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Tax Structure and Government Behavior: Implications for Tax Policy

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  • Roger H. Gordon
  • John D. Wilson

Abstract

Changes in tax policy can affect all aspects of the economy. Not only do firms and individuals change behavior, creating efficiency costs, but government expenditure choices can also change. Unless these expenditure choices had been optimal' previously, changes in response to a tax reform affect welfare and should be taken into account when designing tax policy. This paper develops a specific model of government behavior and then explores the implications of government, as well as private, behavioral responses for tax policy. In particular, we assume that government officials favor expenditure (or regulatory) choices that increase the government's budget. As a result, higher tax rates on a particular activity encourage government behavior that aids the growth of this activity. This response enables tax policy to redirect government activity in desirable directions, but it also makes Pigovian taxes on negative externalities less effective.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7244.

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Date of creation: Jul 1999
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Handle: RePEc:nbr:nberwo:7244

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  1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 177-200, March.
  2. Lawrence H. Goulder & Ian W.H. Parry & Dallas Burtraw, 1997. "Revenue-Raising versus Other Approaches to Environmental Protection: The Critical Significance of Preexisting Tax Distortions," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 28(4), pages 708-731, Winter.
  3. Polinsky, A. Mitchell & Shavell, Steven, 1984. "The optimal use of fines and imprisonment," Journal of Public Economics, Elsevier, Elsevier, vol. 24(1), pages 89-99, June.
  4. Roger H. Gordon & John D. Wilson, 2001. "Expenditure Competition," NBER Working Papers, National Bureau of Economic Research, Inc 8189, National Bureau of Economic Research, Inc.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  6. Hoxby, Caroline M., 1999. "The productivity of schools and other local public goods producers," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 1-30, October.
  7. Edward L. Glaeser, 1995. "The Incentive Effects of Property Taxes on Local Governments," NBER Working Papers, National Bureau of Economic Research, Inc 4987, National Bureau of Economic Research, Inc.
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Cited by:
  1. Rainald Borck, 2002. "Stricter Enforcement May Increase Tax Evasion," Discussion Papers of DIW Berlin, DIW Berlin, German Institute for Economic Research 297, DIW Berlin, German Institute for Economic Research.
  2. Lars-Erik Borge & Jørn Rattsø, 2006. "Property taxation as incentive for cost control:Empirical evidence for utility services in Norway," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 7606, Department of Economics, Norwegian University of Science and Technology.
  3. Zissimos, Ben & Wooders, Myrna, 2005. "Relaxing Tax Competition through Public Good Differentation," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 737, University of Warwick, Department of Economics.
  4. Baicker, Katherine & Jacobson, Mireille, 2007. "Finders keepers: Forfeiture laws, policing incentives, and local budgets," Journal of Public Economics, Elsevier, Elsevier, vol. 91(11-12), pages 2113-2136, December.
  5. Krause, Günter, 2004. "On the role of budgeting in the delegated provision of public goods under asymmetric information," W.E.P. - Würzburg Economic Papers, University of Würzburg, Chair for Monetary Policy and International Economics 51, University of Würzburg, Chair for Monetary Policy and International Economics.
  6. Myrna Wooders & Ben Zissimos, 2003. "Hotelling Tax Competition," CESifo Working Paper Series, CESifo Group Munich 932, CESifo Group Munich.
  7. Scott Gehlbach, 2003. "Taxability and Government Support of Business Activity: Testing Theories of Social-Contract Failure," Working Papers, Center for Economic and Financial Research (CEFIR) w0028, Center for Economic and Financial Research (CEFIR).
  8. Jørn Rattsø & Jon Hernes Fiva, 2005. "Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 5305, Department of Economics, Norwegian University of Science and Technology, revised 02 Sep 2005.
  9. Susan Steiner, 2005. "Decentralisation and Poverty Reduction: A Conceptual Framework for the Economic Impact," GIGA Working Paper Series, GIGA German Institute of Global and Area Studies 03, GIGA German Institute of Global and Area Studies.
  10. Rajaraman, Indira & Vasishtha, Garima, 2000. "Impact of grants on tax effort of local government," Working Papers, National Institute of Public Finance and Policy 00/1, National Institute of Public Finance and Policy.
  11. Katherine Baicker & Mireille Jacobson, 2004. "Finders Keepers: Forfeiture Laws, Policing Incentives, and Local Budgets," NBER Working Papers, National Bureau of Economic Research, Inc 10484, National Bureau of Economic Research, Inc.
  12. Libman, Alexander, 2004. "Мировой Опыт Оптимизации Налогообложения: Роль Налоговой Конкуренции И Оффшорных Центров В Мировом Хозяйст�," MPRA Paper, University Library of Munich, Germany 17042, University Library of Munich, Germany.

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