Top PDF Public provision of private goods, self-selection and income tax avoidance

Several contributions in the optimal taxation literature have emphasized that, when in- dividuals’ preferences are not separable between leisure and other goods, it is desirable to supplement a nonlinear income tax with public provision of private goods. Moreover, it has also been shown that the choice between a topping-up and an opting-out scheme depends on whether the publicly provided good is a complement or substitute with leisure, with opting- out (topping-up) being the preferred scheme for goods which are substitutes (complements) for labor. In this paper, using the self-selection approach to tax analysis, we revisit these results in the presence of tax avoidance, and investigate how public provision interacts with the agents’incentives to engage in tax avoidance. Three results are obtained. First, we show that tax dodging opportunities imply that non-separability between labor and other goods is neither a necessary nor a su¢ cient condition to make public provision of private goods a welfare-enhancing policy instrument. Second, we show how tax dodging opportunities limit the scope for using topping-up provision schemes as a redistributive device. Finally, we show that, for most of the public provision schemes previously analyzed in the literature, being a welfare-enhancing policy instrument goes hand in hand with weakening the agents’incentives to shelter income from the tax authority. However, we also point out an important exception to this pattern.

subsidy improves welfare in two ways: it both corrects the rationality problem and makes mimicking less attractive. In the opposite case, where a mimicker consumes more and all irrational households have too high a demand from the social point of view, a commodity tax would improve welfare. However, if terms have opposite signs, i.e. the mimicker is a larger consumer of the good than a true type agent and it would socially bene…cial to consume more than is actually done, then the sign of the optimal commodity tax rates re- mains ambiguous. The rationality problem can be corrected by a negative commodity tax, but at the same time mimicking becomes more appealing. Thus, there is a trade-o¤ between redistribution and rationality objectives. The optimality of commodity taxes can be summarised in the following way. Proposition 7 The commodity tax should be negative (positive) if the true type agent consumes more (less) than the mimicker and the desired level of consumption is larger (smaller) than the actual level chosen. Such subsidy (tax) would improve welfare by correcting the consumption distorted by irra- tionality and by mitigating the self-selection constraint.

Also for the case of a linear income tax we limit ourselves to the analysis of the government’s problem in the presence of public provision. We then resort to numerical simulations in order to get a quantitative assessment of the potential welfare-gains de- scending from the implementation of the public provision scheme. Before proceeding, however, it will be useful to make a remark about the desirability of a public provision scheme in a model of linear income taxation. In the first part of this paper we have discussed how the public provision scheme that we analyze might be welfare-enhancing in the presence of a nonlinear income tax due to the effects that it implies on the binding self-selection constraints. One might then wonder if our public provision scheme still retains the potential of being welfare-improving in a setting where income is taxed on a linear scale and therefore no self-selection constraint explicitly appears in the formulation of the government’s problem. The answer would be clearly negative in a setting where all agents were parents, and therefore users of the publicly provided service. However, in a setting with both parents and non-parents, the public provision scheme might still be welfare-enhancing since, as compared with a demogrant, it represents an instrument which only benefits parents. Thus, if the government places a sufficiently large weight on the welfare of parents, the public provision scheme might be desirable even in the presence of a linear income tax.

In this paper, we suggest a rationale for such user charges. This rationale stems from the fact that ‘consumption’ or ‘use’ of public goods often requires that individuals devote scarce time to it. A user charge based on the chosen time inputs then alters the trade-o¤s faced by individuals when dividing their time endowment among various activities. User charges in e¤ect amount to taxing the time spent using the public goods; since time spent working is taxed indirectly through the income tax system, there is an obvious second-best argument for taxing this time use as well. In more precise terms, it turns out that in an optimum-tax framework, taxing the time spent using public goods relaxes the incentive constraint that highly productive workers not shirk in order to obtain the more attractive tax-bene…t package intended for less productive workers.

We project that, by 2025, the locus of global poverty will overwhelmingly be in fragile, mainly low-income and African, states, contrary to current policy preoccupations with the transitory phenomenon of poverty concentration in middle- income countries. Moreover, a smaller share of industrialised country income than ever before will potentially close the remaining global poverty gap, although direct income transfers are not yet feasible in many fragile country contexts. Against this backdrop, new institutions, business models and practices are challenging long-established ‘aid industry’ actors. Agencies providing development finance for improved social welfare, for mutual self-interest in growth and trade and for the provision of global public goods will find that, in each area, disruptors to their programmes may force a change in positioning. We focus on one such disruptor for each of these three complementary rationales for development cooperation. The key disruptor we discuss in the first area is high-impact philanthropy and non-governmental giving channels; in the second, South–South cooperation combining trade and finance, and blended public–private funding in general; and in the third, the power of climate change finance, particularly its quite different country and project allocation logic.

In order to investigate the simultaneous e¤ect of ideological political parties and electoral in- centives on both allocation and redistribution policies, this paper develops an electoral competition model with partisan politicians and probabilistic voting. The analysis considers an economy in which citizens belong to groups that are associated to levels of gross income obtained by individ- uals in a market economy. Through an electoral process citizens choose a government that can redistribute income among groups through tax-transfers schedules and fund the provision of goods with revenues raised by income taxation. There are no constraints in the available income taxa- tion schedules that government can use (i.e. non-linear schedules are feasible), and these schedules do not distort economic decisions that create deadweight losses. This simplifying assumption is made in order to better isolate the e¤ect of partisan preferences on public provision of goods and income redistribution. The government is elected from two partisan political parties, right and left, that compete for o¢ce. Right-wing (left-wing) party holds pro-market (pro-government) ide- ological views and advocates for a reduced (signi…cant) public provision of goods. In spite of their partisan views, parties can credibly commit to policy platforms that depart from their ideological positions, and they can have private bene…ts associated to winning elections. When choosing their vote, individuals care about the e¤ect of policy platforms on both their net income and the public provision of goods over which they exhibit heterogeneous views. These partisan positions on public provision of goods are represented by satiable Euclidean preferences and, therefore, the well-being of ideological individuals decreases when policies depart from their desired levels of public provi- sion. Citizens also consider the relative valence or popularity of parties running for o¢ce. The realization of this valence is unknown by parties when choosing their policy platforms, and that creates uncertainty about the electoral outcome (i.e. probabilistic voting). Every citizen votes for the party that provides her larger well-being given policy platforms and parties’ valence, and the winner party attracts the majority of the votes and implements the committed economic policies.

lead –ceteris paribus- to a larger proportion of households choosing to consume the publicly- provided variety (than in the perfectly competitive case) because the monopolist charges a price larger than cost. This implies that the median voter expects that any given rise in the tax rate (which increases the sum available for redistribution) will add a smaller number of households to those already consuming the publicly-provided variety ( Q G ) in the monopoly case, since the income distribution is thinning at its tails. Consequently, the median voter will be expecting a larger rise in Q G than the increase in government revenue effects in the monopoly case, and thus she will be willing to vote for a higher tax rate than in the competitive case. One can also note that as inequality decreases (parameter α rises) the impact of inequality on the tax rate becomes similar in the monopoly and perfectly

The model generates three theoretical predictions. First, we show that commodity taxes are independent instruments under the destination principle. This result is in line with the literature on commodity tax competition, which finds strategic independence in commod- ity tax policies under the destination principle, in both perfect and imperfect competitive settings (see Lockwood, [26] for a survey). Second, regulation has a negative impact on com- modity tax rates if demand for public goods is more sensitive to income than demand for private goods. In this case, government lowers its commodity tax when regulation becomes stricter. Although this action leads to lower public good provision, it benefits consumers because it ‘neutralizes’ the negative impact of stricter regulation on private consumption. Finally, we show that regulation polices are strategic complement instruments as long as consumers do not excessively value product diversity. Under this condition, stronger foreign regulatory constraints oblige foreign firms to increase their production scale and lead to a deterioration in the foreign terms of trade. Since this improves domestic terms of trade and the competitive position of domestic firms, domestic regulators have incentives to strengthen domestic regulation in order to extract more rents.

In this paper, individuals live for two periods (young and old) and derive utility from the consumption of private and public goods in both periods. When young, they supply labor inelastically and allocate their disposable in- come between consumption and savings. When old, they retire and consume the proceeds of their savings. The economy produces a final good by using physical capital and labor as inputs, and the technology is represented as a Romer (1986) type production function. The government finances the cost of public good provision by levying labor income taxation and/or issuing pub- lic debt. The size of public good provision, the labor income tax rate, and public debt issuance is determined in a repeated probabilistic voting game. When voting, individuals take into account that an increase in the current public good provision and/or a decrease in the current labor income tax rate not only accelerate public debt issuance but also retard physical capital ac- cumulation, and would change the size of public good provision in the next period.

To model private provision in a dynamic setting, I consider an infinitely repeated version of the static voluntary contributions game. To model public provision, I apply Bernheim and Slavov’s (2009) notion of a dynamic Condorcet winner (DCW), which extends the Condorcet winner concept to dynamic settings. A DCW prescribes a policy for every possible history in such a way that for any history, the prescribed policy choice is majority preferred to any other policy given the implications of the current choice for future outcomes. In contrast to the static setting, a one-parameter tax system is not required to ensure the existence of DCWs. Indeed, DCWs exist with a completely unrestricted tax system, in which each individual pays a different positive or negative tax rate. Lifting the one-parameter restriction on the tax system allows income redistribution to be chosen jointly with the level of the public good. 1 While the DCW concept is intuitively appealing because of its similarity to the static Condorcet concept, applying it in practice can be analytically difficult, even for very simple problems (see, e.g., Bernheim and Slavov 2004, Bernheim and Slavov 2009, Slavov 2006). Thus, an additional contribution of this paper is to demonstrate how DCWs can be found computationally, allowing one to apply it to more complex problems.

Upper secondary education Panel (b) of Fig. 4 shows patterns estimated on data on 883 households in the working sample with at least one child in upper secondary schooling age. The results are in stark contrast with what estimated before. In this case, the marginal effects of household equivalent income on expected educational transfers in kind are always pos- itive, implying that household sorting behavior across private and public upper secondary education is connected to different mechanisms compared to compulsory education. If the expected returns to education of the children are positively correlated with the realized returns in income of the household of origin (i.e. the realized returns can be forecast by observed household income), then households may self-select into post-compulsory edu- cation (whether public or private) according to the expected returns. Moreover, for given expected returns, households are more likely to choose a higher level of education if the take-up opportunity costs, including the opportunity costs in terms of foregone wage, are smaller. As Fig. 4 shows, the marginal effects of income at the 10th quantile of the K distri- bution are always statistically positive and larger than the corresponding effects calculated at the 90th quantile, irrespectively of the household income capacity. On the contrary, the effects at the 90th quantile are never significant (Table 7). These findings suggest that house- hold preferences towards the quality of upper secondary education offered by the private sector are not strong enough to induce self-selection behaviors.

of governing the community. Income taxation is also employed by government to attain selected economic policy objectives. Thus, the statute is a mix of fiscal and economic policy. The economic policy element of the Act sometimes takes the form of an inducement to the taxpayer to undertake or redirect a specific activity. Without the inducement offered by the statute, the activity may not be undertaken by the taxpayer for whom the induced action would otherwise have no bona fide business purpose. Thus, by imposing a positive requirement that there be such a bona fide business purpose, a taxpayer might be barred from undertaking the very activity Parliament wishes to encourage.” In a concurring judgment, Justice Wilson rejected the adoption of a business purpose test (at paras. 71- 72) on the grounds that it is “a complete rejection” of Lord Tomlin’s principle from the Duke of Westminster case that taxpayers may order their affairs to minimize tax and that “Lord Tomlin's principle is far too deeply entrenched in our tax law for the courts to reject it in the absence of clear statutory authority.”

including the provision of international public goods such as sustainable development, and with focus on poverty reduction and environmental improvement in low-income countries; (2) tota[r]

In addition to the effect on investor perceptions, tax avoidance policy also affects the quality of earnings information. The difference in after-tax profits caused by different avoidance strategies suggests that the quality of profit after tax information is also different. Hanlon and Heizmand (2010) state that because the income tax expense is an accrual-based expense, portions of it can potentially be manipulated to affect after-tax earnings. The net after-tax earnings that investors use to make investment decisions will be biased because of different tax avoidance strategies. Tax avoidance strategies determine the quality of earnings information, in the perspective of the agency theory of tax avoidance policies aimed at aligning management interests with shareholders. This means that the company's profit derived from tax avoidance is good information for investors because its interests are accommodated by management, so the company's earnings are considered qualified. On the contrary, the profit generated from tax avoidance of opportunistic motives to cover the complexity of corporate problems will have an impact on the high agency cost, then this earnings information becomes negative information for investors. In the perspective of signal theory, there are two opposite sides of the investor's reaction to tax avoidance activities by the company. On the one hand, shareholders see a positive side of tax avoidance because tax reductions can increase investor wealth. On the other hand, in the perspective of agency costs, the complexity of tax avoidance can protect managers from opportunistic attitudes, but these actions may negatively affect shareholders (Ariff and Hashim, 2014).

Accounting and taxation are two important areas of economic activity. Accounting constitutes the foundation of taxation, taxation, in turn, has a profound effect on accounting. With the deepening of accounting reform and tax reform in China, the separation of accounting and tax laws is inevitable, at the same time, book-tax- difference provides space for firm’s earnings management and income tax avoidance, therefore, the administration of corporate income tax faces considerable challenges. What is the impact of the book-tax-difference? What are their respective impact degree? How will the tax administration respond? What is the reference for future income tax management and risk prevention? All the questions above should attract the attention of tax authorities.

Using a simple two-group model of the private provision of public goods, this paper investigates how endogenous formation of within-group cooperation is affected by differ- ent types and degrees of between-group interactions. We show that when between-group interactions are of the same directions and weak (strong), within-group cooperation for providing public goods will (will not) occur in each group for strategic reasons. On the other hand, when between-group interactions are of the opposite directions or unidirec- tional, within-group cooperation will necessarily occur. In addition, endogenous formation of cooperation is independent of absolute (individual) levels of income as well as income distribution between agents, which corresponds to an extended version of Warr’s neutral- ity theorem. We also show whether endogenous formation of within-group cooperation is beneficial or harmful to each group crucially depends on the degree of between-group interactions. The variation in the interaction degree leads to three different types of games concerning welfare consequences: the Prisoners’ Dilemma, Coordination Game, and Invis- ible Hand.

Social identity The premise of the social identity theory is that a person derives an identity of self (social identity) from his or her membership in social groups, such as being a woman, or a caucasian [Tajfel and Turner, 1979]. One predicted effect of social identity is that it creates in-group favoritism: people make choices that favor their in-group members and have higher opinions of their in-group members than those out-group. These predictions are supported by a large number of experimental studies in social psychology [see, e.g., the following literature surveys: Tajfel and Turner, 1986, Deaux, 1996, Hogg, 2003, McDer- mott, 2009]. Building on the existing literature, Ren et al. [2007] predict that in online communities on which many UCC systems rely, in-group favoritism may take the following forms: group cohesion and commitment, more focused con- versations than off-topic chat, increased levels of contribution to public goods and less social loafing, conforming to group norms, welcoming new members, and engaging in generalized reciprocity (when one’s giving is reciprocated by a third party not the receiver). A group with a strong identity may also attract new members to join and contribute to the group’s goal. For example, Bryant et al. [2005] and Nov [2007] both document that Wikipedia attracts new ed- itors due to people’s belief in its goal of producing a useful online knowledge repository.

The model was developed for one-parcel-at-a-time referenda, but it would be equally valid for consideration of a continuum of public goods throughout the city. The outcome would look much like that shown in figures 2 and 3. Households would continue to approve public goods until diminishing returns to urban amenities led them to vote against a particular referendum. The cumulative effect of voting would contrast even more with the social decision criterion. The magnitude of the results will depend on the parameterization of the model, though the trends and general directions will stay the same. The values, however, are consistent with U.S. data and give results that match those in the valuation literature (e.g., Luttik 2000; Irwin 2002; Smith et al. 2002; Vossler et al. 2003; Anderson and West 2006).

Taxation is a vital resource for governments to achieve their public service agenda (ActionAid 2011; HM Revenue and Customs (HMRC) 2015; Isbister 1968) and is perceived as a significant cost by corporations (Freedman et al. 2009; Shafer and Simmons 2008; Sikka 2010). Tax avoidance and its adverse impact on public interest have come into sharp focus in recent years (Christensen and Murphy 2004; Dowling 2014; Freedman et al. 2009; Hasseldine and Morris 2013; Payne and Raiborn 2015). It erodes tax bases globally, leading to serious threats to tax revenues, tax sovereignty and tax fairness (OECD 2013) and reduces overall revenue intake for governments which could be used to facilitate public services and thereby promote the public interest (Keightley and Sherlock 2012). Fiscal pressures world-wide have directed attention to billions of euro of tax avoided annually by multinationals such as Apple, Google, Amazon, Facebook and Starbucks, and media reports in the United Kingdom (UK) have focused predominantly on the immorality of their actions (Independent 2016b; The Telegraph 2012). This has been reinforced by regulatory and political commentary which is similarly critical of certain tax arrangements (OECD 2008, 2013; The Financial Times 2016; The Guardian 2017; UK Committee of Public Accounts (UK PAC) 2013). Historically, the focus of attention has been on users of these tax avoidance schemes; however recent reports have highlighted a number of notable criticisms of the role of tax professionals (Financial Reporting Council (FRC) 2013a, 2015a; OECD 2008; UK PAC 2013; US Senate Permanent Subcommittee of Investigations 2003).

Social accountability is increasingly invoked as a way of improving health services. This article presents a theory-driven qualitative study of the context, mechanisms and outcomes of a social ac- countability program, Citizen Voice and Action (CVA), implemented by World Vision (WV) in Zambia. Primary data were collected between November 2013 and January 2014. It included in- depth interviews and focus group discussions with program stakeholders. Secondary data were used iteratively—to inform the process for primary data collection, to guide primary data analysis and to contextualize findings from the primary data. CVA positively impacted the state, society, state–society relations and development coordination at the local level. Specifically, sustained im- provements in some aspects of health system responsiveness, empowered citizens, the improved provision of public goods (health services) and increased consensus on development issues ap- peared to flow from CVA. The central challenge described by interviewees and FGD participants was the inability of CVA to address problems that required central level input. The mechanisms that generated these outcomes included productive state–society communication, enhanced trust, and state–society co-production of priorities and the provision of services. These mechanisms were activated in the context of existing structures for state–society interaction, willing political leaders, buy-in by traditional leaders, and WV’s strong reputation and access to resources. Prospective observational research in multiple contexts would shed more light on the context, mechanisms and outcomes of CVA programs. In addition to findings that are intuitive and well sup- ported in the literature we identified new areas that are promising areas for future research. These include (1) the context of organizational reputation by the organization(s) spearheading social ac- countability efforts; (2) the potential relationship between social accountability efforts and making ambitious national programs operational at the frontlines of the health system and (3) the feasibil- ity of scale up for certain types of local level responsiveness.