Uncertainty, Optimal Taxation and the Direct Versus Indirect Tax Controversy

Cremer, Helmuth; Gahvari, Firouz

doi:10.2307/2235410

Cited by 63 publications

(52 citation statements)

References 19 publications

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“…Among these assumptions are uncertainty about individual wages (Cremer and Gahvari, 1995), heterogeneity among agents not only in ability (Cremer et al, 2001;Saez, 2002), di erent underlying production technologies (Naito, 2007) or di erent evasion characteristics of both taxes (Boadway et al, 1994;Richter and Boadway, 2005). According to Mankiw et al (2009), the advance of indirect taxes and VAT in particular can be attributed to findings of optimal taxation theory.…”

Section: Theorymentioning

confidence: 99%

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Pestel

Sommer

2015

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract This paper investigates the e ect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value-added tax (VAT) rate, which are compensated by revenue-neutral reductions in income-related taxes. We di erentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall e ects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives. Shifting Taxes from Labor to JEL Classification: C63, D31, H23Keywords: income and payroll taxes, consumption taxes, microsimulation, inequality, Germany ú Nico Pestel (pestel@iza.org) is a liated to IZA Bonn and the Center for European Economic Research (ZEW) Mannheim. Eric Sommer (sommer@iza.org) is a liated to IZA Bonn and the University of Cologne. Corresponding author: Eric Sommer, IZA Bonn,

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Section: Theorymentioning

confidence: 99%

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Pestel

Sommer

2015

SSRN Journal

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“…Assuming that only income tax can be evaded (or can be evaded more easily) 9 the authors analyze the case for supplementing optimal (non-linear) income taxation with commodity taxation and develop conditions under which commodity taxation should not be at the same rate. 10 Role of uncertainty Cremer and Gahvari (1995) show that in the presence of uncertainty, where otherwise identical individuals are uncertain about the wage they would earn, differential commodity taxation is a necessary component of an optimal tax structure.…”

Section: Optimal Tax Theory: What Role For Indirect Taxes?mentioning

confidence: 99%

Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

Martínez-Vázquez¹,

Vulovic²,

Liu³

2011

The Elgar Guide to Tax Systems

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“…We shall return to this issue in section 5. Cremer and Gahvari (1995) examine the effect of income risks on the optimal taxation of housing and durables. Alm (1996) considers the influence of administrative and compliance costs on optimal tax rates.…”

Section: Non-distributional Factorsmentioning

confidence: 99%

“…The self-selection approach was used in a number of studies that investigated departures from the A-S solution due to various complications. These include Boadway et al (1994) on the effect of income tax evasion, Cremer et al (2001) on unobservable endowments in addition to different abilities, Boadway and Pestieau (2003) on different needs, endowments and multiple forms of labour supply, Cremer and Gahvari (1995) on income risks and the purchase of durables, Pirttilä and Tuomala (1997) on externalities and Bastani et al (2014) on subsidies for child care. Edwards et al (1994) and Nava et al (1996) examine the effect of leisure substitution and complementarity on optimal tax rates, as well as their effect on the optimal provision of public goods.…”

Section: The Self-selection Approachmentioning

confidence: 99%

A literature review on optimal indirect taxation and the uniformity debate

Nygård¹,

Revesz²

2016

HPE-RPE

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A review of the theoretical literature on optimal indirect taxation reveals that analytical arguments in favor of uniform indirect taxation seem rather weak and unrealistic; hence determining the optimal tax structure remains an empirical issue. However, reviewing the empirical-computational studies published so far, shows that most of them operate under rather restrictive and simplistic frameworks. There is little computational support for uniformity, particularly when the models approach real world complexity. It appears that in a many-consumer economy, differentiated and progressive indirect taxation is likely to be the optimal solution.

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Uncertainty, Optimal Taxation and the Direct Versus Indirect Tax Controversy

Cited by 63 publications

References 19 publications

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

A literature review on optimal indirect taxation and the uniformity debate

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