nep-pbe New Economics Papers
on Public Economics
Issue of 2021‒11‒29
thirteen papers chosen by
Thomas Andrén

  1. Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security By Makarski, Krzysztof; Tyrowicz, Joanna; Komada, Oliwia
  2. Corporate Income Tax, IP Boxes and the Location of R&D By Pranvera Shehaj; Alfons Weichenrieder
  3. Estimating Tax Progressivity in Developing Countries: The Plato Index By Alex Cobham; Edmund FitzGerald; Petr Jansky
  4. Tax Incidence and Fiscal Sustainability in DSGE Model By Junko Doi; Kota Yamada; Masaya Yasuoka
  5. Corporate Tax Cuts for Small Firms: What Do Firms Do? By Wei Cui; Mengying Wei; Weisi Xie; Jing Xing
  6. The costs of administering a wealth tax By Burgherr, David
  7. Public support for tax policies in COVID-19 times: Evidence from Luxembourg By Javier Olivera; Philippe Van Kerm
  8. Profit taxation, R&D spending, and innovation By Lichter, Andreas; Löffler, Max; Isphording, Ingo Eduard; Nguyen, Thu-Van; Poege, Felix; Siegloch, Sebastian
  9. Estimating Tax Noncompliance among the Self-Employed – Evidence from Pleasure Boat Registers By Per Engström; Johannes Hagen; Edvard Johansson
  10. Tax transition in developing countries : do value added tax and excises really work ? By Kodjo Adandohoin
  11. Corporate Taxation and International Financial Integration: U.S. evidence from a consolidated perspective By Agustin S. Benetrix; Andre Sanchez Pacheco
  12. A European Wealth Tax for a Fair and Green Recovery By Jakob Kapeller; Stuart Leitch; Rafael Wildauer
  13. Tax effort revisited: new estimates from the Government Revenue Dataset By Kyle McNabb; Michael Danquah; Abrams M.E. Tagem

  1. By: Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw); Komada, Oliwia (GRAPE)
    Abstract: We study the interactions between capital income tax and social security privatization in the context of rising longevity. In an economy with idiosyncratic income shocks, redistributive defined benefit social security provides some insurance against income uncertainty. This insurance comes at the expense of efficiency loss due to labor supply distortions. The existing view in the literature states that reducing this distortion by introducing (partially funded) defined contribution social security would reduce welfare because the loss of insurance and the transitory fiscal gap dominate the efficiency gains. However, prior research financed the transitory costs of the reform by taxing consumption. We show that in the context of longevity, capital income taxation provides a superior alternative: welfare gains are sufficient to outweigh the loss of insurance and transitory fiscal gap. We provide explanations for a mechanism behind this result and we reconcile our results with the earlier literature.
    Keywords: longevity, capital income taxation, social security reform, fiscal policy, welfare effects
    JEL: C68 D72 E62 H55 J26
    Date: 2021–10
  2. By: Pranvera Shehaj; Alfons Weichenrieder
    Abstract: The paper discusses the effects of the corporate tax on local R&D expenditures by multinational enterprises (MNEs) when income from intellectual property (IP) may or may not benefit from a special IP regime. Our model shows that an increase of the standard corporate tax may have positive effects on the R&D expenditures in the country that carries out the corporate tax increase. The possible positive R&D effect results from a tax asymmetry: not all R&D returns are subject to the higher tax. First, since R&D creates a public good within the MNE, some of the R&D benefit is taxed at other countries’ tax rates that are not subject to the tax increase. Second, some of the R&D benefits are taxed at a lower IP regime tax rate. Therefore, a higher corporate tax, which increases value of the cost deductibility of R&D, may actually foster R&D. This expectation is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime.
    Keywords: corporate income tax, R&D, intellectual property regimes, patent box, international profit shifting
    JEL: H25 H26 O30
    Date: 2021
  3. By: Alex Cobham (Tax Justice Network); Edmund FitzGerald (Oxford University); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Progressive direct taxation is necessary to complement social protection, in order to reduce income inequality as well as poverty. A new metric of personal income tax incidence progressivity (the "Plato Index") is presented, using WIDER databases for income inequality (WIID) and tax revenues (GDR). Taxation is shown to be far less progressive in developing countries, than in developed ones (particularly Europe) although there are large variations within regional and income groups. There is significant correlation of direct tax progressivity not only with the level of economic development, but also with health and education provision. Both findings imply potential policy space for higher personal income tax pressure.
    Keywords: direct taxation, tax progressivity, developing countries, fiscal incidence, social protection
    JEL: D12 H23 I32 O15
    Date: 2021
  4. By: Junko Doi (Kansai University); Kota Yamada (kansai University); Masaya Yasuoka (Kwansei Gakuin University)
    Abstract: The aims of our study are to set a Dynamic Stochastic General Equilibrium (DSGE) model and to examine how increased income or consumption tax rates affect the ratio of public debt to GDP and other macroeconomic parameters. We consider taxation of three types, on labor income, capital income, and consumption. Results derived from our simulation show that an increase in income tax rates of these forms of taxation raises the ratio of public debt to GDP because GDP and tax revenues decrease. An increase in consumption tax rate can reduce the ratio of public debt to GDP because of an increase in the aggregate demand that is pulled up by the investment. Our study shows that a decrease in the income tax rate reduces the ratio of public debt to GDP.
    Keywords: DSGE Model, Fiscal Sustainability, Taxation.
    JEL: E60
    Date: 2021–11
  5. By: Wei Cui; Mengying Wei; Weisi Xie; Jing Xing
    Abstract: What do small firms do when given an income tax cut? We address this question by examining the consequences of a sharp reduction in the corporate income tax rate for small- and micro-profit enterprises (SMPE) in China based on confidential tax returns. Utilizing the gradual increases in the qualifying threshold for SMPEs during 2010-2016, we find that newly qualified SMPEs with positive taxable income increased investment, interest expense and productivity. SMPEs in taxable losses did not respond to the tax cut. The tax cut induced more SMPEs to register, especially those in financially constrained sectors. Despite these positive effects, firms’ fixed asset growth slows down when they get closer to the SMPE threshold. Our study contributes to understanding the effect of tax preferences for small businesses.
    Keywords: tax incentives, small firms, productivity, investment, firm entry
    Date: 2021
  6. By: Burgherr, David
    Abstract: I assess the costs of administering a wealth tax for taxpayers and the tax authority in the UK context, based on evidence from existing UK taxes on wealth and comprehensive wealth taxes that have been imposed in other countries. My central estimate is that a well-designed wealth tax generates costs to taxpayers of 0.1 per cent of taxable wealth and costs to the tax authority of 0.05 per cent of taxable wealth. I discuss how these costs depend on design choices. My findings can inform revenue modelling and help to evaluate the desirability of wealth taxes.
    Keywords: administrative costs; tax administration; tax compliance; tax enforcement; wealth tax; ES/L011719/1; ES/V012657/1; Wiley deal
    JEL: D31 H24 H83
    Date: 2021–09–01
  7. By: Javier Olivera; Philippe Van Kerm
    Abstract: We study attitudes towards the introduction of hypothetical new taxes to finance the cost of the COVID-19 pandemic. We rely on survey data collected in Luxembourg in 2020. The survey asks for the agreement of respondents over: a one-time net wealth tax, an inheritance tax, a temporary solidarity income tax, and a temporary increase in VAT. All questions include different and randomly assigned tax attributes (tax rates and exemption amounts). We find a clear divide with relatively high support for new wealth and inheritance taxes on the one hand and a low support for increases in VAT and income taxes on the other hand. While 58% of respondents agree or strongly agree with a one-time tax levied on net worth, only 24% are in favor of a small increase in VAT. Support for any tax is however negatively associated with the size of the tax as measured by the predicted revenues. Our results indicate that a one-time wealth tax could raise substantial revenues and still garner public support.
    Keywords: COVID-19; wealth tax; inheritance tax; income tax; VAT; preference for redistribution
    JEL: D31 E62 H20 I38
    Date: 2021–11
  8. By: Lichter, Andreas; Löffler, Max; Isphording, Ingo Eduard; Nguyen, Thu-Van; Poege, Felix; Siegloch, Sebastian
    Abstract: We study how profit taxation affects plants' R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987-2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants' R&D spending with an implied long-run elasticity of 􀀀1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.
    Keywords: corporate taxation,firms,R&D,innovation,patents
    JEL: H25 H32 O31 O32
    Date: 2021
  9. By: Per Engström (Uppsala University); Johannes Hagen (Jönköping University); Edvard Johansson (Åbo Akademi University)
    Abstract: We improve upon the Pissarides-Weber method for estimating tax evasion among the self-employed by utilizing unique register-based consumption measures from the Swedish and Finnish mandatory registers for pleasure boats. The register data allows for more detailed and statistically powered analyses than survey-based applications. We evaluate i) the key assumption of equal preferences between self-employed and wage earner households, and ii) the functional form assumptions in the estimated Engel curves. Our results indicate overall levels of hidden incomes that are roughly in line with previous studies. However, the functional form analysis shows that the estimated sizes of income underreporting in absolute monetary amounts are almost constant over reported income levels, whereas previous studies have assumed that the underreporting is proportional to income. The results from the preference analysis – in which we compare households that will become self-employed in the near future with households that will remain wage earners – are mixed; the analysis shows that the two types of households have insignificant (Finland) or economically small (Sweden) preference differences. However, when we use engine power as a price proxy, the preference differences are substantially larger in both countries.
    Keywords: tax evasion, income underreporting, pleasure boats, Engel curves, permanent income, self-employment
    JEL: D12 H24 H25 H26
    Date: 2021–03
  10. By: Kodjo Adandohoin (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper investigates the role of Value Added Tax (VAT) and excises in first wave tax transition (movement away from international trade taxes towards domestic revenue collection) of developing countries. Focusing on a sample of 96 developing countries over the period 1985-2013, we investigate whether the adoption of VAT enables developing countries to increase the thelikelihood of succeeding tax transition. Results indicate that having a VAT, allows developingcountries to increase the probability of succeeding tax transition by 12%. We further investigatethe extent to which VAT and excises offset trade tax revenue losses of trade liberalization inthese countries. Our estimates reveal that VAT is offsetting for about 52% trade tax revenuelosses in developing countries with a U relationship, while this effect holds for excises dutieswith a U inverted relationship. The study also points out heterogeneities (while VAT adoptiontax transition effect is robust to African and Asian countries, it seems not for Latin Americancountries), as well as asymmetries (the revenue collection of VAT and excises didn't increase theperiod over which developing countries face an increase in trade tax). While enhancing tax ad-ministration fosters the transition process in these countries, the study however suggests takingwith closer attention VAT and excises as powerful first wave tax transition tools in developingcountries.
    Date: 2021
  11. By: Agustin S. Benetrix (Department of Economics, Trinity College Dublin); Andre Sanchez Pacheco (Department of Economics, Trinity College Dublin)
    Abstract: We document a robust relation between corporate tax differentials and U.S. international financial integration (IFI). While this is the case for traditional IFI based on cross-border positions, the positive link also emerges for its larger consolidated-by-nationality version. The gap between these IFI measures, the key outcome variable in our analysis, exhibits a strong positive correlation with tax differentials too. This is in part due to consolidated assets of multinational enterprises being more strongly correlated with tax differentials than their cross-border counterpart. We interpret this as indirect evidence of U.S. multinationals taking advantage of tax differentials in ways that go beyond what is captured by traditional Balance of Payments procedures.
    Keywords: International financial integration, financial globalisation, multinational enterprises, corporate taxation
    JEL: F36 F21 F23 H87
    Date: 2021–05
  12. By: Jakob Kapeller; Stuart Leitch; Rafael Wildauer (University of Greenwich)
    Abstract: This paper investigates the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed. To address the problem of under-reporting of wealth at the top of the distribution in survey data, a Pareto distribution is fitted to the right tail of the data and used to create an amended data set which also represents these missing rich, whose wealth goes unreported. The Pareto-amended data show that household wealth is highly concentrated among the wealthiest households: the richest 1% hold 32% of total net wealth in the EU22 while the poorest half of all households only hold about 4.5% of total net wealth. These data are then used to estimate revenues for four different tax models. The results show that annual revenues between €192 billion (1.6% of GDP) and €1,281 billion (10.8% of GDP) across the EU22 are possible.
    Keywords: None
    Date: 2021–11
  13. By: Kyle McNabb; Michael Danquah; Abrams M.E. Tagem
    Abstract: Attention on domestic resource mobilization—particularly in developing countries—has increased significantly in recent years. This stems from, among other things, recognition in the Sustainable Development Goals that further domestic funding is required for development needs, and the Addis Tax Initiative, which aims to foster fairer and more effective domestic resource mobilization. And whilst there is a recognition that many low- and middle-income countries could be collecting more in tax revenues, the answer to the question of just how much more is unclear.
    Keywords: Tax effort, Domestic revenue mobilization, Tax, Development
    Date: 2021

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