nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒11‒12
twelve papers chosen by
Thomas Andrén

  1. A net welfare benefit approach to optimal taxation By Cristian F. Sepulveda
  2. Social Networks and Tax Avoidance: Evidence from a Well-Defined Norwegian Tax Shelter By Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle
  3. Taxation trends in the European Union: 2018 edition By European Commission
  4. Income protection of atypical workers in the event of unemployment in Europe By Holguer Xavier JARA TAMAYO; Alberto Tumino
  5. Unequal Use of Social Insurance Benefits: The Role of Employers By Sarah Bana; Kelly Bedard; Maya Rossin-Slater; Jenna Stearns
  6. Cross-border or Online -- Tax Competition with Mobile Consumers under Destination and Origin Principle By Birg, Laura
  7. The impact of anti-congestion policies and the role of labor-supply margins By Hirte, Georg; Tscharaktschiew, Stefan
  8. A Fresh Look at Fiscal Redistribution and Inequality in the US across Electoral Cycles By Sala, Hector
  9. Switching to Territorial Taxation: FDI Effects for Host-Countries of Foreign Subsidiaries By Holzmann, Carolin; Büttner, Thiess
  10. Consumers as Tax Auditors By Naritomi, Joana
  11. Closing the Gender Gap: Gender Based Taxation, Wage Subsidies or Basic Income? By Ugo Colombino; Edlira Narazani
  12. How effective is an incremental ACE in addressing the debt bias? Evidence from corporate tax returns By Branzoli Nicola; Caiumi Antonella

  1. By: Cristian F. Sepulveda (Farmingdale State College, SUNY)
    Abstract: This paper challenges the widespread notion that the labor income tax is an inherently distortionary tax instrument. Optimal tax theory considers the lump-sum tax as the only efficient or non-distortionary tax instrument. This conclusion depends on two (often implicit) assumptions: one is that the economy is operating at the optimal welfare maximizing solution, where the marginal cost of tax revenue is equal to its marginal benefit; and the other that public expenditure has no effect on taxpayers’ budget constraints. However, for a government program to be worthwhile, total benefit must be greater than total cost, and it is easy to find examples where budget constraints are affected by public expenditure. This paper shows that, when the two assumptions are relaxed, the combined use of labor income and lump-sum taxes may allow a representative taxpayer to reach greater levels of welfare than the use of a lump-sum tax alone.
    Date: 2018–10
  2. By: Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle
    Abstract: In 2005, over 8% of Norwegian shareholders transferred their shares to new (legal) tax shelters intended to defer taxation of capital gains and dividends that would otherwise be taxable in the aftermath of 2006 reform. Using detailed administrative data we identify family networks and describe how take up of tax avoidance progresses within a network. A feature of the reform was that the ability to set up a tax shelter changed discontinuously with individual shareholding of a firm and we use this fact to estimate the causal effect of availability of tax avoidance for a taxpayer on tax avoidance by others in the network. We find that take up in a social network increases the likelihood that others will take up. This suggests that taxpayers affect each other's decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of “optimization frictions” in the context of behavioral responses to taxation.
    JEL: D22 D23 H25 H26 H32
    Date: 2018–10
  3. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA2010 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2018–07
  4. By: Holguer Xavier JARA TAMAYO; Alberto Tumino (European Commission - JRC)
    Abstract: This paper evaluates the degree of income protection the tax-benefit system provides to atypical workers in the event of unemployment, comparing them to standard employees. Our approach relies on EUROMOD, the EU tax-benefit microsimulation model, to simulate transitions from employment to unemployment for the entire workforce and to compare household financial circumstances before and after the transition. Our results show that coverage rates of unemployment insurance are low among atypical workers. These workers are also significantly more exposed to the risk of poverty than standard employees, both while in work and in the event of unemployment. Our analysis also shows that low-work intensity employees are characterised by higher net replacement rates than other groups. However, this is due to the major role played by the market incomes of other household members. Finally, we show that in countries where self-employed workers are not eligible for unemployment insurance benefits, extending the eligibility to this group of workers would increase their replacement rates significantly and make them less likely to fall into poverty in the event of unemployment.
    Keywords: income protection, atypical work, microsimulation
    Date: 2018–10
  5. By: Sarah Bana; Kelly Bedard; Maya Rossin-Slater; Jenna Stearns
    Abstract: California's Disability Insurance (DI) and Paid Family Leave (PFL) programs have become important sources of social insurance, with benefit payments now exceeding those of the state's Unemployment Insurance program. However, there is considerable inequality in program take-up. While existing research shows that firm-specific factors explain a significant part of the growing earnings inequality in the U.S., little is known about the role of firms in determining the use of public leave-taking benefits. Using administrative data from California, we find strong evidence that DI and PFL program take-up is substantially higher in firms with high earnings premiums. A one standard deviation increase in the firm premium is associated with a 57 percent higher claim rate incidence. Our results suggest that changes in firm behavior have the potential to impact social insurance use and thus reduce an important dimension of inequality in America.
    JEL: J31 J32 J38
    Date: 2018–10
  6. By: Birg, Laura
    Abstract: This paper studies the effect of an online retailer on spatial tax competition with mobile consumers. If taxation for online purchases follows the destination principle, in many cases, the entry of the online retailer mitigates tax competition. If taxation for online purchases follows the origin principle, the entry of the online retailer typically enhances tax competition. Cooperation between government reverses this effect. For sufficiently low (high) online shopping costs, welfare in the online retailer’s home country is higher under the origin (destination) principle, while welfare in the other country is higher under the destination (origin) principle. Global welfare is higher under the destination principle.
    Keywords: tax competition,cross-border shopping,online retailer,destination principle,origin principle
    JEL: F12 H20 L13
    Date: 2018
  7. By: Hirte, Georg; Tscharaktschiew, Stefan
    Abstract: Transportation economists apply different labor supply models when studying anti-congestion policy: (i) endogenous working hours; (ii) endogenous workdays but given daily working hours; (iii) labor supply as a residual. We study whether the outcome of anti-congestion policies that change the relative cost of labor supply margins, and, thus, may affect decisions on working hours and working days, is robust against the model applied. In particular, we focus on welfare implications in the presence of other taxes when there is a congestion externality. We find surprisingly strong differences in quantity and sign. Further, we develop a clear recommendation for future research on issues that include decisions on commuting trips. Researchers shall apply both a model of endogenous working hours that provides an upper limit and a model of endogenous workdays that provide a lower limit of results for welfare changes, optimal policies and two optimal tax components (Pigouvian and Ramsey terms).
    Keywords: Public Economics,Tax Design,Time Allocation,Labor Supply,Pigouvian Tax,Urban Economics,CGE,Spatial Modeling,Transportation,Transportation Economics,Transport Policy,Congestion
    JEL: H2 H3 J2 R1 R4
    Date: 2018
  8. By: Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: The evolution of the ratio of direct taxation (characterized by progressive rates) over indirect and payroll taxation (characterized by flat rates) is examined together with its distributional consequences for the Bottom 50%, Middle 40% and Top 10% shares of income. Oscillations of this ratio coincide with the US electoral cycles since the 1960s. We show that periods in which this ratio increases coincide with those in which Democrats rule the government and there is more redistribution from the rich (the Top 10%) to the rest of the population. Conversely, periods in which this ratio falls and Republicans hold the power are characterized by a fall in the ratio and less redistribution from the rich to the rest of the population. Based on a set of counterfactual simulations, we hypothesize that the rich, as informed economic agents, are able to protect themselves against tighter fiscal conditions, thereby curtailing the redistributive effects of enhanced tax progressivity.
    Keywords: electoral cycles, tax composition, income distribution, tax progressivity
    JEL: H20 H31 E25
    Date: 2018–10
  9. By: Holzmann, Carolin; Büttner, Thiess
    Abstract: The paper explores the effects of the switch to territorial taxation on outbound FDI. Rather than employing standard FDI statistics, the paper uses data which reports the location of the ultimate owner. We use a quasi-experimental approach that exploits the timing of reforms. In order to provide a counterfactual we employ synthetic-control methods. Our results document a substantial increase of Japanese FDI in Germany after the switch from worldwide to territorial taxation in Japan in 2009. In contrast, the switch in the UK in the same year is not found to exert any significant effects on investment of UK multinationals in Germany. These findings support the view that only the switch in relatively high-tax countries exerts FDI effects.
    Keywords: FDI,Dividend Exemption,Tax Competition,Synthetic Control Method
    JEL: H25 F23
    Date: 2018
  10. By: Naritomi, Joana
    Abstract: Access to third-party information trails is widely believed to be critical to the development of modern tax systems, but there is limited direct evidence of the effects of changes in information trails. This paper investigates the enforcement effect of an increased availability of third-party information, and sheds light on how governments can harness this information despite collusion opportunities. I exploit unique administrative data on firms and consumers from an anti-tax evasion program in Sao Paulo, Brazil (Nota Fiscal Paulista) that created monetary rewards for consumers to ensure that firms report final sales transactions, and establishes an online verification system that aids consumers in whistle-blowing firms. Using variation in intensity of exposure to the policy, I estimate that firms' reported revenue increased by at least 21% over four years. Heterogeneous effects across firms shed light on mechanisms: the results are consistent with fixed costs to conceal collusive deals and positive shifts in detection probability from whistle-blower threats. I also investigate the effect of whistle-blowers directly: firms report 7% more receipts and 3% more revenue after receiving the first consumer complaint. To study the role of the value of rewards in improving enforcement, I show evidence consistent with the possibility that lottery incentives amplify consumer responses due to behavioral biases, which would make it more costly for firms to try to match government incentives in a collusive deal. Finally, I find that although firms significantly adjusted reported expenses, there was an increase in tax revenue net of rewards of 9.3%.
    JEL: D83 H25 H26 K34 O17
    Date: 2018–10
  11. By: Ugo Colombino; Edlira Narazani (European Commission - JRC)
    Abstract: Gender based taxation (GBT) has been recently proposed as a promising policy in order to close the gender gap, i.e. promote gender equality and improve women’s status in the labour market and within the family. We use a microeconometric model of household labour supply in order to evaluate, with Italian data, the behavioural and welfare effects of GBT as compared to other policies based on different optimal taxation principles. The comparison is interesting because GBT, although technically correct, might face implementation difficulties not shared by other policies that in turn might produce comparable benefits. Our results support to some extent the expectations of GBT’s proponents. However, it is not an unquestionable success. GBT induces a modest increase of women’s employment, but similar effects can be attained by universal subsidies on low wages. When the policies are evaluated in terms of welfare, GBT ranks first among single women but among couples and in the whole population the best policies are unconditional transfers and/or subsidies on low wages.
    Keywords: Gender based taxation, wage subsidies, basic income, guaranteed minimum income, labour supply, social welfare
    Date: 2018–10
  12. By: Branzoli Nicola; Caiumi Antonella
    Abstract: The Allowance for Corporate Equity (ACE) introduced in Italy in 2011 has decreased the fiscal distortion between the costs of equity and debt by introducing the deductibility from taxable income of a notional return on capital increases. In this paper we estimate the impact of the ACE on the leverage ratio of Italian manufacturing firms. Using a novel instrumental variable approach to identify the causal effect, we find that the introduction of the incremental ACE has substantially reduced the leverage ratio of its beneficiaries. The effect of the reform increases with age and decreases with the size of the enterprise. These results suggest that an incremental ACE may be an effective policy tool to reduce the leverage ratio of European firms
    Keywords: Allowance for Corporate Equity, Corporate Leverage, Debt-Equity Bias
    JEL: G32 H25 H32
    Date: 2018–06

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