Distributional Side Effects of Tax Policies: An Analysis of Tax Avoidance and Congestion Tolls

Sammanfattning: This thesis consists of three self-contained essays.Essay 1This essay examines the effects of tax avoidance on saving and income distribution. In an intertemporal model taxes can be avoided through asset trade. We find that including an avoidance response to taxation will increase all the negative distortions of increased tax progressivity. This result is in contrast to previous findings that tax avoidance can be used to escape some of the negative incentives that a highly progressive tax system leads to. Furthermore, we find that in the presence of tax avoidance measurements of income inequality will be biased downward, since avoidance is more common among the relatively rich. A simulation of a representative economy shows that standard measurements of inequality can be seriously misleading, particularly for economies with relatively high marginal tax rates.Essay 2The paper analyses an integrated urban road pricing policy based on an automatic payment system for cars. Like Glazer and Niskanen (2000) we study congestion tolls with heterogeneous commuters, but we focus on welfare effects and extend their model to include a choice of departure time, as well as travel mode. We find that tolls can be welfare improving even if the public transit mode normally used for substitution is also congested. If, for some reason, public transit charges cannot be changed, substitution towards off-peak travel can be stimulated by a combined road toll and parking duties policy made possible by modern automatic vehicle-identification technologies.Essay 3This essay focuses on the distributional impact and political acceptance of congestion tolls, which, we find, will depend on the location of a switch point income level, at which tolls become regressive. The latter, in turn, depends on the relative attractiveness of the car versus the mass transit system. We find that in a European setting, congestion tolls will most likely have a negative effect on the middle classes, while individuals at both tails of the income distribution will find themselves better off. An investment in the public transportation system will increase the number of individuals who would favor a reform involving congestion tolls on the road network. Such investments might therefore be warranted not only for environmental reasons, but also as a means of making an optimal road pricing policy politically acceptable, something which can be useful particularly in developing countries where financing traffic improvements can be difficult.