nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒04‒18
sixteen papers chosen by
Thomas Andrén

  1. The Wealth Tax and the Tax Mix By Boadway, Robin; Pestieau, Pierre
  2. Mist Over a Meadow: Tax Designation Effects on Compliance By Lubomir Cingl; Tomas Lichard; Tomas Miklanek
  3. The Determinants of Tax Morale in India. By Korgaonkar, Chinmay N
  4. INTAXMOD – Inheritance and Gift Taxation in the Context of Ageing By Alexander Krenek; Margit Schratzenstaller; Klaus Grünberger; Andreas Thiemann
  5. Digitalization and Tax Compliance Spillovers: Evidence from a VAT e-Invoicing Reform in Peru By Mr. Matthieu Bellon; Salma Khalid; Jillie Chang; Pilar Villena; Juan Carlos Paliza; Ms. Era Dabla-Norris
  6. Fiscal Policies, Inequality, and Poverty in Croatia By Nga Thi Viet Nguyen; Ivica Rubil
  7. Missing top incomes and tax-benefit microsimulation: evidence from correcting household survey data using tax records data By Marko Ledic; Ivica Rubil; Ivica Urban
  8. Not so sweet: The impact of the Portuguese soda tax on producers By Goncalves, Judite; Merenda, Roxanne; dos Santos, João Pereira
  9. Family Tax Splitting : A Microsimulation of Its Potential Labour Supply and Intra-household Welfare Effects in Germany By Miriam Beblo; Denis Beninger; Francois Laisney
  10. Intergenerational consequences of pension reforms: Tension between democracy and equality By Baurin, Arno; Hindriks, Jean
  11. Welfare Effects of Fuel Tax and Feebate Policies in the Japanese New Car Market By Tatsuya Abe
  12. Tobacco control and optimal taxation in a changing European market landscape By Salvatore Barbaro; Nathalie Neu-Yanders
  13. R&D grant and tax credit support for foreign-owned subsidiaries: Does it pay off? By Lenihan, Helena; Mulligan, Kevin; Doran, Justin; Rammer, Christian; Ipinnaiye, Olubunmi
  14. The impact of financial transaction taxes on stock markets: Short-run effects, long-run effects, and reallocation of trading activity By Eichfelder, Sebastian; Noack, Mona; Noth, Felix
  15. Government expenditure in the DINA framework: Allocation methods and consequences for post-tax income inequality By Riedel, Lukas; Stichnoth, Holger
  16. For a European Approach to R&D Tax Incentive(s) : study of the European Law Institute By Georges Cavalier; Rémi Barnéoud; Mehdy Ben Brahim; Pablo Guédon; Lukasz Stankiewicz

  1. By: Boadway, Robin; Pestieau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: The objective of this paper is to study the role of wealth taxes as a component of the overall tax mix. In particular, wealth taxes are one of many potential taxes that apply to assets and asset income, so the question is whether wealth taxes should substitute, complement, or neither other taxes on assets and their income. More specifically, our purpose is to consider how well the Canadian tax system fares in taxing asset income, asset wealth and asset transfers with aview to judging whether wealth taxation would be a useful adjunct to the existing system. Despite the advantages that wealth taxation has compared to the existing capital tax system, we suggest that rather than incurring the administrative costs of introducing a wealth tax, a more satisfactory approach would be to reform the tax treatment of capital income and inheritances instead.
    Keywords: Wealth tax ; capital income tax ; inheritance tax
    JEL: H21 H23
    Date: 2022–02–10
  2. By: Lubomir Cingl; Tomas Lichard; Tomas Miklanek
    Abstract: Tax designation has been a popular attribute of the tax plans in a rising number of countries, yet evidence of its effects on tax compliance remains scarce. We conduct an online experiment with 830 Czech taxpayers who are self-employed or regular employees. Our approach mimics the actual tax designation mechanism: it allows subjects to express their preferences for how a part of their taxes is used by redirecting some of the money to a non-governmental organization (NGO). We exogenously vary the presence of the tax designation mechanism, the possibility to choose the recipient NGO from a list, the tax rate, and the use of tax revenues. We find no consistent significant effects of the tax designation mechanism on overall compliance, though for employees, we do find a small effect on the probability of them being fully compliant. This result complements previous findings of experiments with students, who, like employees, also do not personally file their tax returns. Our results imply that the tax designation mechanism does not encourage higher compliance among taxpayers with the greatest opportunities for tax evasion.
    Keywords: tax-enforcement; tax compliance; online tax experiment; tax designation;
    JEL: C91 C93 D02
    Date: 2022–03
  3. By: Korgaonkar, Chinmay N (Indian Revenue Service (Income Tax))
    Abstract: This is a study of tax morale in India. The concept of tax morale or the citizens' attitude towards tax compliance is vital for the design and implementation of fiscal policy. Tax morale can foster voluntary compliance and hence support the enforcement and deterrence-driven approaches of the tax agencies. However, limited literature regarding the tax morale of Indian citizens is available. The present paper tries to bridge the gap by analyzing the available data for India from the 5 waves of the World Values Survey (1990-2014). Treating tax morale as a dependent variable, this study estimates the factors influencing it. We show that the trust in government, parliament, and civil services positively affects the tax morale of Indian citizens. The correlation between trust in the legal system and tax morale was also positive but not significant. Among the socio-economic variables, education improves the intrinsic motivation of individuals towards tax compliance. Interestingly, the full-time/salaried persons have lower tax morale as compared to the self-employed employees. This finding has important policy implications, given that the full-time/salaried class contributes a significant share of the total taxes paid by the individual taxpayers in India.
    Keywords: Tax Morale ; Tax Compliance ; India ; Fiscal Policy ; Self-employed ; Salaried
    Date: 2022–04
  4. By: Alexander Krenek (WIFO); Margit Schratzenstaller; Klaus Grünberger (Austrian Institute of Economic Research); Andreas Thiemann
    Abstract: Based on the most recent data from the ECB's Household Finance and Consumption Survey, the project models the future household-level wealth distribution in five selected EU member countries (Finland, France, Germany, Ireland, and Italy) to derive inheritances based on different demographic and wealth projection scenarios. On this basis, various inheritance tax scenarios are simulated to estimate potential inheritance tax revenues for a projection period of 30 years. Our results indicate that multiple factors coincide in favouring a growing revenue potential for inheritance taxation in the medium-term. Wealth accumulation and appreciation lead to higher average wealth levels. The shift of the baby boomer generation out of the labour force results in an increase of the older population both in absolute and relative terms. Eventually, this will lead to a rise in the number of deaths and the number of inheritances. Additionally, low fertility rates lead to a reduction of the average number of successors and thereby decrease the importance of exemption thresholds, as individual inheritances become larger. Overall, our simulations show that the future revenue potential of inheritance taxes may be substantial. In practice, it can be expected that the theoretical revenue potential demonstrated by our simulations will be reduced by tax avoidance, real responses, and general equilibrium effects on other taxes. A review of the empirical evidence shows that behavioural responses to inheritance taxes are less pronounced compared to a net wealth tax.
    Keywords: TP_Europa, inheritance taxation, wealth taxation, ageing, HFCS, behavioural effects
    Date: 2022–04–07
  5. By: Mr. Matthieu Bellon; Salma Khalid; Jillie Chang; Pilar Villena; Juan Carlos Paliza; Ms. Era Dabla-Norris
    Abstract: Our study uses administrative data on firm-to-firm transactions and quasi- experimental variation in the rollout of electronic invoicing reforms in Peru to study the diffusion of e-invoicing through firm networks and its effect on tax compliance. We find that voluntary e-invoicing adoption is higher amongst firms with partners who are mandated to adopt e-invoicing, implying positive technology adoption spillovers. Spillovers are stronger from downstream partners and from export-oriented firms. Firms are less likely to continue transacting with a partner who has been mandated into e-invoicing, with the effect only partially reversed if both firms adopt e-invoicing, suggesting that network segmentation may occur. Smaller firms who transact with partners mandated into e-invoicing report 11 percent more sales and pay 17 more VAT in the year that their partner is mandated to adopt e-invoicing, suggesting positive spillovers in tax compliance behavior for this subset of firms.
    Keywords: VAT, tax compliance, technology spillovers, firm transaction data
    Date: 2022–03–18
  6. By: Nga Thi Viet Nguyen (The World Bank); Ivica Rubil (The Institute of Economics, Zagreb)
    Abstract: In a fiscally expansionary context, policy makers in Croatia must keep in mind the redistributive role of fiscal policies, particularly their impact on inequality and poverty. This paper uses both household survey data and national accounts to estimate how in 2018 the Croatian fiscal system affected income distribution and poverty. Moreover, it assesses the individual and the combined effects of interventions like direct and indirect taxes and social spending. The analysis found that in 2018 the fiscal system helped to reduce inequality but also increased poverty. All fiscal interventions except indirect taxes (VAT and excises) reduced inequality. However, indirect taxes not only widened the income gap between rich and poor but also increased poverty—only direct transfers had poverty-reducing effects. Direct taxes (personal income tax [PIT] and property taxes) had no impact on poverty in 2018. A series of reforms introduced between 2018 and 2021 helped reduce poverty slightly, mainly because the VAT on some food items was lowered. However, these reforms pushed up inequality, mostly because PIT reforms reduced the tax burden for those with high incomes.
    Keywords: fiscal policy, fiscal incidence, social spending, inequality, poverty, taxes, Croatia
    JEL: H22 I38 D31
    Date: 2021–10
  7. By: Marko Ledic (Faculty of Economics & Business, University of Zagreb); Ivica Rubil (The Institute of Economics, Zagreb); Ivica Urban (Institute of Public Finance, Zagreb)
    Abstract: Using the microsimulation model EUROMOD for Croatia, we compare the results of simulation based on the original survey data (EU-SILC) with those based on the survey data corrected using tax records data and a recent survey correction method. We show that the correction method, although it debiases inequality estimates, may not be able to correct the in-come structure by source if some income sources are severely under-represented. In Croatia, this is the case for income from capital, property, and contractual work. As a solution, we propose to complement the correction method with an ad hoc pre-correction procedure. The corrections bring the aggregate amount, distribution, and structure of survey income closer to those in the tax data. Consequently, the simulated fiscal instruments become more like those in the tax data. Simulation of a hypothetical tax reform shows the results based on the uncorrected data may be misleading in terms of the estimated budgetary impact and the distributional incidence of the reform.
    Keywords: top incomes, survey data, tax records, tax-benefit microsimulation, EUROMOD, EU-SILC
    JEL: D31 H24
    Date: 2022–03
  8. By: Goncalves, Judite; Merenda, Roxanne; dos Santos, João Pereira
    Abstract: In February 2017, Portugal implemented a tax on sugar-sweetened beverages (SSBs), under which producers were to be taxed according to the amount of sugar contained in the drinks they manufactured. We exploit administrative accounting data covering the universe of Portuguese firms between 2012 and 2019 to assess the causal impact of this tax on the behavior and performance of producers of SSBs. Our identification strategy relies on event study specifications, using producers of bottled water as counterfactual. Our findings indicate that SSBs producers became significantly less profitable in the post-tax period, vis-à-vis water bottlers, which was driven by a significant decrease in domestic sales. The soda tax hindered firms' capacity to convert receivables into cash and financial health deteriorated as liabilities grew. SSBs producers did not respond to this negative shock by cutting jobs or modifying their labor force towards relatively more skilled labor or higher R&D capacity.
    Keywords: Firm-level impacts,policy evaluation,Portugal,public health,sugar-sweetened beverages tax
    JEL: D22 H25 I18 L66
    Date: 2022
  9. By: Miriam Beblo (Centre for European Economic Research (Mannheim, Germany) - Zentrum für Europäische Wirtschaftsforschung (ZEW) - Universität Mannheim [Mannheim]); Denis Beninger (Centre for European Economic Research (Mannheim, Germany) - Zentrum für Europäische Wirtschaftsforschung (ZEW) - Universität Mannheim [Mannheim]); Francois Laisney (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, Centre for European Economic Research (Mannheim, Germany) - Zentrum für Europäische Wirtschaftsforschung (ZEW) - Universität Mannheim [Mannheim])
    Abstract: This paper assesses the effects that an introduction of the French family splitting mechanism would have on German families' labour supply and intra-household consumption behaviour. We use simulated real world microdata created by means of a 'deterministic' collective labour supply model. The data are generated by a compound procedure of estimation and calibration based on GSOEP data. In a microsimulation the present tax-benefit system with child benefit/allowance is replaced by a tax scheme with family splitting. The resulting changes in labour supply are surprisingly small, even for women. Welfare effects are also modest, but differ for husbands and wives.
    Keywords: Collective model,Household labour supply,Intra-household allocation,Tax reform,Family splitting
    Date: 2022–03–25
  10. By: Baurin, Arno (Université catholique de Louvain, LIDAM/IRES, Belgium); Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Pension reforms, required to address the financial challenge of an ageing population, involve changing the accrual rate or the indexation rates. The accrual rate is the rate at which pension benefit is built up for each year of work. The indexation rate is the rate at which pension benefit is tied to the nominal wage growth. In this paper, we study the prospective consequences of indexation and accrual reforms and show the existence of a tension between democracy and equality. Simulating the effects of long-term budget balancing reforms, we show that 80% of the population prefers accrual over indexation reforms, with the implication that the youngest half of the population would bear 85% of the total adjustment cost. Then, we consider alternative pension reforms improving the generational balance (including policy mix and contribution reforms), and we show that all those reforms fail to get majority support. Finally we show that even though indexation reform is preferable in terms of work incentives, that does not change vote incentives. So, the tension is also between democracy and efficiency.
    Keywords: Pension reform ; Ageing ; Generational balance ; Prospective incidence ; Indexation ; Fiscal balance
    JEL: D63 D64 H55 I38
    Date: 2022–02–11
  11. By: Tatsuya Abe
    Abstract: This paper examines the efficiency and distributional effects of the fuel tax and feebate policies. I employ a model with households' two-stage decisions on car ownership and utilization and estimate model parameters by combining micro-level data from a household survey and macro-level aggregate data for the Japanese new car markets from 2006 through 2013, with a car price endogeneity being dealt with. Counterfactual analyses show that the Japanese feebate results in a significant increase in social welfare while augmenting environmental externalities. In particular, the rebound effect induced by the feebate cancels out about 7% of the reduction in CO2 emissions that would originally have been attained by the fuel economy improvement. In addition, I find that the fuel tax at the current tax rate in Japan is 1.7 times less costly than the product tax, an alternative feebate scheme considered in the counterfactuals, in all income classes to reduce environmental externalities by the same amount, with no difference between the regressivity of the two policies.
    Date: 2022–03
  12. By: Salvatore Barbaro (Johannes Gutenberg University Mainz); Nathalie Neu-Yanders (Institute for Policy Evaluation, Frankfurt)
    Abstract: A widely-supported aim of governments is to reduce the consumption of healthharming tobacco products and to increase their cessation. To reach this goal, the European Union is preparing a revision of its tobacco-related taxation. A crucial question in this revision is how to treat new (non-combustible) products like heated tobacco and e-cigarettes. The taxation of non-combustible products is two-fold: It can contribute to overall cessation since the entire market becomes less attractive or it can prevent traditional smokers from substituting for less harmful products. This paper provides evidence on European consumers’ perceptions of combustible and non-combustible products. First, we assess the reason for substituting for less harmful products. Second, we develop a theoretical framework to determine the optimal tax environment on the tobacco market. Lastly, we survey empirical evidence on US consumers’ responses to e-cigarette taxation and their impact on smoking prevalence. In addition, we apply price elasticity estimates from the US to European market data. Nearly all available data and studies indicate a positive cross-price elasticity, which has significant implications for tax policy. Our policy recommendation encourages price differentials between combustible and non-combustible products such as heated tobacco products and e-cigarettes. Additionally, we argue that smoking prevalence is not a sufficient measure for public health, since consumption of non-combustible alternatives is excluded. As an alternative, a measure for general harm level should be used.
    JEL: I18
    Date: 2022–03–30
  13. By: Lenihan, Helena; Mulligan, Kevin; Doran, Justin; Rammer, Christian; Ipinnaiye, Olubunmi
    Abstract: Foreign-owned subsidiaries make significant contributions to national Research and Development (R&D) in many host countries. Policymakers often support subsidiaries through R&D grants and R&D tax credits. A key objective of this funding is to leverage R&D-driven firm performance benefits for the host economy. However, the subsidiary's parent firm may decide not to exploit the results from publicly-funded R&D projects in the host country. Therefore, supporting subsidiaries' R&D presents a risk that significant amounts of public funding may translate into little, or no payoffs for the host economy. Our study provides the first evaluation of 1) whether public R&D funding stimulates additional R&D investment in subsidiaries, 2) whether policy-induced R&D drives subsidiary performance, and 3) the differential effects of R&D grants and R&D tax credits. Drawing on a unique panel dataset for Ireland (2007-2016), we find that both R&D supports drive subsidiary R&D, resulting in substantial host country firm performance benefits.
    Keywords: Public funding for R&D,Firm performance,Firm ownership,Foreign-owned subsidiaries,Multinational enterprise,R&D tax credit,R&D grant,Policy evaluation
    JEL: D22 O25 F23 F21 O38 D04 H25 O31
    Date: 2022
  14. By: Eichfelder, Sebastian; Noack, Mona; Noth, Felix
    Abstract: We investigate the impact of the French 2012 financial transaction tax on trading activity, volatility, and price efficiency measured by first-order autocorrelation. We extend empirical research by analysing anticipation and reallocation effects. In addition, we consider measures for long-run volatility and first-order autocorrelation that have not been explored yet. We find robust evidence for anticipation effects before the effective date of the French FTT. Controlling for short-run effects, we only find weak evidence for a long-run reduction of trading activity due to the French FTT. Thus, the main impact of the French FTT on trading activity is short-run. We find stronger reactions of low-liquidity treated stocks and a reallocation of trading activity to high-liquidity stocks participating in the Supplemental Liquidity Provider Programme, which is both in line with liquidity clientele effects. Finally, we find weak evidence for a persistent volatility reduction but no indication for a significant FTT impact on price efficiency measured by first-order autocorrelation.
    Keywords: anticipation effect,financial transaction tax,long-run treatment effect,market quality,short-run treatment effect
    JEL: G02 G12 H24 M4
    Date: 2022
  15. By: Riedel, Lukas; Stichnoth, Holger
    Abstract: Constructing measures of post-tax income inequality that are consistent with national accounts requires the allocation of the entirety of government expenditure to individuals. About half of government expenditure in the United States takes the form of in-kind collective expenditure (e.g., education, defense, infrastructure). The dominant assumption in the literature is to allocate this expenditure proportionally to post-tax cash income. We show that the gap in post-tax income shares between the Top 10% and Bottom 50% in the United States is reduced by half (from about 20 to 10 percentage points in recent years) when this assumption is replaced by a lump-sum allocation. We further provide direct evidence on how a substantial part of collective expenditure is actually distributed. When adopting the cross-sectional perspective of the Dina approach, we find that public education spending goes disproportionately to the bottom half of the income distribution. A lump-sum allocation provides a good approximation. Moving beyond the cross-section, we find that public education expenditure is positively correlated with both lifetime earnings and parents' socio-economic status.
    Keywords: inequality,redistribution,education,in-kind transfers
    JEL: D31 H41 H52 I24
    Date: 2022
  16. By: Georges Cavalier (CERFF - Centre d'études et de recherches financières et fiscales - Equipe de droit public de Lyon - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon); Rémi Barnéoud; Mehdy Ben Brahim; Pablo Guédon (UJML - Université Jean Moulin - Lyon 3 - Université de Lyon); Lukasz Stankiewicz (CERFF - Centre d'études et de recherches financières et fiscales - Equipe de droit public de Lyon - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon)
    Abstract: The fall off in economic activity following the financial crisis of 2008 has highlighted the need to encour-age new areas of economic activity. As the European Union deals with the financial and health conse-quences of the COVID-19 pandemic, this continues to be the case. Innovation is a possible generator of economic activity, one which many believe is underutilised in Europe. It is widely agreed that techno-logical advances are important contributors to long-term growth, but research and development (R&D) of new technologies is risky. That is precisely why EU member states incentivise R&D through their tax systems by supporting companies that invest in new technology. Boosting R&D is one of the main objectives of the European Union. A majority of studies conclude that tax incentives stimulate investment in R&D and are an important component in encouraging research-ori-ented economic activity. However, the R&D incentives currently in place in the European Union are not always adequate and in any case piecemeal.
    Keywords: economic activity,tax incentive,Research and Development,Activité économique,Incitation fiscale,Recherche & d
    Date: 2021

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