nep-pbe New Economics Papers
on Public Economics
Issue of 2016‒07‒16
eleven papers chosen by
Thomas Andrén

  1. Do Multinationals Pay Less in Taxes than Domestic Firms? Evidence from the Swedish Manufacturing Sector By Hansson, Åsa; Olofsdotter, Karin; Thede, Susanna
  2. Taxing Wealth: Evidence from Switzerland By Marius Brülhart; Jonathan Gruber; Matthias Krapf; Kurt Schmidheiny
  3. The effect of changes in tax-benefit policies on the income distribution in 2008-2015 By De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
  4. Do healthcare tax credits help poor healthy individuals on low incomes? By Cinzia Di Novi; Anna Marenzi; Dino Rizzi
  5. Redeem or Revalue? Some Public-Debt Calculus. By Bar-Ilan, Avner; Gliksberg, Baruch
  6. 2014-2015 tax changes in EU Member States vs the Commission’s tax policy recommendations By Luigi Bernardi
  7. Disclosure of Corporate Tax Reports, Tax Enforcement, and Insider Trading By Jordi Caballé; Ariadna Dumitrescu
  8. Nominal GDP targeting and the tax burden By Hatcher, Michael
  9. Removing Disability Insurance Coverage: The Effects on Work Incentive and Occupation Choice By Atsuko Tanaka; Ha Nguyen; Hsuan-Chih (Luke) Lin
  10. Does Money Relieve Depression? Evidence from Social Pension Eligibility By Chen, Xi; Wang, Tianyu
  11. Fiscal Implications of Central Bank Balance Sheet Policies By Orphanides, Athanasios

  1. By: Hansson, Åsa (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University); Thede, Susanna (University of Malta)
    Abstract: There is a strong general concern amongst policymakers worldwide that multinational enterprises engage in far-reaching tax-planning activities. It is generally thought that by using transfer pricing or other techniques to shift profits, multinational enterprises can avoid taxation and thereby erode tax bases. Several attempts have been made to tackle this problem, not least through the OECD/G20 initiated Action Plan on Base Erosion and Profit Shifting. It is hard, however, to empirically quantify the magnitude of tax-planning activities that takes place. In this paper, we rely on census data from tax return and income statements and balance sheets reported by Swedish manufacturing firms in the 1997-2007 time period to identify possible profit-shifting activities by multinational enterprises. We study systematic differences between multinational and comparable domestic firms in tax payments, profits, earnings before interest and taxes, and equity ratios using difference-in-differences estimations based on propensity score matching. The detailed data allow us to narrow down the empirical focus and investigate not only whether multinational pay less in taxes than domestic firms, but also how tax planning activities may take place through transfer pricing and/or internal debt set-ups.
    Keywords: Firm behavior; Tax planning; Profit shifting
    JEL: F23 H26 L20
    Date: 2016–07–04
  2. By: Marius Brülhart; Jonathan Gruber; Matthias Krapf; Kurt Schmidheiny
    Abstract: We study the effects of wealth taxation on reported wealth. Our analysis is based on data for Switzerland, which has the highest rate of annual wealth taxation in the developed world. While the wealth tax base is defined at the federal level, tax rates vary considerably across locations and over time. We use aggregate data on wealth holdings by canton and individual-level data for the canton of Bern. Our estimated behavioral elasticities substantially exceed those of the taxable income literature. We also find that taxpayers bunch below the tax threshold, that observed responses are driven by changes in wealth holdings rather than mobility, and that financial wealth is somewhat more responsive than non-financial wealth.
    JEL: H21 H31
    Date: 2016–06
  3. By: De Agostini, Paola; Paulus, Alari; Tasseva, Iva Valentinova
    Abstract: We apply microsimulation techniques to estimate the first-order effects of tax-benefit policy changes since the beggining of the financial and economic crisis in 2008. Using the EU tax-benefit model EUROMOD in combination with the EU-SILC 2012 micro-data, we provide comparative estimates for EU-27 in 2008-2014 as well as for 21 EU member states in 2014-2015. The analysis covers direct tax and cash benefit changes and evaluates their effects on the income distribution, poverty and inequality levels, holding population characteristics and market incomes constant, thereby, isolating direct policy effects from other factors shaping the income distribution. Two different indexation approaches are used to adjust benchmark policies over time – prices and market incomes – and explore the sensitivity of results. We find substantial cross-national variation throughout the whole period. At the EU level, policy changes in the first half of the period (2008-2011) were poverty-reducing and had a positive effect on mean incomes, while the effects were the opposite in the later period (2011-2014); and inequality-reducing in both periods.
    Date: 2016–07–04
  4. By: Cinzia Di Novi; Anna Marenzi; Dino Rizzi
    Abstract: In several countries, personal income tax permits tax credits for out-of-pocket healthcare expenditures. Tax credits produce two effects on taxpayers’ disposable income. On the one hand, they benefit taxpayers at all income levels by reducing their net tax liability; on the other hand, they modify the price of out-of-pocket expenditure and, to the extent that consumer demand is price elastic, they may influence the amount of eligible healthcare expenditure for which taxpayers may claim a credit. These two effects influence, in turn, income redistribution and may affect taxpayers’ health status and therefore income-related inequality in health. Redistributive consequences of tax credits have been widely investigated; however, little is known about the ability of tax credits to ensure a more equitable distribution of healthcare expenditure and, consequently, to alleviate health inequality. In this paper, we study the potential effects that tax credits for health expenses may have on health-related inequality with reference to the Italian institutional setting. The analysis is performed using a tax-benefit microsimulation model which reproduces the personal income tax and incorporates taxpayers’ behavioural responses to changes in tax credit rate. Our results suggest that a healthcare tax credit design that does not rely on income, like the one implemented in the Italian personal income tax, is not effective in improving equity in health and tends to favour the richest part of the population.
    Keywords: personal income tax, health-related tax credit, health inequality
    JEL: I10 I14 H24
    Date: 2016
  5. By: Bar-Ilan, Avner (Department of Economics, University of Haifa); Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: This paper studies the scal-monetary response to a sharp increase in the level of the public debt. To that end, we employ a general equilibrium model with distortionary income tax, distortionary nancing, and endogenous capital accumulation. The model is calibrated to the US and EU economies. A main result is that in both economies the QE is superior, welfare-wise, to other policy prescriptions to the problem of explosive debt. A major di¤erence between the EU and the US is that a Taylor rule of tight monetary and scal policy could reduce the US public debt, but given the fundamental properties of the EU economy, this policy cannot achieve this goal in Europe.
    Keywords: Distorting Taxes; Fiscal Solvency; La¤er curve in a monetary economy; Liquidity ; Rate of self nancing of tax cuts; Quantitative Easing
    JEL: E44 E47 E58 E63 H30 H63
  6. By: Luigi Bernardi (Università di Pavia)
    Abstract: At first glance, it would seem that in recent years the tax changes adopted by EU Member States have diverged from the European Commission’s tax policy recommendations. Member States generally appear to go no further than making minor changes to existing tax rules. The Commission, on the other hand, recommends far broader reforms designed to help tax systems meet the challenges raised by the current economic crisis. Therefore, the purpose of this paper is to monitor this situation, and to offer an overall picture of the 2014-2015 tax changes made by European Union Member States. Furthermore, we shall be discussing the EU’s 2015 tax policy recommendations to Member States. By doing so we are in a position to affirm that the said divergence appears to exist, and we offer a number of observations regarding this result.
    Keywords: Tax reforms, European Union, 2014-2015
    JEL: H20 H24 H29
  7. By: Jordi Caballé; Ariadna Dumitrescu
    Abstract: In this paper, we analyze the effects of disclosing corporate tax reports on the performance of financial markets and the use of asset prices by the tax enforcement agency in order to infer the true corporate cash flows. We model the interaction between a firm and the tax auditing agency, and highlight the role played by the tax report as a public signal used by the market dealer and the role of prices as a signal used by the tax authority. We discuss the determinants of both the reporting strategy of the firm and the auditing policy of the tax authority. Our model suggests that, despite disclosure of the tax reports being beneficial for market performance (as the spreads and trading costs are smaller than under no disclosure), the tax agency might have incentives to not disclose the tax report when its objective is to maximize expected net tax collection.
    Keywords: disclosure, corporate tax, Insider Trading
    JEL: G12 G14
    Date: 2016–07
  8. By: Hatcher, Michael
    Abstract: An overlapping generations model is set out in which monetary policy matters for distortionary taxes because unanticipated inflation has real wealth effects on households with nominal government debt. The model is used to study the tax burden under inflation and nominal GDP targeting. Nominal GDP targeting makes taxes less volatile than inflation targeting but raises average taxes. With a quadratic loss function, the expected tax burden is minimized with only indexed debt under inflation targeting, but with both indexed and nominal debt under nominal GDP targeting. Nominal GDP targeting lowers the tax burden relative to inflation targeting (except at very high indexation shares), but this conclusion hinges on risk aversion, productivity persistence and the loss function for the tax burden.
    Date: 2016–07–04
  9. By: Atsuko Tanaka (Department of Economics, University of Calgary); Ha Nguyen (Department of Economics, University of Calgary); Hsuan-Chih (Luke) Lin (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: This paper studies how removing disability insurance coverage affects workers’work incentive and occupation choice. To do so, we exploit the 1997 Canadian Pension Plan (CPP) disability program reform, which required longer work experience for individuals to be eligible for disability insurance. The empirical strategy includes difference-in-difference and tripledifference estimations. The results show that the reform significantly increased work incentive for male individuals with a long non-employment spell. However, the rise in work incentive increased only unemployment, not employment. We also find that the reform barely affected the distribution of employment across occupation.
    Date: 2016–07
  10. By: Chen, Xi (Yale University); Wang, Tianyu (Beijing Academy of Social Sciences)
    Abstract: We estimate the impact of receiving pension benefits on mental well-being using China's New Rural Pension Scheme launched in 2010, the largest pension program in the world. More than four hundred million Chinese have enrolled in the program, and the program on average amounts to one fifth of pensioners' earned income. We find a salient increase in pension benefits and poverty alleviation around the pension eligibility age cut-off. Employing an instrumental variable approach to a national sample of the China Family Panel Studies, our empirical strategy overcomes the endogeneity of pension receipt that prevents us from identifying the causal effect of income change on mental health as measured by the full version of CES-D and depressive symptoms. Results reveal a sizeable reduction in depression susceptibility due to pension income. The improvement in mental health is larger for vulnerable populations with financial and health constraints. We further discuss potential pathways through which pension may affect mental health.
    Keywords: pension income, depression, mental health, older populations
    JEL: H55 I18 I38 J14
    Date: 2016–07
  11. By: Orphanides, Athanasios
    Abstract: Under ordinary circumstances, the fiscal implications of central bank policies tend to be seen as relatively minor and escape close scrutiny. The global financial crisis of 2008, however, demanded an extraordinary response by central banks which brought to light the immense power of central bank balance sheet policies as well as their major fiscal implications. Once the zero lower bound on interest rates is reached, expanding a central bank's balance sheet becomes the central instrument for providing additional monetary policy accommodation. However, with interest rates near zero, the line separating fiscal and monetary policy is blurred. Furthermore, discretionary decisions associated with asset purchases and liquidity provision, as well as with lender-of-last-resort operations benefiting private entities, can have major distributional effects that are ordinarily associated with fiscal policy. In the euro area, discretionary central bank decisions can have immense distributional effects across member states. However, decisions of this nature are incompatible with the role of unelected officials in democratic societies. Drawing on the response to the crisis by the Federal Reserve and the ECB, this paper explores the tensions arising from central bank balance sheet policies and addresses pertinent questions about the governance and accountability of independent central banks in a democratic society.
    Keywords: central bank accountability; central bank governance; central bank independence; lender of last resort; loss sharing; monetary financing; Quantitative easing; rules vs discretion.
    JEL: E52 E58 E61 G01 H12
    Date: 2016–07

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