nep-pbe New Economics Papers
on Public Economics
Issue of 2018‒12‒03
fourteen papers chosen by
Thomas Andrén

  1. Social networks and tax avoidance. Evidence from a well-defined Norwegian tax shelter By Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle
  2. Inheritance Tax Regimes: A Comparison By Stefan Jestl
  3. How do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers By Wian Boonzaaier; Jarkko Harju; Tuomas Matikka; Jukka Pirttilä
  4. Taxation of Savings and Portfolio Choices of French Households By Christian Pfister
  5. Why is the shape of the Laffer curve for consumption tax different from that for labor income tax? By Kazuki Hiraga; Kengo Nutahara
  6. Public Expenditure Spillovers: An Explanation for Heterogeneous Tax Reaction Functions By Rosella Levaggi; Paolo Panteghini
  7. Immigrant Voters, Taxation and the Size of the Welfare State By Arnaud Chevalier; Benjamin Elsner; Andreas Lichter; Nico Pestel
  8. Optimal taxation, environment quality, socially responsible firms and investors By Thomas Renström; Luca Spataro
  9. International spillover effects of U.S. tax reforms: Evidence from Germany By Christofzik, Désirée I.; Elstner, Steffen
  10. The Better Route to Global Tax Coordination: Gradualism or Multilateralism? By Kai A. Konrad; Marcel Thum
  11. Why must it always be so Real with Tax Evasion? By Rangan Gupta; Philton Makena
  12. Regional tax effort in Spain By Zárate Marco, Anabel; Vallés Giménez, Jaime
  13. Expropriations, Property Confiscations and New Offshore Entities: Evidence from the Panama Papers By Ralph-C. Bayer; Roland Hodler; Paul A. Raschky; Anthony Strittmatter
  14. A Universal Childcare Expansion, Quality, Starting Age, and School Performance By Andersland, Leroy

  1. By: Annette Alstadsæter; Wojciech Kopczuk; Kjetil Telle (Statistics Norway)
    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.
    Keywords: Tax avoidance; social interaction; networks
    JEL: H26 H25 H32 L14
    Date: 2018–10
  2. By: Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper provides an overview of different inheritance tax regimes in selected European countries and the United States. We identify that in the majority of countries the tax rate is related to the relationship between bequeathing party and the bequeathed as well as the value of the inherited assets. In most countries the transfer of wealth within families is treated preferentially (lower tax rates, tax exemptions and reliefs). This is particularly the case for business assets and family homes. This analysis further discusses the features and effects of inheritance tax regimes based on various criteria. These cover behavioural responses of individuals and different distributional effects of an inheritance tax. Furthermore, the amount of tax revenues varies considerably both between countries and over time. Although the actual revenues of inheritance taxation are quite low in the selected countries (ranging between 0.1% and 0.5% of GDP), some indicators point to higher revenue potentials in the future. Due to an increase in private wealth and its concentration over time, we can expect to observe an increase in inheritance tax revenues, even though countries allow a high tax-free allowance. An appropriate design of inheritance taxation could further help to foster economic growth and decelerate the increase in wealth inequality.
    Keywords: inheritance taxation, tax regimes, wealth inequality
    JEL: D31 H21
    Date: 2018–11
  3. By: Wian Boonzaaier; Jarkko Harju; Tuomas Matikka; Jukka Pirttilä
    Abstract: We study the responsiveness of small and medium-sized firms to a small-business corporate income tax schedule using population-wide administrative data from South Africa. We find sizeable 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 sizeable part of the response is driven by reporting responses rather than real economic behavior. We find indicative evidence that reporting behavior is linked to underreporting of sales and legal tax-planning activities.
    Keywords: corporate taxation, small firms, emerging economies, bunching
    JEL: H21 H25 H32 O12
    Date: 2018
  4. By: Christian Pfister
    Abstract: France is the European country in which, together with the United Kingdom, the taxation of saving is highest (6% of GDP in 2016, against on average 3.8% in the European Union and 3.5% in the euro area). This situation is evaluated with regard to the theoretical debate on optimal taxation. Although no clear-cut conclusion can be drawn from that debate, it appears that the “dual Nordic” is nowadays widely considered as satisfying. However, theoretical research tends to underestimate the genuine tax burden, as they do not take two factors into consideration, namely cumulated taxation and inflation. In fact, although taxation is only one the factors that influence the allocation of assets, it plays an important role in savers’ choices. As an illustration, an evaluation of the impact of the newly-created ‘prélèvement forfaitaire unique’ (single flat tax on saving income) is provided by Christian Pfister.
    Keywords: Taxation, Saving, Optimal Taxation, Asset Allocation.
    JEL: E62 G11 H21 H22 H3
    Date: 2018
  5. By: Kazuki Hiraga; Kengo Nutahara
    Abstract: Recent studies on Laffer curves (tax revenue curves) find that the Laffer curve for consumption tax might not be hump-shaped, but monotonically increasing, whereas the Laffer curve for labor income tax is hump-shaped. This study investigates the cause of this difference in the shapes of two Laffer curves, by decomposing the effects of an increase in a tax rate on the tax base as a product of two parts: (i) the effects on the relative price of leisure (RPL), and (ii) the substitution and income effects. It is shown that the first effect with respect to the consumption tax rate is completely different from that with respect to the labor income tax rate, while the second effect is common among the taxes and depends on the functional form of the utility. The elasticity of the RPL from an increasing consumption tax rate is at most 1, whereas it can be infinity as the tax rate increases in the case of labor income tax.
    Date: 2018–11
  6. By: Rosella Levaggi; Paolo Panteghini
    Abstract: This article provides a possible explanation for the heterogeneity of tax reaction functions under tax competition. In particular, we assume the existence of three jurisdictions, i, j and z, as well as of spillovers. Given this simple framework, we show that if jurisdictions compete to attract mobile capital, spillovers can lead to asymmetric responses. In fact, jurisdiction i may react positively to a change in the tax rate of jurisdiction j and negatively to the change occurred in jurisdiction z. These findings are helpful to understand the mixed results of the empirical literature. Moreover, they have policy implications in that they explain the lack of tax convergence among jurisdictions. In particular, if at least some tax reaction functions have a negative slope, there are no symmetric equilibria, and the well-known tax-cut-cum-base-base-broadening policy would fail to hold.
    Keywords: tax competition, spillovers, asymmetric reaction functions
    JEL: H25 H20 H40
    Date: 2018
  7. By: Arnaud Chevalier; Benjamin Elsner; Andreas Lichter; Nico Pestel
    Abstract: This paper studies the impact of immigration on public policy setting. We exploit the sudden arrival of eight million forced migrants in West Germany after WWII. These migrants were poorer than the local population but had full voting rights and were eligible for social welfare. We show that cities responded to this shock with selective tax raises and shifts in spending. Voting data suggests that these changes were partly driven by the immigrants’ political influence. We further document a strong persistence of the effect. The initial migration shock changed the preferences for redistribution of the following generations.
    Date: 2018
  8. By: Thomas Renström; Luca Spataro
    Abstract: We characterize the optimal pollution-, capital- and labour-tax structure in a continuous-time growth model in the presence of pollution (resulting from production), both in the first- and second-best, allowing investors to be driven by social responsibility objectives. The social responsibility objective takes the form of warm-glow, as in Andreoni (1990) and Dam (2011), inducing firms to reduce pollution through increased abatement activity. Among the results, the first best pollution tax is still positive under warm-glow, the second-best pollution tax displays the additivity property, and we show the circumstances under which the Chamley-Judd zero capital-income tax result does not hold.
    Keywords: Socially responsible investment, corporate social responsibility, environmental quality, optimal taxation, pollution
    JEL: D21 D53 G11 H21 H23 M14 Q58
    Date: 2018–05–01
  9. By: Christofzik, Désirée I.; Elstner, Steffen
    Abstract: This paper explores the international transmission of U.S. tax shocks and provides evidence for the German economy. Using structural vector autoregressions, we find that after a U.S. tax cut, German GDP increases moderately. While higher U.S. demand stimulates German exports, a deterioration of price competitiveness lowers this positive growth impulse. The current account increases significantly. Surprisingly, German prices fall as domestic companies reduce unit labor costs. The resulting increase of the real interest rate dampens domestic demand. German tax policy shows an opposite reaction to U.S. tax policy. The latter result, however, is driven by the decade of the 1970s. We find that significant changes in the transmission channels arise by distinguishing between different types of U.S. tax reforms. In particular, in contrast to U.S. personal income tax reforms, changes in the corporate income tax cause a depreciation of the German real effective exchange rate.
    Keywords: fiscal policy,tax policy,international spillovers,structural vector autoregressions
    JEL: H20 E32 E62 F44
    Date: 2018
  10. By: Kai A. Konrad; Marcel Thum
    Abstract: In the context of international tax coordination incomplete information is one of the well-known frictions that can lead to bargaining failure and might explain a lack of observed coordination. We consider international negotiations about tax coordination under complete and incomplete information. We identify the conditions for multilateral negotiations to be more likely to be successful than gradual/sequential negotiation approaches and compare different routes of sequential bargaining. Under plausible conditions, full-scale global coordination is least likely to emerge if the negotiations take place sequentially, and if the negotiations with the most unpredictable country take place last.
    Keywords: tax competition, tax cooperation, multilateral negotiations, sequential negotiations, ultimatum bargaining, acceptance uncertainty
    JEL: H25 H77 F52 F55
    Date: 2018
  11. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Philton Makena (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: We provide an alternative theoretical explanation to the tax evasion-inflation relationship by endogenizing the discount factor in a standard overlapping generations endowment economy. When the discount factor is a positive function of non-productive public expenditure, then inflation is bound to increase seigniorage, leading to an increase in public expenditure. In consequence, old age consumption increases in importance such that tax evasion among young-age agents increases to enhance the interest income from savings.
    Date: 2018–11
  12. By: Zárate Marco, Anabel; Vallés Giménez, Jaime
    Abstract: This work examines in depth the hypotheses explaining the tax capacity of regional governments, also determining their tax effort and explanatory factors. The study is done for the Spanish regions, using different techniques which have rarely been applied in this area. The results show that these jurisdictions have exercised their tax autonomy responsibly, in response to different political, budget, and demographic factors and to the economic cycle. Also, an asymmetrical tax behaviour linked to income is observed: some regions have practically exhausted the possibilities of current sub-central taxes, while others still have ample fiscal space.
    Keywords: regional tax effort,regional taxes,tax potential,frontier techniques
    JEL: H71 H2 C23 C51
    Date: 2018
  13. By: Ralph-C. Bayer (School of Economics, University of Adelaide); Roland Hodler (Department of Economics, University of St. Gallen); Paul A. Raschky (Department of Economics, Monash University); Anthony Strittmatter (Department of Economics, University of St. Gallen)
    Abstract: Using the Panama Papers, we show that the beginning of media reporting on expropriations and property confiscations in a country increases the probability that offshore entities are incorporated by agents from the same country in the same month. This result is robust to the use of country-year fixed effects and the exclusion of tax havens. Further analysis shows that the effect is driven by countries with non-corrupt and effective governments, which supports the notion that offshore entities are incorporated when reasonably well-intended and well-functioning governments become more serious about fighting organized crime by confiscating proceeds of crime.
    Keywords: Expropriations and confiscations, offshore entities, tax havens, Panama Papers
    JEL: H26 K42
    Date: 2018–09
  14. By: Andersland, Leroy (University of Bergen, Department of Economics)
    Abstract: In the first decade of the 2000s, the proportion of children aged one or two attending formal childcare in Norway more than doubled, from 38% to 79%. There was an especially large increase in public funding to childcare centers starting in 2003, which accelerated this attendance growth. The consequences of this expansion on children`s outcomes remain largely unknown. This paper study the effects of attending childcare on school performance by using the fact that the childcare expansion was greater in municipalities that had low prereform childcare coverage. The results do not indicate any average effect of the childcare expansion on test scores at age 10. Dividing the municipalities into groups by childcare quality as measured by pre-reform observables, the results show a positive effect on school performance in municipalities with high pre-reform quality and a negative effect in municipalities with low pre-reform quality. Further analyses suggest that not only quality differences between municipalities but also the age of entering formal childcare explain the findings.
    Keywords: Public Policy; Institutions; Childcare; Difference-in-Difference
    JEL: D02 D10 H31 J13
    Date: 2017–08–03

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