nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒11‒15
eleven papers chosen by
Thomas Andrén

  1. The Impact of Corporate Tax Reform since the 2000s―An Analysis Using Firm-Specific Forward-Looking Effective Tax Rates (Japanese) By BAMBA Yasuo; KOBAYASHI Yohei; SATO Motohiro
  2. Inflexibility in Income Shifting: Implications, Detection and Remedies By Arnt Ove Hopland; Petro Lisowsky; Mohammed Mardan; Dirk Schindler
  3. Read My Lips? Taxes and Elections By Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
  4. Working Paper 349 - Revisiting the Relationship between Trade Liberalization and Taxation By Rabah Arezki; Alou Adesse Dama; Grégoire Rota-Graziosi
  5. Determinants of tax morale: Cross-sectional evidence from Africa By Nyamapheni, Joseph; Robinson, Zurika
  6. Democracy or Optimal Policy: Income Tax Decisions without Commitment By Jang, Youngsoo
  7. Working Paper 350 - Taming Private Leviathans: Regulation versus Taxation By Rabah Arezki; Asif Islam; Grégoire Rota-Graziosi
  8. Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence By Jiménez, Gabriel; Martinez-Miera, David; Peydró, José-Luis
  9. The start-up decision under default risk By Nicola Comincioli; Paolo M. Panteghini; Sergio Vergalli
  10. Optimal federal transfers during uncoordinated response to a pandemic By Jacek Rothert
  11. Optimal Unilateral Carbon Policy By Samuel Kortum; David A. Weisbach

  1. By: BAMBA Yasuo; KOBAYASHI Yohei; SATO Motohiro
    Abstract: Many developed countries have lowered their statutory corporate tax rate, along with the expansion of the tax base. In examining the future of corporate taxation, it is important to examine the impact on corporations of the reductions in statutory corporate tax rate and the expansion of the tax base that have been implemented to date. Corporate tax reform in Japan has been implemented in a unique way, by expanding the size-based business taxation while lowering the statutory tax rate, and it is important from both academic and policy perspectives to examine the implications of these reforms. In this paper, we analyze the impact of the corporate tax reform in Japan since the 2000s by using firm-level financial data from 2006 to 2018. In addition, we briefly analyzed the impact of the change in the forward-looking average effective tax rate on corporate behavior. The corporate tax reform since the 2000s has led to a reduction in the overall effective tax rates and a narrowing of the gap in effective tax rates among firms. This also suggests that the reform had a positive impact on employment and investment; however, the effect may have been limited for large companies, which are subject to the size-based business taxation.
    Date: 2021–10
  2. By: Arnt Ove Hopland; Petro Lisowsky; Mohammed Mardan; Dirk Schindler
    Abstract: This study develops theory and discusses implications of inflexibility in tax-motivated income shifting. We show that inflexibility to adjust income-shifting strategies within a tax year in response to losses implies that income-shifting incentives are based on the expected rather than the statutory tax rate differential. This has important implications for empirical research as our finding suggests that using the statutory tax rate differential risks underestimating the tax sensitivity of income shifting. We propose several empirical remedies to mitigate the estimation bias stemming from inflexibility, whenever a direct test is not feasible. The remedies vary in their data requirements, which allows future work on tax sensitivities of income to take into account inflexibility.
    Keywords: income shifting, losses, debt shifting, transfer prices
    JEL: F23 H25 H87
    Date: 2021
  3. By: Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt
    Abstract: We introduce a new dataset that includes quantitative harmonized indices of tax reforms based on qualitative information of about 900 Economic Surveys from the OECD and 37,000 tax-related news from the IBFD archives. The data set provides indicators on tax reforms for tax rates and tax bases, along with detailed sub-indices for six types of taxes (23 countries, 1960–2014). Relating tax reforms to the timing of elections, we examine electoral cycles in tax reforms. Our results show that politicians postpone tax rate increases to after elections. A key innovation of our data set is the coverage of harmonized indices for six tax types. Examining heterogeneity across tax types, we find that electoral cycles are particularly pronounced for value added tax rates and personal income tax rates.
    Keywords: tax reforms, tax systems, tax rates, tax bases, data set, electoral cycles
    JEL: D72 H20 H25 C23
    Date: 2021
  4. By: Rabah Arezki (African Development Bank); Alou Adesse Dama (CERDI, Université Clermont Auvergne); Grégoire Rota-Graziosi (CERDI, Université Clermont Auvergne)
    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 structure, openness, liberalization, natural resources JEL classification: H2, H87, F13
    Date: 2021–08–09
  5. By: Nyamapheni, Joseph; Robinson, Zurika
    Abstract: The article provides a comparative analysis of the determinants of tax morale in South Africa and Zimbabwe, as neighbouring countries. In this quantitative research, data were collected using questionnaires from the 2010?2014 and 2017?2020 World Values Survey. For Zimbabwe, Wave 6 and Wave 7 had a sample size of 1 500 and 1 200, respectively. The study concludes that governments must understand tax morale and its determinants to boost voluntary compliance. Despite their lower standards of living, Zimbabweans have higher tax morale than South Africans. The determinants of tax morale differ between economic situations and countries. Corruption, prevalent in both countries, influences tax morale. All the models show that demographic factors have little effect on tax morale. In the analysis of the determinants of tax morale, hunger was introduced as an important variable. Although this variable was insignificant for South Africa, the study showed that in Zimbabwe, there is a negative relationship between hunger and tax morale in both economic situations. Policy-makers should consider eradicating corruption and hunger to boost tax morale to improve tax compliance. Continued tax education and improvements to the perceptions of democracy should be included in the mix of tax compliance enhancement strategies.
    Keywords: Determinants; Tax morale; Order Logit Model; South Africa; Zimbabwe
    Date: 2021–10
  6. By: Jang, Youngsoo
    Abstract: How do differences in the government’s political and commitment structure affect the aggregate economy, inequality, and welfare? I analyze this question, using a calibrated Aiyagari’s (1994) economy with wealth effects of labor supply wherein a flat tax rate and transfers are endogenously determined according to its political and commitment structure. I compare four economies: a baseline economy, an economy with the optimal tax with commitment in all steady states, an economy with the optimal tax without commitment, and a political economy with sequential voting. I obtain two main findings. First, the commitment structure shifts the government’s weighting between redistribution and efficiency. A lack of commitment leads the government to pursue a more redistributive policy at the expense of efficiency. Second, given a lack of commitment, the political economy with voting yields greater welfare than the economy with the time-consistent optimal policy. In the latter case, a lack of commitment hinders the government from implementing a more frugal policy desirable in the long run; instead, it cares more for low-income and wealth households, resulting in a substantial efficient loss. However, in the political economy with voting, the government considers only the interests of the median voter, who is middle class and reluctant to bear larger distortions from a higher tax rate and larger transfers. These findings imply that in terms of welfare, policies targeting the middle class would possibly be better than those exquisitely designed for the general public.
    Keywords: Commitment, Time-Consistent Policy, Political Economy, Voting
    JEL: E61 H11 P16
    Date: 2021–10
  7. By: Rabah Arezki (African Development Bank); Asif Islam (The World Bank); Grégoire Rota-Graziosi (CERDI, Université Clermont Auvergne)
    Abstract: This paper explores the interplay between concentration of wealth and policies, namely regulation and taxation. The paper exploits variation in exposure to international commodity prices. Using a global panel data set of the net worth of billionaires, the results point to a positive relationship between commodity prices and the concentration of wealth at the top. Regulation especially pertaining to competition is found to limit the effects of commodity price shocks on the concentration of wealth, while taxation has little effect. Moreover, commodity price shocks crowd out non-resource tax revenue, hence limiting the scope for income transfers and redistribution. The results are consistent with the primacy of ex ante interventions over ex post ones for addressing wealth inequality.
    Keywords: Inequality, Wealth concentration, Competition, Tax, Natural Resources, Development JEL classification: D31, D63, H26, H20, O13
    Date: 2021–08–09
  8. By: Jiménez, Gabriel; Martinez-Miera, David; Peydró, José-Luis
    Abstract: We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong - but not complete - tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks' risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans.
    Keywords: taxes,incidence,banks,inequality,risk-taking,mortgages
    JEL: E51 G21 G28 G51 H22
    Date: 2020
  9. By: Nicola Comincioli (Fondazione Eni Enrico Mattei, Università degli Studi di Brescia); Paolo M. Panteghini (University of Brescia, CESifo); Sergio Vergalli (Fondazione Eni Enrico Mattei, Università degli Studi di Brescia)
    Abstract: This study introduces a real option model to investigate how fiscal policy affects a representative firm's investment decision and to measure its welfare effects. On the one hand, the effects of financial instability on the optimal investment timing and on the probability of default are studied. On the other hand, it is shown how the net present value of an investment project, the tax revenue generated and the welfare are influenced by financial instability. Then, a comparison of welfare effects of tax policy on start-ups, mature and obliged firms is provided. This comparison provides policy-makers a tool to shape their tax systems according to the characteristics of their firms. All presented analyses are supported by numerical simulations, based on realistic data.
    Keywords: Real Options, Business Taxation, Default Risk
    JEL: H25 G33 G38
    Date: 2021–10
  10. By: Jacek Rothert (United States Naval Academy; Group for Research in Applied Economics (GRAPE))
    Abstract: An outbreak of a deadly disease pushes policymakers to depress economic activity due to externalities associated with individual behavior. Sometimes, these decisions are left to local authorities (e.g., states). This creates another externality, as the outbreak doesn't respect states' boundaries. A strategic Pigouvian subsidy that rewards states which depress their economies more than the average corrects that externality by creating a race-to-the-bottom type of response. In a symmetric equilibrium nobody receives a subsidy, but the allocation is efficient. If states are concerned about unequal burden of the lockdown costs, but cannot easily issue new debt to finance transfer payments, then lock-downs will be insufficient in some areas and excessive in others. When that's the case, federal stimulus checks can limit the extent of local outbreaks.
    Keywords: Covid-19; strategic Pigouvian taxation; fiscal federalism; free-riding; race-to-the-bottom
    JEL: H77 H21 H23 I19
    Date: 2021
  11. By: Samuel Kortum (Cowles Foundation, Yale University); David A. Weisbach (The University of Chicago Law School)
    Abstract: We derive the optimal unilateral policy in a general equilibrium model of trade and climate change where one region of the world imposes a climate policy and the rest of the world does not. A climate policy in one region shifts activities—extraction, production, and consumption—in the other region. The optimal policy trades off the costs of these distortions. The optimal policy can be implemented through: (i) a nominal tax on extraction at a rate equal to the global marginal harm from emissions, (ii) a tax on imports of energy and goods, and a rebate of taxes on exports of energy but not goods, both at a lower rate than the extraction tax rate, and (iii) a goods-speciï¬ c export subsidy. The policy controls leakage by combining supply-side and demand-side taxes to control the price of energy in the non-taxing region. It exploits international trade to expand the reach of the climate policy. We calibrate and simulate the model to illustrate how the optimal policy compares to more traditional policies such as extraction, production, and consumption taxes and combinations of those taxes. The simulations show that combinations of supply-side and demand-side taxes are much better than simpler policies and can perform nearly as well as the optimal policy.
    Keywords: Carbon taxes, Border adjustments, Leakage, Climate change
    JEL: F18 H23 Q54
    Date: 2021–11

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