nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒07‒13
thirteen papers chosen by
Thomas Andrén

  1. It Takes Two to Tango Income and Payroll Taxes in Progressive Tax Systems By Victor Amoureux; Elvire Guillaud; Michaël Zemmour
  2. Optimal Factor Taxation in A Scale Free Model of Vertical Innovation By Barbara Annicchiarico; Valentina Antonaroli; Alessandra Pelloni
  3. The incidence of VAT evasion By Asatryan, Zareh; Gomtsyan, David
  4. Aggressive Tax Policy versus Aggressive Tax Planning By Akın, Emre
  5. How Do Taxpayers Respond to Public Disclosure and Social Recognition Programs? Evidence from Pakistan By Slemrod, Joel; Ur Rehman, Obeid; Waseem, Mazhar
  6. Taxation in Matching Markets By Dupuy, Arnaud; Galichon, Alfred; Jaffe, Sonia; Kominers, Scott Duke
  7. Tax Competition in Presence of Profit Shifting. By Steeve Mongrain; David Oh; Tanguy van Ypersele
  8. Consumption Taxes and Income InequalityAn International Perspective with Microsimulation By Julien Blasco; Elvire Guillaud; Michaël Zemmour
  9. Modernizing the European VAT By Sijbren Cnossen
  10. Taxes and the Revaluation of Household Wealth By Edward N. Wolff
  11. The impact of housing subsidy cuts on the labour market outcomes of claimants: evidence from England By Daniel Borebly
  12. The effect of changes in alcohol tax differentials on alcohol consumption By Markus Gehrsitz; Henry Saffer; Michael Grossman
  13. Transfer Pricing Regulation and Tax Competition By Jay Pil CHOI; FURUSAWA Taiji; ISHIKAWA Jota

  1. By: Victor Amoureux (Institut national de la statistique et des études économiques (INSEE)); Elvire Guillaud (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po); Michaël Zemmour (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)
    Abstract: The literature on tax systems generally considers each type of tax in a self-contained way, with its own distributive characteristics. While the income tax is considered as a progressive tax, social insurance contributions are seen as being regressive, namely because of ceilings. Using a database of comparative micro-data at the household level (LIS data, 22 OECD countries, 1999-2016 period), supplemented with OECD data on employer contributions, we measure effective tax rates over the entire income distribution. Our results jeopardize the conventional economic wisdom on the role of income and payroll taxes in tax progressivity, and on their respective impact on inequality reduction. We show that, in all countries of our sample, the progressivity of income tax increases as soon as the progressivity of social insurance contributions decreases. This implies that income and payroll tax schedules are not independent. Even more, they act in a complementary way. While payroll tax heavily compress inequalities at the bottom of the income distribution, income tax reduces inequalities at the top.
    Keywords: income tax,social insurance contributions,inequality reduction,progressivity
    Date: 2019–10
  2. By: Barbara Annicchiarico (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Valentina Antonaroli (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Alessandra Pelloni (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy; Rimini Centre for Economic Analysis)
    Abstract: The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed.
    Keywords: Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect
    JEL: O41 E62 H21
    Date: 2020–06
  3. By: Asatryan, Zareh; Gomtsyan, David
    Abstract: Who benefits from the evasion of value added taxes (VAT)? Using a reform that enforced VAT on previously non-compliant large retailers in Armenia, we estimate a onethird passthrough of the tax burden on prices. This suggests that pre-enforcement evasion rents were broadly shared with consumers through lower prices. Our theoretical and empirical results explain this low passthrough rate by the supply-chain effects and second-order compliance responses of firms to VAT enforcement. Our distributional analysis shows that households at the bottom of the income distribution benefit more from the rents of evasion.
    Keywords: Value added tax,Incidence,Evasion,Enforcement,Distributional Effects
    JEL: D11 H22 H26
    Date: 2020
  4. By: Akın, Emre
    Abstract: While the world taxpayers focus on aggressive tax planning, the world jurisdictions try to deal with that especially under the leadership OECD. Until now, it is hard to say that jurisdictions are successful to solve this problem. And some other countries have started to take unilateral measures to combat aggressive tax planning, which the author describes this as "aggressive tax policy"(ATPol).
    Keywords: aggressive tax policy, aggressive tax planning, international tax, unilateral measures
    JEL: F38 H26 K33 K34
    Date: 2020–06–01
  5. By: Slemrod, Joel; Ur Rehman, Obeid; Waseem, Mazhar
    Abstract: We examine two Pakistani programs to see if the public disclosure of tax information and social recognition of top taxpayers promote tax compliance. Pakistan began revealing income tax paid by every taxpayer in the country from 2012. Simultaneously, another program began recognizing and rewarding the top 100 tax paying corporations, partnerships, self-employed individuals, and wage-earners. We find that both programs induced strong compliance responses. The public disclosure caused on average a 9 log-points increase in the tax paid by individuals exposed to the program. The increase was even larger for the social recognition program, around 17 log-points. Our results suggest that such programs can be important policy levers to mobilize resources, especially in weak-enforcement-capacity economies.
    Keywords: tax evasion
    JEL: H24
    Date: 2020–03
  6. By: Dupuy, Arnaud (University of Luxembourg); Galichon, Alfred (New York University); Jaffe, Sonia (University of Chicago); Kominers, Scott Duke (Harvard University)
    Abstract: We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss.
    Keywords: matching, taxation
    JEL: C78 D3 H2 J3
    Date: 2020–06
  7. By: Steeve Mongrain (Simon Fraser University); David Oh (Canada Mortgage and Housing Corporation); Tanguy van Ypersele (Aix-Marseille Univ., CNRS, EHESS, Central Marseille, AMSE, Marseille)
    Abstract: The popular view is that governments should crack down on tax avoidance by multinational firms. In this paper, we analyze how anti-profit-shifting policies influence fiscal competition. Governments commit to profit shifting control effort and then set taxes on capital. Equilibrium tax rates are determined by the elasticities of the two components: profit shifting and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first but increase the elasticity of the second, so that the impact of these policies on the equilibrium of the tax game is ambiguous. We show that there are cases in which laxer policies increase all equilibrium tax rates and that the country announcing laxer profit shifting policies may gain. It appears that there is not always a pure strategy equilibrium in such a fiscal competition game. We construct a mixed strategy equilibrium when the pure strategy equilibrium does not exist.
    Keywords: Tax competition; Profit shifting; International taxation; Capital mobility
    JEL: H87 H25 H26 F38 F23
    Date: 2020–06
  8. By: Julien Blasco (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, Institut national de la statistique et des études économiques (INSEE), LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po); Elvire Guillaud (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po); Michaël Zemmour (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)
    Abstract: Consumption taxes are often considered as the most anti-redistributive componentof the tax system. Yet, very few estimates, and fewer international comparisons of theredistributive impact of consumption taxes exist in the literature, due to scarce dataon household expenditures. We use household budget surveys and microsimulation toprovide consistent estimates of the regressivity of consumption taxes for a large panelof countries and years. We propose a new method for imputing consumption expen-diture across countries, using widely available data on income and socio-demographiccharacteristics of households. We show that including the distribution of housing rents,when data is available, to impute households' consumption greatly improves the pre-diction of the model. Our results are threefold. First, there is a 1 to 2 ratio betweenthe propensity to consume of the top decile (around 50% of their income) and thatof the bottom decile (100% of income). Second, consumption taxes entail a signifi-cant rise in the Gini coefficient of income (between 0.01 and 0.04 point), yet of muchsmaller magnitude than the positive redistribution operated by direct taxes and trans-fers. Third, cross-country differences in the distributive effect of consumption taxes aremainly explained by variations in the tax rate (from 7 to 24% in our sample), ratherthan variations in the distribution of consumption, since everywhere the propensity toconsume declines sharply with income.
    Keywords: Indirect taxes,Redistributive Effect,Consumption,Income,Microsimulation,Luxembourg Income Study
    Date: 2020–02
  9. By: Sijbren Cnossen
    Abstract: The harmonized European value-added tax (VAT) is anything but a modern consumption tax that taxes all goods and services at a uniform rate. As exemplified by an analysis of the Dutch version, some 60% of the base is exempted, that is, not taxed on output but on inputs. This has serious consequences. The VAT exemptions distort input choices, stimulate uneconomical self-supply, and complicate administration and compliance. The welfare costs of the exemptions can be estimated at one half of one percent of gross domestic product (GDP). Research shows that under an equal yield assumption, the elimination of the exemptions and the introduction of a single rate in conjunction with a reduction in the standard rate should foster economic growth. The Member States of the European Union (EU) should be allowed to replace their defective VATs with a modern version. This would strengthen competitive conditions.
    Keywords: VAT, European Union, exemptions, tax reform, C-efficiency
    JEL: H25 H70
    Date: 2020
  10. By: Edward N. Wolff
    Abstract: Tax deferred assets (TDAs) such as 401(k)s cannot be directly valued with other assets such as homes and stocks because TDAs carry a substantial deferred tax liability on withdrawal. I also net out implicit taxes on accrued capital gains and compare pre-tax and post-tax wealth. The empirical analysis covers 1983-2016 based on the Survey of Consumer Finances for conventional net worth, NW, and augmented wealth, AW, the sum of NW, pension wealth PW, and Social Security wealth SSW. Like TDAs, defined benefit pension and Social Security benefits are taxed on receipt. Netting out implicit taxes lowered PW by 24% in 2016. It also devalued SSW by 14%, NW by 5%, and AW by 8% but the reduction was lower in the 1980s. Subtracting implicit taxes lowered PW and SSW inequality but had no appreciable impact on NW or AW inequality. I also consider the bequest value BV of wealth, including death benefits. While TDAs are still subject to income tax at withdrawal, other assets are valued on a step-up in basis. BV was considerably greater than NW but BV inequality notably lower. When estimated estate taxes due on death are subtracted, BV was substantially lowered and its inequality sharply reduced.
    JEL: D31 H31 J1
    Date: 2020–06
  11. By: Daniel Borebly (Department of Economics, University of Strathclyde)
    Abstract: Housing subsidies are aimed at helping low-income individuals afford appropriate housing, but are costly to offer and, in the view of some experts and policy makers, reduce incentives for claimants to participate in the labour market. This paper investigates the labour market impacts of recent housing subsidy cuts in England that were aimed at encouraging labour market participation and increased work effort among claimants. My identification strategy relies on the fact that, within the time period investigated, the subsidy cuts were only implemented for claimants renting from private landlords while claimants renting from other segments of the rental market were unaffected. I utilise this variation in exposure to the subsidy cuts within a difference-in-differences framework and find no evidence of a change in labour market outcomes for those affected by subsidy cuts. My findings indicate that, at least on aggregate, the subsidy cuts did not succeed in encouraging employment among claimants. These null findings suggest that as a policy instrument, cuts to housing subsidies may not be effective in generating efficiency gains through increased labour market participation or work effort.
    Keywords: housing subsidies, welfare programs, labour market behaviour
    JEL: H31 H42 H53
    Date: 2020–04
  12. By: Markus Gehrsitz (Department of Economics, University of Strathclyde & IZA); Henry Saffer (NBER); Michael Grossman (NBER, CUNY Graduate Center & IZA)
    Abstract: We show that tax-induced increases in alcohol prices can lead to substantial substitution and avoidance behavior that limits reductions in alcohol consumption. Causal estimates are derived from a natural experiment in Illinois where spirits and wine taxes were raised sharply and unexpectedly in 2009. Beer taxes were increased by only a trivial amount. We construct representative and consistent measures of alcohol prices and sales from scanner data collected for hundreds of products in several thousand stores across the US. Using several difference-in-differences models, we show that alcohol excise taxes are instantly over-shifted by a factor of up to 1.5. Consumers react by switching to less expensive products and increase purchases of low-tax alcoholic beverages, thus all but offsetting any moderate, tax-induced reductions in total ethanol consumption. Our study highlights the importance of tax-induced substitution, the implications of differential tax increases by beverage group and the impacts on public health of alternative types of tax hikes whose main aims are to increase revenue.
    Keywords: Health; Alcohol; Excise Taxes; Sin Taxes; Externalities; Difference-in-Differences
    JEL: I12 H21 D12 D62
    Date: 2020–06
  13. By: Jay Pil CHOI; FURUSAWA Taiji; ISHIKAWA Jota
    Abstract: The paper analyzes multinational enterprises' incentives to manipulate internal transfer prices to take advantage of tax differences across countries, and implications of transfer-pricing regulations as a countermeasure against such profit shifting. We find that tax-motivated foreign direct investment (FDI) may entail inefficient internal production but may benefit consumers. Thus, encouraging transfer-pricing behavior to some extent can enhance social welfare. Furthermore, we consider tax competition between two countries in order to explore the interplay with transfer-pricing regulations. We show that the FDI source country will be willing to set a higher tax rate and tolerate some profit shifting to a tax haven country if the regulation is tight enough. We also indicate a novel mechanism through which it is the larger country that undertakes tax-motivated FDI, the pattern we often observe in reality.
    Date: 2020–04

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