nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒08‒16
ten papers chosen by
Thomas Andrén

  1. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment By Malgouyres, Clément; Mayer, Thierry; Mazet-Sonilhac, Clément
  2. Tax Curvature By Albert Jan Hummel
  3. Profit Shifting and Equilibrium Principles of International Taxation By Manon Francois
  4. Consumption Tax Cuts in a Recession By Francesca Parodi
  5. Tax Education and Tax Awareness: An Analysis on Indonesian Tax Education Program By Yulianti Abbas; Christine Tjen; Panggah Tri Wicaksono
  6. Optimal Redistribution in the Presence of Signaling By Spencer Bastani; Tomer Blumkin; Luca Micheletto
  7. Should Canada’s Capital Gains Taxes be Increased or Reformed? By McMillan, Melville
  8. European Union’s Struggle with Tax Havens and Profit Drain By Narciz Balasoiu
  9. Quantitative Analysis of a Wealth Tax in the United States: Exclusions, Evasion, and Expenditures By Moore, Rachel; Pecoraro, Brandon
  10. Trends in Labor Supply of Older Men and the Role of Social Security By Zhixiu Yu

  1. By: Malgouyres, Clément (Paris School of Economics); Mayer, Thierry (Sciences Po, Paris); Mazet-Sonilhac, Clément (Sciences Po, Paris)
    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 the four estimated reduced-form effects. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than 40%.
    Keywords: incidence, corporate income tax, discrete/continuous choice
    JEL: H22 H25 H32 H71 R23 R51
    Date: 2021–07
  2. By: Albert Jan Hummel
    Abstract: In a Mirrleesian environment, a monopsonist sets hourly wages and individuals choose how many hours to work. Labor market outcomes do not only depend on the level and slope of the income tax function, but also on its curvature. A more concave tax schedule raises the elasticity of labor supply, which boosts wages. Consequently, optimal marginal tax rates for low-skilled workers are declining in income. I derive an optimal tax formula in terms of sufficient statistics that accounts for the impact of tax curvature on labor market outcomes.
    Keywords: monopsony, optimal taxation, tax curvature
    JEL: H21 J38 J42
    Date: 2021
  3. By: Manon Francois
    Abstract: We study the choice between source-based and destination-based corporate taxes in a two-country model, allowing multinational firms to use transfer pricing to allocate profits across tax jurisdictions. We show that source-based taxation is a Nash equilibrium for tax revenue maximizing jurisdictions if domestic and foreign firms generate large revenues. We also show that destination-based taxes are a Nash equilibrium when firms generate low revenues, which implies the presence of multiple equilibria. Both the source and the destination principle coexist in equilibrium when domestic and foreign corporate revenues are intermediate. However, the source principle always tax-dominates the destination principle.
    Keywords: tax competition, multinational firms, corporate taxes, transfer pricing
    JEL: F23 H00 H25 H26 H71
    Date: 2021
  4. By: Francesca Parodi
    Abstract: Consumption taxes are often used across OECD countries as fiscal stimulus tools during recessions. In this paper, I use an estimated structural life-cycle model featuring multiple consumption categories to assess the e ectiveness of temporary cuts to the Value Added Tax (VAT) rates on non-durable luxuries and durables as stimulus instruments. I find a tax elasticity smaller than 1 for non-durable luxuries and a tax elasticity higher than 10 for durables. I show that the tax cut on non-durables has an intratemporal substitu- tion effect on non-durables and an income e ect on durables and savings, while the tax cut on durables acts through an intertemporal substitution mechanism in the purchase of durables that is stronger for high income, liquidity unconstrained, and younger house- holds. Due to the partial irreversibility feature of durables, this mechanism is dampened if households anticipate higher future aggregate uncertainty.
    Keywords: Taxation, Consumption, Durable goods, Saving, Welfare.
    JEL: D11 D15 E20 H20 H31
    Date: 2021
  5. By: Yulianti Abbas (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Christine Tjen (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Panggah Tri Wicaksono (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia)
    Abstract: This study aimed to examine the effectiveness of “Pajak Bertutur”, a tax education program in Indonesia. We analyze whether there were differences in students’ tax awareness before and after the program, and whether the results of the program were influenced by students’ familiarity with taxation. We distributed an online survey questionnaire to all students participating in the 2020 tax education program, resulting in a total of 693 responses, 461 for pre-survey and 232 for post-survey. Using multivariate regression analysis, our results suggest that students’ tax awareness level increased after the tax education program. We also found that the increase in tax awareness was greater for students who are familiar with tax authority website and those who have learned about taxation before the event. These findings thus indicate that the effectiveness of the tax education program is influenced by the students’ prior knowledge, emphasizing that a continuous tax education program is necessary to improve tax awareness.
    Keywords: tax education — — tax awareness — tax knowledge — tax inclusion
    JEL: A22 H20
    Date: 2021
  6. By: Spencer Bastani; Tomer Blumkin; Luca Micheletto
    Abstract: We analyze optimal redistribution in the presence of labor market signaling where innate productive ability is not only unobserved by the government, but also by prospective employers. Signaling in both one and two dimensions is considered, where in the latter case firms have an informational advantage vis-a-vis the government. The dual role of income taxation in redistributing income and affecting signalling incentives is analyzed, as well as extended tax systems that combine income taxation with direct instruments allowing the signals to be taxed. A key focus is the analysis of the feasibility and social desirability of redistribution through wage compression.
    Keywords: optimal taxation, signaling, education, monitoring
    JEL: D82 H21 H52 J31
    Date: 2021
  7. By: McMillan, Melville (University of Alberta, Department of Economics)
    Abstract: Since being introduced in 1972, taxable capital gains in Canada have been based on partial inclusion of nominal capital gains (i.e., the difference between sale and purchase prices). The inclusion rates have varied between 50 and 75 percent but have been 50 percent since 2000. Recently, there has been discussion of increasing capital gains taxes by increasing the inclusion rate (back to) 75 percent. In this paper, I argue that the capital gains tax is a poorly designed and inequitable tax and so, rather than make another ad hoc adjustment to the inclusion rate, a superior option is to reform capital gains taxation by indexing for inflation so as to measure real capital gains (i.e., the increase in purchasing power that is realized). The Toronto Stock Exchange Composite Index and the index of consumer prices are used to determine 40 and 50 year sequences of the differences between real and nominal measures of capital gains under both 50 and 75 percent inclusion rates for an index asset held for 20, 10 and 5 years. The work demonstrates that taxable capital gains are over and under assessed considerably relative to real capital gains. For example, over the period 1996 to 2020, differences between the taxable capital gains under a 75 percent inclusion rate and real gains would have been about 20 percent for a 10-year hold and about 33 percent for a 5 year hold. The results demonstrate the varying disparities between real gains and those under partial inclusion. Such disparities imply wide differences in effective tax rates and so inequities among investors, over time and with other taxpayers. This evidence argues persuasively that Canada’s capital gains taxation should abandon partial inclusion and turn to serious reform by indexing for inflation.
    Keywords: capital gains tax; inclusion rate; inflation; nominal versus real; indexing
    JEL: E62 H20
    Date: 2021–08–05
  8. By: Narciz Balasoiu (Academy of Economic Studies, Faculty of International Business, Bucharest, Romania)
    Abstract: The issue of corporate taxation applied in the jurisdiction in which a company operates has recently received increasing political traction, as tax havens have increasingly drawn attention and also as multinationals have developed colossal turnovers, far above the GDPs of less developed countries. Tax havens deprive of billions of dollars many states that have not established through adequate legislation an assertive fiscal control, generating and fueling social inequities and a high degree of poverty. By funneling money through tax havens to avoid the payment of taxes and fees, multinationals deprive national governments of large sums of money that could be directed to education or health programs.
    Keywords: tax havens, European Union, tax avoidance, profit shifting
    Date: 2021–05
  9. By: Moore, Rachel; Pecoraro, Brandon
    Abstract: Macroeconomic analyses of wealth taxes typically treat all household wealth as taxable, despite noted administrative difficulties with including owner-occupied housing and noncorporate equity in the tax base. In this paper, we quantify the macroeconomic and budgetary impact of avoidance due to these exclusions from a stylized, broad-based, top-wealth tax in the United States. We use a two-sector, large-scale overlapping generations model where, in the presence of exclusions, avoidance behavior arises endogenously through households’ reallocation of wealth and firms’ reallocation of economic activity. We find that while the macroeconomic and budgetary effects of the housing exclusion are insignificant, the noncorporate equity exclusion introduces a production-level distortion that results in a significant reallocation of economic activity from the corporate to noncorporate sector. We show that the federal revenue loss due to legal avoidance in the latter case can be similar to the amount lost due to illegal evasion via under-reporting wealth, but nonetheless have a quantitatively distinct path of macroeconomic aggregates. Finally, because interest in a wealth tax is linked to its potential for financing federal outlays, we show how variation in macroeconomic and budgetary effects across alternative expenditures affects the amount of new outlays availed by the tax itself. We find that while dedicating new revenue to public infrastructure investment leads to the largest increase in aggregate output, dedicating new revenue to federal debt reduction leads to the largest increase in outlays.
    Keywords: dynamic scoring; wealth tax; avoidance; evasion;
    JEL: E62 H26 H27
    Date: 2021–08–09
  10. By: Zhixiu Yu (University of Minnesota)
    Abstract: The labor supply of older men increased from the 1930s to the 1950s cohort. I estimate a structural model that fits the participation and hours worked by the 1930s cohort well. The observed policy changes in normal retirement age, the earnings test, and delayed retirement credits explain 73.4% and 88.7% of the observed rises in labor force participation and hours worked by the 1950s cohort. Additional policy experiments suggest that postponing retirement age have little effect on older workers, while eliminating the earnings test and reducing retirement benefits would further increase older age participation by 3.37 and 5.10 percent, respectively.
    Keywords: Social Security reform, retirement, labor force participation, health, older workers
    JEL: D15 H55 I12 J14 J22
    Date: 2021–08

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