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on Accounting and Auditing |
| By: | Jarkko Harju; Tuomas Matikka |
| Abstract: | This study examines the extent of direct tax avoidance through income-shifting between wages and dividends, and approximates the deadweight loss due to this behavior for the owners of privately held corporations. The dual income tax system in Finland offers noticeable incentives for income-shifting. The extensive dividend tax reform of 2005 enables us to study how this particular form of tax avoidance reacts to an exogenous change in tax rates. Our results support highly active income-shifting, and the apparent tax avoidance behavior has considerable welfare effects. We also find evidence that costs related to income-shifting behavior affect the effectiveness of taxation. |
| Keywords: | Tax avoidance, income shifting, entrepreneurs, dual income tax |
| JEL: | H32 H21 H25 |
| Date: | 2013–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:43&r=acc |
| By: | Tuomas Kosonen; Jarkko Harju |
| Abstract: | Based on existing evidence, we know little about how the taxation of small business owners affects their economic activity. This paper studies the effect of two Finnish tax reforms, in 1997 and 1998, on the effort decisions of the owners of small businesses, utilizing both theoretical model and empirical data. The reforms reduced the income tax rates of small business owners and applied only to unincorporated firms, leaving out corporations. We use a difference-indifferences strategy to estimate the causal impact of tax incentives on the economic activity of small businesses. The results imply that lighter taxation leads to an increase in the turnover of firms that we interpret as an increase in effort exerted by their owners. |
| Keywords: | Entrepreneurs, small businesses, tax incidence |
| JEL: | H22 H24 H25 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:42&r=acc |
| By: | Williamson, James M.; Durst, Ron L.; Farrigan, Tracey L. |
| Abstract: | Several proposals calling for fundamental reform of the Federal income tax system have been put forth, including a report by the co-chairs of the National Commission on Fiscal Responsibility. The primary elements of reform—eliminating tax preferences, restructuring capital gains and dividend tax rates, lowering rates on individual income, and reducing the number of tax brackets—could have a signifi cant impact on the after-tax income and well-being of both farm businesses and rural households. This report uses published and special tabulation data obtained from the Internal Revenue Service, farm-level data from USDA’s Agricultural Resource Management Survey, and data from the American Housing Survey to examine the current tax situation for farm households and to evaluate the importance of various Federal income tax policies. For farm households, the effect of reform will primarily depend upon changes to existing treatment of investment and business income, including several important business deductions. In contrast, changes to existing individual tax credits, especially refundable tax credits, will likely be of greater signifi cance to nonfarm rural households. |
| Keywords: | farm households, tax reform, income tax, tax rates, Federal tax policy, farm losses, refundable credits, tax deductions, rural households, tax preferences, Agricultural Finance, Public Economics, |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uersib:145318&r=acc |
| By: | Henrik Jacobsen Kleven; Camille Landais; Emmanuel Saez; Esben Anton Schultz |
| Abstract: | This paper analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain three main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate on foreigners, between 1.5 and 2. Hence, preferential tax schemes for highly paid foreign workers could create severe tax competition between countries. Second, we find compelling evidence of a negative effect of scheme-induced increases in the net-of-tax rate on pre-tax earnings at the individual level. This finding cannot be explained by the standard labor supply model where pay equals marginal productivity, but it can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity. Third, we find no evidence of positive or negative spillovers of the scheme-induced influx of high-skilled foreigners on the earnings of highly paid natives. |
| JEL: | H24 J61 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18885&r=acc |
| By: | Djawadi, Behnud Mir (University of Paderborn); Fahr, René (University of Paderborn) |
| Abstract: | We investigate the impact of trust in authorities on tax compliance within a controlled laboratory setting. Embedded in two hypothetical tax systems with high and low power of authorities respectively, we gradually increase trust in authorities in form of tax knowledge about public expenditures and by allowing taxpayers to decide on what public goods they want their tax dollars to be spend for. To clearly disentangle any effects from factors that are known to influence tax compliance from previous studies, we control for tax commitment, risk attitude, income and effort exerted to earn the income which the taxpayers report truthfully or underreport to the tax authority. Non-parametric statistical analyses as well as multivariate regressions provide clear evidence that tax compliance is higher in tax systems with low power of authorities when providing complete transparency on public expenditures and when taxpayers are given the possibility to decide on the use of their taxes. With a powerful tax authority in place which is reflected in high audit rates, compliance does not change when increasing trust in authorities. Our results have important policy implications as the mere hypothetical possibility to express preferences on budget spending influences tax compliance. |
| Keywords: | tax evasion, tax compliance, tax knowledge, budget spending, real effort, experimental economics |
| JEL: | H26 C91 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7255&r=acc |
| By: | Gunther Capelle-Blancard; Olena Havrylchyk |
| Abstract: | In the context of the financial crisis, many projects of bank levies have emerged. Yet, there is very little evidence on the incidence of bank taxes and, hence, it is not clear who will bear the burden of the new taxes. In this paper, we investigate the ability of banks to shift corporate income taxes to their clients and we consider whether tax incidence is influenced by market competition and banks’ market power. Our sample consists of 1,411 European commercial banks over the period 1992-2008. To measure competition we rely on a large number of indicators, such as banks’ market share, the Herfindhal index, the Lerner index and the Panzar and Rosse h-statistic. We find that even in uncompetitive markets banks are not able to shift corporate income taxes to their customers. Our results contradict earlier papers that find a significant pass-through, and we argue that previous studies suffer either from endogeneity problems or from the wrong specification of the tax burden. |
| Keywords: | Bank taxation;Bank levy;Net interest margin;European banks;Banking;market structure;Corporate tax incidence |
| JEL: | G21 H25 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2013-09&r=acc |
| By: | Xiao Wang; Richard Herd |
| Abstract: | The main features of China’s current sub-national finance arrangements date back to the 1994 tax reform. China has a multi-level government structure that shares national tax revenues through a system of tax sharing and transfers, and divides spending assignments and responsibilities. Local governments have hardly any discretionary power to modify taxation, though they have some non-tax revenue from fees, levies and penalties. They can also spend the profit from the sale of land-use rights subject to central government restrictions. As the 1994 tax reform recentralised revenues and decision-making power, vertical gaps between revenue and expenditure at sub-national levels have grown. In order to accommodate this, the central government has raised the scale of transfers. Over the past decade, China’s transfer policy has addressed the horizontal imbalances and become markedly more redistributive. Nevertheless, fiscal disparities within provinces remain high and are much greater than between regions in OECD countries. The extent of fiscal equalisation within provinces varies, thus affecting the delivery of services. The government’s plan to equalise service provision across the country therefore calls for fine-tuning the transfer system and improving local revenue. Some local governments are testing a residential property tax but not in a form that would substantially raise tax revenue. A significant property tax would tend to lower the revenue from the sale of land-use rights and would, in general, improve the fiscal position of those local governments that already have strong budgets. This Working Paper relates to the 2013 OECD Economic Survey of China (www.oecd.org/eco/surveys/china)<P>Le système de partage des recettes et des transferts budgétaires en Chine<BR>Les principales caractéristiques des accords de financement infranationaux actuels en Chine remontent à la réforme fiscale de 1994. La Chine possède une structure administrative à plusieurs niveaux qui partage les recettes fiscales nationales par le biais d'un système de répartition des recettes fiscales et de transferts, et qui attribue les missions et responsabilités en matière de dépense. Les collectivités locales n'ont guère de pouvoir discrétionnaire afin de modifier la fiscalité, même si elles collectent des recettes non fiscales provenant de divers droits, prélèvements et amendes. Elles peuvent aussi dépenser les recettes provenant de la vente de droits d'usage des terrains sous réserve de restrictions imposées par le gouvernement central. Comme la réforme fiscale de 1994 a centralisé de nouveau les recettes et le pouvoir de décision, les déséquilibres verticaux entre recettes et dépenses au niveau infranational se sont accentués. Afin d'en tenir compte, le gouvernement central a augmenté le volume des transferts. Au cours de la décennie passée, la politique des transferts en Chine a répondu aux déséquilibres horizontaux et est devenue nettement plus redistributive. Néanmoins, les disparités fiscales au sein des provinces demeurent élevées et sont beaucoup plus grandes qu'entre régions des pays de l'OCDE. Le degré de péréquation au sein des provinces varie, ce qui affecte la prestation de services. Afin d’égaliser cette dernière dans tout le pays, le plan du gouvernement appelle donc à peaufiner le système de transferts et à améliorer les recettes locales. Certaines autorités locales sont en train de tester un impôt foncier résidentiel, mais pas sous une forme qui permettrait d'augmenter considérablement les recettes fiscales. Un impôt foncier important aurait tendance à réduire les recettes provenant de la vente de droits d'usage des terrains et, plus généralement, améliorerait la situation financière des administrations locales déjà dotées de solides budgets. Ce Document de travail a trait à l’Étude économique de l’OCDE de la Chine, 2013 (www.oecd.org/eco/etudes/chine). |
| Keywords: | public finances, local government, China, tax sharing, property taxation, intergovernmental transfers, fiscal disparities, service equalisation, land-use rights, finances publiques, transferts intergouvernementaux, collectivités locales, impôt foncier, Chine, répartition des recettes fiscales, disparités fiscales, égalisation service, droits d'usage des terrains |
| JEL: | D63 E62 H11 H24 H25 H27 H51 H52 H60 H61 H71 H72 H73 H74 H77 R52 |
| Date: | 2013–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1030-en&r=acc |
| By: | Bracco, Emanuele (University of Lancaster); Porcelli, Francesco (University of Warwick); Redoano, Michela (University of Warwick) |
| Abstract: | This paper argues that high political competition does not necessarily induce policy makers to perform better as previous research has shown. We develop a political economy model and we show that when political competition is tight, and elected politicians can rely on more tax instruments, they will substitute salient taxes with less salient ones, which are not necessarily preferable. These predictions are largely confirmed using a dataset on Italian municipal elections and taxes. |
| Keywords: | Political Competition, Government, Accountability, Tax Salience. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:125&r=acc |