nep-pbe New Economics Papers
on Public Economics
Issue of 2009‒11‒07
eleven papers chosen by
Oliver Budzinski
Philipps-University of Marburg

  1. Confusion and Reinforcement Learning in Experimental Public Goods Games By Ralph-C Bayer; Elke Renner; Rupert Sausgruber
  2. Tax Competition and Income Sorting: Evidence from the Zurich Metropolitan Area By Christoph A. Schaltegger; Frank Somogyi; Jan-Egbert Sturm
  3. Transfer Pricing Policy and the Intensity of Tax Rate Competition By Johannes Becker; Clemens Fuest
  4. Tax Haven Activities and the Tax Liabilities of Multinational Groups By Giorgia Maffini
  5. Tax Progressivity, Income Distribution and Tax Non-Compliance By Tatiana Damjanovic; David Ulph
  6. Personal Income Tax Reforms as a Competitive Advantage By Vita Jagric; Sebastjan Strasek; Timotej Jagric; Tanja Markovic-Hribernik
  7. Microfoundations of Social Capital By Christian Thöni; Jean-Robert Tyran; Erik Wengström
  8. MNC Dividends, Tax Holidays and the Burden of the Repatriation Tax: Recent Evidence By Harry Grubert
  9. Reverse Charging Purchases to Intra-Transportation Means in the Context of New Tax Regulations By Ecobici Nicolae; Merita Busan Gabriela
  10. VAT and the EC Internal Market: The Shortcomings of Harmonisation By Rita de la Feria
  11. Transnational economic governance By Dietz, Thomas

  1. By: Ralph-C Bayer; Elke Renner (School of Economics, University of Nottingham, United Kingdom); Rupert Sausgruber
    Abstract: We use a limited information environment to mimic the state of confusion in an experimental, repeated public goods game. The results show that reinforcement learning leads to dynamics similar to those observed in standard public goods games. However, closer inspection shows that individual decay of contributions in standard public goods games cannot be fully explained by reinforcement learning. According to our estimates, learning only accounts for 41 percent of the decay in contributions in standard public goods games. The contribution dynamics of subjects, who are identified as conditional cooperators, differ strongly from the learning dynamics, while a learning model estimated from the limited information treatment tracks behavior for subjects, who cannot be classified as conditional cooperators, reasonably well.
    Keywords: public goods experiments, learning, limited information, confusion, conditional cooperation
    JEL: C90 D83 H41
    Date: 2009–10
  2. By: Christoph A. Schaltegger; Frank Somogyi; Jan-Egbert Sturm
    Abstract: In this paper, we provide empirical evidence for the influence of income taxes on the choice of residence of taxpayers at the local level. The fact that Swiss communities can individually set tax multipliers thereby shifting the progressive tax scheme which is fixed at the cantonal (state) level enables us to study the effect of differences in income taxation on individuals’ choice of location within an economically and culturally homogeneous region. Using panel IV regressions covering the years 1991-2003 and 171 communities in the Swiss canton of Zurich and spatial error regressions for the 171 communities in 2003, we find substantial evidence for income sorting.
    Keywords: tax competition; fiscal federalism; income segregation; income tax
    JEL: H71 H73 R50
    Date: 2009–09
  3. By: Johannes Becker (Max Planck Institute for Intellectual Property, Competition and Tax Law); Clemens Fuest (Oxford University Centre for Business Taxation)
    Abstract: This note provides a novel argument why countries may have incentives to allow for some profit shifting to low-tax jurisdictions. The reason is that a tightening of transfer pricing policies by high tax countries leads to more agressive tax rate competition by low tax countries.
    Keywords: Corporate Taxation, Profit Shifting, Tax Competition
    JEL: H25 F23
    Date: 2009
  4. By: Giorgia Maffini (University of Oxford Centre for Business Taxation and University of Warwick.)
    Abstract: This paper investigates the effect of tax haven operations on the tax liabilities of corporate groups headquartered in 15 OECD countries. Using consolidated accounting data from ORBIS (2003-2007), this work finds that, at the mean, an additional tax haven subsidiary reduces tax liabilities over total assets by 7.4 per cent in the long run. At the mean, the marginal effective tax rate (ETR) of a corporate group with tax haven subsidiaries is one percentage point lower than it is for groups without low-tax offshore operations. The results also show that the marginal ETR of companies headquartered in countries with a territorial system is lower than that of companies headquartered in jurisdictions with a worldwide system of taxation on corporate profits. More specifically, corporate groups headquartered in the United States have the highest marginal ETR.
    Keywords: Corporate Income Tax; Multinationals; Profit shifting; Tax Havens
    JEL: F23 H25 H32
    Date: 2009
  5. By: Tatiana Damjanovic (University of St. Andrews St Salvator’s College); David Ulph (University of St. Andrews St Salvator’s College, Oxford University Centre for Business Taxation)
    Abstract: This article examines the determinants of tax non-compliance when we recognise the existence of an imperfectly competitive "tax advice" industry supplying schemes which help taxpayers reduce their tax liability. We apply a traditional industrial organisation framework to model the behaviour of this industry. This tells us that an important factor determining the equilibrium price and hence, the level of noncompliance, is the convexity of the demand schedule. We show that in this context, this convexity is affected by the distribution of pre-tax income, the progressivity of the tax-schedule and the way in which monitoring and penalties vary with income. It is shown that lower pre-tax income inequality as well as a less progressive tax code may cause more tax minimisation activities. Therefore, the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline. One way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions.
    Keywords: tax compliance, tax administration, inequality, tax progressivity, tax monitoring, penalty function
    JEL: H21 H23 H26
    Date: 2009
  6. By: Vita Jagric (Department of finance, Faculty of Economics and Business, University of Maribor); Sebastjan Strasek (Department for economic policy, Faculty of Economics and Business, University of Maribor); Timotej Jagric (Department for quantitative economic analysis, Faculty of Economics and Business, University of Maribor); Tanja Markovic-Hribernik (Department of finance, Faculty of Economics and Business, University of Maribor)
    Abstract: In this paper we show features of the personal income taxation in Slovenia and some early reforms on it. The proposed tax reforms have the same origins as in any other developed economy - loss of competitive advantages of the economy. We present the process of reforming the tax system in Slovenia as it took place in recent years. We also analyze results of our simulation on different scenarios of personal income taxation in Slovenia. Finally, in the concluding section, we examine the results of introduced reforms and present our critical view.
    Keywords: tax reform, fiscal sustainability, personal income tax
    JEL: H2 H5 J3
    Date: 2009–05
  7. By: Christian Thöni (University of St. Gallen); Jean-Robert Tyran (Department of Economics, University of Copenhagen); Erik Wengström (Department of Economics, University of Copenhagen)
    Abstract: We show that the standard trust question routinely used in social capital research is importantly related to cooperation behavior and we provide a microfoundation for this relation. We run a large-scale public goods experiment over the internet in Denmark and find that the trust question is a proxy for cooperation preferences rather than beliefs about others’ cooperation. To disentangle the preference and belief channels, we run a (standard) public goods game in which beliefs matter for cooperation choices and one (using the strategy method) in which they do not matter. We show that the “fairness question”, a recently proposed alternative to the “trust question”, is also related to cooperation behavior but operates through beliefs rather than preferences.
    Keywords: Social capital; Trust; Fairness; Public goods; Cooperation; Experiment
    JEL: H41 C91 C72
    Date: 2009–10
  8. By: Harry Grubert (U.S. Treasury)
    Abstract: We address two issues: 1. Do dividends from foreign subsidiaries depend on the residual home country tax, and can this be reconciled with existing models? The evidence seems to be inconsistent with both the Hartman-Sinn ‘New View’ and the Weichenreider and Altshuler-Grubert repatriation avoidance models. 2. Does the huge inflow of dividends in response to the 2005 repatriation tax holiday suggest that the burden of the repatriation tax in a worldwide-credit system is very significant? We review the evidence on the negative relationship between dividends and repatriation taxes including new results for the relationship between total foreign dividends and average foreign tax rates at the parent level. The explanation for the negative impact of the repatriation tax seems to be that tax avoidance strategies are not costless, as was assumed by the earlier models, and that the marginal costs rise as the pool of accumulated financial assets grows relative to the subsidiary’s real assets. Subsidiaries in low-tax locations refrain from repatriating longer as the marginal cost of additional deferrals rises to equal the repatriation tax. A recent paper by Grubert and Altshuler suggests that the impact of tax differences on repatriations declines over time and disappears after 25 years. The ‘immature’ stage seems to last a long time. Analysis of 2004 repatriations at the subsidiary level indicates that the parent’s average foreign tax rate is most important to its decision, not the subsidiary’s own effective tax rate or the average effective tax rate in its country of incorporation. Tax planning has made the country of incorporation less significant. The burden of the repatriation tax is a particularly significant issue because it bears on the comparison of exemption versus worldwide credit systems. Past estimates of the burden, including both actual payments and the ‘implicit’ cost of avoiding repatriations, have been modest. Furthermore, it is difficult to identify any effect of the potential repatriation tax on companies’ investment decisions. But this insignificant importance of the repatriation tax has been called into question by the huge repatriations (of almost $400 billion) under the 2005 tax holiday in which companies could repatriate and pay a 5.25 percent tax net of a scaled down foreign tax credit. The paper therefore examines the Treasury company level data for companies’ participation in the tax holiday. There is, however, no necessary conceptual link between participation in the tax holiday and the burden of the dividend tax. The measure of the tax relevant for real investment decisions is the present value of the direct and implicit taxes relative to the returns. Even if that burden is low a mature company with large accumulations may well choose to pay the tax holiday price because of the rising costs of deferrals. Even in a Sinn steady state ‘new view’ equilibrium, a repatriation tax holiday would trigger asset liquidations and large repatriations. A company will repatriate to where the marginal cost of further accumulations is below the 5.25 percent tax price. The reason is the ‘fresh start’ which permits it to save costs on future deferrals. Some of the participants in the tax holiday had very low current repatriation avoidance costs as evidenced by the fact that many had substantial accumulations of ‘previously taxed income’ (PTI) under the CFC rules that they could have chosen to repatriate tax free. As expected, a company’s tax holiday repatriations are a positive function of its accumulated untaxed income and foreign profit margin, and a negative function of its average foreign tax rate, the ratio of its real capital to sales and its accumulated PTI.
    Date: 2009
  9. By: Ecobici Nicolae; Merita Busan Gabriela (Constantin Brancusi University of Targu Jiu, Faclty of Economics, Romania)
    Abstract: New tax rules with effect from 1 May 2009 with a series of changes on the tax deductibility of the value added acquisitions related to transport and fuel use. The measure is very obvious nature of politics in order to bring the state budget amounts as required under the current government crisis in the financial world. The book focuses on not commenting policy modifications as required on the implications that they bring in on the accounting chargeback. Therefore, in the paper we will address the resolution of these legal provisions in the economic accounts.
    Keywords: tax rules, accounts, financial crisis, politics, government
    JEL: K20 M41 D84 H21 H23
    Date: 2009–05
  10. By: Rita de la Feria (Oxford University Centre for Business Taxation)
    Abstract: From the outset, turnover taxes have played a fundamental role in the European integration process. Harmonisation of these taxes was perceived an integral part of achieving a common market, and for this reason it was given priority. Over forty years since the introduction of a common VAT system, VAT is usually regarded as a broadly harmonised tax. Paradoxically, however, it is precisely this high level of harmonisation which seems to have allowed the preservation of some aspects of VAT law which constitute an obstacle to the establishment of the EC internal market. The aim of this paper is to highlight the shortcomings of harmonisation within the VAT area, and namely how harmonisation has prevented the European Court of Justice (ECJ) from applying the EC Treaty provisions to the field of VAT, resulting in the maintenance of laws which could arguably be regarded as contrary to the EC internal market and as restrictions to the fundamental freedoms.
    Date: 2009
  11. By: Dietz, Thomas
    Abstract: What role do contract enforcement institutions provided by the state play for economic development? This question has often been addressed. However, empirical research in this field looks predominantly at transactions that are conducted domestically. Less research exists regarding the enforceability of contracts in cross-border transactions. In other words, research that addresses the institutional foundations of international exchange processes is still in its infancy. The following case study investigates the contract enforcement institutions that enable German customers to purchase software in Asian and East European Countries. This paper?s main argument is that nation states are not capable of providing a workable legal infrastructure for cross-border transactions. Instead, economic actors create their own informal mechanisms in order to enforce their contracts. Particularly important are relational contracts and reputational networks. Furthermore, the empirical evidence shows that German enterprises comprehensively use the opportunities offered by new developments in information and communication technology, when it comes to the initiation and control of their foreign business relations. Due to such technical innovation, it therefore seems that both reputational networks and relational contracts gain more and more efficiency compared to state private law.
    Date: 2009

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