nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒05‒31
sixteen papers chosen by
Thomas Andrén

  1. Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa By Ali Enami; Ugo Gentilini; Patricio Larroulet; Nora Lustig; Emma Monsalve; Siyu Quan; Jamele Rigolini
  2. Clearing the Bar: Improving Tax Compliance for Small Firms through Target Setting By Al-Karablieh, Yazan; Koumanakos, Evangelos; Stantcheva, Stefanie
  3. Corporate taxes, investment and the self-financing rate. The effect of location decisions and exports By Thomas von Brasch; Ivan Frankovic; Eero Tölö
  4. Profit Shifting of Multinational Corporations Worldwide By Javier Garcia-Bernardo; Petr Jansky
  5. EU should focus more on indirect taxes instead of proposals for a digital levy By Spengel, Christoph; Klein, Daniel; Ludwig, Christopher; Müller, Jessica; Müller, Raphael; Weck, Stefan; Winter, Sarah
  6. The Dynamic Response of Municipal Budgets to Revenue Shocks By Helm, Ines; Stuhler, Jan
  7. Tax Progressivity and Self-Employment Dynamics By Arulampalam, Wiji; Papini, Andrea
  8. The Impact of United States Tax Policies on Sectoral Foreign Direct Investment to Asia By Mercer-Blackman , Valerie; Camingue-Romance, Shiela
  9. An Evaluation of the Effects of the European Commission´s Proposals for the Common Consolidated Corporate Tax Base By Alex Cobham; Petr Jansky; Chris Jones; Yama Temouri
  10. Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits? By Haller, Andreas; Staubli, Stefan; Zweimüller, Josef
  11. The Impact of Social Security on Pension Claiming and Retirement: Active vs. Passive Decisions By Lalive, Rafael; Magesan, Arvind; Staubli, Stefan
  12. A Welfare Analysis of Tax Structures with Love-of-Variety Preferences By Kory Kroft; Jean-William P. Laliberté; René Leal Vizcaíno; Matthew J. Notowidigdo
  13. Tax Progressivity and Wealth Inequality: Evidence from Forbes 400 By Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
  14. Are temporary value-added tax reductions passed on to consumers? Evidence from Germany's stimulus By Montag, Felix; Sagimuldina, Alina; Schnitzer, Monika
  15. Corporate tax avoidance and industry concentration By Martin, Julien; Parenti, Mathieu; Toubal, Farid
  16. The Problems of Personal Income Tax on Revenue Generation in Gombe State By Abubakar Bala; Esther Yusuf Enoch; Salisu Yakubu

  1. By: Ali Enami (The University of Akron); Ugo Gentilini (World Bank); Patricio Larroulet (CEQ Institute and CEDES); Nora Lustig (Tulane University); Emma Monsalve (World Bank); Siyu Quan (Tulane University); Jamele Rigolini (World Bank and IZA)
    Abstract: Using microsimulations this paper analyzes the poverty and tax implications of replacing current transfers and subsidies by a budget-neutral (no change in the fiscal deficit) universal basic income program (UBI) in Brazil, Chile, India, Russia, and South Africa. We consider three UBI transfers with increasing levels of generosity and identify scenarios in which the poor are no worse off than in the baseline scenario of existing social transfers. We find that for poverty levels not to increase under a UBI reform, the level of spending must increase substantially with respect to the baseline. Accordingly, the required increase in tax burdens is high throughout. In our five countries and scenarios, the least increase in taxes required to avoid poverty to be higher than in the baseline is around 25% (Brazil and Chile). Even at this lower rate, political resistance and efficiency costs could limit the feasibility of a UBI reform.
    Keywords: Universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: H22 H31 H55 I32 D63
    Date: 2021–05
  2. By: Al-Karablieh, Yazan; Koumanakos, Evangelos; Stantcheva, Stefanie
    Abstract: We use a new dataset consisting of the universe of Greek corporate tax returns matched to financial statements to study a voluntary tax compliance program for small firms. This "self-assessment" program prescribed target taxable profit margins for different types of activity. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take-up the program report significantly larger taxable profits than non-eligible firms, with some evidence of longer-lasting effects on tax reporting. Taxable profits increase by up to 70% of their pre-program levels. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and showcases the ease of manipulating reported revenues.
    Keywords: Amnesty; Corporate taxation; Tax avoidance; Tax compliance; taxation
    JEL: H20
    Date: 2020–08
  3. By: Thomas von Brasch (Statistics Norway); Ivan Frankovic; Eero Tölö
    Abstract: In this paper, we study how lower corporate tax rates impact investment by including two novel channels into a DSGE model used for fiscal policy analysis in Norway. We capture both how foreign firms relocate and invest in the country when corporate taxes are reduced and how the inflow of FDI increase exports which spills over to domestic firms who then increase their investment further. We find that a one percentage point reduction in the corporate tax rate increases investment by 0.6%, most of which can be attributed to the FDI-export link. The corporate tax cut becomes self-financed when the FDI-export link is included, but only if other countries do not follow suit and also lower their corporate tax rates. When using the model to analyze the tax reform in Norway from 2014 to 2019, we find overall positive effects on investment and employment.
    Keywords: Corporate profit tax; Foreign direct investment; Exports; Imports; User cost of capital; Depreciation; Tax reform
    JEL: E62 H21 H25 H32
    Date: 2021–05
  4. By: Javier Garcia-Bernardo (Tax Justice Network, CORPTAX, Charles University in Prague); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We exploit the new multinational corporations´ country-by-country reporting data with unparalleled country coverage to study profit shifting to tax havens. We show that a logarithmic function is preferable to linear and quadratic ones for modelling the extremely non-linear relationship between profits and tax rates. Using this methodology, we reveal that multinational corporations shifted US$1 trillion of profits in 2016 and that those headquartered in the United States and China did so most aggressively. We establish that the Cayman Islands is the largest tax haven, whereas countries with lower incomes tend to lose more tax revenue relative to total tax revenues.
    Keywords: multinational corporation, corporate taxation, profit shifting, effective tax rate, country-by-country reporting, global development
    JEL: F23 H25 H26 H32
    Date: 2021–05
  5. By: Spengel, Christoph; Klein, Daniel; Ludwig, Christopher; Müller, Jessica; Müller, Raphael; Weck, Stefan; Winter, Sarah
    Abstract: As of the beginning of 2021, the European Commission has restarted the formal process to develop a stable regulatory and tax framework to address the challenges of the digital economy. In 2018, the European Commission initially intended to gain political agreement on a Digital Services Tax (DST) proposal as a "quick fix" for the international tax framework, but member states could not reach a collective understanding of the draft directive. Since then, several EU member states have used the DST proposal as a framework for legislative actions at the national level. Unilateral reforms conflict with the OECD's proposal to fundamentally reform worldwide corporate taxation and the efforts to gain a multilateral consensus. The European Commission now intends to consider the developments at the international level, but recommends three additional policy options to tax corporations active in the digital sphere. First, it reconsiders a Digital Services Tax, which is a tax on revenues created by certain digital activities conducted in the EU. Second, it proposes a corporate income tax top-up to be applied to all companies conducting certain digital activities in the EU. Third, it proposes a tax on digital transactions conducted business-to-business in the EU.
    Date: 2021
  6. By: Helm, Ines (Stockholm University); Stuhler, Jan (Universidad Carlos III de Madrid)
    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: 2021–05
  7. By: Arulampalam, Wiji (University of Warwick); Papini, Andrea (European Commission, Joint Research Centre)
    Abstract: Analysis of the relationship between taxes and self-employment should account for the interplay between responses in self-employment and wage employment. To this end, we estimate a two-state multi-spell duration model which accounts for both observed and unobserved heterogeneity using a large longitudinal administrative dataset for Norway for 1993 to 2011. Our findings confirm theoretical predictions, and are robust to various changes to definitions and sample selections. A policy experiment simulating a flatter tax schedule in the year 2000 is found to encourage self-employment, delivering a net increase of predicted inflow into self-employment from 2.8% to 5.3%.
    Keywords: tax progressivity, income tax, self-employment, duration analysis
    JEL: H24 H25 J24 C41
    Date: 2021–05
  8. By: Mercer-Blackman , Valerie (World Bank); Camingue-Romance, Shiela (Asian Development Bank)
    Abstract: How sensitive is inward foreign direct investment (FDI) from the United States (US) to developing Asia to corporate tax rates? This is a relevant question given the sweeping US tax bill effective in 2018, which provided incentives for US corporations abroad to repatriate profits. Using panel data at the country and sector level, we find that the effects are quite different across sectors, and that controlling for other factors such as market size, costs, openness, and the business environment, the corporate income tax rate differential is generally not statistically significant, including for global value chain-related FDI to developing Asia. It does have a small effect on service sectors such as financial intermediation and business services where sunk costs are small.
    Keywords: corporate tax; FDI; fiscal policy; foreign investment; Tax and Jobs Act; sectors
    JEL: F21 H25 H30
    Date: 2020–12–21
  9. By: Alex Cobham (Tax Justice Network, United Kingdom); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Chris Jones (Aston University, United Kingdom); Yama Temouri (Aston University, United Kingdom & Khalifa University, United Arab Emirates)
    Abstract: This paper evaluates the Common Consolidated Corporate Tax Base (CCCTB) recently proposed by the European Commission. We find that if the CCCTB is introduced as it is currently proposed (including loss consolidation), then it is likely to impose large tax revenue costs of about one fifth of the corporate tax base. Second, we show that an application of the CCCTB proposals at only the European Union (EU) level would overlook the extent of profit shifting out of the EU and could lock in further unnecessary revenue losses. Third, major EU profit-shifting countries such as Luxembourg, Ireland and the Netherlands may experience significant revenue losses.
    Keywords: Common Consolidated Corporate Tax Base, CCCTB, corporate taxation, profit shifting, European Union, multinational enterprises
    JEL: F23 H25 H32
    Date: 2021–05
  10. By: Haller, Andreas; Staubli, Stefan; Zweimüller, Josef
    Abstract: We study the welfare effects of disability insurance (DI) and derive social-optimality conditions for the two main DI policy parameters: (i) DI eligibility rules and (ii) DI benefits. Causal evidence from two DI reforms in Austria generate fiscal multipliers (total over mechanical cost reductions) of 2.0-2.5 for stricter DI eligibility rules and of 1.3-1.4 for lower DI benefits. Stricter DI eligibility rules generate lower income losses (earnings + transfers), particularly at the lower end of the income distribution. Hence, to roll back the Austrian DI program, policy makers should implement tighter DI eligibility rules rather than lower DI benefits. An application of our framework to the DI system of the U.S. suggests that DI eligibility rules are too strict and DI benefits are too low.
    Keywords: benefits; Disability insurance; Policy Reform; screening
    JEL: H53 H55 J14 J21 J65
    Date: 2020–08
  11. By: Lalive, Rafael; Magesan, Arvind; Staubli, Stefan
    Abstract: We exploit a unique Swiss reform to identify the importance of passivity, claiming social security benefits at the Full Retirement Age (FRA). Sharp discontinuities generated by the reform reveal that raising the FRA while imposing small early claiming penalties significantly delays pension claiming and retirement, but imposing large penalties and holding the FRA fixed does not. The nature of the reform allows us to identify that between 47 and 69% of individuals are passive, while imposing additional structure point identifies the fraction at 67%. An original survey of Swiss pensioners reveals that reference-dependent preferences is the main source of passivity.
    Keywords: Full retirement age; reference dependence; regression discontinuity design; Social Security
    JEL: H55 J21 J26
    Date: 2020–08
  12. By: Kory Kroft; Jean-William P. Laliberté; René Leal Vizcaíno; Matthew J. Notowidigdo
    Abstract: This paper reassesses the general trade-off between ad valorem and specific taxation using an economic model that features love-of-variety preferences and encompasses a wide range of market conduct – including both quantity and price competition – while allowing for firm entry and exit. We derive formulas for efficiency and incidence of both types of taxes that depend on the responsiveness of product variety to taxes and the effect of a change in product variety on consumer surplus. We use our formulas to derive a desirability condition for when ad valorem taxes are more efficient than specific taxes and a condition for when ad valorem taxes lead to greater pass-through than specific taxes. We identify and estimate the model parameters using a quasi-experimental ``county border pair'' research design that uses state-level and county-level variation in sales taxes combined with detailed scanner data covering grocery stores in the U.S. Our empirical results indicate that sales taxes are slightly overshifted onto consumer prices, have a large effect on quantity demanded, and have a more modest effect on the variety of products available to consumers. Using the estimated parameters, we recover consumers' love-of-variety, infer whether or not product variety is socially optimal (at current tax rates), and implement our desirability condition. We find that specific taxes are more efficient at the margin than ad valorem taxes given the estimated love-of-variety. This suggests that policymakers should consider using specific taxes and tariffs in markets with substantial product differentiation.
    JEL: H20 H22 H71
    Date: 2021–05
  13. By: Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
    Abstract: Using Forbes 400 data together with historical data on tax rates and macroeconomic indicators, we study the relationship between the maximum marginal income tax rate and wealth inequality. We find through a novel tail regression model that a higher maximum tax rate is associated with a higher wealth Pareto exponent. Setting the maximum rate to 0.30-0.40 (as in U.S. currently) leads to an exponent of 1.5-1.8, while counterfactually setting it to 0.8 (as suggested by Piketty, 2014) would lead to an exponent of 2.6. We present a simple economic model that explains these findings and discuss the welfare implications of taxation.
    Date: 2021–05
  14. By: Montag, Felix; Sagimuldina, Alina; Schnitzer, Monika
    Abstract: This paper provides the first estimates of the pass-through rate of the ongoing temporary value-added tax (VAT) reduction, which is part of the German fiscal response to COVID-19. Using a unique dataset containing the universe of price changes at fuel stations in Germany and France in June and July 2020, we employ a difference-in-differences strategy and find that pass-through is fast and substantial but remains incomplete for all fuel types. Furthermore, we find a high degree of heterogeneity between the pass-through estimates for different fuel types. Our results are consistent with the interpretation that pass-through rates are higher for customer groups who are more likely to exert competitive pressure by shopping for lower prices. Our results have important implications for the effectiveness of the stimulus measure and the cost-effective design of unconventional fiscal policy.
    Keywords: COVID-19; Pass-Through; Stimulus; value-added taxes
    JEL: E62 H22 H32
    Date: 2020–08
  15. By: Martin, Julien; Parenti, Mathieu; Toubal, Farid
    Abstract: This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
    Keywords: industry concentration; IRS Audit Probability; Tax avoidance
    JEL: D22 D4 F23 H26 L11
    Date: 2020–07
  16. By: Abubakar Bala; Esther Yusuf Enoch; Salisu Yakubu
    Abstract: This study examined the problems of personal income tax on revenue generation in Gombe state. The methodology used in data collection is survey, which utilized both primary and secondary types of data. Purposive sampling technique was adopted in selecting a sample of 150 respondents from both employees of state board of internal revenue service and tax payers in the state. The chi square statistics test was used in testing the hypotheses. The study found that tax avoidance/evasion and complete absences of information technology are serious problems affecting revenue generation in the state. It recommends that government should device strict measures in dealing and punishing individuals engage in tax avoidance and evasion. It should also employ the use of information technology as it is the only way problems experience in personal income tax collection can be reduced drastically.
    Date: 2021–05

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