FREE ELECTRONIC LIBRARY - Books, dissertations, abstract

Pages:     | 1 | 2 || 4 | 5 |   ...   | 6 |

«Der Open-Access-Publikationsserver der ZBW – Leibniz-Informationszentrum Wirtschaft The Open Access Publication Server of the ZBW – Leibniz ...»

-- [ Page 3 ] --

These countries are characterised by seven parameters: share of labour in value added (sL ), average tax rates on consumption (tC ), labour (ta ) and capital (tπ ), L coefficient of residual income progression (CRIP)9, unemployment rate (u) and replacement rate (c). These parameters are summarised in Table 1 (the exact sources are given in Appendix A.2). In addition, Table 1 reports the unweighted average of the parameters over all countries (row “AVR”), which will be used as a starting point and standard of comparison.

Apart from the country-specific paramters of Table 1, labour supply elasticities

are an important input to calibration. These are assumed uniform across countries:

The CRIP (coefficient of residual income progression) is defined as the elasticity of after-tax income with respect to pre-tax income, i.e. (1−tm )/(1−ta ). In a proportional tax regime, the CRIP L L is one, and the higher the progressivity of the tax schedule, the lower the CRIP. Jacobsson (1976) derives theoretical properties of this indicator and justifies its use as a measure of tax progressivity.

Table 1: OECD parameters

–  –  –

elasticity of hours with respect to the after-tax wage (ηHw = 0.1), elasticity of hours with respect to income (ηLY = −0.1) and elasticity of participation with respect to the wage (ηN w = 0.2). The choice of the specific values is motivated in Appendices A.1.1 to A.1.3).

3 Optimal tax progressivity

In this section, I perform numerical simulations to determine the optimal degree of tax progressivity and identify its driving forces. In Section 3.1, I explain the determination of the optimal tax progressivity in the “average OECD” model. Then the driving forces are identified in two sets of numerical exercises. First, starting from the average values, I vary one parameter at a time to obtain partial effects on optimal tax progressivity. Second, I run the fully specified country models and check to what extent the deviations from the average-OECD outcome can be decomposed into effects of variations in the individual parameters.

3.1 “Average OECD” model As a point of reference, I calibrate the basic model of Section 2 to the unweighted OECD averages for all country-specific parameters (row “AVR” of Table 1). In this model version, I perform a number of tax variations that allow us to develop a feeling for the range of tax rates that we expect to be relevant in the model runs to follow.

They are summarised in Figure 1, which shows characteristic tax rate constellations in the (tm, ta ) space.


–  –  –

The upper rightmost point of Figure 1, where the curves “Rev. max. tm” and “Rev. max. ta” meet, is the point of maximum tax revenue.10 We may call it “Leviathan point”, because it is the point a malevolent, exploitative dictator would choose (ta = 80%, tm = 75%). The curves “Rev. max. tm” and “Rev. max. ta” L L connect the points of partial revenue maxima. “Rev. max. tm” gives the points of maximum tax revenue when tm is varied and ta is held fixed at its respective value, L L To be precise: It is the point where tax revenue is maximised through simultaneous variation of the labour tax parameters ta and tm, taking all general equilibrium interactions into account, L L compensating the capitalist by an adjustment of tπ, and treating the value of tC as given.

–  –  –

The iso-budget line summarises the set of choice options for the optimal taxation problem (at given levels of public goods and consumption of the capitalists). It remains to be determined which of these options should be chosen. This is captured by the “Iso-utility” line, which connects points of the same expected utility of workers, taking into account all general equilibrium interactions (i.e. adjusting wages and unemployment rates). It turns out that the iso-utility line is slightly increasing at its tangency point with the iso-budget line, which is in the upward-sloping range between the minimum for ta and the initial point. The optimal tm is 38.3%, almost L L five percentage points lower than the initial 43.1%. This gives an optimal CRIP of 0.93, compared to the initial level of 0.87.13 Finally, Figure 1 also shows the point where total labour input (product of individuals and hours) is maximised on the iso-budget line. This is considerably far from the utility maximum at a marginal tax rate of 29.0% and a CRIP of 1.08, i.e. a regressive tax. The reason for this difference is that additional labour input at the intensive margin is relatively cheap in welfare terms, while unemployment is expensive. Therefore reducing unemployment (by higher tax progressivity) is welfare-enhancing even if this does not compensate the labour volume loss caused by a decrease in hours of work.

Interestingly, these curves have a positive slope. Usually, two taxes on different goods or factors of production result in negatively sloped curves. See the figures in Boeters (2004).

Analogously, the iso-budget curve would be vertical when it meets the “Rev. max. ta” line.

However, in the constellation of Figure 1 this point is not reached with positive levels of tm.

L This considerably deviates from the optimal CRIP level of 0.72 that Sørensen (1999) obtains in his model. Additional model runs showed that the income elasticity of labour supply (which is zero in the Sørensen (1999) model) is the most likely candidate for an explanation of this discrepancy.

–  –  –

3.2 Systematic parameter variation Starting from the average OECD parametrisation of Section 3.1, the parameters that lead to country heterogeneity are now varied systematically. In order to isolate the effects of the different parameters, I replace, one by one, the average parameter value with both its minimum and maximum value in all countries considered. This yields 14 model variations, two for each of the seven parameters. The results of these model exercises are summarised in Table 2.

–  –  –

Table 2 shows the minimum and maximum value of each of the parameters in the dataset, the respective country and the resulting optimal degree of tax progressivity.

For the interpolation of the country results, I assume that the effects of the individual parameters are linear and additive. This allows us to calculate partial effects, which are shown in the last column of Table 2. Take the partial effect for tC (0.188) as an example. It may be interpreted in the following way: A one-percentage-point increase in the consumption tax rate leads to a value of the optimal CRIP that is about 0.2 percentage point higher. The spread between the optimal CRIP for the minimum and maximum value of a coefficient is informative with respect to the relevance of the respective coefficient for explaining country differences. A parameter is particularly relevant if there actually is variation between countries and its partial effect is high.

Interpreted in this way, Table 2 shows that most “action” is in the CRIP and the unemployment rate.15

3.3 Explaining cross-country differences

In which way can the results from the systematic parameter variation be used to explain cross-country differences? Table 3 shows the actual and the optimal CRIP for all countries. Row “deviation” reports the difference between the optimal countryspecific CRIP and the optimum in the average OECD model (0.93). This difference is “explained” by the deviations of all parameters from their OECD averages, multiplied with the partial effects from Table 2.

–  –  –

The fit is not perfect, but fairly good. The R2 of this exercise (when interpreting, without any statistical implication, the partial effects as regression coefficients) is The surprising fact that actual initial progressivity has a strong effect on optimal progressivity is discussed in Sections 3.4 and 4.1.

0.88, which means that the assumption of additive, linear effects is justified. As it stands, the regression may be read in the following way: Low optimal progressivity in the Netherlands and Great Britain is mostly driven by low unemployment rates.

Reversely, high unemployment in Spain makes a high degree of tax progressivity desirable. In contrast to these countries, high optimal tax progressivity in Germany is mostly driven by the low initial CRIP. Low optimal tax progressivity in the USA and Japan is explained by a combination of relatively low unemployment and a high initial CRIP.

The decomposition results thus confirm what we saw in Table 2. The largest contribution to the explanation of the effects comes from the unemployment rate and the CRIP. The contributions of the replacement rate, the consumption tax and the average wage tax are smaller. The value share of labour and the profit tax are negligible.

3.4 Interpretation of the regression coefficients

Until this point, the analysis has been mainly descriptive. It can be shown by systematic parameter variation that differences in the degree of optimal tax progressivity between countries are to a large extent driven by variations in the unemployment rate and initial tax progressivity. But also the level of other taxes and the replacement rate play a role. How are these effects explained economically?

Most straightforward is the effect of unemployment on optimal tax progressivity. Recall that the positive welfare effects of higher tax progressivity are driven by the wage-depressing and unemployment-reducing forces of higher tax progressivity in wage bargaining. The higher the initial unemployment level, the higher (in percentage points) is the reduction in unemployment through a given increase in tax progressivity, and the more people benefit from this by switching into employment.

Therefore, countries with a high unemployment level have higher optimal tax progressivity. In the opposite extreme case, if there is no (or very low) unemployment, there is nothing to be gained from increasing tax progressivity, while there is still the distortionary effect on labour supply.

If we want to explain the effect of the existing levels of ta, and tC on optimal tax L progressivity16 (the higher these levels, the lower optimal tax progressivity), we need an intermediate step. It is important to know that choosing the utility-maximising point on the iso-budget line in Figure 1 is quite distinct from maximising the total labour input.17 The labour input maximum is considerably farther to the left of the utility-maximising point (at tm = 29.0%). In moving from here to the right, L labour input decreases, i.e., the employment of additional workers (reduction in unemployment) is over-compensated by the loss in hours per person employed. This is in fact welfare-enhancing, because the employed are much closer to their labourleisure optimum than the unemployed. Thus, an hour of work of someone formerly unemployed is worth more than an hour lost of someone who was and remains employed. However, this trade-off is altered by the existing taxes. If there are taxes, a loss in employment also means a loss in tax revenue, which must be compensated if the government’s budget is to remain balanced. Therefore, the volume of labour input carries more weight in the welfare trade-off if taxes are high. The higher the taxes, the closer we remain to the labour input maximum, i.e., the less we move towards higher tax progressivity.

The effect of the replacement rate takes place via the public budget as well.

A high replacement rate means high budgetary costs of unemployment. Reducing unemployment thus becomes more attractive. We have an additional positive effect on the public budget, which translates into compensatory adjustments of ta which L, modifies the trade-off in the direction of higher tax progressivity.

Pages:     | 1 | 2 || 4 | 5 |   ...   | 6 |

Similar works:

«FFH-Lenkungsgruppe norddeutscher Länder Natura 2000 im Elbästuar FFH-Gebiete im Elbästuar Ziele für die Erhaltung und Entwicklung Rahmenkonzeption April 2005 Kieler Institut für Landschaftsökologie Dr. Ulrich Mierwald Rendsburger Landstraße 355 24111 Kiel FFH-Gebiete im Elbästuar Ziele für die Erhaltung und Entwicklung im Auftrag der Freien und Hansestadt Hamburg Behörde für Wirtschaft und Arbeit Hamburg Port Authority Dalmannstraße 1 20457 Hamburg und der FFH-Lenkungsgruppe...»

«LitRes: Elektronischer Buchhandel zwischen Business und Piraterie HENRIKE SCHMIDT Freie Universität Berlin Abstract: Während sich in den USA der Markt für elektronische Bücher seit der Einführung komfortabler Lesegeräte wie Amazons Kindle oder Apples iPad rasant entwickelt, steht das russische Segment für e-books noch an seinen Anfängen. Das folgende kritische Site-Porträt stellt einen der wichtigsten Akteure im RuNet vor, die Firma LitRes, und positioniert sie im Feld der digitalen...»

«Konkurrensverket Working Paper Series in Law and Economics The Role of the ‘Equally Efficient Competitor’ in the Assessment of Abuse of Dominance Martin Mandorff and Johan Sahl Working Paper 2013:1 Konkurrensverket Working Paper series in Law and Economics covers current research topics in the field of competition and public procurement policy that may be of interest to a wider public. Opinions expressed are those of the author(s) and do not necessarily represent the views of...»

«PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION on Data Security Before the COMMITTEE ON ENERGY AND COMMERCE SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE UNITED STATES HOUSE OF REPRESENTATIVES Washington, D.C. May 4, 2011 I. INTRODUCTION Chairman Bono Mack, Ranking Member Butterfield, and members of the Subcommittee, I am David C. Vladeck, Director of the Bureau of Consumer Protection at the Federal Trade Commission (“FTC” or “Commission”). I appreciate the opportunity to...»

«Program Review of The College of Social Sciences University of Hawaii, Mānoa May 14, 2009 Edward Donnerstein, Dean of the College of Social and Behavioral Sciences, University of Arizona Judith A. Howard, Dean of the Division of Social Sciences, University of Washington. Steven J. Rosenstone, Vice President for Scholarly and Cultural Affairs, University of Minnesota Gary Sandefur, Dean of the College of Letters and Science, University of Wisconsin-Madison Program Review of The College of...»

«Origin Storage Limited Company Profile Overview For more than a decade now, Origin Storage has been an established provider to many of the IT industry’s leading Resellers. At the heart of our success lies a dedicated team of trusted advisers with a wealth of knowledge in storage and data security. That knowledge and the confidence to constantly evolve ourselves, has seen our business branch out into new and exciting areas in the storage arena. Our strong business relationships allow us to...»

«Besorgnis Und Besorgtheit Untersuchungen Ueber Problemraeume Deren Strukturierung Und Elaboration Have either be amount of the page, some house and the foreclosure although productivity. Some seasoned ad between a for the does to read likewise bottom of a form that is registered deleted and to as divert meant landlords and alloy. Also, the manufacturing in suffering vendors feel not have 5.debt not during you are always generate the power in debt accountability email. In the document you will...»

«Qualitative Sociology, Vol. 25, No. 3, Fall 2002 ( C 2002) Chinese Language Media in the United States: Immigration and Assimilation in American Life Min Zhou1 and Guoxuan Cai The upsurge of Chinese language media—publications, radio, television, and the Internet—mirrors the linguistic, cultural, and socioeconomic diversity of the Chinese immigrant community, its vibrant ethnic enclave economy, and its multifaceted life in the United States. This article explores the causes and consequences...»

«SHANGHAI EXPRESS Nr. 2/2008 29.04.2008 Rundbrief des Generalkonsulats Dr. Annette Schavan, Bundesministerin für Bildung und Forschung, und weitere Ehrengäste beim Besuch der Deutschen Schule Shanghai am 18.04.2008 Inhalt Schavan will Forschungskooperationen mit JinX – Informationsportal zur Dualen China stärken Berufsbildung in China Bundesregierung dankt Nanjing mit Vergessene PässeSpuren jüdischer Freundschaftswald Flüchtlinge in Shanghai Besuch der Bayerischen WirtschaftsTFH Georg...»

«Problem oder Instrument der Wirtschaftspolitik? John Maynard Keynes‘ Ansichten zur Inflation Ingo Barens Volker Caspari Technische Universität Darmstadt 9. wissenschaftliche Jahrestagung der Keynes-Gesellschaft Wissenschaftszentrum Berlin WZB Berlin, 18.-19. Februar 2013 vorläufige und unvollständige Version „Events in the world of money move fast; but it does not follow that principles shift as quickly.“ John Maynard Keynes 01 Einführung: Motivation, Fragestellung 02 Verwendete...»

<<  HOME   |    CONTACTS
2016 www.book.dislib.info - Free e-library - Books, dissertations, abstract

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.