nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒02‒01
fifteen papers chosen by
Thomas Andrén

  1. Who Carries the Burden of the Value-Added Tax? Evidence from Germany By Samina Sultan
  2. Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain By Darío Serrano-Puente
  3. Taxes and Firm Investment By K. Peren Arin; Kevin Devereux; Mieszko Mazur
  4. The Earned Income Tax Credit and Maternal Time Use: More Time Working and Less Time with Kids? By Jacob Bastian; Lance J. Lochner
  5. The Tax Cut and Jobs Act (2017) as a driver of pension derisking: a comprehensive examination By Anantharaman, Divya; Kamath, Saipriya; Li, Shengnan
  6. Redistribution from a joint income-wealth perspective: Results from 16 European OECD countries By Sarah Kuypers; Francesco Figari; Gerlinde Verbist
  7. The Kingdom of the Netherlands-Aruba; Technical Assistance Report-Towards a Sustainable Tax System By International Monetary Fund
  8. A General Equilibrium Model of Value Added Tax Evasion: An Application to Pakistan By Andrew Feltenstein; Jorge Martinez-Vazquez; Biplab Datta; Sohani Fatehin
  9. Analysis of Tax Education and Tax Knowledge: Survey on University Students in Indonesia By Bernardus Bayu Ryanto Prakoso Putro; Christine Tjen
  10. Optimal Linear Income Taxation and Education Subsidies under Skill-Biased Technical Change By Bas Jacobs; Uwe Thuemmel
  11. The impact of tax and infrastructure competition on the protability of local firms By Yutao Han,; Patrice Pieretti; Giuseppe Pulina
  12. Debt Shifting and Transfer Pricing in a Volatile World By Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
  13. Debt and Transfer Pricing: Implications on Business Tax Policy By Nicola Comincioli; Paolo M. Panteghini; Sergio Vergalli
  14. Who does and doesn’t pay taxes? By Advani, Arun
  15. Do tax administrative interventions targeted at small businesses improve tax compliance and revenue collection?: Evidence from Ugandan administrative tax data By Maria Jouste; Milly I. Nalukwago; Ronald Waiswa

  1. By: Samina Sultan
    Abstract: The value-added tax is one of the most important tax revenue sources in many countries. However, it is sometimes considered unfair as it ultimately hits consumption, and poorer households spend a greater share of their income on consumption. But this depends on whether, and to what degree, the value-added tax is actually passed on to consumers. Exploiting an exogenous value-added tax reform in Germany, I use an event study and a differences-in-differences approach to investigate the pass-through to consumers for a wide range of commodities. On average, I find a modestly positive but statistically insignificant effect on prices. However, there are differences in tax incidence between commodity groups and anticipatory price effects well in advance of the actual implementation of the value-added tax reform.
    Keywords: consumer price index, value-added tax, tax incidence, fiscal policy
    JEL: E31 H25 H22 H31
    Date: 2020
  2. By: Darío Serrano-Puente (Banco de España)
    Abstract: Is the Spanish economy positioned at its optimal progressivity level in personal income tax? This article quantifies the aggregate, distributional, and welfare consequences of moving towards such an optimal level. A heterogeneous households general equilibrium model featuring both life cycle and dynastic elements is calibrated to replicate some characteristics of the Spanish economy and used to evaluate potential reforms of the tax system. The findings suggest that increasing progressivity would be optimal, even though it would involve an efficiency loss. The optimal reform of the tax schedule would reduce wealth and income inequality at the cost of negative effects on capital, labor, and output. Finally, these theoretical results are evaluated using tax micro data and describe a current scenario where the income-top households typically face suboptimal effective average tax rates.
    Keywords: income tax, progressivity, inequality, income and wealth distribution, general equilibrium, heterogeneous agents
    JEL: D31 C68 E62 H21
    Date: 2021–01
  3. By: K. Peren Arin; Kevin Devereux; Mieszko Mazur
    Abstract: We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.
    Keywords: Investment; Taxation; Fiscal policy; Fiscal multiplier
    JEL: C33 C53 E62 G32
    Date: 2021–01
  4. By: Jacob Bastian (Rutgers University - Newark); Lance J. Lochner (University of Western Ontario)
    Abstract: Parents spend considerable sums investing in their children’s development, with their own time among the most important forms of investment. Given well-documented effects of the Earned Income Tax Credit (EITC) on maternal labor supply, it is natural to ask how the EITC affects other time allocation decisions, especially time with children. We use the American Time Use Surveys to study the effects of EITC expansions since 2003 on time devoted to a broad array of activities, with considerable attention to the amount and nature of time spent with children. Our results confirm prior evidence that the EITC increases maternal work and reduces time devoted to home production and leisure. More novel, we show that the EITC also reduces time spent with children; however, almost none of the reduction comes from time devoted to “investment” activities. Effects are concentrated among socioeconomically disadvantaged mothers, especially those that are unmarried. Results are also most apparent for mothers of young children. Altogether, our results suggest that the increased work associated with EITC expansions over time has done little to reduce the time mothers devote to active learning and development activities with their children.
    Keywords: EITC, tax policy, time use, child investment, female labor supply
    JEL: D13 H24 H31 H53 I31 I38 J13 J22
    Date: 2020–09
  5. By: Anantharaman, Divya; Kamath, Saipriya; Li, Shengnan
    Abstract: Corporate defined-benefit (DB) pension sponsors in the US are increasingly on a path of “derisking” – by moving pension assets away from equities and towards fixed-income securities that better match the obligations, or by transferring obligations off their balance sheets entirely, via settlements with insurance companies or lump-sum payouts to beneficiaries. In this study, we examine whether the Tax Cut and Jobs Act of 2017 (“TCJA”) served as a driver of pension derisking. Examining behavior in the window between the TCJA’s announcement and its lower tax rate going into effect, we document that sponsors with stronger incentives to derisk their pensions tend to contribute more into their plans in that window, while deductions can still be taken at the higher tax rate – specifically, sponsors expecting large and uncertain contribution requirements for pensions in the future, facing high regulatory costs to maintaining plans, and with competing demands on cash flows. Examining behavior after the TCJA goes into effect, we document that the firms with the largest TCJA-triggered contributions also engage in more derisking subsequently, both by shifting asset allocations and by transferring obligations to other parties. In sum, our findings point to the TCJA having acted as a trigger for what could be a fundamental reorganization of the DB pension landscape in the US.
    Keywords: TCJA; defined-benefit plans; voluntary contributions; derisking; pension asset allocation; pension settlements or buyouts
    JEL: J32 K34 H32 H26 G23
    Date: 2021
  6. By: Sarah Kuypers (University of Antwerp); Francesco Figari (University of Insubria); Gerlinde Verbist (University of Antwerp)
    Abstract: Redistributive analyses typically use household income as the main reference variable to rank households and to assess their tax liabilities and benefit entitlements. However, the importance of wealth, and the potential redistributive effects of wealth-related taxation, are increasingly recognised. By using data from the Household Finance and Consumption Survey (HFCS) as input data for the tax-benefit microsimulation model EUROMOD, we assess the redistributive effects of taxes and benefits against the joint income-wealth distribution for 16 European OECD countries. This is a new approach that extends indicators developed in the asset-based poverty literature. We study wealth-related taxes alongside other tax-benefit instruments. The analysis allows us to gain insight into which types of policies are redistributive in which institutional settings taking account of the distribution of both income and wealth. This paper extends our pilot study of six countries (Kuypers, Figari, & Verbist, 2019), and updates it to 2017 policies.
    JEL: D31 H24 I30
    Date: 2021–01–22
  7. By: International Monetary Fund
    Abstract: Over the last decade, Aruba has faced three recessions resulting in a public debt of approximately 90 percent of GDP. Its current budget deficit needs to be reduced and Aruba should close a fiscal gap of 1.5-2 percent of GDP over the next two to three years to return to a sustainable path. Earlier this year, the authorities have introduced a crisis package, mainly by increasing the turnover taxes. This temporary tax measure should be replaced by a tax reform that will modernize and simplify the current system. The new tax system should not only raise more revenue, but also shift the tax burden away from income and profits toward consumption. The current system is not well equipped to make these changes. In replacing the crisis levy, the Government sees an opportunity to streamline the current tax system, modernize it, and make it more sustainable for the future needs of Aruba.
    Keywords: Value-added tax;Excises;Consumption taxes;Sales tax;Personal income;ISCR,CR,tax burden,withholding tax,transfer tax,turnover tax,tax rate
    Date: 2018–12–18
  8. By: Andrew Feltenstein (Department of Economics, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Biplab Datta (Institute of Public and Preventive Health, Augusta University, USA); Sohani Fatehin (Department of Economics, Dickinson College, USA)
    Abstract: Value added taxes (VAT) constitute a major share of tax revenues in developing countries in which tax evasion is widespread. The literature on VAT evasion, however, is limited. This paper develops a computable general equilibrium framework for analyzing endogenous VAT tax evasion. The analytical framework entails increasing enforcement through greater spending on the enforcement of tax revenue collection. We assume that there is an elasticity that connects the changes in enforcement to actual increases in VAT collection. We apply the model to Pakistan data and show the level of enforcement spending required to achieve certain VAT collection targets. We also examine the short-, medium-, and long-term macroeconomic outlooks, and real consumption distribution across household economic groups associated with higher enforcement spending. We calibrate the model using 2016 as the base year and then run the dynamic model forward for 20 years. We define the implicit VAT rate as that hypothetical statutory rate that, in the absence of evasion, would approximately generate the observed VAT collection. We assume zero additional spending on enforcement in the baseline and estimate two alternative scenarios of VAT revenue target of 8% and 15% of the GDP. The alternative scenarios require increase in enforcement spending by a compounded 46.4% and 322.4%, respectively. We find that the increased enforcement spending enhances the sustainability of the government’s budget deficit without causing a decline in real GDP over the long-term. The interest and inflation rates are also lowered. However, there is a small regressive impact on households’ real consumption.
    Date: 2021–01
  9. By: Bernardus Bayu Ryanto Prakoso Putro (Accounting Department, Faculty of Economics and Business, Universitas Indonesia); Christine Tjen (Accounting Department, Faculty of Economics and Business, Universitas Indonesia)
    Abstract: This study consists of qualitative research and quantitative research. This study conducts qualitative research namely interviews with Directorate General of Taxation (DGT) related to the tax inclusion programs and perceptions of DGT regarding public tax knowledge and public tax education. According to DGT, public tax knowledge is still lacking. In terms of tax education, it said that tax education is still not structured. To overcome this problem, DGT implements a tax inclusion program for the next 30-45 years. In addition to qualitative research, this study also conducts quantitative research, by using questionnaire survey methods on students in Indonesia with the aim of knowing whether or not there is a significant difference related to the level of tax knowledge, student perceptions regarding the importance of tax education, and student perceptions regarding the need for tax education among students who have received tax education and students who have not received tax education. The result shows that there is a significant difference between students who have received tax education and students who have not received tax education in terms of the level of tax knowledge. Related to the perception regarding the need for tax education, there is a significant difference between students who have received tax education and have not received tax education.
    Keywords: tax education — tax knowledge — tax perceptions — tax inclusion
    JEL: A22 H20
    Date: 2020
  10. By: Bas Jacobs; Uwe Thuemmel
    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: H20 H50 I20 J20 O30
    Date: 2020
  11. By: Yutao Han,; Patrice Pieretti; Giuseppe Pulina
    Abstract: International capital mobility intensifies tax competition between jurisdictions. However, many firms only operate domestically and are internationally immobile. This paper aims to analyze the effect of tax competition on the profitability of local (immobile) firms, especially when tax and non-tax instruments, including infrastructure provision, are involved. We show that tax competition decreases investment and profit of local firms when internationally mobile fims do not benefit suficiently from local infrastructure.
    Keywords: Local firms, multinational rms, tax competition, infrastructure competition, tax harmonization.
    JEL: F21 F23 H25 H26
    Date: 2020–11
  12. By: Nicola Comincioli; Paolo Panteghini; Sergio Vergalli
    Abstract: In this article we introduce a stochastic model with a multinational company (MNC) that exploits tax avoidance practices. We focus on both transfer pricing (TP) and debt shifting (DS) activities and show how their optimal level is chosen by the shareholders. In addition, we perform an extensive numerical simulation, fine-tuned on empirical data, to measure the impact of tax avoidance practices on the MNC’s value and to study their sensitivity to exogenous variables. We will show that: an increase in risk sharply reduces leverage and slightly decreases a MNC’s value; the cost of TP leads to a sharp reduction in the MNC’s value, whereas it does not affect leverage; the impact on MNC’s decisions is increasing in the tax rate differential; finally, the cost of DS has always a relevant impact on both MNC’s value and leverage.
    Keywords: capital structure, default risk, business taxation and welfare
    JEL: H25 G33 G38
    Date: 2020
  13. By: Nicola Comincioli (University of Brescia and Fondazione Eni Enrico Mattei); Paolo M. Panteghini (University of Brescia and CESifo); Sergio Vergalli (University of Brescia and Fondazione Eni Enrico Mattei)
    Abstract: In this article we introduce model to describe the behavior of a multinational company (MNC) that operates transfer pricing and debt shifting, with the purpose of incrementing its value, intended as the sum of equity and debt. We compute, in a stochastic environment and under default risk, the optimal shares of profit and debt to be shifted and show how they are a ected by exogenous features of the market. In addition, by means of a numerical analysis, we simulate and quantify the benefit arising from the exploitation of tax avoidance practices and study the corresponding impact on MNC's fundamental indicators. A wide sensitivity analysis on model's parameters is also provided.
    Keywords: Capital Structure, Default Risk, Business Taxation and Welfare
    JEL: H25 G33 G38
    Date: 2020–10
  14. By: Advani, Arun (University of Warwick, CAGE, and IFS)
    Abstract: We use administrative tax data from audits of self-assessment tax returns to understand what types individuals are most likely to be non-compliant. Non-compliance is common, with one-third of taxpayers underpaying by some amount, although half of aggregate under-reporting is done by just 2% of taxpayers. Third party reporting reduces non-compliance, while working in a cash-prevalent industry increases it. However, compliance also varies significantly with individual characteristics: non-compliance is higher for men and younger people. These results matter for measuring inequality, for understanding taxpayer behaviour, and for targeting audit resources.
    Date: 2020
  15. By: Maria Jouste; Milly I. Nalukwago; Ronald Waiswa
    Abstract: This paper conducts an impact evaluation of the effects of two tax administration interventions?a taxpayer register expansion and education programme, and a new electronic filing system for presumptive tax?on the number of small business taxpayers and presumptive tax revenues in Uganda.
    Keywords: Tax administration, Small business, Tax compliance, Electronic filing, Impact evaluation, Administrative data, Tax administration data
    Date: 2021

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