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on Accounting and Auditing |
| By: | Henrik J. Kleven; Martin B. Knudsen; Claus T. Kreiner; Søren Pedersen; Emmanuel Saez |
| Abstract: | This paper analyzes a randomized tax enforcement experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, "threat-of-audit" letters were randomly assigned and sent to tax filers in both groups. Using comprehensive administrative tax data, we present four main findings. First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income. Since 95% of all income is third-party reported, the overall evasion rate is very modest. Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses. Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit. Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes. |
| JEL: | H3 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15769&r=acc |
| By: | Alberto Petrucci (LUISS University) |
| Abstract: | This paper analyzes the efficient taxation of oil and capital income in an oil-dependent infinite-lived economy facing perfect capital mobility. Two cases are examined: one with product market imperfections and free tax choice, one with perfect competition and tax restrictions. The optimal tax rates on oil and capital strictly depend on the international tax system implemented; however, they are also affected by the degree of market power and the extent to which monopoly profits are taxed, the type of tax restrictions and the use of oil (as an input or a consumer good). Under the residence-based system, capital income should always be exempted from taxation, while the optimal tax on productive oil may differ from zero. Under the source-based system, second-best taxes on capital and oil are non-zero. |
| Keywords: | Optimal Factor Taxation, Oil, Capital Income, Residence-based System, Source-Based System |
| JEL: | E62 H21 Q43 Q48 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.20&r=acc |
| By: | Jonathan Gruber |
| Abstract: | This paper reviews the issues around and impacts of the tax exclusion for employer-sponsored insurance. After reviewing the arguments for and against this policy, I present micro-simulation evidence on the federal revenue, insurance coverage, and distributional impacts of various reforms to the exclusion. |
| JEL: | H2 I1 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15766&r=acc |
| By: | Alexandre Laurin (C.D. Howe Institute); Finn Poschmann (C.D. Howe Institute) |
| Abstract: | Canada’s graduated personal income tax leads most taxpayers to expect higher tax rates when they are working than when they are living on lower incomes from their retirement savings. Yet for many people, marginal effective tax rates on income from retirement savings are higher than those they face during working life. Comparing marginal effective tax rates across income levels suggests that many Canadians with savings in tax-deferred vehicles, like Registered Retirement Savings Plans, should put more future saving in tax-prepaid savings plans, particularly Tax Free Savings Accounts. |
| Keywords: | Pension Papers, Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs), marginal effective tax rates (METRs) |
| JEL: | E21 G23 H21 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:91&r=acc |
| By: | Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell'Insubria); Leonzio Rizzo (Università di Ferrara & IEB) |
| Abstract: | We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers of government is not optimal either when the influence of the lobby is weak, whatever the degree of market power. We also examine a richer set of tax setting outcomes, by considering the possibility that state policy makers have heterogeneous tax policy objectives. |
| Keywords: | vertical tax externalities, tax assignment, lobbying, specific taxation |
| JEL: | H71 H77 D70 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/2/doc2010-8&r=acc |
| By: | Wojciech Kopczuk |
| Abstract: | This paper provides a non-technical overview of the economic arguments related to the desirability of transfer taxation and a summary of empirical evidence surrounding these issues. Understanding optimal transfer taxation throughout the distribution requires understanding the nature of a bequest motive, a topic on which there is little consensus. However, I argue that progress still can be made on the question of desirability and optimal level of estate taxation at the top of the distribution, because interpersonal externalities implied by the presence of bequest motive are irrelevant from the welfare point of view when the focus is on the wealthy. I also examine the role of negative externalities from wealth concentration in providing justification for considering this type of taxation. |
| JEL: | D6 D9 H2 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15741&r=acc |
| By: | Oudheusden, P. van (Tilburg University, Center for Economic Research) |
| Abstract: | We examine the impact of fiscal policy reforms on the long-run government budget balance in a one-sector model of endogenous growth with factor income taxes, a tax on consumption, non-productive public goods expenditures, and a labour-leisure trade-off. In addition, we allow for different structures of government expenditures and public debt. We analytically show that, when performing a dynamic Laffer effect analysis, there exists a set of conditions that hold for a number of endogenous growth models. We find that for the euro area an improvement in the long-run government budget balance is always obtained for a lower tax rate on capital income but is only obtained for a substantial lower tax rate on labour income. Moreover, we show that when lower taxes on factor income are financed by higher taxes on consumption, there exists a wide array of combinations for which there is an improvement in both the long-run government budget balance and lifetime welfare. These combinations, however, differ in their implications for labour supply and immediate welfare effects. |
| Keywords: | Dynamic Scoring;Laffer Effect;Factor Income Taxation;Endogenous Growth |
| JEL: | E62 H30 J22 O41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201015&r=acc |
| By: | Emmanuel Saez; Manos Matsaganis; Panos Tsakloglou |
| Abstract: | This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding seniority-based pay which create a growing wedge between pay and productivity as workers age. |
| JEL: | J23 J38 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15745&r=acc |
| By: | Johann K. Brunner; Susanne Pech |
| Abstract: | We formulate an optimum-taxation model, where parents leave bequests to their descendants for altruistic reasons. In contrast to the standard model, individuals differ not only in earning abilities, but also in initial (inherited) wealth. In this model a redistributive motive for an inheritance tax - which is equivalent to a uniform tax on all expenditures - arises, given that initial wealth increases with earning abilities. Its introduction increases intertemporal social welfare or has an ambiguous effect, depending on whether the bequeathing generation can adjust their behaviour and whether the external effect related to altruism is accounted for in the social objective. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2010_01&r=acc |
| By: | Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Leonzio Rizzo (Università di Ferrara & IEB) |
| Abstract: | We test for the state interdependence of gasoline and cigarette taxation in the US (1975-2006). We estimate a tax reaction function, and find that state interdependence is due solely to yardstick competition, since any interaction disappears completely in the case of states with lame duck governors. This result holds for both taxes: the short-run reaction of those states whose governor is eligible to stand for reelection is 0.13 and 0.21 for gasoline and cigarette taxation, respectively. In the long run, the cigarette tax rates levied in a jurisdiction match those of its neighbors perfectly, while the long-run reaction in the case of gasoline is much lower at 0.72. |
| Keywords: | Tax competition, political accountability, excise taxes |
| JEL: | H71 H77 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2010/2/doc2010-3&r=acc |
| By: | Carlo Alberto Magni |
| Abstract: | The internal rate of return (IRR) is often used by managers and practitioners for investment decisions. Unfortunately, it has serious flaws: (i) multiple real-valued IRRs may arise, (ii) complex-valued IRRs may arise, (iii) the IRR is, in general, incompatible with the net present value (NPV) in accept/reject decisions (iv) the IRR ranking is, in general, different from the NPV ranking, (v) the IRR criterion is not applicable with variable costs of capital. The efforts of economists and management scientists in providing a reliable project rate of return have generated over the decades an immense bulk of contributions aiming to solve these shortcomings. This paper offers a complete solution to this long-standing issue by changing the usual perspective: the IRR equation is dismissed and the evaluator is allowed to describe the project as an investment or a borrowing at his discretion. This permits to show that any arithmetic mean of the one-period return rates implicit in a project reliably informs about a project’s profitability and correctly ranks competing projects. With such a measure, which we name ”Average Internal Rate of Return”, complex-valued numbers disappear and all the above mentioned problems are wiped out. The economic meaning is compelling: it is the project return rate implicitly determined by the market. The traditional IRR notion may be found back as a particular case. |
| Keywords: | Decision analysis; investment criteria; capital budgeting; internal rate of return; investment stream; market rate; mean |
| JEL: | M41 G11 G12 G31 D81 M52 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:10021&r=acc |
| By: | Bonache, Adrien; Maurice, Jonathan; Moris, Karen |
| Abstract: | By using the best evidence synthesis (Slavin, 1995), we want to find out an accurate synthesis on the budgetary participation -BP- and managerial performance-PM- link. The use of criteria of selection has allowed to decrease the heterogeneity. The results explain the presence of the heterogeneity by cultural and industrial contengencies. The best evidence synthesis based on an homogeneous subgroup (managers in publicly traded firms in Taiwan Stock Exchange) shows a time dependency of BP-MP link and some recommandations for further research: 1/to continue the study of the traded firms in Taiwan Stock Exchange to analyse the causal BP-PM link with a Granger test, 2/to study the evolution of this link over time in other countries. |
| Keywords: | best evidence synthesis; subgroup analysis; managerial performance; budgetary participation; management control |
| JEL: | M4 |
| Date: | 2010–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20924&r=acc |