nep-pbe New Economics Papers
on Public Economics
Issue of 2019‒12‒23
eleven papers chosen by
Thomas Andrén

  1. Overhauling corporate taxation in the digital economy By Carpentieri, Loredana; Micossi, Stefano; Parascandolo, Paola
  2. Taxing Families: The Impact of Child-related Transfers on Maternal Labor Supply By Anne Hannusch
  3. Taxation and the life cycle of firms By Andrés Erosa; Beatriz González
  4. Does the tax undermine the effect of remittances on shadow economy? By Schneider, Friedrich; Khan, Shabeer; Baharom Abdul Hamid; Khan, Abidullah
  5. Entitled to Leave: the Impact of Unemployment Insurance Eligibility on Employment Duration and Job Quality By Laura Khoury; Clément Brébion; Simon Briole
  6. Are Social Security’s Actuarial Adjustments Still Correct? By Alicia H. Munnell; Anqi Chen
  7. The Costs of Tax Havens: Evidence from Industry-Level Data By Petr Jansky
  8. Does Growing Up in Tax-subsidized Housing Lead to Higher Earnings and Educational Attainment? By Elena Derby
  9. The Right Tax for the Job: The Role of Property Taxes in Funding Cities By Bev Dalhby; Melville McMillan
  10. Productivity and Tax Evasion By Era Dabla-Norris; Mark Gradstein; Fedor Miryugin; Florian Misch
  11. Ukraine; Technical Assistance Report-Distributed Profit Tax; Voluntary Disclosure of Assets; and BEPs Implementation By International Monetary Fund

  1. By: Carpentieri, Loredana; Micossi, Stefano; Parascandolo, Paola
    Abstract: Is the corporate income tax (CIT) still an efficient system for taxing companies today? The CIT was introduced when economies were characterised primarily by tangible assets and goods and by limited international trade. Globalisation, digitalisation and the increasing weight of immaterial goods in company transactions and balance sheets have rendered that system outdated. These radical changes call for equally radical reflections on how to reform the CIT, bearing in mind the need for a corporate tax system that is fit for both the digital and the traditional economy, in developing and developed countries alike. Rather than offering a complete solution, this paper discusses various approaches that could contribute to a solution. First, we suggest that the CIT base should always be strictly aligned with the accounting profit and loss account, eschewing special adjustments for tax purposes. Second, a more radical possibility would be to abandon altogether the reference to corporate income and tax companies instead on cash flow, based on destination. And, third, the possibility could also be explored to tax companies with reference to ‘presumptive’ indicators of activity, rather than on the basis of public accounts. Presumptive indicators are already used in federal systems to allocate corporate income among decentralised jurisdictions. These propositions would not be viable without international agreement, at least at the level of the European Union. Such an agreement may prove difficult given the conflicts of interest between EU member states and between them and the United States.
    Date: 2019–10
  2. By: Anne Hannusch
    Abstract: The employment rate of married women with and without pre-school children varies substantially across countries. To what extent can child-related transfers account for this variation? I develop a life-cycle model in which married couples jointly decide their labor supply, female human capital evolves endogenously, and some couples have access to grandparental childcare. I show that child-related transfers can explain most of the variation in the employment rates of married women, even after taking the labor income tax treatment and cross-country variation in childcare fees into account.
    Keywords: Maternal Labor Supply, Nonlinear Transfers, Taxation, Two-earner Households
    JEL: E62 H24 H31 J12 J22
    Date: 2019–08
  3. By: Andrés Erosa (Universidad Carlos III de Madrid); Beatriz González (Banco de España and Universidad Carlos III de Madrid)
    Abstract: The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms’ investment and financial policies over their life cycle. Corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income taxation reduces external equity financing, but it does not affect size at maturity. Capital gains taxes make firms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.
    Keywords: macroeconomics, capital income taxation, firm dynamics, investment
    JEL: D21 E22 E62 G32 H32
    Date: 2019–12
  4. By: Schneider, Friedrich; Khan, Shabeer; Baharom Abdul Hamid; Khan, Abidullah
    Abstract: There are considerable studies regarding the contribution of international migrants' remittances to economic growth while there is a lack of studies which investigate the effect of remittances on shadow economy. The authors explore empirically the effect of remittances and its interaction effect with tax on shadow economy by using panel data covering the period 2004-2015 and applying the GMM method for 141 countries. Their empirical model, in which a remittance-recipient government, operating in tax environment of some regimes (imposition of different levels and kinds of taxes), predicts a negative effect of remittances on shadow economy, is mitigated by a higher tax regime. In other words, the paper argues that a well-established negative correlation between remittances and shadow economy has been weakened by tax rule. The study contributes to the current literature on public policy that gives importance to know the causes of shadow economy and boost remittances effect. The authors' baseline results are robust to various computations of macroeconomics variables, institutions variables and freedom variables.
    Keywords: remittances,shadow economy,tax regime,panel technique
    JEL: O17 H24 H71 F24
    Date: 2019
  5. By: Laura Khoury (Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration); Clément Brébion (PSE - Paris School of Economics, CEET - Centre d'études de l'emploi et du travail - CNAM - Conservatoire National des Arts et Métiers [CNAM] - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche - Ministère du Travail, de l'Emploi et de la Santé); Simon Briole (PSE - Paris School of Economics, J-PAL - Abdul Latif Jameel Poverty Action Lab - MIT - Massachusetts Institute of Technology)
    Abstract: Entitlement conditions are a little explored dimension of unemployment insurance (UI) schemes. In this paper, we provide a comprehensive evaluation of a reform that softened the minimum employment record condition to qualify for UI benefits in France after 2009. Using administrative panel data matching employment and unemployment spells, we first provide clear evidence that the reform induced a separation response at the eligibility threshold. It appears both at the micro level – through a jump in transitions from employment to unemployment – and at the macro level – through the scheduling of shorter contracts, in line with the new eli- gibility requirements. Exploiting the reform as well as relevant sample restrictions, we then estimate the effects of receiving UI benefits on subsequent labour market outcomes using a regression discontinuity design. Our findings point to a large negative impact of UI benefits receipt on employment probability up to 21 months after meeting the eligibility criterion, which is not counterbalanced by an increase in job quality.
    Keywords: Job quality,Unemployment,Employment duration,Behavioural response,Entitlement conditions
    Date: 2019–12
  6. By: Alicia H. Munnell; Anqi Chen
    Abstract: The option to claim Social Security benefits at any age from 62 to 70 – with actuarial adjustments designed o keep lifetime benefits constant for an individual ith average life expectancy – is a key feature of the rogram. The actuarial adjustments, however, are decades old and do not reflect improvements in longevity or other important developments over that time. The option to claim early was introduced over 60 years ago, when Congress set 62 as the program’s Earliest Age of Eligibility. Those claiming at 62 receive 20 percent less in monthly benefits than if they had waited until 65 to claim. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security amendments, which gradually increased the annual “delayed retirement credit” from 3 percent to 8 percent. Much has changed since these actuarial adjustments were introduced: interest rates have declined; life expectancy has increased; and longevity improvements have been much greater for higher earners than lower earners. In the wake of these developments, this brief explores whether the historical adjustments are still actuarially correct. The discussion proceeds as follows. The first section provides a brief history of the Social Security benefit adjustments. The second section explains how increasing life expectancy and declining interest rates would call for smaller reductions for early claiming and a smaller delayed retirement credit for later claiming. The third section explores the extent to which existing adjustments deviate from actuarially fair magnitudes, finding that the reduction for early claiming – initially about right – is now too large, while the delayed retirement credit – initially too small – is now about right. The fourth section moves from the average worker to explore the impact of the actuarial adjustments on workers at various earnings levels given the disparity in longevity improvements. The final section concludes that the adjustment factors now favor delayed claiming and, as a result, increasingly benefit higher earners.
    Date: 2019–11
  7. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)
    Abstract: Multinational enterprises make use of tax havens to avoid paying corporate income taxes and this costs hundreds billion USD in lost government revenue worldwide according to an increasing number of recent studies. None of those studies assigns these costs to industries. I aim to shed more light on this gap by using some of the best available industry-level US data to determine to what extent the location of the MNEs’ profit is aligned with the location of their economic activities. My first finding is that the most important tax havens for US multinational enterprises are the Netherlands, Ireland and Luxembourg (all EU member states). Second, I systematically identify the specific industries in specific tax havens responsible for the costs, which should be useful information for tax authorities aiming to reduce tax avoidance. Finally, I argue that the current data are not detailed enough to provide a reliable industry breakdown of the costs, but the prospect of combining input-output tables with forthcoming country-by-country data seems more promising.
    Keywords: Multinational enterprises; foreign direct investment; tax havens; industry-level data
    JEL: F21 F23 H25 H26 H87
    Date: 2019–12
  8. By: Elena Derby (Department of Economics, Georgetown University ; Joint Committee on Taxation)
    Abstract: This paper investigates the effects of the Low Income Housing Tax Credit (LIHTC) on residents of buildings qualifying for the credit. Specifically, it analyzes whether individuals who grow up in LIHTC housing are more likely to enroll in post-secondary education programs and have higher earnings as adults. Using administrative tax records, I find that each additional year spent in LIHTC housing as a kid is associated with a 3.5 percent increase in the likelihood of attending a higher education program for four years or more, and a 3.2 percent increase in future earnings. Furthermore, I find that there are heterogeneous effects when comparing individuals who live in LIHTC housing located in neighborhoods with different characteristics, and among families that have varying levels of housing security prior to entering a LIHTC building. Based on this analysis, I conclude that the driving mechanism behind the positive estimated LIHTC effect is likely that the housing subsidy provides families with a more stable living situation.
    Keywords: Low Income Housing, Tax Policy, Poverty and Welfare
    JEL: H20 I31 H53
    Date: 2019–11–22
  9. By: Bev Dalhby; Melville McMillan (The University of Toronto)
    Abstract: The property tax generates a significant proportion of municipal revenues in Canada and has done so since Confederation. This paper makes the case that the property tax is a good tax for funding local (especially general-purpose) governments for several reasons: the base of the tax is immovable; the tax can generate reliable and sufficient revenues and make local governments independent from other orders of government; many of the core goods and services provided by local governments directly benefit property owners; the tax is visible to property owners; and the tax is easy to administer. The paper also counters many criticisms levelled at the property tax, including that it is inelastic, unresponsive, and regressive, and that it limits growth. The authors conclude that the property tax is an adequate but underused source of revenues for Canadian municipalities and make a strong argument for lowering the taxation of business properties by eliminating provincial school property taxes on both business and residential property. The result of such a reform, which would leave the property tax solely a municipal tax, would better meet tax criteria for revenue and expenditure assignment.
    Keywords: property tax
    Date: 2019–05
  10. By: Era Dabla-Norris; Mark Gradstein; Fedor Miryugin; Florian Misch
    Abstract: The extent of tax compliance has important implications for revenue yield, efficiency and the fairness of any tax system. Tax evasion undermines revenue collection, distorts competition, and undermines a country’s development prospects. In this paper, we investigate whether higher productivity causally leads to lower tax evasion. We first present stylized facts consistent with this view and develop a model that illustrates one potential transmission channel. Second, we test the model predictions at the firm level using the self-reported share of declared income as proxy for tax evasion for a large sample of emerging and developing economies. Our results suggests that productivity improvements by firms can lead to lower tax evasion.
    Date: 2019–11–27
  11. By: International Monetary Fund
    Abstract: The mission examined the latest proposal to substitute the current Corporate Profit Tax (CPT) for a Distributed Profit Tax (DPT), in Ukraine also referred to as the Exit Capital Tax (ECT). The mission did not find any new elements to change the position expressed in FAD’s previous technical report on tax policy (May 2017): the proposal is bad tax policy, detrimental for Ukraine on several fronts.
    Keywords: Tax revenue;Tax evasion;Tax incentives;Tax exemptions;Tax assessments;ISCR,CR,related party,DPT,BEPS,SFS,tax treaty
    Date: 2019–11–25

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