nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒05‒30
ten papers chosen by
Thomas Andrén

  1. Wealth Taxation and Charitable Giving By Marius A. K. Ring; Thor Olav Thoresen
  2. The Global Minimum Tax By Niels Johannesen
  3. The evolution of owner-entrepreneurs’ taxation: five tax regimes over a 160-year period By Elert, Niklas; Johansson, Dan; Stenkula, Mikael; Wykman, Niklas
  4. Consolidating the Covid Debt By Christian Keuschnigg; Julian Johs; Jacob Stevens
  5. International enforcement cooperation and leadership against profit shifting By Chen, Xuyang; Hindriks, Jean
  6. Tax Progressivity and Social Welfare with a Continuum of Inequality Views By Marko Ledic; Ivica Rubil; Ivica Urban
  7. The Dynamics of Tax Compliance By Francesco Pappadà
  8. Corruption in Customs By Cyril Chalendard; Ana Margarida Fernandes; Gael Raballand; Bob Rijkers
  9. "Why President Biden Should Eliminate Corporate Taxes to Build Back Better" By Edward Lane; L. Randall Wray
  10. An Evaluation of Churchill Downs’ Tax Increment Financing District By Lambert, Thomas

  1. By: Marius A. K. Ring; Thor Olav Thoresen
    Abstract: We provide novel evidence on the linkages between capital taxation and charitable giving on three fronts. First, we use quasi-experimental variation in the annual Norwegian wealth tax to study the effect on how much households give. Inconsistent with the notion that households give more in order to reduce future wealth taxes, we find a small negative effect. This is effect is entirely driven by households paying more in wealth taxes. The extensive-margin variation has no effect, which suggests an absence of intertemporal substitution effects in giving. Second, we study bunching at an income-tax exemption threshold for giving and estimate a modest own-price elasticity that is decreasing in income, age, and wealth. Third, we show that these nominally unrelated tax incentives interact: wealth taxation increases the after-tax own-price elasticity of giving. Overall, our evidence is consistent with modest effects of capital taxation on charitable giving that are primarily driven by income effects.
    Keywords: charitable giving, wealth taxation, tax incentives
    JEL: H24 H31 H41 D64
    Date: 2022
  2. By: Niels Johannesen
    Abstract: This paper studies how the global minimum tax shapes national tax policies and welfare in a formal model of international tax competition with heterogeneous countries. The net welfare effect is generally ambiguous from the perspective of non-havens. On the one hand, the global minimum tax raises their welfare by curbing profit shifting, which boosts government revenue. One the other hand, it lowers their welfare by increasing equilibrium tax rates in havens, which transfers real resources from non-haven firms to haven governments. The net welfare effect is unambiguously positive when the global minimum rate is so high that profit shifting ends.
    Keywords: profit shifting, international taxation, global minimum tax, tax avoidance multinational firms
    Date: 2022
  3. By: Elert, Niklas (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University School of Business)
    Abstract: The institutional literature suggests that long-term tax incentives are crucial for entrepreneurs, but studies on this topic are hampered by theoretical and empirical problems related to how to define and measure entrepreneurial income. We resolve these problems by drawing on a theoretical definition of the entrepreneur as an owner, which enables us to identify entrepreneurship empirically by means of investments made by active owners of closely held firms. Using detailed Swedish tax data, we analyze the tax incentives for such owner-entrepreneur investments from 1862 to 2018, thereby highlighting the evolution of a general institutional phenomenon through a long-run, in-depth, country-specific analysis. We calculate the annual marginal effective tax rate (METR) on capital income for investments, distinguishing between average- and top-income entrepreneurs, and between three sources of finance. We identify five tax regimes that indicate substantial differences in institutional quality over time according to the magnitude of the METR and METR differences between average- and top-income entrepreneurs and across sources of finance. Increased taxation of owner-entrepreneurs helps explain the absence of new large entrepreneurial firms in Sweden after World War II, while improved incentives can be associated with Sweden’s recent entrepreneurial renaissance.
    Keywords: high-impact entrepreneurship; institutional quality; arginal effective tax rates; tax regimes; tax reforms
    JEL: H21 H31 H32 L25 L26 N44
    Date: 2022–05–12
  4. By: Christian Keuschnigg; Julian Johs; Jacob Stevens
    Abstract: One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
    Keywords: Covid debt, fiscal consolidation, tax and expenditure reform, growth
    JEL: E62 H24 H25 H55 H63
    Date: 2021
  5. By: Chen, Xuyang (Université catholique de Louvain, LIDAM/CORE, Belgium); Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Market asymmetry between large and small countries induces tax gap that triggers profit shifting and base erosion from multinationals. Tax enforcement is the alternative to tax coordination to limit profit shifting. However, the lack of enforcement coordination makes the fight against profit shifting less effective. We consider a game in which countries differ both in (market) size and enforcement productivity (enforcement elasticity of tax revenue). Countries seek to maximize welfare (tax revenue net of enforcement cost), choosing first their enforcement level to limit profit shifting before competing in taxes. We find that enforcement leadership Pareto dominates simultaneous enforcement choices, and that the low-enforcement productivity country would be the leader. In line with the OECD/G20 BEPS project, we analyze the scope for international enforcement cooperation. We establish that Nash bargaining over enforcements (with countries competing in taxes) induces higher enforcement, tax and revenue for each country, and that the benefit of enforcement cooperation is larger for the low-enforcement productivity country. We then analyze the minimum tax reform showing that it achieves a Pareto improvement both under cooperative and non-cooperative enforcement.
    Keywords: Leadership, Tax enforcement, Profit shifting, Minimum tax
    JEL: H30 H87 C72
    Date: 2021–09–29
  6. By: Marko Ledic (Faculty of Economics and Business Zagreb); Ivica Rubil (The Institute of Economics, Zagreb); Ivica Urban (Institute of Public Finance)
    Abstract: If public policies should aim at promoting social welfare, then tax progressivity/regressivity should be con-sidered in terms of its impact on social welfare, rather than as an end in itself. Whether a tax is progressive or regressive and how much it affects social welfare depends on how a neutral tax, a tax neither progressive nor regressive, is defined. This, in turn, depends on the inequality view taken, that is, on what kind of transformation of an income distribution is considered not to change the level of inequality. Kakwani and Son (Journal of Economic Inequality, 2021) developed a social welfare-based framework, which enables one to decompose the total welfare loss associated with a tax into elements of which one is the welfare impact of tax progressivity/regressivity. While Kakwani and Son consider only the inequality views known as relative and absolute inequality, we provide a generalisation of the framework to accommodate all inter-mediate inequality views in the continuum between the two polar views. While the total welfare loss does not depend on inequality view, its composition does: for a progressive (regressive) tax, moving closer to the relative view reduces (increases) the importance of progressivity (regressivity) for the total welfare impact. Thus, the perception of the composition of a given tax-induced welfare loss varies with the inequal-ity view taken. We apply the generalised framework to assess the impact on social welfare of the Croatian tax system, showing that it matters for such an assessment which inequality view is taken.
    Keywords: progressivity; regressivity; neutrality; relative inequality; absolute inequality; intermediate inequality
    JEL: H23 H24 I31 I38
    Date: 2021–07
  7. By: Francesco Pappadà (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de France - Banque de France - Banque de France)
    Abstract: The literature on tax compliance has focused on its level but little is known about its dynamics. This paper shows that fluctuations in tax compliance are driven by changes in the state of the economy and the response of tax compliance to them. Tax compliance is markedly volatile and there are large differences in such volatility across countries. A large fraction of these differences (about 70%) is explained by different responses of tax compliance to tax changes and output fluctuations.
    Keywords: Tax compliance,Volatility,Fiscal policy
    Date: 2022–04
  8. By: Cyril Chalendard; Ana Margarida Fernandes; Gael Raballand; Bob Rijkers
    Abstract: This paper presents a new methodology to detect corruption in customs and applies it to Madagascar’s main port. Manipulation of assignment of import declarations to inspectors is identified by measuring deviations from random assignment prescribed by official rules. Deviant declarations are more at risk of tax evasion, yet less likely to be deemed fraudulent by inspectors, who also clear them faster. An intervention in which inspector assignment was delegated to a third party validates the approach, but also triggered a novel manifestation of manipulation that rejuvenated systemic corruption. Tax revenue losses associated with the corruption scheme are approximately 3 percent of total taxes collected and highly concentrated among a select few inspectors and brokers.
    Keywords: corruption, tax enforcement, tariff evasion, trade policy
    JEL: F13 D73 H26
    Date: 2021
  9. By: Edward Lane; L. Randall Wray
    Abstract: Edward Lane and L. Randall Wray explain how federal taxes on corporate profits are not well suited to either containing inflationary pressures or reducing inequality. They are not only a poor complement to President Biden's proposed infrastructure plans, but are inefficient and ineffective taxes more broadly, according to Lane and Wray. The authors follow Hyman Minsky in recommending the elimination of corporate taxes, and they outline a replacement centered on the taxation of unrealized capital gains.
    Date: 2021–06
  10. By: Lambert, Thomas
    Abstract: Tax Increment Financing Districts (TIFs) have become important local government tools in the USA over the last several decades as ways to help bring public and/or private investment dollars into inner city areas and/or older neighborhoods which are deemed to need revitalization. Within the last 10 years, the concept has become popular in Canada, and it has been used as a component piece of enterprise zone programs in other nations. This paper evaluates one of the first Kentucky USA TIFs started around 20 years ago with a preeminent Kentucky horse racing track, Churchill Downs, as the target for investment spending. Some of the desired spinoff effects of such investment are to help bring jobs, investment, and general economic growth to an older and low-income neighborhood which surrounds the track. This paper finds mixed results regarding these outcomes for the area surrounding Churchill Downs.
    Keywords: Churchill Downs, Economic Development, Horse Racing, Sports, Tax Increment Financing Districts (TIFs)
    JEL: R11 R38 R58
    Date: 2022–05–03

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