nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒01‒13
eight papers chosen by
Thomas Andrén

  1. Consumption Insurance Against Wage Risk: Family Labor Supply and Optimal Progressive Income Taxation By Chunzan Wu; Dirk Krueger
  2. Wealth Taxation in the United States By Edward N. Wolff
  3. Do people really want a simple tax system? Evidence on preferences towards income tax simplification By Blesse, Sebastian; Buhlmann, Florian; Doerrenberg, Philipp
  4. Tax Havens and Cross-border Licensing By Jay Pil CHOI; ISHIKAWA Jota; OKOSHI Hirofumi
  5. Jurisdictional tax rates: How the corporate tax system fuels concentration and inequality By Hager, Sandy Brian; Baines, Joseph
  6. Enrolment of Informal Sector Workers on the National Health Insurance System in Indonesia: A Qualitative Analysis By Riatu Mariatul Qibthiyyah
  7. Investment tax incentives and their big time-to-build fiscal multiplier By Bermperoglou, Dimitrios; Deli, Yota; Kalyvitis, Sarantis
  8. Potential of Personal Income Tax in Bangladesh: An Examination of Survey Data By Towfiqul Islam Khan; Muntaseer Kamal; Faiyaz Talukdar

  1. By: Chunzan Wu; Dirk Krueger
    Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2016) in U.S. data. In the model, 35% of male and 18% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32% and 19%: Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intra-household income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half.
    Keywords: household model, male wages, female wages, income insurance
    JEL: E20 H21 D19
    Date: 2019–12
  2. By: Edward N. Wolff
    Abstract: The paper analyzes the fiscal effects of a Swiss-type tax on household wealth, with a $120,000 exemption and marginal tax rates running from 0.05 to 0.3 percent on $2,400,000 or more of wealth. It also considers a wealth tax proposed by Senator Elizabeth Warren with a $50,000,000 exemption, a two percent tax on wealth above that and a one percent surcharge on wealth above $1,000,000,000. Based on the 2016 Survey of Consumer Finances, the Swiss tax would yield $189.3 billion and the Warren tax $303.4 billion. Only 0.07 percent of households would pay the Warren tax, compared to 44.3 percent for the Swiss tax. The Swiss tax would have a very small effect on income inequality, lowering the post-tax Gini coefficient by 0.004 Gini points. The effect of the Swiss tax and Warren tax on wealth inequality is miniscule, lowering the Gini coefficient by at most 0.0005 Gini points.
    JEL: D31 H24
    Date: 2019–12
  3. By: Blesse, Sebastian; Buhlmann, Florian; Doerrenberg, Philipp
    Abstract: Using new survey and experimental data for a representative sample of the German population, we study preferences for tax simplification. The general wisdom seems to suggest that most tax systems are overly complex and that tax simplification is generally desirable. Consistent with this general wisdom, we find that more than 90% of our sample believe that the tax system needs to be simplified. However, there also are efficiency and equity arguments in support of a certain degree of tax complexity and it is puzzling why tax systems remain highly complex despite the conventional view in favor of more simplification. The main purpose of our study then is to investigate if the high support for tax simplification is driven by a lack of awareness about the trade-offs behind simple and complex tax systems. Our data show that the support for simplification decreases as we randomly provide economic arguments against simplification and as we ask respondents if the tax system should account for specific differences in living situations (such as costly care of elderly family members). Overall, our findings suggest that the high support for simpler taxes is to some extent driven by a lack of awareness about the implications of tax simplification.
    Keywords: Tax Complexity,Preferences Towards Tax Simplification,Randomized Survey Experiment
    JEL: H2 D72 C9
    Date: 2019
  4. By: Jay Pil CHOI; ISHIKAWA Jota; OKOSHI Hirofumi
    Abstract: Multinational enterprises (MNEs) are incentivized to use transfer pricing in tax planning when corporate tax rates differ in different countries. The incentive is stronger when MNEs own intangible assets which can easily be shifted across countries. To mitigate such strategic avoidance of tax payments, the OECD proposed the arm's length principle (ALP). This paper investigates how the ALP affects MNEs' licensing strategies and welfare in the presence of a tax haven. We specifically deal with two methods of the ALP: the comparable uncontrolled price method and the transactional net margin method. The ALP may distort MNEs' licensing decisions, because providing a license to unrelated firms restricts the MNE's profit-shifting opportunities due to the emergence of comparable transactions. In particular, the avoidance of licensing in the presence of the ALP may worsen domestic welfare if the licensee and the MNE's subsidiary do not compete in the domestic market, but may improve welfare if they compete.
    Date: 2019–12
  5. By: Hager, Sandy Brian; Baines, Joseph
    Abstract: Corporate concentration in the United States has been on the rise in recent years, sparking a heated debate about its causes, consequences, and potential remedies. In this study, we examine a facet of public policy that has been largely neglected in current debates about concentration: corporate tax policy. As part of our analysis we develop the first empirical mapping of the effective tax rates (ETRs) of nonfinancial corporations disaggregated by size and broken down by jurisdiction. Our findings reveal a striking and persistent tax advantage for big business in recent decades. Since the mid-1980s, large corporations have faced lower worldwide ETRs relative to their smaller counterparts. The regressive worldwide ETR is driven by persistent regressivity in the domestic ETR and a marked drop in the progressivity of the foreign ETR over the past decade. We go on to show how persistent regressivity in the worldwide tax structure is bound up with the increasing relative power of large corporations within the corporate universe, as well as a shift in firm-level power relations. As large corporations become less disposed to investments that may indirectly benefit ordinary workers, they become more disposed to shareholder value enhancement that directly benefits the asset-rich. What this means is that the corporate tax structure is connected not only to rising corporate concentration, but also to widening household inequality.
    Keywords: corporate taxation,differential accumulation,dominant capital inequality
    Date: 2019
  6. By: Riatu Mariatul Qibthiyyah (Department of Economics, Faculty of Economics and Business, Universitas Indonesia)
    Abstract: During 2013–2016, there are policy changes on Personal Income Tax (PIT) exemption, stated in PMK No. 162/PMK.011/2012, PMK No. 122/PMK.010/2015, and PMK No. 101/PMK.010/2016. Nonetheless, there is no empirical study yet, to my knowledge, that evaluates this policy. An increase of PIT exemptions can be viewed from distributive aspect, of how the incidence (benefit) distributed across taxpayers’ disposable income, as well as on the effciency aspect, whether it has or has not affected labor supply. This study explored on the effciency aspect. The agents – taxpayers as workers – now may experience an increase in net income due to a more generous exemption, and whether the policy of PIT exemption may in?uence taxpayers’ labor supply is more of an empirical question. I use SAKERNAS data from 2010–2018 and estimation model is limited to only consider paid (labor) employment rather than self-employment. On paid (labor) employment, ?rms function as withholding that can extract some of PIT from employee’s salary, and thus paid (labor) employee may then ?le PIT return. My preliminary result shows that effect of PIT exemption policy change is heterogenous across group of population. PIT exemption expansion increases labor supply of paid (labor) employees of the previously lowest income bracket of PIT. However, although to an extent tax saving may be higher for middle to high income individuals, taxpayers referring to individuals in income bracket of 15% rate tend to be not affected by the policy of PIT exemption.
    Keywords: personal income tax — tax exemption — labor supply
    JEL: H24 J21
    Date: 2019–10
  7. By: Bermperoglou, Dimitrios; Deli, Yota; Kalyvitis, Sarantis
    Abstract: This paper studies how investment tax incentives stimulate output in a medium-scale DSGE model, which allows for a variety of fiscal financing mechanisms. We find that the horizon following a positive shock in investment tax incentives is crucial. The shock is highly expansionary in the long run, with the relevant fiscal multiplier substantially exceeding 1, but this effect only becomes visible after two to three years. Our analysis indicates that a rise in the marginal product of labor and the demand for labor trigger this expansion, which is an effect that partial equilibrium studies ignore. The results suggest that investment tax incentives are even more effective when nominal wages adjust faster.
    Keywords: private investment incentives,investment tax credit,fiscal multipliers
    JEL: E32 E62 H29
    Date: 2019
  8. By: Towfiqul Islam Khan; Muntaseer Kamal; Faiyaz Talukdar
    Abstract: Revenue mobilisation in Bangladesh has not been commensurate with its rapid economic growth. It is often regarded that, income tax evasion is high in Bangladesh, which undermines income equality and development finance. The present study seeks to create favourable policy space towards extracting untapped domestic resources through enhancing the efficiency of the tax administration with new information and analysis. To this end, the study estimates the potential of personal income tax in Bangladesh, based on successive rounds of Household Income and Expenditure Surveys conducted by the Bangladesh Bureau of Statistics. Furthermore, based on a nationwide perception survey conducted in 2018, this study attempts to identify the key determinants of public compliance regarding tax submission, including networks, societal norms, scope of punishment and enforcement on individuals’ tax compliance behaviour.
    Keywords: Income Tax, Revenue mobilisation, tax submission, tax compliance behaviour
    Date: 2019–06

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