Growth and public infrastructure

The paper analyzes a multicountry extension of the Barro model of productive public expenditure. In the presence of positive infrastructural externalities between countries, the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supranational body, such as the European Union, to coordinate the policies of the individual governments. It is shown how intervention by a supranational body can raise welfare by internalizing the infrastructural externality. Infrastructural externalities increase the importance of tax policy in the growth process and distribute the benefits of taxation across countries

Tax fraud by firms and optimal auditing

Abstract Tax fraud is an issue of increasing importance in China. One particularly signi…cant fraud involves excessive claims for the rebate of VAT on exported goods. This fraud has two interesting features. First, it requires the collusion of an intermediary to supply the false documentation that supports a rebate application. Second, the punishment schedule is convex -with capital punishment used in major fraud cases. These features ensure that the payo¤ function of a …rm engaging in fraud is strictly concave in the level of fraud. This gives a well-de…ned optimization without the need to appeal to risk aversion. We show that the existence of fraud does not a¤ect the real output decision of the …rm nor the tax policy of the government. Audit resources can be used to detect …rms engaged in fraud as well as the intermediaries who supply false documents. Under reasonable assumptions it is shown that resources should be focused on detecting …rms and not intermediaries. Finally, if the government must take action on fraud a convex punishment scheme is shown to be optimal

Growth and Public Infrastructure

The paper analyzes a multi-country extension of the Barro model of productive public expenditure. In the presence of infrastructural externalities between countries the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supra-national body, such as the EU, to coordinate the policies of the individual governments. It is shown how the supranational body can ensure the efficient level of infrastructure provision and, as a result, obtain an increased rate of growth. The results of the paper also show how capital flows between countries act to equalize growth rates. This can help explain why there is limited empirical evidence for tax rates causing a difference in growth rates between countries. This is not the same as saying taxation does not affect growth: if production requires public infrastructure then taxation is needed for growth. The flow of capital acts to distribute the benefit of this across countries.

Structure of the optimal income tax in the quasi-linear model

Author's draft: final version appears in International Journal of Economic Theory Vol. 3, Issue 1, 2007, p. 5-33. Available online on http://www3.interscience.wiley.com/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 used; in particular, we remove the assumption of a lower bound on the utility of zero consumption and the need to permit negative labor incomes. A Monte Carlo analysis is then conducted in which economies are selected at random and the optimal tax function constructed. The results show that in a significant proportion of economies the marginal tax rate rises at low skills and falls at high. The average tax rate is equally likely to rise or fall with skill at low skill levels, rises in the majority of cases in the centre of the skill range, and falls at high skills. These results are consistent across all the specifications we test. We then extend the analysis to show that these results also hold for Cobb-Douglas utility

On the membership of decision making committees

Draft published as working paper in November 2000The decision of a committee is determined jointly by the votingprocess it adopts and the composition of its membership. The paper analyses the process through which committee members emerge from the eligiblepopulation and traces the consequences of this for the decisions ofthe committee. It is shown that the equilibrium committee will becomposed of representatives from the extremes of the tastedistribution. These extremes balance each other and the committeereaches a moderate decision. However, this mutual negation by theextremes is a socially wasteful use of time. Data from the UK Houseof Lords is used to illustrate these results

The benefits of costly voting

Discussion paperWe present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote. When there is a zero cost to voting, all voters vote and hence all values are counted equally regardless of how high they may be. By having a cost to voting, only those with high enough values would choose to incur this cost. Hence, the outcome will be determined by voters with higher valuations. We show that in such a case welfare may be enhanced. Such an effect occurs when there is both a large enough density of voters with low values and a high enough expected value

The definition, measurement, and evaluation of tax expenditures and tax reliefs

Technical paper prepared for the National Audit Office © National Audit Office 2014Tax reliefs and tax expenditures are two closely related and overlapping concepts. The distinction between tax reliefs and tax expenditures is a subtle one and can only be clear after careful description of the two concepts. The first part of the report discusses how to define and categorise these concepts. Section 1 focuses upon the issue of how to define a tax expenditure and, therefore, how to distinguish a tax expenditure from a tax relief. This analysis is necessary since there is no consistency of definition in existing work or in practice. After a review of existing definitions a new definition of tax expenditures is proposed with the intention that it is useful for guiding categorisation. Section 2 reviews a number of alternative categorisations of tax expenditures and tax reliefs. Recommendations are made on the use of categorisations for the purposes of review and evaluation. The final section discusses characteristics that identify tax expenditures for review and proposes triggers for review

Can Authority be Sustained while Balancing Accessibility and Formality?

Economics has developed into a quantitative discipline that makes extensive use of mathematical and statistical concepts. When writing a dictionary for economics undergraduates it has to be recognised that many users will not have sufficient training in mathematics to benefi t from formal definitions of mathematical and statistical concepts. In fact, it is more than likely that the user will want the dictionary to provide an accessible version of a definition that avoids mathematical notation. Providing a verbal description of a mathematical concept has the risk that the outcome is both verbose (compared to a definition using appropriate mathematical symbols) and imprecise. For the author of a dictionary this raises the question of how to resolve this conflict between accessibility and formal correctness. We use a range of examples from the Oxford Dictionary of Economics to illustrate this conflict and to assess the extent to which a non-formal definition can be viewed as authoritative

The Graduate Tax when Education is a Signal

This is the author’s version of a work that was accepted for publication in Research in Economics.This paper investigates the effects of a graduate tax when the return to education is uncertain and wages are determined through equilibrium in a labor market with signalling. The consequence of uncertainty is that both ability and initial wealth matter for educational choice. Compared to a constrained first-best the market outcome with uncertainty and signalling results in an inefficiently high number of people entering higher education. Due to the positive wealth effect over-entry is proportionately greater for high-wealth individuals. The graduate tax reduces entry into education so enhances efficiency. However, it has undesirable distributional consequences: low-wealth individuals are deterred from entering education but high-wealth are encouraged. In this respect, the graduate tax has clear failings as a method of financing higher education