nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒04‒05
thirteen papers chosen by
Thomas Andrén

  1. Welfare Effects of Property Taxation By Max Löffler; Sebastian Siegloch
  2. Tax Evasion at the Top of the Income Distribution: Theory and Evidence By John Guyton; Patrick Langetieg; Daniel Reck; Max Risch; Gabriel Zucman
  3. Are Budget Neutral Income Floors Fiscally Viable in Sub-Saharan Africa? By Nora Lustig; Jon Jellema; Valentina Martinez Pabon
  4. Can increased tax transparency curb corporate tax avoidance? By Michael Razen; Alexander Kupfer
  5. Escaping the Exchange of Information: Tax Evasion via Citizenship-by-Investment By Dominika Langenmayr; Lennard Zyska
  6. The private return of R&D tax credit By Pierre Courtioux; François Métivier; Antoine Rebérioux
  7. Does a Wealth Tax Improve Equality of Opportunity? Evidence from Norway By Kristoffer Berg; Shafik Hebous
  8. International Taxation and Productivity Effects of M&As By Maximilian Todtenhaupt; Johannes Voget
  9. Tax revenues and social protection financing in African and Latin American countries By Afrika Ndongozi-Nsabimana
  10. Combining Rules and Discretion in Economic Development Policy: Evidence on the Impacts of the California Competes Tax Credit By Matthew Freedman; David Neumark; Shantanu Khanna
  11. Taxes and Turnout: When the Decisive Voter Stays at Home By Felix Bierbrauer; Aleh Tsyvinski; Nicolas Werquin
  12. Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform By Gabriela Galassi
  13. The Political Economy of Responses to COVID-19 in the U.S.A. By Zhihan Cui; Geoffrey Heal; Howard Kunreuther; Lu Liu

  1. By: Max Löffler; Sebastian Siegloch
    Abstract: We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that the tax incidence depends on how housing prices, labor and other types of incomes as well as public services respond to property tax changes. Empirically, we exploit the German institutional setting with 5,200 municipal tax reforms for identification. We find that higher taxes are fully passed on to rental prices after three years. The pass-through is lower when housing supply is inelastic. Combining reduced form estimates with our theoretical framework, we simulate the welfare effects of property taxes and show that they are regressive.
    Keywords: property taxation, welfare, tax incidence, local labor markets, rental housing
    JEL: H22 H41 H71 R13 R31 R38
    Date: 2021
  2. By: John Guyton; Patrick Langetieg; Daniel Reck; Max Risch; Gabriel Zucman
    Abstract: This paper studies tax evasion at the top of the U.S. income distribution using IRS micro-data from (i) random audits, (ii) targeted enforcement activities, and (iii) operational audits. Drawing on this unique combination of data, we demonstrate empirically that random audits underestimate tax evasion at the top of the income distribution. Specifically, random audits do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top. We provide a theoretical explanation for this phenomenon, and we construct new estimates of the size and distribution of tax noncompliance in the United States. In our model, individuals can adopt a technology that would better conceal evasion at some fixed cost. Risk preferences and relatively high audit rates at the top drive the adoption of such sophisticated evasion technologies by high-income individuals. Consequently, random audits, which do not detect most sophisticated evasion, underestimate top tax evasion. After correcting for this bias, we find that unreported income as a fraction of true income rises from 7% in the bottom 50% to more than 20% in the top 1%, of which 6 percentage points correspond to undetected sophisticated evasion. Accounting for tax evasion increases the top 1% fiscal income share significantly.
    JEL: D31 H26
    Date: 2021–03
  3. By: Nora Lustig (Tulane University); Jon Jellema (CEQ Institute); Valentina Martinez Pabon (Tulane University)
    Abstract: Using microsimulations, we assess whether budget neutral universal income floors are fiscally viable in twelve SSA countries. We consider three universal basic income (UBI) scenarios of decreasing levels of generosity: poverty line, average poverty gap, and current spending on transfers and subsidies per person (spending neutral). The viability of the policies is assessed by comparing the results on poverty and average tax rates obtained from the simulated scenarios with those in the current system (baseline). We find that poverty line and poverty gap UBI programs would not be viable. Spending neutral UBI programs could potentially be viable in Botswana, Ghana and Zambia. If resources are targeted to the poor, a poverty line scenario is viable in Botswana, Ghana, Namibia, and South Africa.
    Keywords: Universal basic incomes, Fiscal policy, Fiscal incidence, Poverty, Fiscal impoverishment, Taxes, Sub-Saharan Africa
    JEL: H22 I38 D31
    Date: 2021–03
  4. By: Michael Razen; Alexander Kupfer
    Abstract: Tax avoidance among large multinational corporations has considerably increased in recent years, triggering an intense discussion about how to ensure tax justice. We propose a novel experimental design to incentive-compatibly model the firm-consumer relationship in a consumer goods market. This new paradigm allows us to analyze the effect of increased tax transparency on consumer and firm behavior in a dynamic framework. We find that absent the threat of being exposed as a tax avoiding firm, only 26% of the firms decide to pay taxes. Once tax avoiding firms are identifiable in the market, this rate rises to 58%. Providing market participants additionally with information about the social costs of tax avoidance increases the fraction of tax paying firms further to 74%. We show that these improvements are the consequence of firms proactively adopting tax responsible behavior and, at the highest level of transparency, consumers showing a stronger proclivity to boycott tax avoiding firms, even if these firms offer cheaper prices. Our results confirm the effectiveness of increased transparency to curb corporate tax avoidance.
    Keywords: economic experiment, tax avoidance, public good dilemma, consumer behavior, firm behavior
    JEL: C9 C92 H26
    Date: 2021–10
  5. By: Dominika Langenmayr; Lennard Zyska
    Abstract: With (automatic) exchange of tax information among countries now common, tax evaders have had to find new ways to hide their offshore holdings. One such way are citizenship-by-investment programs, which offer foreigners a new passport for a local investment or a fixed fee. We show analytically that high-income individuals acquire a new citizenship to lower the probability that their tax evasion is detected through information exchange. Using data on cross-border bank deposits, we find that deposits in tax havens increase after a country starts offering a citizenship-by-investment program, providing indirect evidence that tax evaders use these programs.
    Keywords: citizenship-by-investment programs, tax havens, tax evasion
    JEL: H26 H24 F53 K37
    Date: 2021
  6. By: Pierre Courtioux (Paris School of Business (PSB) et Centre d'Economie de la Sorbonne (CES)); François Métivier (Université de Paris - Institut de Physique du Globe de Paris); Antoine Rebérioux (Université de Paris, LADYSS)
    Abstract: This article examines the private return on R&D tax credit, defined as the ratio of total tax reliefs obtained by a firm through R&D tax credit to real R&D spending. Based on a dataset merging different sources for French companies, we first show that the distribution of this private return is dispersed. We then use clustering analyses to identify six mutually exclusive types of firms' R&D strategies. We finally show in a regression setting that these strategies explain part of the variance in the private return on R&D tax credit. This study contributes to a better understanding of the heterogeneity of firms' R&D strategies. It also seeks to open new directions in debates surrounding the proper design and reforms of R&D tax credit schemes
    Keywords: R&D; tax credit; firm strategies; firm heterogeneity
    JEL: C38 H25 O38
    Date: 2021–03
  7. By: Kristoffer Berg; Shafik Hebous
    Abstract: Does parental wealth inequality impact next generation labor income inequality? And does a tax on parental wealth affect the labor income distribution of the next generation? We tackle both questions empirically using detailed intergenerational data from Norway, focusing on effects on wages rather than capital income. Results suggest that a net wealth of NOK 1 million increases wages of the children by NOK 14,000. Children of wealthy parents also have a higher labor income mobility. The estimated hypothetical wage distribution without the wealth tax is more unequal. Moreover, suggestive evidence indicates parental wealth is associated with higher labor risk taking.
    Date: 2021–03–19
  8. By: Maximilian Todtenhaupt; Johannes Voget
    Abstract: We investigate how changes in firm productivity after M&As are affected by differences in profit taxation between the target and the acquirer. We argue that tax differentials distort the efficient allocation of productive factors following an M&A and thus inhibit the realization of productivity improvements. Using firm-level data on inputs and outputs of production as well as on corporate M&As, we show that the absolute tax differential between the locations of two merging firms reduces the subsequent total factor productivity gain. This effect is concentrated in horizontal M&As and less pronounced when firms can use international profit shifting to attenuate effective differences in taxation.
    Keywords: M&A, productivity, international taxation
    JEL: F23 H25
    Date: 2021
  9. By: Afrika Ndongozi-Nsabimana (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Social protection plays an important role in the achievement of development. Hence, it is highlighted in the Sustainable Development Goals (SDGS) 1,3,5,8 and 10. One of the solutions to achieve universal protection coverage, notably in African and Latin American countries, is sustainable financing. This article focuses on one type of financing, which is tax revenues and its possible effects on public social protection expenditures in percentage of Gross Domestic Product (GDP) as a proxy for social protection financing. It is assumed that the greater the share of tax revenues in GDP is, the greater the resources available for social protection programs are. This would allow better financial sustainability of these programs. Using a panel analysis, the study finds a positive but non-significant effect of total tax revenues and resource tax revenues. As for non-resource tax revenues, they have a positive and significant effect as well as the control variables "rural population", "population aged 65 years and over".
    Keywords: Tax revenues,Social protection,Social protection financing,SDGs,Developing countries.
    Date: 2020–03
  10. By: Matthew Freedman; David Neumark; Shantanu Khanna
    Abstract: We evaluate the effects of one of a new generation of economic development programs, the California Competes Tax Credit (CCTC), on local job creation. Incorporating perceived best practices from previous initiatives, the CCTC combines explicit eligibility thresholds with some discretion on the part of program officials to select tax credit recipients. The structure and implementation of the program facilitates rigorous evaluation. We exploit detailed data on accepted and rejected applicants to the CCTC, including information on scoring of applicants with regard to program goals and funding decisions, together with restricted access American Community Survey (ACS) data on local economic conditions. Using a difference-in-differences approach, we find that each CCTC-incentivized job in a census tract increases the number of individuals working in that tract by over two – a significant local multiplier. We also explore the program’s distributional implications and impacts by industry. We find that CCTC awards increase employment among workers residing in both high income and low income communities, and that the local multipliers are larger for non-manufacturing awards than for manufacturing awards.
    JEL: H25 H71 J68 R11 R23 R58
    Date: 2021–03
  11. By: Felix Bierbrauer; Aleh Tsyvinski; Nicolas Werquin
    Abstract: We develop a model of political competition with endogenous turnout and endogenous platforms. Parties trade off incentivizing their supporters to vote and discouraging the supporters of the competing party from voting. We show that the latter objective is particularly pronounced for a party with an edge in the political race. Thus, an increase in political support for a party may lead to the adoption of policies favoring its opponents so as to asymmetrically demobilize them. We study the implications for the political economy of redistributive taxation. Equilibrium tax policy is typically aligned with the interest of voters who are demobilized.
    Date: 2021
  12. By: Gabriela Galassi
    Abstract: This paper analyzes how firms respond to changes in tax benefits for low-earning workers and how, through equilibrium effects, such policies also affect non-targeted, high-earning workers. I explore establishment-level outcomes around Germany’s 2003 Mini-Job Reform, which entailed a significant expansion of tax benefits for low-earning workers. Firms’ responses are decomposed in terms of the scale effects that arise from lower labor costs and the substitution effects that are due to changes in the relative prices of low- and high-earning employment post-reform. Using a differences-in-differences approach, I document that highly exposed establishments—those with a high proportion of low-earning workers pre-reform—expand their number of employees relative to non-exposed establishments–those with a low proportion of such workers. Importantly, this relative expansion is tilted towards high-earning workers, a group that is not the target of the tax benefits. In addition, non-exposed establishments substitute employment towards low-earning workers without expanding at the same pace. My findings are consistent with a model of the labor market that features tax sharing between workers and firms and simultaneous shifts in labor supply and demand after changes in tax benefits for low-earning workers. In this setting I illustrate that the employment growth the policy intended is accompanied by a reallocation of employment and production between highly exposed firms and non-exposed firms, and this may result in an efficiency loss.
    Keywords: Economic models; Firm dynamics; Labour markets
    JEL: H32 E64 I38 J38
    Date: 2021–03
  13. By: Zhihan Cui; Geoffrey Heal; Howard Kunreuther; Lu Liu
    Abstract: Social distancing via shelter-in-place strategies, and wearing masks, have emerged as the most effective non-pharmaceutical ways of combatting COVID-19. In the United States, choices about these policies are made by individual states. We develop a game-theoretic model and then test it econometrically, showing that the policy choices made by one state are strongly influenced by the choices made by others. If enough states engage in social distancing or mask wearing, they will tip others that have not yet done so to follow suit and thus shift the Nash equilibrium. If interactions are strongest amongst states of similar political orientations there can be equilibria where states with different political leanings adopt different strategies. In this case a group of states of one political orientation may by changing their choices tip others of the same orientation, but not those whose orientations differ. We test these ideas empirically using probit and logit regressions and find strong confirmation that inter-state social reinforcement is important and that equilibria can be tipped. Policy choices are influenced mainly by the choices of other states, especially those of similar political orientation, and to a much lesser degree by the number of new COVID-19 cases. The choice of mask-wearing policy shows more sensitivity to the actions of other states than the choice of SIP policies, and republican states are much less likely to introduce mask-wearing policies. The choices of both types of policies are influenced more by political than public health considerations.
    JEL: H7 I1
    Date: 2021–03

This nep-pbe issue is ©2021 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.