nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒06‒29
thirteen papers chosen by
Thomas Andrén

  1. Social Security, Labor Supply and Health of Older Workers: Quasi-Experimental Evidence from a Large Reform By Saporta-Eksten, Itay; Shurtz, Ity; Weisburd, Sarit
  2. Redistribution with Performance Pay By Pawel Doligalski; Abdoulaye Ndiaye; Nicolas Werquin
  3. Do Multinational Firms Use Tax Havens to the Detriment of Other Countries? By Dhammika Dharmapala
  4. How do the Tax Burden and the Fiscal Space in Latin America look like? Evidence through Laffer Curves By Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
  5. Can Prepopulated Tax Returns Enhance Tax Compliance? The Effects of the Spanish Renta Web Initiative from a Sociology of Taxation Perspective By Jorge Martinez-Vazquez; Eduardo Sanz-Arcega
  6. Overclaimed Refunds, Undeclared Sales, and Invoice Mills: Nature and Extent of Noncompliance in a Value-Added Tax By Waseem, Mazhar
  7. Estimating International Tax Evasion by Individuals By ECOPA CASE
  8. Corrective Tax Design and Market Power By O'Connell, Martin; Smith, Kate
  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. Equalizing Incomes in the Future : Why Structural Differences in Social Insurance Matter for Redistribution Preferences By Fetscher, Verena
  11. The Limited Power of Socioeconomic Status to Predict Longevity: Implications for Pension Policy By Arno Baurin
  12. The impact of effective corporate tax rates on investment By Thomas Goda; Sebastián Ballesteros,
  13. Optimal Unemployment Benefits in the Pandemic By Mitman, Kurt; Rabinovich, Stanislav

  1. By: Saporta-Eksten, Itay (Tel Aviv University); Shurtz, Ity (Ben Gurion University); Weisburd, Sarit (Tel Aviv University)
    Abstract: We study the effects of public pension systems on the retirement timing of older workers and, in turn, the health consequences of delaying retirement by those workers. Causal inference relies on a social security reform in Israel that shifted payments from husbands to their (non-working) wives, thereby substantially reducing the implied tax on the husband's employment while keeping overall household wealth constant. Using administrative social security data, we estimate extensive-margin labor supply elasticities w.r.t. the average net-of-tax rate of about 0.43 for men over 65. Using the reform to instrument for employment, we find that working an additional full year at old age decreases longevity. This mortality effect occurs after age 75 and is driven by workers holding blue-collar jobs. Finally, we evaluate the effect of the reform on earnings. The results imply a small value for an additional year of life, suggesting that workers underestimate the health cost of employment at older ages.
    Keywords: labor supply, social security, tax reform, health, mortality
    JEL: H55 J14 J17 J22 J26
    Date: 2020–05
  2. By: Pawel Doligalski; Abdoulaye Ndiaye; Nicolas Werquin
    Abstract: Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such contracts arise in private labor markets that are constrained by moral hazard frictions. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of a given tax code on both the mean of earnings and their sensitivity to performance. We show theoretically and quantitatively that, following an increase in tax progressivity, the higher performance-sensitivity caused by the crowding-out of insurance provided by firms is almost fully offset by a countervailing “performance-pay effect” driven by labor supply responses. As a result, earnings risk is hardly affected by policy. We then turn to the normative analysis of a government that levies taxes and transfers to redistribute income across workers with different levels of uninsurable productivity. We find that setting taxes without accounting for the endogeneity of private insurance is close to optimal. Thus, the common concern that standard models of taxation underestimate the cost of redistribution is, in the context of performance-based compensation, overblown.
    Keywords: tax incidence, optimal taxation, moral hazard, performance pay
    JEL: D61 D82 D86 H21 H22
    Date: 2020
  3. By: Dhammika Dharmapala
    Abstract: The use of tax havens by multinational corporations (MNCs) has attracted increasing attention and scrutiny in recent years. This paper provides an exposition of the academic literature on this topic. It begins with an overview of the basic facts regarding MNCs’ use of havens, which are consistent with the location of holding companies, intellectual property, and financial activities in havens. However, there is also evidence of significant frictions that limit MNCs’ use of havens. These limits can be attributed to nontax frictions (such as the legal and business environment in different jurisdictions), to tax law provisions limiting profit shifting, and to the costs of tax planning. There is evidence consistent with the relevance of each of these channels. The paper also argues that nonhaven countries have available a range of powerful tax law instruments to neutralize the impact of MNCs’ use of havens. To the extent that it is not due to political dysfunction, their failure to deploy these instruments more extensively can be viewed as a deliberate policy choice, attributable either to collective action problems among nonhavens or to the possibility that in certain circumstances MNCs’ use of havens increases the welfare of nonhaven countries. In either case, MNCs’ use of havens is facilitated in crucial respects by the laws of nonhaven countries. Finally, the paper discusses how the distinction commonly drawn in public finance theory between “tax avoidance” and “behavioral responses to taxation” can illuminate current debates about the magnitude and implications of MNCs’ profit shifting to havens.
    Keywords: multinational firms, tax havens, international taxation, foreign direct investment, CFC rules, thin capitalization rules
    JEL: H25 F23
    Date: 2020
  4. By: Ignacio Lozano-Espitia (Banco de la República de Colombia); Fernando Arias-Rodríguez (Banco de la República de Colombia)
    Abstract: How much fiscal space do Latin American countries have to increase their tax burdens in the long term? This paper provides an answer through Laffer curves estimates for taxes on labor, capital, and consumption for the six largest emerging economies of the region: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Estimates are made using a neoclassical growth model with second-generation human capital and employing data from the national accounts system for the period from 1994 to 2017. Our findings allow us to compare the recent effective tax rates on factor returns against those which would maximize the government's revenues, and therefore to derive the potential tax-related fiscal space. Results suggest that joint fiscal space on labor and capital taxes would reach 6.5% of GDP for the region, on average, and that there are important differences among the countries. **** RESUMEN: ¿Cuánto espacio fiscal tienen los países de América Latina para incrementar su carga tributaria en el largo plazo? Este documento ofrece una respuesta mediante la estimación de las Curvas de Laffer para los impuestos al trabajo, al capital y al consumo de las economías más grandes de la región: Argentina, Brasil, Chile, Colombia, México y Perú. Los cálculos se realizan empleando un modelo de crecimiento con capital humano de 2da generación, que es calibrado para cada país con información de las cuentas nacionales para el período 1994 a 2017. Los resultados nos permiten comparar las tarifas efectivas recientes con aquellas que maximizarían los recaudos del gobierno, para así derivar el espacio fiscal de largo plazo. Nuestros hallazgos sugieren que el espacio fiscal conjunto sobre los impuestos al trabajo y al capital alcanzaría el 6.5% del PIB de la región, en promedio, y que existen diferencias importantes entre los países.
    Keywords: Laffer curves; fiscal policy; taxes on consumption, taxes on labor and capital incomes.Curvas de Laffer, política fiscal, impuestos sobre el consumo, las rentas laborales y los rendimientos del capital.
    JEL: E13 E62 H20 H30 H60
    Date: 2020–05
  5. By: Jorge Martinez-Vazquez (International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University); Eduardo Sanz-Arcega (Department of Economic Structure, Economic History and Public Economics, University of Zaragoza, Spain)
    Abstract: This paper explores the effects of pre-populated personal income tax returns on taxpayers’ tax morale and tax filing behavior. The special questionnaire about Renta Web included in the 2016 wave of the Spanish Institute for Fiscal Studies Fiscal Barometer surveyed individual perceptions about pre-populating income tax returns. Using probit regression analysis, we test whether pre-population affects tax morale. Secondly, we test whether pre-population influences perceptions about tax filing behavior. Our main results show that the relationship between making changes on the prefilled tax form and the likelihood of facing an audit do influence Spaniards’ tax morale, as well as their perceptions about tax filing behavior. Moreover, pre-population features by themselves do not have a clear impact on tax morale or tax filing behavior. Several policy implications arise from the results.
    Date: 2020–06
  6. By: Waseem, Mazhar
    Abstract: I leverage a Pakistani tax reform that cuts the tax rate on the supply chains of five major industries of the country from 15% to 0% to cast light on the extent of, and mechanisms driving, VAT noncompliance in a representative emerging economy. I find that firms overclaim refunds by 22% and underreport domestic B2C sales by 43.5%. Together, this implies an evasion rate of 77% in the treated industries and 38% in the population. I explore the role of three mechanisms (1) the destination principle, (2) the last-mile problem, and (3) invoice mills in driving this noncompliance.
    Keywords: Firm behaviour; tax evasion; VAT
    JEL: H25 H26 H32
    Date: 2020–04
    Abstract: This study provides estimates of offshore wealth held by individuals (for the world’s main economies) and corresponding estimates of international tax evasion (for the EU and EU Member States). Following the literature, the methodology relies on public statistics published by international organisations.
    Keywords: EU tax evasion, international tax evasion, offshore wealth
    JEL: H24 H26 H87 G21
    Date: 2019–09
  8. By: O'Connell, Martin; Smith, Kate
    Abstract: We study the design of taxes aimed at limiting externalities in markets characterized by differentiated products and imperfect competition. In such settings policy must balance distortions from externalities with those associated with the exercise of market power; the optimal tax rate depends on the nature of external harms, how the degree of market power among externality generating products compares with non-taxed alternatives, and how consumers switch across these products. We apply the framework to taxation of sugar sweetened beverages. We use detailed data on the UK market for drinks to estimate consumer demand and oligopoly pricing for the differentiated products in the market. We show the welfare maximizing tax rate leads to welfare improvements over 2.5 times as large as that associated with policy that ignores distortions associated with the exercise of market power.
    Keywords: corrective tax; externality; market power; oligopoly
    JEL: D12 D43 D62 H21 H23 L13
    Date: 2020–04
  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 Classification: C93 ; D91 ; H20
    Date: 2020
  10. By: Fetscher, Verena (University of Hamburg)
    Abstract: Why is support for income redistribution among the rich higher in some Western European welfare states than in others? The argument I propose builds on structural differences in the social insurance design. Flat-rate systems provide social benefits in equal amounts to everyone in need, while earnings-related systems provide benefits in relation to previous earnings. These differences in the configuration of the welfare state historically go back to Bismarck and Beveridge and have implications for questions of distributive justice and fairness. If individual incomes have fair and unfair components, earnings-related systems maintain both components during periods of economic hardship, while flat-rate systems equalize fair and unfair income differences. With a combination of observational and experimental data, I show that average support for redistribution among the better-off is higher in earnings-related systems and participants in a laboratory experiment increase transfer shares in allocation problms which maintain given endowment differences
    Date: 2020
  11. By: Arno Baurin (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Differences of life expectancy across socioeconomic status are well-documented and many economists argue that they should be taken into account when designing pension systems. This paper analyses the relevance of using socioeconomic characteristics to differentiate retirement age. Using US mortality rate assembled by Chetty et al. (2016), we simulate the longevity distribution both across and within socioeconomic status. Then, we analyze the power of socioeconomic status to predict individuals' longevity. Results suggest that socioeconomic status has relatively limited predictive power, due to the huge within status longevity variance.
    Keywords: Pension policy, Pension progressivity, Longevity, Tagging
    JEL: D63 H55 J14 J18
    Date: 2020–06–10
  12. By: Thomas Goda; Sebastián Ballesteros,
    JEL: F21 F32 O11
    Date: 2020–06–25
  13. By: Mitman, Kurt (Stockholm University); Rabinovich, Stanislav (University of North Carolina, Chapel Hill)
    Abstract: How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unemployment insurance response to the COVID-induced recession.We compare the optimal policy to the provisions under the CARES Act—which substantially expanded unemployment insurance and sparked an ongoing debate over further increases—and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen — despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment.
    Keywords: COVID-19, epidemic, unemployment insurance, optimal policy
    JEL: J65 E6 H1
    Date: 2020–06

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