On the Redistributive Properties of Presumptive Taxation

Presumptive taxation, in which an income proxy is used as tax base, has been and is still used today in countries with very diverse situations - developing, transition and developed countries. Usually, this form of taxation is thought of as a revenue-raising device in presence of widespread imperfect tax compliance. We investigate the question of whether presumptive taxation can be used as a redistributive instrument. To this end, we employ an occupational choice model in which an individual can be either an entrepreneur or a worker. We allow for different abilities to dodge taxes across social classes, and consider both the case in which a conventional income tax is in place alongside presumptive taxation and the case in which only presumptive taxation is operating. We argue that a revenue-neutral reform introducing a lump-sum presumptive tax based on occupational choice can improve social welfare, and sometimes even lead to a Pareto-improvement.tax avoidance, presumptive taxation, redistribution, occupational choice

Fiscal Federalism and Endogenous Lobbies' Formation

We study lobbying behavior by firms in a two-region economy, with either centralized or decentralized provision of profit-enhancing local public goods. Firms compete either in the market, lobbying for public good provision once entered in a market, or for the market, lobbying to gain ccess to it. When firms compete in the market, we show that lobbying is unambiguously less disruptive or social welfare under decentralization. Moreover, foreign rather than domestic private nterests may be more powerful in a.ecting regional policies. On the contrary, when firms compete or the market, lobbying is mostly e.ective under decentralization, since local firms always end p forming a local monopoly. However, we show that an institutional setting in which competencies re split between the center and the periphery may dominate either full centralization or full ecentralization or both.fiscal federalism, lobbying, private interests

Optimal taxation, imperfect competition and tax enforcement policies

This thesis contains four papers in the area of Public Economics. Chapter 1 looks at producers' taxation in a model of vertically related oligopolies. Both ad valorem and specific taxes are considered and formulae expressing their effects on prices and profits are derived, showing how these depend on factors such as demand conditions, technology and market structure. Conditions for taxation to cause price overshifting and to raise profits are given. Also, tax instruments are compared in terms of the amount of revenue collected and the effect on the price for the final good. Chapter 2 applies the results of the previous paper to the analysis of tax reforms. Vertically related oligopolies result in welfare loss for two reasons. Firstly, upstream oligopolists set the price of the intermediate good above marginal cost and this causes aggregate production inefficiency. Secondly, downstream oligopolists introduce an additional price-cost margin. The analysis focuses on tax reforms, where the government aims at reducing the welfare loss by levying taxes and subsidies on producers while raising no revenue. Chapter 3 focuses on the design of income tax enforcement policies in a principalagent framework. The existing literature assumes risk neutral taxpayers while this chapter considers the case of risk averse agents by assuming a kinked linear utility function. When individuals have the same attitude towards risk, it is shown that the optimal policy is such that income reports below a given threshold are audited at the probability level just sufficient to induce truthful reporting, whereas those above it are not audited. This makes the effective tax schedule to be quite regressive. Instead, if attitudes towards risk vary across taxpayers, the numerical results show that the optimal audit policy causes only a limited regressive bias, for income reports above the threshold meet a positive probability of audit. Chapter 4 examines the Presumptive Income Coefficients (PIC) audit policy, a scheme recently introduced in the Italian tax code and aimed at reducing tax evasion in the non-corporate sector. The tax agency applies the PIC to observable production costs to get an estimate of taxpayer's income, or presumptive income. The probability of audit is then dependent on the gap between presumptive and reported income. This issue is examined in a setting where the game between the taxing authority and taxpayers is modelled in a principal-agent framework

Local Governments Tax Autonomy, Lobbying, and Welfare

What degree of tax autonomy should be granted to a regional government on a local tax base? Although the regional policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of local taxpayers. In this political environment we characterize the conditions under which social welfare can be increased by restricting the set of tax instruments available to the local policy maker, i.e. the degree of local tax autonomy. We show that full tax autonomy is likely to be dominated by minimal tax autonomy when there are many groups of similar size, while the converse occurs when tax bases are asymmetrically distributed.Tax autonomy, lobbying, local public good provision

Presumptive Taxation, Markets, and Redistribution

In several Western countries, as well as in virtually all developing and transition ones, the government’s ability to redistribute income in favour of the less well-off is severely limited by the fact that certain groups of citizens can escape their tax obligations more easily than others. In this paper, we focus our attention on one of the possible responses to that problem, namely the recourse to presumptive taxation, whereby not income as such, but a proxy for income, is selected as the tax base. To study this issue, we employ an occupational choice model where an individual can either be a worker or an entrepreneur. We assume that a conventional income tax is in place and that only entrepreneurs, who are at the top of the income distribution, can partially avoid the income tax. In this setting, we show that presumptive taxation based either on occupational choice or on the firms’ input costs can raise the welfare of the workers, who are the poorest members of the society. This outcome is not necessarily achieved, however, by taxing entrepreneurs: in a number of circumstances, presumptive subsidies for the entrepreneurs are preferable to presumptive taxes, the reason being that the latter may cause production inefficiency as well as increase tax avoidance costs

Optimality and distortionary lobbying: control policies of cigarette consumption

We examine the optimal design of public policies directed at controlling the consumption of tobacco. The public authority uses two types of instruments: (i) an excise tax, that hinders consumption by increasing the price of cigarettes, and (ii) prevention and control programs, that reduce smoking by increasing consumers\u2019 awareness about future health harm. On the normative side, the analysis focuses on the optimal mix between the two types of instruments when the objective of the policy maker is to maximize social welfare. On the positive side, the paper investigates how the lobbying activities of the tobacco industry and of anti-tobacco organizations may distort government intervention

Optimal tax administration responses to fake mobility and underreporting

In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment

Local infrastructures and externalities: does the size matter?

We setup a model in which the residents of two neighboring municipalities can use the services provided by public infrastructures located in both jurisdictions. If services are either complements or substitutes in use, the municipalities strategically interact when investing in infrastructures; moreover, when they differ in population size, the small municipality reacts more to the expenditure of its neighbor than the big one. The theoretical predictions are then tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento, in Italy

Tax autonomy, lobbying, and welfare

What degree of tax autonomy should be granted to a taxing authority? Although the policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of taxpayers. In this political environment we characterize the conditions under which social welfare can be increased by restricting the set of tax instruments available to the policy maker, i.e. the degree of tax autonomy. We show that full tax autonomy is more costly, in terms both of welfare distortions and lobbying effort, when the lobbies are asymmetric in size, while minimal tax autonomy is more costly when the tax bases are asymmetric across different groups

Fiscal equalization under political pressures

We examine the design of fiscal equalization transfers aimed at interregional redistribution in a setting in which special interest groups distort the fiscal policies of local governments. Equity always calls for tax-base equalization while efficiency calls for tax-base equalization of fiscal capacities backed by strong lobby groups and for taxrevenue equalization of those backed by weak lobby groups. Hence, it is optimal to rely only on tax-base equalization if the special interest groups are similar in terms of lobbying power, whereas a mixed system is optimal if they are highly heterogeneous. Tax competition reinforces the role of tax-base, while tax exporting that of tax-revenue, fiscal equalization