ساختار مالیاتی و هزینه های دولتی با نگرانی های عدالت مالیاتی

We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common tenet that capital remains tax-exempt in small open economies. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may lead to a larger size of the public sector.

A central insight in taxation states that small open economies should not rely on capital taxation. This result, originally derived in Gordon (1986), emerges from the assumption of an infinitely elastic capital supply which small countries face. Under this assumption, the burden of a tax on capital will be entirely shifted onto workers or other immobile domestic factors. But if those factors bear the tax burden anyway, it is less costly to tax them directly and, by this, avoid the excess burden associated with capital flight. Zero capital taxation, thus, is desirable in this class of models – it maximizes the representative household's utility and is also the policy outcome that people actually want and would vote for. However, in reality the prospect of zero taxes on capital hardly looks popular. It flies in the face of concerns with equity, fairness, and equal treatment in taxation – which remain unmodelled in the standard framework of (international) taxation. Over the past decades a large body of evidence has been compiled suggesting that people not only care for, or are solely driven by, material self-interest but also by values, norms and equity concerns. Such ethical preferences have been embedded into various economic contexts, but only little is known about how they affect the tax setting behaviour of governments. In this paper, we study the mix of capital and labour taxation in the presence of tax equity concerns, i.e., when citizens hold the view that the tax rates on capital and labour incomes ought not to differ too widely. Such an approach can be motivated along several lines, both principled and pragmatic: • First, tax systems that exclusively or disproportionately rely on taxes on labour income may conflict with people's normative views on equity or justice.1 The most general and fundamental of such principled views is reflected in the idea of horizontal tax equity, to which most tax systems pay at least lip service. Demanding that equal incomes should be taxed at equal rates (Musgrave, 1959 and Kaplow, 1995), the principle forms part of the rationale underlying the comprehensive income tax (of the Schanz-Haig-Simons type), a normative ideal to which many countries (used to) adhere and that taxpayers cherish (Kirchler, 2007, pp. 78ff).2 Discrimination between similarly situated tax payers – such as zero or low taxes on capital in the presence of positive and high tax rates on labour – violates this principle. Tax discrimination also offends its relative, the ability-to-pay principle, stating that all members of society have a duty to pay taxes in accordance with their economic capabilities; tax legislation warps this principle when tax privileges are not based on ability to pay.3 Finally, since reducing inequality is a major rationale for taxation in modern societies, the exemption from taxation or low tax rates for capital incomes let the social compact for redistribution appear shaky – which many people find undesirable (Brooks and Manza, 2006). • Second, zero or low tax rates on capital income in the presence of high tax rates on labour income cause discontent, anger, and envy. The rich, capital income earners or profitable businesses getting away without being taxed adequately makes wage earners with (perceived) high tax burdens angry (The Economist, 2009). The “common man”, paying a substantial share of his moderate income in taxes, is upset when – as it happens in many countries – capital incomes are subject to rather symbolic income or capital gains taxes, exempt from contributing to social insurance, and given various preferences and privileges. Likewise, the (perception of a) growing imbalance in the taxation of labour and capital incomes (allegedly induced by globalization) nourishes political discomfort. Generally, policies that discriminate across comparable circumstances or individuals appear to create resentment, possibly also endangering social stability. This view finds strong support from social psychology where it is shown that relative deprivation – via unequal treatment, exclusion, or discrimination – negatively impacts both on individual well-being and on social cohesion and welfare ( Runciman, 1966 and Podder, 1996).4 As argued by Elster (1991, p. 66) in general and by Boskin and Sheshinski (1978, p. 590) for taxation, a society that tries to assuage its envy may well adopt policies that damage its material interests. To summarize, people seem to care about the tax structure in itself (and beyond the extent by which it affects their own incomes). They find it important that tax rates on different factors or types of income do not differ too much. Tax rate differentials affect individual well-being via concerns for equity, equality, and sentiments of relative deprivation or envy. In this paper we analyze the implications of such concerns for the tax structures in small open economies. To keep terminology simple, we shall henceforth and invariably refer to the view that the tax burden on incomes from capital and labour should be equal as “tax equity concerns”. This term is an imperfect container for a wide range of partially overlapping concepts that are difficult to disentangle: principles of horizontal tax equity, envy, fairness perceptions, feelings of relative deprivation or discrimination, etc. Their common denominator is, however, that large discrepancies between tax rates on different types of income are unpopular. From a modelling perspective, harbouring tax equity concerns mean that tax rates (or the tax structure) enter directly into one's utility function, irrespective of whether one's material well-being or other economic interests are affected or not. Concerns for tax equity may matter in at least two different ways: perceiving a situation as inequitable may cause discomfort (level effect) and it may also trigger adjustments in labour supply (incentive effect). The level effect reflects that people experience a reduction in their well-being when they see normative positions they cherish violated. The motivation for including incentive effects comes from empirical and experimental evidence that suggests that uneasiness felt in the context of taxation indeed affects work incentives. Dissatisfied individuals spend less effort on work, show higher rates of absenteeism, etc. (see, e.g., Lévy-Garboua et al., 2009; Cornelissen et al., 2012, or in a theoretical framework, Boadway et al., 2007). In social psychology, adverse behavioural reactions of this type have since long been discussed under the label “equity theory” (Adams, 1963). The experimental literature provides ample and general evidence that the violation of perceptions of “fairness” significantly impact on individuals’ subjective well-being as well as on individuals’ behaviour (for a survey see Fehr and Schmidt, 2006). From a citizen's perspective, equity constitutes an important criterion for the legitimacy of a tax system; it shapes tax compliance (Bordignon, 1993 and Wenzel, 2003), political support (Taylor, 2003, p. 84) and work incentives. Boadway et al. (2007) argue that individuals hold personal views on what constitutes an ethical tax rate; discrepancies between actual and normatively acceptable tax rates cause individuals to (legally) avoid taxation by adjusting their labour supply. Hence, tax distortions may originate from hurt ethical feelings. We embed tax equity concerns into a model of a small open economy whose remaining components are fairly standard: a single output is produced with labour and capital. Capital is perfectly mobile internationally. Workers only earn income from labour; they are immobile but their supply of labour is endogenous (and potentially affected by equity concerns). Equilibrium wages are higher the larger is the capital intensity in production. The government provides a consumption good and finances its expenditures with linear source taxes on capital and labour incomes. Government expenditures can be exogenously prescribed or might be determined endogenously. Policies are chosen such as to maximize the well-being of labour income earners. Concerns for tax equity formally show up in preferences as follows: increasing discrepancies between taxes on labour and capital incomes cause a (separable) reduction in total utility (level effect) and affect the marginal rate of substitution between consumption and leisure (incentive effect). In the absence of concerns for tax equity, government finance will exclusively rely on labour income taxes. Capital taxation causes a large excess burden by driving capital out of the country and, by this, also depressing wages; it should therefore be avoided. As a consequence, the tax treatment of capital and labour incomes is highly unequal. In the presence of equity concerns, the tax designer faces a trade-off. On the one hand, a tax on capital income comes at the large excess burden just outlined. On the other hand, for a given (and relatively high) labour tax rate, it narrows the tax gap and thereby placates equity concerns. This trade-off has a number of implications for the tax mix, some expected, some perhaps less so. First, capital income will never be exempted from taxation. Already with the slightest concern for tax equity a zero tax rate on capital income ceases to be desirable, irrespectively of whether equity concerns impact on work incentives or “only” on well-being. Second, and more surprising, stronger concerns for tax equity may indeed lead to a higher level of labour taxation. One reason is that equity concerns may drive the economy onto the decreasing part of the partial Laffer curve for the capital income tax – a situation that would never occur in a standard framework of taxation. Another reason is that government finance via capital income taxes eventually carries so large an excess burden that a further increase of capital taxes, induced by stronger equity concerns, needs to be accommodated by an (smaller) increase in labour taxes. Third, also the comparative statics for government expenditures reveal some interesting non-monotonicities. One might expect that a stronger concern for tax equity calls for higher capital tax rates and, by this, for a smaller public sector (as capital taxation is plagued with a larger excess burden). However, even when the former is true, the size of the public sector need not necessarily decline. Tax equity concerns erode the size of the public sector only when they are relatively weak. If strong equity concerns grow even more intense, higher government expenditure can occur. Our paper contributes to the theory of taxation in a number of areas. First, it adds to a growing strand in positive public finance that traces back policy outcomes to principles and normative views held in the population. For instance, Alesina and Angeletos (2005) argue that the extent of redistributive taxation varies with perceptions about how fair market outcomes are. Quari et al. (2012), supposing that individually cherished values impact on tax sensitivities, posit that patriotic identification keeps tax payers more attached to their home country; governments in turn can exploit this when designing a redistributive tax-transfer system. In our paper, normative principles are framed as concerns for tax equity; this is novel. Second, our positive analysis complements normative approaches on optimal taxation in the presence of “social”5 or ethical preferences (e.g., Fleurbaey and Maniquet, 2006) as well as and empirical and experimental research in economic psychology (surveyed in Kirchler, 2007) that studies how (perceived) equity properties of tax structures impact on economic behaviour, notably on tax compliance (e.g., Alm et al., 1993). Third, we add to research on the mix of capital and labour taxation in open economies. This area has recently been challenged by the failure to empirically confirm the theoretical prediction that greater capital mobility should go along with a reduced tax burden on capital (Haufler, 1997 and Haufler et al., 2008). Concerns about tax equity – as discussed in this paper – might explain why races to the bottom for capital taxes have not yet been dramatic; the social pressure of more balanced tax structures may outweigh their economic costs. More generally, values and normative convictions held in society impact on tax structure (rather than on the overall level of taxation only). Kim (2007) explains the mix of capital and labour taxation when citizen's preferences involve an aversion against “undeserved” incomes. We do a similar exercise when citizens have an aversion against unequal taxation. This paper proceeds as follows: Section 2 sets out a basic model with tax equity concerns. In Section 3, we analyze tax policies and their comparative statics for the case that government spending is exogenous. Section 4 extends the model to endogenous government spending. Section 5 concludes.

In this paper, we augmented a standard model for factor income taxation in small open economies by concerns about tax equity. In violation of standard neoclassical assumptions, we endowed individuals with direct preferences over tax rates, allowing equity considerations to both shape work incentives and to just affect well-being. Tax policies have to balance three policy goals: (i) maintaining a solid capital base in spite of international mobility, (ii) generating sufficiently high tax revenue, and (iii) avoiding large imbalances between capital and labour taxation. The third requirement upsets the standard recommendation of exempting capital and its income from taxation. Moreover, comparative statics reveal some unexpected non-monotonicities: with weak concerns about tax equity the tax on capital will be higher and the tax on labour and (endogenous) government expenditures will be lower, relative to an economy that is unconcerned with tax equity. However, with more intense concerns for tax equity these intuitive patterns turn out to be unstable: taxes on capital income might decrease, taxes in labour income increase, and government expenditures go up. The potential implications of concerns for tax equity on the structure of factor income taxation can be substantial. Moreover, they vary considerably with the strength of equity motives. Yet, while from the arguments provided in the introduction (justice principles, fairness considerations, relative deprivation, envy, etc.) the prevalence of such equity concerns appears highly plausible, we can at present not provide any measurable evidence for their intensity. We hope that by demonstrating the potential policy relevance of equity concerns, empirical work on the subject might be encouraged.