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on Public Economics |
| By: | Sokolovska, Olena |
| Abstract: | We analyze both the theoretical framework of labor taxation in the open economy and important current reforms of labor taxation in countries worldwide including the introduction of “social VAT”. The current tax theory considers the reforms of labor income taxation related to the shifting of taxation from more mobile tax bases to the less mobile ones, taking into consideration the reduction of tax rates with simultaneous broadening of the tax base. Such a reform is intended to reduce the distortion effects of taxation, and, as a consequence, to reduce the tax burden on labor. The empirical section includes analysis of indicators of labor income taxation in OECD countries. We calculated the progressivity index of overall tax wedge and its components – personal income tax, employer’s and employee’s social security contributions. The results enabled cross-country comparisons: we found that in a most OECD members both employees’ and employers’ social security contributions systems are regressive or flat, while personal income tax systems are progressive in all countries except Hungary with flat tax schedule. Moreover, in OECD countries with highest GDP per capita the employees bear average labor tax burden with simultaneously low employers’ social security contributions rates. |
| Keywords: | personal income tax; social security contributions; consumption tax; social VAT; progressivity |
| JEL: | E20 H22 H24 P51 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86233&r=pbe |
| By: | López Pérez, Raúl (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Ramírez Zamudio, Aldo. (Center for Economics, Banking and Finance Studies, Department of Economics, Universidad de Lima.) |
| Abstract: | We report data from an experiment in Peru where subjects anonymously decide how much of their endowment they donate to the Peruvian Government. The standard rational choice model and several well-known models of non-selfish preferences predict zero giving. Yet we observe that around 75% of the subjects give something (N = 164), with substantial heterogeneity. Our data is consistent with an account based on social norms: If compliance is not too costly, people comply with norms if (i) they perceive that such behavior sufficiently promotes social welfare and (ii) others are expected to respect norms as well (peer effects). Our paper contributes to a recent literature on tax morale emphasizing the importance of non-standard motivations on tax compliance and suggests that taxpayers are willing to give money to the government (e.g., paying taxes) if they believe that enough others give as well and that taxes are not wasted or ‘stolen’ by the government, but used to promote social welfare. |
| Keywords: | corruption, evasion, peer effects, social norms, tax compliance, tax morale |
| JEL: | C92 D91 H21 H26 H3 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201802&r=pbe |
| By: | Schindler, Dirk (Dept. of Accounting, Auditing and Law, Norwegian School of Economics) |
| Abstract: | How to incorporate hard-to-value assets into the wealth tax? We analyze the effect of an optimal wealth tax on risk-taking behavior and welfare when investors do not only have the standard portfolio choice with a well-diversified market portfolio, but can alternatively choose to invest all their wealth into a non-diversifiable, indivisible project. The latter is interpreted as entrepreneurial investment into a small, nonlisted firm for which the actual value is hard to measure and non-verifiable. For such firms, real-world wealth tax systems base the wealth tax on deterministic book values. We show that this tax treatment does not distort the choice of projects if the tax is set optimally with an imputed interest rate on book values, actually larger than the risk-free market rate of return. The market equilibrium and a proportional tax on the market portfolio will ensure an efficient risk allocation between private and public consumption and across projects. Failing to apply an imputed inflation of book values, instead, gives rise to an implicit subsidy on entrepreneurial activity and distorts investment. Our findings also have implications for taxation of hard-to-value assets under capital-gains and inheritance taxation. |
| Keywords: | Wealth taxation; portfolio choice; non-listed firms; risk diversification; hard-to-value assets |
| JEL: | D14 G11 H21 |
| Date: | 2018–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2018_005&r=pbe |
| By: | John Guyton; Kara Leibel; Dayanand S. Manoli; Ankur Patel; Mark Payne; Brenda Schafer |
| Abstract: | Each year, the United States Internal Revenue Service (IRS) sends notices to selected taxpayers who claim Earned Income Tax credit (EITC) benefits to request additional documentation to verify those claims. This paper uses administrative tax data to examine the impacts of these correspondence audits on taxpayer behavior. The quasi-experimental research design compares randomly-selected audited taxpayers to taxpayers with similar risk scores who were not selected for a correspondence audit. The results indicate that, in the years following an audit, there are decreases in the likelihoods of claiming EITC benefits and filing returns. Taxpayers with self-employment income at the time of audit appear likely to increase wage employment following a correspondence audit, while taxpayers with wage income at the time of audit appear likely to decrease labor force participation following disallowance of EITC benefits. The results for wage earners indicate labor force participation elasticities of roughly 0.03. |
| JEL: | H24 J20 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24465&r=pbe |
| By: | Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instru- ments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of ran- domly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compli- ant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant in- dividuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Tax morale, Information, Tax evasion, Experiment, Peer Effects |
| JEL: | H26 D63 C24 C92 Z13 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0372018&r=pbe |
| By: | Krueger, Dirk; Ludwig, Alexander |
| Abstract: | We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. |
| Keywords: | Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externality |
| JEL: | H21 H31 E21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18014&r=pbe |
| By: | Bastani, Spencer; Waldenström, Daniel |
| Abstract: | This paper presents a comprehensive analysis of the role of capital taxation in advanced economies with a focus on the Swedish experience. We synthesize the existing theoretical literature, present facts about the capital stock and its distribution, review current capital tax practices and empirical findings regarding their effects on economic activity. The paper also examines the political feasibility of capital taxation by presenting results from a unique attitude survey targeted to a large representative sample of the Swedish population. Finally, we tie together our findings and discuss their implications for tax policy. |
| Keywords: | Capital taxation; corporate tax; Income inequality; Inheritance tax; optimal taxation; political economy; Preferences for Redistribution; Wealth Inequality; Wealth tax |
| JEL: | D31 H21 H24 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12880&r=pbe |
| By: | Reichlin, Pietro |
| Abstract: | I discuss two alternative notions of social welfare (utilitarian and self-enforcing) in a dynastic model with heterogeneous and persistent degrees of parental altruism and evaluate the implied levels of consumption inequality. Then, I study a decentralization of planning optima in a competitive equilibrium where the only source of inequality arises from intergenerational wealth transmission and I show that the self-enforcing criterion implies a negative tax rate on the less altruistic individuals' capital income. |
| Keywords: | Capital taxation; inequality; Wealth |
| JEL: | D31 E21 H21 J62 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12873&r=pbe |
| By: | Michael Overesch; Sabine Schenkelberg; Georg Wamser |
| Abstract: | Using pairs of similar US and European firms listed on the S&P500 or StoxxEurope600, we examine effective tax differentials between US multinational corporations (MNCs) and their European peers. We show that statutory tax rates and profit shifting opportunities are important determinants of effective tax rates. Our findings suggest substantially lower total tax payments of US MNCs after the 2017 US tax reform. Based on past reforms of Controlled Foreign Company (CFC) rules and of the principle of worldwide taxation, we confirm that international tax legislation affects effective tax expenses. We also provide evidence for heterogeneity in firm responses: MNCs with profit shifting opportunities benefit most from more-lenient CFC rules. |
| Keywords: | effective tax rate, tax avoidance, tax reform, CFC rule, international taxation, pair matching, difference-in-differences analysis |
| JEL: | H26 H32 F23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6960&r=pbe |
| By: | Emilio Calvo (Universidad de Valencia. ERI-CES) |
| Abstract: | We model the problem of how to distribute the public spending between the different regions of a country once all taxes are collected as a cooperative game in coalitional form. A tax game is built, specifying how much tax is collected in every region and coalition of regions in the country under secession. In this paper we propose two tax rules: the balanced tax rule, and the redistributive balanced tax rule. Both rules have the property of being stable for every tax problem, as they belong to the core of the tax game. The Spanish case is considered as example. We compare their redistributive behavior with the present Spanish financial system, with the population egalitarian, and with the optimistic secession tax rules. |
| Keywords: | fiscal federalism; fiscal stability; secessionism; coalitional |
| JEL: | H72 H77 C71 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0218&r=pbe |
| By: | Dutt, Verena K.; Ludwig, Christopher A.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes |
| Abstract: | We employ an event study methodology to investigate the stock price reaction around the day of the political decision to include a country-by-country reporting obligation for EU financial institutions. We do not find significant abnormal returns for the banks affected. Sample splits according to the effective tax rate and the degree of B2C orientation do not reveal a more pronounced negative investor response for banks engaging more strongly in tax avoidance or being potentially more concerned about reputational risks, respectively. We conclude that the implementation of a CbCR requirement for EU financial institutions did not trigger a noticeable investor response. Contrary prior findings regarding other public tax disclosure obligations might be driven by the distinct motivation of the rules and the way the information is presented. We contend that capital market reactions to an upcoming increase in tax transparency are not generalizable to other industries and settings, but that consideration must be given to the context and the exact design of the rule. |
| Keywords: | Tax Avoidance,Profit Shifting,Country-by-Country Reporting,Financial Institutions,Market Reaction |
| JEL: | H25 H26 G21 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18019&r=pbe |
| By: | Martina Baumann; Tobias Böhm; Bodo Knoll; Nadine Riedel |
| Abstract: | We empirically assess international corporate tax avoidance by strategic location of innovative output. The analysis draws on the universe of patent applications to the European Patent Office linked with data on multinational entities (MNEs) in Europe. Four findings emerge: Firstly, patent holdings are distorted towards low-tax countries. Secondly, patent location in low-tax countries is correlated with a geographic separation of R&D output and input. Thirdly, MNEs systematically sort high-value (low-value) patents to low-tax (high-tax) countries. Fourthly, the propensity to locate patent ownership in low-tax countries is significantly decreased if controlled foreign company rules are enacted in the MNE’s parent country. The tightening of transfer pricing legislations, in turn, exerts a weak negative effect on the location of patent ownership only. |
| Keywords: | corporate patents, patent taxation, profit shifting, anti-avoidance rules |
| JEL: | H30 H70 J50 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6967&r=pbe |
| By: | Peter H. Egger; Nora M. Strecker; Benedikt Zoller-Rydzek |
| Abstract: | Bargaining power may explain the tax differences between multinational and national enterprises beyond MNEs’ profit shifting. Larger firms (mostly MNEs) are more valuable for tax authorities for various reasons. In threatening relocation, larger firms extract greater deductions, resulting in a regressive ETR schedule and lower ETRs for size-related reasons. MNEs face lower relocation costs than NEs, which enhances their bargaining position. Using French firm-level data and entropy balancing, we find that the regressivity of the French tax schedule reduces MNEs’ ETRs by 2.52 percentage points (size effect), while their relocation threat leads to a 3.58 percentage point reduction. |
| Keywords: | profit taxation, multinational firms, entropy balancing |
| JEL: | H25 H26 F23 C21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6979&r=pbe |
| By: | Amedeo Argentiero; Bruno Chiarini; Elisabetta Marzano |
| Abstract: | This paper examines the impact of tax evasion on criminal activities in Italy. Specifically, we consider three types of crime that are related to economic determinants: property crimes (including robbery, theft and car theft), fraud and usury. We estimate a dynamic panel using annual data from the Italian provinces (NUTS-3) for the 2006-2010 period and show that tax evasion positively affects economic crimes. Notably, the elasticity of tax evasion to fraud is related to the size of the tax burden; in addition, these crimes demonstrate different levels of persistence over time, reflecting different adjustment costs. Finally, we find that property crimes, fraud and usury are not influenced by deterrence or clearing-up variables. |
| Keywords: | property crime, usury, fraud, tax evasion, deterrence effect |
| JEL: | C33 H26 K42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6957&r=pbe |
| By: | Dladla, Khumbuzile; Khobai, Hlalefang |
| Abstract: | This paper investigates the impact of taxation on economic growth in South Africa. Yearly data for South Africa for the period 1981 – 2016 was used to develop the Auto-Regressive Distribution Lag (ARDL) approach. The empirical results confirm that there is a negative relationship between taxes and economic growth in South Africa. The findings of the study include that economic growth, trade and openness, capital and taxes are co-integrated. This paper suggests that fiscal policy is very important to force sustainable economic growth in South Africa |
| Keywords: | Taxation, Economic growth, Auto-regression Distribution Lag Model (ARDL), Co-integration, South Africa |
| JEL: | C2 E27 H2 |
| Date: | 2018–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86219&r=pbe |
| By: | Lars P. Feld; Ekkehard A. Köhler; Julia Wolfinger |
| Abstract: | In this paper, we extend Henning Bohn’s (2008) fiscal sustainability test by allowing for slope heterogeneity and cross-sectional dependence (CD). In particular, our econometric approach is the first that allows fiscal reaction functions (FRF) to capture unobserved heterogeneous effects from business and fiscal policy cycles. We apply this econometric approach to sub-national public finance data of the German Laender between 1950 and 2015 and find that their fiscal policy only partly meets fiscal sustainability criteria. According to our results, politicians have significantly reacted to increasing debt levels by increasing budget surpluses since 1991. However, time-series evidence for longer periods does not indicate a significant and positive reaction to increasing debt levels in the West German Laender panel. |
| Keywords: | fiscal sustainability, public debt, panel data, cross-sectional dependence |
| JEL: | H62 H77 H72 C23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6976&r=pbe |