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on Accounting and Auditing |
| By: | Dhammika Dharmapala; Nadine Riedel |
| Abstract: | This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents’ positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature. |
| Keywords: | international taxation, income-shifting, multinational firms, earnings shocks |
| JEL: | H25 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_3791&r=acc |
| By: | Luca Gandullia (University of Genoa, Italy) |
| Abstract: | The aim of the paper is to review the economic theory of tax assignment across levels of government and the international experience in the use of direct taxes – personal income taxes and taxes on profits and on business value added – for fiscal decentralization. We highlight that as for other options of local taxation there are merits but also drawbacks in the use of direct taxes as a source of financing for sub-central governments and so the final choice about their use or not is a matter of judgment and depends on the political priority to be attached to different objectives, such as efficiency, equity, accountability, tax competition, administrative feasibility and revenue adequacy. |
| Keywords: | direct taxes, fiscal decentralization, tax assignment |
| JEL: | H24 H25 H71 H73 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:gea:wpaper:6/2012&r=acc |
| By: | Giampaolo Arachi; Valeria Bucci; Ernesto Longobardi; Paolo Panteghini; Maria Laura Parisi; Simone Pellegrino; Alberto Zanardi |
| Abstract: | In this paper we aim to discuss the strengths and weaknesses of the fiscal consolidation package adopted recently by the Italian Government in order to achieve a balanced budget by 2013. Revenues are forecasted to increase by more than 3.3 GDP percentage points; these stem mostly from indirect and property taxation. The analysis of the Italian case is interesting since it seems to be consistent with a recent strand of the literature which, in order to foster both short and long-term economic growth, advocated a shift of the tax burden from capital and labour income to consumption and property. Through a set of micro simulation models, this paper evaluates the effects of the Italian fiscal package on households and firms. We show that, in respect of households’ income, indirect and property tax reforms are highly regressive, whilst the reform makes limited resources available for growth enhancing policies (reduction in the effective corporate tax burden). Then, we propose an alternative fiscal package. We show that a less regressive reform on households can be obtained by shifting taxation from personal and corporate income tax to indirect taxation. Our proposal allows the tax burden on firms to be reduced substantially and, in the meantime, offers lower personal income tax rates on households in the lowest deciles of income distribution since they are penalized most by the increase in indirect taxation. |
| Keywords: | tax reforms, fiscal consolidation, micro simulation models, Italy |
| JEL: | H20 D22 D31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_3753&r=acc |
| By: | Hansson, Åsa (Research Institute of Industrial Economics (IFN)); Porter, Susan (McIntire School of Commerce); Perry Williams, Susan (McIntire School of Commerce) |
| Abstract: | Economists and political scientists have long been interested in factors that affect the statutory tax rate on businesses set by federal governments. In this study, we examine the impact of political and economic factors on several measures of tax rates and tax incentives offered across 19 developed countries for the years 1979 through 2005. Our results indicate that while economic conditions such as openness, strategic interaction, budget constraints, economic downturns and an aging population all influence the rate of tax set by governments, the political structure of the federal government has a significant impact in the form of economic stimulus given. Importantly, our results suggest that different economic and political structures affect the level of incentives offered beyond those factors that affect the level of tax rates. These results are relevant to the current tax debate facing many governments as they consider implementing new policies to attract foreign direct investment and retain and grow domestic business. <p> The impact of the political structure on the ability to enact legislation is significant after controlling for economic factors. This indicates that as the marketplace continues to become more international, it will become increasingly important for governments to find opportunities to work within their systems to enact legislation that enables their business community to compete internationally. |
| Keywords: | Corporate tax rates; Tax competition; Political structure |
| JEL: | D72 H25 H73 |
| Date: | 2012–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0942&r=acc |
| By: | Spencer Bastani; Håkan Selin |
| Abstract: | Recent microeconometric studies of taxpayer’ responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero. However, a common view is that long-run responses might still be large since micro-estimates are downward biased owing to optimization frictions. In this paper we estimate the taxable income elasticity at a very large kink point of the Swedish tax schedule using the bunching method. During the period of study the change in the log net-of-tax rate reached a maximum value of 45.6%. Interestingly, we obtain a precise elasticity estimate of zero for wage earners at this large kink. The size of the kink allows us to derive tighter bounds on the long-run elasticity than previous studies. If wage earners on average tolerate 1% of their disposable income in optimization costs, the upper bound on the long-run taxable income elasticity is 0.39. We also evaluate the performance of the bunching estimator by performing Monte Carlo simulations. |
| Keywords: | bunching, taxable income, bounds, optimization frictions |
| JEL: | H21 H24 J22 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_3865&r=acc |
| By: | Laszlo Goerke |
| Abstract: | A strictly risk-averse individual with an exogenous gross income in period one can acquire human capital in the same period and evade taxes. Period-two income rises with educational investments in period one and can also be hidden from tax authorities. It is shown that a greater tax deductibility of educational investments and higher individual ability induce a positive correlation between tax evasion and educational investments in period two, whereas the relationship in period one is ambiguous. These theoretical predictions can explain diverse empirical findings on the correlation between education and tax evasion. |
| Keywords: | human capital, income tax, tax evasion |
| JEL: | H24 H26 I20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_3719&r=acc |
| By: | Matthew C. Weinzierl |
| Abstract: | At the heart of modern optimal tax research is the assumption that the objective of taxation is Utilitarian. I present new survey evidence that most people disagree with this assumption, preferring tax policies based at least in part on a classic alternative objective: the principle of Equal Sacrifice. I generalize the standard model to accommodate this preference for a mixed objective. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence, quantitatively matches several features of existing tax policy that are incompatible in the conventional model but widely endorsed in reality, including the coexistence of substantial redistribution and limited tagging. Additional implications increase the appeal of these steps toward a positive theory of optimal taxation. |
| JEL: | D6 D63 H2 H21 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18599&r=acc |