Robin Boadway

An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada

Both federal and provincial governments in Canada levy corporate taxes on businesses in their jurisdictions, which potentially gives rise to horizontal and vertical tax externalities within the federation. Using a simple model of interdependent tax choices, we estimate tax-setting functions for the federal government, Ontario, Quebec, and an aggregate of the remaining eight provinces. We find evidence of significant vertical and horizontal tax interactions. Provincial tax rates respond negatively to the federal tax rate, while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces.

The consequences of overlapping tax bases for redistribution and public spending in a federation

Tax and expenditure policies are studied in a federation with imperfectly mobile households. States implement a linear progressive tax and supply a public good. A vertical fiscal externality, reflecting the effect of state policies on federal revenues, provides an incentive for state taxes to be too progressive. A horizontal fiscal externality causes nonoptimal state taxes and expenditures because of the migration effect. The federal government implements its own Linear progressive tax and makes transfers to the states. The federal government can nullify both externalities by appropriate fiscal policies, and redistributive taxation can be decentralized to the states

Towards a Theory of the Direct Indirect Tax Mix

Despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes, little theory is devoted to explaining the direct-indirect tax mix. Our purpose is to show that if different taxes have different evasion characteristics, some optimal tax mix emerges naturally. Assuming that only income tax can be evaded and focusing on a two-class economy, we analyse the case for supplementing optimal (non-linear) income taxation with commodity taxation, and we develop conditions under which the latter should or should not be uniform.

Intergovernmental fiscal transfers : principles and practice

The design of intergovernmental fiscal transfers has a strong bearing on efficiency and equity of public service provision and accountable local governance. This book provides a comprehensive one-stop window/source of materials to guide practitioners and scholars on design and worldwide practices in intergovernmental fiscal transfers and their implications for efficiency, and equity in public services provision as well as accountable governance.

Tax-transfer Policies and the Voluntary Provision of Public-goods

The purpose of this paper is twofold. First, it extends previous models of non-cooperative private funding of pure public goods by allowing both for distortionary taxation of private goods and for subsidies based on contributions to the public goods. Second, it clarifies the type of behavioural and informational assumptions needed to result in neutrality of lump-sum and distortionary policies. The analysis is developed in the context of fiscal federalism.

Optimal Redistribution with Heterogeneous Preferences for Leisure

This paper examines the properties of the optimal nonlinear income tax when preferences are quasi–linear in leisure and individuals differ in their ability and their preferences for leisure. The government seeks to redistribute income. It can perfectly observe the level of endogenous income but cannot observe either ability or preferences. The heterogeneity of preferences leads to problems of comparability between individual utilities which challenge the design of redistributive schemes. We analyze the consequences of adopting a utilitarian social welfare function where the government is allowed to give different weights to individuals with different preferences. Under this particular social objective and given the quasi–linearity of preferences, we are able to obtain closed–form solutions for the marginal tax rates and to examine the progressivity of the tax system according to the weights used.

Education and the Poverty Trap

An overlapping generations models is constructed in which individual wealth is related to educational attainment, and in which liquidity constraints may induce children to invest in a sub-optimal level of education given their ability. Borrowing for educational attainment is obtained from within the family. Abilities differs among children and may be related to parental ability. Stationary state equilibria are found to exist in which children of poorer families are caught in a poverty trap because of an inability to finance their education. The role of redistributive policy is studied in this context.

Investment in education and the time inconsistency of redistributive tax policy

Time inconsistency of tax policy is shown to arise in a setting in which households differ in their ability to accumulate wealth and the government has redistributional objectives. The government can levy non-distorting taxes but is precluded from redistributing optimally by a self-selection constraint. The analysis is done for the case in which all wealth is human capital, and education is a private good. An argument can be made for public intervention in the provision of education.

A Median Voter Model of Social Security

This paper presents a theoretical median voter analysis of the determination of the level of social security. The framework for the analysis is a continuous-time, overlapping-generations model with nonaltruistic households facing borrowing constraints in the capital market. A majority voting equilibrium is shown to exist in which the median voter is liquidity-constrained. The desired level of social security for each voter is a declining function of the preexisting level of social security. As a consequence, in a sequence of votes on social security beginning with a zero level, the program initially overshoots its steady state value. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Problems with integrating corporate and personal income taxes in an open economy

This paper analyzes the case for integration in a small open economy when all firms and households exploit tax arbitrage opportunities to the fullest possible (legal) extent. The analysis shows that integration does not accomplish the objectives that have been attributed to it. Instead of eliminating the double taxation of equity income, it simply removes to primary taxation of savings done through the corporation. It has no effect on the investment decisions in an open economy; it is distorted by the corporate tax whether or not there is integration. The analysis also has important implications for the relative desirability of an income versus a consumption tax at the personal level and for the design of the corporate tax itself.