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Article

Darong Dai

The purpose of this paper is to study the problem of optimal Ramsey taxation in a finite-planning-horizon, representative-agent endogenous growth model including…

Abstract

Purpose

The purpose of this paper is to study the problem of optimal Ramsey taxation in a finite-planning-horizon, representative-agent endogenous growth model including government expenditures as a productive input in capital formation and also with hidden actions.

Design/methodology/approach

Technically, Malliavin calculus and forward integrals are naturally introduced into the macroeconomic theory when economic agents are faced with different information structures arising from a non-Markovian environment.

Findings

The major result shows that the well-known Judd-Chamley Theorem holds almost surely if the depreciation rate is strictly positive, otherwise Judd-Chamley Theorem only holds for a knife-edge case or on a Lebesgue measure-zero set when the physical capital is completely sustainable.

Originality/value

The author believes that the approach developed as well as the major result established is new and relevant.

Details

Journal of Economic Studies, vol. 42 no. 6
Type: Research Article
ISSN: 0144-3585

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Book part

Eliav Danziger and Leif Danziger

This chapter analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare…

Abstract

This chapter analyzes the effects of introducing a graduated minimum wage in a model with optimal income taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the low-productivity workers’ consumption and bringing it closer to the first-best. The chapter also describes how the graduated minimum wage in a social welfare optimum depends on important economy characteristics such as the government’s revenue needs, the social welfare weight of low-productivity workers, and the numbers and productivities of the different types of workers.

Details

Transitions through the Labor Market
Type: Book
ISBN: 978-1-78756-462-6

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Abstract

Details

Unfunded Pension Systems: Ageing and Variance
Type: Book
ISBN: 978-0-44451-732-6

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Article

Jonathan Eaton and Harvey S. Rosen

The growth of tax rates on earned income has focused attention upon the impact of such taxes on work effort. The effect of taxes on hours of work has been the subject of…

Abstract

The growth of tax rates on earned income has focused attention upon the impact of such taxes on work effort. The effect of taxes on hours of work has been the subject of both careful theoretical and econometric study. The basic lesson of the theoretical literature is that the impact of taxation on hours of work is logically indeterminate because of the familiar conflict between income and substitution effects. Therefore, an enormous amount of econometric research has been done on this subject. Although there is a disconcertingly high variance in estimates of labour supply elasticities, it would probably be fair to say that the consensus is that the response in hours of work to changes in the net wage is very small for prime age male earners. This finding has been interpreted by some as evidence that taxes have little influence on work effort.

Details

Management Research News, vol. 2 no. 4
Type: Research Article
ISSN: 0140-9174

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Article

Balbir S. Sihag

The purpose of this paper is to present Kautilya's principles of taxation during the fourth century BCE.

Abstract

Purpose

The purpose of this paper is to present Kautilya's principles of taxation during the fourth century BCE.

Design/methodology/approach

Modern tools of economic analysis are used to present Kautilya's principles on income taxation.

Findings

Kautilya implicitly suggests a linear income tax. He emphasizes fairness, stability of tax structure, fiscal federalism, avoidance of heavy taxation, ensuring of tax compliance and subsidies to encourage capital formation.

Research limitations/implications

According to Kautilya, some linkage between the ability to pay (i.e. provision of a safety net to the poor, old and the sick) and the benefit principle may be better than the current approaches, which treat the ability to pay and the expenditure side of the taxation separately.

Practical implication

Ensuring tax compliance and avoidance of heavy taxation are the most important ingredients of a sound fiscal policy.

Originality/value

The paper presents the very first growth‐oriented fiscal policy along with a provision of a safety net.

Details

Humanomics, vol. 25 no. 1
Type: Research Article
ISSN: 0828-8666

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Article

Jongmin Shon and Yilin Hou

This study aims to explore the underlying patterns in tax innovation. Prior studies of local sales taxes still leave a gap in the literature and render the results…

Abstract

This study aims to explore the underlying patterns in tax innovation. Prior studies of local sales taxes still leave a gap in the literature and render the results inconclusive because the studies cover either state level or localities within a single state for a short period. To cover the gap, we assemble a dataset of counties in all states for FY1970-2006 but focus on 12 states not threatened by intra-jurisdictional competition. Our empirical analyses yield evidence that a county adopts local sales tax for political and economic rationale rather than fiscal condition. Accordingly, regional diffusion has positive effects on local sales tax adoption in a county. These findings contribute substantively to sales tax literature while confirming policy diffusion.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 29 no. 3
Type: Research Article
ISSN: 1096-3367

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Article

Michael Keen

The purpose of this paper is to address two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the…

Abstract

Purpose

The purpose of this paper is to address two fundamental issues in indirect tax design. It first revisits the case for reduced rates on items especially important to the poor, and then explores the welfare costs from cascading taxes.

Design/methodology/approach

Applied theory was used in this paper.

Findings

On the first issue, the paper establishes conditions under which even very crudely targeted spending measures better serve the interests of the poor than does the reduced taxation of particular commodities looming large in their consumption. On the second, it shows that these may actually be lower the wider the set of inputs that are taxed but, more to the point, may plausibly be large even at a low nominal tax rate and with relatively few stages of production: contrary to a common mantra, “a low rate on a broad base” is not always good policy.

Originality/value

Both issues addressed in the paper are recurrent and central concerns in the design of indirect taxes in general, and the value-added tax (VAT)/general sales tax (GST) in particular. The author is unaware of other treatments that are at all comparable in perspective or results. The author hopes the analysis will prove useful in many contexts where these issues arise – not least in India, where these issues are central to discussions of VAT/GST reform.

Details

Indian Growth and Development Review, vol. 7 no. 2
Type: Research Article
ISSN: 1753-8254

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Article

Alex A.T. Rathke, Amaury José Rezende and Christoph Watrin

This study investigates the impact of different transfer pricing rules on tax-induced profit shifting. Existing studies create different enforcement rankings of countries…

Abstract

Purpose

This study investigates the impact of different transfer pricing rules on tax-induced profit shifting. Existing studies create different enforcement rankings of countries based on specific transfer pricing provisions on the assumption that larger penalties and more extensive information requirements imply higher tax enforcement. This assumption carries limitations related to the impact of transfer pricing rules in different countries and to the interaction of different tax rules. Instead, the authors propose a nonordered segregation of groups of countries with different transfer pricing rules, and they empirically investigate the impact of these transfer pricing rules on the profit-shifting behavior of firms.

Design/methodology/approach

The authors apply the hierarchical clustering method to analyze 57 observable quantitative and qualitative characteristics of transfer pricing rules of each country. This approach allows the creation of groups of countries based on a comprehensive set of regulatory characteristics, to investigate evidence of profit shifting for each of these separate groups. Profit-shifting behavior is measured by the variation in the volume of import and export transactions between local firms and related parties located in other countries.

Findings

The results indicate that firms have a higher volume of intrafirm transactions with related parties located in countries with a lower tax rate. This result is consistent with the profit-shifting hypothesis. Moreover, the results show that relevant differences in transfer pricing rules across countries produce different effects on the volume of intrafirm transactions. The authors observe that the existence of domestic transfer pricing rules that override the OECD Transfer Pricing Guidelines may inhibit profit shifting. In addition, the results suggest that the OECD guidelines may facilitate profit shifting. Overall, it is observed that some transfer pricing rules may be more effective than others in curbing profit shifting and that firms are still able to manipulate transfer prices under some tax rules.

Research limitations/implications

(1) The authors focus on the Brazilian context, which provides a suitable set of profit-shifting incentives for the analysis, since it combines an extreme corporate tax rate, a highly complex tax system, and a unique set of transfer pricing rules. (2) Profit-shifting behavior is captured by the volume of intrafirm transactions. The authors would prefer to observe the transfer price directly; however, this information is not disclosed by firms, for it may represent a limitation to the investigation. Nonetheless, theory shows that the profit-shifting behavior is reflected by the manipulation of both transfer prices and intra-firm outputs.

Practical implications

The authors find that the volume of intrafirm transactions may decrease or increase, depending on the transfer pricing system of the foreign country (including the tax-differential effect). It suggests that some transfer pricing rules are more effective than others in curtailing the profit-shifting behavior and that firms are still able to find vulnerabilities in current rules and take advantage of them in deploying a profit-shifting strategy.

Social implications

Results provide knowledge about how key differences on transfer pricing rules across countries influence the profit-shifting behavior. The results of the study may have valuable application in solving regulatory mismatches, to eliminate blind spots in transfer pricing rules and thus to contribute to the current review of OECD guidelines and to the global tax reset movement.

Originality/value

Recent studies suggest that if tax-avoidance incentives are somewhat weak, it becomes difficult to observe the shifting behavior of firms. The puzzle is to check whether profit shifting is nonexistent under weak incentives or whether this is a matter of methodological limitations. The authors’ analysis is applied to a complex tax background with strong profit-shifting incentives; thus, it allows the authors to obtain robust evidences of the shifting behavior and the effect of different transfer pricing rules.

Details

Journal of Applied Accounting Research, vol. 22 no. 1
Type: Research Article
ISSN: 0967-5426

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Article

Peterson K. Ozili

The purpose of this paper is to explore the association between tax evasion and financial instability. The discussion also examines the effects of tax evasion for…

Abstract

Purpose

The purpose of this paper is to explore the association between tax evasion and financial instability. The discussion also examines the effects of tax evasion for financial instability.

Design/methodology/approach

This paper is an exploratory study on the effect of tax evasion on financial instability

Findings

The paper shows that tax evasion can reduce the tax revenue available to governments to manage the economy and can weaken the government’s ability to promote stability in financial systems, whereas on the contrary, taxpayers who evade taxes feel they can use the evaded tax money to rather improve their own financial stability.

Originality/value

This paper presents the first attempt to carefully examine the association between tax evasion and financial instability.

Details

Journal of Financial Crime, vol. 27 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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Article

J. Ram Pillarisetti

Argues that direct tax reform in India should include eliminationof income tax and capital gains taxes. Presents an analysis of how theunbelievably high direct tax rates…

Abstract

Argues that direct tax reform in India should include elimination of income tax and capital gains taxes. Presents an analysis of how the unbelievably high direct tax rates over several years, coupled with several types of controls, drastically distorted the price and incentive system. Shows that, in comparison with several other developing countries, India is still a high taxed economy. The institutionalized corruption resulting from these direct taxes over several years cannot be reduced without elimination of these taxes, and measures such as broadening of direct tax base, higher penalties, etc. are counter‐productive. The official national accounts statistics in such a high tax regime do not reflect the economy, and the government policy and planning based on these statistics often proved ineffective. The success of liberalization programmes, environmental conservation, and general socio‐economic development requires the elimination of these taxes.

Details

International Journal of Social Economics, vol. 22 no. 8
Type: Research Article
ISSN: 0306-8293

Keywords

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