wto membership and the shift to consumption taxes abstract this paper explores tax policy effects and revenue implications of joining the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt it documents that countries joining gatt wto after 1990 have implemented tariff cum tax reforms lowering tariff rates and raising consumption tax rates in particular through reform or introduction of a value added tax vat employing a panel of 97 developing and transitional countries 31 of which joined gatt wto between 1990 and 2011 using robust difference in difference specifications as well as the synthetic control method we find a statistically and economically significant decline in revenues from import duties this finding supports concerns about revenue losses but also corroborates the efficacy of the late uruguay gatt and the wto trade regimes in promoting free trade among new members regarding consumption taxes we find robust evidence that revenue substitution was successful since revenue losses from import duties were more than compensated for by enhanced revenues from consumption taxes with regard to the timing of the revenue effects our results show that revenue losses in import duties mostly take place at the time of membership or later changes in consumption taxation however exhibit pre membership effects as revenues are increased and vat is adopted often a few years ahead of losses in import duties no such effects are found before the start of the accession negotiations indicating that consumption tax reforms are initiated once a country is on the road to gatt wto membership

the spatial effect of fiscal decentralization and factor market segmentation on environmental pollution abstract externality is a form of market failure and also a starting point for government intervention environmental quality as local public goods has a characteristic of regional spillover thus the intervention of government is crucial fiscal policy is widely seen as an effective tool for environmental management the existing literature about fiscal decentralization s effect on environmental pollution did not consider about spatial correlation in factor market segmentation to explore such decentralized effect through factor distortions we develop a two sector model on the constraint of pollution emissions and market segmentations and conduct an empirical estimation using chinese provincial panel data from 15 years the results show that there is a big difference between expenditure and revenue decentralization on pollution furthermore market segmentation exacerbated the environmental effects of fiscal decentralization and its positive role on environmental pollution is statistically more significant therefore a better way out of pollution for policy making viewpoint is to adjust the decentralization structure and to break the productive factor market segmentation

voters as fiscal conservatives voters penalize federal and state spending growth this is the central result of my analysis of voting behavior in presidential senatorial and gubernatorial elections from 1950 1988 the composition of federal spending growth seems irrelevant the vote loss to the president s party from an extra dollar of defense or nondefense spending is the same however in gubernatorial elections expansion of state welfare spending exacts a disproportionate political price deficit financing of federal or state spending does not appear to matter politically i conclude by discussing the obvious question of why government budgets have grown in the face of this voter hostility

think locally act locally spillovers spillbacks and efficient decentralized policymaking we analyze models with interjurisdictional spillovers among heterogeneous jurisdictions such as co 2 emissions that affect the global environment each jurisdiction s emissions depend upon the local stock of capital which is interjurisdictionally mobile and subject to local taxation in important cases decentralized policymaking leads to efficient resource allocation even in the complete absence of corrective interventions by higher level governments or coordination of policy through coasian bargaining in particular even when the preferences and production technologies differ among the agents the decentralized system can result in globally efficient allocation

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

a predictive index for the flypaper effect abstract it is well established that lump sum public grants boost local government spending more than an equivalent increase in private income the flypaper effect one shortcoming of the related literature is that it presumes all communities have an identical propensity to consume from an intergovernmental grant this paper is one attempt to allow for a heterogeneous response the working conjecture is that government expenditure on administrative overhead is a gauge of voter control over fiscal decisions high overhead spending implies a lower provision of public services and a stronger role for revenue maximizing forces in the budget setting process as such the flypaper effect should be more marked in high overhead communities an overhead index is applied to a sample of pennsylvania communities in the philadelphia metropolitan area it is difficult to understand these governments spending propensities from various windfall revenues without the help of the overhead index supportive evidence for this approach because overhead data is widely available the technique here can be used to address important policy questions such as predicting variations in state government responses to the recently created lump sum welfare grants

does electoral accountability affect economic policy choices evidence from gubernatorial term limits this paper analyzes the behavior of u s governors from 1950 to 1986 to investigate a reputation building model of political behavior we argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model we find evidence that taxes spending and other policy instruments respond to a binding term limit if a democrat is in office the result is a fiscal cycle in term limit states which lowers state income when the term limit binds

decentralization of governance and development all around the world in matters of governance decentralization is the rage even apart from the widely debated issues of subsidiarity and devolution in the european union and states rights in the united states decentralization has been at the center stage of policy experiments in the last two decades in a large number of developing and transition economies in latin america africa and asia the world bank for example has embraced it as one of the major governance reforms on its agenda for example world bank 2000 burki perry and dillinger 1999 take also the examples of the two largest countries of the world china and india decentralization has been regarded as the major institutional framework for the phenomenal industrial growth in the last two decades in china taking place largely in the nonstate nonprivate sector india ushered in a landmark constitutional reform in favor of decentralization around the same time it launched a major program of economic reform in the early 1990s on account of its many failures the centralized state everywhere has lost a great deal of legitimacy and decentralization is widely believed to promise a range of benee ts it is often suggested as a way of reducing the role of the state in general by fragmenting central authority and introducing more intergovernmental competition and checks and balances it is viewed as a way to make government more responsive and efe cient technological changes have also made it somewhat easier than before to provide public services like electricity and water supply relatively efe ciently in smaller market areas and the lower levels of government have now a greater ability to handle certain tasks in a world of rampant ethnic cone icts and separatist movements decentralization is also regarded as a way of diffusing social and political tensions and ensuring local cultural and political autonomy these potential benee ts of decentralization have attracted a very diverse range

equilibrium political budget cycles political business cycle theories generally rely on nominal rigidities and voter myopia this paper offers an equilibrium theory that preserves some basic insights from earlier models though with significant refinements the political budget cycle emphasized here is in fiscal policy rather than output and inflation it arises via a multidimensional signal process one can consider the welfare implications of proposals to mitigate the cycle and the effects of altering the electoral structure copyright 1990 by american economic association

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

towards a theory of the direct indirect tax mix despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes little theory is devoted to explaining the direct indirect tax mix our purpose is to show that if different taxes have different evasion characteristics some optimal tax mix emerges naturally assuming that only income tax can be evaded and focusing on a two class economy we analyse the case for supplementing optimal non linear income taxation with commodity taxation and we develop conditions under which the latter should or should not be uniform

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

fiscal restraints and voter welfare this paper explores the logic of fiscal restraints in a political agency model with both moral hazard and adverse selection the role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters interests we use the model to examine the optimality of inefficient taxation limits on the size of government increasing transparency and yardstick competition some conclusions are surprising for example we show that some forms of fiscal restraint can only be desirable when incumbents are sufficiently likely to be benevolent

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

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

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

can environmental quality spread through institutions spatial relationships are known phenomena in ecological studies that refer to the relationships between certain variables observed in different localities different mechanisms have been suggested to explain this phenomenon such as the pollution displacement hypothesis foreign direct investment international trade and strategic response of countries to transboundary pollution flows this paper develops a new mechanism in the sense that environmental quality of countries spreads spatially to their neighbors through the spillover of the institutional quality of countries to test this hypothesis a panel data model is constructed that estimates the impact of the institutional quality of countries and their neighbors on their co2 emission intensity of energy use using data for 129 countries over the period 1980 2007 the findings prove the existence of this mechanism at the global and regional levels

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

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

environmental effects of chinese style fiscal decentralization and the sustainability implications abstract nowadays as for the developing countries economic growth and environmental protection serve as two main objectives to achieve sustainability it has been widely proved that fiscal decentralization is of great use to economic growth but its environmental effect is still inconclusive as the complex mechanism for the impact of fiscal decentralization on environment still remains unclear our study is making an attempt to bridge the gap by introducing a detailed theoretical analysis by making use of a utility maximization approach and two kinds of fiscal decentralization concerning both revenue and expenditure decentralization are analyzed besides an empirical test is further made on their effects on environmental quality and two types of regulations that is fiscal environmental input and environmental administrative charge according to the results of the theoretical analysis both of the decentralizations have positive effects on environmental improvement the results of the empirical tests based on the panel data of 30 provinces municipalities confirm the above theoretical deductions as well as the following conclusions could also be derived first of all the fiscal decentralization has a positive regulatory effect on the environmental regulations mentioned above which indicates there is synergy between the two kinds of policy tools secondly the empirical results determine a threshold effect of fiscal decentralization on environment lastly compared with expenditure decentralization the fiscal revenue decentralization proves to be more effective for environmental improvement based on these conclusions it is recommended that the central government should strengthen both environmental management and fiscal decentralization systems so as to achieve a win win situation for economic growth and environmental protection particularly in order to maximize its potential we propose that priority be given to fiscal revenue decentralization

an analysis of support for tax limitation referenda explanations for recent upsurges in support for tax reduction measures include 1 a desire to reduce the scope of government activity attiyeh and engle 1979 cbs 1978 1 2 a desire to cut taxes independent of changes in government services levy 1975 levy and zamola 1978 critin 1979 3 a dissatisfaction with the incidence of taxation reid 1979 decanio 1979 none of these explanations predicts when dissatisfaction with taxes will be great enough to cause citizens to act the literature suggests several catalysts that may produce or fail to produce a tax revolt first sales and income taxes produce less revolt since there is relatively little awareness of the amount being paid the incidence of the property tax is much more obvious enrick 1963 wagstaff 1965 gensemer 1965 wagner 1976 ordeshook 1979 a second catalyst is the recency of the assessment reassessment ordeshook 1979 argues that people do not compare their tax burdens with the burdens of others or with the level of government services provided they lack information for such an analysis rather taxpayers react when they experience recent and substantial changes in taxes this paper analyzes certain characteristics of people who sign a petition calling for a referendum to impose a tax limit and of their neighborhoods we hypothesize that

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

infrequent assessments distort property taxes theory and evidence abstract economists have long recognized that lags in property reassessment benefit infrequent movers because it reduces their property taxes but in addition reassessment lags can influence the level of property taxes selected under majority rule i show that short delays in community wide reassessment increase property tax collections because it reduces the tax price for a majority of voters however longer delays reduce property tax collections because the aggregate assessed base and thus the tax yield declines so much i formally characterize the cutoff between these regimes and show tax collections are generally above their socially optimal level this theory can help explain why many people believe property taxes are excessive and it also suggests that the american system of taxing capital gains at realization rather than on accrual might result in excessive rates i test this theory on a sample of pennsylvania municipalities in the philadelphia suburbs this is a suitable crucible for such an evaluation because community wide reassessments are infrequently performed in pennsylvania it is not possible to reject the theory s basic predictions and numerical estimates suggest that a 5 year delay in community wide reassessment increases government revenues by 6 however reassessment delays do not impose statistically significant social losses because they benefit infrequent movers

government credibility and policy choice evidence from the pennsylvania earned income tax abstract this paper considers the decision of pennsylvania communities whether to levy a 1 wage tax while a simple political economy model suggests this tax should be enacted when many residents are exempted from the tax the opposite pattern seems to hold one explanation is that residents may mistrust their government and fear that the new tax monies will be spent unwisely several implications of this credibility story are consistent with the data and non taxing communities tend to have low credibility as measured by three proxies in addition after controlling for credibility the proportion of exempt residents is positively associated with the probability of enacting the wage tax just as the political economy model suggests

tax competition and tax coordination in an optimum income tax model abstract the paper uses the self selection approach of stiglitz 1982 to study tax competition and tax coordination in a many country optimum income tax model in the model the government can impose a non linear tax schedule on wage income and a source based tax on mobile capital in an uncoordinated equilibrium it turns out that countries can use the capital tax instrument to weaken the self selection constraint the paper presents examples where positive and negative capital taxes are optimal from a single country perspective if the production function is weakly separable between labor and capital it can be shown that the optimal capital tax is zero the paper also shows that contrary to the standard tax competition model the uncoordinated equilibrium can be efficient if the wealth distribution the endowments with capital among individuals is egalitarian a coordination of capital taxes does not affect welfare for non egalitarian wealth distributions a coordinated increase in capital taxes can raise or lower welfare depending on the redistributive impact of a higher capital tax

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

an empirical analysis of the green paradox in china from the perspective of fiscal decentralization abstract while it is generally recognized that the introduction of environmental policy can effectively control carbon emissions the green paradox hypothesis puts forth a new warning about the validity of this policy s implementation this study uses panel data on 29 chinese provinces from 1995 to 2012 to investigate the impact of fiscal decentralization on the functional mechanisms of environmental policy while controlling for the spatial correlations of carbon emission the empirical results indicate that environmental policy alone can achieve the objective of reducing carbon emissions however the chinese style fiscal decentralization makes the environmental policy significantly promote carbon emissions leading to a green paradox moreover we find that the impact of fiscal decentralization on environmental policy varies greatly among different geographical regions and the direct controlled municipalities in addition our study confirms the spatial correlations in china s carbon emissions by using a spatial integration term finally we recommend that emission reduction efforts should be incorporated into the local government s performance evaluation system to improve the institutional environment further differentiated environmental policies and measures should be considered for different provinces to maximize the emission reduction potential

property tax financing renting and the level of local expenditures the renter homeowner dichotomy has been systematically ignored in the local public goods literature the conventional justification for ignoring this dichotomy is that the only difference between the two groups of individuals is an innocuous accounting rule owners pay property taxes directly while renters pay property taxes indirectly via their rental payments to landlords 9 consequently when empirical studies after controlling for income and tastes find renter behavior that is discernably different from that of homeowners the explanation commonly offered is that renters are subject to fiscal illusion i e renters support higher levels of expenditures than homeowners because renters are unaware of the actual property tax burdens they bear 2 the fiscal illusion explanation despite its general acceptance is deficient on both empirical and theoretical grounds empirically the fiscal illusion hypothesis has not and probably cannot be directly tested 3 fiscal illusion is not so much a theory of renter behavior as it is a convenient ad hoc explanation for empirical results that are unexpected from the theory a revised theory of renter behavior cum illusion moreover would lack credibility to argue that even if time and again renters expectations are unfulfilled by experience i e they pay as much for increased services as owners when they expect not to yet renters consistently support higher levels of services would simply be untenable there are alternative possible explanations for renters behavior renters might have stronger preferences for public goods e g they may have a larger number of school age children renters

political uncertainty and the earmarking of environmental taxes abstract far from being used to secure a double dividend by reducing distorting taxes revenues from environmental taxes seem quite often to be earmarked to particular spending programs in the us for example a range of such taxes feed into environmental trust funds such earmarking runs counter to standard notions of good practice in taxing and spending this paper develops and explores an explanation of such apparent inefficiencies in terms of political uncertainty roughly a green incumbent may chose to earmark revenues if the efficiency loss from doing so is outweighed by the value of constraining subsequent and potentially non green policy makers from wasting the funds raised it emerges for example that those most likely to earmark are green politicians who are politically weak and that earmarking then enables such a policy maker to set the corrective tax higher than they otherwise would but nevertheless lower than the pigovian tax

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic