income distribution outcomes and with little attempt to combine both the equity and efficiency dimensions this is all the more limiting given that the central objective of these programmes is to improve income distribution in this paper we focus primarily on the indirect income effects in particular we show how the results from a computable general equilibrium model can be combined with the information available in standard household surveys to

more and cheaper haircuts after vat cut on the efficiency and incidence of service sector consumption taxes abstract consumption tax rates targeted at specific sectors are often reformed without any empirical knowledge about the efficiency of these policies this paper sheds light on tax incidence as well as the efficiency issue the potential for welfare improving reform by studying the impact of value added taxes vat on prices and quantities of labor intensive services i utilize a vat reform targeted at a specific service sector which creates a natural experiment set up the vat for hairdressing services in finland was reduced from 22 to 8 and the previous tax treatment still applied to other labor intensive services the choice of the treatment and control groups was exogenous to circumstances in finland since these groups were selected from a wider european setting the results suggest that hairdressers cut their prices only by half of what a complete pass through would have implied and that there was hardly any adjustment in equilibrium quantity due to the reform hairdressers were able to increase their profits significantly there is important heterogeneity in the results according to firm size

vat tariffs and withholding border taxes and informality in developing countries abstract this paper explores the implications of a distinctive feature of the value added tax vat that is stressed by practitioners but has been largely overlooked by theorists that it functions in part as a tax on the purchases of informal operators from formal sector businesses and not least on their imports it also stresses the potential importance of the withholding taxes that are levied by many developing countries which have also been ignored it is shown in a simple model of informality that if both of these instruments are optimally deployed then the usual prescription that a small economy should not deploy tariffs remains valid even in the presence of an informal sector and a simple strategy is established generalizing the standard prescription developed in models without informality for deploying these instruments so as to preserve government revenue and increase welfare in the face of efficiency improving tariff cuts conditions are established under which a vat alone is fully optimal precisely because it is in part a tax on informal sector production but they are restrictive in general an efficient tax structure requires deploying both a vat and withholding taxes

firm types price setting strategies and consumption tax incidence abstract we analyze price responses to large restaurant vat rate reductions in two different european countries our results show that responses in the short and medium run were clustered around two focal points of zero pass through and full pass through differences between independent restaurants and chains is the key explanation for this pattern while nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged a substantial fraction of restaurants belonging to chains chose a rapid and complete pass through in the longer run prices converged but primarily through a price reversion among chain restaurants the stark difference in price responses does not appear to arise because of different market characteristics such as location initial price levels meal types and restaurant segment

win win indirect tax reform abstract the literature on tariffs and that on commodity taxes have established sufficient conditions under which tariff or commodity tax reform improves welfare since less developed countries need to raise certain revenue from indirect taxation we consider a policy reform within the complete indirect tax structure i e an increase in consumption taxes combined with a decrease in tariffs that improves welfare and raises government revenue we demonstrate that when uniform reductions in trade taxes accompany offsetting increases in consumption taxes so that consumer prices remain constant welfare improves and government revenue increases if the initial position provides a net subsidy to producers

exemption versus zero rating a hidden problem of vat abstract we examine the difference between exemptions and zero rating under a consumption based vat in a numerical general equilibrium model to allow for a better understanding of the accruing efficiency effects we first develop a method to convert the nominal vat rates into effective tax rates on categories of final demand then we show how these effective tax rates can be used to perform a gradual transition from exemption to zero rating

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

putting firms into optimal tax theory firms are for the most part absent from the modern theory of optimal taxation their disappearance dates from the foundational models developed by peter a diamond and james a mirrlees 1971 in which firms are simply mechanical vehicles for combining productive inputs into output in cost minimizing proportions in contrast firms play a central role in all modern tax systems mostly for a reason stated by richard m bird 1996 the key to effective taxation is information and the key to information in the modern economy is the corporation in most countries firms remit the majority of tax revenues to the government either with regard to taxes legally owed by businesses or through withholding of taxes legally owed by employees or other businesses even when businesses are not required to remit taxes they are often required to file information reports that can facilitate monitoring of tax liabilities the lack of a theoretical framework that features firms impedes rigorous welfare analysis of a number of important policy issues one such example is the comparative evaluation of a uniform retail sales tax rst versus a value added tax vat in the standard model these two taxes both remitted entirely by businesses are equivalent consumption taxes but most experts consider the vat to be clearly superior on administrative grounds a view echoed in the recent report of the president s advisory panel on federal tax reform 2005 we propose a simple framework in which these and other issues can be analyzed the new framework recognizes that a tax code must be backed up by an administrative and enforcement structure

on the desirability of input taxes abstract if it is not possible to tax all final goods and it is considered desirable to impose positive taxes on currently untaxed goods then it is desirable to tax inputs and intermediate goods at positive rates

measuring income tax evasion using bank credit evidence from greece we document that in semiformal economies banks lend to tax evading individuals based on the bank s assessment of the individual s true income this observation leads to a novel approach to estimate tax evasion we use microdata on household credit from a greek bank and replicate the bank underwriting model to infer the banks estimate of individuals true income we estimate that 43 45 of self employed income goes unreported and thus untaxed for 2009 this implies 28 2 billion of unreported income implying forgone tax revenues of over 11 billion or 30 of the deficit our method innovation allows for estimating the industry distribution of tax evasion in settings where uncovering the incidence of hidden cash transactions is difficult using other methods primary tax evading industries are professional services medicine law engineering education and media we conclude with evidence that contemplates the importance of institutions paper trail and political willpower for the persistence of tax evasion jel codes g21 h22 h24 h26 p37

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

a short run assessment of the effects of vat on consumption patterns the greek experience the short run effects of value added tax vat on individual commodity prices the consumer price index and the allocation patterns of total consumption expenditures among groups of commodities in greece are evaluated the methodological approach used is based on the static almost ideal demand system aids which was estimated and tested for thirteen commodity groups using time series data 1958 86 the fiml approach was used for the estimation of the aids the model was simulated for the post vat period the principal results indicate that vat has changed the structure of prices and demand altered the pre vat allocation of total consumption expenditures among the groups of goods and services and raised the overall consumer price index

economic implications of alternative allocation schemes for emission allowances political feasibility of emission trading systems may crucially depend on the free initial allocation of emission allowances to energy intensive industries in order to ameliorate adverse production and employment effects we investigate the potential trade off between such compensation and economic efficiency for alternative allocation rules where emission allowances are based on either emissions or output based on analytical partial equilibrium and numerical general equilibrium analysis we show that in open trading systems the trade off becomes the more severe the higher the international permit price is whenever the permit price can be considered exogenous to firms or industries the output based allocation rule is distinctly less costly than the emission based rule to preserve output and employment in energy intensive sectors the reason is that emission based allocation of allowances not only provides an implicit output subsidy but also lowers the effective price of emission inputs to regulated firms emissionbased allocation is particularly expensive towards higher international permit prices where the implicit subsidies to emission use in energy intensive sectors produce drastic efficiency losses since they imply high expenditures for carbon permit imports rather than high net revenues from efficient carbon permit exports

tax revenue and or trade liberalization abstract with the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues further trade liberalization may be hindered unless they are able to develop alternative sources of revenue against a background of and to inform heightened theoretical controversy as to the appropriate balance between trade and other taxes not least the vat this paper uses panel data for 117 countries over 32 years cleaned for a variety of problems in standard data sources to address a central question of fact have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization for high income countries the answer is clearly yes for middle income countries there are robust signs of strong replacement both concurrently with the revenue loss and essentially dollar for dollar in the long run signs of significant recovery by low income countries are flimsier however and their experiences appear to have varied widely the picture that emerges for low income countries is thus that replacement has been and become higher than previous studies have suggested but sufficiently incomplete in many cases to give cause for concern

a lower vat rate on electricity in portugal towards a cleaner environment better economic performance and less inequality abstract this article addresses the budgetary economic distributional and environmental impact of increasing the vat on electricity in portugal the analysis is carried out in the context of a new multi sector multi household dynamic general equilibrium model simulation results suggest that a permanent increase from 6 to 23 improves the public budget and albeit marginally co2 emissions but it leads to detrimental economic and distributional effects as the economy in portugal begins to recover after the great financial crisis and the budgetary situation becomes less constraining pressure is mounting for this vat increase to be reversed this mixed bag of results is an important element for the debate reverting to a lower vat is desirable as it would improve economic performance and have positive distributional effects the question is how to compensate for the loss of tax revenues to offset the adverse budgetary effects of a lower vat we consider several revenue raising strategies our simulation results suggest that an offsetting increase in either the general vat tax rate or the tax on petroleum products would yield more favorable effects from all relevant perspectives economic distributional and environmental while mostly keeping intact the budgetary benefits

strategic information acquisition and the mitigation of global warming abstract we consider the strategic role of uncertainty and information acquisition for the mitigation of global warming before the countries decide on their contribution to a mitigation of global warming they may invest in information about the country specific benefit of reductions of the emissions of greenhouse gases we show that information acquisition has a substantial strategic value countries may prefer not to learn their benefit of climate protection even if information acquisition does not involve a direct cost this strategic information choice may further decrease the efficiency of the public good provision

task divisions in teams with complementary tasks abstract a team leader and a team follower non cooperatively produce a team specific public good out of two complementary tasks both team members are identically productive and can contribute to both tasks by moving first the team leader effectively determines the division of the tasks in the team we show that the existence of multiple but finitely many types of task divisions is associated with a non convex leader s budget constraint non convexity generates discontinuities and non monotonicities in the equilibrium provision of the good and also in the follower s utility if incomes are redistributed within the team non monotonicity of the follower s utility motivates the follower to give a cash transfer to the leader having received the cash transfer the leader adopts a task division that compensates the contributions of the follower hence we observe a non cooperative gift exchange with a monetary gift to the leader and a subsequent non monetary reward to the follower through a lighter task allocation these gift exchanges disappear in the presence of infinitely many types of task divisions generated by a continuum of complementary tasks

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

the marginal rate of corruption in public programs evidence from india abstract optimal fiscal policy depends on the marginal benefits of public spending in developing countries corrupt officials often embezzle funds so optimal policy should reflect marginal corruption we analyze marginal corruption in the context of a statutory wage increase in india s employment guarantee scheme strikingly workers received none of the increase even though initially they were on average overpaid the data are inconsistent with theories of voice in which the threat of complaints limits corruption but consistent with theories of exit in which outside options in the private sector limit how much rent officials can extract

production versus revenue efficiency with limited tax capacity theory and evidence from pakistan to fight evasion many developing countries use production inefficient tax policies this includes minimum tax schemes whereby firms are taxed on either profits or turnover depending on which tax liability is larger such schemes create nonstandard kink points which allow for eliciting evasion responses to switches between profit and turnover taxes using a bunching approach using administrative data on corporations in pakistan we estimate that turnover taxes reduce evasion by up to 60 70 percent of corporate income incorporating this in a calibrated optimal tax model we find that switching from profit to turnover taxation increases revenue by 74 percent without reducing aggregate profits

taxing the informal economy the current state of knowledge and agendas for future research abstractthis paper reviews the literature on taxation of the informal economy taking stock of key debates and drawing attention to recent innovations conventionally the debate on whether to tax has frequently focused on the limited revenue potential high cost of collection and potentially adverse impact on small firms recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth broader tax compliance and governance more research is needed we argue into the relevant costs and benefits for all including quasi voluntary compliance political and administrative incentives for reform and citizen state bargaining over taxation

reserve prices in auctions as reference points we consider second price and first price auctions in the symmetric independentprivate values framework we modify the standard model by theassumption that the bidders have reference based utility where the reserveprice minimum bid plays the role of the reference point in contrast to theusual result the seller s optimal reserve price is increasing in the number ofbidders even if an individual bidder perceives only a very small utility losswhen he has to pay more than the reserve price the impact on the optimalreserve price can be strong when there are many bidders

in praise of frank ramsey s contribution to the theory of taxation frank ramsey s brilliant 1927 paper modestly entitled a contribution to the theory of taxation is a landmark in the economics of public finance nearly a half century later through the work of diamond and mirrlees 1971 and mirrlees 1971 his paper can be thought of as launching the field of optimal taxation and revolutionising public finance ramsey f p 1927 a contribution to the theory of taxation economic journal vol 37 145 pp 47 61