Asia-Pacific Journal of Accounting & Economics
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Volume 15, Issue No. 3, December 2008

Vol. 15 No. 3, December 2008 (Special Issue for the 2008 APJAE Symposium on Public Policies and Social Welfare)

Guest Editor for the Special Issue: Robin Boadway, Queen’s University, Canada

  • Robin Boadway, Introduction, iii

  • Robin Boadway and Jean-François Tremblay, Pigouvian Taxation in a Ramsey World, 183-204

  • Xiwen Fan and John Douglas Wilson, Tax Evasion and the Optimal Tax Treatment of Foreign-Source Income, 205-222

  • Pierre Pestieau and Motohiro Sato, Estate Taxation With Both Accidental and Planned Bequests, 223-240

  • Shih-Ying Wu, Taxation, Liquidity Constraints and Entrepreneurial Investment – Evidence from Taiwan’s 1998 Tax Integration, 241-256

  • Masayoshi Hayashi, Haruka Kazama, Horizontal Equity or Gatekeeping? Fiscal Effects on Eligibility Assessments for Long-term Care Insurance Programs in Japan, 257-276

  • Toshihiro Ihori and C.C. Yang, Tax Competition, Public Good Provision, and Income Redistribution, 277-290

  • Daniel Berkowitz and Johannes Moenius, Law, Trade and the Asian Miracle, 291-316

  • Announcements, 317


Pigouvian Taxation in a Ramsey World

Robin Boadwaya* and Jean-François Tremblayb
aQueen’s University, Canada
bUniversity of Ottawa, Canada


This paper studies the optimal Pigouvian tax for correcting pollution when the government also uses distortionary taxes to raise revenues. When preferences are quasilinear in leisure and additive, the Pigouvian tax can be separated from the Ramsey revenue-raising tax. We characterize the relationship between the Pigouvian tax and marginal social damages in a variety of circumstances. In a setting with homogeneous households, the Pigouvian tax exceeds marginal damages if goods have inelastic demands, and vice versa. When households are heterogeneous so taxes can be redistributive, the Pigouvian tax gives more weight to damages suffered by lowincome persons. The analysis is extended to allow for costly abatement. In general, corrective taxes have to be applied to both emissions and output of the polluting good.

Keywords: Pigouvian Tax, optimal taxes, pollution tax

JEL Classification: H21, H23


Tax Evasion and the Optimal Tax Treatment of
Foreign-Source Income

Xiwen Fana and John Douglas Wilsonb*
aRadian Asset Assurance Inc.
bMichigan State University


This paper models a capital-exporting country that encounters difficulties in taxing foreign-source income, due to tax evasion problems. The paper compares the country’s optimal effective tax rates on the income from capital invested at home and abroad (including penalties levied on detected tax evaders). It finds that tax evasion abroad does not provide a justification for a relatively low effective rate on foreign-source income. Under a variety of circumstances, foreign-source income should actually be taxed at a relatively high effective rate, regardless of the severity of tax evasion problems abroad. However, tax evasion abroad does tend to reduce the optimal taxation of capital income both at home and abroad.

JEL Classification: H21, H25, H26, H87

Keywords: tax evasion, optimal taxation, capital tax, capital mobility


Estate Taxation With Both Accidental and
Planned Bequests

Pierre Pestieaua* and Motohiro Satob
aCREPP, University of Liège, CORE, PSE and CEPR
bHitotsubashi University


Actual inheritances are a hybrid of canonical types of bequests and, in particular, of accidental bequests and altruistic bequests. In this paper, a bequeathed estate consists of two components: an amount intended by altruistic parents and an amount which results from the “premature” death of parents. Altruistic parents can also invest in their children’s education. Taxing those two types of bequests separately is known to have different implications. The purpose of this paper is to see the distributive incidence of estate taxation when those two components are indistinguishable. The substitutability between education and intended bequests plays a key role in the tax design.

JEL classification number: H20, D64

Keywords: estate taxation, inheritance, bequests motives


Taxation, Liquidity Constraints and Entrepreneurial Investment
- Evidence from Taiwan’s 1998 Tax Integration

Shih-Ying Wua*
aNational Tsing Hua University


This study utilizes the natural experiment of Taiwan’s 1998 tax integration to investigate the tax effect on sole proprietors’ investment. Based on panel data of 1995 and 1999 firm-level surveys, we find that the user cost elasticity of capital significantly equals -0.239. This estimate suggests that a sole proprietorship would increase its capital stock by 6.9 percent in response to the 1998 tax integration if it faced the top tax rates both before and after the integration. Moreover, this study suggests that large-size sole proprietorships are more liquidity constrained than their smaller counterparts.

JEL classification: D21, H32, J23

Keywords: liquidity constraint, sole proprietorship, the user cost of capital


Horizontal Equity or Gatekeeping?
Fiscal Effects on Eligibility Assessments for
Long-term Care Insurance Programs in Japan

Masayoshi Hayashia*, Haruka Kazamab
aSchool of Public and International Policy and
Graduate School of Economics, Hitotsubashi University
bMizuho Research Institute, Tokyo, Japan


This paper considers the effects of municipal fiscal climates on eligibility assessments in the Japanese system of long-term care insurance (LTCI). We find that municipalities with more stringent fiscal climates tend to reject more applications for LTCI benefits, almost certainly in the hope of containing benefit expenditures. This would not be a serious problem if financial assistance from the upper levels of government counteracted the adverse effect. However, we also find that the effects of the assistance are almost negligible, despite layers of intergovernmental subsidies for municipal LTCI expenditures. In other words, horizontal equity in Japanese long-term care insurance is compromised for the sake of gatekeeping.

JEL Classification: H73, H75, H77, I18, I38

Keywords: long-term care insurance, gatekeeping, horizontal equity


Tax Competition, Public Good Provision, and Income Redistribution

Toshihiro Ihoria  and C.C. Yangb*
aUniversity of Tokyo
bAcademia Sinica; National Chengchi University;
National Sun Yat-sen University


This paper considers a tax competition model in which regional government activities include income redistribution as well as public good provision. To incorporate the regional government function of income redistribution, we extend the tax system from the stylized proportional capital income tax to the linear capital income tax with a uniform lump-sum grant: the revenue collected from capital taxation in each region is used not only to provide the regional public good but also to offer a uniform lump-sum grant to each individual in the region. In contrast to Hoyt’s (1991) finding that the extent to which public goods are undersupplied is monotonically increasing in the number of competing regions, we show that, regardless of the number of competing regions, all heterogeneous individuals concur with each other on the first-best provision of public goods; on the other hand, the size of income redistribution is monotonically decreasing in the number of competing regions.

JEL Classification: D72, F20, H41

Keywords: tax competition, public goods, income redistribution


Law, Trade and the Asian Miracle

Daniel Berkowitza and Johannes Moeniusb
aUniversity of Pittsburgh
bUniversity of Redlands


In previous work (Berkowitz, Moenius and Pistor, 2006), we have shown that countries with high quality legal institutions specialize in exporting complex products whose characteristics are difficult to fully specify in contracts. The miracle growth in the “Asian Nine” (China, Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand) during the latter half of the past century has been accompanied by a remarkable increase in complex goods exports and an increase in the ratio of complex to simple goods exports. We test our theory for the Asian Nine and find that good institutions have a substantially stronger than average impact on complex and simple goods trade in those countries. In countries outside the Asian Nine gains in the perceived quality of institutions spur complex exports primarily by lowering the domestic costs of producing complex goods. However, in the Asian Nine good institutions also substantially lower transaction costs of importing and exporting complex goods.

JEL Classification: F10, K33, P51

Keywords: product cost, transaction cost, complex and simple goods