nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒07‒18
fourteen papers chosen by
Thomas Andrén

  1. Tax Knowledge and Tax Manipulation: A Unifying Model By Ashley C. Craig; Joel Slemrod
  2. Cost-Benefit Analysis of Tax Incentives in Serbia By Glenn P. Jenkins; Owotomiwa C. Olubamiro; Mikhail Miklyaev
  3. Rethinking How We Score Capital Gains Tax Reform By Natasha Sarin; Lawrence Summers; Owen Zidar; Eric Zwick
  4. Did the Tax Cuts and Jobs Act Reduce Profit Shifting by US Multinational Companies? By Javier Garcia-Bernardo; Petr Janský; Gabriel Zucman
  5. The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile By Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman
  6. Dividend Taxes and the Allocation of Capital By Charles Boissel; Adrien Matray
  7. Saving Effects of a Real-Life Imperfectly Implemented Net Wealth Tax: Evidence from Norwegian Micro Data By Annette Alstadsæter; Marie Bjørneby; Wojciech Kopczuk; Simen Markussen; Knut Røed
  8. Tax Evasion by Firms By Laszlo Goerke
  9. Tax avoidance and vertical interlocks within multinational enterprises By Giese, Henning; Koch, Reinald; Gamm, Markus
  10. Norms, enforcement, and tax evasion By Besley, Timothy; Jensen, Anders Ditlev; Persson, Torsten
  11. The Zero Effect of Income Tax on the Timing of Birth: Some Evidence on French Data By Nicolas Moreau
  12. Inefficient Couples: Non-minimization of the Tax Burden among French Cohabiting Couples By Olivier Bargain; Damien Echevin; Nicolas Moreau; Adrien Pacifico
  13. A nation-wide experiment: fuel tax cuts and almost free public transport for three months in Germany -- Report 1 Study design, recruiting and participation By Allister Loder; Fabienne Cantner; Lennart Adenaw; Markus Siewert; Sebastian Goerg; Markus Lienkamp; Klaus Bogenberger
  14. The effect of cross-border shopping on commodity tax revenue: Results from a natural experiment By Friberg, Richard; Halseth, Emil M. Strøm; Frode, Steen; Ulsaker, Simen A.

  1. By: Ashley C. Craig; Joel Slemrod
    Abstract: We provide a unified analysis of taxation and taxpayer education when individuals have an incomplete understanding of a complex tax system. The analysis is independent of whether income is earned legitimately, or by avoiding or evading taxes. In this sense, learning about tax minimization strategies (tax manipulation) is isomorphic to learning about tax rates. The government in our model balances a trade-off: A better understanding of the tax system potentially allows taxpayers to optimize more effectively, but also affects government revenue. Optimal taxpayer education and the optimal amount of redistribution can both be characterized by aggregate sufficient statistics, which do not require information about how biases or behavioral responses vary across the decision margins. We provide similarly simple rules for how tax rates on different income-generating activities should be set relative to each other.
    JEL: H2 H21 H26
    Date: 2022–06
  2. By: Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Owotomiwa C. Olubamiro (Cambridge Resources International Inc.); Mikhail Miklyaev (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.)
    Abstract: Serbia has introduced several tax incentives into its corporate income tax system to promote research and development, employment, and the provision of equity financing of innovative enterprises. This report contains an analysis of five of these tax incentives. This study will serve as an input to the tax policy discussions toward improving Serbia's tax system and an analytical framework for evaluating alternative tax policy proposals. It employs a cost-benefit analysis (CBA) to evaluate these tax incentives. The justification of the tax incentive depends on the impact they are expected to have on the return to the investment in the R&D firm.
    Keywords: Cost-Benefit Analysis, Personal Income Tax, Tax Compliance, Tax Policy, Tax Intensive, Serbia
    JEL: D61 H21 H24 H26
    Date: 2022–04–26
  3. By: Natasha Sarin (US Treasury Department); Lawrence Summers (Harvard University, NBER); Owen Zidar (Princeton University, NBER); Eric Zwick (University of Chicago Booth, NBER)
    Abstract: We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the rise of pass-throughs and index funds has shifted the composition of capital gains in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. If some components are less elastic, then their elasticity should get more weight when scoring big changes because they will comprise more of the remaining tax base. Third, closer parity to income rates would provide a backstop to rest of tax system. Fourth, additional base-broadening reforms, like eliminating stepped-up basis, making charitable giving a realization event, reforming donor advised funds, and limiting opportunity zones to places with the highest poverty rates, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise hundreds of billions more revenue over a decade than other leading estimates suggest.
    Keywords: Capital gains, taxes, tax reform, tax rates
    JEL: H00 H20 H30
    Date: 2022–06
  4. By: Javier Garcia-Bernardo; Petr Janský; Gabriel Zucman
    Abstract: The 2017 Tax Cut and Jobs Act reduced the US corporate tax rate and introduced provisions to curb profit shifting. We combine survey data, tax data, and firm financial statements to study the evolution of the geographical allocation of US firms’ profits after the reform. The share of profits booked abroad by US multinationals fell 3–5 percentage points, driven by repatriations of intellectual property to the US. The share of foreign profits booked in tax havens remained stable around 50% between 2015 and 2020. Changes in the global allocation of profits are small overall, but some firms responded strongly.
    JEL: F23 H25 H26 H32
    Date: 2022–05
  5. By: Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman
    Abstract: Profit shifting by multinational corporations is thought to reduce tax revenue around the world. We analyze the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers.
    JEL: H25 H26 H32
    Date: 2022–06
  6. By: Charles Boissel; Adrien Matray
    Abstract: This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation.
    JEL: G32 H2 H25 H32 O16
    Date: 2022–06
  7. By: Annette Alstadsæter; Marie Bjørneby; Wojciech Kopczuk; Simen Markussen; Knut Røed
    Abstract: Countries that implement wealth taxes make many practical compromises regarding relative treatment and approach to valuation of different categories of assets in order to ease assessment and liquidity difficulties with this form of taxation. Relying on Norwegian variation in tax and base rules, we illustrate the resulting complexity and evaluate the effect of taxation on saving and portfolio composition. Our results highlight sensitivity of the strength of response to the base definition.
    JEL: D31 H24
    Date: 2022–05
  8. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues.
    Keywords: Firm, Tax Avoidance, Tax Evasion
    JEL: H25 H26 K34
    Date: 2022–05
  9. By: Giese, Henning; Koch, Reinald; Gamm, Markus
    Abstract: This study investigates to what extent multinational enterprises appoint managers jointly at the headquarter and a foreign subsidiary (vertical manager interlocks, VMIs) in order to facilitate tax planning. We use a cross-section data set taken from the AMADEUS database to show that VMIs are observed more frequently in MNEs with a higher potential for tax-induced profit shifting. We also provide evidence indicating that the implementation of VMIs is motivated by an internal principal-agent conflict arising from conflicting interests between the MNE and high-tax subsidiary managers. Finally, we show that the use of VMI structures is associated, ceteris paribus, with a lower effective tax rate.
    Keywords: management structure,profit shifting,principal-agent-theory
    JEL: H25 H26 M12
    Date: 2022
  10. By: Besley, Timothy; Jensen, Anders Ditlev; Persson, Torsten
    Abstract: This paper studies individual and social motives in tax evasion. We build a simple dynamic model that incorporates these motives and their interaction. The social motives underpin the role of norms and is the source of the dynamics that we study. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the UK, which led to widespread evasion. The evidence is consistent with the model's main predictions on the dynamics of evasion.
    JEL: J1 C1
    Date: 2021–10–15
  11. By: Nicolas Moreau (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)
    Abstract: The present paper investigates the correlation between the French tax rebate triggered by the birth of a child and the probability to bring forward childbirth from late December to early January. Using administrative tax data from 2010 to 2016, I precisely simulate the corresponding tax rebate for households in which a child was born from December 24 to January 7. Contrary to prior research, I do not find clear evidence of a significant link between the tax rebate brought about by a supplementary dependent child on the tax return and the probability of a late December birth. Either the amount of the incentive may not be large enough or households may not correctly anticipate the corresponding tax rebate. Nevertheless, a small learning effect is present. According to my results, a significant correlation between the tax rebate and the probability of having a child in December is observed among the wealthiest half of households with at least two children already claimed that also benefit from a relatively large tax rebate. However, this seems to be due to a spurious correlation. Instead, the results could reflect the willingness of parents to avoid childbirth on a public holiday.
    Keywords: fertility,income taxation,birth
    Date: 2022
  12. By: Olivier Bargain; Damien Echevin; Nicolas Moreau (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion); Adrien Pacifico
    Abstract: The present paper investigates the tax returns of French cohabiting couples with children, defined here as neither married nor in a civil union. These couples represent an interesting case, because they form two separate tax units according to French tax laws and must optimally assign their children to one of the parents' tax units to optimize tax rebates. Using administrative tax data and a microsimulation model, we analyze whether cohabiting couples allocate their children to minimize the joint tax burden of the family. We find, however, that children are not optimally allocated in 25% of cases. We interpret the reasons why couples fail to financially optimize their situation by discussing the usual explanations (e.g., transaction costs, "simple rule," inertia) as well as a more specific reason: the potential non-cooperative behavior of cohabiting couples, possibly related to the lack of a binding agreement or potential asymmetries of information between partners. We also find suggestive evidence regarding heuristics (such as the equal split rule for an even number of children), a large degree of inertia (based on fiscal status changes over two years), and possible non-cooperation (suboptimal couples tend to separate more and marry less in the subsequent period).
    Keywords: learning,income taxation,non-cooperative model,efficiency,tax returns
    Date: 2022
  13. By: Allister Loder; Fabienne Cantner; Lennart Adenaw; Markus Siewert; Sebastian Goerg; Markus Lienkamp; Klaus Bogenberger
    Abstract: In spring 2022, the German federal government agreed on a set of measures that aim at reducing households' financial burden resulting from a recent price increase, especially in energy and mobility. These measures include among others, a nation-wide public transport ticket for 9 EUR per month and a fuel tax cut that reduces fuel prices by more than 15% . In transportation research this is an almost unprecedented behavioral experiment. It allows to study not only behavioral responses in mode choice and induced demand but also to assess the effectiveness of transport policy instruments. We observe this natural experiment with a three-wave survey and an app-based travel diary on a sample of hundreds of participants as well as an analysis of traffic counts. In this first report, we inform about the study design, recruiting and initial participation of study participants.
    Date: 2022–06
  14. By: Friberg, Richard (Dept. of Economics, Norwegian School of Economics and Business Administration); Halseth, Emil M. Strøm (Dept. of Economics, Norwegian School of Economics and Business Administration); Frode, Steen (Dept. of Economics, Norwegian School of Economics and Business Administration); Ulsaker, Simen A. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We use grocery data from Norway and COVID-19 border closings to gauge the effect of cross-border shopping on commodity tax revenue. Detailed store-category level data identify differential treatment effects that depend on distance to Swedish stores. Economically significant effects extend to up to two hours’ drive from the border, and even further for prominent cross-border shopping products as beer, cigarettes and soda. Across all products, cross-border shopping decreases tax revenue from VAT by 3.6% at the national level. National commodity tax revenue from carbonated soft drinks (subject to a sugar tax) is reduced by 8.1% and from cigarettes by 11.9%.
    Keywords: Cross-border shopping; Commodity taxes; Excise taxes; Tax Competition
    JEL: F15 H20 L81
    Date: 2022–06–20

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