nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒05‒14
fifteen papers chosen by
Thomas Andrén

  1. Analysis of dependencies between state tax behavior and macroeconomic indicators By Sokolovskyi, Dmytro
  2. The Elasticity of Taxable Income in the Presence of Intertemporal Income Shifting By Aspen Gorry; R. Glenn Hubbard; Aparna Mathur
  3. The effects of official and unofficial information on tax compliance By Garcia, Filomena; Marques, Rafael; Opromolla, Luca David; Vezzulli, Andrea
  4. Financial incentives to work for disability insurance recipients - Sweden’s special rules for continuous deduction By Andersson, Josefine
  5. A General Equilibrium Model of Optimal Alcohol Taxation in the Czech Republic By Karel Janda; Zuzana Lajksnerova; Jakub Mikolasek
  6. The Elasticity of Corporate Income: Panel Data Evidence from Switzerland By David Staubli
  7. Dynamic Tax Externalities and the U.S. Fiscal Transformation in the 1930s By Dirk Niepelt
  8. Tax Evasion and Financial Development under Asymmetric Information in Credit Markets By Jang-Ting Guo; Fu-Sheng Hung
  9. From the Lab to the Field: A Review of Tax Experiments By Mascagni, Giulia
  10. Building support for taxation in developing countries: Experimental evidence from Mexico By Flores-Macías, Gustavo A.
  11. Game-theoretic model of tax evasion: analysis of agents’ interaction and optimization of tax burden By Sokolovskyi, Dmytro
  12. How to calibrate fiscal rules : a primer By Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
  13. The impact of taxation on economic growth in South Africa By Hlalefang Khobai; Khumbuzile Dladla
  14. Implications for Aggregate Inflation of Sectoral Asymmetries: An Epirical Implication By McKay Andy; Pirttilä Jukka; Schimanski Caroline
  15. When do developing countries negotiate away their corporate tax base? By Hearson, Martin

  1. By: Sokolovskyi, Dmytro
    Abstract: Article examines the potential impact of macroeconomic parameters on tax behavior of governments, which can be regarded as integral part of more common problem of state’s economic behavior in tax policy area. We aimed to analyze and to reveal the interaction between base and derivative macroeconomic parameters, characterizing countries’ economic development and level of corporate taxation in order to conclude about effectiveness of state tax policy as well as about ways of its improving. Subject of study is the possible dependence of tax behavior of government institutions from macroeconomic indicators. In the framework of given study we used econometric methods. We made an analysis of eventual interdependence between value of corporate tax burden and certain macroeconomic indicators, representing evaluations of national economic systems: power, wealth, investment attractiveness and congenial investment climate. We revealed that corporate tax rate is used by governments not too actively, while the state tax behavior somewhere can be estimated as ineffective. Taking into account this fact as well as analysis of reasons causing such government behavior can facilitate the optimization of managerial decisions in the area of tax regulation. Also obtained results help to reveal instruments and motivation of economic agents’ behavior on macro-level. They can serve as base for further research concerning principles of behavior in economics in general as well as for examining more narrow areas such as “race to the bottom” problem.
    Keywords: economic behavior; corporate tax rate; tax regulation; macroeconomic indicators
    JEL: C15 H30
    Date: 2018–04–30
  2. By: Aspen Gorry; R. Glenn Hubbard; Aparna Mathur
    Abstract: Knowing the elasticity of taxable income (ETI) is crucial for understanding the effects of taxation on taxpayer behavior and consequently on tax revenues. Previous research finds that high-income individuals are the most sensitive to tax policy changes. However, these individuals have more opportunities to defer income to future tax bases by altering the composition of their compensation than lower-income individuals. This paper considers the taxable income elasticity when individuals can shift income across tax bases and thereby defer taxation. We decompose the elasticity of taxable income into a real response as well as an income shifting response. We measure the tax rate on deferred income by the expected tax gain from deferring income using stock options as developed by Hall and Liebman (2000). Our results demonstrate that income shifting is an important component of previous estimates of the ETI. Because shifted income is taxed at future dates, income shifting decreases the welfare loss from personal income taxation associated with previous estimates.
    JEL: G30 H24 H31 J33
    Date: 2018–04
  3. By: Garcia, Filomena; Marques, Rafael; Opromolla, Luca David; Vezzulli, Andrea
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments 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 randomly 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 compliant 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 individuals. 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: Experiment; Information; peer effects; tax evasion; Tax morale
    JEL: C24 C92 D63 H26 Z13
    Date: 2018–04
  4. By: Andersson, Josefine (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: Evidence from around the world suggests that individuals who are awarded disability benefits in some cases still have residual working capacity, while disability insurance systems typically involve strong disincentives for benefit recipients to work. Some countries have introduced policies to incentivize disability insurance recipients to use their residual working capacities on the labor market. One such policy is the continuous deduction program in Sweden, introduced in 2009. In this study, I investigate whether the financial incentives provided by this program induce disability insurance recipients to increase their labor supply or education level. Retroactively determined eligibility to the program with respect to time of benefit award provides a setting resembling a natural experiment, which could be used to estimate the effects of the program using a regression discontinuity design. However, a simultaneous regime change of disability insurance eligibility causes covariate differences between treated and controls, which I adjust for using a matching strategy. My results suggest that the financial incentives provided by the program have not had any effect on labor supply or educational attainment.
    Keywords: disability Insurance; financial Incentives; continuous deduction; regression discontinuity design; propensity score matching; nearest neighbor matching
    JEL: H53 H55 I18 J22
    Date: 2018–05–03
  5. By: Karel Janda (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics, Namesti Winstona Churchilla 4, 13067 Prague, Czech Republic); Zuzana Lajksnerova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Jakub Mikolasek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: This paper provides a general equilibrium theoretical model of alcohol taxation and empirically estimates this model. For this purpose, we use a model determined by both externality corrections and fiscal considerations as the tax increase is assumed to immediately change other governmental policies such as labour taxation or medical expenditures. The results of our analysis show that under the most of parametric scenarios the current Czech tax rate on beer and wine is below its optimal level and that the fiscal component has a significant impact on the optimal level of tax.
    Keywords: Alcohol, Beer, Wine, Czech Republic, Elasticity, Price, Social costs, Tax
    JEL: H21 Q02 Q18
    Date: 2018–03
  6. By: David Staubli
    Abstract: I estimate the tax elasticity of corporate income. The analysis is based on panel variation o ered by decentralized corporate taxation in Switzerland. According to the baseline estimate, an increase in a municipality's corporate tax rate by 1% results in a decrease of aggregate corporate income (defined as the sum of corporate taxable incomes in that municipality) by about 0.43%. The elasticity is fairly stable across municipality types regarding population size, centrality of location, and average income. Furthermore, I find evidence that a significant part of the aggregate-level elasticity is attributable to firm mobility across jurisdictions.
    Keywords: Corporate Income Tax; Tax Elasticity; Fiscal Federalism
    JEL: H21 H25 H32
    Date: 2018–04
  7. By: Dirk Niepelt
    Abstract: We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium implications which are rationally internalized at the federal, but not at the regional level. The political support for taxation therefore differs across levels of government. Complementarities on the spending side decouple the equilibrium composition of spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, it accounts for between 30% and 100% of the federal revenue share’s doubling in the 1930s, and for the long-term increase in federal grants.
    Keywords: Fiscal policy, Federalism, Politico-economic equilibrium, Markov equilibrium, Public goods, Grants, Political Economy
    JEL: D72 E62 H41 H77
    Date: 2018–03
  8. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Fu-Sheng Hung (National Chengchi University, Taiwan)
    Abstract: Recent empirical studies have documented that the incidence of firms' tax evasion on their sales is negatively correlated with the country's level of financial development. Our analysis shows that this stylized fact can be theoretically accounted for within a small-open-economy model of optimal tax enforcement under asymmetric information in credit markets. In an economy with a more developed financial sector that exhibits smaller agency costs, we find that the government will raise its optimal probability of tax auditing, which in turn leads to more tax compliance. It follows that financial development and tax evasion are inversely related, as observed in the actual data.
    Keywords: Tax Evasion; Financial Development; Asymmetric Information; Credit Rationing.
    JEL: D82 H26 H32
    Date: 2018–05
  9. By: Mascagni, Giulia
    Abstract: Tax experiments have been gaining momentum in recent years, although this literature dates back several decades.With new developments in methods and data availability, tax experiments have gradually moved away from lab settings and towards the ï¬ eld. This movement from the lab to the ï¬ eld has happened against the background of the ‘credibility revolution’ in applied economics, which has seen more rigorous methods applied to policy relevant questions, and of the availability to researchers of administrative data from tax returns. These developments have allowed signiï¬ cant advances in the experimental literature on tax compliance. This paper reviews this literature, giving particular attention to ï¬ eld experiments using administrative data, but putting them in the broader context of the compliance literature. A particular effort is made to take a global perspective, in a literature that is only recently seeing the emergence of evidence from Africa, Latin America and Asia.
    Keywords: Governance,
    Date: 2017
  10. By: Flores-Macías, Gustavo A.
    Abstract: Drawing on insights from the literature on institutional design—how rules shape behavior to achieve desired outcomes—this article examines how certain design features of taxes—such as allowing for civil society oversight, earmark mechanisms that direct tax revenue for a specific purpose, and sunset provisions that make the duration of taxes finite—affect political support for tax reforms. It also evaluates how three important aspects of the fiscal exchange—trust in government, perceptions of the public good, and level of income—shape the effect of these design features. Based on an original survey experiment focusing on the provision of public safety in Mexico, I find that these design features increase political support for taxation, especially among those with low trust in government and low income. These findings have important implications not just for Mexico but also a number of other countries across Latin America that have both low levels of extraction and increased public spending imperatives.
    Keywords: Governance,
    Date: 2017
  11. By: Sokolovskyi, Dmytro
    Abstract: The article analyzes a tax evasion problem using game-theoretic tools. The model develops a well-known Alligham–Sandmo classic model by introducing parameters of “transparency” of detected violations, of cost of control, of tax evasion and of conscientious tax payment. For that model we calculated Nash-equilibrium conditions in pure strategies. Based on this we investigated the problem of optimization of real tax burden. It is shown that curve describing the dependence between actual tax burden from declared one has not 1 (like the Laffer curve), but 3 local maxima. Those findings may contribute to better calculation of tax burden in the real economy.
    Keywords: tax evasion; game-theoretic model; Nash-equilibrium; tax burden; pure strategies; Laffer curve
    JEL: C72 H26 H30
    Date: 2018–04–30
  12. By: Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
    Abstract: This note provides guidance on how to calibrate fiscal rules; that is, how to determine the thresholds (ceiling, floor, or target) for specific fiscal aggregates constrained by rules. The note focuses, more specifically, on the calibration of the debt, balance, and expenditure rules.
    Keywords: fiscal rules, stochastic simulations
    JEL: C13 C15 H3 H6
    Date: 2018–03
  13. By: Hlalefang Khobai (Department of Economics, Nelson Mandela University); Khumbuzile Dladla (Department of Economics, Nelson Mandela University)
    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: E27 H20
    Date: 2018–05
  14. By: McKay Andy; Pirttilä Jukka; Schimanski Caroline (Faculty of Management, University of Tampere)
    Abstract: A key policy problem in most developing countries is the size of the informal sector and its persistence over time. At the same time, these countries also need to increase their tax take. However, this may slow down the formalization of the economy. Evidence on the wages and characteristics of jobs in different sectors and on the impact of tax changes on the size of the informal sector in developing countries is, however, very limited. This paper therefore estimates the tax responsiveness of the extensive margin of formality, i.e. the propensity to participate in formal work as opposed to working as an informal worker,for four Sub-Saharan African countries. Using repeated cross-sections of household data and applying grouping estimator techniques, this paper finds only very small or statistically insignificant effects of taxes on the extent of formal work.
    Keywords: developing countries, Sub-Saharan Africa, taxation, labour supply, informality
    JEL: H31 J20 O17
    Date: 2018–04
  15. By: Hearson, Martin
    Abstract: Developing countries have concluded thousands of bilateral tax treaties, which restrict their ‘taxing rights’ over international investment. Qualitative case studies of these negotiation outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the eventual distribution of taxing rights between signatories, yet such insights are absent from cross‐country quantitative work. This paper bridges the gap by replicating two quantitative studies, introducing new data on countries' ability to mobilize tax revenue and the outcomes of tax treaty negotiations. It provides statistical support for the insights from qualitative research. The size of a government's revenue base, and its reliance on corporate tax, might affect the salience of the revenue sacrifice in policy makers' minds. These variables influence the likelihood of signing a tax treaty and the particular concessions made. Power asymmetries between signatories lead to more unequal distributions of taxing rights away from developing countries, in contrast to the findings of earlier studies. Developing countries also become better negotiators as they gain experience.
    Keywords: developing countries; foreign direct investment; corporate taxation; double taxation; treaties; multinational corporations
    JEL: F53 H25 K34 O23
    Date: 2018–03–13

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