This paper shows that a small open economy, which suffers from involuntary unemployment, should levy a positive source-based tax on capital income. A revenue-neutral tax reform, which increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital. Such a tax reform will lower marginal cost of production, increase output, reduce unemployment, an...

We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital ...

Public finance experts have long explored the issue of income taxes making the cost of market transactions higher than nonmarket ones. A 50 percent income tax, for example, requires $20,000 in income to purchase $10,000 of market goods. The tax can be avoided, however, if the same goods can be produced at home. The upshot is that income taxes encourage the home production of goods and services ...

The fiscal authorities use ICT for PIT compliance monitoring. But the formed electronic database is not available to detect income that is paid unofficially. In the result, the great part of individuals’ income is not taxed and the fiscal authorities cannot reveal it. For this purpose, it is necessary to connect the electronic databases of all tax agents. Especially it is important for the fisc...

There is now a large and complex literature on optimal income taxation, within the context of second-best welfare economics. This paper considers the potential role of this analysis in the practical design of direct tax and transfer structures. It is stressed that few results are robust, even in simple models, in view of the important role played by alternative social welfare functions, the nat...

We evaluate a major personal income tax reform in Uganda that came into effect 2012–13. The increased the tax-free lower threshold, rates for higher incomes, and introduced an additional highest band. Using universe of pay-as-you-earn administrative data submitted by employers formal sector, we analyse impact on taxable introduction top Our results indicate elasticity is larger than previous fr...

To combat their aversion to paying taxes, many taxpayers can exercise some control over their tax bill. U.S. tax law includes a rich menu of tax-incentivized behaviors, including favorable treatment of mortgage interest, retirement savings, and charitable giving, among many other provisions. Through undertaking these actions, or through remembering to claim credits or deductions due for actions...

Public finance experts have long explored the issue of income taxes making the cost of market transactions higher than nonmarket ones. A 50 percent income tax, for example, requires $20,000 in income to purchase $10,000 of market goods. The tax can be avoided, however, if the same goods can be produced at home. The upshot is that income taxes encourage the home production of goods and services ...

This paper studies how simultaneously liberalizing trade and tightening environmental policy affect welfare in a second-best world. We consider a three-good two-factor small open economy. We allow for non-tradables and for market power in the export market. The government is constrained to balance its budget at all times through distortionary taxes: a given income transfer has to be financed ou...