nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒02‒10
twelve papers chosen by
Thomas Andrén

  1. Efficient Taxation of Fuel and Road Use By Geir H. M. Bjertnaes
  2. The relation between tax complexity and foreign direct investment: Evidence across countries By Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren; Voget, Johannes
  3. A Unified Perspective on Efficiency, Redistribution, and Public Policy By Louis Kaplow
  4. Optimal Fiscal Policies under Market Failures By YiLi Chien; Yi Wen
  5. The effect of reporting institutions on tax evasion:Evidence from the lab By Kaisa Kotakorpi; Satu Metsälampi; Topi Miettinen; Tuomas Nurminen
  6. How Dependents Affect Federal Income Taxes By Congressional Budget Office
  7. Social Security Expansion and Neighborhood Cohesion: Evidence from Community-Living Older Adults in China By Bradley, Elizabeth; Chen, Xi; Tang, Gaojie
  8. Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals By Makoto Hasegawa
  9. Mining taxation in Africa: What recent evolution in 2018? By Yannick Bouterige; Céline de Quatrebarbes; Bertrand Laporte
  10. Tax Compliance in the RentalHousing Market: Evidence from aField Experiment By Essi Eerola; Tuomas Kosonen; Kaisa Kotakorpi; Teemu Lyytikäinen
  11. Tax complexity in Australia: A survey-based comparison to the OECD average By Hoppe, Thomas
  12. Stability of a Small Open Economy under Nonlinear Income Taxation By Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo

  1. By: Geir H. M. Bjertnaes
    Abstract: This study calculates efficient taxes on gasoline and road use designed to combat driving related externalities when motorists avoid taxes due to an excessive economic driving-style. The efficient tax on gasoline is reduced below the Pigouvian rate due to such avoidance. The current US tax rate on gasoline is below the efficient tax rate while the current UK rate is slightly above the efficient rate in this case. A GPS-based road user charge prevents such avoidance. The efficient GPS-based road user charge should be combined with a tax on gasoline which promotes an economic driving-style that lowers accidents.
    Keywords: transportation, optimal taxation, environmental taxation, global warming
    JEL: H20 H21 H23 Q58 R48
    Date: 2019
  2. By: Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren; Voget, Johannes
    Abstract: This paper analyzes the association between tax complexity and foreign direct investments (FDI) based on the newly developed Tax Complexity Index (TCI) and its components. For a sample of 15,607 new foreign subsidiaries, we find no association between total tax complexity, as proxied by the TCI, and the location probability. When we decompose the TCI into tax code complexity and tax framework complexity, we find opposing associations. Tax code complexity is positively related to the location probability, while tax framework complexity is negatively related to it. These associations are, for example, driven by the complexity of transfer pricing and loss offset regulations in the tax code and the dimensions guidance, audits, as well as filing and payments, in the tax framework. In additional analyses, we find that the associations are sensitive to certain characteristics, such as country-specific and firm-specific characteristics. For example, the positive tax code association diminishes when tax rates are high. Overall, we are the first to provide empirical evidence on potential cost-benefit tradeoffs of tax complexity for FDI and thereby enhance prior literature, which has primarily focused on the costs of tax complexity.
    Keywords: corporate taxation,tax complexity,foreign direct investments,location choice,multinational corporations
    JEL: C21 F23 H25 O50
    Date: 2020
  3. By: Louis Kaplow
    Abstract: Specialized theoretical and empirical research should in principle be embedded in a unified framework that identifies the relevant interactions among different phenomena, enables an appropriate matching of policy instruments to objectives, and grounds normative analysis in individuals’ utilities and a social welfare function. This article advances an approach that both provides integration across many dimensions and contexts and also identifies which tasks may be undertaken separately and how such analysis should be conducted so as to be consistent with the underlying framework. It employs the distribution-neutral methodology and welfare analysis developed in Kaplow (2008a) and related work, offering applications to income taxation, commodity taxation, tax expenditures, externalities, public goods, capital income and wealth taxation, social security and retirement savings, estate and gift taxation, and transfer programs. It also explores welfare criteria and examines how their consideration enables the normative analysis of the taxation of families, heterogeneous preferences, and tax administration and enforcement.
    JEL: D61 D62 D63 H20 H21 H23 H24 H26 H41 H43 H53 H55
    Date: 2020–01
  4. By: YiLi Chien; Yi Wen
    Abstract: The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital is over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in dealing with the overaccumulation problem. The Ramsey planner opts neither to use a capital tax to correct the overaccumulation problem if it is caused solely by precautionary saving---regardless of the feasibility of public debt---nor use debt (financed by consumption tax) to correct the overaccumulation problem if it is caused solely by pollution---regardless of the feasibility of a capital tax. The key is that the modified golden rule has two margins: an intratemporal margin pertaining to the marginal product of capital (MPK) and an intertemporal margin pertaining to the time discount rate. To achieve the MGR, the Ramsey planner needs to equate not only the private MPK with the social MPK but also the interest rate with the time discount rate---neither of which is equalized in a competitive equilibrium. Yet public debt and a capital tax are each effective only in calibrating one of the two margins, respectively, but not both.
    Keywords: Optimal Quantity of Debt; Capital Taxation; Ramsey Problem; Heterogeneous Agents; Incomplete Markets; Pollution; Production Externalities
    JEL: E13 E62 H21 H30 H27
    Date: 2020–01–21
  5. By: Kaisa Kotakorpi (VATT, Tampere University); Satu Metsälampi (University of Turku); Topi Miettinen (Hanken School of Economics); Tuomas Nurminen (Hanken School of Economics)
    Abstract: We study the effects of different tax reporting mechanisms in experi-mental double auction markets in the laboratory. The sales tax is paidby the seller, and we compare market outcomes in a no-tax conditionto cases where (i) tax evasion is impossible, (ii) taxes can be evaded butthere is an exogenous (low) audit probability, or (iii) there is double-reporting by both the buyer and the seller, and the seller’s audit prob-ability is endogenously increased if her tax report is inconsistent withthe buyer’s report. The latter case mimics the use of so called third-party reporting in tax enforcement. We find that third-party reportingeffectively deters evasion, and deterrence also has real effects on mar-ket outcomes: market clearing prices, quantities and overall efficiencyreturn to the levels observed when tax evasion was impossible. Whenreporting is costly to buyers, they report significantly less trades. Taxcompliance by sellers however remains at a relatively high level, eventhough payoffs would be maximized for both parties if no trades werereported. This suggests that the mere possibility of the existence ofthird party information may be a fairly effective deterrent on tax eva-sion, and tax administrators might consider making their informationsources more widely publicized.
    Keywords: Tax Evasion, Tax Incidence, Third-Party Reporting, Double Auction, Experiment
    JEL: H21 H22 H26 D40 D44 D91
    Date: 2019–05
  6. By: Congressional Budget Office
    Abstract: Several provisions of the federal individual income tax code reduce the tax liability of people who have dependents. In this report, CBO examines the tax benefit of having dependents and the distribution of that benefit under current law in 2019 and in 2026. The average tax benefit of having dependents in 2019 is estimated to be $2,300 per dependent ($3,800 per family). Under the 2026 tax rules, that benefit would be $1,700 per dependent ($2,800 per family).
    JEL: H20 H24 H50
    Date: 2020–01–23
  7. By: Bradley, Elizabeth; Chen, Xi; Tang, Gaojie
    Abstract: Grants and services provided by the government may crowd out informal arrangements, thus weakening informal caring relations and networks. In this paper, we examine the impact of social security expansion on neighborhood cohesion of elders using China’s New Rural Pension Scheme (NRPS), one of the largest existing pension program in the world. Since its launch in 2009, more than 400 million Chinese have enrolled in NRPS. We use two waves of China Health and Retirement Longitudinal Study (CHARLS) to examine the effect of pension receipt on two dimensions of neighborhood cohesion among older adults, i.e. participation in collective recreational activities (e.g., socializing and organizational activities) and altruistic activities (e.g., helping those in need in the community), and the frequencies of these activities. Employing an instrumental variable approach, our empirical strategy addresses the endogeneity of pension receipt via exploiting geographic variation in pension program roll-out. We find evidence that receiving pension only slightly reduces collective recreational activities while significantly crowding out altruistic activities in the communities.
    Keywords: neighborhood cohesion,pension,crowd out,diversity
    JEL: H55 I38 O22
    Date: 2020
  8. By: Makoto Hasegawa (Graduate School of Economics, Kyoto University)
    Abstract: In 2009, Japan began to exempt dividends paid by Japanese-owned foreign sub- sidiaries to their parent firms from home-country taxation. This tax reform switched Japan's corporate tax system to a territorial tax system that exempts foreign income from home-country taxation. In this paper, I examine the impact of the territorial tax reform on the profit-shifting behavior of Japanese multinationals. I analyze the change in the sensitivity of the reported profits of Japanese-owned foreign subsidiaries to host countries' corporate income tax rates after the tax reform, using US-owned foreign subsidiaries as a comparison group. I find that, on average, the profits of US-owned foreign subsidiaries are more sensitive to host countries' tax rates than are those of Japanese-owned foreign subsidiaries over the whole study period from 2004 to 2016 and over the subperiod from 2004 to 2007, when both countries used the worldwide tax system. However, the sensitivity of the pre-tax profits of Japanese-owned foreign subsidiaries, particularly large subsidiaries, to host countries' corporate tax rates sig- nificantly increased in response to the announcement of the territorial tax regime in 2008, relative to that of the US-owned foreign subsidiaries. This suggests that the introduction of the territorial tax system facilitated profit shifting by Japanese multi- nationals.
    Keywords: International taxation; Multinational corporations; Profit shifting; World- wide tax system; Territorial tax system
    JEL: H25 H26 F23
    Date: 2019–12
  9. By: Yannick Bouterige (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Céline de Quatrebarbes (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Bertrand Laporte (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The mining sector accounts for a significant share of tax revenues in many sub-Saharan African countries. Mining tax systems must then both attract investors and ensure sufficient revenues for governments. Following the increase in commodity prices in the second half of the 2000s, most African countries reformed their Mining Acts to increase the tax burden on mining companies. This study shows that this trend is still continuing in 2018. Mining royalty rates are rising, mineral resource rent taxes are reappearing and free equity for the States is increasing.
    Keywords: Mining code,tax
    Date: 2019–12–22
  10. By: Essi Eerola (VATT Institute for Economic Research and CESifo); Tuomas Kosonen (Labour Institute for Economic Research and CESifo); Kaisa Kotakorpi (VATT, University of Turku and CESifo); Teemu Lyytikäinen (VATT)
    Abstract: We study rental income tax compliance using a large-scale randomizedfield experiment and register data with third-party information on theownership of apartments. We analyze the responses of potential land-lords to treatment letters notifying them of stricter tax enforcement. Wealso study spillover effects of tax enforcement within the household andbetween landlords within local rental markets. We find an increase inreported income after an enforcement letter is sent to landlords. We alsofind positive reporting spillovers between spouses, as well as betweenlandlords in a subgroup of more likely evaders.
    Keywords: tax compliance, tax enforcement, field experiment, rental housing markets
    JEL: H26 H83 R31
    Date: 2019–05
  11. By: Hoppe, Thomas
    Abstract: This article comprehensively reviews Australia's corporate income tax complexity as faced by multinational corporations (MNCs) and compares it to the average of the remaining OECD countries. Building on unique survey data, I find that the Australian tax code is considerably more complex than the OECD average, which is mainly due to overly complex anti-avoidance legislation, such as regulations on transfer pricing, general anti-avoidance or controlled foreign corporations (CFC). In contrast, Australia's tax framework, which covers processes and fea-tures such as tax law enactment or tax audits, is close to the OECD average. A more granular analysis yields further interesting insights. For example, excessive details in the tax code and the time between the announcement of a tax law change and its enactment turn out to be serious issues in Australia relative to the remaining OECD countries.
    Keywords: Tax Complexity,Corporate Income Tax System,Survey,Australia,OECD Countries
    JEL: H20 H25 C83 O57
    Date: 2020
  12. By: Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo
    Abstract: The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior.
    Keywords: Taxation Rule, Stability, Equilibrium Indeterminacy, Small Open Economy
    JEL: E62 F41
    Date: 2019–05–15

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