nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒04‒25
fifteen papers chosen by
Thomas Andrén

  1. Progressing Towards Efficiency: The Role for Labor Tax Progression in Reforming Social Security By Makarski, Krzysztof; Tyrowicz, Joanna; Komada, Oliwia
  2. Globalization and Factor Income Taxation By Pierre Bachas; Matthew H. Fisher-Post; Anders Jensen; Gabriel Zucman
  3. Tax Policy and Interregional Competition for Mobile Venture Capital by the Creative Class By Batabyal, Amitrajeet; Yoo, Seung Jick; Batabyal, Amit
  4. Optimal Nonlinear Savings Taxation By Brendon, C.
  5. Where Do My Tax Dollars Go? Tax Morale Effects of Perceived Government Spending By Matias Giaccobasso; Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
  6. The indirect costs of corporate tax avoidance exacerbate cross-country inequality By Javier Garcia-Bernardo; Daniel Haberly; Petr Janský; Miroslav Palanský; Valeria Secchini
  7. Voluntary Disclosure Programs — Design, Principles, and Implementation Considerations By Ms. Dora Benedek; Mr. Christophe J Waerzeggers; Martin Grote; Maksym Markevych; Grace Jackson; Ms. Lydia E Sofrona
  8. Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-Cum and Cum-Ex Transactions By Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
  9. What is the effect of EU's fuel-tax cuts on Russia's oil income? By Johan Gars; Daniel Spiro; Henrik Wachtmeister
  10. Taxation, health system endowment and quality of institutions: a "social" perception across Europe By Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
  11. Submission to the Commission on Taxation and Welfare on introducing a site value tax By E\'oin Flaherty; Constantin Gurdgiev; Ronan Lyons; Emer \'O Siochr\'u; James Pike
  12. What motivates people to pay their taxes? Evidence from four experiments on tax compliance By Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
  13. Effects of the Expanded Child Tax Credit on Employment Outcomes: Evidence from Real-World Data from April to December 2021 By Elizabeth Ananat; Benjamin Glasner; Christal Hamilton; Zachary Parolin
  14. Tax policies, informality, and real wage rigidities By Salazar, M.
  15. Welfare Implications of Electric-Bike Subsidies: Evidence from Sweden By Anders Anderson; Harrison Hong

  1. By: Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw); Komada, Oliwia (GRAPE)
    Abstract: We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
    Keywords: social security reform, labor income tax, redistribution, insurance, welfare effects
    JEL: C68 D72 E62 H55 J26
    Date: 2022–02
  2. By: Pierre Bachas; Matthew H. Fisher-Post; Anders Jensen; Gabriel Zucman
    Abstract: How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed.
    JEL: F14 F62 H20 O24
    Date: 2022–03
  3. By: Batabyal, Amitrajeet; Yoo, Seung Jick; Batabyal, Amit
    Abstract: We study how tax policy affects the competition for venture capital by the creative class in two regions A and B. The creative class in each region produces a final good with venture capital and creative capital. Venture capital moves freely between the two regions and the representative creative class member in each region has access to an initial amount of venture capital. Each region taxes venture capital at a particular rate and the tax revenue is paid out as a transfer to the representative creative class member. In this setting, we perform five tasks. We begin by determining the first-best tax rates in the two regions. Second, we solve for the net price of venture capital and then express the objective function that is to be maximized in each region as a function of this price. Third, we compute the first-order necessary conditions that describe the optimal tax rates in the two regions and show that the sign of the tax rate depends on the net exporting position of the region. Fourth, for specific parameter values, we calculate the two tax response functions and discuss their properties. Finally, we compute the two equilibrium taxes as a function of the model’s key parameters and show that these taxes must be of opposite signs.
    Keywords: Competition, Creative Class, Region, Tax Policy, Venture Capital
    JEL: H25 R11
    Date: 2021–10–01
  4. By: Brendon, C.
    Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting ‘Mirrleesian’ and ‘sufficient statistics’ approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.
    Keywords: Nonlinear Taxation, Sufficient Statistics, Mirrleesian Taxation, New Dynamic Public Finance
    JEL: D82 E21 E61 H21 H24 H30
    Date: 2022–03–25
  5. By: Matias Giaccobasso; Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
    Abstract: Do perceptions about how the government spends tax dollars affect the willingness to pay taxes? We designed a field experiment to test this hypothesis in a natural, high-stakes context and via revealed preferences. We measure perceptions about the share of property tax revenues that fund public schools and the share of property taxes that are redistributed to disadvantaged districts. We find that even though information on where tax dollars go is publicly available and easily accessible, taxpayers still have significant misperceptions. We use an information-provision experiment to induce exogenous shocks to these perceptions. Using administrative data on tax appeals, we measure the causal effect of perceived government spending on the willingness to pay taxes. We find that some perceptions about government spending have a significant effect on the probability of filing a tax appeal and in a manner that is consistent with the classical theory of benefit-based taxation. We discuss implications for researchers and policy makers.
    JEL: C93 H26 I22 Z13
    Date: 2022–02
  6. By: Javier Garcia-Bernardo; Daniel Haberly; Petr Janský; Miroslav Palanský; Valeria Secchini
    Abstract: Corporate tax avoidance hampers domestic revenue mobilization and, with it, the development of lower- and middle-income countries. While a wide range of studies has shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. These indirect costs are likely to be skewed based on a country's level of income.
    Keywords: Profit shifting, Tax avoidance, Tax havens, Multinational firms, Costs, Inequality, Corporate tax
    Date: 2022
  7. By: Ms. Dora Benedek; Mr. Christophe J Waerzeggers; Martin Grote; Maksym Markevych; Grace Jackson; Ms. Lydia E Sofrona
    Abstract: This note explores the conditions, design elements, and implementation considerations of a successful voluntary disclosure program (VDP), including its compliance with anti–money laundering/combating the financing of terrorism (AML/CFT) international standards. The note emphasizes that such a program must be offered in the context of a considerably strengthened and credible enforcement capacity—one that is explicitly publicized to taxpayers—to avoid undermining tax morale.
    Keywords: Tax Evasion, Tax Policy Design, Tax Revenues, Illegal Behavior, anti–money laundering, combating the financing of terrorism, AML/CFT
    Date: 2022–04–06
  8. By: Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
    Abstract: We study the effect of reforms that close loopholes in the enforcement of the dividend-withholding tax (DWT). We focus on a Danish reform enacted in 2016, and compare Denmark to its Nordic neighbors. Our main outcome of interest is the quantity of stocks on loan. Before the reform all Nordic countries have a strong spike in stocks on loan centered around the ex-dividend day. The magnitude is large: on average excess stocks on loan peak at around 4 percent of the public float. The spike in lending is consistent with the most popular DWT arbitrage schemes. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. We consider the welfare effects of the reform. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We also consider DWT arbitrage among 15 European countries between 2010-2019. We find evidence of DWT arbitrage in all countries that levy DWT, though there is strong heterogeneity across countries. Importantly, similar to Denmark, Germany’s 2016 reform has eliminated the spikes in lending completely. We validate our identification strategy by showing that we find no evidence of DWT arbitrage in the UK, which does not levy a DWT.
    Keywords: dividend tax arbitrage, tax enforcement, financial innovation, welfare analysis
    JEL: H25 H26 O16 F38
    Date: 2022
  9. By: Johan Gars; Daniel Spiro; Henrik Wachtmeister
    Abstract: Following the oil-price surge in the wake of Russia's invasion of Ukraine, many countries in the EU are proposing to cut taxes on petrol and diesel. Using standard theory and empirical estimates, we assess how such tax cuts will influence the oil income in Russia. We find that a tax cut of 20 euro cents per liter would increase Russia's oil profits by around 11-17 million Euros per day in the short run and long run. This is equivalent to 4100-6300 million Euros in a year, 0.3-0.5% of Russia's GDP or 7-11% of its military spending. We show that a cash transfer to EU citizens, with an equivalent fiscal burden as the tax cut, reduces these side effects to a fraction.
    Date: 2022–04
  10. By: Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
    Abstract: In this paper we analyze how the health system endowment and the quality of the institutions impact on a change of perception towards taxation. We conduct a sentiment analysis on French, Germans, Italians and Spanish users' tweets to understand if the impact of the current health emergency has modified the tax compliance of the citizens of the four biggest European Countries. We use a difference-in-differences estimation strategy, by comparing the average sentiment of individual tweets regarding taxation in different European NUTS-2 regions, before and after the spread of the Covid-19 pandemic. Our results highlight that in regions characterized by higher levels of health expenditure, people become more prone towards taxation with respect to the period before the widespread of covid-19. In addition, we show how a higher quality of institutions lead to a more positive perception of the same in relative and absolute terms and therefore a greater predisposition for a more progressive tax system.
    Keywords: Taxation; Sentiment Analysis; Tax compliance; Health System Endowment; Quality of institutions; Covid-19 crisis.
    JEL: C81 D04 H26 H51
    Date: 2022–02–28
  11. By: E\'oin Flaherty; Constantin Gurdgiev; Ronan Lyons; Emer \'O Siochr\'u; James Pike
    Abstract: This submission to the Irish Commission on Taxation and Welfare advocates the introduction of a site value tax in Ireland. Ireland has high and volatile property prices, constraining social and economic development. Site values are the main driver of these phenomena. Taxing site values would reduce both the level and volatility of property prices, and thus help to alleviate these problems. Site value tax has many other beneficial features. For example, it captures price gains due to the community and government rather than owners' efforts and thus diminishes the incentive to buy land for speculative reasons. Site value tax can be used to finance infrastructural investments, help facilitate site assembly for development and as a support for the maintenance of protected structures. Site value tax is also a tax on wealth.
    Date: 2022–03
  12. By: Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
    Abstract: In this study, we first present a large natural field experiment that tested messages aimed at increasing tax compliance. We find that the main drivers of changes in compliance are messages describing the monitoring and enforcement behavior of the tax collector. A second natural field experiment built on the results of the first experiment to further investigate what kinds of costs resulting from tax collector oversight are salient to taxpayers. Specific time and cognitive incentives did not significantly increase payment rates, whereas stating non-specific costs of inaction did. Additional analyses suggest the increase in compliance is likely due to a 'fill in the blank' effect in which taxpayers assume the consequence is a fine. Interestingly, specifically stating maximum fine or jailtime consequences have the largest effect in a laboratory setting but only if the consequences are interpreted as realistic. Overall, our study reinforces that tax authorities can use short messages to increase tax compliance; the estimated accelerated revenue from the two field studies amounts to 9.9m GBP.
    Date: 2022
  13. By: Elizabeth Ananat; Benjamin Glasner; Christal Hamilton; Zachary Parolin
    Abstract: Studies have established that the expanded Child Tax Credit (CTC), which provided monthly cash payments to most U.S. families with children from July to December 2021, substantially reduced poverty and food hardship. Other studies posit, however, that the CTC payments may generate negative employment effects that could offset its potential poverty-reduction effects. Scholars have simulated employment scenarios assuming various labor supply elasticities, but less work has empirically assessed how the monthly payments affected employment outcomes using real-world data. To evaluate employment effects, we apply a series of difference-in-differences analyses using data from the monthly Current Population Survey and the Census Pulse, both from April through December 2021. Across both samples and several model specifications, we find very small, inconsistently signed, and statistically insignificant impacts of the CTC both on employment in the prior week and on active participation in the labor force among adults living in households with children. Further, labor supply responses to the policy change do not differ for households for whom the CTC’s expansion eliminated a previous work incentive. Thus, our analyses of real-world data suggest that the expanded CTC did not have negative short-term employment effects that offset its documented reductions in poverty and hardship.
    JEL: H2 J18 J22
    Date: 2022–03
  14. By: Salazar, M.
    Abstract: Developing countries have a vast informal sector generally associated with low levels of productivity. The persistence of informality could be a response to rigidities in the labor market, associated with a combination of high non-wages cost and high minimum wages. This paper proposes a theoretical framework to understand the tax policies’ role that discourages informality, such as lower payroll taxes in the formal sector or increases enforcement expenditure in an economy with real wage rigidities. I develop a search and matching model with a shirking mechanism with formal and informal workers. The simulations results suggest that the magnitud effect of tax polcies depends on real wage rigidities. In relative terms, when the economy has high real wage rigidities, the reduction of payroll taxes has a greater effect reducing the informality. In contrast, when the economy has low real wage rigidities, the enforcement expenditure has a significant effect to reduce the informality. Also, the results show the existence of tax polcies combition that reduce the informal labor in an effective way
    Keywords: Informality; Tax policies; Enforcement expenditure; Fiscal policies; Searchand matching; Efficiency wage; Shirking mechanism
    JEL: J46 E26 E62 O17 H26
    Date: 2021–12–02
  15. By: Anders Anderson; Harrison Hong
    Abstract: Electric bikes are a potentially important tool to address global warming since they can be a viable alternative to cars in urban areas. Governments are using subsidies to promote household adoption. Welfare analyses are challenging, requiring pass-through estimates from transactions, incidence of non-additionality (i.e. those who would have bought even without the subsidy), and resulting substitution from driving. We combine administrative, insurance and survey data from a large-scale Swedish subsidy program in 2018, which is similar to other programs around world, to evaluate these implications. We find (1) complete pass through of the average $500 subsidy to consumers, (2) a near doubling of E-bikes sold but one-third of adopters are non-additional; and (3) a savings of 1.3 tons of carbon emissions during the life of the E-bike. Combining these estimates, an E-bike subsidy program can only be justified with a social cost of carbon that is several hundred dollars higher than what is typically used.
    JEL: H2 H20 H21 H22 H23 R4 R48 R49
    Date: 2022–04

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