nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒12‒07
nine papers chosen by
Thomas Andrén

  1. New Zealand's Tax Reforms and 'Tax Sheltering' Behaviour By Gemmell, Norman
  2. Do details matter? An analysis of Italian personal income tax By Martino Tasso
  3. Do Couples Bunch More? Evidence from Partnered and Single Taxpayers in New Zealand By Alinaghi, Nazila; Creedy, John; Gemmell, Norman
  4. Breaking borders? The European Court of Justice and internal market By Spengel, Christoph; Fischer, Leonie; Stutzenberger, Kathrin
  5. Personalized Digital Information and Tax-favoured Retirement Savings: Quasi-experimental Evidence from Administrative Data By Claudio Daminato; Massimo Filippini; Fabio Haufler
  6. The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and Interest: Evidence from Japan By Makoto HASEGAWA; Michi KAKEBAYASHI
  7. A Note on the Annuity Role of Estate Tax - ONLINE SUPPLEMENT By Monisankar Bishnu; Cagri Kumru
  8. Age-related taxation of bequests in the presence of a dependency risk By Leroux, Marie-Louise; Pestieau, Pierre
  9. Pension information and women's awareness By Marta Angelici; Daniela Del Boca; Noemi Oggero; Paola Profeta; Maria Cristina Rossi; Claudia Villosio

  1. By: Gemmell, Norman
    Abstract: This paper examines two episodes of tax reform in New Zealand to evaluate the extent of tax sheltering in New Zealand. Tax sheltering refers to activities undertaken by taxpayers to earn income in forms that allow this income to be ‘sheltered’ (legally or illegally) from the tax that would normally apply in the absence of such activities. Identifying the nature and extent of tax sheltering behaviour is, however, not straightforward given incentives to hide it and the high resource cost of comprehensive taxpayer auditing. As a result, researchers are often reduced to identifying ‘traces’ (indirect and imprecise indicators) of sheltering activity. This paper examines a variety of variables that can be expected to reveal such traces of sheltering activity related to the ‘legal form’ (corporate, personal, trust, etc.) by which income is earned and taxed. Two substantive reforms to income taxation in New Zealand, in 2000 and 2010, generated two pre- and post-reform tax regimes that allow examination of the issue. The tax regime changes gave rise to different hypothesised effects on ‘legal-form’ tax sheltering that the analysis seeks to exploit. The results provide strong support for those hypotheses. Firstly, tax changes in 2000 created an incentive for individual taxpayers to reduce their personal taxable income (when they paid the top personal rate), and to shift income towards corporate and trust entities. The evidence is consistent with these predictions. Secondly, reforms in 2010, removed the trust route to tax sheltering and reduced incentives and opportunities to earn income via some, but not all, types of corporate ‘arrangement’. Pre- and post-2010 evidence confirms both that the use of trusts declined, and that the most tax-favoured corporate arrangements increased in use after 2010.
    Keywords: Tax sheltering, New Zealand income tax, Tax policy, Trust taxation, Corporate taxation,
    Date: 2020
  2. By: Martino Tasso (Bank of Italy)
    Abstract: Do the details of the structure of the tax code matter? Which of the elementary components of a modern and complex tax code is most important for households? This paper explores these issues within the framework of an overlapping generation model with heterogeneous agents and with specific reference to the case of Italy. Risk averse agents in the model are exposed to lifespan uncertainty, borrowing constraints, and uninsurable wage shocks. In this framework, the tax code plays an important role as a source of publicly-provided insurance against unlucky realizations of incomes. In particular, while many features of the tax code are instrumental in shaping its ability to redistribute income across agents, this paper finds that a new-born agent would attach a significant welfare value to the existing tax credit for employees’ earned income. This provision of Italian personal income tax significantly lowers the tax burdens on agents hit by negative productivity shocks and thus plays a crucial role in limiting the dispersion of realized net incomes and consumption.
    Keywords: personal income tax, overlapping generations
    JEL: H21 H24 H31
    Date: 2020–11
  3. By: Alinaghi, Nazila; Creedy, John; Gemmell, Norman
    Abstract: Recent papers hypothesise that estimates of the elasticity of taxable income (ETI) for individuals may be biased where those individuals are taxed separately but are part of a couple family. This paper investigates that issue by applying the 'bunching at tax kinks' approach to estimate separate ETIs for partnered and single individuals. It shows that there are opportunities for, and constraints on, bunching specific to partnered individuals. Using administrative taxable income data for the New Zealand taxpayer population over the period, 2000 to 2017, individual taxpayers are matched to their partners using population census data. Results provide strong support for the hypotheses that ETIs are larger for individuals in couples than for single individuals, and for couples where both partners are located in the same income tax bracket. Self-employed individuals in couple families reveal especially large ETIs.
    Keywords: Elasticity of taxable income, Bunching estimates, Couples, New Zealand,
    Date: 2020
  4. By: Spengel, Christoph; Fischer, Leonie; Stutzenberger, Kathrin
    Abstract: Upon more than 400 judgements on direct taxation, the case law of the European Court of Justice has considerably shaped Member States' tax systems. Based on Member States' tax law adjustments in the context of four landmark rulings on corporate income taxation, we analyse whether case law is a suitable instrument to eliminate tax distortions towards the realisation of a European internal market. Our analysis is based on effective tax burdens using the Devereux/Griffith methodology. Overall, we find that due to Member States' mostly heterogeneous adjustments and varying levels of compliance, cross- border investment continues to be discriminated in some Member States following the Marks & Spencer and National Grid Indus judgements. In addition, differences in the general availability of the rules under scrutiny and design of related provisions, cross-country differences in effective tax burdens and hence distortions to the internal market might persist. We conclude that a comprehensive harmonisation of Member States' tax systems by way of positive integration would be necessary to sustainably eliminate tax obstacles to cross-border business activities.
    Keywords: European Court of Justice,Internal Market,Effective Tax Rates,Thin Capitalisation Rules,Cross-Border Loss Relief,Controlled Foreign Company Rules,Exit Taxation
    JEL: H25 K34
    Date: 2020
  5. By: Claudio Daminato (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Massimo Filippini (CER–ETH – Center of Economic Research at ETH Zurich and Department of Economics, University of Lugano, Switzerland); Fabio Haufler (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This paper studies the impact of making personalized digital information available through a pension app on contributions to tax-favored retirement accounts. Using Swiss administrative pension fund data, we document limited take-up of fiscal incentives for retirement savings. Exploiting the staggered introduction of the pension app across occupational pension funds, we show that its availability increases individual tax-favored contributions. Men and higher-income earners are more likely to access the digital environment and respond to its introduction. These findings suggest that providing access to a pension app reduces information and transaction costs and facilitates the take-up of financial incentives for retirement saving.
    Keywords: Defined contribution plans, Fiscal incentives, Pension app, Savings
    JEL: D14 G51 H31 H55
    Date: 2020–11
    Abstract: Multinational corporations repatriate foreign profits through dividends, royalties, and interest paid by foreign aliates to their parent firms. International tax rules influence the decisions on profit repatriation, including the choice of repatriation method for these payments. In 2009, Japan introduced a foreign dividend exemption system(or so-called territorial tax system) that exempted dividends received by Japanese firms from their foreign aliates from home-country taxation. This paper examines the effects of this tax reform on profit repatriation through dividends, royalties, and interest. Under the foreign dividend exemption system, Japanese multinationals can save the tax costs of profit repatriation by repatriating dividends from foreign affiliates located in countries that impose low withholding tax rates on dividends. We find that, in response to the 2009 tax reform, Japanese-owned foreign affiliates subject to lower withholding tax rates on dividends increased dividend payouts, reduced royalties, and did not change interest payments to their parent companies. Overall, these affiliates increased total payments to their parents. These results suggest that affiliates partly switched their means of profit repatriation from royalties to dividends with the enactment of the foreign dividend exemption system.
    Keywords: International taxation; Multinational corporations; Profit repatriation; Foreign dividend exemption; Worldwide tax system; Territorial tax system
    JEL: H25 H26 F23
    Date: 2020–11
  7. By: Monisankar Bishnu; Cagri Kumru
    Abstract: In this paper, we extend the †A Note on the Annuity Role of Estate Tax†(Bishnu and Kumru (2020)) by incorporating social security system, consumption tax, and endogenous labor supply. In all these extensions, we show that estate tax cannot play the role of annuities. We also conducted robustness analysis by employing frequently used specifications for bequest motives. We show that the conclusion we reached in the †A Note on the Annuity Role of Estate Tax†is robust to changes in bequest specifications.
    Keywords: Bequests; Estate Tax; Annuity
    JEL: D15 E62 H21
    Date: 2020–11
  8. By: Leroux, Marie-Louise (Université catholique de Louvain, LIDAM/CORE, Belgium); Pestieau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: This paper studies the design of the optimal linear taxation of bequests when individuals differ in wage as well as in their risks of both mortality and old-age dependance. We assume that the government cannot distinguish between bequests motives, that is whether bequests resulted from precautionary reasons or from pure joy of giving reasons. Instead, we assume that it only observes the timing of bequests, that is whether they are made early in life or late in life. We show that, if the government is utilitarian, whether the taxation of early bequests should be given priority over the taxation of late bequests depends on the magnitude of insurance and redistributive concerns. While the efficiency concern unambiguously recom- mends taxation of early bequests, redistributive concerns yield ambiguous results. This indeterminacy comes from the fact that, in case of late death, the government cannot ob- serve the health status of the deceased. Whether the taxation of early bequests should be given priority depends on the specific relationships between wages and both risks of early death and of old-age dependence, as well as on the concavity of the joy of giving utility function. If the government is Rawlsian, it is optimal to tax early bequests if the survival chances of the poorest agents are very low. If they survive, but their chances to remain autonomous are very low, it is then optimal to tax early bequests if the poorest agents con- tribute relatively less to the taxation of early bequests than to the taxation of late bequests or if the joy of giving utility is extremely concave.
    Keywords: Bequest taxation; Long term care; Utilitarianism; Rawlsian welfare criterion; Old-age dependency
    JEL: H21 H23 I14
    Date: 2020–10–01
  9. By: Marta Angelici; Daniela Del Boca; Noemi Oggero; Paola Profeta; Maria Cristina Rossi; Claudia Villosio
    Abstract: We explore the role of financial and pension information in increasing women’s knowledge and awareness of their future pension status, and consequently, in reducing the gender pension gap. A representative sample of 1249 Italian working women were interviewed to assess their knowledge about pensions and financial issues and about their own savings and personal wealth planned for retirement. The responses showed that their knowledge and awareness of retirement planning was limited. We then ran a randomized experiment to evaluate the effect of increased information regarding pensions on women’s awareness, knowledge, and behaviors. Women in the treated group were provided information in the form of three short online tutorials. A follow-up survey shows that these women became more interested and aware of pension schemes and retirement options after completing the tutorials and were more likely to be better informed and keen to obtain further information. When looking at changes in behavior, we find tha t treated women who are closer to retirement are more likely to believe that they would make different work-life decisions if they received specific pension information in a timely fashion. They are also more likely to have a supplementary pension fund if they are concerned about their standard of living after retirement.
    Keywords: women, pension, savings, financial education
    JEL: H31 G51 J22
    Date: 2020

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