nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒09‒27
eleven papers chosen by
Thomas Andrén

  1. Challenges of international business taxation in the context of digitalization By Milogolov Nikolai; Berberov A.
  2. Optimal Income Taxation under Monopolistic Competition By Alexander Tarasov; Robertas Zubrickas
  3. Optimal income taxation with tax avoidance By Georges Casamatta
  4. IPOs and Corporate Taxes By Christine L. Dobridge; Rebecca Lester; Andrew Whitten
  5. Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa By Ali Enami; Ugo Gentilini; Patricio Larroulet; Nora Lustig; Emma Monsalve; Siyu Quan; Jamele Rigolini
  6. Inheritance Taxation in Comparative Perspective By Manuel Schechtl
  7. Taking from the Disadvantaged? Consumption Tax Induced Poverty Across Household Types in 11 OECD Countries By Manuel Schechtl
  8. Organizational Capacity and Profit Shifting By Katarzyna A. Bilicka; Daniela Scur
  9. Unilateral Tax Policy in the Open Economy By Miriam Kohl; Philipp M. Richter
  10. Towards Efforts to Enhance Tax Revenue Mobilisation in Africa: Exploring Synergies between Industrialisation and ICTs By Isaac K. Ofori; Pamela E. Ofori; Simplice A. Asongu
  11. Empathy and the Efficient Provision of Public Goods By Geoffrey Heal

  1. By: Milogolov Nikolai (Gaidar Institute for Economic Policy); Berberov A. (Gaidar Institute for Economic Policy)
    Abstract: The current system of international taxation does not result in a fair distribution of the tax base between countries in a digital environment violating the principle of taxation in accordance with the added value created in the particular country. In the absence of international consensus, countries reform their tax systems aimed to collect taxes in the digital economy unilaterally by imposing Digital Services Tax (DST). By their nature, being indirect, these taxes (DST) are collected on the turnover of foreign digital companies in the market country (the country of the source of income).
    Keywords: Russian economy, taxation, international business taxation
    JEL: H2 H24 H25
    Date: 2021
  2. By: Alexander Tarasov; Robertas Zubrickas
    Abstract: This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that price and variety distortions resulting from the market structure imply that income tax policy needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that, when choosing optimal tax policy, the failure to account for the market structure results in a welfare loss of 1:77 percent. Motivated by practical cases, we study a policy regime that is solely based on income taxation. Under this policy regime, departures from the social optimum can be compensated by lower and less regressive income taxes than those obtained under the regime with all forms of taxation. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure.
    Keywords: tax policy, monopolistic competition, variety effect, consumer preferences, endogenous labor
    JEL: D43 H21 L13
    Date: 2021
  3. By: Georges Casamatta (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We determine the optimal income tax schedule when individuals have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we find that a subset of individuals, located in the interior of the income distribution, should be allowed to avoid taxes, provided that the marginal cost of avoiding the first euro is sufficiently small. This contrasts with the results of Grochulski (2007) who shows that, with a subadditive cost function, all individuals should declare their true income. We also provide a characterization of the optimal income tax curve.
    Date: 2021–06
  4. By: Christine L. Dobridge; Rebecca Lester; Andrew Whitten
    Abstract: How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
    Keywords: Corporate tax; IPO; Investment; Tax haven
    JEL: G31 G32 H25
    Date: 2021–09–07
  5. By: Ali Enami; Ugo Gentilini; Patricio Larroulet; Nora Lustig; Emma Monsalve; Siyu Quan; Jamele Rigolini
    Abstract: Using microsimulations this paper analyzes the poverty and tax implications of replacing current transfers and subsidies by a budget-neutral (no change in the fiscal deficit) universal basic income program (UBI) in Brazil, Chile, India, Russia, and South Africa. We consider three UBI transfers with increasing levels of generosity and identify scenarios in which the poor are no worse off than in the baseline scenario of existing social transfers. We find that for poverty levels not to increase under a UBI reform, the level of spending must increase substantially with respect to the baseline. Accordingly, the required increase in tax burdens is high throughout. In our five countries and scenarios, the least increase in taxes required to avoid poverty to be higher than in the baseline is around 25% (Brazil and Chile). Even at this lower rate, political resistance and efficiency costs could limit the feasibility of a UBI reform.
    Keywords: Universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: H22 H31 H55 I32 D63
    Date: 2021–09
  6. By: Manuel Schechtl
    Abstract: The role of inheritances for wealth inequality has been frequently addressed. However, until recently, comparative data has been scarce. This paper compiles inheritance tax information from EY Worldwide Estate and Inheritance Tax Guide and combines it with microdata from the Luxembourg Wealth Study. The results indicate substantial differences in the tax base and the distributional potential of inheritance taxation across countries.
    Date: 2021–06
  7. By: Manuel Schechtl
    Abstract: Consumption taxes are a pivotal yet largely unaddressed policy tool that shape the income distribution and potentially thwart the redistributive goals of social policy. Previous research showed how consumption taxes can elevate inequality and poverty on the macro level. However, different household types might be affected differently due to diverging income positions and consumption needs. In this study, I aim to examine the change in income poverty across household types when accounting for consumption tax payments. To address my research interest, I draw on harmonised data from 11 OECD countries provided by the Luxembourg Income Study (LIS). I estimate implicit indirect tax rates from national accounts and investigate poverty rates of household types before and after subtracting consumption taxes. Using logistic regression models, I scrutinise the probability of falling under the poverty line due to consumption tax payments. The results indicate significant variation in poverty changes across household types. In most countries, people in large families and single parent households have a higher probability of falling under the poverty line when compared to couple households. Ultimately, results from linear probability models with country-fixed effects indicate that the consumption tax rate is positively associated with the elevation in poverty for single parents.
    Date: 2021–01
  8. By: Katarzyna A. Bilicka; Daniela Scur
    Abstract: This paper analyses the effect of a firm’s organizational capacity on the reported profitability of multinational enterprises (MNEs). Better organizational practices improve productivity and the potential taxable profits of firms. However, higher adoption of these practices may also enable more efficient allocation of profits across tax jurisdictions, lowering actual taxable profits. We present new evidence that MNE subsidiaries with better such practices, when located in high-tax countries, report significantly lower profits and have a higher incidence of bunching around zero returns on assets. We show these results are driven by patterns consistent with profit-shifting behavior. Further, using an event study design, we find that firms with better practices are more responsive to corporate tax rate changes. Our results suggest organizational capacity, especially monitoring-related practices, enables firms to engage in shifting profits away from their high-tax subsidiaries.
    JEL: H26 H32 M11 M2
    Date: 2021–09
  9. By: Miriam Kohl; Philipp M. Richter
    Abstract: This paper examines the effects of a unilateral reform of the redistribution policy in an economy open to international trade. We set up a general equilibrium trade model with heterogeneous agents allowing for country asymmetries. We show that under international trade compared to autarky, a unilateral tax increase leads to a less pronounced decline in aggregate real income in the reforming country, while income inequality is reduced to a larger extent for sufficiently small initial tax rates. We highlight as a key mechanism a tax-induced reduction in the market size of the reforming country relative to its trading partner, resulting in a firm selection effect towards exporting. From the perspective of a non-reforming trading partner, the unilateral redistribution policy reform resembles a unilateral increase in trade costs leading to a deterioration of terms-of-trade and a decline in both aggregate real income and inequality.
    Keywords: income inequality, redistribution, international trade, heterogeneous firms
    JEL: D31 F12 F16 H24
    Date: 2021
  10. By: Isaac K. Ofori (University of Insubria, Varese, Italy); Pamela E. Ofori (University of Insubria, Varese, Italy); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Motivated by the momentous rise in ICT diffusion, the implementation of the African Continental Free Trade Area agreement, and the expected rebound of foreign direct investment inflow to Africa from 2022, this study examines the joint effects of industrialisation and ICT diffusion on resource mobilisation in Africa. To this end, we use data on 42 African countries for the period 1996 – 2020 for the analysis. First, we provide evidence robust to several specifications from the dynamic system GMM to show that although unconditionally both industrialisation and ICT diffusion enhance (i) goods and services tax (GST), and (ii) profits, corporate and income tax (PCIT) mobilisation efforts in Africa, the effects of the former are rather remarkable in the presence of the latter. Particularly, the results show that, while ICTs amplify the effect of industrialisation on GST, only ICT usage and ICT skills matter for PCIT. Second, the study unveils ICT thresholds for complementary policies. Accordingly, industrialisation and ICTs are necessary and sufficient conditions for tax revenue mobilisation only below some ICT thresholds. Above these ICT thresholds, complementary policies are needed to maintain the overall positive incidence on tax revenue mobilisation. Policy recommendations are provided in the end.
    Keywords: AfCFTA; Africa; ICT access; ICT diffusion; Industrialisation; Tax; Revenue
    JEL: C33 F6 H2 H71 O33 O55
    Date: 2021–01
  11. By: Geoffrey Heal
    Abstract: I consider the effect of empathy towards others on the internalization of interpersonal externalities and on private contributions to the provision of public goods. I show that if preferences are empathetic in the sense of depending on the well-being of others, then in an extreme case external effects are fully internalized, and private contributions to the provision of a public good will be sufficient for it to be provided at an efficient level. Furthermore I show that an increase in the level of empathy shown by any agent will lead to an increase in the level of provision of the public good, and that as empathy levels increase towards their upper bound, the level of provision of the public good converges to the efficient level. Under certain conditions an increase in empathy is Pareto improving. As it is well-documented that people display some degree of empathy, it is arguable that our failure to provide public goods at efficient levels is attributable to lack of empathy as well as to the free rider problem.
    JEL: H00 H23 H41
    Date: 2021–09

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