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Optimal fringe benefit taxes: the implications of business use

Callum Butler and Paul Calcott ()
Additional contact information
Callum Butler: State Services Commission
Paul Calcott: Victoria University of Wellington

International Tax and Public Finance, 2018, vol. 25, issue 3, 654-672

Abstract: 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.

Keywords: Fringe benefits; Taxes; Distortions (search for similar items in EconPapers)
JEL-codes: H21 H24 H32 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:itaxpf:v:25:y:2018:i:3:d:10.1007_s10797-017-9469-9