nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒07‒12
thirteen papers chosen by
Thomas Andrén

  1. Intrahousehold inequality and the joint taxation of household earnings By Alves, Cassiano Breno Machado; Costa, Carlos Eugênio da; Moreira, Humberto Ataíde
  2. How Much Multinational Corporations Pay in Taxes and Where: Evidence from their Country-by-Country Reports By Tommaso Faccio; Sarah Godar; Patr Jansky; Oliver Seabarron
  3. Does Finland Need R&D Tax Incentives? By Koski, Heli; Fornaro, Paolo
  4. The Impact of Tax Revenues and Domestic Investments on Economic Growth in Tunisia By Mkadmi, Jamel Eddine; Bakari, Sayef; Othmani, Ameni
  5. Income support to families with children in Spain By HERNANDEZ MARTIN Adrian; PICOS SANCHEZ Fidel
  6. Functional income distribution, inequality and the effectiveness of fiscal redistribution: evidence from OECD countries By Bruno Bises; Francesco Bloise; Antonio ScialÃ
  7. Impact of tax reforms in applied models: which functional forms should be chosen for the demand system ? Theory and application for Morocco By Touhami Abdelkhalek; Dorothee Boccanfuso
  8. Taxpayer's Compliance: Towards Voluntary Compliance By Dian Purnama Sari
  9. Information of income position and its impact on perceived tax burden and preference for redistribution: An Internet Survey Experiment By Eiji Yamamura
  10. Positional Preferences and Efficiency in a Dynamic Economy By Thomas Aronsson; Sugata Ghosh; Ronald Wendner
  11. South Africa's Health Promotion Levy: excise tax findings and equity potential By Hofman, Karen J.; Stacey, Nicholas; Swart, Elizabeth C.; Popkin, Barry M.; Ng, Shu Wen
  12. Incentives, Health, and Retirement: Evidence from a Finnish Pension Reform By Ollonqvist, Joonas; Kotakorpi, Kaisa; Laaksonen, Mikko; Martikainen, Pekka; Pirttilä, Jukka; Tarkiainen, Lasse
  13. R&D Tax Credits across the European Union:Divergences and convergence By Laurence Jacquet; Stéphane Robin

  1. By: Alves, Cassiano Breno Machado; Costa, Carlos Eugênio da; Moreira, Humberto Ataíde
    Abstract: We study the optimal design of nonlinear labor income tax for multiperson households. Each household consists of two workers with different productivity levels and unequal access to the family’s economic resources. We show how intrahousehold inequality, together with individual-oriented utilitarianism, generally leads to a misalignment between the household’s and government’s objectives, a state known as dissonance. We handle the multidimensionality that plagues the Mirrlees model by restricting preferences to be identical and iso-elastic and by focusing on taxes characterized by incomesplitting. This approach allows us to provide a complete solution for the screening problem, incorporate different degrees of assortative matching, and assess the role of dissonance in shaping the optimal tax schedule. We also investigate the welfare gains from gender-based policies.
    Date: 2021–07–02
  2. By: Tommaso Faccio (Nottingham University Business School); Sarah Godar (Charles University & Berlin School of Economics and Law); Patr Jansky (Charles University, Prague, Czech Republic); Oliver Seabarron (University of Sheffield and Tax Justice Network)
    Abstract: By exploiting country-by-country reports (CBCRs) prepared according to the OECD BEPS Action 13´s minimum standards and voluntarily published by multinational corporations (MNCs), we show that the CBCR data can be used to identify how much MNCs pay in taxes and where, as well as how important tax havens and profit shifting are. The largest, hand-collected sample of these CBCRs combines global information from ten MNCs, which are special not only in terms of tax transparency, by being the only MNCs to publish their CBCR, but also in terms of industry composition, with a half of them in the extractive industries, and - perhaps, therefore - the observed tax characteristics. Specifically, we observe that the worldwide effective tax rates of our sample MNCs are higher on average than our comparison estimates based on the aggregate data for large MNCs published in 2020. We also find that the sample MNCs report slightly more profits in tax havens on average than many large MNCs, although most of the sample MNCs are far below that average. We further find some indication of profit shifting as the sample MNCs´ profits in tax havens are much higher than their economic activity suggests and we estimate a non-linear relationship between profits and effective tax rates, which is negative up to effective tax rates of around 30%. We highlight the differences across countries and MNCs by presenting country-level results, both for the whole sample and for specific MNCs, but CBCR data for even more individual MNCs would be needed to test for any systematic, MNC-specific determinants behind these differences.
    Keywords: multinational corporation; country-by-country reporting; effective tax rate; profit shifting; tax haven
    JEL: F23 H25 H26
    Date: 2021–06
  3. By: Koski, Heli; Fornaro, Paolo
    Abstract: Abstract In OECD countries, tax subsidies are widely used to increase incentives for companies to invest in research and development. Recent international research suggests that R&D tax support increases both R&D investment and patent applications. However, it is unclear what kind of R&D tax scheme provides the best incentives for companies to invest in research and development and generate innovation. There are considerable differences between the countries’ R&D tax relief schemes, not only in terms of the amount of tax relief but also in terms of the characteristics of the tax support scheme. Typically, a company can make a tax deduction from income tax based on the total volume of R&D costs underlying the relief. Our empirical analysis among 35 OECD countries during 2000–2018 indicates that the generosity of the R&D tax subsidies positively relates to the R&D investment intensity of the corporate sector. Our study further suggests that the R&D intensity and the number of patent applications filed with the USPTO are higher in the countries that use either the incremental R&D tax scheme or the hybrid scheme involving incremental and volume-based R&D tax deduction possibilities.
    Keywords: R&D tax incentives, R&D investments, Innovation policy, Patents
    JEL: K34 L5 O3 O31
    Date: 2021–06–30
  4. By: Mkadmi, Jamel Eddine; Bakari, Sayef; Othmani, Ameni
    Abstract: The aim of this work is to study the impact of tax revenues and domestic investments on social and economic well-being in Tunisia over the period 1976 – 2018. This study is based on co-integration analysis and Vector Error Correction Model. Empirical results indicate that in the long run domestic investment has a negative impact on economic growth, while the impact of tax revenues is positive. Also, results indicate that domestic investment and economic growth influence positively tax revenues. However, Tax revenue and economic growth don’t have any effect on domestic investment in the long run. It is seen that in Tunisia the strategy policy of tax revenue is not safe for domestic investment and the strategy policy of domestic investment is not safe for economic growth. Therefore, we should encourage immediate intervention to take the necessary measures before the situation causes a greater disaster.
    Keywords: Tax revenue; Domestic investment; Economic growth, Tunisia
    JEL: E62 H21 H26 O47 O55
    Date: 2021–02
  5. By: HERNANDEZ MARTIN Adrian (European Commission - JRC); PICOS SANCHEZ Fidel (European Commission - JRC)
    Abstract: Families with children receive support from the tax-benefit system to a different extent across countries. In Spain, child poverty remains high as compared to other EU countries, possibly pointing to a weaker role of the public sector in providing income support to families with children. In this paper we provide an in-depth assessment of the income support to families with children in Spain. We distinguish between three different forms of income support: (1) benefits aimed to ease the cost of raising children (child-related benefits); (2) supplements to other benefits due to having children (non-child-related benefits); and (3) tax reliefs (allowances and/or tax credits) reducing the tax burden of families with children (child-related tax reliefs). To measure these three dimensions, we use EUROMOD, the tax-benefit microsimulation model for the EU. We follow a similar methodological approach to Corak et al. (2005) and Figari et al. (2011), consisting in building a counterfactual scenario as if there were no children. For assessing the redistributive impact, we adapt the decomposition methodology of Onrubia et al. (2014), based in turn on Kakwani (1999). Our results suggest that the level of income support to families with children in Spain is low and mainly concentrated on tax reliefs, which are regressive in absolute terms. Nevertheless, the total income support to families with children is redistributive in relative terms, this effect being mainly dominated by the extent of supplements in unemployment and social assistance benefits due to having children. Child income support also reduces poverty intensity and incidence, although not to a large extent.
    Keywords: poverty, child poverty, family benefits, redistribution, microsimulation, EUROMOD
    Date: 2021–06
  6. By: Bruno Bises (Università Roma Tre); Francesco Bloise (Università Roma Tre); Antonio Scialà (Università Roma Tre)
    Abstract: Using panel data on 34 OECD countries followed from 2000 to 2015, we analyse the extent to which the labour share plays a role in mitigating the link between market and disposable income inequality in the non-comprehensive personal income tax hypothesis (i.e. when some or all capital income items are excluded from the personal income tax base). We find that one standard deviation increase of labour share is significantly related to a 9-percentage points reduction in the elasticity of disposable income inequality with respect to market income inequality. This important result obtained after controlling for country and year fixed effects, country-specific linear trends and several variables capturing the characteristics of the taxbenefit system in terms of overall progressivity, suggests that labour share could be considered as an “automatic stabilizer†of income inequality. Relevant implications for tax policy concern the role of the tax base of the personal income tax for the overall redistributive effect of the public budget.
    Keywords: Labour share, personal income inequality, redistribution, personal income taxation.
    JEL: D31 D33 H24
    Date: 2021–07
  7. By: Touhami Abdelkhalek; Dorothee Boccanfuso
    Abstract: When researchers and policymakers conduct impact analyses of economic reforms, especially fiscal reforms, the specification of the household demand system becomes crucial. There is a trade-off between using demand systems simple to manipulate but less realistic and other systems that are more realistic but often more complex and difficult to estimate or calibrate. In this paper, we compare the results from two different demand systems: a simple one, the Cobb-Douglas (CD), and a more complex one, the Constant Difference Elasticity (CDE). We develop an hybrid method of estimation - calibration based on the estimation of the parameters and elasticities of a QUAIDS system and on the calibration of those of the CDE system using a cross-entropy approach. The estimates obtained are introduced into a micro-simulated partial equilibrium model to approximate the impact of the VAT reform on poverty measures in Morocco. We show that when the simulated shocks are moderate, the gain of using a CDE system instead of a CD system is marginal but, when these shocks are stronger, the differences become significant and increase. Then the use of these models can lead to different results when evaluating public policies and their impacts on poverty measures.
    Keywords: Demand systems, Estimation-calibration, Tax reform, Morocco
    JEL: C51 D12 I32 H31
    Date: 2021–06
  8. By: Dian Purnama Sari (Faculty of Business, Widya Mandala Surabaya Catholic University, Indonesia Author-2-Name: Novrida Qudsi Lutfillah Author-2-Workplace-Name: "Malang State Polytechnic, Soekarno Hatta Street no. 9, 65144, Malang, Indonesia " Author-3-Name: Sri Rahayu Author-3-Workplace-Name: University of Jambi, Raya Jambi – Muara Bulian Street KM 15, 36122, Jambi, Indonesia Author-4-Name: Yudi Author-4-Workplace-Name: University of Jambi, Raya Jambi – Muara Bulian Street KM 15, 36122, Jambi, Indonesia Author-5-Name: Rahayu Author-5-Workplace-Name: University of Jambi, Raya Jambi – Muara Bulian Street KM 15, 36122, Jambi, Indonesia Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - This study aims to criticize the meaning of taxpayer's compliance. Methodology – The paradigm used in this study is a qualitative design through dramaturgy theory. Findings and Novelty – The result of the study indicates that the present taxpaying compliance is still equivocal with multi-interpretation. The term ""less compliant"" implicating compliance by a condition, neither completely compliant nor completely incompliant. The voluntary compliance targeted in taxpaying is purely determined by the morality of each taxpayer. The novelty of this research is the topic very interesting since there have been many topics talking about tax planning, self-corruption by taxpayers (an effort to reduce the reported amount of income tax), or some efforts to analyze influencing factors on the taxpayer's compliance, but does not study the definitions form taxpayer perspective. Type of Paper - Empirical"
    Keywords: Tax; Taxpayer; Compliance; Voluntary Compliance; Awareness; Morality.
    JEL: H1 H20
    Date: 2021–06–30
  9. By: Eiji Yamamura
    Abstract: A customized internet survey experiment is conducted in Japan to examine how individuals' relative income position influences preferences for income redistribution and individual perceptions regarding income tax burden. I first asked respondents about their perceived income position in their country and their preferences for redistribution and perceived tax burden. In the follow-up survey for the treatment group, I provided information on their true income position and asked the same questions as in the first survey. For the control group, I did not provide their true income position and asked the same questions. I gathered a large sample that comprised observations of the treatment group (4,682) and the control group (2,268). The key findings suggest that after being informed of individuals' real income position, (1) individuals who thought their income position was higher than the true one perceived their tax burden to be larger, (2) individuals' preference for redistribution hardly changes, and (3) irreciprocal individuals perceive their tax burden to be larger and are more likely to prefer redistribution. However, the share of irreciprocal ones is small. This leads Japan to be a non-welfare state.
    Date: 2021–06
  10. By: Thomas Aronsson (Umea University, Sweden); Sugata Ghosh (Brunel University, London); Ronald Wendner (University of Graz, Austria)
    Abstract: In an endogenous growth model, we characterize the conditions under which positional preferences for consumption and wealth do not cause inefficiency and derive an optimal tax policy response in cases where these conditions are not satisfied. The concerns for relative consumption and relative wealth partly emanate from social comparisons with people in other countries. We distinguish between a (conventional) welfarist government and a non-welfarist government that does not attach any social value to relative concerns. We also compare the outcome of Nash-competition among local/national governments with the resource allocation implied by a global social optimum both under welfarism and non-welfarism.
    Keywords: Positional preferences; Endogenous growth; Wealth; Intertemporal distortion, Welfarism; Non-welfarism; Inter-country externalities; Pigouvian taxation.
    JEL: E71 H11 O43
    Date: 2021–07
  11. By: Hofman, Karen J.; Stacey, Nicholas; Swart, Elizabeth C.; Popkin, Barry M.; Ng, Shu Wen
    Abstract: In 2016, the South African government proposed a 20% sugar-sweetened beverage (SSB) tax. Protracted consultations with beverage manufacturers and the sugar industry followed. This resulted in a lower sugar-based beverage tax, the Health Promotion Levy (HPL), of approximately 10% coming into effect in April 2018. We provide a synthesis of findings until April 2021. Studies show that despite the lower rate, purchases of unhealthy SSBs and sugar intake consumption from SSBs fell. There were greater reductions in SSB purchases among both lower socioeconomic groups and in subpopulations with higher SSB consumption. These subpopulations bear larger burdens from obesity and related diseases, suggesting that this policy improves health equity. The current COVID-19 pandemic has impacted food and nutritional security. Increased pandemic mortality among people with obesity, diabetes, and hypertension highlight the importance of intersectoral public health disease-prevention policies like the HPL, which should be strengthened.
    Keywords: equity; fiscal policy; health promotion; South Africa; 108424-001; P2CHD050924
    JEL: E6
    Date: 2021–05–31
  12. By: Ollonqvist, Joonas; Kotakorpi, Kaisa; Laaksonen, Mikko; Martikainen, Pekka; Pirttilä, Jukka; Tarkiainen, Lasse
    Abstract: We analyse the effects of changes in retirement incentives on retirement behaviour, and in particular whether individuals' health status modifes the effects of retirement incentives. We study these issues in the context of the Finnish pension reform of 2005, utilising detailed individual-level administrative data on health and retirement behaviour. Our results indicate that changes in economic incentives matter for retirement behaviour. Many types of individuals react to retirement incentives, and the reaction to economic incentives does not appear to vary according to the individuals' health status in a systematic way. Hence there does not seem to be a trade-off between providing incentives to postpone retirement and equal treatment of individuals with different health status.
    Keywords: pension reform, retirement incentives, health, Social security, taxation and inequality, H55, J26,
    Date: 2021
  13. By: Laurence Jacquet; Stéphane Robin (CY Cergy Paris Université, THEMA)
    Abstract: We examine the R&D, innovation and productivity effects of R&D tax credits (R&DTC) in 8 EU countries, in the context of a proposed EU-wide "super deduction" on R&D expenditures. Our econometric analysis, performed on industry-level panel data, shows that past R&D feeds current R&D, whether it is conducted under an R&DTC or not. Our estimate of additionality during an R&DTC phase is generally close to 1. R&D intensity also affects patenting intensity positively in Belgium, Czech Republic, France, Spain and the UK, but this relationship is R&DTC-related only in Belgium, France and Spain. Only in France and the UK do we observe a full (yet fragile) R&D – innovation – productivity relationship. In the UK, this relationship is not affected by the R&DTC scheme. In France, a 1% increase in R&D conducted under the second to fourth phases of R&DTC (1999-2017) entails a cumulated 0.37% increase in patenting intensity, which translates to a 0.16% increase in productivity. The main policy implication of these results is that a "super-deduction" on R&D is likely to help the EU reach its "R&D at 3% of GDP" objective, but only time will tell how generous it must be to really spur innovation and productivity.
    Keywords: R&D Tax Credits, Public Support to R&D, Science and Technology Policy, European Policy
    JEL: O38 H25 H54
    Date: 2021

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