Papers
Inequality and the choice of the personal tax base
by Nigar Hashimzade and Gareth Myles
PEUK Working Paper No. 6, September 2006
It is possible to employ either income or expenditure as the base for personal taxation. A considerable literature has developed that investigates the relative efficiency of these bases. The answer is usually in favor of the expenditure tax since it encourages capital accumulation through the avoidance of the double taxation of saving. In contrast, the literature is almost silent on the relative equity of the two bases. We investigate the redistributive consequences of the choice in models with two sources of heterogeneity: skill in employment and lump-sum endowment. The Gini coefficient is used to measure the degreee of equity achieved by the tax bases in static and dynamic settings. Income taxes and expenditure taxes that generate equal welfare (or equal revenue) are compared. In the static economy the income tax leads to lower inequality except when skill and endowment are negatively correlated. Inequality is always lower with the income tax in the dynamic economy. These results support the choice of income as the base for personal taxation if reduction in inequality is a priority of policy.
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Announcement or contribution? The relative efficiency of manipulated Lindahl mechanisms
by Nigar Hashimzade and Gareth Myles
PEUK Working Paper No. 5, July 2006
The private provision mechanism is individually incentive compatible but inefficient. The Lindahl mechanism is efficient but not incentive compatible. We contrast the outcome of the manipulated Lindahl mechanism to the private provision equilibrium. When the demand announcements of participants are unrestricted the Lindahl mechanism suffers from multiple equilibria. If the government removes the multiplicity by restricting the functional form of announcements the resulting Lindahl equilibrium can be made approximately efficient. Approximate efficiency is achieved by announcements that are one-dimensional regardless of the number of participants in the mechanism. This is in contrast to mechanisms that achieve exact efficiency but require announcements whose dimensionality increases at the same rate as the number of participants. The mechanism we describe benefits from simplicity at the cost of approximate efficiency.
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Tax compliance as a social norm and the deterrent effect of investigations
by Marisa Ratto, Richard Thomas and David Ulph
PEUK Working Paper No. 4, July 2005
In this paper we focus on the effects of investigations on tax compliance. In a very general model we explain the direct and indirect effects of investigations and analyse taxpayers. response to an increase in the probability of audit when tax compliance is a social norm. We deŽne the different elements that determine the impact of audits on compliance and show that if tax compliance is a social norm in the relevant community there is an additional effect arising because of social norm considerations. The behavioural response of taxpayers to an increase in the audit
rate is stronger. Our findings help explaining seemingly contradictory results that emerge from the empirical evidence.
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What's the good in giving? A (small) contribution to the economics of charity
by Clive D. Fraser
PEUK Working Paper No. 3, May 2005
By alleviating poverty alongside public good provision, a charity might induce more donations than the standard Nash equilibrium model of voluntary public good provision predicts - without appealing to phenomena like 'warm glow' or prestige. If both rich and poor donate when donations finance the public good alone, poverty alleviation is not optimal. If the rich alone donate, it might or might not be optimal for part of donations to go to alleviating poverty. If donations go partly to alleviating poverty, increasing the portion devoted to this end can result in greater overall giving, although public good provision might decline.
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The structure of the optimal income tax in the quasi-linear model
by Nigar Hashimzade and Gareth D. Myles
PEUK Working Paper No. 2, January 2005
Existing numerical characterizations of the optimal income tax have been based on a limited number of model specifications. As a result, they do not reveal which properties are general. We determine the optimal tax in the quasi-linear model under weaker assumptions than have previously been employed; in particular, we remove the assumption of a lower bound on the utility of zero consumption and the need to permit negative labor incomes.
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Viable taxation
by Carlo Perroni and Kimberley A. Scharf
PEUK Working Paper No. 1, November 2004
In this paper we offer, for the first time, a
theoretical analysis of this fundamental compliance problem associated with taxation, obtaining results that point to a re-interpretation of standard predictions from models of coercive taxation, as well as further predictions that find no parallel in those models.
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