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on Public Economics |
| By: | Mathilde Munoz (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique, WIL - World Inequality Lab) |
| Abstract: | This paper studies the effects of top earnings tax rates on the mobility of top ten percent employees within Europe. I use a novel detailed micro-level dataset on mobility built from the largest European survey (EU-LFS), representative of the entire population of 21 European countries. My estimation strategy exploits the differential effects of changes in top income tax rates on individuals of different propensities to be treated by these changes. I find that top ten percent workers' location choices are significantly affected by top income tax rates. I estimate a rather low but significant elasticity of the number of top earners with respect to net-of-tax rate that is between 0.1 and 0.3. The mobility response to taxes is especially strong for foreigners, with an estimated elasticity of the number of foreign top earners with respect to net-of-tax rate that is above one. Turning to tax policy implications, I uncover large heterogeneities within Europe, that translate into large differences in incentives to implement beggar-thy-neighbour policies across member states. These findings suggest that despite the overall moderate estimated mobility elasticity, tax competition entails substantial welfare costs. |
| Keywords: | Tax Competition,international taxation,migration elasticities,taxation rate,migration,Europe,Top Incomes,Labour Taxation,Migration |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02876987&r=all |
| By: | José M. Labeaga (UNED); Juan A. Ester Martínez-Ros (Universidad Carlos III de Madrid); Amparo Sanchis-Llopis (University of Valencia and ERICES); Juan A. Sanchis-Llopis (University of Valencia and ERICES) |
| Abstract: | Despite the generosity of its tax system, Spain is far from EU neighbouring countries in terms of R&D spending, and in innovation outcomes. A policy instrument commonly used to foster firms’ investment in R&D are tax incentives. The use of this instrument is not generalized in firms spending on R&D, and only a fraction of firms are regular claimants. In this paper we investigate whether persistence in using tax credits is positively related to the achievement of product innovations, beyond R&D investments. We consider that firms investing in qualified R&D spending and making a regular use of tax credits are likely to be firms aiming at innovating. By contrast, occasional tax credit users are probably firms seeking to reduce their corporate tax burden, and not prioritizing the achievement innovations. Using a sample of Spanish manufacturing firms spanning 2001-2014, we first estimate persistence using a duration model accounting for firm observed and unobserved heterogeneity. Our results are consistent with negative duration dependence, indicating that the probability of ceasing in claiming tax credits decreases with the passage of time. Second, we estimate a count-data model and find that the number of product innovations positively depends on tax credit persistence only for SMEs. |
| Keywords: | tax credits; persistence; duration dependence; count-data |
| JEL: | C41 H25 H32 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:2003&r=all |
| By: | Serhan Cevik; Fedor Miryugin |
| Abstract: | This paper investigates the impact of taxation on firm survival, using hazard models and a large-scale panel dataset on over 4 million nonfinancial firms from 21 countries over the period 1995–2015. We find ample evidence that a lower level of effective marginal tax rate improves firms’ survival chances. This result is not only statistically but also economically important and remains robust when we partition the sample into country subgroups. The effect of taxation on firms’ survival probability is found to exhibit a non-linear pattern and be stronger in developing countries than advanced economies. These findings have important policy implications for the design of corporate tax systems. The challenge is not simply reducing the statutory tax rate, but to level the playing field for all firms by rationalizing differentiated tax treatments across sectors, asset types and sources of financing. |
| Keywords: | Tax revenue;Tax burdens;Tax systems;Tax reforms;Tax regimes;Firm survival,effective marginal tax rate,total factor productivity,tax policy,firm-specific,capital intensity,TFP,probability of failure,survival probability |
| Date: | 2019–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/078&r=all |
| By: | Alastair Thomas |
| Abstract: | This paper reassesses the often-made conclusion that the VAT is regressive, drawing on tax microsimulation models constructed for an unprecedented 27 OECD countries. The paper first assesses the competing methodological approaches used in previous distributional studies, highlighting the distorting impact of savings patterns on cross-sectional analysis when VAT burdens are measured relative to income. As argued by IFS (2011), measuring VAT burdens relative to expenditure – thereby removing the influence of savings – is likely to provide a more meaningful picture of the distributional impact of the VAT. On this basis, the VAT is found to be either roughly proportional or slightly progressive in most of the 27 OECD countries examined. Nevertheless, results for a small number of countries highlight that broad-based VAT systems that have few reduced VAT rates or exemptions can produce a small degree of regressivity. Results also show that even a roughly proportional VAT can still have significant equity implications for the poor – potentially pushing some households into poverty. This emphasises the importance of ensuring the progressivity of the tax-benefit system as a whole in order to compensate poor households for the loss in purchasing power from paying VAT. In the broader context of the COVID-19 crisis, the findings of the paper suggest there may be scope in many countries for VAT reform to help address revenue needs, as this revenue may be generated with less significant distributional effects than previously thought. While standard VAT rates are high in many countries, OECD evidence shows that scope exists to broaden VAT bases. Nevertheless, any VAT increases, including VAT base broadening measures that impact the poor, should be accompanied by compensation measures for poorer households, such as targeted tax credits or benefit payments. |
| JEL: | H22 H23 H24 |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:49-en&r=all |
| By: | Feng Wei; Jean-François Wen |
| Abstract: | Presumptive income taxes in the form of a tax on turnover for SMEs are pervasive as a way to reduce the costs of compliance and administration. We analyze a model where entrepreneurs allocate labor to the formal and informal sectors. Formal sector income is subjected either to a corporate income tax or a tax on turnover, depending on whether their turnover exceeds a threshold. We characterize the private sector equilibrium for any given configuration of tax policy parameters (corporate income tax rate, turnover tax rate, and threshold). Given private behavior, social welfare is optimized. We interpret the first-order conditions for welfare maximization to identify the key margins and then simulate a calibrated version of the model. |
| Keywords: | Tax reforms;Tax rates;Tax revenue;Alternative minimum taxes;Effective tax rate;Turnover Tax,Threshold,Corporate Income Tax,Tax Compliance,Informality,compliance cost,tax regime,tax rate |
| Date: | 2019–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/098&r=all |
| By: | Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong |
| Abstract: | This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D. |
| Keywords: | Optimal capital taxation; R&D externalities; innovation |
| JEL: | E62 O31 O41 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101228&r=all |
| By: | Pranab Bardhan; Sandip Mitra; Dilip Mookherjee; Anusha Nath |
| Abstract: | This paper examines allocation of benefits under local government programs in West Bengal, India to isolate patterns consistent with political clientelism. Using household survey data, we find that voters respond positively to private welfare benefits but not to local public good programs, while reporting having benefited from both. Consistent with the voting patterns, shocks to electoral competition induced by exogenous redistricting of villages resulted in upper-tier governments manipulating allocations across local governments only for welfare programs. Through the lens of a hierarchical budgeting model, we argue that these results provide credible evidence of the presence of clientelism rather than programmatic politics, and how this distorts the allocation of government programs both within and across villages. |
| Keywords: | Welfare programs; Public goods; Clientelism; Voting |
| JEL: | H40 O10 H76 P48 H75 |
| Date: | 2020–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88338&r=all |
| By: | Santiago Acosta Ormaechea; Atsuyoshi Morozumi |
| Abstract: | Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have different effects on long-run growth depending on whether it is raised through the standard rate or through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption). Our key findings are twofold. First, for a given total tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when the VAT is raised through C-efficiency. Second, for a given VAT revenue, a rise in Cefficiency, offset by a fall in the standard rate, also promotes growth. The implication is thus that in OECD countries broadening the VAT base through fewer reduced rates and exemptions is more conducive to higher long-run growth than a rise in the standard rate. |
| Keywords: | Tax revenue;Tax evasion;Revenue measures;Tax collection;Income taxes;VAT,Economic growth,Standard rate,C-efficiency,Base broadening,long-run,PMG,long-run growth |
| Date: | 2019–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/096&r=all |
| By: | Mauri Kotamäki (Finalnd Chamber of Commerce) |
| Abstract: | This paper considers whether a replacement rate cut can be income equality enhancing and with what conditions. The logical answer to the question is yes, if the propensity of moving from low income state to high income state is high enough. The main contribution of this paper is to derive an analytical expression of income equality improving elasticity. It specifies the limit, after which replacement rate cut is equality enhancing measured by Gini coefficient. |
| Keywords: | Income Equality, Income Distribution, Unemployment Benefits, Gini coefficient |
| JEL: | J20 D31 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp134&r=all |
| By: | David Coady; Devin D'Angelo; Brooks Evans |
| Abstract: | Fiscal policy is a key tool for achieving distributional objectives in advanced economies. This paper embeds the discussion of fiscal redistribution within the standard social welfare framework, which lends itself to a transparent and practical evaluation of the extent and determinants of fiscal redistribution. Differences in fiscal redistribution are decomposed into differences in the magnitude of transfers (fiscal effort) and in the progressivity of transfers (fiscal progressivity). Fiscal progressivity is further decomposed into differences in the distribution of transfers across income groups (targeting performance) and in the social welfare returns to targeting due to varying initial levels of income inequality (targeting returns). This decomposition provides a clear distinction between the concepts of progressivity and targeting, and clarifies the relationship between them. For illustrative purposes, the framework is applied to data for 28 EU countries to determine the factors explaining differences in their fiscal redistribution and to discuss patterns in fiscal redistribution highlighted in the literature. |
| Keywords: | Social security;Income distribution;Personal income taxes;Social welfare programs;Fiscal policy;Fiscal redistribution,progressivity,targeting,transfers,taxes,target return,redistribution,redistributive,lower-income group |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/051&r=all |
| By: | Elsa Perdrix (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, PSE - Paris School of Economics, IPP - Institut des politiques publiques) |
| Abstract: | This paper examines the causal impact of later retirement on doctor visits among the French elderly. This question is of interest since spillover effects may arise if later retirement increases healthcare expenditure. I exploit the 1993 French pension reform in a two-stage least square to deal with the endogeneity of retirement. This reform leads to a progressive increase in claiming age, cohort by cohort from 1934 to 1943. I use a two-part model to disentangle between extensive and intensive margin. I use the administrative data HYGIE to observe both healthcare consumption between 2005 and 2015 and past careers. I find that an increase in retirement by four months decreases significantly the probability to have at least one doctor visit per year by 0.815 percentage point and decreases the number of doctor visits by 1.14% between ages 67 and 75. This effect is driven by the consumption of generalist doctor visits, and tends to be stronger for the first ages of consumption observed. |
| Keywords: | Pension reform,Health,Healthcare consumption |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:ipppap:halshs-02904339&r=all |
| By: | Laudage, Sabine |
| Abstract: | Corporate tax revenue and Foreign Direct Investment (FDI) are two key development finance sources according to the Addis Ababa Action Agenda for Financing for Development. These sources are important for developing countries to finance public goods and mobilize private investment for sustainable development. However, certain tax policies can have ambiguous effects on corporate tax revenue and FDI and challenge the joint mobilization of the two sources. Against this background, the paper discusses potential trade-offs faced by developing countries, when mobilizing corporate tax revenue and FDI jointly, and provides solutions how to address these trade-offs. A first trade-off exists between corporate tax incentives aimed at attracting FDI and the objective of increasing corporate tax revenue. A second trade-off results from the fact that policies that aim to protect corporate tax bases from erosion caused by tax avoidance and profit shifting may disincentivize FDI. The trade-offs can be addressed by reforms of the international tax system, while good national non-tax investment conditions are indispensable. The Inclusive Framework on BEPS has worked out reform proposals on a minimum corporate tax rate and on taxing the digital economy adequately which are currently discussed by its members. Many developing countries now actively participate in these discussions on future international tax rules. To avoid harmful trade-offs, countries need to consider the costs amd benefits of new tax rules and policies on both, their tax revenues and FDI attraction. |
| Keywords: | corporate tax revenue,FDI,financing for development,tax incentives,BEPS,multinational firms |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:diedps:172020&r=all |
| By: | Marvin Cardoza; Justin Holz; John List; Joaquin Zentner; Alejandro Zentner |
| Abstract: | This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic's tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic's GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:feb:natura:00712&r=all |
| By: | Borella, Margherita; De Nardi, Mariacristina; Yang, Fang |
| Abstract: | In the United States, both taxes and old age Social Security benefits depend on one's marital status and tend to discourage the labor supply of the secondary earner. To what extent are these provisions holding back female labor supply? We estimate a rich life cycle model of labor supply and savings for couples and singles using the method of simulated moments (MSM) on the 1945 and 1955 birth-year cohorts and use it to evaluate what would happen without these provisions. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. Eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle, reduces the participation of married men after age 60, and increases the savings of couples in both cohorts, including the later one, which has similar participation to that of more recent generations. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14196&r=all |