nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒03‒30
ten papers chosen by
Thomas Andrén

  1. Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit By Clément Carbonnier; Clément Malgouyres; Loriane Py; Camille Urvoy
  2. Profit-sharing Rules and the Taxation of Multinational Internet Platforms By Francis Bloch; Gabrielle Demange
  3. Reformulation and taxes for healthier consumption: Empirical evidence in the French Dessert market By Allais, Oliver; Bonnet, Céline; Réquillart, Vincent; Spiteri, Marine
  4. Fiscal policy with high debt and low interest rates By Gale, William G.
  5. Automation and Optimal Capital Income Taxation By Maruyama, Yuuki
  6. Raising Revenue with a Progressive Value-Added Tax By Gale, William G.
  7. Fiscal incentives to pension savings – are they efficient? By Joanna Tyrowicz; Krzysztof Makarski; Artur Rutkowski
  8. Optimal Taxation under Regional Inequality By Sebastian G. Kessing; Vilen Lipatov; J. Malte Zoubek
  9. How to Improve Tax Compliance? Evidence from Population-wide Experiments in Belgium By De Neve, Jan-Emmanuel; Imbert Clement; Spinnewijn, Johannes; Tsankova, Teodora; Luts, Maarten
  10. Transferred Tax Knowledge to Improve Taxpayer Compliance By Kusumaningrum, Nurcahyaning Dwi; Hidayat, Rachmat; Wicaksono, Galih; Puspita, Yeni; Asmandani, Venantya; Pamungkas, Tree Setiawan; Susilo, Djoko

  1. By: Clément Carbonnier (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po, Centre de recherche de la Banque de France - Banque de France); Clément Malgouyres (IPP - Institut des politiques publiques - PSE - Paris School of Economics, PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Loriane Py (Centre de recherche de la Banque de France - Banque de France, IPP - Institut des politiques publiques - PSE - Paris School of Economics); Camille Urvoy (LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)
    Abstract: Do workers gain from lower business taxes, and why? We estimate how a large French corporate income tax credit is passed on to wages and explore the firm- and employee-level underlying mechanisms. The amount of tax credit firms get depends on their payroll share of workers paid less than a wage threshold. Exposure to the policy thus varies both across workers depending on their wage and across firms depending on their wage structure. Using exhaustive employer-employee data, we find that half of the surplus generated by the reform falls onto workers. Wage gains load on incumbents in high-skill occupations. The wage earnings of low-skill workers -- nearly all individually eligible -- do not change. This heterogeneous wage incidence is unlikely to be driven by scale effects or skill complementarities. We find that the groups of workers benefiting from wage gains are also more likely to continue working for the same firm. Further, we show that firms do not change their wage-setting behavior in response to the individual eligibility status of workers as there is no bunching in the distribution of entrants' wages. Overall, our results suggest that the wage incidence of firm taxation operates collectively through rent-sharing and benefits workers most costly to replace.
    Keywords: business taxation,tax incentives,wage incidence,rent sharing
    Date: 2020–03
  2. By: Francis Bloch (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Gabrielle Demange (PSE - Paris School of Economics)
    Abstract: We analyze the strategy of a monopolistic Internet platform serving users from two jurisdictions with different corporate tax rates. We show that the platform exploits positive externalities across users to shift profit, and study the effects of a change in the corporate tax rate of one of the two jurisdictions. When externalities flow symmetrically among users in both jurisdictions, the platform increases quantities in the high tax jurisdiction and reduces quantities in the low tax jurisdiction. When externalities only flow from one jurisdiction to another, the platform's response depends on the direction of externalities. If externalities originate in the high tax jurisdiction, the platform increases quantities in the high tax jurisdiction ; if they originate in the low tax jurisdiction, the platform reduces quantities in the low tax jurisdiction. We contrast the baseline regime of separate accounting (SA) with a regime of Formula Apportionment (FA), where the tax bill is apportioned in proportion to the number of users in the two jurisdictions. Under FA, the platform always increases quantities in the lower-tax jurisdiction and decreases quantities in the higher-tax jurisdiction. We use a numerical simulation to show that the higher-tax jurisdiction prefers SA to FA whereas the lower-tax jurisdiction prefers FA to SA. JEL Classification Numbers: H32, H25, L12, L14.
    Keywords: Digital platforms,multinational firms,corporate income taxation,Formula Apportionment,separate accounting *
    Date: 2020–03–09
  3. By: Allais, Oliver; Bonnet, Céline; Réquillart, Vincent; Spiteri, Marine
    Abstract: Many countries have implemented the taxation of unhealthy food. Facing such a tax, firms can adapt their pricing strategy and modify the characteristics of their products. There are, so far, only a few ex-ante analyses of the impact of taxes on consumption that endogenize the price response of firms to the tax policy. However, none of them takes into account the possibility for firms to modify the characteristics of a product. In this paper, we propose an ex-ante evaluation of the effects of a tax that targets products high in caloric sweeteners on key market outcomes, by integrating not only the strategic price reactions of firms, but also the exogenous changes in a product’s nutritional composition. We develop a structural econometric model that integrates the consumer’s substitution patterns between products, accounts for competition between firms, and integrates the possibility for firms to modify the characteristics of a product in response to taxation. Using household scanner data from the French dessert market, we show that ignoring how firms might react to a tax policy leads to a significant underestimation of the potential impact of taxation on the consumption of taxed nutrients. In our case, we show that ignoring the combined effect of strategic price reactions and product reformulation leads to the impact of the tax on the intake of the taxed nutrient being underestimated by 44%. From a policy-oriented perspective, we conclude that a taxation scheme should be designed to favor product reformulation by firms.
    JEL: H32 L13 Q18 I18
    Date: 2020–03
  4. By: Gale, William G.
    Abstract: Policymakers in the United States face a combination of high and rising federal debt and low current and projected interest rates on that debt. Rising future debt will reduce growth and impede efforts to enact new policy initiatives. Low interest rates reduce, but do not eliminate, these concerns. The federal fiscal outlook is unsustainable even with projected interest rates that remain below the growth rate for the next 30 years. Short-term policy responses should focus on investments that are preferably tax- financed rather than debt-financed. Most importantly, policymakers should enact a debt reduction plan that is gradually implemented over the medium- and long-term. This would avoid reducing aggregate demand significantly in the short-term and, if done well, could actually stimulate current consumption and production. It would stimulate growth in the long-term, provide fiscal insurance against higher interest rates or other adverse outcomes, give businesses and individuals clarity about future policy and time to adjust, and provide policymakers with assurance that they could consider new initiatives within a framework of sustainable fiscal policy.
    Keywords: interest rates, federal debt, deficits, fiscal policy, public economics
    JEL: E43 E62 H6 H68
    Date: 2019–12
  5. By: Maruyama, Yuuki
    Abstract: This model shows that capital income taxation does not affect real wages. Judd's theorem (1985) that a zero capital income tax rate is optimal for workers is based on the assumption that all capital has the effect of increasing the marginal productivity of labor. However, in reality, some capital lowers the marginal productivity of labor through automation (technological unemployment). Therefore, this model assumes two types of capital. Labor-complementing capital increases the marginal productivity of labor (real wages), while labor-substituting capital decreases it. The rates of return are kept equal between the two. Using such an economic growth model, we analyze the long-run effects of taxes on real wages. Even if capital income tax is imposed, real wages don’t change because both labor-complementing capital and labor-substituting capital decrease. In contrast, value-added tax results in reduced real wages. This is because labor costs are deducted in capital income tax, but not in value-added tax. Capital income tax is more suitable for income redistribution than value-added tax. These conclusions also apply to an open economy.
    Date: 2020–03–19
  6. By: Gale, William G.
    Abstract: To raise revenue in a progressive, efficient, and administrable manner, this chapter proposes a new national consumption tax: a broad-based credit-invoice value-added tax (VAT). The proposal comes with several qualifications: the VAT should complement, not substitute for, new direct taxes on the wealth or income of affluent households; to ensure the policy change is progressive, the VAT should be coupled with adjustments to government means-tested programs to account for price level changes, and with a universal basic income (UBI) program; to avoid having the VAT depress the economy, revenues should be used to raise aggregate demand in the short run and the Federal Reserve should accommodate the tax by allowing prices to rise. A 10 percent federal VAT that funded a UBI equal to 20 percent of the federal poverty line would be highly progressive (with net income rising among the bottom forty percent and not changing in the middle quintile) and would still raise more than 1 percent of GDP in net revenue. VATs are a proven success, existing in 168 countries. VATs have been proposed by both Democrats and Republicans in recent years. Concerns about small businesses, vulnerable populations, and the states can be easily addressed.
    Keywords: Consumption Tax, Progressive, Revenue
    JEL: D63 H20 H23 H27
    Date: 2020–01
  7. By: Joanna Tyrowicz (University of Regensburg, Germany; FAME|GRAPE; University of Warsaw, Poland; IZA; Rimini Centre for Economic Analysis); Krzysztof Makarski (FAME|GRAPE; Warsaw School of Economics, Poland); Artur Rutkowski (FAME|GRAPE)
    Abstract: Financing consumption of the elderly in the face of the projected increase in life expectancy is a key challenge for economic policy. Moreover, standard structural models with fully rational agents suggest that about 50-60 percent of old-age consumption is financed with voluntary savings, even in the presence of a fairly generous public pension system. This is clearly inconsistent with either the data, or the alarming simulations of old-age poverty in the years to come. Old-age saving (OAS) schemes are widely used policy instruments to address this challenge, but structural evaluations of such instruments remain rare. We develop a framework with incompletely rational agents: lacking financial literacy and experiencing commitment difficulties. We study a broad selection of OAS schemes and find that they raise welfare of financially illiterate agents and to a lesser extent improve welfare of agents with a high degree of time inconsistency. They also reduce the incidence of poverty at old age. Unfortunately, these instruments are fiscally costly, induce considerable crowd-out and direct fiscal transfers mostly to those agents, who need it the least.
    Keywords: old-age savings, incomplete rationality, welfare effects
    JEL: H31 H55 I38
    Date: 2020–03
  8. By: Sebastian G. Kessing (University of Siegen); Vilen Lipatov (Justus Liebig University Giessen); J. Malte Zoubek (University of Siegen)
    Abstract: We study how regional productivity differences and labor mobility shape optimal Mirrleesian tax-transfer schemes. When tax schedules are not allowed to differ across regions, productivity-enhancing inter-regional migration exerts a downward pressure on optimal marginal tax rates. When regionally differentiated taxation is allowed, marginal tax rates in high-(low-)productivity regions should be corrected downwards (upwards) relative to the benchmark without migration. Simulations of the productivity differences between metropolitan and other areas of the US indicate that migration affects the optimal tax-transfer schedule more strongly in the regionally differentiated rather than in the undifferentiated case.
    Keywords: Optimal taxation, place-based redistribution, regional inequality, migration, multidimensional screening, delayed optimal control
    JEL: H11 J45 R12
    Date: 2020
  9. By: De Neve, Jan-Emmanuel (University of Oxford); Imbert Clement (University of Warwick); Spinnewijn, Johannes (London School of Economics); Tsankova, Teodora (University of Warwick); Luts, Maarten (FPS Finance)
    Abstract: We study the impact of simplification, deterrence and tax morale on tax compliance. We ran five natural field experiments varying the communication of the tax administration with the universe of income taxpayers in Belgium throughout the tax process. A consistent picture emerges across experiments: (i) simplifying communication substantially increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective, and often backfires. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. We find that simplification is far more cost-effective, allowing for substantial savings on enforcement costs.
    Keywords: Tax Compliance ; Field Experiments ; Simplification ; Enforcement JEL codes: C93 ; D91 ; H20
    Date: 2020
  10. By: Kusumaningrum, Nurcahyaning Dwi; Hidayat, Rachmat; Wicaksono, Galih (Universitas Jember); Puspita, Yeni; Asmandani, Venantya; Pamungkas, Tree Setiawan; Susilo, Djoko
    Abstract: The purpose of research to know the influence of the taxpayer science level on the compliance of paying taxes by taxpayers, among others: knowledge of tax law, system knowledge and taxation functions, and the knowledge of sanctions Taxation both partially and simultaneously. Data analysis methods use SPSS software with a linear regression analysis, which is used to test the hypothesized influence of the taxpayer's level of science to pay tax compliance by both partial and simultaneous taxpayers and See the magnitude of the coefficient. Based on the results the study concluded that in partial and simultaneous levels of taxpayer enforcement science has a significant effect on the compliance of paying taxes by taxpayers.
    Date: 2020–02–12

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