Progressive tax policy and informal labor in developing economies

Governments in many industrializing democracies face difficult policy trade‐offs. Liberalization and informality have placed electoral pressure on them to expand noncontributory social spending. However, governments in developing democracies face constraints when attempting to finance this expansion. In some countries, the informal labor market is very large, thereby undermining the revenue that can be collected through income tax. We argue that this has given rise to a paradoxical situation. Left governments in developing democracies with large informal labor markets have a strong electoral incentive to expand welfare regimes to previously excluded outsiders, but to fiscally underwrite this expansion, they have increasingly been forced to fund their redistributive strategies via a regressive policy instrument, indirect consumption taxation. We examine this argument for a sample of 17 Latin American countries between the years 1990 and 2016. Our results suggest that labor informality forces left governments to turn to indirect taxation.     

Britain's poll tax policy: An Institutionalist approach

Previous interpretations of Britain's poll tax policy fail to offer sufficient explanations. This article argues that the poll tax can only be fully understood by taking an explicit lnstitutionalist approach, which argues for an examination of the interaction of ideas, interests and institutions. The following analysis shows that the genesis of the policy was the inability of the Conservatives to force local expenditure reductions through the previous local government finance system. This led to a search for new policy options which, interacting with Thatcherite ideas on local government, produced the poll tax policy.     

Requisites of radical reform: Income maintenance versus tax preferences

Why did tax reform succeed in gaining passage while the family assistance plan failed? Using cultural theory, we argue that the active consent of elites from three political cultures is required before radical policy proposals will win political support in America. Although the Nixon administration cast the income maintenance plan in integrative terms—support for the family—it failed because egalitarian leaders demanded more. Tax reform succeeded because elites of the three cultures—individualists, egalitarians, and supporters of hierarchy—saw benefits in the plan and were willing to compromise.     

The refundable tax credit: A cubist policy analysis

A cubist policy analysis sets forth several interacting realities about a policy proposal in order to arrive at an optimum reconciliation of their demands. In relation to the proposal of a refundable tax credit, one must consider the political climate in 1984 and 1985 with respect to income taxes, the effect on families that are poor or have marginally middle-class or middle-class income, of relatively small increments or reductions of money, trends with respect to income for such families, and the manner in which established income transfer mechanisms respond and are able to respond to problems that emerge. Taking all this together, we are led to a proposal to replace the personal exemption in income taxes with a tax credit of $400 per person, reduced by 5 percent of household Adjusted Gross Income in excess of $10,000 a year. Costs and benefits and alternative designs for a refundable tax credit (including one that a taxpayer may choose or decline) are provided.     

TJTC and the promise and reality of redistributive vouchering and tax credit policy

The Targeted Jobs Tax Credit (TJTC) is a representative redistributive incentive. Initially, proponents saw TJTC as an elegant program, efficiently promoting labor market behavior that would solve the employment problems of many disadvantaged job seekers. However, interest groups distorted the credit into a windfall for businesses that hire large numbers of low wage workers. The policy theories incorporated into TJTC, which emphasized continual program reform and minimized program management by public administrators, provided a setting conducive to interest group distortion. Because few representatives of the disadvantaged participated in the oversight process, special interests undermined TJTC being reformed through empirical evaluation. This experience indicates that without major changes in the policy process, narrowly targeted rzdistributive policies should be avoided.     

Contextual variation in interdependent policy making: The case of tax competition

Many studies show that policy makers react to the policy choices made in other jurisdictions, but we still know relatively little about the factors driving interdependent policy making, especially about how context shapes interdependence. Theoretical arguments suggest that contextual factors, such as stable institutions and geographic location, explain variation in interdependence. However, there is a lack of empirical research investigating contextual heterogeneity in interdependent policy making, mainly because it cannot be analysed with standard spatial econometric methods. This article introduces multilevel modeling that allows the study of contextual variation in interdependence and illustrates the method with the analysis of uneven tax competition in Switzerland. The findings of fine‐grained data show that cantonal governments compete more strongly with their competitors the closer a unit is located to a metropolis with comprehensive public good provision. The analysis demonstrates that we can better understand the mechanisms of interdependent policy making by studying its contextual drivers.     

The charitable activities of terrorist organizations

Violent groups sometimes invest significant resources in social work, notably in the form of charities and NGOs. The present paper models a terrorist group's charities as a means to advertise its cause in order to raise popular support. The analysis explains how different types of organizations arise in equilibrium, depending on government policies. Then, the interaction between a purely terrorist group and an independent local NGO is examined. It is shown that a purely terrorist group always invests in more attacks than an integrated terrorist-charity organization. Furthermore, the latter may have more NGO activity than a separate local NGO.     

The "common sense" of the nonprofit hospital tax exemption: a policy analysis.

Although rarely discussed prior to the 1985 Utah Supreme Court ruling against Intermountain Health Care Inc., the question of whether to grant tax exemptions to nonprofit hospitals is currently being debated by federal, state, and local legislators, and by the courts. Changes to current policy seem likely. This policy analysis: (1) presents the historical and legal background; (2) examines the economic, political, and organizational implications of current tax-exemption policy; and (3) offers three alternatives to this current policy. The analysis indicates that the current policy provides little incentive for nonprofit hospitals to make contributions of charity care. Of the alternatives, eliminating the exemption is not politically feasible at this time; regulating hospital operations and outputs portends an implementation nightmare; and tying tax subsidy levels to output levels of charity care--perhaps the strongest and most efficient incentive--would require an unlikely political consensus on what constitute valid and reliable measures of charity care. If there is a movement toward subsidies, then linking subsidy amounts to levels of charity care will depend on whether policy analysts can design satisfactory empirical measures. With the advent of universal health coverage, the demand for charity care will decrease. The problem for tax-exempt hospitals will then become justifying the exemption by demonstrating the extent to which they generate community benefits at no or reduced cost to society.     

Tax rates, tax administration and income tax evasion in Switzerland

This paper contains an empirical analysis of income tax noncompliance in Switzerland, based on the standard model of tax evasion. Noncompliance is found to be positively related to the marginal tax burden and negatively to the probability of audit, though the latter impact is only weak. There is no evidence of a significant deterrent effect of the penalty tax. The extended model reveals that noncompliance is positively related to inflation. Finally, noncompliance is significantly lower when citizens/taxpayers have direct control over government budgets, whereas the opposite holds when there is no such control.     

The role of tax preparers in tax compliance

This paper assesses the influence of tax preparers on tax compliance. Using data from the Internal Revenue Service's (IRS) Taxpayer Compliance Measurement Program and an index of legal ambiguity based on Revenue Rulings, the impact of preparation mode (paid third party vs. self) on compliance at the level of the return line item is probed. The results suggest that preparers contribute to compliance by enforcing legally clear requirements but also contribute to noncompliance, as measured by the IRS, by helping taxpayers take advantage of legal ambiguity. Furthermore, an analysis of a campaign to enforce estimated tax requirements conducted by the Pennsylvania Department of Revenue suggests that tax preparers are also an important network for communicating tax agency enforcement priorities to taxpayers.An earlier version of this paper was prepared for the conference on Federal/State Research sponsored by the U.S. Internal Revenue Service.     

Preparing members of congress to make binary decisions on complex policy issues: The 1986 tax reform bill

Throughout 1985 and 1986, the House Committee on Ways and Means undertook a major revision of the federal income tax law. The product was the landmark Tax Reform Act of 1986. Because of the magnitude of the changes contained in this bill, the committee sought new ways of obtaining and disseminating necessary information. This article discusses the congressional policy-making process, the different kinds of information used in congressional decision making, and some new procedures employed by the committee during House action on the 1986 tax reform legislation.     

Tax systems and tax shares

Public Choice - How can one use the results derived in Sections 3 and 4? The type of use one can make in theoretical voting analysis was suggested in Section 4 already. Comparative statics results...     

Progressive taxation and tax morale

Due to strong evidence indicating that tax morale affects actual tax-paying behavior, finding the determinants of tax morale could help both to understand and to fight tax evasion. In this paper we analyze the effect of progressive taxation on individual tax morale using a cross-country approach—a research question that has not been investigated in the existing literature. Our theoretical analysis leads to two testable predictions. First, an individual’s tax morale is higher, the more progressive the tax schedule is. Second, the positive impact of tax progressivity on tax morale declines with income. In our empirical analysis we make use of a unique dataset of tax progressivity measures, namely the World Tax Indicators, and follow most of the tax morale literature by employing the World Values Survey to measure individual tax morale. Controlling for a wide range of potential confounders, we are able to confirm both hypotheses in our empirical analysis.