nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒08‒30
fifteen papers chosen by
Thomas Andrén

  1. Generalization of the Deaton Theorem: Piecewise Linear Income Taxation and Participation Decisions By Robin Boadway; Katherine Cuff
  2. Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach By Egor Malkov
  3. Tax Amnesties, Recidivism, and the Need for Reform By James Alm; Jay A. Soled
  4. Is consistency the panacea? Inconsistent or consistent tax transfer prices with strategic taxpayer and tax authority behavior By Diller, Markus; Lorenz, Johannes; Schneider, Georg; Sureth, Caren
  5. Optimal fuel taxation with suboptimal health choices By Mattauch, Linus; van den Bijgaart, Inge; Klenert, David; Sulikova, Simona
  6. Revisiting the Relationship between Trade Liberalization and Taxation By Rabah Arezki; Alou Adesse Dama; Gregoire Rota-Graziosi
  7. Tax Losses and Ex-ante Offshore Transfer of Intellectual Property By Rishi R. Sharma; Joel Slemrod; Michael Stimmelmayr
  8. Fiscal Spillovers: The Case of US Corporate and Personal Income Taxes By Madeline Hanson; Daniela Hauser; Romanos Priftis
  9. Integrating the Collection of Social Insurance Contributions and Personal Income Taxes By International Monetary Fund
  10. Cryptocurrencies: An empirical view from a Tax Perspective By Andreas Thiemann
  11. The Tax Implications of the American Families Plan on Iowa Farmland Owners By Kristine Tidgren; Wendong Zhang
  12. Behavioural responses to a wealth tax By Advani, Arun; Tarrant, Hannah
  13. Administering the Value-Added Tax on Imported Digital Services and Low-Value Imported Goods By John Brondolo
  14. Preparing for the tax reform: the risky French households' portfolio in 2018 By Luc Arrondel; Jérôme Coffinet
  15. Supporting carbon taxes: The role of fairness By Mattauch, Linus; Sommer, Stephan; Pahle, Michael

  1. By: Robin Boadway; Katherine Cuff
    Abstract: Deaton (1979) showed that if preferences are weakly separable in goods and labour and quasihomothetic in goods and the government imposes an optimal linear progressive tax, commodity taxes are redundant. Hellwig (2009) generalized the Deaton theorem by showing that the allocation obtained under differential commodity taxes and an arbitrary linear progressive income tax is Pareto-dominated by one with uniform commodity taxes and a reformed linear progressive income tax. We show that both the Deaton theorem and the Hellwig extension continue to apply if a) the government implements a piecewise linear progressive income tax and b) labour varies along both the intensive and extensive margins. Some extensions are considered.
    Keywords: optimal income taxation, commodity taxation, piecewise linear income tax
    JEL: H21 H23 H24
    Date: 2021
  2. By: Egor Malkov
    Abstract: This paper develops a framework for assessing the welfare effects of labor income tax changes on married couples. I build a static model of couples' labor supply that features both intensive and extensive margins and derive a tractable expression that delivers a transparent understanding of how labor supply responses, policy parameters, and income distribution affect the reform-induced welfare gains. Using this formula, I conduct a comparative welfare analysis of four tax reforms implemented in the United States over the last four decades, namely the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Tax Cuts and Jobs Act of 2017. I find that these reforms created welfare gains ranging from -0.16 to 0.62 percent of aggregate labor income. A sizable part of the gains is generated by the labor force participation responses of women. Despite three reforms resulted in aggregate welfare gains, I show that each reform created both winners and losers. Furthermore, I uncover two patterns in the relationship between welfare gains and couples' labor income. In particular, the reforms of 1986 and 2017 display a monotonically increasing relationship, while the other two reforms demonstrate a U-shaped pattern. Finally, I characterize the bias in welfare gains resulting from the assumption about a linear tax function. I consider a reform that changes tax progressivity and show that the linearization bias is given by the ratio between the tax progressivity parameter and the inverse elasticity of taxable income. Quantitatively, it means that linearization overestimates the welfare effects of the U.S. tax reforms by 3.6-18.1%.
    Date: 2021–08
  3. By: James Alm (Tulane University); Jay A. Soled (Rutgers University)
    Abstract: For years, governments have instituted and administered tax amnesty programs of various forms. At least as measured by the metric of revenue collections, some of these programs have proven successful and others have not. However, none of these many programs properly accounts for the issue of recidivism in a meaningful manner. To address this problem and to enhance long-term tax compliance outcomes, this analysis advocates that legislative governing bodies make tax amnesty programs a one-time option: taxpayers who participate in one tax amnesty program would be barred from subsequent tax amnesty participation offered by the same taxing jurisdiction involving the same type of tax.
    Keywords: Tax amnesty, tax compliance, recidivism
    JEL: H26 H31 H71 K42
    Date: 2021–08
  4. By: Diller, Markus; Lorenz, Johannes; Schneider, Georg; Sureth, Caren
    Abstract: This study investigates how strategic tax transfer pricing of a multinational company (MNC) and two tax authorities in different countries affects production and tax avoidance decisions at the firm level and tax revenues at the country level. We employ a game-theoretical model to analyze the costs and benefits of two tax transfer pricing regimes (consistency vs. inconsistency) under asymmetric information. Though tax transfer pricing harmonization is considered a promising instrument to fight undesired tax avoidance, the implications are largely unclear. We find tax avoidance in equilibrium in both countries under inconsistency. Surprisingly, we identify conditions under which low-tax countries benefit from consistency while high-tax countries benefit from inconsistency. This explains how the strategic interaction of taxpayer and tax authorities under firm-level heterogeneity challenges the implementation of consistent regimes. Understanding the implications of (in)consistent transfer pricing rules is crucial when reforming transfer pricing regulations to fight tax avoidance and double taxation.
    Keywords: transfer pricing,transfer pricing inconsistency,tax avoidance,tax harmonization,strategic behavior,real effects
    JEL: H20 H26 C72 K34 F53
    Date: 2021
  5. By: Mattauch, Linus; van den Bijgaart, Inge; Klenert, David; Sulikova, Simona
    Abstract: Transport has a large number of significant externalities including carbon emissions, air pollution, accidents, and congestion. Active travel such as cycling and walking can reduce these externalities. Moreover, public health research has identified additional social gains from active travel due to health benefits of increased physical exercise. In fact, on a per mile basis, these benefits dominate the external social costs from car use by two orders of magnitude. We introduce health benefits and active travel options into an optimal taxation model of transport externalities to study appropriate policy responses. We characterise the optimal second-best fuel tax analytically: when physical exercise is considered welfare-enhancing, the optimal fuel tax increases. Under central parameter assumptions it rises by 49% in the US and 36% in the UK. This is due to the low fuel price elasticity of active travel. We argue that fuel taxes should be implemented jointly with other policies aimed at increasing the uptake of active travel to reap its full health benefits.
    Keywords: Transport Externalities, Congestion, Active travel, Fuel, Health Behaviour, Optimal Taxation
    JEL: H23 I12 Q53 Q54 Q58 R41 R48 Z28
    Date: 2020–10
  6. By: Rabah Arezki; Alou Adesse Dama; Gregoire Rota-Graziosi
    Abstract: This paper explores the dynamic effects of trade liberalization on tax revenue using a worldwide panel dataset. Results point to statistically significant negative effect of liberalization on (non- resource) tax revenues in the short term and no significant effect in the medium term. Liberalization also alter the tax structure tilting revenues toward indirect taxes away from direct ones. Economies which have implemented value added taxes prior to liberalization have mitigated its negative effects on tax revenues. The evidence is supportive of the complementarity role of state capacity to reap the benefits of liberalization.
    Keywords: tax, tax structure, openness, liberalization, natural resources
    JEL: H20 H87 F13
    Date: 2021
  7. By: Rishi R. Sharma; Joel Slemrod; Michael Stimmelmayr
    Abstract: We develop a positive model of multinational firm behavior and analyze a firm’s incentive to transfer an intellectual property (IP) right of uncertain value offshore ex ante, i.e. before its success or failure is realized. With an asymmetric treatment of losses in the home country, the multinational firm will transfer its IP to a foreign low-tax country to avoid potentially negative profits at home. In addition, similar incentives exist to transfer the IP to a jurisdiction where tax rates are comparable or even higher than at home if the foreign jurisdiction offers a more symmetric treatment of losses.
    Keywords: intellectual property, corporate taxation, loss-offset, tax avoidance
    JEL: H25 H26 D21 F23
    Date: 2021
  8. By: Madeline Hanson; Daniela Hauser; Romanos Priftis
    Abstract: This paper extends the identification of unanticipated changes in average federal corporate and personal income tax rates in the United States, as proposed in Mertens and Ravn (2013), to the end of 2019, and assesses their propagation to economies with tight links to the US economy. While cuts in both taxes lead to significant short-run expansions in the US economy, their spillover effects on other countries differ markedly. A cut in corporate taxes can produce negative spillovers, indicating that the contractionary effects associated to the reallocation of investment and jobs by multinational firms outweigh the potential positive effects of increased demand for country-specific goods through trade with the US. The spillover effects of lower personal income taxes are more heterogeneous across countries but are, on average, expansionary, depending on the country-specific monetary policy stance.
    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Exchange rate regimes; Fiscal policy; International topics
    JEL: H20 E62 F44
    Date: 2021–08
  9. By: International Monetary Fund
    Abstract: This technical note addresses the following questions: • What are the main ways in which different countries assess and collect personal income tax (PIT) and social insurance contributions (SIC) liabilities (Section I)? • What is the case for transferring responsibility for a country’s SIC collection from its social insurance agency(ies) to its tax authority (Section II)? • What changes does such integration of collection functions involve (Section III)? • Are there any lessons from international experience to guide such reforms (Section IV)? • How to build on these lessons when planning a transfer of collection functions (Section V)? • Are there any beneficial alternatives to full integration of functions (Section VI)?
    Date: 2021–08–10
  10. By: Andreas Thiemann (European Commission - JRC)
    Abstract: This paper sheds light on the scarce empirical evidence on cryptocurrency users and use types. Based on the only available empirical estimate (shared by Chainalysis), this paper simulates the revenue potential from taxing Bitcoin capital gains in the EU. Total estimated Bitcoin capital gains in the EU amount to 12.7 billion EUR in 2020, including 3.6 billion EUR of realized gains. Applying national tax rules on capital gains from shares to those from Bitcoin yields a simulated tax revenue of about 850 million EUR in 2020. This paper is the first to empirically assess the tax revenue potential of capital gains from Bitcoin in the EU. While most of the empirical cryptocurrency literature is based on time-series data, this paper relies on dis-aggregated country-level data. The findings show that revenue from taxing cryptocurrencies is non-negligible and will be if the market of cryptocurrencies continues to grow.
    Keywords: Capital gains taxation, cryptocurrencies, Bitcoin.
    JEL: G19 G23 H24
    Date: 2021–08
  11. By: Kristine Tidgren; Wendong Zhang (Center for Agricultural and Rural Development (CARD))
    Abstract: President Biden proposed the American Families Plan (AFP) on April 28, 2021, to provide new social programs to millions of Americans. To pay for this $1.8 trillion benefits package, the AFP proposes significantly changing the way capital gain is taxed. The Administration has explained that "reforms to the taxation of capital gains and qualified dividends will reduce economic disparities among Americans and raise needed revenue." Specifically, the AFP proposes increasing the top marginal tax rate, taxing some capital gain at ordinary income tax rates, and subjecting more gain to the 3.8% Medicare tax. The AFP would thus boost the top federal rate at which some capital gain is taxed to 43.4% in 2022 and beyond. In addition to increasing tax rates, the AFP proposes taxing previously unrealized capital gain upon the transfer of appreciated property at death or by gift. This new tax-never before implemented in the United States-would generally apply to gain exceeding $1 million per person. It would supplement, not replace, the current estate and gift tax, which-because of a current exclusion of $11.7 million per person-impacts very few estates. As proposed, the AFP would generally eliminate the tax-free step up in basis for capital gain exceeding $1 million. This would apply to gain arising from investment assets such as stocks or commercial real estate, as well as gain arising from farmland or other business property. The AFP proposes applying the current $250,000 per person exclusion for capital gain on a principal residence. To determine the potential impact of these proposals on the owners of Iowa farmland, we analyze statistically representative data of farmland and landowners in Iowa, collected through the 2017 Iowa Farmland Ownership and Tenure Survey (IFOTS). We determine the basis of the farmland based upon its location and how and when it was acquired. We then calculate potential gain based upon estimated county-level fair market value (FMV) in 2021, which is assumed to be 5% higher than the average county farmland value estimates reported in the ISU Land Value Survey as of November 1, 2020. Because the AFP would treat entities differently from individuals, we exclude entity-owned farmland from our analysis and only consider acres owned by sole owners, joint tenants, tenants in common, or revocable living trusts. As such, our study examines the potential impact of the AFP on 22 million acres of Iowa farmland, which is 72% of the 31 million-acre total. Our study also considers the AFP's potential impact on 217,548 owners or 80% of the 272,906 farmland owners in Iowa (please see PDF for full summary).
    Date: 2021–08
  12. By: Advani, Arun (University of Warwick, CAGE, the Institute for Fiscal Studies (IFS), and the LSE International Inequalities Institute (III)); Tarrant, Hannah (London School of Economics III)
    Keywords: JEL Classification:
    Date: 2021
  13. By: John Brondolo
    Abstract: This technical note and manual (TNM) addresses the following questions: (1) What are the main challenges in administering the value-added tax on imported digital services and the measures that countries have introduced to address the challenges?; (2) What are the main challenges in administering the value-added tax on low-value imported goods and the measures that countries have introduced to address the challenges? ;and (3) What are the key tasks in implementing the measures for improving the administration of the value-added tax on imported digital services and low-value imported goods?
    Date: 2021–05–21
  14. By: Luc Arrondel (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jérôme Coffinet (Banque de France - Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne)
    Abstract: Between 2004 and 2014, the number of shareholders in France fell by approximately 50%. The over-cautiousness of savers observed after the crisis now seems less topical, especially since 2017 was marked in France by a tax reform designed to support shareholding: the implementation of a flat tax and the abolition of wealth tax, replaced by property wealth tax. We therefore analyze the risky portfolios of French households from the last two waves (2014-2015 and 2017-2018) of the INSEE's "Life History and Wealth" survey, which have the advantage of being panelized. Although the 2017-2018 survey comes a little early to analyze the full impact of these reforms, this paper provides an original analysis of the dynamics of households' risky portfolios over the last three years, just before (and shortly after) the implementation of these policies. We show first that the demand for risky assets depends strongly on the level of household wealth and expectations of returns on the stock market, two variables that have likely been affected by the recent reforms. These data also make it possible to assess the extent to which the announcement of the recent tax reform has led to changes in securities holdings.
    Keywords: Portfolio choice,equity demand,risk premium puzzle,household finance
    Date: 2021–08
  15. By: Mattauch, Linus; Sommer, Stephan; Pahle, Michael
    Abstract: We conduct a discrete choice experiment with a sample of 6,000 German household heads to examine how fairness preferences influence the support for carbon taxes and revenue-recycling options. While it is well-known that carbon taxes are effective in reducing emissions and can be made progressive, they remain fairly unpopular with German citizens. Consequently, best practice to build public support for them remains a relevant question for which there is no consensus. We obtain two major results: First, while green spending is more popular in general, it is significantly more popular among those who are pro-environment and trust the government. Second, when restricted to options for direct revenue redistribution, Germans prefer lump-sum payments over directing payments to the poorest or the most affected. Importantly, choices over these options depend both on genuinely different conceptions of fairness and respondents' economic circumstances. Our findings have implications for building support for effective climate change mitigation policies with those who are not yet convinced.
    Keywords: carbon pricing, climate change mitigation, fairness, redistribution, environmental tax reform
    JEL: A13 H23 Q54
    Date: 2020–10

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