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on Public Economics |
| By: | Shafik Hebous; Michael Keen |
| Abstract: | The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which—–the policy objective being to change the rules of tax competition game–—are critical for assessing the design and welfare impact of, and prospects for, this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low tax countries as well as high tax, relative to the uncoordinated equilibrium. |
| Keywords: | tax competition, minimum taxation, corporate tax reform, international taxation |
| JEL: | H21 H25 F23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9633&r= |
| By: | Enrico Rubolino |
| Abstract: | In contexts with weak enforcement and widespread informality, the threat of tax evasion may constrain policy makers’ power to set tax policies optimally. This paper studies whether reducing informality by tackling tax evasion leads policy makers to increase statutory tax progressivity. I take advantage of an Italian policy that generated cross-municipality variation in the scope for tackling income and property tax evasion through stricter tax enforcement. Combining an event study design with municipality-level panel data on statutory tax rates, I show that the ability of the government to change the size of the informal sector tips the balance in favor of higher marginal tax rates for middle and top earners, lower for the poor. The tax hike was larger in places with higher pre-program inequality and where intrinsic tax compliance attitudes were weaker. As a result of larger tax collections, municipalities hired more workers and raised public spending. These results suggest that policies enforcing legal rules and payment of taxes have not only the power to foster tax capacity, but also to enhance the ability to pursue redistributive policies. |
| Keywords: | tax evasion, informality, tax enforcement, local taxes, tax progressivity |
| JEL: | H26 H71 H72 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:22.07&r= |
| By: | Philipp Krug |
| Abstract: | Standard models on optimal estate taxation do not allow for intergenerational transmission of bequest motives. However, correlation in bequest motives may exist due to genetic and cultural transmission of preferences or indirect reciprocity. I introduce such intergenerational correlation to a simple model with heterogeneously altruistic parents. I derive two insights for optimal linear estate taxation under a Utilitarian welfare measure. First, this correlation implies a higher optimal estate tax rate. Second, estate tax rates should be higher for those parents who inherited themselves. |
| Keywords: | estate taxation, inheritance taxation, indirect reciprocity, intergenerational preference transmission |
| JEL: | H21 H24 D64 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bav:wpaper:217_krug&r= |
| By: | Corina Boar; Matthew P. Knowles |
| Abstract: | We study optimal taxation in a model with endogenous financial frictions, risky investment and occupational choice, where the distribution of wealth across entrepreneurs affects how efficiently capital is used. The planner chooses linear taxes on wealth, capital and labor income to maximize the steady state utility of a newborn agent. Most agents in the model are poor, leading to a redistributive motive for taxation. Optimal tax rates can be written as a closed-form function of the size of the tax bases and their elasticities with respect to tax rates. We find that it is optimal to tax capital income because financial frictions reduce the elasticity of capital income with respect to taxes and because capital income taxes prevent excessive entry into entrepreneurship. Optimal wealth taxes are positive but close to zero, since they strongly discourage capital accumulation. |
| JEL: | E2 E6 H2 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29961&r= |
| By: | Wolfram F. Richter |
| Abstract: | More than 130 countries have accepted the OECD invitation to reform the taxation of multinational enterprises (MNEs). One of two reform pillars aims at granting market countries the right to tax supernormal (“residual”) profit without requiring physical nexus. This paper examines the method of implementation proposed by the OECD and compares it with various discarded options. It concludes that intercountry tax equity, allocative efficiency, and practicality of negotiation speak against the OECD proposal to use a sales-based formula for allocating an MNE’s group profit. Simply splitting each market country’s residual profit contribution by an MNE-independent key is to be preferred. |
| Keywords: | BEPS Project, Pillar One, residual profit allocation/splitting, tax withholding, destination-based cash flow taxation |
| JEL: | H25 M48 F23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9556&r= |
| By: | KRENEK Alexander; SCHRATZENSTALLER Margit; GRUNBERGER Klaus (European Commission - JRC); THIEMANN Andreas (European Commission - JRC) |
| 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: | inheritance taxation, wealth taxation, ageing, HFCS, behavioural effects |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202204&r= |
| By: | Minoru Watanabe (Hokusei Gakuen University / Research Fellow, Graduate School of Economics, Kobe University) |
| Abstract: | This study constructs an overlapping generations model with fertility choice and unemployment caused by a constant minimum wage and incorporating public debt. It shows that a higher capital income tax reduces the public debt burden and hence promot es capital accumulation, which leads to an improvement in unemployment and fertility rates. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:2209&r= |
| By: | Marko Ledic (Faculty of Economics and Business Zagreb); Ivica Rubil (The Institute of Economics, Zagreb); Ivica Urban (Institute of Public Finance) |
| 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 income 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 |
| URL: | http://d.repec.org/n?u=RePEc:iez:wpaper:2201&r= |
| By: | Sofia Maier (European Commission - JRC); Mattia Ricci (European Commission - JRC); Vanda Almeida (European Commission - JRC); Michael Christl (European Commission - JRC); Hugo Cruces (European Commission - JRC); Silvia De Poli (European Commission - JRC); Klaus Grunberger (European Commission - JRC); Adrian Hernandez (European Commission - JRC); Tine Hufkens (European Commission - JRC); Daniela Hupteva (European Commission - JRC); Viginta Ivaskaite-Tamosiune (European Commission - JRC); Marta Jedrych (European Commission - JRC); Alberto Mazzon (European Commission - JRC); Bianey Palma (European Commission - JRC); Andrea Papini (European Commission - JRC); Fidel Picos (European Commission - JRC); Alberto Tumino (European Commission - JRC); Estefanía Vazquez (European Commission - JRC) |
| Abstract: | This paper presents baseline results from the latest public version (I4.0+) of EUROMOD, the tax-benefit microsimulation model for the EU. We begin by briefly discussing the process of updating EUROMOD. We then present indicators for income inequality and at-risk-of-poverty using EUROMOD and discuss the main reasons for the differences between these and their correspondent from the EU Statistics on Incomes and Living Conditions (EU-SILC). We further compare EUROMOD distributional indicators across all EU 27 countries and over time between 2018 and 2021. Finally, we provide estimates of marginal effective tax rates (METR), an indicator which captures the effect of tax-benefit systems on work incentives at the intensive margin. Throughout the paper, we highlight both the potential of EUROMOD as a tool for policy analysis and the caveats that should be borne in mind when using it and interpreting results. |
| Keywords: | taxes, benefits, inequality, poverty, EUROMOD |
| JEL: | H24 H53 I32 I38 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202201&r= |
| By: | David Autor; David Cho; Leland D. Crane; Mita Goldar; Byron Lutz; Joshua K. Montes; William B. Peterman; David D. Ratner; Daniel Villar Vallenas; Ahu Yildirmaz |
| Abstract: | The Paycheck Protection Program (PPP), a principal element of the fiscal stimulus enacted by Congress during the COVID-19 pandemic, aimed to assist small businesses to maintain employment and wages during the crisis. We use high-frequency administrative payroll data from ADP--one of the world’s largest payroll processing firms--to estimate the causal effect of the PPP on the evolution of employment at PPP-eligible firms relative to PPP-ineligible firms, where eligibility is determined by industry-specific firm-size cutoffs. We estimate that the PPP boosted employment at eligible firms by between 2 percent to 5 percent at its peak in mid-2020, with this effect waning to 0 to 3 percent throughout the remainder of the year. Employers retained an estimated additional 3.6 million jobs due to the PPP as of mid-May 2020, and 1.4 million jobs at the end of 2020. The implied cost per year of employment retained was $169,000 to $258,000, equal to 3.4 to 5.2 times median earnings. |
| JEL: | E24 H25 H32 H81 J38 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29972&r= |