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on Public Economics |
| By: | Clemens Fuest; Felix Hugger; Florian Neumeier |
| Abstract: | This paper is the first to use information from individual country-by-country (CbC) re-ports to assess the extent of profit shifting by multinational enterprises. Unlike other data often used to evaluate the extent of profit shifting and tax avoidance, CbC reports pro-vide a complete coverage of the global distribution of profits and indicators of economic activity for multinationals exceeding a certain revenue threshold. We show that 82% of the German multinationals subject to CbC reporting have tax haven subsidiaries and that these subsidiaries are notably more profitable than those in non-havens. However, only 9% of the global profits of German multinationals are reported in tax havens. Results from regression analysis suggest that approximately 40% of the profits reported in tax havens are a result of tax-induced profit shifting. The associated annual tax base loss for Germany amounts to EUR 5.4 billion. Adding estimates of profit shifting by multinationals not covered by the CbC data yields an overall estimate for profits shifted out of Germany to tax havens of EUR 19.1 billion per year, corresponding to 4.3% of the profits reported by these firms in Germany. This implies a tax revenue loss due to corporate profit shifting to tax havens of EUR 5.7 billion per year. |
| Keywords: | corporate taxation, tax avoidance, profit shifting, multinational enterprises, country-by-country reporting |
| JEL: | F23 H25 H26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8838&r=all |
| By: | Marco Alfò (Università di Roma La Sapienza); Lorenzo Carbonari (CEIS & DEF, University of Rome "Tor Vergata"); Giovanni Trovato (CEIS & DEF, University of Rome "Tor Vergata") |
| Abstract: | Growth models predict that taxation may have permanent effects on per capita real GDP growth. We look at, and test this prediction for 21 OECD countries, over the period 1965-2010. We employ a semi-parametric technique - namely, a Finite Mixture model - to estimate an augmented version of the Barro (1990) model, in order to consider both direct and indirect effects of taxation on capital share parameters. The estimation technique allows to deal with unobserved heterogeneity and to perform a cluster analysis. Our results support the idea that taxes are generally harmful for growth. The coefficient estimates indicate that a cut in the corporate income tax rate by 10 % raises the GDP growth rate by 0.9% while a cut in the personal income tax rate by 10% raises the GDP growth rate by 1%. |
| Keywords: | Economic growth, taxation, classification. |
| JEL: | H30 O30 O40 |
| Date: | 2020–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:480&r=all |
| By: | Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Valentina Antonaroli (DEF, Università di Roma "Tor Vergata"); Alessandra Pelloni (DEF and CEIS, Università di Roma "Tor Vergata") |
| Abstract: | The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed. |
| Keywords: | Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect. |
| JEL: | O41 E62 H21 |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:485&r=all |
| By: | Agustin Velasquez; Svetlana Vtyurina |
| Abstract: | Hours worked vary widely across countries and over time. In this paper, we investigate the role played by taxation in explaining these differences for EU New Member States. By extending a standard growth model with novel data on consumption and labor taxes, we assess the evolution of trends in hours worked over the 1995-2017 period. We find that the inclusion of tax rates in the model significantly improves the tracking of hours. We also estimate the elasticity of hours (and its different margins) to quantify the deadweight loss introduced by consumption and labor taxes. We find that these taxes explain a large share of labor supply differences across EU New Member States and that the potential gains from policy actions are noteworthy. |
| Keywords: | Labor taxes;Labor;Consumption taxes;Social security contributions;Personal income tax;WP,income tax,tax rate,labor market,personal income |
| Date: | 2019–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/130&r=all |
| By: | Natasha Sarin; Lawrence H. Summers; Owen M. Zidar; Eric Zwick |
| Abstract: | We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the composition of capital gains has shifted in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. Third, focusing on capital gains tax collection may understate fiscal spillovers from decreasing the preferential tax treatment for capital gains. Fourth, additional base-broadening reforms, like eliminating stepped-up basis and making charitable giving a realization event, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise $1 trillion more revenue over a decade than other estimates suggest. Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and be the subject of external professional debate and review. |
| JEL: | H0 H2 H3 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28362&r=all |
| By: | Michael Kogler |
| Abstract: | How can tax policy improve financial stability? Recent studies suggest large stability gains from eliminating the debt bias in corporate taxation. It is well known that this reform reduces bank leverage. This paper analyzes a novel, complementary channel: risk taking. We model banks’ portfolio choice under moral hazard and emphasize the ‘incentive function’ of equity. We find that (i) an allowance for corporate equity (ACE) and a lower tax rate discourage risk taking and offer stability and welfare gains, (ii) a revenue-neutral ACE unambiguously improves financial stability, and (iii) capital regulation and deposit insurance influence the risk-taking effects of taxation. |
| Keywords: | corporate taxation, tax reform, banking, risk taking, financial stability |
| JEL: | G21 G28 H25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8830&r=all |
| By: | Thomas A. Gresik; Eric Bond |
| Abstract: | We examine the effects of unilateral changes in a country’s tax parameters in a two country model when both countries are part of a destination-based cash flow taxation (DBCFT) system. We con-sider deviations from a globally efficient DBCFT equilibrium by allowing each country to vary its corporate tax rate, degree of taxation of capital income, and level of border adjustment. We decompose the effect of policy changes into fiscal effects and price effects, and show that regardless of the similarity between the two countries, at least one country has an incentive to move toward taxation of capital income. If countries are identical, each has an incentive to move toward source-based taxation. In contrast, changes in corporate tax rates have neither fiscal or price effects, and thus can be set unilaterally. Our results show that an international agreement to establish multilateral DBCFT requires a commitment mechanism to prevent deviations from cash flow taxation and full border adjustments. |
| Keywords: | destination-based taxes, source-based taxes, cash-flow taxes |
| JEL: | H73 H21 F23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8836&r=all |
| By: | Mathias Dolls; Clemens Fuest; Carla Krolage; Florian Neumeier |
| Abstract: | This paper examines the effects of real estate transfer taxes (RETT) on property prices using a rich micro dataset of roughly 17 million German properties for the period from 2005 to 2019. We exploit a 2006 constitutional reform that allows states to set their own RETT rates, leading to frequent increases in states’ tax rates in the subsequent years. Our monthly event study estimates indicate a price response that strongly exceeds the change in the tax burden for single transactions. Twelve months after a reform, a one percentage point increase in the tax rate reduces property prices by on average 3%. Effects are stronger for apartments and apartment buildings than for single-family houses. Moreover, negative price effects are predominantly found in growing housing market regions. Our results can be rationalized by a theoretical model that predicts larger price responses in sellers’ markets and for properties with a high transaction frequency. |
| Keywords: | real estate transfer taxes, property taxes, housing market |
| JEL: | H22 H71 R32 R38 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8839&r=all |
| By: | Clément Malgouyres (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - 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, IPP - Institut des politiques publiques); Thierry Mayer (Institut d'Études Politiques [IEP] - Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR); Clément Mazet-Sonilhac (Institut d'Études Politiques [IEP] - Paris, Banque de France - Banque de France - Banque de France) |
| Abstract: | Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location's attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from reduced-form estimates. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than the 40% initially reported. The null associated with the "conventional view" that the share on workers is 1 and that on firm owners is 0 is still rejected. |
| Keywords: | Incidence,Corporate income tax,Discrete/continuous choice |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03082268&r=all |
| 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. |
| Keywords: | JEL Classification: |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:530&r=all |
| By: | Grégoire Rota-Graziosi (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique, FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Fayçal Sawadogo (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique, FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | We estimate the tax burden on the mobile telecommunication sector in twenty-five African countries. This tax burden encompasses not only standard and particular taxes under the control of the Ministry of Finance (MoF), but also fees raised by national telecommunication Regulatory Agency (RA). Given the lack of financial data at the country level, we build a representative mobile network operator, named TELCO, using the GSMA Intelligence database. We compute the Average Effective Tax Rate (AETR) for this firm considering general and special taxes and fees levied only on the telecommunication sector. We develop a web application (https://data.cerdi.uca.fr/ telecom/), which allows the reader to replicate our analysis or to modify TELCO and tax parameters. The AETR varies significantly across countries, ranging from 33 percent in Ethiopia to 118 percent in Niger. Special taxes and fees represent a large share of the AETR illustrating some taxation by regulation and a potential tax competition (a race to the top) between the MoF and the RA. We compare the AETR of TELCO to this of a representative gold mining plant and a standard firm with similar gross return. The tax burden of the telecommunication sector is higher than this of the mining sector in 15 countries out of the 19 countries for which we have data on the gold mining sector. |
| Keywords: | Taxation,Telecommunication sector,Project analysis,Developing countries |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03109370&r=all |
| By: | Emmanuel Saez |
| Abstract: | This paper argues that the social nature of humans, absent from the standard economic model, is crucial to understand our large modern social states and why concerns about inequality are so pervasive. A social solution arises when a situation is resolved at the group level (rather than the individual level) through cooperation and fair distribution of the resulting surplus. In human societies, childcare and education for the young, retirement benefits for the old, health care for the sick, and income support for those in need, is resolved at the social level, and through the social state in advanced economies. Social situations are pervasive even outside government and play a significant role in the distribution of pre-tax market incomes. |
| JEL: | H0 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28387&r=all |
| By: | Bernardin Akitoby; Jiro Honda; Hiroaki Miyamoto; Keyra Primus; Mouhamadou Sy |
| Abstract: | How can Low-Income Countries (LICs) enhance tax revenue collection to finance their vast development needs? We address this question by analyzing seven tax reform experiences in LICs (Burkina Faso, The Gambia, Maldives, Mauritania, Rwanda, Senegal, and Uganda). Three lessons stand out, although reforms must be tailored to individual circumstances: (i) Tax reforms require first and foremost political commitment and buy-in from key stakeholders; (ii) Countries that pursue both revenue administration and tax policy reforms tend to see much larger and persistent gains; and (iii) A successful strategy often starts with fiscal reform measures with immediate effect to build momentum. These can include: simplifying the tax system; curbing exemptions; reforming indirect taxes on goods and services (e.g., excises); and better managing compliance risks through strengthening taxpayer segmentation (often beginning with strengthening the Large Taxpayers Office). A comprehensive reform strategy (e.g., a medium-term revenue strategy) can help to properly sequence reform measures and facilitate their implementation. |
| Keywords: | Revenue administration;Tax administration core functions;Consumption taxes;Value-added tax;Excises;WP,excise tax,indirect tax,country authorities,tax system,income tax,withholding tax |
| Date: | 2019–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/104&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Alex Adegboye (Covenant University, Ogun State, Ota, Nigeria); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | This study explores whether female economic inclusion enhances tax performance in a sample of 48 countries in Sub-Saharan Africa from 2000 to 2018. The study’s empirical evidence is based on the generalized method of moments in order to account for endogeneity concerns. Three tax performance measurements are used, notably, total taxes revenue excluding social contributions, reported tax revenue derived from natural resources sources, and total non-resource tax revenue. Three female inclusion indicators are used, namely, female employment in industry, female labour force participation, and female employment. The following empirical evidences are documented; (i) There is a negative net effect from the enhancement of female employment in the industry on the total tax revenue. (ii) There is a positive net effect of female employment in the industry on the non-resource taxes. An extended threshold analysis is performed to establish the critical masses that could further influence tax performance positively. The following thresholds are established. (i) a minimum of 15.35 “employment in industry, female (% of female employment)†for the total tax revenue and (ii) a maximum of 23.75 “employment in industry, female (% of female employment)†for the non-resource tax revenue. These critical masses are crucial for sustainable development because, below or beyond these thresholds, policy makers should complement the female economic inclusion with other economic measures designed to improve tax performance in Sub-Saharan Africa. |
| Keywords: | Gender, economic inclusion, tax performance, sustainable development, Africa |
| JEL: | H20 H71 I28 J08 J21 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:20/093&r=all |