nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒04‒15
eighteen papers chosen by
Thomas Andrén

  1. Taxation and Migration: Evidence and Policy Implications By Kleven, Henrik; Landais, Camille; Munoz, Mathilde; Stantcheva, Stefanie
  2. Who is burdened by taxes in Poland? By Jakub Sawulski
  3. Taxing Top Incomes in a World of Ideas By Charles I. Jones
  4. Credit Where It's Due: Investigating Pathways from EITC Expansion to Maternal Mental Health By Gangopadhyaya, Anuj; Blavin, Fredric; Gates, Jason; Braga, Breno
  5. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
  6. Corporate Income Taxes and (Un-)Employment in the OECD By Antonio Estache; Beni Kouevi Gath
  7. Business Taxation in an Emerging Economy: Analysing Corporate Tax Incidence By Agarwal, Samiksha; Chakraborty, Lekha
  8. Investment Responses to Tax Policy under Uncertainty By Guceri, Irem; Albinowski, Maciej
  9. Ethnicity and tax filing behavior By Spencer Bastani; Thomas Giebe; Chizheng Miao
  10. Taxing multinationals: The scope for enforcement cooperation By HINDRIKS Jean,; NISHIMURA Yukihiro,
  11. Workers' Employment Rates and Pension Reforms in France: the Role of Implicit Labor Taxation By Didier Blanchet; Antoine Bozio; Simon Rabaté; Muriel Roger
  12. The value added tax and growth: Design matters By Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
  13. Do Tax Incentives Affect Business Location and Economic Development? Evidence from State Film Incentives By Button, Patrick
  14. Simulation of the Impacts of Value-Added-Tax Increases on Welfare and Poverty in Vietnam By Nguyen, Cuong
  15. Kant-Nash tax competition By Thomas Eichner; Rüdiger Pethig
  16. Tax Administration Reforms: Lessons from Georgia and Uganda By Magumba, Margaret
  17. Tax Expenditure Reporting and Its Use in Fiscal Management; A Guide for Developing Economies By International Monetary Fund
  18. Macroeconomic Effects of Taxes on Banking By J. E. Boscá; R. Doménech; J. Ferri; J. Rubio-Ramirez

  1. By: Kleven, Henrik; Landais, Camille; Munoz, Mathilde; Stantcheva, Stefanie
    Abstract: In this article, we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications. We start by laying out the empirical challenges that prevented progress in this area until recently, and then discuss how recent work have made use of new data sources and quasi-experimental approaches to credibly estimate migration responses. This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions. When considering the implications for tax policy design, we distinguish between uncoordinated and coordinated tax policy. We highlight the importance of recognizing that mobility elasticities are not exogenous, structural parameters. They can vary greatly depending on the population being analyzed, the size of the tax jurisdiction, the extent of tax policy coordination, and a range of non-tax policies. While migration responses add to the efficiency costs of redistributing income, we caution against over-using the recent evidence of (sizeable) mobility responses to taxes as an argument for less redistribution in a globalized world.
    Date: 2019–04
  2. By: Jakub Sawulski
    Abstract: The aim of the study is to find out differences in taxes paid by low earners in comparison to taxes paid by high earners. Our analysis leads to the conclusion that the Polish tax system is regressive: it imposes a greater burden on people with low incomes than on those with high incomes. This is neither in line with the rules of social policy nor with the trends in other countries.
    Keywords: tax system, social policy, redistribution, income inequalities
    JEL: H20 H21 H23
    Date: 2019–03
  3. By: Charles I. Jones
    Abstract: This paper considers the taxation of top incomes when the following conditions apply: (i) new ideas drive economic growth, (ii) the reward for creating a successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a separate research subsidy --- think about the business methods of Walmart, the creation of Uber, or the "idea" of These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone's income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, for extreme parameter values, maximizing the welfare of the middle class requires a negative top tax rate: the higher income that results from the subsidy to innovation more than makes up for the lost redistribution. More generally, the calibrated model suggests that incorporating ideas as a driver of economic growth cuts the optimal top marginal tax rate substantially relative to the basic Saez calculation.
    JEL: E0 H2 O4
    Date: 2019–04
  4. By: Gangopadhyaya, Anuj (Urban Institute); Blavin, Fredric (Urban Institute); Gates, Jason (Urban Institute); Braga, Breno (Urban Institute)
    Abstract: While Earned Income Tax Credit (EITC) expansions are typically associated with improvements in maternal mental health, little is known about the mechanisms through which the program affects this outcome. The EITC could affect mental health through direct tax credit, changes in labor supply and changes in health insurance coverage of participants. To disentangle these mechanisms, we assess the effects of state and federal EITC expansion on mental health, employment and health insurance by maternal marital status. We find that federal EITC expansions are associated with 1) large positive effects on employment for unmarried mothers and 2) improved self-reported mental health for all mothers. State EITC expansion, which generate smaller changes in the effective wage rate, are associated with improvements in mental health for married mothers only and have no effect on employment for married or unmarried mothers. We find no impact of EITC expansions on health insurance coverage for married or unmarried mothers. These findings suggest that while EITC expansions improved mental health for unmarried mothers through a combination of the credit and employment, for married mothers, improved mental health is driven through the direct credit alone.
    Keywords: earned income tax credit, state earned income tax credit, maternal mental health, labor supply, health insurance coverage
    JEL: H24 I12 I14
    Date: 2019–03
  5. By: Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    Keywords: tax enforcement; tax evasion
    JEL: H26 K34
    Date: 2019–04
  6. By: Antonio Estache; Beni Kouevi Gath
    Abstract: This paper assesses how corporate income tax rate (CITR) changes and the aggregate unemployment rate are related in the OECD. The analysis is based on a sample of 20 OECD countries over the period 1999 to 2014. In contrast to earlier cross-country research, we account explicitly for differences in labor market policies and institutions. The main result is that, on average, a CITR cut is associated with an increase in the unemployment rate. This implies that, for this sample, the substitution effect of the tax rate cut on jobs dominates its output effect. This is consistent with a significant switch to less labor intensive capital which is not compensated by a new demand induced by the output effect of the tax cut. Labor market and structural characteristics differences across countries explain differences in the relative strength of these two effects. We also find that differences in reactions to the 2008 Subprime crisis also impacted the relative size of these two effects.
    Keywords: corporate taxation ,fiscal policies
    Date: 2019–03
  7. By: Agarwal, Samiksha; Chakraborty, Lekha
    Abstract: This paper estimates the incidence of corporate taxes in an emerging economy –India- using the data from 5,666 business firms listed in the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15. Using the dynamic panel models, we find that capital bear the burden of corporate taxation relatively more than the labour. Our findings highlight that the burden of corporate tax is more on capital than labour. It is also found that the effective tax rate is higher for the small corporate firms than the gigantic firms. Further research is required to understand whether less incidence of corporate taxation on wages in India is due to profit shifting.
    Keywords: corporate tax incidence, dynamic panel, factor mobility, labour, capital, business taxation
    JEL: E6 H22
    Date: 2019–03–01
  8. By: Guceri, Irem (Oxford University Centre for Business Taxation, Said Business School); Albinowski, Maciej (Ministry of Finance of Poland)
    Abstract: How does economic uncertainty affect the impact of tax policy? To answer this question, we exploit a unique natural experiment, in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. The experiment features sharp discontinuities in firm eligibility, and we conduct our analysis using tax returns (corporate and VAT) and trade data for the universe of corporations. We find that, under low uncertainty, tax incentives have strong positive effects on investment, both on the extensive and intensive margins. This aligns with the findings in several recent empirical papers. Under high uncertainty, however, the story is very different: the effect at the intensive margin is still present, but the effect at the extensive margin disappears. Together, these results suggest that: (1) some firms "wait and see" during periods of high uncertainty, even in the presence of generous incentives; and (2) periods of stability offer an important policy opportunity to encourage investment.
    Keywords: investment; uncertainty; tax policy; natural experiment; Poland
    JEL: C21 H25
    Date: 2019–04–12
  9. By: Spencer Bastani; Thomas Giebe; Chizheng Miao
    Abstract: We analyze differences in tax filing behavior between natives and immigrants using population-wide Swedish administrative data, focusing on two empirical examples. First, controlling for a rich set of variables, we compare deduction behavior of immigrants and natives with the same commuting patterns within Sweden’s largest commuting zone. We find that newly arrived immigrants file fewer deductions than natives, that immigrants with a longer duration of stay in the host country behave more like natives, and that immigrants with the longest stay file the most, even more than natives. Second, we analyze bunching behavior among the self-employed at the salient first kink point of the Swedish central government income tax schedule, located in the upper middle part of the income distribution. We find that self-employed immigrants exhibit significantly less bunching behavior than natives, even after a long time in the host country. We highlight residential segregation as a main driver of the observed behavioral differences.
    Keywords: deductions, tax filing, bunching, immigrants, natives, integration
    JEL: D31 H21 H24 H26 J22 J61
    Date: 2019
  10. By: HINDRIKS Jean, (CORE, Université catholique de louvain); NISHIMURA Yukihiro, (Osaka University)
    Abstract: We present a tax-competition model with two policy instruments: the corporate tax rate and the tightness of tax enforcement (i.e., controls on profit shifting by multinational enterprises). Tougher enforcement increases the cost of profit shifting, and thus mitigates tax competition. In a framework of noncooperative tax choices, we compare the equilibria of the noncooperative and cooperative enforcement choices. After showing that enforcement cooperation may not benefit the low-tax country, we indicate two drivers that promote enforcement cooperation. The first driver of cooperation is complementarity (imperfect substitutability) of countries’ enforcement efforts, taking into account that dispersed enforcement efforts among the involved countries are less effective. We show that cooperation is more likely with greater enforcement complementarity. The second driver of cooperation is tax leadership, which reduces the extent of disagreement on tax enforcement.
    Keywords: profit shifting, tax competition, tax enforcement, weakest-link, tax leadership
    JEL: C72 F23 H25 H87
    Date: 2018–06–05
  11. By: Didier Blanchet; Antoine Bozio; Simon Rabaté; Muriel Roger
    Abstract: Over the last fifteen years, France has experienced a reversal of older workers’ labor force participation and employment rates. Changes in health, life expectancy or education levels over the period are trend variables and thus cannot explain this “U-shaped” time profile. Pension reforms and associated changes in monetary incentives to retire are a more plausible explanation. Their impact is measured by the implicit tax rate on working longer, which combines induced changes in the level of benefits and the fact of foregoing one year of these benefits. We also account for changes in the relative importance of alternative pathways to normal retirement. Pension reforms and access to these alternative pathways have moved in ways that can account for a significant part of the “U-shaped” pattern of older workers labor force participation.
    JEL: H55
    Date: 2019–04
  12. By: Santiago Acosta-Ormaechea; Atsuyoshi Morozumi
    Abstract: Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have different effects on long-run growth depending on whether it is raised through the standard rate or through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption). Our key findings are twofold. First, for a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency. Second, for a given VAT revenue, a rise in C-efficiency, offset by a fall in the standard rate, also promotes growth. The implication is thus that in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate.
    Keywords: VAT; Economic growth; Standard rate; C-efficiency; Base broadening
    Date: 2019
  13. By: Button, Patrick (Tulane University)
    Abstract: I estimate the impacts of recently-popular U.S. state film incentives on filming location, film industry employment, wages, and establishments, and spillover impacts on related industries. I compile a detailed database of incentives, matching this with TV series and feature film data from the Internet Movie Database (IMDb) and Studio System, and establishment and employment data from the Quarterly Census of Employment and Wages and Country Business Patterns. I compare these outcomes in states before and after they adopt incentives, relative to similar states that did not adopt incentives over the same time period (a panel difference-in-differences). I find that TV series filming increases by 6.3 to 55.4% (0.67 to 1.50 additional TV series) after incentive adoption. However, there is no meaningful effect on feature films, and employment, wages, and establishments in the film industry and in related industries. These results show that the ability for tax incentives to affect business location decisions and economic development is mixed, suggesting that even with aggressive incentives, and "footloose" filming, incentives can have little impact.
    Keywords: economic development, tax incentives, state taxation, business location, film industry
    JEL: H25 H71 R38 L82 Z11
    Date: 2019–03
  14. By: Nguyen, Cuong
    Abstract: This study predicts the impact of increasing VAT on household welfare as measured by the average expenditure and poverty rate in Viet Nam. We forecast the impact of two scenarios of increasing VAT. Scenario 1 is to increase VAT by 1.2 times, i.e. increasing 5% VAT and 10% VAT to 6% and 12% VAT, respectively. Scenario 2 applies a common rate of 10% on all items, i.e., commodities subject to 5% tax can be taxed by a 10% rate. The results show that Scenario 1 has a stronger impact on households compared to Scenario 2. In particular, Scenario 1 reduces households' expenditure by 0.89%, while Scenario 2 decreases households’ expenditure by 0.32%. Under Scenario 1, the poverty rate is increased by 0.26 percentage points, while under Scenario 2, the poverty rate is increased by 0.22 percentage points. The number of poor people increases approximately by 240 and 202 thousand people in Scenarios 1 and 2, respectively. Regarding the impact on poverty, VAT only affects the near poor households. Better-off households are also affected, but this effect does not cause them fall into poverty.
    Keywords: Value added tax, simulation, poverty, household expenditure, Vietnam
    JEL: H2 O2
    Date: 2017–08–17
  15. By: Thomas Eichner; Rüdiger Pethig
    Abstract: In a two-country economy we analyze how tax competition differs from the standard all-Nashian tax competition, if one or both countries are Kantians in Roemer’s sense. Kantians are shown to choose a higher tax rate than Nashians for any given tax rate of the other country, which indicates that they seek to mitigate the (Nashian) race to the bottom. We avoid dealing with multiple equilibria by assuming that capital is sufficiently scarce, and we find for symmetric countries that the all-Kantian tax competition is efficient and that the inefficient race to the bottom is weakened in economies with a Nashian and a Kantian. That confirms the intuitive idea that countries following the Kantian categorical imperative avoid or at least soften the socially undesirable impact of (Nashian) self-interest. We also investigate the incentives of opportunistic countries to choose Nashian or Kantian behavior out of self-interest and find that either both governments choose to behave as Kantians or that - under different conditions - the robust Nashian selfinterest supersedes Kantian moral principles such that the inefficient all-Nashian tax competition results.
    Keywords: tax competition, best reply, Kantian, Nashian, endogenous behavior selection
    JEL: H73 H87 C72
    Date: 2019
  16. By: Magumba, Margaret
    Abstract: Several tax revenue administrations have implemented significant reforms along their journeys with the aim of attaining higher tax revenue collections, improved taxpayer compliance and more efficient service delivery. The results defer from country to country depending on the nature of the reforms implemented and the circumstances surrounding them. This paper analyses and contrasts the tax reforms implemented in Georgia during its post-revolution period (after 2003) with those implemented in Uganda between 1991 and 2014. The analysis seeks to establish why Uganda’s reforms did not achieve as much success as those of Georgia even though the two countries’ reforms had much in common, and to derive key lessons from Georgia’s experience. Whereas there are rational justifications for the difference in results attained from the two countries’ tax reforms, the paper proposes that Uganda – and other countries – can also be successful if similar principles are followed. The key lessons derived from Georgia’s experience include: (1) for tax reforms to be successful, they must be driven by both the tax administration leadership and the overriding government leadership; (2) in order to curb corruption, there must be a transformation of mindset of both tax administrators and taxpayers; (3) early success of tax reforms must be matched with visible improvement in public service delivery in order to ensure sustainability of achievements; (4) tax administrators must be empowered to perform their duties without political interference; (5) tax laws and reforms must be applied uniformly to all taxpayers; and (6) salary increments for tax administrators must be matched with an increased probability of detection of corruption and guaranteed termination of employment should a tax administrator be found guilty of corruption.
    Keywords: Finance, Governance,
    Date: 2019
  17. By: International Monetary Fund
    Abstract: This note aims to inform governments on how to account for tax expenditures and use that information in fiscal management. The emphasis is on developing and emerging market economies, where the use of such accounts is in its infancy because of data constraints, insufficient human and financial resources, and weak fiscal institutions. Most developing economies, more-over, do not have tax policy units in their Ministry of Finance to provide analytical support to the govern¬ment and legislature that integrates all revenue policy aspects. As a result, the tax policy framework can be fragmented: line ministries compete in the provision of sectoral tax incentives, but do not report on their cost. The note is organized as follows. The second section outlines the role that tax expenditure measurement and reporting can play in fiscal management. The third section provides a step-by-step approach on how tax expenditure accounts can be built, with emphasis on data, methods and models, and institutional requirements. The section is concerned primarily with the direct cost of tax expenditures—that is, the revenue forgone because of them. It does not deal with their indirect costs, which could include economic efficiency losses and additional tax administration resources, and it does not address assessment of the benefits of tax expenditures. The fourth summarizes the current sta¬tus of tax expenditure reporting in developing econo¬mies, with some reference to advanced economies. The last section concludes.
    Keywords: Fiscal management;Fiscal policy;Tax administration;Taxes;Tax Expenditure,Fiscal Management,Developing Economies,emerging markets
    Date: 2019–03–27
  18. By: J. E. Boscá; R. Doménech; J. Ferri; J. Rubio-Ramirez
    Abstract: This paper evaluates the macroeconomic effects of taxes on banking in a small open economy in a currency union for three tax alternatives: an additional tax on profits, on deposits, and on loans. We propose a DSGE model with a rich detail of taxes and a banking sector and show that these three taxes are equivalent in their effects on macroeconomic variables. Banks react to higher taxes by increasing their markups and by transferring part of the fiscal cost to households and firms through higher interest rates on loans. The increase in government revenues comes at a cost of a long-run decrease of GDP, an increase in loans interest rates, and a reduction in the volume of credit, deposits and bank capital. Our simulation exercises show that the trade-off between government revenues and economic activity is well captured by a multiplier of GDP to ex post government revenue close to -0.9, which is virtually independent of the tax rate.
    Date: 2019–04

This nep-pbe issue is ©2019 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.