|
on Public Economics |
| By: | Henrik Kleven; Camille Landais; Mathilde Muñoz; Stefanie Stantcheva |
| 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. |
| JEL: | H2 H21 H24 H26 H71 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25740&r=all |
| By: | Chung Tran; Nabeeh Zakariyya |
| Abstract: | We study the progressivity of Australia's personal income tax system after the introduction of a New Tax System (Goods and Services Tax) Act 1999. We use two data sets: administrative data from Australian Tax Office (ATO) 2004-16 and survey data from the Household Income and Labour Dynamics in Australia (HILDA) survey 2001-16. We first document the distributions of income and tax liabilities, properties of the joint distributions of taxes paid and income, and discuss how taxes are varied across households and over time. We next provide estimates of tax progressivity using two approaches: one based on tax liability progression and one based on tax liability distribution relative to income distribution. The result obtained from the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result obtained from the tax distribution approach indicates a tax progressivity cycle with a modest decline up to 2006, then a sharp increase until 2010, and a slight decline thereafter. The personal income tax cuts for all taxpayers in early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and its interactions with bracket creep strongly affect the overall progressivity level of Australia's income tax system. Hence, our findings provide new insights into the dynamics of income growth and tax progressivity, which has implications for tax policy debates in Australia. |
| Keywords: | Taxation, progressiveness, income dynamics, inequality, parametric tax function, Suits index, Kakwani index. |
| JEL: | E62 H24 H31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2019-667&r=all |
| By: | Olbert, Marcel; Spengel, Christoph |
| Abstract: | The paper reviews the evidence on the challenges of digitalization for direct (corporate profit) and indirect (consumption) taxation. Based on both anecdotal and empirical evidence, we evaluate ongoing developments at the OECD and European Union level and argue that there is no justification for introducing a new tax order for digital businesses. In particular, the significant digital presence and the digital services tax as put forward by the European Commission will most likely distort corporate decisions and spur tax competition. To contribute to the development of tax rules in line with value creation as the gold standard for profit taxation the paper discusses data as a "new" value-driving asset in the digital economy. It draws on insights from interdisciplinary research to highlight that the value of data emerges through proprietary activities conducted within businesses. We ultimately discuss how existing transfer pricing solutions can be adapted to business models employing data mining. |
| Keywords: | Digital Economy,Corporate Taxation,Business Model Analysis,Data Mining,Tax Planning |
| JEL: | H20 H25 H26 L21 L86 M14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:19010&r=all |
| By: | Ilja Boelaars; Dirk Broeders |
| Abstract: | This paper examines the allocation of market risk in a general class of collective pension arrangements: Collective Defined Contribution (CDC) schemes. In a CDC scheme participants collectively share funding risk through benefit level adjustments. There is a concern that, if not well designed, CDC schemes are unfair and will lead to an unintended redistribution of wealth between participants and, in particular, between generations. We define a pension scheme as fair if all participants receive an arbitrage-free return on the market risk they bear. The fact that the participants' claim on the CDC schemes' collective assets is expressed in terms of a stochastic future benefit, makes the arbitrage-free allocation of market risk non-trivial. It depends crucially on the specification of the discount rate process in combination with the benefit adjustment process. We show that fair CDC schemes may use a default-free market interest rate in combination with a specific horizon-dependent benefit adjustment process. Alternative discount rates are also permissible, but require additional correction terms in the benefit adjustment process. |
| Keywords: | Pension, Retirement; Asset Pricing; Fair value; Intergenerational risk-sharing; Funded pension systems |
| JEL: | H55 G13 G23 J26 J32 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:630&r=all |
| By: | Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini |
| 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. |
| JEL: | H26 K34 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25745&r=all |
| By: | Aronsson, Thomas (Department of Economics, Umeå School of Business, Economics and Statistics, Umeå University, Sweden); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Wendner, Ronald (Department of Economics, University of Graz, Austria) |
| Abstract: | This paper deals with tax policy responses to charitable giving, defined in terms of voluntary contributions to a public good, to which the government also contributes through public revenue; the set of tax instruments contains general, nonlinear taxes on income and charitable giving. In addition to consumption, leisure and a public good, individuals obtain utility from the warm glow of giving and social status generated by their relative contributions to charity as well as their relative consumption compared with others. We analyze the conditions under which it is optimal to tax or subsidize charitable giving and derive corresponding optimal policy rules. Another aim of the paper is to compare the optimal tax policy and public good provision by a conventional welfarist government with those by two kinds of paternalist governments: The first kind does not respect the consumer preferences for status in terms of relative giving and relative consumption, while the second kind in addition does not respect preferences for warm glow of giving. The optimal policy rules for marginal taxation and public good provision are similar across governments, except for the stronger incentive to tax charitable giving at the margin under the more extensive kind of paternalism. Numerical simulations supplement the theoretical results. |
| Keywords: | Conspicuous consumption; conspicuous charitable giving; optimal taxation; warm glow |
| JEL: | D03 D62 H21 H23 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0760&r=all |
| By: | Onrubia Fernández, Jorge; Picos, Fidel; Rodado, María del Carmen |
| Abstract: | The authors analyze to what extent and how the tax burden should be shifted towards top income earners in order to reduce income inequality. Starting from Lambert and Aronson (Inequality decomposition analysis and the Gini coefficient revisited 1993) and Alvaredo (A note on the relationship between top income shares and the Gini coefficient 2011) decomposition by income groups, they prove that for three types of revenue-neutral linear personal income tax reforms based on Pfähler (1984) the redistributive effect is always higher than before the reform; and when the size of the rich group is sufficiently small (e.g. 1%), the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities. An empirical illustration of the theoretical results is provided using micro data from the Spanish PIT. |
| Keywords: | top incomes,inequality,personal income tax,progressivity,redistribution |
| JEL: | D31 D33 D63 H23 H24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201926&r=all |
| By: | Lieberknecht, Philipp; Wieland, Volker |
| Abstract: | There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect. |
| Keywords: | tax reform,corporate taxes,capital taxes,labor income taxes,spending cuts,fiscal stimulus |
| JEL: | E62 E63 E65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:102018&r=all |
| By: | Marco Battaglini (Cornell University and EIEF); Luigi Guiso (EIEF); Chiara Lacava (Goethe University and SAFE); Eleonora Patacchini (Cornell University and EIEF) |
| 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. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1904&r=all |
| By: | Hui He (International Monetary Fund); Kevin x.d. Huang (Vanderbilt University); Lei Ning (Shanghai University of Finance and Economics) |
| Abstract: | Empirical evidence shows that both leisure and medical care are important for maintaining health. And taxation may affect the allocation of these two inputs. We build a life-cycle overlapping-generations model in which taxation and relative health care price are key determinants of the composition of the two inputs in the endogenous accumulation of health capital. In the model, a lower tax wedge leads to using relatively more medical care and less leisure in maintaining health, while a higher relative health care price implies an opposite substitution in quantity (away from medical care towards leisure) that weakens the direct bearing of the higher price on overall health spending. We show that differences in taxation and in relative health care price between the US and Europe can jointly account for a bulk of their differences in health expenditure- GDP ratio and in leisure time allocated for health production, with the taxation channel playing a quantitatively more significant role. |
| Keywords: | Macro-health, Taxation, Relative health care price, Health care expenditure, Time allocation, Life cycle, Overlapping generations |
| JEL: | E6 H2 |
| Date: | 2019–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00010&r=all |
| By: | James Alm (Tulane University) |
| Abstract: | In this paper, I review and assess what we have learned about what motivates individuals to pay - or to not pay - their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestions - and some predictions - for future research. |
| Keywords: | Tax evasion; behavioural economics; controlled field experiments; laboratory experiments. |
| JEL: | H2 H26 D03 C9 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1903&r=all |
| By: | Hintermann, Beat (University of Basel); Armbruster, Stephanie (University of Basel) |
| Abstract: | We analyze the strategic interaction of regional and federal governments using a model that includes fiscal externalities in the form of inter-regional capital tax competition and technical externalities in the form of inter-regional spillovers. The federal government aims to correct for these inefficiencies using a transfer system. If the regional governments are policy leaders (such that federal policy is set conditional on regional choices), they will internalize both fiscal and technical externalities but free-ride on the transfer system. Efficiency can be achieved by introducing a second transfer scheme that is independent of regional public production. If the federal government sets its policy first and can commit itself to it, the outcome is efficient only if matching grants are used that are financed outside of the transfer system. |
| Keywords: | Fiscal federalism; tax competition; externalities; spillovers; commitment; centralized leader- ship; decentralized leadership |
| JEL: | H21 H40 H77 Q58 |
| Date: | 2019–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2019/03&r=all |
| By: | Jean-François Brun (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Sèna Kimm Gnangnon (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper addresses two main questions concerning the relationship between tax reform, development aid, public revenue and public revenue instability in developing countries. Tax reform involves here a change in the tax structure in favour of domestic public revenue and at the expense of international trade tax revenue. The analysis uses an unbalanced panel dataset of 95 developing countries over the period 1981-2015, and the two-step system Generalized Methods of Moments approach. Empirical findings show that tax reform exerts a positive and significant effect on tax revenue-to-GDP ratio, with the magnitude of this positive effect increasing as the amount of development aid flows that accrue to developing countries increases. In addition, while tax reform exerts a reducing effect on tax revenue instability, the magnitude of this reducing effect diminishes as the degree of development aid volatility increases. Specifically, beyond a certain level of development aid volatility, tax reform enhances tax revenue instability. Overall, these findings suggest that a rise in development aid flows to developing countries should be accompanied by a lower aid volatility so as to ensure that tax reform would induce higher tax revenue while concomitantly reducing tax revenue instability in recipient-countries. |
| Keywords: | Tax reform,Public revenue,Public revenue instability,Development aid,Development aid volatility,Developing countries |
| Date: | 2019–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02089734&r=all |
| By: | Jay A. Soled (Rutgers Business School); Richard L. Schmalbeck (Duke Law School); James Alm (Tulane University) |
| Abstract: | The stepped-up basis rule applicable at death (IRC section 1014) has always been a major source of revenue loss. Now, in the absence of a meaningful estate tax regime, taxpayers and their estate executors and administrators are likely to report inflated date-of-death asset values. As a result, the revenue loss associated with this tax expenditure, called the “stepped-up tax basis rule†, will surely increase markedly. The Internal Revenue Service will no doubt attempt to police excessive tax basis adjustments, but the agency lacks the resources to do so adequately. Congress should therefore institute reforms to ensure proper tax basis identification. |
| Keywords: | Estate tax, capital gains, stepped-up basis tax rule. |
| JEL: | H2 H3 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1904&r=all |
| By: | James Alm (Tulane University); Yongzheng Liu (Renmin University of China); Kewei Zhang (Renmin University of China) |
| Abstract: | Most analyses of tax evasion examine individual behavior, not firm behavior, given obvious and recognized data issues. We use data from the Business Environment and Enterprise Performance Survey to examine tax evasion at the firm level, focusing on a novel determinant of firm tax evasion: the financial constraints (or credit constraints) faced by the firm. Our empirical results indicate across a range of alternative specifications that more financially constrained firms are more likely to be involved in tax evasion activities, largely because evasion helps them deal with financing issues created by financial and credit constraints. We further show that the effects of financial constraints are heterogeneous across firm ownership, firm age, and firm size. Lastly, we present some suggestive evidence on the possible channels through which the impact of financial constraints on firm tax evasion may operate, including a reduction of information disclosure through the banking system, an increase in the use of cash for transactions, and an increase in bribe activities in exchange for tax evasion opportunities. |
| Keywords: | Tax evasion; financial constraints; firm-level data. |
| JEL: | E26 G2 H26 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1901&r=all |