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Optimal fringe benefit taxes: the implications of business use

Author

Listed:
  • Callum Butler

    (State Services Commission)

  • Paul Calcott

    (Victoria University of Wellington)

Abstract

Unless fringe benefits are taxed, remuneration may be distorted toward such benefits and away from wages and salaries. A principle for setting such taxes has been proposed in previous work. In particular, the value to workers of fringe benefits would be taxed at a rate equivalent to that on wages and salaries. The current paper reexamines this principle in a model where workers’ valuations are heterogeneous and unobservable to the tax authority. This model does have cases that are broadly consistent with the existing principle, but it also highlights cases in which taxes should be higher on fringe benefits that produce value for the firm.

Suggested Citation

  • Callum Butler & Paul Calcott, 2018. "Optimal fringe benefit taxes: the implications of business use," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 654-672, June.
    • Handle: RePEc:kap:itaxpf:v:25:y:2018:i:3:d:10.1007_s10797-017-9469-9
    DOI: 10.1007/s10797-017-9469-9
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    References listed on IDEAS

    as
    1. David Collard & Michael Godwin & John Hudson, 2005. "The Provision of Company Benefits in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1397-1421.
    2. repec:dgr:uvatin:20070060 is not listed on IDEAS
    3. Clotfelter, Charles T, 1983. "Tax-Induced Distortions and the Business-Pleasure Borderline: The Case of Travel and Entertainment," American Economic Review, American Economic Association, vol. 73(5), pages 1053-1065, December.
    4. Zax, Jeffrey S., 1988. "Fringe benefits, income tax exemptions, and implicit subsides," Journal of Public Economics, Elsevier, vol. 37(2), pages 171-183, November.
    5. David Collard & Michael Godwin & John Hudson, 2005. "The Provision of Company Benefits in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1397-1421, September.
    6. Mark Ashworth & Andrew Dilnot, 1987. "Company cars taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 8(4), pages 24-38, December.
    7. Eva Gutiérrez‐i‐Puigarnau & Jos N. Van Ommeren, 2011. "Welfare Effects Of Distortionary Fringe Benefits Taxation: The Case Of Employer‐Provided Cars," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 1105-1122, November.
    8. Turner, Robert W., 1987. "Taxes and the number of fringe benefits received," Journal of Public Economics, Elsevier, vol. 33(1), pages 41-57, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fringe benefits; Taxes; Distortions;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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