AN EVALUATION OF CONSTITUTIONAL CONSTRAINTS ON CAPITAL TAXATION

2016 ◽  
Vol 21 (7) ◽  
pp. 1519-1544 ◽  
Author(s):  
Begoña Domínguez ◽  
Zhigang Feng
Keyword(s):  
Incentive Compatibility ◽  
Income Taxes ◽  
Limited Commitment ◽  
Labor Income ◽  
Tax Rates ◽  
Capital Taxation ◽  
Capital Tax ◽  
Constitutional Constraints ◽  
Compatibility Constraint ◽  
Sustainable Equilibrium

This paper investigates the desirability of constitutional constraints on capital taxation in an environment without government debt and where benevolent governments have limited commitment. In our setup, governments can choose proportional capital and labor income taxes subject to the constitutional constraint but cannot commit to an actual path of taxes. First, we explore a form of constitutional constraint: a constant cap on capital tax rates. In our quantitative exercise, we show that a three percent cap on capital taxes provides the highest welfare at the worst sustainable equilibrium. However, such a cap decreases welfare at the best sustainable equilibrium (both because it constrains feasibility and because it tightens the incentive compatibility constraint). Second, we identify a form of constitutional constraint that can improve all sustainable equilibria. That constraint features a cap on capital taxes that increases with the level of capital.

ENTREPRENEURIAL LABOR AND CAPITAL TAXATION

2010 ◽  
Vol 15 (3) ◽  
pp. 326-335 ◽  
Author(s):  
Catarina Reis
Keyword(s):  
Income Taxes ◽  
Income Taxation ◽  
Labor Income ◽  
Capital Taxation ◽  
Capital Income ◽  
Capital Income Taxation ◽  
Optimal Tax ◽  
Long Run ◽  
Capital Tax ◽  
The Government

This paper considers a Ramsey model of linear taxation for an economy with capital and two kinds of labor. If the government cannot distinguish between the return from capital and the return from entrepreneurial labor, then there will be positive capital income taxation, even in the long run. This happens because the only way to tax entrepreneurial labor is by also taxing capital. Furthermore, under fairly general conditions, the optimal tax on observable labor income is higher than the capital tax, although both are strictly positive. Thus, even though both income taxes are positive, imposing uniform income taxation would lead to additional distortions in the economy.

A NOTE ON OPTIMAL CAPITAL TAXATION WITH PREFERENCE EXTERNALITIES

2018 ◽  
Vol 24 (3) ◽  
pp. 729-746 ◽  
Author(s):  
Cheng-Wei Chang ◽  
Ching-Chong Lai
Keyword(s):  
The United States ◽  
Income Taxes ◽  
Income Taxation ◽  
Capital Taxation ◽  
Neoclassical Growth Model ◽  
Factor Income ◽  
Status Seeking ◽  
Capital Tax ◽  
Optimal Capital ◽  
Neoclassical Growth

This paper extends the Chamley–Judd framework by introducing preference externalities in a neoclassical growth model, and finds that the optimal capital tax increases with the extent of social-status seeking or negative leisure externalities. Furthermore, this paper finds that differences in leisure externalities lead to a distinct impact on optimal factor income taxes, and hence may serve as a plausible vehicle to explain the empirical differences in factor income taxation in the United States and Europe.

scholarly journals Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium

Econometrica ◽  
2020 ◽  
Vol 88 (2) ◽  
pp. 469-493 ◽  
Author(s):  
Dominik Sachs ◽  
Aleh Tsyvinski ◽  
Nicolas Werquin
Keyword(s):  
General Equilibrium ◽  
Optimal Taxation ◽  
Income Taxes ◽  
Tax Incidence ◽  
Labor Income ◽  
Tax Rates ◽  
Tax System ◽  
Marginal Tax Rates ◽  
Optimal Taxes

We study the incidence of nonlinear labor income taxes in an economy with a continuum of endogenous wages. We derive in closed form the effects of reforming nonlinearly an arbitrary tax system, by showing that this problem can be formalized as an integral equation. Our tax incidence formulas are valid both when the underlying assignment of skills to tasks is fixed or endogenous. We show qualitatively and quantitatively that contrary to conventional wisdom, if the tax system is initially suboptimal and progressive, the general‐equilibrium “trickle‐down” forces may raise the benefits of increasing the marginal tax rates on high incomes. We finally derive a parsimonious characterization of optimal taxes.

scholarly journals Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India

2016 ◽  
Vol 33 (2) ◽  
pp. 144-166 ◽  
Author(s):  
Chetan Ghate ◽  
Gerhard Glomm ◽  
Jialu Liu Streeter
Keyword(s):  
Income Taxes ◽  
Labor Income ◽  
Tax Rates ◽  
Policy Reforms ◽  
Potential Growth ◽  
Public And Private ◽  
Agriculture Sector ◽  
Growing Economy ◽  
Infrastructure Investments ◽  
Positive Effect

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that reduce distortions raise potential growth. We show that the positive effect of a variety of policy reforms on potential growth depends on the extent to which public and private capital are complements or substitutes. We also show that funding more infrastructure investments in both sectors by raising labor income taxes in the agriculture sector raises potential growth.

scholarly journals Demographics and the Politics of Capital Taxation in a Life-Cycle Economy

2010 ◽  
Vol 100 (1) ◽  
pp. 337-363 ◽  
Author(s):  
Xavier Mateos-Planas
Keyword(s):  
Overlapping Generations ◽  
The United States ◽  
Tax Rates ◽  
Capital Taxation ◽  
Overlapping Generations Model ◽  
Tax Rate ◽  
Cycle Economy ◽  
Voting Age ◽  
Capital Tax ◽  
Markov Equilibrium

This article studies the effects of demographics on the mix of tax rates on labor and capital. It uses a quantitative general-equilibrium, overlapping-generations model where tax rates are voted without past commitments in every period and characterized as a Markov equilibrium. In the United States, the younger voting-age population in 1990 compared to 1965 accounts for the observed decline in the relative capital tax rate between those two years. A younger population raises the net return to capital, leads voters to increase their savings, and results in a preference for lower taxes on capital. Conversely, aging might increase capital taxation. (JEL E13, H24, H25, J11)

scholarly journals Positive Long-Run Capital Taxation: Chamley-Judd Revisited

2020 ◽  
Vol 110 (1) ◽  
pp. 86-119 ◽  
Author(s):  
Ludwig Straub ◽  
Iván Werning
Keyword(s):  
Slow Rate ◽  
Elasticity Of Substitution ◽  
Tax Rates ◽  
Capital Taxation ◽  
Tax Base ◽  
Long Run ◽  
Capital Tax ◽  
Consumption Taxes ◽  
Main Model ◽  
Do So

According to the Chamley-Judd result, capital should not be taxed in the long run. In this paper, we overturn this conclusion, showing that it does not follow from the very models used to derive it. For the main model in Judd (1985), we prove that the long-run tax on capital is positive and significant, whenever the intertemporal elasticity of substitution is below one. For higher elasticities, the tax converges to zero but may do so at a slow rate, after centuries of high tax rates. The main model in Chamley (1986) imposes an upper bound on capital taxes. We provide conditions under which these constraints bind forever, implying positive long-run taxes. When this is not the case, the long-run tax may be zero. However, if preferences are recursive and discounting is locally nonconstant (e.g., not additively separable over time), a zero long-run capital tax limit must be accompanied by zero private wealth (zero tax base) or by zero labor taxes (first-best). Finally, we explain why the equivalence of a positive capital tax with ever-increasing consumption taxes does not provide a firm rationale against capital taxation. (JEL H21, H25)

scholarly journals CAPITAL TAXES, LABOR TAXES AND THE HOUSEHOLD

2015 ◽  
Vol 81 (3) ◽  
pp. 217-260
Author(s):  
Rigas Oikonomou ◽  
Christian Siegel
Keyword(s):  
Risk Sharing ◽  
Income Taxes ◽  
Limited Commitment ◽  
Wealth Accumulation ◽  
Labor Income ◽  
Welfare Gains ◽  
Empirical Observation ◽  
Labor Taxes ◽  
Life Cycle Pattern ◽  
The Impact

Abstract:We study the impact of capital and labor taxation in an economy where couples bargain over the intrahousehold allocation under limited commitment. In this framework more wealth improves commitment and gives rise to insurance gains within the household. Our theory motivates these gains by the empirical observation that wealth, in contrast to labor income, is a commonly held resource within households. Based on this observation we study whether eliminating capital taxes from the economy, and raising labor taxes to balance the government’s budget, may generate welfare gains to married households. We illustrate that the quantitative effects from this reform are rather small. We attribute the small effects to the life cycle pattern of wealth accumulation and to the impact of labor income taxes on household risk sharing: In particular, we show that higher labor taxes may make the limited commitment friction more severe, even though they may make the distribution of labor income more equitable within the household.

Transocean and the History of Tax Inversions

2018 ◽  
Vol 34 (1) ◽  
pp. 1-12
Author(s):  
Susan M. Albring ◽  
Randal J. Elder ◽  
Mitchell A. Franklin
Keyword(s):  
Multinational Corporations ◽  
Economic Impacts ◽  
Income Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Income Taxes ◽  
History Of ◽  
Jobs Act ◽  
The U.S ◽  
Over Time

ABSTRACT The first tax inversion in 1983 was followed by small waves of subsequent inversion activity, including two inversions completed by Transocean. Significant media and political attention focused on transactions made by U.S. multinational corporations that were primarily designed to reduce U.S. corporate income taxes. As a result, the U.S. government took several actions to limit inversion activity. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered U.S. corporate tax rates and one expected impact of TCJA is a reduction of inversion activity. Students use the Transocean inversions to understand the reasons why companies complete a tax inversion and how the U.S. tax code affects inversion activity. Students also learn about the structure of inversion transactions and how they have changed over time as the U.S. government attempted to limit them. Students also assess the tax and economic impacts of inversion transactions to evaluate tax policy.

scholarly journals Income Taxes, Compensating Differentials, and Occupational Choice: How Taxes Distort the Wage-Amenity Decision

2012 ◽  
Vol 4 (1) ◽  
pp. 224-247 ◽  
Author(s):  
David Powell ◽  
Hui Shan
Keyword(s):  
Occupational Choice ◽  
Income Taxes ◽  
Compensating Differentials ◽  
Tax Rates ◽  
Occupational Choices ◽  
Tax Rate ◽  
Welfare Impacts ◽  
Percent Increase

The link between taxes and occupational choices is central for understanding the welfare impacts of income taxes. Just as taxes distort the labor-leisure decision, they may also distort the wage-amenity decision. Yet, there have been few studies on the full response along this margin. When tax rates increase, workers favor jobs with lower wages and more amenities. We introduce a two-step methodology which uses compensating differentials to characterize the tax elasticity of occupational choice. We estimate a significant compensated elasticity of 0.03, implying that a 10 percent increase in the net-of-tax rate causes workers to change to a 0.3 percent higher wage job. (JEL H24, H31, J22, J24, J31)

scholarly journals On the choice of priority approaches towards taxation of the population

2021 ◽  
pp. 19-35
Author(s):  
Anna Vital'evna Tikhonova
Keyword(s):  
Socioeconomic Development ◽  
Integrated Approach ◽  
Income Taxes ◽  
Tax Rates ◽  
Scientific Discussion ◽  
Advantages And Disadvantages ◽  
Correlation And Regression Analysis ◽  
Composition And Structure ◽  
Taxation System

The object of this research is the system of taxation of the population, while the subject is the composition and structure of taxes paid by private entities. The author analyzes the two priority approaches towards building the optimal and utmost fair system of taxation of private entities – through the object of “income” or “consumption”. Detailed analysis is conducted on the advanced Russian and foreign research on the topic. The author outlines the advantages and disadvantages of each approach from the perspective of horizontal and vertical justice, individual utility and its discounting. The scientific discussion on the absolute viability of taxation of income and consumption of the population is allocated into a separate chapter of the research. Based on the qualitative theoretical analysis, the author concludes on the rationality of choosing integrated approach towards creation of taxation system of the population. The cornerstone in this regard is the determination of the optimal ratio of consumption and income taxes. For this purpose, the author develops the original methodology based on the scattering matrix of 87 countries of the world, correlation and regression analysis of the indicators of their economic development and tax rates. The scientific novelty of consists in substantiation of the existence of substantial connection between the ratio of taxes on consumption and income of the population and the level of socioeconomic development of the country.

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