Direct Revenue Research Articles

Labor tax reform, unemployment, and search

A key obstacle to reducing payroll taxes in many industrialized and transition countries is the direct revenue loss to the government that it implies. This paper studies a simple and practical labor tax reform of reducing a payroll tax and increasing a progressive wage tax that keeps the marginal tax wedge unchanged. Such a strategy increases employment, reduces the equilibrium unemployment rate, and increases public revenue as long as workers do not have all the bargaining power in wage negotiations. Moreover, welfare rises if workers’ bargaining power is sufficiently large to exceed a critical value determined by the second-best Hosios condition.

TAX REVENUE, TAXATION MIX AND ECONOMIC GROWTH RELATIONSHIP IN TURKEY: 1968-2006

This paper examines the relationships between taxation mix and economic growth in the Turkish economy. Tax burden, gross fixed capital formation/GDP and gross domestic savings/GDP ratio were also taken into account in the study. Causality analysis and impulse-response functions were used in the analysis. According to results obtained through causality analysis, there is one-way casual relationship between economic growth and taxation mix which flows from economic growth to taxation mix. One-way casual relationship was found between direct tax revenues/GDP ratio (tax burden) to economic growth. Economic growth is Granger cause of both gross fixed capital formation/GDP and gross domestic savings/GDP ratio. Impulse-response functions indicate that economic growth responds to indirect tax revenues with positive direction whereas economic growth responds to direct tax revenues with negative direction in the first stage and then they move together after 3-4 periods on the average. Economic growth responds to tax burden with positive direction and they move together after 3-4 periods.

Internet Exchanges for Used Digital Goods

In spite of industry concerns, prior work has shown that Internet used book markets do not significantly cannibalize new book sales. In this research note we analyze similar data from markets for CDs and DVDs, goods that because of their digital characteristics may be more susceptible to cannibalization than books are. We find that the cross price elasticity of new product demand with respect to used product prices is far higher for CDs (0.157) and DVDs (0.514) than it is for books (0.088). These higher cross price elasticities translate into higher levels of cannibalization: 24% of used CDs and 86% of used DVDs directly cannibalize new product sales. This compares to a 16% cannibalization rate for used book sales. Cannibalization is a concern to the music and movie industries because used sales generate no direct revenue to studios or royalties to artists. From a managerial perspective, while the digital characteristics of these products may be driving increased levels of cannibalization in traditional channels, digital distribution may provide a solution to the cannibalization threat posed by secondary markets. While the first sale doctrine allows consumers to resell copyrighted physical media, the dominant legal view is that the first sale doctrine does not apply to products that are distributed digitally. Thus, one benefit of the transition from a physical to a digital distribution model is that it would also allow movie and music companies to transition away from secondary markets for used products, and the associated cannibalization effects.

The Emergence of Audience as Victims

The Emergence of Audience as Victims

The Economic Impact of a Partnership-Measurement Model of Disease Management: Improving Cardiovascular Outcomes in Nova Scotia (ICONS)

Improving Cardiovascular Outcomes in Nova Scotia (ICONS) was a five-year, community partnership-based disease-management project that sought, as a primary goal, to improve the care and outcomes of patients with heart disease in Nova Scotia. This program, based on a broad stakeholder partnership, provided repeated measurement and feedback on practices and outcomes as well as widespread communication and education among all partners. From a clinical viewpoint, ICONS was successful. For example, use of proven therapies for the target diseases improved and re-hospitalization rates decreased. Stakeholders also perceived a sense of satisfaction because of their involvement in the partnership. However, the universe of health stakeholders is large, and not many have had an experience similar to ICONS. These other health stakeholders, such as decision-makers concerned with the cost of care and determining the value for cost, might, nonetheless, benefit from knowledge of the ICONS concepts and results, particularly economic analyses, as they determine future health policy. Using budgetary data on actual dollars spent and a robust input-output methodology, we assessed the economic impact of ICONS, including trickle-down effects on the Canadian and Nova Scotian economies. The analysis revealed that the $6.22 million invested in Nova Scotia by the private sector donor generated an initial net increase in total Canadian wealth of $5.32 million and a global net increase in total Canadian wealth of $10.23 million, including $2.27 million returned to the different governments through direct and indirect taxes. Thus, the local, provincial and federal governments are important beneficiaries of health project investments such as ICONS. The various government levels benefit from the direct influx of private funds into the publicly funded healthcare sector, from direct and indirect tax revenues and from an increase in knowledge-related employment. This, of course, is in addition to the clinical benefits associated with the partnership-measurement disease-management model. Because of their uniquely simultaneous roles as beneficiary and major resource provider, the public payer can play an early and active role in such partnerships to enhance its efficiencies and increase the likelihood of sustainability if the original concepts are proven of value.

The Federal Gift Tax: History, Law, and Economics

The gift tax was first enacted in 1924, repealed in 1926, overhauled and reintroduced in 1932. At its peak in fiscal year 1999, it raised $4.6 billion in revenues, before the recent phased-in tax rate reductions ushered by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) took effect. It is noteworthy that the gift tax was first enacted as a protective measure to minimize estate and income tax avoidance, and not for its direct revenue yield. Similarly, EGTRRA, while phasing out the estate tax, retained the gift tax for the very same reasons. Unlike the estate tax which faces an uncertain future, the gift tax is little affected by recent legislative proposals and will remain part of the tax code for the foreseeable future. Nevertheless, the gift tax has been the subject of little scrutiny and studies of its economic implications are rare. This paper is an attempt to fill this void. It traces the evolution of the gift tax since its inception, and sketches out the structure of the tax and its complex interactions with the income and estate taxes. The paper also provides an overview of the direct fiscal contribution of the gift tax, and traces the number of taxpayers over time as well as their attributes. It concludes with a discussion of the behavioral effects of the gift tax and a review of the scant literature. These include empirical evidence on the choice between gifts and bequests, timing of gifts, and compliance among others.

Simple Rules for Targeting Co2 Allowance Allocations to Compensate Firms

Policies to cap emissions of carbon dioxide (CO2), such as the recently announced agreement among seven northeastern states, are expected to have important effects on the electricity industry and on the market value of firms that own electricity generation assets. The economics literature finds large efficiency advantages for initial distribution of tradable emissions allowances through an auction so as to direct revenues to tax relief or other public investments. However, an auction raises the costs for the regulated firms. This paper identifies rules for an initial distribution that satisfy a compensation goal for firms that is achieved through free distribution of a portion of the allowances, while maximizing the value of allowances that can be directed to public purposes. The paper employs a detailed simulation model to calculate numerical results for the market value of generation assets under the CO2 cap-and-trade program in the northeastern United States.

From Boom to Bust: The Israeli Economy 1990–2003

Click to increase image sizeClick to decrease image size Notes 1. Growth is measured by the annual growth rate of GDP (Gross Domestic Product), which is a measure of the total domestic output of goods and services. 2. For a detailed description of the anti-inflation programme see M. Bruno, Crisis, Stabilization, and Economic Reform, Oxford, 1993. 3. For a detailed analysis of Israeli economic growth in the first half of the 1990s, see Ben-Zion Zilberfarb ‘The Israeli Economy in the 1990s—Immigration, the Peace Process and the Medium Term Prospects for Growth’, Israel Affairs, Vol. 3, No. 1 (Autumn 1996), pp. 1–13. 4. This had been the case until the late 1990s. Since then the increasing importance of the high-tech industries, which are less dependent on import inputs, enables growth concurrent with an improvement in the trade deficit. 5. The balance of payments deficit declined from US$5.3 billion in 1996 to US$3.5 billion in 1997 and to just US$1.3 billion in 1998. The government budget deficit declined from 4.7 percent of GDP to 2.8 percent in 1997 and 2.4 percent in 1998. 6. This is in violation of the existing Bank of Israel law, which makes price stability one of the few targets of monetary policy. 7. The housing market had already slumped because of the significant decline in the number of new immigrants. 8. The decline in Israeli exports to the Palestinian Authority represents about a 2 percent loss of exports. The damage to the Palestinian economy was much more substantial. Total imports from the Palestinian economy to Israel declined from US$1.05 billion in 1999 to US$400 million in 2001, US$240 million in 2002 and US$300 million in 2003. Almost all the decline is in income earned by Palestinian workers in Israel. The GDP of the Palestinian economy declined by 10 percent in 2001 and 16 percent in 2002, according to the estimates of the World Bank. 9. See Bank of Israel Annual Reports, 2001–2003. 10. The high degree of uncertainty was reflected in the unusually high interest rates on government bonds. The rates reached 12 percent at a time when inflation was very low. These abnormally high rates of real interest reflect the concern of the public about the future course of the economy. 11. Painful cuts were made in transfer payments including children's allowance. This was the first time that such significant cuts were adopted. The ability of the government to enact these changes was mainly due to the fact that the ultra-orthodox parties were not part of the coalition as had been the case in the past. The supporters of these parties, and the Arab population, were the main losers from the cuts in children's allowances. 12. This method was first proposed by Z. Zussman, ‘A New Law for Budget Limit that Enables the Conduct of Anti-cyclical Policy’, in The Allocation of Resources for Social Services 2001, Jerusalem, 2001, pp. 255–279 (Hebrew). The guidelines replaced the old method of setting a budget deficit target for the coming three years. The old method lost credibility, since the targets were revised almost annually. For more on this issue see Ben-Zion Zilberfarb, ‘Budget Deficits and the Development of Fiscal Institutions in Israel 1986–2002’, in A. Bareli, D. Gutwein and T. Friling (eds.), Society and Economy in Israel—History and Contemporary Perspectives, Jerusalem, 2005, pp. 71–89 (Hebrew). 13. Value added tax increased in 2003 from 17 percent to 18 percent to compensate for declining direct tax revenues. It was reduced back to 17 percent in 2004 and further decreased to 16.5 percent in 2005. 14. The government sold shares and warrants in El-Al Airlines. The warrants were converted into shares at the end of 2004 and control of the company was transferred from the government to private shareholders. The government also issued a tender for the sale of a controlling interest in the government owned Israel Discount Bank—the third largest in Israel. This sale was concluded in January 2005. In October 2005 the government concluded the sale of its controlling shares in Bezeq (the Israeli telecommunication monopoly) to a group of private investors. The government has also started the process of selling Bank Leumi—Israel's second largest bank. 15. In March 2003 the US government approved US$9 billion in US government loan guarantees to Israel. Additional informationNotes on contributorsBen-Zion ZilberfarbBen-Zion Zilberfarb teaches in the Department of Economics, Bar-Ilan University and is Edmond De Rothschild Professor of Global Asset Management, School of Banking and Capital Markets, Netanya Academic College.

Simple rules for targeting CO<SUB>2</SUB> allowance allocations to compensate firms

Policies to cap emissions of carbon dioxide (CO2), such as the recently announced agreement among seven northeastern states, are expected to have important effects on the electricity industry and on the market value of firms that own electricity generation assets. The economics literature finds large efficiency advantages for initial distribution of tradable emissions allowances through an auction so as to direct revenues to tax relief or other public investments. However, an auction raises the costs for the regulated firms. This paper identifies rules for an initial distribution that satisfy a compensation goal for firms that is achieved through free distribution of a portion of the allowances, while maximizing the value of allowances that can be directed to public purposes. The paper employs a detailed simulation model to calculate numerical results for the market value of generation assets under the CO2 cap-and-trade program in the northeastern United States.

Impact of corruption on foreign direct investment and tax revenues

Using Transparency International’s Corruption Perceptions Index (CPI), this paper establishes a statistically significant link between CPI and foreign direct investment (FDI) flows to 54 developing and developed countries. In addition to each country’s CPI, several location and economic characteristics are also postulated to influence FDI. For a group of 22 developing countries, the paper then simulates the impact of an improvement in the CPI score on FDI. This simulation shows that a one point improvement in CPI would generate on average additional FDI of 0.5% of GDP. For instance, the gain in annual FDI would be $7.5 billion for India and $18 billion for China. The paper further simulates the effects of larger FDI on the generation of taxable income and tax revenues in each country using country-specific rates of return on US investment and the highest marginal corporate tax rate in each country. This simulation shows that a three point improvement in CPI would more than double the corporate tax take on average with the biggest beneficiaries such as India, Turkey, Egypt, South Korea, the Philippines and Thailand.

Jurisdictional Competition for Trust Funds: An Empirical Analysis of Perpetuities and Taxes

This Article presents the first empirical study of the domestic jurisdictional competition for trust funds. To allow donors to exploit a loophole in the federal estate tax, since 1986 a host of states have abolished the Rule Against Perpetuities as applied to interests in trust. To allow individuals to shield assets from creditors, since 1997 a handful of states have validated self-settled asset protection trusts. Based on reports to federal banking authorities, we find that, on average, through 2003 a state's abolition of the Rule increased its reported trust assets by $6 billion (a 20% increase) and increased its average trust account size by $200,000. By contrast, our assessment of validating self-settled asset protection trusts yielded indeterminate results. Our perpetuities findings imply that roughly $100 billion in trust funds have moved to take advantage of the abolition of the Rule. Interestingly, states that levied an income tax on trust funds attracted from out of state experienced no observable increase in trust business after abolishing the Rule. Because this finding implies that abolishing the Rule does not directly increase a state's tax revenue, it bears on the study of jurisdictional competition. In spite of the lack of direct tax revenue from attracting trust business, the jurisdictional competition for trust funds is patently real and intense. Our findings also speak to unresolved issues of policy concerning state property law and federal tax law.

Race and Riots: A Note on the Economic Impact of the Rodney King Riots

When the four police officers who had been videotaped beating motorist Rodney King were found not guilty of criminal acts in 1992, the city of Los Angeles erupted in the worst rioting seen in the US since the 1960s. The loss of life and destruction of property left a significant scar on the city. Time-series analysis indicates that the Rodney King riots not only reduced taxable sales in the city immediately following the unrest, but that this social catastrophe has had a lasting impact on the economic performance of the city of Los Angeles. In the 10 years since the riots, this continued loss of taxable sales has translated into a cumulative loss of at least $3.8 billion in taxable sales and over $125 million in direct sales tax revenue losses.

1994 YILI HANEHALKI GELİR DAĞILIMINA YÖNELİK 1994 SONRASI İZLENEN VERGİ POLİTİKALARI: GENEL BİR ANALİZ

Toplumun sosyal refah içinde olması o toplumun gelir düzeyinin yüksekliği kadar hanehalkı arasında eşit dağılımıyla da bağlantılıdır. Bu doğrultuda, sosyal devlet olmanın vermiş olduğu önemli görevlerden birisi de hane halkları arasındaki gelirin ne kadar adaletli dağıldığının tespitinin iyi yapılması ve bu tespit doğrultusunda izlenecek politikaların belirlenmesidir. Bu çalışmada, 1994 yılı ve sonrası vergi politikalarının gelir dağılımında adaletin sağlanmasına ne derece uygun olduğu ampirik olarak analiz edilmektedir. Analizde dolaylı ve dolaysız vergi gelirleri, kendi alt gruplarında dikkate alınarak karşılaştırmalar yapılmıştır. Ampirik bulgular, takip edilen vergi politikaları ile fakirden zengine, gelirin yeniden dağılımının amaçlanmasından ziyade, daha çok devlete gelir sağlamanın esas alındığını göstermektedir.

The business of palliative medicine--Part 2: The economics of acute inpatient palliative medicine.

Economic feasibility is a major factor in the viability of established acute inpatient palliative medicine. Several clinical, administrative, and financial parameters determine the financial health of inpatient care. Financial management metrics include case mix index (CMI) (as determined by the Federal Register as an assigned relative weight to the diagnosis-related group (DRG) reflecting resource consumption), direct costs, indirect costs, contribution margin, and in the future of all patient revised-DRG (APR-DRG). Both census and length of stay will have a major impact on these financial metrics. The type of patient referral and clinical decisions will influence direct costs and revenues. In the future, an international CMI or APR-DRG will allow palliative inpatient units to compare disease severity, resource utilization, and outcome measures.

Evaluating the risks of public private partnerships for infrastructure projects

In many countries, limitations upon the public funds available for infrastructure have led governments to invite private sector entities to enter into long-term contractual agreements for the financing, construction and/or operation of capital intensive projects. For the public procurer, there is an obvious need to ensure that value-for-money has been achieved. To the project sponsors, such ventures are characterised by low equity in the project vehicle and a reliance on direct revenues to cover operating and capital costs, and service debt finance provided by banks and other financiers. Risk evaluation is complex, requiring the analysis of risk from the different perspectives of the public and private sector entities. This paper analyses the principles involved, drawing on practical experience of evaluating such projects to present a framework for assessing the risks, and using as illustration a case study of a waste water treatment facility in Scotland which is typical of most PPP projects.

Systematisierung von Geschäftsmodellen für Online-Musik unter Berücksichtigung von Marktunsicherheiten

Online music faces two significant challenges: on the demand side, limited willingness of the end consumer to pay for digital content can be found and forces music providers to (re-)evaluate new direct and indirect revenue models. On the supply side, uncertainty exists whether online music is a private or a public good due to the lack of efficient exclusion mechanisms. Innovative business models like filesharing communities, music service provider, subscription and super-distribution are described and positioned in a scenario matrix.

Public Goods, Tax Policies, and Unemployment in LDCs

1. Introduction Traditionally, an analytically convenient and widely used assumption in the international trade and development economics literature has been that of lump-sum distribution of direct (e.g., income) or indirect (e.g., consumption, tariff) tax revenue when various policy implications of such instruments (e.g., terms of trade or welfare effects) were to be examined. This analytical shortcut, however, hardly ever constitutes a real-world practice either in rich developed or in poorer developing economies. On the other hand, another extensive branch of economics, the public finance literature, has adopted a more realistic approach regarding the economic activity of a government. A government is viewed, among other things, as a provider of public (collective) consumption goods and/or of public inputs that enhance the productive capacity of the private sector. Being so, it can use revenues from nondistortionary (e.g., lump-sum) taxes or distortionary (e.g., consumption) taxes to finance the provision of such goods and services. Within this public finance context, a long-standing proposition states that when nondistortionary taxes are used to finance the provision of a public good, the first-best efficiency rule requires that the sum of the marginal rates of substitution (i.e., the social marginal benefit) equal the marginal rate of transformation (i.e., the social, marginal cost) (e.g., see Samuelson 1954). When distortionary taxes are used to finance the provision of the public good, Pigou (1947) argued that the social marginal cost exceeds the private marginal cost because of the induced indirect cost from raising tax revenue through distortionary taxation. Stiglitz and Dasgupta (1971), Atkinson and Stem (1974), and Wildasin (1984), among others, demonstrate that in certain cases (e.g., when the taxed and the public goods are complements in consumption), Pigou's argument fails to hold and the social cost may fall short of the private marginal cost.' Because of its more realistic appeal, this public finance approach to the use of tax revenue has been subsequently adopted by the relevant international trade and development economics literature. Recently, the efficiency rule for public good provision has been examined in the context of a small open economy by, among others, Feehan (1988) when tariff revenue finances the provision of the public good in an economy producing two traded goods and a nontraded public consumption good. Michael and Hatzipanayotou (1995) examine the same issue and derive the formulae for the optimal tax rates on traded or nontraded goods in an economy producing many traded and nontraded goods and where consumption tax revenue finances the provision of the public good. Michael and Hatzipanayotou (1997) demonstrate the failure of the first-best efficiency rule when lump-sum taxes are used to finance the provision of a public good in a small open economy in the presence of trade restrictions (i.e., a tariff or a VER). Two features in the above reviewed studies of the international trade/development economics and public finance literature motivate the present paper. First, all these studies derive the efficiency rule for public good provision in the context of a small open or closed economy with full employment. Unemployment, however, to a lesser or to a larger extent remains a structural feature of many developed or developing economies. From an analytical standpoint, the existence of such a distortion may alter both the optimal tax formulae and the efficiency rule for public good provision. Second, the above reviewed literature considers the case where a government uses a single policy instrument (e.g., lump-sum taxes, income taxes, tariffs) to finance the provision of the public good. More than often, however, governments may have at their disposal several tax instruments that they can simultaneously use in order to raise revenue for financing the provision of public consumption goods. …

State-owned enterprises and privatisation in Ghana

Between 1987 and 1999, Ghana's privatisation programme generated revenues for the government equivalent to about 14 per cent of GDP from a moribund public sector which had previously been dependent on state subventions, and thus succeeded in fulfilling a key role in easing the fiscal crisis and in fostering the Structural Adjustment Programme. The big question remained, however, whether the privatisation process would help the growth of Ghana's economy and help maximise political gains. This article reviews the experience of Ghana in privatising public enterprises, and assesses the impact of the ongoing privatisation programme on the Ghanaian economy. It suggests that, in spite of the high proceeds, the net direct revenues from privatisation have been relatively modest, due to the high outstanding credit sales, the high costs of divestiture and high outstanding liabilities of privatised firms. It also appears that the programme has placed too much emphasis on public finance rationalisation and faith in the market system, and too little on sociopolitical and regulatory issues. Equally, the inadequate attention given to post-privatisation regulation of privatised businesses, and the use of the divestiture programme as a political patronage instrument to reward the regime's friends and political insiders, has conferred limited success for privatisation in achieving its goal of enhancing efficiency, private sector investment and employment.

Need money? roll the dice

In 1990, the Mississippi Legislature legalized dockside casino gaming as a surrogate tax system for the state. Since the establishment of the first casino in 1992, the casino industry has become an important component in the state's revenue picture. During fiscal years 1993, 1994, and 1995, gaming taxes and fees accounted for 1.6, 4.1, and 5.04 percent of Mississippi's general fund revenue, respectively. In addition, certain localities have benefitted from the industry as well. Beyond the direct revenue received through local taxation, casino gaming has substantially increased both property tax revenue and sales tax collections. The Mississippi Gaming Commission believes, however, that long-term revenue stability depends on developing resort destinations as opposed to a continued reliance on day-trippers. Colonists who balked at paying taxes to local governments were willing to purchase lottery tickets by those same governments(1) (yesterday). Government no longer possesses the capacity to secure the cooperation of the citizenry in meeting the requirements of public need. Consequently, it uses a buffer to take resources from the citizenry without invoking their wrath(2) (today).

LCA activities in Italy

For the medium sized industries, the use of LCA is now generally accepted as a valid tool to perform several tasks. Even if it generally means a considerable cost which does not immediately result in a direct revenue, it is recognised to be important for characterising current operating practices and to address any improved action to reduce energy consunaption and poilution to the environment.