nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒01‒04
thirteen papers chosen by
Thomas Andrén

  1. Spillovers and Long Run Effects of Messages on Tax Compliance: Experimental Evidence from Peru By Juan F. Castro; Daniel Velásquez; Arlette Beltrán; Gustavo Yamada
  2. Taxing Our Wealth By Florian Scheuer; Joel Slemrod
  3. Redistributive Income Taxation with Directed Technical Change By Jonas Loebbing
  4. The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland By Matthias Krapf; David Staubli
  5. On the Political Economy Determinants of Tax Reforms: Evidence from Developing Countries By Sanjeev Gupta; João Tovar Jalles
  6. Improving tax compliance without increasing revenue: Evidence from population-wide randomized controlled trials in Papua New Guinea By Christopher Hoy; Luke McKenzie; Mathias Sinning
  7. Tax Challenges of the Digitalized Economy By David Hanrahan
  8. Optimal Linear Income Taxation and Education Subsidies under Skill-Biased Technical Change By Bas Jacobs; Uwe Thuemmel
  9. Tax Administration: Designing a Business Continuity Plan for an Epidemic By John Brondolo; Joshua Aslett; Andja Komso
  10. The impact of EITC on education, labor market trajectories, and inequalities By Julien Albertini; Arthur Poirier; Anthony Terriau
  11. Pro-Rich Inflation and Optimal Income Taxation By Eren Gürer; Alfons Weichenrieder
  12. On the Provision of Excludable Public Goods - General Taxes or User Prices? By George Economides; Apostolis Philippopoulos
  13. Designing Interest and Tax Penalty Regimes By Christophe J Waerzeggers; Cory Hillier; Irving Aw

  1. By: Juan F. Castro (Universidad del Pacífico); Daniel Velásquez (University of Michigan); Arlette Beltrán (Universidad del Pacífico); Gustavo Yamada (Universidad del Pacífico)
    Abstract: We carry out a randomized controlled trial to evaluate the effect of three different types of messages sent to taxpayers on their compliance with the rental income tax (direct effect) and the spillovers produced on payments related to the capital gains and the self-employment income taxes. One message highlights detection, other appeals to social norms, and the third type appeals to altruism. This is the first study to evaluate if these messages can produce spillovers across taxes and to perform a long term follow-up. This is important to determine if the treatment increases tax revenues. We find that the message addressing detection produces a positive and permanent direct effect and a negative but transitory spillover on the other two taxes. Overall, it increases tax revenues by US$3.92 per dollar spent in the long run. The message appealing to social norms has no direct effect but produces a permanent negative spillover on the capital gains tax. Ignoring this spillover would have lead one to conclude that this message is innocuous when in fact produces a loss of US$ 5.20 per dollar spent in the long run. The message appealing to altruism produces a transitory negative e ect and no spillovers, and has no effect on tax revenues in the long run.
    Keywords: Social norms, Altruism, Tax evasion, Randomized controlled trial, Latin America
    JEL: D91 K42 H24 H26 H41
    Date: 2020–12
  2. By: Florian Scheuer; Joel Slemrod
    Abstract: This paper evaluates proposals for an annual wealth tax. While a dozen OECD countries levied wealth taxes in the recent past, now only three retain them, with only Switzerland raising a comparable fraction of revenue as recent proposals for a US wealth tax. Studies of these taxes sometimes, but not always, find a substantial behavioral response, including of saving, portfolio change, avoidance, and evasion, and the impact depends crucially on design features, especially the broadness of the base and enforcement provisions. Because the US proposals are very different from any previous wealth tax, experience in other countries offers only broad lessons, but we can gain insights from closely related taxes, such as the property and the estate tax, and from optimal tax analysis of the role of wealth taxation.
    JEL: H2
    Date: 2020–11
  3. By: Jonas Loebbing
    Abstract: What are the implications of (endogenous) directed technical change for the design of redistributive income taxes? I study this question in a Mirrleesian economy augmented to include endogenous technology development and adoption choices by firms. Under certain conditions, any progressive tax reform induces technical change that compresses the pre-tax wage distribution. The key intuition is that progressive tax reforms tend to increase labor supply of less skilled relative to more skilled workers, which induces firms to develop and use technologies that are more complementary to the less skilled. These directed technical change effects make the optimal tax scheme more progressive, raising marginal tax rates at the right tail of the income distribution and lowering them at the left tail. For reasonable calibrations, the impact of directed technical change on the optimal tax is quantitatively important: optimal marginal tax rates are reduced substantially for incomes below the median and increase monotonically over the bulk of the income distribution instead of being U-shaped (as in most of the previous literature).
    Keywords: optimal taxation, directed technical change, endogenous technical change, wage inequality
    JEL: H21 H23 H24 J31 O33
    Date: 2020
  4. By: Matthias Krapf; David Staubli
    Abstract: We estimate the corporate elasticity of taxable income. Our analysis draws on panel variation in the decentralized system of corporate taxation in Switzerland. We find that an increase in a jurisdiction's corporate net-of-tax rate by 1% results in an increase in aggregate corporate income by about 3.5% over a time span of 4 years. The elasticity is larger in remote, non-central locations. Firm entry, exit, and mobility only account for a small share of the overall elasticity.
    Keywords: corporate income tax, tax elasticity, fiscal federalism
    JEL: H21 H25 H32
    Date: 2020
  5. By: Sanjeev Gupta; João Tovar Jalles
    Abstract: This paper analyzes the role of political variables in the implementation of structural tax reforms in 45 emerging market and low-income economies during 2000-2015. The existing literature identifies several hypotheses that drive reforms, but empirical studies that support these hypotheses are lacking. Relying on a new database of structural tax reforms and on binary-type models, our results suggest that a left-wing government is less inclined to implement tax reforms while both proximity to elections and political strength orcohesion are positively associated with tax reforms. The influence of the left government is stronger in low-income than in emerging market economies and revenue administration reforms are resisted the most by such governments. Proximity to elections seems to trigger reforms of personal income tax (PIT) but opposite holds for trade tax reforms. Political cohesion is a necessary ingredient to reform most tax categories and revenue administration.
    Keywords: fiscal policy; binary choice models; tax reforms; elections; political fragmentation; ideology
    JEL: C33 C36 D63 E32 E62 H20
    Date: 2020–12
  6. By: Christopher Hoy; Luke McKenzie; Mathias Sinning
    Abstract: This paper studies the impact of “nudges” on taxpayers with varying tax compliance histories in Papua New Guinea. We present the results from two population-wide randomized controlled trials in a setting that is characterized by low compliance rates and a lack of effective enforcement. We test the impact of text messages, flyers and emails that remind taxpayers of declaration due dates and provide information about the public benefits from paying tax. We find that the treatments increased the number of tax declarations filed without increasing the amount of tax paid because the taxpayers who responded to the nudges were largely exempt from paying tax. This result is consistent across tax types, communication channels and time periods. We also find that the treatments had no impact on previously non-filing taxpayers. Collectively, our results illustrate that taxpayers who face the lowest cost from complying are most likely to respond to a nudge.
    Keywords: Tax Compliance, Field Experiments, Behavioral Economics
    JEL: C93 D91 H2 H20 O1 O17
    Date: 2020
  7. By: David Hanrahan (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The tax challenges of digitalization have been to the forefront of national and international discussions on public revenues in recent years. The digital transformation is seen as being an exacerbating factor in the erosion of tax bases and the shifting of profits to low tax jurisdictions, particularly by multinational companies, thus reducing tax revenues for governments. While there is a large literature examining the role of ICT and digitalization in raising economic growth, productivity and other macroeconomic variables, the relationship between digitalization and tax revenues has been relatively understudied - despite being one of key drivers of what could be most significant change to international tax rules in a century. This study utilizes panel data covering OECD countries during the period from 1995 to 2018, and examines the effect of the rise of digitalization on tax revenues employing both static and dynamic panel data analysis techniques. The findings indicate that digitalization may have a negative impact on the ability of a country with high digital dynamics to generate higher tax returns.
    Keywords: Digitalization, taxation, tax revenues, ICT, OECD countries
    JEL: H20 H25 L81 L86
    Date: 2020–12
  8. By: Bas Jacobs (Erasmus University Rotterdam); Uwe Thuemmel (University of Zurich)
    Abstract: This paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC). SBTC affects optimal taxes and subsidies by changing i) direct distributional benefits, ii) indirect redistributional effects due to wage-(de)compression, and iii) education distortions. Analytically, the effect of SBTC on these three components is shown to be ambiguous. Simulations for the US economy demonstrate that SBTC makes the tax system more progressive, since SBTC raises the direct distributional benefits of income taxes, which more than offset their larger indirect distributional losses, and it increases education distortions. Also, SBTC lowers optimal education subsidies, since SBTC generates larger direct distributional losses of education subsidies, which more than offset their larger indirect distributional gains, and it exacerbates education distortions.
    Keywords: Human capital, General equilibrium, Optimal taxation, Education subsidies, Technological change
    JEL: O3 H2 H5 I2 J2
    Date: 2020–12–28
  9. By: John Brondolo; Joshua Aslett; Andja Komso
    Abstract: This technical note and manual (TNM) addresses the following questions: What is a business continuity plan (BCP) and what are its main components? What are a BCP’s key design considerations for an epidemic? What are the organizational and management arrangements for a BCP? How does a BCP maintain a tax agency’s critical functions during an epidemic? and How does a tax agency keep its BCP current and ready for deployment?
    Keywords: Tax administration act;Crisis management;Tax administration; business continuity plan; crisis management
    Date: 2020–11–10
  10. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Arthur Poirier (GAINS, University of Le Mans); Anthony Terriau (GAINS, University of Le Mans)
    Abstract: As a complement to the federal EITC, some states offer their own EITC, typically calculated as a percentage of the federal EITC. In this paper, we analyze the effect of state EITC on education using policy discontinuities at U.S. state borders. Our estimates reveal that an increase in state EITC leads to a statistically significant drop in high school completion. We then use a life-cycle matching model with directed search and endogenous educational choices, search intensities, hirings, hours worked, and separations to investigate the effects of EITC on the labor market in the long run and along the transitional dynamics. We show that a tax credit targeted at low-wage (and low-skilled) workers reduces the relative return to schooling, thereby generating a powerful disincentive to pursue long-term studies. In the long run, this results in an increase in the proportion of low-skilled workers in the economy, which may have important implications in terms of employment, productivity, and income inequalities.
    Keywords: EITC, Education, Human capital, Search and matching, Life cycle
    JEL: D15 E24 H24 I24 J24 J6
    Date: 2020
  11. By: Eren Gürer; Alfons Weichenrieder
    Abstract: This paper studies the implications of an increase in the price of necessities, which disproportionally hurts the poor, for optimal income taxation. Our analyses show that, when the government is utilitarian and disutility from labor supply is linear, the optimal net nominal tax schedule is unchanged and the government expects households to supply more labor in order to secure their consumption expenditures. Quantitative analyses with convex disutility of labor supply reveal that, because of positive labor supply effects, keeping average tax rates constant suffices to optimally react to the asymmetric price shock. However, the poorest agents are expected to increase their labor supply the most. Thus, optimal income tax policy in response to asymmetric price changes does not prevent the disproportional decline in the indirect utility of poorer households.
    Keywords: pro-rich inflation, optimal income taxation
    JEL: H21 E31
    Date: 2020
  12. By: George Economides; Apostolis Philippopoulos
    Abstract: This paper compares some of the most common and debated ways of financing the provision of impure public goods/services in a unified dynamic general equilibrium framework. We study and rank a wide variety of ways ranging from provision without any user charges, to provision with full user charges; we also study mixed systems. In our quest for the best system, we address both efficiency and distribution issues. The focus is on the effects of user prices on individual incentives and choices. We identify circumstances under which a market system of user prices not only enhances aggregate efficiency but is also Pareto improving meaning that makes all types of income groups better off. But we also provide examples of circumstances under which user prices on impure public goods do not make sense.
    Keywords: user prices, taxes, efficiency, equity
    JEL: H40 H20 D60
    Date: 2020
  13. By: Christophe J Waerzeggers; Cory Hillier; Irving Aw
    Abstract: Nearly all tax systems have some form of interest and tax penalty regimes. Interest payable on any late or underpayment of tax seeks to protect the present value of the tax amount to the government budget, whereas penalties are intended to deter taxpayers from defaulting on their tax obligations—and to punish them if they do—to achieve horizontal equity vis-à-vis compliant taxpayers. As interest and penalties serve very different objectives, they should not be applied in a mutually exclusive manner. This Tax Law IMF Technical Note focuses on the key issues that should be taken into consideration in designing interest and penalty regimes in tax legislations.
    Keywords: Tax administration core functions;Interest payments;Tax law;Legal support in revenue administration;Interest tax;TLT,tax authority,penalty regime,tax authorities,law framework,RegimesDesigning interest,tax administration
    Date: 2019–03–18

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