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on Public Economics |
| By: | James Alm (Department of Economics, Tulane University) |
| Abstract: | Discussions of the “ideal†form of individual income taxation have largely been based on some variant of the standard suggested by Haig (1921) and Simons (1938). This “Haig-Simons†(H-S) standard argues that an ideal income tax should be imposed on “comprehensive income†, and the H-S standard has been used to justify the frequently heard call for a “Broad-based, Low-rate†tax reform strategy. However, I argue in this paper that a truly comprehensive individual income tax has in fact never been fully applied, either in the design of a new income tax or in the reform of an existing one. Indeed, my first conclusion is that the H-S standard is effectively “dead†in terms of its actual real-world relevance to income tax design or reform. This conclusion obviously does not demonstrate that the H-S standard should be discarded as the basis for an ideal individual income tax, including any reform of the income tax. However, my second conclusion is that the “death†of the H-S standard is entirely appropriate; that is, there are compelling arguments that can be made for an individual income tax that is in fact imposed on an even narrower tax base, with even more extensive use of the many exclusions, adjustments, deductions, and exemptions that currently populate most all income taxes. Even so, my final conclusion is that there is no one-size-fits-all income tax standard; that is, any standard must consider the specifics of the current environment, especially the underlying goals of taxation. |
| Keywords: | Haig-Simons standard; comprehensive income; broad-based, low-rate taxation; tax reform; optimal taxation. |
| JEL: | H2 H7 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1806&r=pbe |
| By: | P. Aghion; U. Akcigit; M. Lequien; S. Stantcheva |
| Abstract: | We study how strongly individuals respond to tax simplicity and how they learn about the complexities of the tax system. We use new French tax returns data on the self-employed from 1994 to 2012. France has three fiscal regimes for the self-employed, which differ in their monetary tax incentives and in their tax simplicity. These regimes are subject to eligibility thresholds: we find large excess masses (bunching) right below the latter. The regimes impact different agents heterogeneously and have changed extensively over time. We estimate a large value for tax simplicity of up to 650 euros per year per individual. Tax complexity has sizable costs: agents are not immediately able to understand what the right regime choice is, leave significant money on the table, and learn over time. These costs are “regressive”, impacting more the uneducated, low income, and low skill agents. |
| Keywords: | Taxation, personal income and business taxes, tax evasion, income elasticity. |
| JEL: | H21 H24 H25 H26 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:665&r=pbe |
| By: | Julie Berry Cullen; Nicholas Turner; Ebonya Washington |
| Abstract: | We ask whether attitudes toward government play a causal role in the evasion of U.S. personal income taxes. We first use individual-level survey data to demonstrate a link between sharing the party of the president and trust in the administration generally and opinions on taxation and spending policy, more specifically. Next, we move to the county level, and measure tax behavior as elections, decided by the voting behavior in swing-states, push voters in partisan counties into and out of alignment with the party of the president. Using IRS data, we find that reported taxable income increases as a county moves into alignment, with the increases concentrated in income sources that are easily evaded, due to lack of third-party reporting. Corroborating the view that evasion falls, potentially suspect EITC claims and audit rates also fall. Our results provide real-world evidence that a positive outlook on government lowers tax evasion. |
| Keywords: | tax evasion, tax morale |
| JEL: | D72 H24 H26 H30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6905&r=pbe |
| By: | María T. Alvarez-Martínez; Salvador Barrios; Diego d'Andria; Maria Gesualdo; Gaëtan Nicodème; Jonathan Pycroft |
| Abstract: | This paper estimates the size and macroeconomic effects of base erosion and profit shifting (BEPS) using a computable general equilibrium model designed for corporate taxation and multinationals. Our central estimate of the impact of BEPS on corporate tax losses for the EU amounts to €36 billion annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to loose tax revenues respectively of €101 and €24 billion per year or 10.7% of corporate tax revenues in both cases. These estimates are consistent with gaps in bilateral multinationals´ activities reported by creditor and debtor countries using official statistics for the EU. Our results suggest that by increasing the cost of capital, eliminating profit shifting would slightly reduce investment and GDP. It would however raise corporate tax revenues thanks to enhanced domestic production. This in turn could reduce other taxes and increase welfare. |
| Keywords: | BEPS, corporate taxation, profit shifting, tax avoidance, CGE model |
| JEL: | C68 E62 H25 H26 H87 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6870&r=pbe |
| By: | Nadine Riedel; Martin Simmler |
| Abstract: | Theory suggests that large firms are more likely to engage in lobbying behaviour and are geographically more mobile than smaller entities. Conditional on jurisdiction size, policy choices are thus predicted to depend on the shape of a jurisdiction’s firm size distribution, with more business-oriented policies being enacted if jurisdictions host large firms. The paper empirically tests this prediction using local business taxation in Germany as a testing ground. Exploiting rich and exogenous variation in localities’ firm size structures, we find evidence for an inverse relationship between the size of hosted entities and communities’ local business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies. |
| Keywords: | firm size, corporation tax, political economy |
| JEL: | H20 H70 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6904&r=pbe |
| By: | Boonzaaier, Wian; Harju, Jarkko; Matikka, Tuomas; Pirttilä, Jukka |
| Abstract: | We study the responsiveness of small and medium-sized firms to corporate income taxes using population-wide administrative data from South Africa. We find sizable bunching of firms at the corporate income thresholds where the corporate tax rate increases, implying active responses to corporate income taxes. The observed bunching is very sharp, and reacts immediately to changes in the location of the kink points. These observations suggest that a sizable part of the response is driven by reporting responses rather than real economic behavior. We find indicative evidence that reporting behavior is linked with underreporting of sales and legal tax planning activities. |
| Keywords: | corporate taxation, small firms, emerging economies, bunching, Social security, taxation and inequality, H21, H25, H32, O12, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:85&r=pbe |
| By: | Meritxell Solé (Universitat de Barcelona); Guadalupe Souto (Universitat Autònoma de Barcelona); Concepció Patxot (Universitat de Barcelona) |
| Abstract: | Concerns about the consequences of demographic ageing on the sustainability of the pension system has led to the adoption of reforms reducing pension expenditure. However, the impact of these reforms on pension adequacy is now coming under increasing scrutiny. Taking recent Spanish reform as an example, this paper analyses the extent to which fostering pension sustainability threatens pension adequacy. Using an extension of the DyPeS behavioural microsimulation model, results show that the introduction of mechanisms linking retirement pensions to the evolution of the social security budget balance has strong and negative effects on adequacy. The gains in sustainability are mainly driven by the significant fall in the benefit ratio (average pension to average wage), worsening the relative economic position of pensioners throughout forthcoming decades, reversing the past trend. |
| Keywords: | Pension adequacy, behavioural microsimulation, pension system reforms, pension sustainability, Spain. |
| JEL: | H53 H68 H55 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:372web&r=pbe |
| By: | Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro |
| Abstract: | We study cooperative optimal Ramsey equilibria in the open economy addressing classic policy questions: Should restrictions be placed to free trade and capital mobility? Should capital income be taxed? Should goods be taxed based on origin or destination? What are desirable border adjustments? How can a Ramsey allocation be implemented with residence-based taxes on assets? We characterize optimal wedges and analyze alternative policy implementations. |
| Keywords: | Capital income tax; free trade; value-added taxes; border adjustment; origin- and destination-based taxation; production e |
| JEL: | E60 E61 E62 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12753&r=pbe |
| By: | Dahl, Gordon B. (University of California, San Diego); Gielen, Anne C. (Erasmus University Rotterdam) |
| Abstract: | Does participation in a social assistance program by parents have spillovers on their children's own participation, future labor market attachment, and human capital investments? While intergenerational concerns have figured prominently in policy debates for decades, causal evidence is scarce due to non-random participation and data limitations. In this paper we exploit a 1993 policy reform in the Netherlands which tightened disability insurance (DI) criteria for existing claimants, and use rich panel data to link parents to children's long-run outcomes. The key to our regression discontinuity design is that the reform applied to younger cohorts, while older cohorts were exempted from the new rules. We find that children of parents who were pushed out of DI or had their benefits reduced are 11% less likely to participate in DI themselves, do not alter their use of other government safety net programs, and earn 2% more in the labor market as adults. The combination of reduced government transfers and increased tax revenue results in a fiscal gain of 5,900 euros per treated parent due to child spillovers by 2014. Moreover, children of treated parents complete an extra 0.12 years of schooling on average, an investment consistent with an anticipated future with less reliance on DI. Our findings have important implications for the evaluation of this and other policy reforms: ignoring parent-to-child spillovers understates the long-run cost savings of the Dutch reform by between 21 and 40% in present discounted value terms. |
| Keywords: | peer effects, disability insurance, intergenerational links |
| JEL: | I38 H53 J62 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11334&r=pbe |
| By: | Berliant, Marcus; Gouveia, Miguel |
| Abstract: | The literatures dealing with voting, optimal income taxation, and implementation are integrated here to address the problem of voting over income taxes. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget. Even though the space of alternatives is infinite dimensional, conditions on tax requirements such that a majority rule equilibrium exists are found. Finally, conditions are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it. |
| Keywords: | Voting; Income taxation; Public good |
| JEL: | D72 D82 H21 H41 |
| Date: | 2018–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84437&r=pbe |
| By: | Simone Pellegrino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Achille Vernizzi (Department of Economics, Management and Quantitative Methods, University of Milan, Italy) |
| Abstract: | In this paper we propose two alternative strategies in order to decompose the redistributive effect of the personal income tax in the portion due to deductions, marginal tax rates and tax credits. The first one, inspired by the analysis by Lambert (2001), Pfahler (1990) and Onrubia et al. (2014), is a stepwise or "ex ante" decomposition, whilst the second strategy, inspired by the works by Podder (1993a,b) and Podder and Chatterjee (2002), is an overall and simultaneous or "ex post" decomposition. The value added of our approaches is twofold: they are very simple and intuitive, and, moreover, both of them allow to quantify the Axiom violations, as proposed by Kakwani and Lambert (1998), for each part in which the redistributive effect can be decomposed. We take Italy as a case study. |
| Keywords: | Personal income tax, Microsimulation models, Reynolds-Smolensky index, Pfahler decomposition, Kakwani and Lambert decomposition. |
| JEL: | C80 H23 H24 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:049&r=pbe |
| By: | Marko Köthenbürger; Mohammed Mardan; Michael Stimmelmayr |
| Abstract: | Recent empirical research documents a tendency of affiliates of multinational enterprises to bunch around zero reported profit. Setting up a model that allows for profitable and loss-making affiliates of multinationals, we show that profit shifting to a low-tax country as well as a loss-related, inverted-type of transfer pricing from the low-tax to the high-tax country induces bunching. Such bunching promotes investment incentives in the low-tax as well as the high-tax country. In equilibrium, affiliates might over-invest and the bunching-related investment effects generate a tendency for too high profit taxes in equilibrium. The finding contrasts existing literature where transfer pricing incentives are insulated from investment incentives and transfer pricing induces inefficiently low taxes. |
| Keywords: | tax competition, profit shifting, corporate losses, bunching, investment |
| JEL: | H25 D21 H87 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6895&r=pbe |
| By: | Bernardino Adao; Andre C. Silva |
| Abstract: | We find that the Friedman rule is not optimal with government transfers and distortionary taxation. This result holds for heterogeneous agents, standard homogeneous preferences, and constant returns to scale production functions. The presence of transfers changes the standard optimal taxation result of uniform taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. The higher the transfers, the higher is the optimal inflation rate. We calibrate a model with transfers to the US economy and obtain optimal values for inflation substantially above the Friedman rule. JEL codes: E52, E62, E63 |
| Keywords: | Friedman rule, fiscal policy, monetary policy, taxes, transfers, inflation |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:unl:unlfep:wp623&r=pbe |
| By: | Thomas I. Palley |
| Abstract: | This paper argues neoliberalism is engaged in a war against the welfare state. At issue are competing views regarding the size of the welfare state and how it should be organized. In waging this war, neoliberalism seeks to politically discredit the traditional welfare state and change the economic structure so that the latter becomes unviable. The paper presents a new theoretical framework that distinguishes between modes of production and financing of the welfare estate. Neoliberalism's war rests on ideologically grounded criticisms drawn from mainstream economics; implementation of policies that undermine social solidarity toward the welfare state; exploiting pressures fostered by neoliberal globalization; and misrepresentations about affordability. The welfare state was critical in saving capitalism from itself after World War II. It is a way of embedding the market system so as to produce socially acceptable outcomes that are politically stable. Neoliberalism's war promises a body blow against shared prosperity. More ominously, it may so dis-embed the market system as to recreate conditions Polyani (1944) blamed for the rise of fascism in the 1930s. |
| Keywords: | Welfare state, neoliberalism, mode of production, mode of financing |
| JEL: | H1 H10 H50 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:16-2018&r=pbe |
| By: | Ayoki, Milton |
| Abstract: | This paper documents the tax reforms implemented in Swaziland since the 1990s and how they have contributed to revenue collection. Reforms have had a major impact on collection of indirect taxes (especially VAT) but no clear impact on receipts of direct taxes and trade taxes. Despite efforts to broaden the tax base, tax collection is still heavily concentrated on very few sources, with SACU receipts alone accounting for more than one-half of total revenue. Growth in revenue collections from direct taxes on income and profits, and indirect taxes on goods and services remain substantially too low to compensate for the loss in import tariff revenues. |
| Keywords: | Tax Reform, Tax System, Tax Administration and Policy, Swaziland |
| JEL: | H20 H24 H27 |
| Date: | 2017–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84739&r=pbe |