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on Public Economics |
| By: | Awasthi, Rajul; Bayraktar, Nihal |
| Abstract: | This paper seeks to find empirical evidence of a link between tax simplification and corruption in tax administration. It attempts to do this by first defining"tax simplicity"as a measurable variable and exploring empirical relationships between simpler tax regimes and corruption in tax administration. Corruption in tax administration is calculated with data series from the World Bank's Enterprise Survey Database. The focus is on business taxes. The study includes 104 countries from different income groups and regions of the world. The time period is 2002-12. The empirical findings support the existence of a significant link between the measure of tax corruption and tax simplicity, so a less complex tax system is shown to be associated with lower corruption in tax administration. It is predicted that the combined effect of a 10 percent reduction in both the number of payments and the time to comply with tax requirements can lower tax corruption by 9.64 percent. Some interesting regional differences are observed in the results. Similarly, the income level of countries plays an important role in determining the impact of tax simplification on tax corruption; specifically, the link is stronger for lower-income level countries. The positive link between tax simplicity and lower tax corruption has useful policy implications. |
| Keywords: | Taxation&Subsidies,Emerging Markets,Debt Markets,Tax Law,Fiscal Adjustment |
| Date: | 2014–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6988&r=pbe |
| By: | Kateryna Bornukova (Belarusian Economic Research and Outreach Center (BEROC)); Dzmitry Kruk (Belarusian Economic Research and Outreach Center (BEROC)); Gleb Shymanovich; Yuri Tserlukevich (Department of Finance, Arizona State University) |
| Abstract: | This paper explores international experience of tax amnesties. Despite the popular use of tax amnesties, the results are mixed. The main advantage of the tax amnesty is the possibility to increase tax collections and improve tax compliance. However, it does not account for adverse effect of amnesties on tax compliance and high direct and indirect costs of amnesties. The success of the tax amnesty depends largely on the state of the economy. We have identified target groups and discussed a question of a potential tax amnesty in Belarus. |
| Keywords: | Tax Amnesty, Tax Evasion, Belarus, Eastern Europe, Tax Policy and Reforms |
| JEL: | H26 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bel:ppaper:21&r=pbe |
| By: | Flores Unzaga, Ismael Martin; Zhu, Junyi |
| Abstract: | This paper studies the redistributive and revenue effects of bracket creep in Germany under various inflation scenarios and evaluates the feasibility to charge a rich tax to fight bracket creep for the income distribution in 2009. Using a tax micro-simulation model developed for the newly available PHF data, we document an inverted U-shaped overall redistribution effect of the tax system with respect to the inflation rate, which contrasts Immervoll (2005) who finds that the fiscal drag always enhances the equalizing property. Delaying indexation might not be better off in terms of inequality. A politically in-between approach is proposed to raise the marginal tax rate for the top bracket to compensate the government revenue loss due to indexing the tax schedule in Germany. The rich tax required for fully financing the indexation can be sizable. Under our simulation environment, this rate can reach above 75% with four years’ inaction on 4% annual inflation. When this rich tax can be fiscally possible, it can totally offset the decrease of global redistribution effect from indexation. Our results echo the inequality indexing proposed by Burman, Shiller, Leiserson, Rohaly and Kennedy (2007) by suggesting institutionalizing a joint adjustment of rich tax and bracket creep / inflation indexing which justifies a pro-growth, risk reducing, revenue-neutral and framing effective policy. -- |
| Keywords: | Inflation,Fiscal Drag,Rich Tax,Progressivity of Income Tax,Income Distribution,Micro-simulation,Inequality Indexation |
| JEL: | C81 H24 D31 H23 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:100006&r=pbe |
| By: | Alstadsæter, Annette; Jacob, Martin |
| Abstract: | We test whether dividend taxes affect corporate investments. We exploit Sweden's 2006 dividend tax cut of 10 percentage points for closely held corporations and five percentage points for widely held corporations. Using rich administrative panel data and triple-difference estimators, we find that this dividend tax cut affects allocation of corporate investment. Cashconstrained firms increase investment after the dividend tax cut relative to cash-rich firms. Reallocation is stronger among closely held firms that experience a larger tax cut. This result is explained by higher nominal equity in cash-constrained firms and by higher dividends in cash-rich firms after the tax cut. The heterogeneous investment responses imply that the dividend tax cut raises efficiency by improving allocation of investment. -- |
| Keywords: | Investment,Dividend Taxation,Private Firms |
| JEL: | G30 G31 H25 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:172&r=pbe |
| By: | Piero Gottardi; Atsushi Kajii (Kyoto University); Tomoyuki Nakajima (Kyoto University and CIGS) |
| Abstract: | When individuals' labor and capital income are subject to uninsurable idiosyncratic risks, should capital and labor be taxed, and if so how? In a two period general equilibrium model with production, we derive a decomposition formula of the welfare effects of these taxes into insurance and distribution effects. This allows us to determine how the sign of the optimal taxes on capital and labor depend on the nature of the shocks, the degree of heterogeneity among consumers' income as well as on the way in which the tax revenue is used to provide lump sum transfers to consumers. When shocks affect primarily labor income and heterogeneity is small, the optimal tax on capital is positive. However in other cases a negative tax on capital is welfare improving. |
| Keywords: | optimal linear taxes, incomplete markets,constrained effciency |
| JEL: | D52 H21 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:022&r=pbe |
| By: | Meissner, Thomas; Rostam-Afschar, Davud |
| Abstract: | This paper tests whether the Ricardian Equivalence proposition holds in a life cycle consumption laboratory experiment. This proposition is a fundamental assumption underlying numerous studies on intertemporal choice and has important implications for tax policy. Using nonparametric and panel data methods, we find that the Ricardian Equivalence proposition does not hold in general. Our results suggest that taxation has a significant and strong impact on consumption choice. Over the life cycle, a tax relief increases consumption on average by about 22% of the tax rebate. A tax increase causes consumption to decrease by about 30% of the tax increase. These results are robust with respect to variations in the difficulty to smooth consumption. In our experiment, we find the behavior of about 62% of our subjects to be inconsistent with the Ricardian proposition. Our results show dynamic effects; taxation inuences consumption beyond the current period. -- |
| Keywords: | Ricardian Equivalence,Taxation,Life Cycle,Consumption,Laboratory Experiment |
| JEL: | D91 E21 H24 C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201416&r=pbe |
| By: | Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Waldenström, Daniel (Uppsala University) |
| Abstract: | This paper studies the evolution of the modern Swedish inheritance taxation from its introduction in 1885 to its abolishment in 2004. Our contribution is twofold. First, we compute annual effective inheritance tax rates for differently sized bequests and different types of inherited assets (non-firm wealth and family firm equity), accounting for all relevant exemptions, deductions and valuation discounts. Second, we try to account for the changes in inheritance taxation. Ideology rather than mass mobilization or revenue maximization appears to drive the sharp tax increases of the 1930s through the 1960s. We document increased opportunities for tax planning for the wealthy, in particular a series of drastic tax cuts on inherited family firms from the 1970s onwards. This rise of avoidance opportunities for the rich while more and more middle-class heirs paid notable inheritance taxes contributed to a loss of legitimacy for the tax and its ultimate repeal in 2004. |
| Keywords: | Gift tax; Inheritance tax; Estate tax; Tax avoidance; Excess burden; Entrepreneurship; Ownership transfers of family firms |
| JEL: | D31 H20 K34 |
| Date: | 2014–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1032&r=pbe |
| By: | Langenmayr, Dominika |
| Abstract: | Many countries apply lower fines to tax evading individuals when they voluntarily disclose the tax evasion they committed. I model such voluntary disclosure mechanisms theoretically and show that while such mechanisms increase the incentive to evade taxes, they nevertheless increase tax revenues net of administrative costs. I then test the effects of voluntary disclosure in two separate empirical analyses. First, I confirm that voluntary disclosure mechanisms increase tax evasion, using the introduction of the 2009 offshore voluntary disclosure program in the U.S. for identification. Second, I quantify the tax revenues of voluntary disclosures by considering how some state-level governments in Germany bought whistle-blower data from foreign bank employees, thereby increasing the detection probability and the usage of voluntary disclosures. |
| Keywords: | Tax evasion; voluntary disclosure; self-reporting |
| JEL: | H26 K42 H24 |
| Date: | 2014–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:21359&r=pbe |
| By: | Francis, Bill B. (Lally School of Management, Rensselaer Polytechnic Institute); Hasan, Iftekhar (Fordham University and Bank of Finland); Wu, Qiang (Lally School of Management, Rensselaer Polytechnic Institute); Yan, Meng (Fordham University) |
| Abstract: | This paper investigates the effect of CFO gender on corporate tax aggressiveness. Focusing on firms that experience a male-to-female CFO transition, the paper compares those firms’ degree of tax aggressiveness during the pre- and post-transition periods. Using the probability of tax sheltering, the predicted unrecognized tax benefits, and the discretionary permanent book-tax differences to measure tax aggressiveness, we find that female CFOs are associated with less tax aggressiveness as compared to their male counterparts. The main findings are supported by additional tests based on propensity score matching, difference-in-difference tests, and tests with a female-to-male CFO transition sample. Overall, our study establishes CFO gender as an important determinant of tax aggressiveness. |
| Keywords: | tax aggressiveness; tax avoidance; gender; CFO; risk-aversion |
| JEL: | H26 J16 M41 |
| Date: | 2014–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2014_016&r=pbe |
| By: | Sinan Sönmez (Atilim University) |
| Abstract: | Ever since the outbreak of the sovereign debt crisis, coordinating economic growth with fiscal sustainability has been on the European agenda. Fiscal consolidation calls for fiscal sustainability and austerity programs. But at present economic contraction/recession is the main problem, particularly in the Euro area. The problem has therefore transformed to one of combining and/or coordinating economic growth with fiscal sustainability. As fiscal discipline is a pivotal element of macroeconomic stability and fiscal sustainability, it is necessary to focus on fiscal rules and fiscal consolidation. Fiscal discipline in fact plays the main role in achieving fiscal and public debt sustainability. The approach that is currently in vogue is based on rules-based fiscal policy. It is in this context that rules-based fiscal policies continue to be implemented throughout the globe. The question to be answered, therefore, is whether economic growth and fiscal discipline can be reconciled? In other words, how does one engage the economy on a growth path in the context of fiscal austerity? In times of financial and economic crisis can fiscal rules and discipline be considered a universal prescription to overcome macroeconomic distortions and open the door to economic growth, or is this just an illusion? This paper investigates the problem of coordinating economic growth with fiscal sustainability and discipline. |
| Keywords: | Fiscal Discipline, Austerity, Fiscal Compact, Growth,, Euro Area Crisis |
| JEL: | H60 H62 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eyd:cp2013:233&r=pbe |
| By: | Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | This paper derives a set of policy lessons for Portugal from the new fiscal framework including a fiscal policy council that gradually emerged in Sweden after the deep economic crisis of the early 1990s. By now, Swedish public finances stand out among the strongest in Europe. Recent Swedish macroeconomic performance has been impressive. As Sweden and Portugal are small open economies in the periphery of Europe, Sweden may serve as a fiscal model for Portugal. Policy lessons are distilled from the Swedish experience for Portugal, stressing the importance of the economic policy culture for macroeconomic outcomes and for trust in government institutions and policies. |
| Keywords: | Fiscal rules; fiscal policy council; fiscal policy; public debt; Sweden; Portugal. |
| JEL: | E52 E62 E63 E65 F44 H62 O52 |
| Date: | 2014–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2014_027&r=pbe |
| By: | Samantha Torrance; Oliver Morrissey |
| Abstract: | This paper contributes to the literature on tax performance in sub-Saharan African countries. A standard model of the determinants of tax revenue is augmented to include measures of indigenous pre-independence institutional structure constructed from anthropological data on the characteristics of ethnic group organisation. We posit that if the three largest ethnic groups characterised by a clan-based organisational structure are a sufficiently large share of the population they are more likely to be able to reach a political consensus that allows a higher revenue to GDP ratio. We find that indigenous institutions have an effect on tax performance in SSA that diminishes over time (as the economy grows and new institutions emerge). |
| Keywords: | Tax Revenue, Institutions, sub-Saharan Africa JEL No.: H20, O23, O55 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcre:14/04&r=pbe |
| By: | Alexander Wolitzky (Stanford University); Florian Scheuer (Stanford University) |
| Abstract: | This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, credible policies are those that will continue to attract enough political support in the future. If the reform threat is to fully equalize consumption, we find that optimal marginal capital taxes are U-shaped, so that savings are subsidized for the middle class but are taxed for the poor and rich. If ex post the government may strategically propose a reform other than full equalization in order to secure additional political support, then optimal capital taxes are instead progressive throughout. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:191&r=pbe |
| By: | Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian |
| Abstract: | Firms are heterogeneous in size, productivity, ownership concentration, governance, financial structure and other dimensions. This paper introduces a stylized theoretical framework to account for such differences and to explain the heterogeneous tax sensitivity of firm-level investments across firm types. We econometrically test the theoretical predictions, taking account of selection of firms into different regimes. We find important differences in the tax sensitivity of investment of small entrepreneurial and larger managerial firms in different financial regimes that are largely in line with theoretical results. |
| Keywords: | Corporate tax; Personal taxes; Firm heterogeneity; Access to capital; Manager-shareholder conflicts |
| JEL: | D22 G32 H25 L21 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2014:26&r=pbe |
| By: | Roxana Sandu (European Economic Studies Department, College of Europe) |
| Abstract: | Microsimulation models have been used in order to find efficient counteractive instruments to poverty. The objective of this paper is to analyse the impact of fiscal policy on poverty, insisting on child poverty rates. Empirical analysis suggests that in fighting poverty, a mix of policies need to be in place, fiscal reforms increasing tax allowances such as child benefit granted to parents with dependent children, are not sufficient to reduce child poverty. |
| Keywords: | happiness, microsimulation, poverty, fiscal policy |
| JEL: | H24 I32 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:coe:wpbeer:29&r=pbe |
| By: | Ayse Kabukcuoglu (Department of Economics, Koc University) |
| Abstract: | I quantify the welfare effects of replacing the US capital income tax with higher labor income taxes under international financial integration using a two-country, heterogeneous-agent incomplete markets model calibrated to represent the US and the rest of the world. Short-run and long-run factor price dynamics are key: after the tax reform, interest rates rise less under financial openness than in autarky. Therefore, wealthy households gain less. Post-tax wages also fall less as a result of the faster capital accumulation, so the poor are hurt less. Hence, the distributional impacts of the reform are significantly dampened relative to autarky although a majority of households prefer the status quo. Aggregate welfare effect to the US is a permanent 0.2% consumption equivalent loss under financial openness which is roughly 15% of the welfare loss under autarky. |
| Keywords: | Heterogeneous agents and incomplete markets, taxation, financial integration. |
| JEL: | E62 F41 D52 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1418&r=pbe |
| By: | David Miller (Federal Reserve Board) |
| Abstract: | Price commitment results in lower welfare. I explore the consequences of price commitment by pairing an independent monetary authority issuing nominal bonds with a fiscal authority whose endogenous spending decisions are determined by a political economy model. Without price commitment, nominal bonds are backed by a new form of endogenous commitment that overcomes time inconsistency to make tax smoothing possible. With price commitment, nominal bonds will be used for both tax smoothing and wasteful spending. Price commitment eliminates monetary control over fiscal decisions. I show that the combination observed in advanced economies of a politically distorted fiscal authority and an independent monetary authority with nominal bonds and without price commitment is the solution to a constrained mechanism design problem that overcomes time inconsistency and results in the highest welfare. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:80&r=pbe |
| By: | Töngür, Ünal (Middle East Technical University/Economics, Ankara, Turkey); Elveren, Adem (Sutcu Imam University/Economics, Kahramanmaras, Turkey) |
| Abstract: | An extensive literature on the effect of military expenditures on economic growth yields conflicting results. A crucial issue that has not been investigated in this context is the possible effect of inequality. The impact of military expenditures on economic growth in Turkey has also received substantial attention. However, the majority of these studies are not constructed based on a structural model, but rather examine the causality between the variables in question. Considering these two shortcomings in the literature and the lack of consistent results, this study attempts to provide further evidence for the relationship between military expenditures and economic growth for the case of Turkey by considering income inequality within an augmented Solow growth model. Our findings for the 1963-2008 period show that while income inequality has a positive impact on economic growth, military expenditures have no significant effect. |
| Keywords: | Military expenditure, growth, income inequality, human capital, Solow growth model |
| JEL: | C22 H56 O11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eyd:cp2013:251&r=pbe |
| By: | Rigas Oikonomou (HEC Montreal and Institut d'Analisi Economica); Christian Siegel (Department of Economics, University of Exeter) |
| Abstract: | We study the impact of capital and labor taxation in an economy where couples bargain over the intrahousehold allocation. We present a life cycle model with heterogeneous individuals and incomplete nancial markets. Drawing from the literature of the collective framework of household behavior, we model decision making within the couple as a contract under limited commitment. In this framework more wealth improves commitment and gives rise to insurance gains within the household. Our theory motivates these gains by the empirical observation that wealth, in contrast to labor income, is a commonly held resource within households. Based on this observation we study whether eliminating capital taxes from the economy, and raising labor taxes to balance the government's budget, may generate welfare gains to married households. We illustrate that the quantitative eects from this reform are rather small. We attribute the small effects to the life cycle pattern of wealth accumulation and to the impact of labor income taxes on household risk sharing: In particular, we show that higher labor taxes may deteriorate the limited commitment problem, even though they may make the distribution of labor income more equitable within the household. |
| Keywords: | Life cycle models, incomplete financial markets, tax reform, intrahousehold allocations. |
| JEL: | D13 D52 E21 E62 H31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:1413&r=pbe |
| By: | Brosio, Giorgio (University of Torino) |
| Abstract: | This paper assesses how decentralization can contribute, if proper political and fiscal institutions are present, to improving service delivery in Asia. In other words, decentralization is an opportunity and a challenge at the same time. The paper presents the salient characteristics of decentralized government in Asia and then focuses on the analysis of critical issues leading to “partial decentralization” that is common to most models. Consideration is also given to the emerging challenges common to most Asian systems. Finally, the paper addresses the issue of decentralization in the education sector. This is a crucial sector in terms of costliness and of impact on national growth and individual opportunities, where, however, the outcomes of decentralization are difficult to assess. |
| Keywords: | decentralization; service delivery; fiscal federalism |
| JEL: | H75 H77 |
| Date: | 2014–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0389&r=pbe |
| By: | Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Fabian Gunzinger (Swiss National Bank, Switzerland) |
| Abstract: | Relying on a large sample of countries, this paper quantifies the effect of political constraints, as measured by legislative control by the incumbent government, on the size of fiscal stimulus packages that have been put in place as reaction to the Great Recession. The results suggest that on average, political constraints reduced the size of a country's fiscal stimulus packages by between 1.2 and 2.8 percentage points of GDP (depending on the stimulus measure used). This substantial effect is significant and robust to a number of alternative dependent variables and specifications. The results are thus in line with the widely held, but never tested, perception that political reality limits the de facto application of discretionary fiscal policy as reaction to negative economic shocks. |
| Keywords: | legislative control, fiscal stimulus, Great Recession |
| JEL: | E02 E32 E62 E65 H12 P48 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:14-365&r=pbe |
| By: | Christoph Winter (University of Zurich); Sigrid Roehrs (Goethe University Frankfurt) |
| Abstract: | What are the welfare consequences of debt reduction policies? In this paper, we answer this question with the help of an incomplete markets economy with production in which households are subject to uninsurable income shocks. We focus on policies that raise revenues from taxing income. We make three contributions. First, we show that quantitatively sizable welfare gains can be reaped by reducing debt, at least in the long-run. Second, we find that, for some policies, the short-run losses that occur during the transition more than outweigh the long-run gains. And third, we show that both short-run and long-run welfare effects of government debt depend on the income composition of the consumption-poor. In our calibration, we thus target the skewed wealth and the earnings distribution of the US economy. Our results have important implications for the design of debt reduction strategies. Policies that imply more redistribution will find more political support, as they compensate the consumption-poor, who suffer the most during the transition. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:176&r=pbe |
| By: | Konstantinos Angelopoulos; Stylianos Asimakopoulos; James Malley |
| Abstract: | This paper examines whether efficiency considerations require that optimal labour income taxation is progressive or regressive in a model with skill heterogeneity, endogenous skill acquisition and a production sector with capital-skill complementarity. We find that wage inequality driven by the resource requirements of skill-creation implies progressive labour income taxation in the steady-state as well as along the transition path from the exogenous to optimal policy steady-state. We find that these results are explained by a lower labour supply elasticity for skilled versus unskilled labour which results from the introduction of the skill acquisition technology. |
| Keywords: | optimal progressive taxation, skill premium, allocative efficiency |
| JEL: | E24 E32 E62 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2014_07&r=pbe |
| By: | World Bank |
| Keywords: | Intergovernmental Fiscal Relations and Local Finance Management Macroeconomics and Economic Growth - Subnational Economic Development Finance and Financial Sector Development - Debt Markets Public Sector Economics Governance - National Governance Public Sector Development |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:17783&r=pbe |