nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒09‒13
twelve papers chosen by
Thomas Andrén

  1. Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach By Egor Malkov
  2. Fiscal Externalities in Multilevel Tax Structures: Evidence from Concurrent Income Taxation By Federico Revelli; Tsung-Sheng Tsai; Roberto Zotti
  3. Who Benefits from Tax Incentives? The Heterogeneous Wage Incidence of a Tax Credit By Carbonnier, Clément; Malgouyres, Clément; Py, Loriane; Urvoy, Camille
  4. Measuring the Tax Buoyancy: Empirics from South Asian Association for Regional Cooperation (SAARC) By Audi, Marc; Ali, Amjad; Roussel, Yannick
  5. Optimal Taxation in the Endogenous Growth Framework with the Private Information By Guo, Lu; Yan, Chong
  6. Combining microsimulation and optimization to identify optimal universalistic tax-transfer rule By Ugo Colombino; Nizamul Islam
  7. Real effects of an international tax reform for MNEs By Ortmann, Regina; Simons, Dirk; Voeller, Dennis
  8. Offshore Tax Evasion and Wealth Inequality: Evidence from a Tax Amnesty in the Netherlands By Arjan Lejour; Simon Rabaté; Maarten van 't Riet; Wouter Leenders
  9. Social Construction and the Progressivity of Local Tax Relief By Momi Dahan
  10. Spillovers from Tax Shocks to the Euro Area By Sascha Mierzwa
  11. Early Retirement Provision for Elderly Displaced Workers By Kruse, Herman; Myhre, Andreas
  12. Promoting Female Economic Inclusion for Tax Performance in Sub-Saharan Africa By Simplice A. Asongu; Alex Adegboye; Joseph Nnanna

  1. By: Egor Malkov (University of Minnesota, Federal Reserve Bank of Minneapolis)
    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%.
    Keywords: Taxation of Couples, Tax Reforms, Welfare Analysis, Labor Supply, Sufficient Statistics, Linearization Bias
    JEL: D60 E62 E65 H31 J22
    Date: 2021–09
  2. By: Federico Revelli; Tsung-Sheng Tsai; Roberto Zotti
    Abstract: This paper exploits the multi-tiered structure of personal income taxation in Italy to investigate within-tier (horizontal) and between-tiers (vertical and diagonal) fiscal externalities. Estimation of an unrestricted income tax reaction function on municipalities located at internal regional borders using o¤-border Wald-type grouping variables as well as the staggered schedule of mayoral elections as instruments for endogenous spatial lags reveals strong positive spatial dependence in municipal tax rates. On the other hand, there is no evidence of a response of municipal tax rates to regional tax policies, suggesting that border discontinuity estimators that rely on consolidated spatial specifications (lower-plus-upper-tier tax rates) impose restrictions on the parameters of the reaction function that are unwarranted in these circumstances.
    Keywords: fiscal externalities; income taxation; grouping instrumental variable; border discontinuity estimator
    JEL: H24 H71 H73
    Date: 2021
  3. By: Carbonnier, Clément (Sciences Po, Paris); Malgouyres, Clément (Paris School of Economics); Py, Loriane (Banque de France); Urvoy, Camille (Sciences Po, Paris)
    Abstract: Do workers gain from lower business taxes, and why? We estimate how a large corporate income tax credit in France is passed on to wages and explore the firm- and employee-level underlying mechanisms. The amount of tax credit firms get depends on their payroll share of workers paid less than a wage threshold. Exposure to the policy thus varies both across workers depending on their wage and across firms depending on their wage structure. Using exhaustive employer-employee data, we find that half of the surplus generated by the reform falls onto workers. Wage gains load on incumbents in high-skill occupations. The wage earnings of low-skill workers—nearly all individually eligible—do not change. This heterogeneous wage incidence is unlikely to be driven by scale effects or skill complementarities. We find that the groups of workers benefiting from wage gains are also more likely to continue working for the same firm. Further, we show that firms do not change their wage-setting behavior in response to the individual eligibility status of workers. Overall, our results suggest that the wage incidence of the tax credit operated collectively through rent-sharing and benefited workers most costly to replace.
    Keywords: business taxation, tax incentives, wage incidence, rent sharing
    JEL: D22 H25 H32
    Date: 2021–08
  4. By: Audi, Marc; Ali, Amjad; Roussel, Yannick
    Abstract: Taxes are the backbone of an economy, therefore, an effective tax system is very necessary for the survival of an economy. All the modern and developed economies have a higher rate of taxes as a percentage of GDP e.g. UK 33%, the USA 24.5%, Germany 38.8%, and France 45.4% (OECD, 2019). So, it is always important to measure the tax buoyancy among and within countries. This article has examined the buoyancy of taxes among the selected South Asian Association for Regional Cooperation (SAARC) countries from 1990 to 2019. Pooled regression has been applied for measuring the tax buoyancy coefficients for sales tax, income tax, customs duty, excise duty, and total tax revenue. The findings show that sales tax, income tax, and total tax revenue are significant with the buoyancy coefficient of 1.30, 1.12, and 1.01, respectively. Whereas the excise and customs, duties show a positive but insignificant buoyancy coefficient of 0.81 and 0.62, respectively. Among all revenue generation taxes, income tax and sales tax are leading; this indicates that South Asian countries prefer a progressive tax system. But the overall tax system in South Asia is inclined towards proportional response and needs strict checks for the improvement of the tax system. Finally, the revenue collection through taxation can be further enhanced with the help of an improved domestic tax system, as customs duties and excise duties are discouraged by the World Bank, IMF, and WTO.
    Keywords: tax buoyancy; income tax; customs duty; excise duty
    JEL: H2
    Date: 2021–06
  5. By: Guo, Lu; Yan, Chong
    Abstract: Differing from taxes of the new dynamic public finance theory without growth, our paper setups an endogenous growth model with the public finance sector which levies heterogeneous non-linear income taxes and linear flat-rate tax on gross outputs to guarantee the optimal investment in the public goods accumulation. Each taxation has individual effect: heterogeneous non-linear income taxes are used to keep standard Euler equation hold; flat-rate tax is used to compensate for the fiscal gap. The paper firstly makes the growth rate endogenous, and show there is a unique steady state growth rate for every aggregate variable by keeping assumptions of the dynamic general equilibrium theory unchangeable. We further prove the growth must exist when externalities are provided by public finance sector. The steady state growth rate can be expressed by coefficients, and the steady state intertemporal relationships of aggregate variables help us simplify simulation equations and calculations on endogenous heterogeneous non-linear income taxes in infinite periods.
    Keywords: endogenous tax; public finance; growth; uniqueness
    JEL: E6 H21 O41
    Date: 2021–07–16
  6. By: Ugo Colombino; Nizamul Islam
    Abstract: As a response to a changing labour market scenario and to the concerns for increasing costs and bad incentives of traditional income support policies, the last decades have witnessed, in many countries, reforms introducing more sophisticated designs of means-testing, eligibility and tagging. In this paper, we consider an alternative direction of reform that points towards universality, unconditionality and simplicity. Our main research question is whether tax-transfer rules designed according to these alternative criteria might be superior to the current one and could therefore be proposed as a policy reform. We adopt a computational approach to the design of optimal tax-transfer rules, within a flexible class. The exercise is applied to France, Germany, Italy, Luxembourg, Spain and the United Kingdom. The results suggest some common features in all the countries. The optimal tax-transfer rules feature a universal unconditional basic income or, equivalently, a negative income tax with a guaranteed minimum income. The tax profiles are much flatter than the current ones. For most social welfare criteria, and most countries, the simulated tax-transfer rules are superior to the current ones. These results confirm that policy reforms inspired by the principle of Universal Basic Income and Flat Tax might have good chances to dominate the current tax-transfer rules.
    Keywords: empirical optimal taxation; microsimulation; microeconometrics; social welfare evaluation of tax-transfer rules
    JEL: C60 H20 H30
    Date: 2021–09
  7. By: Ortmann, Regina; Simons, Dirk; Voeller, Dennis
    Abstract: With multinational enterprises (MNEs) centralizing production facilities, market countries claim not to receive their fair share of taxes. A reform of international business taxation that includes new profit allocation rules as well as the introduction of minimum taxation is being considered as a problem mitigating mechanism. We analyze theoretically the real effects of the aforementioned tax reform, i.e., MNEs' adjustments of production and sales decisions. Our findings show that the effects of an international tax reform on sales quantities depend on the properties of the underlying product markets. If national demand resembles characteristics of traditional industries, sales quantities remain unchanged. However, sales quantities are affected if specific demand characteristics of modern business models are assumed. For traditional industries a reformed tax regime increases tax revenues in high-tax market countries and even attracts production. In contrast, for modern business models tax revenues of high-tax countries can even decrease.
    Keywords: BEPS,corporate taxation,minimum taxation,profit shifting,tax avoidance
    JEL: C70 H26 H32 M48
    Date: 2021
  8. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis); Wouter Leenders (University of California, Berkeley)
    Abstract: As long as there have been taxes, people have tried to avoid and evade them. Interest in these phenomena has been fueled by the effects on public revenues, as well as on the distribution of wealth and income. One prominent example of tax evasion is the hiding of wealth and income in tax havens. According to estimates by Zucman (2013), 8% of global financial wealth, or $5.9 trillion, is held in tax havens. During the global financial crisis of the late 2000s, the G20 countries vowed to tackle offshore tax evasion and proclaimed the end of the “era of banking secrecy”. In recent years, leaks containing confidential information from financial institutions as well as academic research investigating leaks and tax amnesties have confirmed the popular narrative that tax evasion is concentrated among the wealthiest in society (Alstadsæter, Johannesen and Zucman, 2018, 2019). This does not only affect public revenues, but also the measurement of wealth and income inequality. We use unique microdata to study tax evasion in the Netherlands. We have received data on over 27,000 participants to the Dutch tax amnesty between the years 2002 and 2018. In addition, we have data on households who appeared in recent information requests to 4 different Swiss banks. We link these data to administrative data on income, wealth, and demographics covering the entire Dutch population.
    JEL: H26 H87 E21
    Date: 2020–10
  9. By: Momi Dahan
    Abstract: This paper reveals a noticeable difference between a high degree of progressivity of incomerelated local property tax relief versus the proportional or regressive incidence of recognition tax relief. Recognition tax relief is tax relief given to specified social sectors which recognizes either their contributions to society or their identity-related suffering. Social groups that are characterized by political power and positive image following social construction process are expected to receive more favorable tax treatment regardless of their material needs. This study advances our understanding by showing that the degree of progressiveness of a tax system is shaped by social construction which implies a more complex trade-off between equality, efficiency and social construction in designing the tax system.
    Keywords: tax relief, property tax, tax progressivity, social construction
    Date: 2021
  10. By: Sascha Mierzwa (Philipps-Universitaet Marburg)
    Abstract: I study the spill-over effects of legislated discretionary tax changes in the United States, Germany, and the United Kingdom to 11 Eurozone countries for the period 1980Q1–2018Q4 employing Local Projections (Jordà , 2005). In general, I find spillovers from US tax legislation to have the smallest effects on Eurozone countries’ real GDP and UK tax changes to exert the largest effect. There is substantial heterogeneity in both the sign and size of spillovers after US and German aggregated tax cuts, whereas UK tax cuts generally have beneficial effects. When I focus the analysis on the state dependent case, I do not find clear evidence of larger spillovers when the recipient country is in a recession. The sign and size of the spillovers instead depend on the origin and sign of the tax change, as well as the recipient country, rather than on the overall state of the business cycle. Moreover, German tax cuts can be contractionary when recipient countries are in a recession, as the short-term interest rate rises. US tax cuts, on the other hand, stimulate the exports of most countries regardless of the state of the business cycle.
    Keywords: Fiscal policy, tax policy, legislated tax changes, state dependence, Eurozone, fiscal spillovers, asymmetric effects, United States, Germany, United Kingdom, local projections, narrative approach
    JEL: E62 E63 F45 H20 H30 K34
    Date: 2021
  11. By: Kruse, Herman; Myhre, Andreas
    Abstract: This paper studies the economic effects on re-employment and program substitution behavior among elderly displaced workers who exogenously lose eligibility for their early retirement option. We use detailed Norwegian matched employer-employee data containing information on bankruptcy dates and individual-level wealth, income, pensions and social security benefits. Our empirical strategy employs a regression discontinuity design, as job displacement before a certain age cut-off results in losing eligibility for early retirement benefits between ages 62–67 years in Norway. We find that reemployment rates are indistinguishable between workers who just retain eligibility for early retirement benefits and those who just do not. Meanwhile, those who lose eligibility offset 69% of their lost benefits through take-up of other social security benefits, where 51% comes from disability insurance and 13% from unemployment insurance. Our findings are particularly policy relevant as tightening of age-limits for old-age pensions is on the agenda in several OECD countries, while current economic hardship throughout the region may lead to increased job displacement for elderly workers.
    Keywords: early retirement, job displacement, labor supply, benefit substitution, social security
    JEL: H55 I38 J14 J26 J65
    Date: 2021–06–09
  12. By: Simplice A. Asongu (Yaounde, Cameroon); Alex Adegboye (Covenant University, Ota, Ogun State, Nigeria); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: This study explores whether female economic inclusion enhances tax performance in a sample of 48 countries in Sub-Saharan Africa from 2000 to 2018. The study’s empirical evidence is based on the generalized method of moments in order to account for endogeneity concerns. Three tax performance measurements are used, notably, total taxes revenue excluding social contributions, reported tax revenue derived from natural resources sources, and total non-resource tax revenue. Three female inclusion indicators are used, namely, female employment in industry, female labour force participation, and female employment. The following empirical evidences are documented; (i) There is a negative net effect from the enhancement of female employment in the industry on the total tax revenue. (ii) There is a positive net effect of female employment in the industry on the non-resource taxes. An extended threshold analysis is performed to establish the critical masses that could further influence tax performance positively. The following thresholds are established. (i) a minimum of 15.35 “employment in industry, female (% of female employment)†for the total tax revenue and (ii) a maximum of 23.75 “employment in industry, female (% of female employment)†for the non-resource tax revenue. These critical masses are crucial for sustainable development because, below or beyond these thresholds, policymakers should complement the female economic inclusion with other economic measures designed to improve tax performance in Sub-Saharan Africa.
    Keywords: Gender, economic inclusion, tax performance, sustainable development, Africa
    JEL: H20 H71 I28 J08 J21
    Date: 2020–01

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