We examine how tax contracts affect government formation and welfare of voters in a parliamentary democracy. A tax contract specifies a range of tax rates a party is committed to if in government. We develop a new model of party competition and show that the introduction of tax contracts has two effects: a perks-reduction effect and a policy-shift effect. The former is dominant in societies wit...

The past academic literature on tax policy has focused almost entirely on the analysis of tax structures in the richest countries, particularly the U.S. Overall the optimal tax models explain reasonably well the observed tax policies in these countries. As summarized in Gordon (2000), for example, past theoretical work suggests that taxes on consumption or labor income should dominate use of ca...

There are two main concerns about tax amnesty. First, if it is anticipated it may increase cheating and reduce the efficiency of the tax system. Second, amnesty may be inequitable by letting cheaters ‘off the hook’. However, several federal governments currently hold a policy of long-term, or permanent, tax amnesty, in apparent defiance of these concerns. This paper examines fully anticipated t...

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms’ decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is bene...

a r t i c l e i n f o We introduce limited commitment into a standard optimal fiscal policy model in small open economies. We consider the problem of a benevolent government that signs a risk-sharing contract with the rest of the world, and that has to choose optimally distortionary taxes on labor income, domestic debt and international transfers. Both the home country and the rest of the world...

Arguments about national tax policy have taken center stage in U.S. politics in recent times, creating acute dilemmas for Democrats. With Republicans locked into antitax agendas for some time, Democrats have recently begun to push back, arguing for maintaining or even increasing taxes on the very wealthy in the name of deficit reduction and the need to sustain funding for public programs. But t...

The past academic literature on tax policy has focused almost entirely on the analysis of tax structures in the richest countries, particularly the U.S. Overall the optimal tax models explain reasonably well the observed tax policies in these countries. As summarized in Gordon (2000), for example, past theoretical work suggests that taxes on consumption or labor income should dominate use of ca...

We analyze a sequential game between two symmetric countries when firms can invest in a multinational structure that confers tax savings. Governments are able to commit to long-run tax discrimination policies before firms’ decisions are made and before statutory capital tax rates are chosen non-cooperatively. Whether a coordinated reduction in the tax preferences granted to mobile firms is bene...

In 2001 and 2003, the Bush administration engineered two enormous tax cuts primarily benefiting very wealthy taxpayers. Most Americans supported these tax cuts. I argue that they did so not because they were indifferent to economic inequality, but because they largely failed to connect inequality and public policy. Three out of every four people polled said that the difference in incomes betwee...

Designing tax policies that are effective in curbing tax evasion and maximize state revenues requires a rigorous understanding of taxpayer behavior. This work explores the problem of determining the strategy a self-interested, risk-averse tax entity is expected to follow, as it “navigates” in the context of a Markov Decision Process a government-controlled tax environment that includes random a...