nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒09‒20
seven papers chosen by
Thomas Andrén

  1. Why Minimum Corporate Income Taxation Can Make the High-Tax Countries Worse off: the Compliance Dilemma By Hindriks, Jean; Nishimura, Yukihiro
  2. Fair inheritance taxation By Decerf, Benoit; Maniquet, François
  3. The Hidden Homeownership Welfare State: An International Long-Term Perspective on the Tax Treatment of Homeowners By Konstantin A. Kholodilin; Sebastian Kohl; Artem Korzhenevych; Linus Pfeiffer
  4. Drivers of Participation Elasticities across Europe: Gender or Earner Role within the Household? By Charlotte Bartels; Cortnie Shupe
  5. Semi-parametric estimation of the EASI model: Welfare implications of taxes identifying clusters due to unobserved preference heterogeneity By Andr\'es Ram\'irez-Hassan; Alejandro L\'opez-Vera
  6. Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation? By Philipp Chapkovski; Luca Corazzini; Valeria Maggian
  7. Food Taxes and Their Impacts on Food Spending By Dong, Diansheng; Stewart, Hayden

  1. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University)
    Abstract: Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the strategic interaction between minimum taxation and tax compliance. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective international tax compliance requires enforcement coordination between countries (e.g. exchange of information). We show that under sufficient market asymmetry (translating into the tax differential), minimum taxation may induce the low-tax countries to withdraw from international tax compliance agreements. We then show that such a breakdown of cooperation can make the high-tax country worse off compared to the absence of minimum taxation.
    Keywords: profit shifting ; tax competition ; tax enforcement
    JEL: C72 F23 F68 H25 H87
    Date: 2021–07–28
  2. By: Decerf, Benoit (World Bank); Maniquet, François (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We study the optimal taxation of bequests in a version of the model of Piketty and Saez (2013). Agents have heterogeneous preferences over their consumption and the net-of-tax bequest received by their heir. The bequest left by an individual depends on both her degree of altruism and the bequest received from her parents. First, we study two principles at the heart of the debates on taxing inheritances: 1) children should not be penalized by the lack of altruism of their parents; 2) parents should be free to choose their bequests. Only one social welfare function (SWF) satisfies these two principles, together with Pareto efficiency and a separability principle. Second, we study the shape of the inheritance tax scheme that maximizes this SWF. We show that, in the aggregate, the inheritance tax must collect money (redistributed through a non-negative demogrant). Moreover, small bequests cannot be taxed (they can potentially be subsidized), while bequests larger than that of the most altruistic individuals who did not receive bequests from their parents should be taxed as much as efficiency permits.
    Date: 2021–08–20
  3. By: Konstantin A. Kholodilin; Sebastian Kohl; Artem Korzhenevych; Linus Pfeiffer
    Abstract: Welfare is traditionally understood through social security decommodifying labor markets or social investment policies. In the domain of housing, however, welfare for homeowners is largely hidden in the tax codes’ fiscal exemptions. Based on a content analysis of legislation, this paper introduces a novel yearly database of 37 countries between 1910 and 2020 to uncover the “hidden welfare state” of taxes on imputed rent, deductibility of mortgage payments, housing capital gains tax and VAT on newly built dwellings. Summary indices of homeownership attractiveness and neutrality of the tax code show that fiscal homeownership policies have been in decline until the 1980s and risen ever since. They are in place where finance is liberally and labor restrictively regulated. Contrary to the classical welfare state, they are not associated with an economic logic of industrialism or left-wing governments, but a rent-regulation alternative of Common-Law jurisdictions and smaller countries. As welfare for property owners, the logic of fiscal homeownership welfare diverges from the classical welfare for the laboring classes.
    Keywords: Homeownership taxation attractiveness, tenure neutrality, leximetrics, international longitudinal data
    JEL: C43 H24 K25 R38
    Date: 2021
  4. By: Charlotte Bartels; Cortnie Shupe
    Abstract: We compute participation tax rates across the EU and find that work disincentives inherent in tax-benefit systems largely depend on household composition and the individual's earner role within the household. We then estimate participation elasticities using an IV group estimator that enables us to investigate the responsiveness of individuals to work incentives. We contribute to the literature on heterogeneous elasticities by providing estimates for breadwinners and secondary earners separately, according to their potential earnings rather than gender. Our results show an average participation elasticity of 0.0-0.1 among breadwinners and 0.1-0.4 among secondary earners in the EU as well as a high degree of heterogeneity across countries.
    Keywords: Participation elasticities, labor supply, taxation, cross-country comparisons
    JEL: H24 H31 J22 J65
    Date: 2021
  5. By: Andr\'es Ram\'irez-Hassan; Alejandro L\'opez-Vera
    Abstract: We provide a novel inferential framework to estimate the exact affine Stone index (EASI) model, and analyze welfare implications due to price changes caused by taxes. Our inferential framework is based on a non-parametric specification of the stochastic errors in the EASI incomplete demand system using Dirichlet processes. Our proposal enables to identify consumer clusters due to unobserved preference heterogeneity taking into account, censoring, simultaneous endogeneity and non-linearities. We perform an application based on a tax on electricity consumption in the Colombian economy. Our results suggest that there are four clusters due to unobserved preference heterogeneity; although 95% of our sample belongs to one cluster. This suggests that observable variables describe preferences in a good way under the EASI model in our application. We find that utilities seem to be inelastic normal goods with non-linear Engel curves. Joint predictive distributions indicate that electricity tax generates substitution effects between electricity and other non-utility goods. These distributions as well as Slutsky matrices suggest good model assessment. We find that there is a 95% probability that the equivalent variation as percentage of income of the representative household is between 0.60% to 1.49% given an approximately 1% electricity tariff increase. However, there are heterogeneous effects with higher socioeconomic strata facing more welfare losses on average. This highlights the potential remarkable welfare implications due taxation on inelastic services.
    Date: 2021–09
  6. By: Philipp Chapkovski (National Research University Higher School of Economics, Russian Federation); Luca Corazzini (Department of Economics, University Of Venice CÃ Foscari); Valeria Maggian (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: Whistleblowing is a powerful and rather inexpensive instrument to contrast tax evasion. Despite the deterrent effects on tax evasion, whistleblowing can reduce trust and undermine agents’ attitude to cooperate with group members. Yet, no study has investigated the potential spillover effects of whistleblowing on ingroup cooperation. This paper reports results of a laboratory experiment in which subjects participate in two consecutive phases in unchanging groups: a tax evasion game, followed by a generalized gift exchange game. Two dimensions are manipulated in our experiment: the inclusion of a whistleblowing stage in which, after observing others’ declared incomes, subjects can signal other group members to the tax authority, and the provision of information about the content of the second phase before the tax evasion game is played. Our results show that whistleblowing is effective in both curbing tax evasion and improving the precision of tax auditing. Moreover, we detect no statistically significant spillover effects of whistleblowing on ingroup cooperation in the subsequent generalized gift exchange game, with this result being unaffected by the provision of information about the experimental task in the second phase. Finally, the provision of information does not significantly alter subjects’ (tax and whistleblowing) choices in the tax evasion game: thus, knowledge about perspective ingroup cooperation did not alter attitude towards whistleblowing.
    Keywords: Tax evasion, whistleblowing, ingroup cooperation, spillover effects, laboratory experiment
    JEL: H26 C90 D02
    Date: 2021
  7. By: Dong, Diansheng; Stewart, Hayden
    Abstract: Sales taxes on foods sold at grocery stores and/or restaurants exist in almost every county in the United States. By combining county-level sales tax data with U.S. Department of Agriculture’s (USDA) 2012–13 National Household Food Acquisition and Purchase Survey (FoodAPS), we examine the association between both types of taxes and a household’s spending on grocery and restaurant foods for three groups: USDA Supplemental Nutrition Assistance Program (SNAP) participants, households that are eligible for SNAP but do not participate in the program, and households that are not eligible for SNAP. We found that, among households that are eligible for SNAP but do not participate in the program, grocery taxes are associated with reduced spending on foods purchased for at-home consumption. No such association is found among the two other groups of households considered in this study, suggesting they are less sensitive to grocery taxes. SNAP households spend more money on foods purchased for at-home consumption in communities with higher restaurant taxes.
    Keywords: Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Public Economics
    Date: 2021–09–02

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