nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒05‒24
fourteen papers chosen by
Thomas Andrén

  1. Taxing Our Wealth By Scheuer, Florian; Slemrod, Joel
  2. Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada By Lavecchia, Adam M.; Tazhitdinova, Alisa
  3. Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule By Neryvia Pillay
  4. Reforming the Individual Direct Taxation System of North Cyprus By Glenn P. Jenkins; Amin Sokhanvar; Hasan Ulaş Altıok
  5. Profit-splitting Rules and the Taxation of Multinational Digital Platforms By Bloch, Francis; Demange, Gabrielle
  6. How Should Tax Progressivity Respond to Rising Income Inequality By Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L.
  7. The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance By Lejour, Arjan
  8. Understanding Tax Policy: How do people Reason By Stantcheva, Stefanie
  9. Asymmetric information, strategic transfers, and the design of long-term care policies By Canta, Chiara; Cremer, Helmuth
  10. The effect of inter vivos gifts taxation on wealth inequality and economic growth By Template-Type: ReDIF-Paper 1.0; Ryota Nakano
  11. The Dynamic Response of Municipal Budgets to Revenue Shocks By Ines Helm; Jan Stuhler
  12. The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance By Lejour, Arjan
  13. Fiscal transfers, local government, and entrepreneurship By Danisewicz, Piotr; Ongena, Steven
  14. The commitment benefit of consols in government debt management By Davide Debortoli; Ricardo Nunes; Pierre Yared

  1. By: Scheuer, Florian; Slemrod, Joel
    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.
    Keywords: Capital taxation; inequality; Wealth Taxation
    JEL: H2
    Date: 2020–11
  2. By: Lavecchia, Adam M. (McMaster University); Tazhitdinova, Alisa (University of California, Santa Barbara)
    Abstract: Using panel data on a 20% random sample of Canadian taxpayers, we study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. The unique setting allows us to distinguish between short-term avoidance responses and permanent responses to capital gains taxes. We show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. However, the exemption cancellation slightly increased capital gains realizations of the existing traders.
    Keywords: capital gains tax, real responses, avoidance, re-timing
    JEL: H24 H31 G51
    Date: 2021–04
  3. By: Neryvia Pillay
    Abstract: I apply the bunching methodology to South African administrative tax data over the period from 2011 to 2017 to investigate the responsiveness of individual taxpayers to changes in marginal personal income tax rates. I ï¬ nd signiï¬ cant evidence of bunching among the self-employed but no evidence of bunching among wage earners. Among the self-employed, bunching is greatest at the highest kink in the income tax schedule and smallest at the lowest kink. Female self-employed exhibit greater bunching behaviour than male self-employed, and responsiveness appears to decrease with age. The responsiveness of the self-employed appears to be due to tax avoidance by shifting income into future periods through retirement fund deductions, as well as a real labour supply response. Despite the signiï¬ cant excess bunching observed, the implied elasticities of taxable income–under the assumption of a uniform heterogeneity distribution around the kink–are not very large.
    Keywords: taxpayer responsiveness, taxation, bunching, South Africa
    JEL: H24 H31 O12
    Date: 2021–02
  4. By: Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus); Amin Sokhanvar (Graduate School of Economics and Management, Ural Federal University, Yekaterinburg, Russia); Hasan Ulaş Altıok (Department of Banking and Finance Eastern Mediterranean University, North Cyprus)
    Abstract: The need to restructure the taxation system of the TRNC arise from the unsustainable public sector deficit, inequalities in the tax incidence, and the dependency of fiscal support from Turkey. This paper investigates the changes that need to be made to its individual directs tax in order to have a more sustainable structure of government finances. The tax reform measures proposed, developed, and analysed in this paper indicates that it is possible to create a simpler, more equitable, revenue-productivity direct tax system while improving the incentives for enhanced taxpayer compliance.
    Keywords: pension funds; personal income tax; tax incidence; tax compliance; fiscal equity
    JEL: H24 H26
    Date: 2021–05–11
  5. By: Bloch, Francis; Demange, Gabrielle
    Abstract: This paper analyzes the strategy of a monopolistic digital platform serving users from two jurisdictions with different corporate tax rates. We consider two profit-splitting rules, Separate Accounting (SA) and Formula Apportionment (FA) based on the number of users in the two jurisdictions. We show that, even in the absence of transfer pricing, the platform shifts profit from the high-tax to the low-tax jurisdiction exploiting network externalities under SA and manipulating the apportionment key under FA. In order to shift profit, the platform distorts prices and quantities. Under SA, the direction of the distortions depends on the sign of the externalities. We use a numerical simulation to show that the ranking of fiscal revenues under the two r\'{e}gimes differ in the two jurisdictions: the high-tax jurisdiction prefers SA to FA whereas the low-tax jurisdiction prefers FA to SA.
    Keywords: corporate income taxation; Digital Platforms; Formula Apportionment; multinational firms; Separate accountin
    JEL: H25 H32 L12 L14
    Date: 2020–10
  6. By: Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L.
    Abstract: We address this question in a heterogeneous-agent incomplete-markets model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to be log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription.
    Keywords: inequality; InequalityMarkets; Labor Supply; optimal taxation; redistribution; Tax progressivity
    JEL: D30 E20 H20 I22 J22 J24
    Date: 2020–10
  7. By: Lejour, Arjan (Tilburg University, Center For Economic Research)
    Keywords: international tax avoidance; corporate income tax; withholding taxes; conduit countries; tax havens; treaty shopping
    Date: 2021
  8. By: Stantcheva, Stefanie
    Abstract: I study how people understand, reason, and learn about tax policy. The goal is to uncover the mental models that people use to think about income and estate taxes. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. The detailed survey questions are designed to address the three main factors emphasized in our core tax model that can shape support for or opposition to taxes: efficiency effects, distributional implications, and fairness considerations. But they also elicit broader concerns that could influence policy views, such as misperceptions, views of government, perceived spillovers from taxes, and views on how tax revenues are or should be spent. I decompose policy views into the various underlying factors and find that support for tax policy is most strongly correlated with views on the benefits of redistribution and fairness, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the ``Redistribution'' and the ``Efficiency'' treatments) or that bring the two together and focus on the trade-off (the ``Economist'' treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive taxes. I also find that there are partisan divergences not just in the final policy views, but also at every step of the reasoning about the underlying mechanisms of taxes, and most starkly on the fairness considerations.
    Keywords: Experiments; Fairness; Perceptions; redistribution; survey; taxation
    JEL: D72 D91 H21 H23 H24 H41
    Date: 2020–08
  9. By: Canta, Chiara; Cremer, Helmuth
    Abstract: We study the design of social long-term care (LTC) insurance when informal care is exchange-based. Parents do not observe their children's cost of providing care, which is continuously distributed over some interval. They choose a rule specifying transfers that are conditional on the level of informal care. Social LTC insurance is designed to maximize a weighted sum of parents' and children's utility. The optimal uniform public LTC insurance can fully cover the risk of dependence but parents continue to bear the risk of having children with a high cost of providing care. A nonlinear policy conditioning LTC benefits on transfers provides full insurance even for this risk. Informal care increases with the children's welfare weight. Our theoretical analysis is completed by numerical solutions based on a calibrated example. In the uniform case, public care should represent up to 40% of total care but its share decreases to about 30% as the weight of children increases. In the nonlinear case, public care increases with the children's cost of providing care at a faster rate when children's weight in social welfare is higher. It represents 100% of total care for the families with high-cost children.
    Keywords: asymmetric information; informal care; Long-term care; Strategic bequests
    JEL: H2 H5
    Date: 2020–11
  10. By: Template-Type: ReDIF-Paper 1.0; Ryota Nakano (Graduate School of Economics, Osaka University)
    Abstract: In this study, we develop a three-period overlapping generations model with inter vivos gifts and human capital accumulation. We examine the effect of inter vivos gift taxation on wealth inequality and economic growth. The analysis shows that an increase in the tax rate reduces inequality, and a positive tax rate maximizes the growth rate.
    Keywords: economic growth, human capital accumulation, intergenerational transfer, wealth inequality, gift taxation
    JEL: O11 O40 I24
    Date: 2021–05
  11. By: Ines Helm; Jan Stuhler
    Abstract: We study the fiscal and tax response to intergovernmental grants, exploiting quasi-experimental variation within Germany’s fiscal equalization scheme triggered by Census revisions of official population counts. Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while adjustment to revenue losses is more rapid. Yet, the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical “anomalies” in public finance such as the flypaper effect are thus primarily a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism.
    Keywords: intergovernmental grants, fiscal transfers, government spending, local taxation, census shock, flypaper effect
    JEL: H71 H72 H77 E62
    Date: 2021
  12. By: Lejour, Arjan (Tilburg University, School of Economics and Management)
    Date: 2021
  13. By: Danisewicz, Piotr; Ongena, Steven
    Abstract: Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in municipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship.
    Keywords: "Fuzzy" Regression Disconti-nuity Design; entrepreneurship; Fiscal Transfers; Local government spending
    JEL: E62 H71 H72 L26 P16
    Date: 2020–10
  14. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices -which impacts future policy- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs.
    Keywords: Public debt, optimal taxation, fiscal policy
    JEL: H63 H21 E62
    Date: 2021–05

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