nep-pbe New Economics Papers
on Public Economics
Issue of 2017‒09‒10
eleven papers chosen by
Thomas Andrén

  1. The capacity of governments to raise taxes By Oguzhan Akgun; David Bartolini; Boris Cournède
  2. Are Taxes Credits Effective in Developing Countries? The Recent Uruguayan Experience By Rius, Andrés; Carrasco, Paula; Carbajal, Fedora; Cazulo, Paola; Llambí, Cecilia
  3. Own or inherited? The effect of national fiscal rules after changes of government By Tóth, Csaba G.
  4. You’ve got mail: A randomised Field experiment on tax evasion. By Bott, Kristina Maria; Cappelen, Alexander W.; Sørensen, Erik Ø.; Tungodden, Bertil
  5. Data science for assessing possible tax income manipulation: The case of Italy By Marcel Ausloos; Roy Cerqueti; Tariq A. Mir
  6. Corporate Tax Reform and Tax Incidence in Japan (Japanese) By DOI Takero
  7. The effects of a tax allowance for growth and investment: Empirical evidence from a firm-level analysis By Petutschnig, Matthias; Rünger, Silke
  8. Formula apportionment: Factor allocation and tax avoidance By Eichfelder, Sebastian; Hechtner, Frank; Hundsdoerfer, Jochen
  9. Legal tax liability, legal remittance responsibility and tax incidence: Three dimensions of business taxation By Anna Milanez
  10. Welfare Benefits and Labor Supply: Evidence from a natural experiment in Japan By YUGAMI Kazufumi; MORIMOTO Atsushi; TANAKA Yoshiyuki
  11. Housing Allowance and Rents: Evidence from a Stepwise Subsidy Scheme By Essi Eerola; Teemu Lyytikäinen

  1. By: Oguzhan Akgun; David Bartolini; Boris Cournède
    Abstract: This paper investigates the factors that shape governments’ capacity to collect revenue. To do so, it analyses how tax revenue responds to tax rates using evidence from a panel of 34 OECD countries over 1978-2014. The estimations show that the response of revenue to rates weakens as rates become higher, confirming the existence of a hump-shaped relationship between tax revenue and rates for corporate income taxation and providing a new contribution by analysing value-added taxation. Importantly, the estimated responses of revenue to tax rates vary, in some cases very strongly from an economic perspective, depending on country-specific policies and framework conditions. In particular, the corporate income tax revenue-generating potential of hiking the effective rate shrinks much more quickly in more open economies than in more closed ones. Tax revenue is found to be more responsive to tax increases in countries where the tax authorities have more resources. The investigations also cover personal income taxation. They point to diminishing revenue returns of increasing the effective marginal tax rates that apply at substantially above-average income levels.
    Keywords: country-specific circumstances, effective marginal tax rate, framework conditions, interactions, Laffer curve, personal income tax, social security contributions, value added tax
    JEL: H20 H24 H26
    Date: 2017–09–11
  2. By: Rius, Andrés; Carrasco, Paula; Carbajal, Fedora; Cazulo, Paola; Llambí, Cecilia
    Abstract: Investment promotion through tax incentives has been a key component of the growth strategies pursued in Uruguay by the last three administrations. A new regime was established, regulated by the Executive Decree 455, which caused the main channel for subsidizing investment to undergo a major overhaul. This regime immediately generated a battery of researchable questions about its effectiveness and efficiency. Using a big dataset, first put together for this study from firm-level administrative records kept by the tax collection and pensions institutes between 2005 and 2011, we test the hypotheses of significant and positive effects of obtaining a tax credit through the new regime on investment and employment outcomes. A matched differences-in-differences strategy confirms that the promotion regime introduced in 2008 had a statistically significant effect on the firms’ rate of investment (around 11%); while effects on employment growth rate are more ambiguous. These findings are buttressed by several robustness tests. Further probing uncovers heterogeneity along the promotion timeline, with the greatest effect on the rate of investment occurring in the projects’ first year.
    Keywords: Finanzas públicas, Investigación socioeconómica,
    Date: 2017
  3. By: Tóth, Csaba G.
    Abstract: In order to get to know more precisely the way national fiscal rules work, in our study we tried to differentiate the signaling function from the limiting one in regard to the operation of the rules. The former occurs when a government introduces fiscal rules to show its commitment to a disciplined fiscal policy, while the latter refers to the fact that rules constitute a true obstacle for budgetary policy. Through an empirical examination on our own database, we considered only the observations when the reigning government responsible for fiscal policy differed from the previous government responsible for its establishment; in this way we measured the effect of the limiting function the rules had. The results of our panel econometric study prove that fiscal rules can contribute to disciplined fiscal policy after a change in government, in times of economic upturn. All this, however, does not mean that the signaling function would be useless; quite the contrary. Our results, in line with the literature, indicate that the double functions of the rule complement one another. The government that introduces the rule is mostly already committed to a disciplined policy, and wishes to signal this in the short term. With the appearance of new governments, however, the rule changes its function and promotes disciplined economic activity efficiently in the long term.
    Keywords: fiscal policy; fiscal rules; fiscal discipline, political economy
    JEL: E60 E62 E63 H60
    Date: 2017–09–06
  4. By: Bott, Kristina Maria (Dept. of Economics, Norwegian School of Economics and Business Administration); Cappelen, Alexander W. (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørensen, Erik Ø. (Dept. of Economics, Norwegian School of Economics and Business Administration); Tungodden, Bertil (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We report from a large-scale randomized field experiment conducted on a unique sample of more than 15 000 taxpayers in Norway, who were likely to have misreported their foreign income. We find that the inclusion of a moral appeal or a sentence that increases the perceived probability of detection in a letter from the tax authorities almost doubled the average self-reported foreign income. The moral letter mainly works on the intensive margin, while the detection letter mainly works on the extensive margin. We also show that the detection letter has large long-term effects on tax compliance.
    Keywords: Taxation; tax evasion; field Experiment.
    JEL: C93 D63 H26
    Date: 2017–06–11
  5. By: Marcel Ausloos; Roy Cerqueti; Tariq A. Mir
    Abstract: This paper explores a real-world fundamental theme under a data science perspective. It specifically discusses whether fraud or manipulation can be observed in and from municipality income tax size distributions, through their aggregation from citizen fiscal reports. The study case pertains to official data obtained from the Italian Ministry of Economics and Finance over the period 2007-2011. All Italian (20) regions are considered. The considered data science approach concretizes in the adoption of the Benford first digit law as quantitative tool. Marked disparities are found, - for several regions, leading to unexpected "conclusions". The most eye browsing regions are not the expected ones according to classical imagination about Italy financial shadow matters.
    Date: 2017–09
  6. By: DOI Takero
    Abstract: This paper investigates the effects of corporate tax reform in Japan, wherein the (effective) corporate income tax rate decreases from 34.62% to 29.74% and the rates of size-based business taxation (levy on the sum of labor cost and other factor payment) rise at 2.5 times. We implement a simulation based on a dynamic macroeconomic model including capital structure (i.e., choices of equity, debt, and retained earnings) in the proposed model in order to implement investment, and measure the incidence of corporate income tax on labor income. This tax reform implies that the tax base is shifted from corporate income to labor cost, because it accounts for the majority of factor payments for most firms on which the size-based business taxation or "pro-forma" taxation is imposed. We find that the benefit on labor income from reduction of corporate income taxation is decreased by about 30% by expansion of the size-based business taxation from a simulation result. A reason behind the phenomena is distortion stemming from the size-based business taxation. Labor income increases due to lowering (effective) corporate income tax rate, nevertheless it loses due to rising rates of size-based business taxation.
    Date: 2017–08
  7. By: Petutschnig, Matthias; Rünger, Silke
    Abstract: We contribute to the empirical literature on the debt bias of corporate income taxation through a firm-level evaluation of the European Commission's recent proposal of an Allowance for Growth and Investment (AGI). We use the introduction, the application and the repeal of a similar allowance in Austria during the early 2000s to evaluate the effects of the AGI on corporate equity and profit distribution. Our analysis provides evidence that such an allowance could increase corporate equity ratios by 5.5 percentage points and reduce profit distributions by 7.6 percentage points. These effects are stronger than those the previous literature for traditional Allowance for Corporate Equity (ACE) tax systems has identified. Additionally, we contribute to the recently expanding literature on the influence of ownership on tax planning as we find significant differences in the utilization of the AGI depending on individual specifics of the majority shareholder as well as depending on the number of shareholders of the respective firms
    Keywords: taxes,retained earnings,tax allowance,notional interest deduction,AGI,ACE
    JEL: G32 H24 H25 K34
    Date: 2017
  8. By: Eichfelder, Sebastian; Hechtner, Frank; Hundsdoerfer, Jochen
    Abstract: This paper addresses the question of how firms react to tax incentives in a formula apportionment (FA) tax regime. Under FA, the profits of all consolidated entities of a business group are summed and then allocated according to a formula based on FA factors. We hypothesize that firms may change the allocation of real production factors and/or manipulate the FA factor through tax avoidance strategies. Analysing FA tax effects of the German local business tax with payroll expense as the exclusive FA factor, we find empirical evidence consistent with both hypotheses. Regarding the allocation of production factors, we observe significant tax effects on labour input at the intensive margin but not on labour input at the extensive margin. In addition, we find evidence of an indirect FA spillover effect on capital investment. Our findings on tax avoidance proxies are consistent with tax-induced manipulations of payroll expense as an FA factor to save tax payments.
    Keywords: Factor Allocation,Formula Apportionment,Profit Shifting,Tax Avoidance
    JEL: H32 H71 H73 J61
    Date: 2017
  9. By: Anna Milanez
    Abstract: This paper examines the role of businesses in the tax system. In addition to being taxed directly, businesses act as withholding agents and remitters of tax on behalf of others. Yet the share of tax revenue that businesses remit to governments outside of direct tax liabilities is under-studied. This paper develops two measures of the contribution of businesses to the tax system and applies both these measures for 24 OECD countries. The results show that businesses play an important role in the tax system, both as taxpayers and as remitters of tax. However, care should be taken in interpreting any measure of the business tax burden, which must be understood against the backdrop of economic incidence. This paper highlights that the economic incidence, or burden, of a tax is not necessarily borne by the person on whom the tax is imposed under legal statute, but may be passed on to others in the economy, whether it be owners of capital, workers or consumers.
    Date: 2017–09–18
  10. By: YUGAMI Kazufumi; MORIMOTO Atsushi; TANAKA Yoshiyuki
    Abstract: We use municipal amalgamations implemented in Japan between 2000 and 2005 as a natural experiment to identify the impact of welfare benefits on labor supply. In Japan's Public Assistance (PA) program, the maximum benefit level for a person with zero income depends on the recipient's residency area. Each municipality is assigned to one of six class-areas, each with different benefit levels. In the case of an amalgamation among municipalities that belong to different class-areas, the highest among them must be applied to the new municipality, as per governmental notification. Exploiting this event, we use a difference-in-differences approach to identify the effect of the increase in PA benefits after the municipal amalgamations on the labor supply. The results show that the increases in PA benefit levels raised the recipient rate, but did not affect the employment rate of the working-age population on average. However, the analysis by demographic group shows that these effects are substantial and strongly significant for prime-age unmarried males and females. The exogenous increase in public assistance benefits in the 2000s decreased the employment rate for those who are likely to receive public assistance benefits by at least one percentage point, and perhaps by as much as two percentage points.
    Date: 2017–08
  11. By: Essi Eerola; Teemu Lyytikäinen
    Abstract: This paper studies the effect of housing demand subsidies on rents using discontinuities in the Finnish housing allowance system as a quasi-experimental setting. The stepwise dependence of housing allowance on the floor area of the dwelling and the year of construction of the building causes economically and statistically significant discontinuities in the amount of housing allowances. However, our results show that there are no discontinuities in rents of the recipient households at these cut-offs. Instead, differences in the amount of the housing allowance are translated roughly one-to-one into differences in the rent net of housing allowance.
    Keywords: housing demand subsidies, housing allowance, incidence, rents
    JEL: H22
    Date: 2017–08

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