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on Public Economics |
| By: | Kostol, Andreas Ravndal (Arizona State University); Myhre, Andreas S. (Statistics Norway) |
| Abstract: | While optimization frictions have been shown to attenuate earnings responses to financial incentives, less is understood about the individual factors shaping the response. The main contribution of this paper is to separately quantify the role of learning the tax and benefit schedule versus other kinds of frictions. A unique combination of notches in the tax and benefit schedule and an information policy in a Norwegian welfare reform facilitate our study. The presence of notches allows us to measure overall frictions. Quasi-random assignment of a letter targeting misperceptions about the slope and locations of benefit phase-out regions allows us to pin down the role of information. Our analysis delivers two main findings. First, about 50% do not behave as predicted by standard labor supply models, and optimization frictions are particularly prevalent when financial incentives change. Without adjusting for these overall frictions, estimated elasticities would be attenuated by at least 70%. Second, the observed elasticity among those who receive the information letter is at least twice as large as among the non-informed, suggesting governments can partly offset the attenuation with information policy. Our calculations suggest misperceptions of the tax and benefit schedule account for two-thirds of the attenuation in earnings responses to financial work incentives. The findings have important implications for the effectiveness of tax and transfer policy. |
| Keywords: | labor supply, information, optimization frictions, social security, disability insurance |
| JEL: | H20 H31 H55 J22 J26 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13900&r=all |
| By: | Müller, Raphael; Spengel, Christoph; Vay, Heiko |
| Abstract: | In response to discussions about large multinational enterprises' tax planning activities, legislators around the world have adopted numerous regulations to increase corporate tax transparency. New settings and datasets have spurred empirical research in recent years. Our paper presents a review of this emerging literature on corporate tax transparency. To this end, we first propose a framework to structure the diverse landscape of tax-related disclosures. Second, we elaborate on the conceptual underpinnings of tax transparency by drawing on established theories from financial accounting and CSR reporting research. Third, we survey empirical evidence on corporate tax transparency. We classify the findings into (i) determinants of firms' tax disclosure decisions, (ii) informativeness of different kinds of tax-related disclosure, and (iii) effects of increased tax transparency on firms and their stakeholders. Finally, we synthesize the main inferences and offer suggestions for future research. |
| Keywords: | tax transparency,tax disclosure,tax planning,literature review |
| JEL: | F23 G38 H25 H26 M14 M41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20063&r=all |
| By: | Lisa CHAUVET; Siyavash ESLAMI; Marin FERRY; Laure PASQUIER-DOUMER |
| Abstract: | This paper investigates the relationship between inequality in public good provision and attitude towards taxation in the context of sub-Saharan African countries. Individuals’ attitude towards taxation is measured using the sixth round of the Afrobarometer geo-coded data, and inequality is measured with a Gini index computed using data on night light intensity around individuals. Our identification strategy relies on an IV estimation where the instrument is a Gini index computed on predicted pixels’ light intensity based on the initial distance of each pixel from its closest enlightened pixel. Results suggest that inequality is positively associated with more pro-tax attitude. However, this association depends on the size of the area over which Gini indexes are computed: inequality in the immediate surrounding of individuals (in 20 up to 50km buffer areas) has a positive effect on their attitude towards taxation that we interpret as a higher demand for redistribution in more unequal context. In line with this interpretation, we also find that when facing high inequality, individuals in the bottom of wealth distribution or far away from economic centers have a more favorable attitude towards taxation. |
| Keywords: | Afrique |
| JEL: | Q |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11845&r=all |
| By: | Nora Lustig (Tulane University and Commitment to Equity Institute) |
| Abstract: | This paper analyzes the evolution and determinants of inequality between 1990 and 2017 in Latin America. Throughout the period, inequality in the region has demonstrated three trends: it increased during the 1990s; decreased between 2002 and 2013; and, since 2014, it has remained constant or even increased depending on the country. The reduction of inequality in the second period corresponded to two main changes in social policy: (I) the expansion in access to education in the previous period, which led to a decrease in the salary gap; and (II) the expansion and progresivity of monetary transfers. However, despite improvements in income distribution, in recent years, there has been a wave of protests in various countries. This paper proposes possible explanations of this apparently paradoxical phenomenon. Finally, this paper analyzes the impact of fiscal policy on inequality and poverty using comparative data from fiscal incidence analysis. Although in all countries the combination of taxes, social spending, and consumption subsidies reduces inequality, it does not always reduce poverty. |
| Keywords: | Fiscal incidence; Inequality; Poverty; Taxes; Social spending; Latin America. |
| JEL: | H22 D63 D31 D74 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2011&r=all |
| By: | Francesco Agostinelli (University of Pennsylvania); Emilio Borghesan (University of Pennsylvania); Giuseppe Sorrenti (University of Amsterdam) |
| Abstract: | This paper analyzes the extent to which labor supply adjusts to incentives created by social programs. We find new evidence of highly elastic labor supply for single mothers in the United States, with sizable responses to the Earned Income Tax Credit (EITC) and welfare (AFDC/TANF) reforms during the 1990s. We reconcile some conflicting results in the literature by showing how the difference in differences design fails to identify a meaningful treatment parameter when a reform expands a pre-existing social program and when multiple programs change simultaneously. Finally, we use our quasi-experimental estimates to identify a structural model of labor supply with multiple tax and transfer programs. Model counterfactuals show that the effect of the EITC on labor supply depends on the regime of taxes and transfers in place. We conclude that evidence-based policymaking must explicitly model the tax and transfer system when using past reforms (ex post analysis) to draw inference about the effects of future reforms (ex ante analysis) on the labor market. |
| Keywords: | evaluation of social programs, EITC, TANF, tax and transfer |
| JEL: | I38 J08 H30 J38 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-083&r=all |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg) |
| Abstract: | Existing research on optimal taxation in economies with status-driven relative consumption assumes that the labor market is competitive, despite the fact that real world labor markets are typically characterized by involuntary unemployment. We show how the marginal tax policy ought to be modified to simultaneously account for positional consumption externalities and equilibrium unemployment, and find that interaction effects between these two market failures are crucial determinants of the marginal tax structure. In certain cases, the policy incentive to tax away positional externalities vanishes completely, and negative positional externalities may even lead to lower marginal taxation, under involuntary unemployment. |
| Keywords: | Optimal taxation; relative consumption; externalities; unemployment |
| JEL: | D62 D90 H21 H23 J64 |
| Date: | 2020–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0983&r=all |
| By: | Dennis Bonam; Paul Konietschke3 |
| Abstract: | We estimate the impact of tax shocks on output across different stages of the business cycle. We do this for a panel of nine advanced economies using a harmonized dataset of narratively identified exogenous tax changes and a smooth transition local projection model. The output response to an exogenous tax shock is significant, but only during economic expansions. In recessions, the tax multiplier is insignificant, both in the short- and long run. We also find that, during booms, output only responds to tax hikes and is unresponsive to tax cuts. The results on the state-dependent and asymmetric effects of tax shocks are robust to a number of alternative model specifications and definitions of the business cycle. |
| Keywords: | tax multiplier; state-dependent effects of fiscal policy; local projection method |
| JEL: | E32 E62 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:699&r=all |
| By: | Adam Hal Spencer |
| Abstract: | This paper develops a quantitative open economy framework with dynamics, firm heterogeneity and financial frictions to study the impact of corporate tax reforms targeted at multinationals. The model quantities their impact on productivity, GDP and welfare. Firms draw idiosyncratic shocks, invest in capital, choose optimal financing and select endogenously into servicing an overseas market, either through exporting or FDI. I apply this framework to the removal of the U.S. repatriation tax, an aspect of the Tax Cuts and Jobs Act. The reform's impact trades-off two selection effects more offshoring versus greater business dynamism from increased proftability. The reform leads to higher U.S. welfare and revenue neutrality. A series of exercises illustrate that the novel features of this framework have signifcant quantitative implications. The reform's beneficial effects are mitigated considerably when financial frictions are removed and it appears to be welfare reducing when using a static analogue of the model. |
| Keywords: | dynamics, financial frictions, productivity, corporate tax, firm heterogeneity, FDI, repatriation tax |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:2020-25&r=all |
| By: | Adam Hal Spencer |
| Abstract: | This paper develops a quantitative open economy framework with dynamics, firm heterogeneity and financial frictions to study the impact of corporate tax reforms targeted at multinationals. The model quantities their impact on productivity, GDP and welfare. Firms draw idiosyncratic shocks, invest in capital, choose optimal financing and select endogenously into servicing an overseas market, either through exporting or FDI. I apply this framework to the removal of the U.S. repatriation tax, an aspect of the Tax Cuts and Jobs Act. The reform's impact trades-off two selection effects more offshoring versus greater business dynamism from increased proftability. The reform leads to higher U.S. welfare and revenue neutrality. A series of exercises illustrate that the novel features of this framework have signifcant quantitative implications. The reform's beneficial effects are mitigated considerably when financial frictions are removed and it appears to be welfare reducing when using a static analogue of the model. |
| Keywords: | Dynamics, Financial Frictions, Productivity, Corporate Tax, Firm Heterogeneity, FDI, Repatriation Tax |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:2020/10&r=all |
| By: | David R. Agrawal; William F. Fox |
| Abstract: | Taxing consumption in the digital economy poses unique challenges for fiscal authorities. Recent institutional reforms, such as states changing remittance rules for the sales and use tax following the Supreme Court decision in South Dakota v. Wayfair, were enacted in order to increase tax revenue collections and create a more neutral tax system. Although these reforms induced more remote vendors to remit taxes on a destination basis, the revenue gains were modest, consistent with most large online vendors remitting taxes prior to the reforms. Instead, following the recent large shock to online shopping from the Covid-19 pandemic, the shift to destination-based taxation has redistributed revenues between large and small local jurisdictions. Increased online shopping raises revenue growth in small jurisdictions while contracting revenues in large jurisdictions. But, Wayfair is not the end of the story: technological changes that induce new consumption patterns, promise new challenges for fiscal authorities. Critical challenges for the next decades include limiting administrative and compliance costs of enforcing taxes in a digital world, determining filing thresholds, dealing with online marketplaces and facilitators, and taxing the consumption of digital services from two-sided platforms. With respect to digital services, we discuss whether consumption taxes should be imposed on both monetized platforms and non-monetized platforms such as social media, and the mechanisms for doing so. |
| Keywords: | sales tax, e-commerce, online shopping, enforcement, compliance, South Dakota v. Wayfair, consumption tax, digital services, platforms |
| JEL: | H20 H70 K30 L80 R50 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8708&r=all |
| By: | Lejour, Arjan (Tilburg University, School of Economics and Management); Mohlmann, Jan; van't Riet, Maarten; Benschop, Thijs |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:175074ad-0248-4c86-b313-a11e828b97c9&r=all |
| By: | Öner, Cihat |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:11f12069-dc61-4346-9c19-6d8c9bd4a87e&r=all |
| By: | Leenders, Wouter; Lejour, Arjan (Tilburg University, School of Economics and Management); Rabate, Simon; Riet, Maarten van ‘t |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:8b755dfc-9376-4256-a10a-b48026e28c6c&r=all |
| By: | Haibin Jiang (Tulane Economics and Murphy Institute) |
| Abstract: | The Child Care Tax credit (CCTC) is a child care subsidy pro- gram that allows working parents to claim a tax credit for their child care expenses. I document a comprehensive legislative history of the CCTC at both federal and state levels. Using the exogenous CCTC law changes and focusing on working-age mothers from the Panel Study of Income Dynamics, I use differences-in-differences, triple-differences, and instrumental variables methods to estimate the effects of the CCTC on maternal labor supply. I find that the CCTC significantly increases maternal labor force participation and the effects are more pronounced in married mothers than single mothers. |
| Keywords: | The Child Care Tax Credit; Maternal Labor Supply; Differences-in-differences; Instrumental Variables. |
| JEL: | J13 J22 H24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2015&r=all |
| By: | Santiago Garriga; Dario Tortarolo |
| Abstract: | We explore how the way in which tax credits are disbursed affects employer’s behavior, wages, and employment. We exploit a change in the payment system in Argentina that was gradually rolled out between 2003 and 2010. Under the old system, employers were in charge of delivering family allowances to their employees together with the monthly salary, and the transfer was deducted from employer social security contributions. For transparency purposes, the government eliminated the intermediary role of firms and started depositing the transfer directly into workers’ bank accounts. Using employer-employee administrative data and an event-study approach, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. We document larger wage effects in small and less unionized firms and we do not find evidence of pay equity concerns (e.g., effect mostly driven by new hires rather than incumbent workers). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers. These results raise questions about the use of employers as intermediaries to disburse the transfer; where less salient schemes may lead to capture by employers. |
| Keywords: | tax credits, family allowances, means-tested transfers, incidence, event study |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:not:notnic:2020-08&r=all |
| By: | Ali-Yrkkö, Jyrki; Koski, Heli; Kässi, Otto; Pajarinen, Mika; Valkonen, Tarmo; Hokkanen, Marja; Hyvönen, Noora; Koivusalo, Elina; Laaksonen, Jarno; Laitinen, Juha; Nyström, Enni |
| Abstract: | Abstract This report sheds light on the size and composition of the digital economy in Finland and its impact on the tax gap and tax system. No generally agreed definition of digital economy exists, and only a few prior studies have assessed the size of the digital economy quantitatively. We measured the size of the digital economy by the value added generated by digitally produced goods and services. We first replicated the analysis of the US Bureau of Economic Analysis (BEA) using Finnish data by assessing the value added of fully digital products. Secondly, we also took into account in our calculations the value added of partly digital products. Our analysis shows that the share of value added generated by the digital economy in Finland has grown at a relatively slow pace during the 2010s. Our calculations indicate that the digital economy comprised 10.9% of the GDP in Finland in 2017, or over EUR 21 billion euros. We further aimed at assessing the size of the corporate income tax (CIT), the value added tax (VAT) and the personal income tax (PIT) gaps generated by the digital economy in Finland. An attempt to make a full CIT gap analysis failed due to the unavailability of industry-level national accounts data. Data on the accrued VAT from the most recent years was not available but the observations from the earlier years did not reveal tax gaps. Our data collected via a survey targeted at digital freelance workers hints that, in general, Finnish digital freelancers comply with taxation rather well and no notable PIT tax gap is generated. |
| Keywords: | Digitalization, Digital economy, Taxation, Tax gap |
| JEL: | H2 H26 O33 O5 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:106&r=all |