nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒02‒21
twelve papers chosen by
Thomas Andrén

  1. Presumptive taxation and firms’ efficiency: an integrated approach for tax compliance analysis By ferrara, giancarlo; campagna, arianna; bucci, valeria; atella, vincenzo
  2. Optimal Taxation with Multiple Incomes and Types By Kevin Spiritus; Etienne Lehmann; Sander Renes
  3. Tax policies in a transition to a knowledge-based economy: The effective tax burden of companies and highly skilled labour By Fischer, Leonie; Heckemeyer, Jost H.; Spengel, Christoph; Steinbrenner, Daniela
  4. Efficient Regional Taxes in the Presence of Mobile Creative Capital By Batabyal, Amitrajeet; Nijkamp, Peter
  5. Informality, Consumption Taxes and Redistribution By Pierre Bachas; Lucie Gadenne; Anders Jensen
  6. The Macroeconomic Effects of Funding U.S. Infrastructure By James Malley; Apostolis Philippopoulos
  7. Tax Havens - An Insidious Mechanism for Evading Tax Obligations By Narciz Balasoiu
  8. The Politics and History of Global Tax Governance By Hearson, Martin; Rixen, Thomas
  9. How well targeted are soda taxes? By Pierre Dubois; Rachel Griffith; Martin O'Connell
  10. Extending Pension Policy in Emerging Asia: An Overlapping-Generations Model Analysis for Indonesia By George Kudrna; John Piggott; Phitawat Poonpolkul
  11. Constraints on the executive and tax revenues in the long run By Antonio Savoia; Kunal Sen; Abrams M.E. Tagem
  12. Fiscal decentralization and efficiency: empirical evidence from Italian municipalities By bucci, valeria; ferrara, giancarlo; resce, giuliano

  1. By: ferrara, giancarlo; campagna, arianna; bucci, valeria; atella, vincenzo
    Abstract: Presumptive taxation methods are policy tools widespread adopted by fiscal authorities with the aim to improve voluntary tax compliance and to fight tax evasion. Such methods allow authorities to uncover firms’ under-reporting, but face several limits. In particular, presumptive taxation methods do not allow to disentangle when the presence of under-reporting is ascribable to tax evasion behaviour or to the lack of managerial skills and inefficiency. To overcome the main presumptive taxation weakness, we propose combining presumptive frameworks with a measure of technical efficiency, thus developing an integrated approach for tax evasion analysis able to support the audit activities of fiscal authorities. Further, we provide some considerations in terms of tax compliance and support our approach with evidence obtained from an empirical application based on Italian firms.
    Keywords: Tax Compliance, Presumptive Taxation, Efficiency, Stochastic Frontier, Business Sector Studies
    JEL: C14 D24 H26 H32
    Date: 2021
  2. By: Kevin Spiritus (Erasmus Universiteit Rotterdam); Etienne Lehmann (Université Panthéon-Assas Paris II); Sander Renes (Erasmus Universiteit Rotterdam)
    Abstract: We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple in- comes and differ along many unobserved dimensions. We derive the necessary conditions for the government’s optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique.
    Keywords: Nonlinear Optimal Taxation, Multidimensional Screening, Household Income Taxation
    JEL: H21 H23 H24 D82
  3. By: Fischer, Leonie; Heckemeyer, Jost H.; Spengel, Christoph; Steinbrenner, Daniela
    Abstract: Globalisation and the fast-approaching digitalisation increase capital as well as labour mobility fostering tax competition among countries worldwide. Based on a unique dataset, we analyse the development of effective tax burdens on corporations and highly skilled labour for 26 OECD countries over the last decade. The synthesis of both indicators allows us to identify tax strategies of the countries considered and to further elaborate on the scope of future tax competition against the background of current developments. Overall, we find a declining trend in effective tax burdens on corporate investments, whereas we observe increases in the top statutory tax rates for high-income earners and a rather constant average effective tax burden on labour for a disposable income of EUR 100'000. Current developments like the agreement on a global minimum tax or the transition to a knowledge-based economy can set a new lower bound to tax competition on corporate investments and might shift its focus.
    Keywords: effective tax rates,tax competition,location attractiveness,corporate location decision,Devereux/Griffith Methodology,Human Resource Tax Analyzer
    JEL: H21 H25
    Date: 2021
  4. By: Batabyal, Amitrajeet; Nijkamp, Peter
    Abstract: We study interregional competition for mobile creative capital between regions A and B. Regional authorities (RAs) in both regions use tax policy to attract the creative capital possessing members of the creative class to their region. The resulting tax revenues help RAs finance other objectives such as the provision of one or more public goods. In this setting, we accomplish five tasks. First, we explain the significance of a parameter ζ that is related to the marginal product of creative capital. Second, we compute the Nash equilibrium tax rates when each RA chooses its tax rate to maximize tax revenue. Third, we discuss how a decline in ζ affects the Nash equilibrium tax rates. Fourth, we determine the two efficient tax rates. Finally, we discuss the implications of our analysis for a policy that raises revenue by taxing creative capital.
    Keywords: Competition, Creative Capital, Efficiency, Mobility, Tax Revenue
    JEL: H20 R11 R50
    Date: 2021–11–13
  5. By: Pierre Bachas (Institute for Fiscal Studies and Berkeley Economics, University of California); Lucie Gadenne (Institute for Fiscal Studies and University of Warwick); Anders Jensen (Institute for Fiscal Studies)
    Abstract: Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the place of purchase of each expenditure to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we ?nd that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to our data to study the effect of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. These effects are primarily driven by the shape of the informality Engel curve. Once informality is taken into account, commonly used redistributive policies, such as reduced rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justi?ed on equity or ef?ciency grounds in several poor countries.
    Date: 2020–06–01
  6. By: James Malley; Apostolis Philippopoulos
    Abstract: This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a neoclassical growth model. We add to the literature by considering a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find that infrastructure spending cannot fully pay for itself despite public and private capital being underprovided. We further find long-run output multipliers above unity if infrastructure spending and rising public debt are financed by consumption, dividend and labour income taxes and below one for corporate taxes. We also show that except for the consumption tax, the size of the multipliers critically depends on the Frisch labour supply elasticity. Finally, when we compute differences in welfare across different public financing regimes, the net welfare gains and losses are relatively minor.
    Keywords: Infrastructure investment, public capital, fiscal multipliers, taxation
    JEL: E62 H41 H54
    Date: 2022–01
  7. By: Narciz Balasoiu (Academy of Economic Studies, Faculty of International Business, Bucharest, Romania)
    Abstract: The development of world trade along with accelerated globalization has an effect not only on economic development or the strengthening of international cooperation, but also facilitated sophisticated mechanisms by which the payment of tax obligations by multinational companies is circumvented. Transfer pricing and tax havens, considered both individual and combined practices, negatively affect a country's ability to implement fiscal policy and improve budget revenue collection capacity. The problem is even greater in the case of states with a fragile economy, where the dynamics of development is vitally related to the elimination of legal, immoral or illegal tax evasion practices. The Transfer pricing mechanism has also been optimized to handle taxable transactions between companies affiliated to a particular group. Multinational companies avoid taxes by overestimating imports and underestimating exports, thus managing to distribute revenues in various regions of the globe that have great tax advantages.
    Keywords: tax havens, profit shifting, tax evasion, corporation, fiscal legislation
    Date: 2021–06
  8. By: Hearson, Martin; Rixen, Thomas
    Abstract: We discuss the history, political determinants and current challenges of global tax governance. We divide the last century into three eras: foundation, during which states built a regime to prevent double taxation using bilateral treaties and soft multilateral coordination; stability, during which this regime failed to adapt to the growth in volume and complexity of cross-border trade and investment capital; finally, the current era of crisis, characterized by politicization, an appetite to reform longstanding institutions, and a willingness to trample over fiscal sovereignty. Existing scholarship explaining this trajectory of change can be organized through well-established interest-based, power-based and ideational accounts. We argue that future research could build on this existing scholarship by reorienting in three different ways: from tax competition towards double taxation and tax sovereignty, from the OECD to emerging markets and developing countries, and from mid-level theorization towards the bigger picture of global political economy, of which tax is an intrinsic part.
    Keywords: Finance,
    Date: 2021
  9. By: Pierre Dubois (Institute for Fiscal Studies and Toulouse School of Economics); Rachel Griffith (Institute for Fiscal Studies and University of Manchester); Martin O'Connell (Institute for Fiscal Studies and University of Wisconsin)
    Abstract: Soda taxes aim to reduce excessive sugar consumption. Policymakers highlight the young, particularly from poor backgrounds, and high sugar consumers as groups whose behavior they would most like to influence. There are also concerns about the policy being regressive. We assess who are most impacted by soda taxes. We estimate demand using micro longitudinal data covering on-the-go purchases, and exploit the panel dimension to estimate individual specific preferences. We relate these preferences and counterfactual predictions to individual characteristics and show that soda taxes are relatively effective at targeting the sugar intake of the young, are less successful at targeting the intake of those with high total dietary sugar, and are unlikely to be strongly regressive especially if consumers benefit from averted internalities.
    Date: 2020–03–30
  10. By: George Kudrna; John Piggott; Phitawat Poonpolkul
    Abstract: This paper examines the economy-wide effects of government policies to extend public pensions in emerging Asia particularly pertinent given the region’s large informal sector and rapid population ageing. We first document stylized facts about Indonesia’s labour force, drawing on the Indonesian Family Life Survey (IFLS). This household survey is then used to calibrate micro behaviours in a stochastic, overlapping-generations (OLG) model with formal and informal labour. The benchmark model is calibrated to the Indonesian economy (2000-2019), fitted to Indonesian demographic, household survey, macroeconomic and fiscal data. The model is applied to simulate pension policy extensions targeted to formal labour (contributory pension extensions to all formal workers with formal retirement age increased from 55 to 65), as well as to informal labour (introduction of non-contributory social pensions to informal 65+). First, abstracting from population ageing, we show that: (i) the first set of pension policy extensions (that have already been legislated and are being implemented in Indonesia) have positive effects on consumption, labour supply and welfare (of formal workers) (due largely to the formal retirement age extension); (ii) the introduction of social pensions targeted to informal workers at older age generates large welfare gains for currently living informal elderly; and (iii) the overall pension reform leads to higher welfare across the employment-skill distribution of households. We then extend the model to account for demographic transition, finding that the overall pension reform makes the contributory pension system more sustainable but the fiscal cost of non-contributory social pensions more than triples to 1:7% of GDP in the long run. As an alternative, we examine application of a means-tested social pension system within the overall pension reform. We show that this counterfactual reduces the fiscal cost (of social pensions) and further increases the welfare for both current and future generations.
    Keywords: Informal Labour; Population Ageing; Social Security; Taxation; Redistribution; Stochastic General Equilibrium
    JEL: E26 J1 J21 J26 H55 H24 C68
    Date: 2022–01
  11. By: Antonio Savoia; Kunal Sen; Abrams M.E. Tagem
    Abstract: We argue that tax revenues and political institutions placing constraints on the executive power may reinforce each other over time and so co-evolve in the long run. This may also bring a shift in the composition of revenues, from taxes levied on a narrow base to broadly levied taxes. To test these hypotheses, we use historical cross-country data covering 31 countries for 1800-2012 and panel time series methods allowing for different forms of country-specific heterogeneity and cross-section dependence. The results offer three main findings.
    Keywords: Constraints on the executive, Tax revenue, Institutions, SDG17, Government tax revenue
    Date: 2022
  12. By: bucci, valeria; ferrara, giancarlo; resce, giuliano
    Abstract: This paper investigates the association between fiscal decentralization and municipality efficiency by conducting an empirical analysis focused on the Italian context. We conduct a cost efficiency analysis based on a stochastic frontier approach with municipality and time fixed effects for 2010-2016 modelling the decentralization effect with a continuous variable, taxation autonomy, which allows for accounting for the degree and evolution of fiscal decentralization over time. The empirical analysis provides convincing evidence that fiscal decentralization is positively associated with municipalities' efficiency, robust to inclusion into the model of a large set of control variables. This evidence lends support for policies aimed at making more closely aligned expenditure and revenue decision making.
    Keywords: Fiscal Decentralization; Local governance; Italian municipalities; Efficiency; Stochastic frontier analysis
    JEL: D61 H50 H77
    Date: 2022

This nep-pbe issue is ©2022 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.