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on Public Economics |
| By: | Ilias Georgakopoulos |
| Abstract: | This paper investigates the macroeconomic implications of alternative tax regimes. For this purpose, a one-sector general equilibrium model is constructed in which heterogeneous agents differ in productivity and holdings of capital in the sense of incurring transaction costs for participating in the capital market. A Cobb-Douglas production function is employed that can capture the capital-skill complementarity effect and the difference in productivities of the skilled and unskilled workers. With regards to fiscal policy experiments, this paper examines tax structures where a permanent reduction in each of the three main tax instruments namely, consumption, labour and capital income tax is compensated by a permanent increase in one of the remaining two policy instruments such that the government budget constraint is tax revenue neutral. The government levies taxes on consumption, labour income and capital income in order to finance its only activity, government consumption. Next, the model economy is calibrated to the Greek economy to reflect the great ratios over 1960:1-2005:4 and then, it studies the long-run, welfare and transitional effects of the undertaken analysis. The sensitivity analysis shows that the quantitative and qualitative findings are quite robust. |
| Keywords: | General equilibrium model; optimal taxation; business cycle. |
| JEL: | E24 E32 E62 |
| Date: | 2019–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2019_11&r=all |
| By: | James Alm (Tulane University) |
| Abstract: | The Indonesian tax system is plagued by a number of problems. Of most importance, the tax system generates an extraordinarily low level of revenues, due to several aspects of the tax system. There is evidence of significant amounts of tax evasion. The tax base has also been reduced by deliberate tax structure decisions, especially the choice of thresholds in the corporate income tax and in the value-added tax, along with the extensive system of fiscal incentives that are available in both taxes. These features of the tax system contribute to an overly complicated system, and they also illustrate the limitations of the tax administration. Indeed, the system has evolved over time in a piecemeal, ad hoc manner with little apparent thought given to the ways in which the pieces of the system need to fit together. This paper analyzes these problems, and it suggests possible options for tax reform. |
| Keywords: | Indonesia, tax reform. |
| JEL: | H20 H24 H25 H87 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1906&r=all |
| By: | James Alm (Tulane University); Laura Rosales Cifuentes (Gandour Consultores); Carlos Mauricio Ortiz Niño (Gandour Consultores); Diana Rocha (Gandour Consultores) |
| Abstract: | The Government of Colombia imposes a variety of taxes that must be paid by individual wage earners, called in their entirety "social protection contributions". Since 2007 individual payments have been collected using an on-line mechanism. In order to improve compliance, the Government used a controlled field experiment in which various "pop-up messages" were sent to individuals when making their on-line payments, as behavioral "nudges". We examine the impact of these nudges on individual reporting behavior. We find mixed evidence that these messages increased compliance rates relative to a control group that received a so-called "neutral" message. However, we also demonstrate that the use as the control group of individuals receiving a so-called "neutral" message creates considerable bias; that is, the receipt of any message of any type clearly influences behavior. Instead, we show that the appropriate control group should be individuals who receive no message at all. |
| Keywords: | tax compliance; behavioral economics; nudges; controlled field experiments. |
| JEL: | H2 H26 C9 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1908&r=all |
| By: | Natalia Jiménez Jiménez (Departamento de Economía, Métodos Cuantitativos e Historia Económica, University Pablo de Olavide.); Elena Molis (Department of Economic Theory and Economic History, University of Granada.); Ángel Solano García (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | The main purpose of this paper is to shed some light on the voting behavior of low-income voters over income redistribution. To this end, we test a model based on Meltzer and Richard’s (1981) framework through a lab experiment in which individuals vote over two exogenous tax rates and their pre-tax income is determined according to their performance in a real-effort task. We classify individuals into highskilled and low-skilled participants according to their performance in a tournament at the beginning of the experiment. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find that both the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high. |
| Keywords: | income inequality, income redistribution, voting, taxation, real-effort task. |
| JEL: | C92 D72 H30 J41 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:19/11&r=all |
| By: | Seán Kennedy; David Haugh; Brian Stanley |
| Abstract: | While policymakers are rightly concerned about evidence of rising income concentration at the top, it is often wrongly assumed that the same rich individuals stay rich. In reality, the membership of this group are in a state of constant flux. This new study, based on more than 20 million tax records over 10 years, examines the highest income earners in Ireland but also who moves up and down the income ladder over time. While income inequality has increased in most OECD countries, in Ireland it has been broadly stable for most of the income distribution. The top 10% of income earners receive 1/3 of total income and pay around 2/3 of all income tax. Unlike other OECD countries, the top 1% has not expanded its gross income share, partly due to long range downward mobility during the recession for those with the highest incomes. Moreover, more progressive taxation has also reduced the top 1 per cent’s share of disposable income. This paper finds that income inequality increases with age and differs dramatically across economic sectors – the difference between the top 1% and the median is greatest in the professional, financial and health sectors. In the professional sector for example, the top 1% threshold is 12 times the median compared to 3 times in the public sector. The share of employment in these sectors has grown contributing to greater income inequality but also higher upward income mobility. Indeed, the analysis in the paper shows upward income mobility is higher for those working in finance, professional and technical occupations and among the young, those living in Dublin, and those changing jobs. Finally, there is also evidence that economic mobility has declined among median income classes over the past 10 years in Ireland – relatively fewer workers are now moving up or down the income ladder than before. |
| Keywords: | administrative data, growth, income distribution, income mobility, inequality, tax |
| JEL: | D31 D63 E24 H24 |
| Date: | 2019–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1578-en&r=all |
| By: | Enrico Moretti; Daniel J. Wilson |
| Abstract: | We study the effect of state-level estate taxes on the geographical location of the Forbes 400 richest Americans and its implications for tax policy. We use a change in federal tax law to identify the tax sensitivity of the ultra-wealthy's locational choices. Before 2001, some states had an estate tax and others didn't, but the tax liability for the ultra-wealthy was independent of their domicile state due to a federal credit. In 2001, the credit was phased out and the estate tax liability for the ultra-wealthy suddenly became highly dependent on domicile state. We find the number of Forbes 400 individuals in estate tax states fell by 35% after 2001 compared to non-estate tax states. We also find that billionaire's sensitivity to the estate tax increases significantly with age. Overall, billionaires' geographical location appears to be highly sensitive to state estate taxes. We then estimate the effect of billionaire deaths on state tax revenues. We find a sharp increase in tax revenues in the three years after a Forbes billionaire death, totaling $165 million for the average billionaire. In the last part of the paper, we study the implications of our findings for state tax policy. We estimate the revenue costs and benefits for each state of having an estate tax. The benefit is the one-time tax revenue gain when a wealthy resident dies, while the cost is the foregone income tax revenues over the remaining lifetime of those who relocate. Surprisingly, despite the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority of states. |
| JEL: | H0 J01 R1 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26387&r=all |
| By: | Justin Van de Ven; Nicolas Herault |
| Abstract: | An issue of interest in the literature that explores the drivers of inequality is the distributional bearing of tax and transfer policy, where an important theme concerns changes in the relative treatment of alternative population subgroups. We develop an empirical approach for quantifying the value judgements implicit in the relative treatment of demographic subgroups by a tax and transfer system. We apply this approach to UK data reported at annual intervals between 1968 and 2015, documenting remarkable improvements in tax and transfer treatment enjoyed by some population subgroups – particularly families with children and age pensioners – relative to the wider population. We show that accounting for the changing value judgements implicit in tax and transfer policy provides a fresh perspective on the evolution of income inequality and redistribution; one that departs from the prevailing view that UK inequality stopped rising from the early 1990s. |
| Keywords: | equivalence scale, inequality, redistribution, horizontal equity |
| JEL: | D31 H23 I38 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:510&r=all |
| By: | Sebastian Beer; Matthias Kasper; Erich Kirchler; Brian Erard |
| Abstract: | This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections. |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/223&r=all |
| By: | Congressional Budget Office |
| Abstract: | In 2017, spending from the Highway Trust Fund exceeded revenues from taxes on highway users by $13.5 billion. A tax of 1 cent per mile on commercial trucks’ travel would have raised $2.6 billion if imposed on all such trucks and $1.6 billion if limited to those with trailers, CBO estimates. Higher rates would have yielded nearly proportionally higher revenues. Implementing such a tax would cost more than raising the existing tax on diesel fuel, however. And such a tax would raise the price of shipped goods and would cause a shift of some freight traffic from truck to rail. |
| JEL: | H22 H25 L92 R41 R48 |
| Date: | 2019–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:55688&r=all |
| By: | John Cawley; David Frisvold; David Jones |
| Abstract: | Since 2017, many U.S. cities have implemented taxes on sugar-sweetened beverages (SSBs) to decrease consumption of sugary beverages and raise revenue. In this paper, we analyze household receipt data to examine the impact of SSB taxes on households’ purchases of taxed and untaxed beverages in the four largest U.S. cities with such taxes: Philadelphia, Pennsylvania; San Francisco, California; Seattle, Washington; and Oakland, California. We estimate the impact of these taxes by comparing changes in monthly household purchases in the treatment cities to changes in one of two comparison groups: 1) areas adjacent to the treatment cities; or 2) a matched set of households nationally. We find that an increase in the beverage tax rate of 1 cent per ounce decreases household purchases of taxed beverages by 53.0 ounces per month or 12.2 percent. This impact is small in magnitude and consistent with a reduction in individual consumption of 5 calories per day per household member and eventual reduction in weight of 0.5 pounds. When we examine results separately by city, we find that the decline was concentrated in Philadelphia, where the tax decreased purchases by 27.7 percent. We do not find impacts of the taxes in the other three cities combined. |
| JEL: | H23 H71 I12 I18 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26393&r=all |
| By: | Yoshio Kamijo; Takehito Masuda; Hiroshi Uemura |
| Abstract: | We employed a game-theoretic framework to formulate and analyze a number of tax audit rules, especially the lowest income reporter audited rule. We explicitly considered the auditor’s resource constraint to choose one target from a continuous type of taxpayer. We then tested the theoretical predictions in a laboratory experiment, using three audit rules: the random, cut-off, and lowest income reporter audited rules. While the cut-off rule is known to be optimal in theory, it has not thus far been examined in a controlled laboratory experimental setting. Contrary to the theory, the lowest income reporter audited rule increased average compliance behavior significantly more compared with the optimal cut-off rule and, especially, the random rule. This holds with and without controlling the subjects’ demographics and attitudes regarding tax payment. This finding is practically important because the tax authorities in most countries assign higher priority to enhancing tax compliance. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1064&r=all |
| By: | Vincent Vicard |
| Abstract: | The well documented US excess returns on its net foreign assets is no exception at the world level. Excess returns on foreign assets owe largely to yield differential within the FDI asset class and are correlated to the corporate tax rate for a large sample of countries, consistently with tax motivated profit shifting by multinational corporations. Using French firm level data on dividends and reinvested earnings from foreign affiliates, I provide evidence and quantify the impact of corporate tax avoidance on international asset returns. Profit shifting inflates the investment income balance and accounts for the average 2 percentage points return differential between French FDI assets and liabilities. Missing profts in France, estimated at €36 billions or 1.6% of GDP in 2015, are mostly shifted to EU countries. |
| Keywords: | Proft Shifting;Multinational Firms;FDI;Investment Income;Tax Avoidance |
| JEL: | H26 H25 H32 F14 F23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2019-06&r=all |
| By: | Morris M. Kleiner; Evan J. Soltas |
| Abstract: | We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital. |
| JEL: | H0 J44 J78 K0 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26383&r=all |
| By: | Janina Enachescu (University of Vienna); Žiga Puklavec (University of Vienna); Christian Martin Bauer (University of Vienna); Jerome Olsen (University of Vienna); Erich Kirchler (University of Vienna); James Alm (Tulane University) |
| Abstract: | In this paper we present initial investigations of the role of emotions on tax compliance decisions. We first introduce selected emotion theories, and we also present different paths by which emotions can possibly affect tax decisions, namely indirectly via mood and emotions unrelated to the tax decision itself (or "incidental emotions") and directly via emotions that are elicited in the taxation context itself (or "integral emotions"). We then present and discuss an experimental study investigating the first path suggested above, the influence of positive versus negative mood on tax compliance. Further, we also present and analyze a study exploring emotions elicited by the taxation context. Finally, we suggest that a fruitful path for future research is the integration of emotions into the slippery slope framework of tax compliance. |
| Keywords: | Tax compliance, incidental emotions, integral emotions, behavioal economics, nudges, laboratory experiments. |
| JEL: | H26 C91 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1909&r=all |