nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒08‒15
sixteen papers chosen by
Thomas Andrén

  1. How they hide money? An investigation on tax evasion of large corporations and wealthy taxpayers By Lompo, Miaba Louise; Ouoba, Marie Madeleine
  2. One step forward and three steps back: pros and cons of a flat tax reform By Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo; Manzo, Marco; Riganti, Andrea
  3. Optimal Income Taxation By Louis Kaplow
  4. You don't need an invoice, do you? An online experiment on collaborative tax evasion By Burgstaller, Lilith; Pfeil, Katharina
  5. Will the Remote Work Revolution Undermine Progressive State Income Taxes? By David R. Agrawal; Kirk J. Stark
  6. Successful Tax Reforms in the Recent International Experience: Lessons in Political Economy and the Nuts and Bolts of Increasing Country Tax Revenue Effort By Jorge Martinez-Vazquez
  7. Tax thy neighbour: Corporate tax pass-through into downstream consumer prices in a monetary union By Dedola, Luca; Osbat, Chiara; Reinelt, Timo
  8. The Optimal Number of Tax Audits: Evidence from Italy By Daniele Spinelli; Paolo Berta; Alessandro Santoro
  9. How to Tax Different Incomes? By Laurence JACQUET; Etienne LEHMANN
  10. Using Divide-and-Conquer to Improve Tax Collection: Evidence from the Field By Lucia Del Carpio; Samuel Kapon; Sylvain Chassang
  11. Tax Revenue Management and Reform in the Digital Era in Developing and Developed Countries By Jorge Martinez-Vazquez; Eduardo Sanz-Arcega; José Manuel Tránchez-Martín
  12. Redistributive effects of 2017-2022 social spending and tax reforms By Paul Dutronc-Postel; Brice Fabre; Chloé Lallemand; Nolwenn Loisel; Lukas Puschnig
  13. Do You Know to Whom You Pay Your Taxes?: The Case of Decentralized Spain By Julio López-Laborda; Fernando Rodrigo Sauco; Eduardo Sanz-Arcega
  14. Optimal policies in an aging society By Richard Jaimes; Ed Westerhout; Ed Westerhout
  15. Optimal policies in an aging society By Jaimes, Richard; Westerhout, Ed
  16. Emigration and Tax Revenue By Yuanyuan Gu; Jhorland Ayala-García

  1. By: Lompo, Miaba Louise; Ouoba, Marie Madeleine
    Abstract: Understanding tax evasion and tax avoidance mecanism is of critical importance in both developed and developing countries. This paper shed light on five main strategies used by corporation and wealthy taxpayers to avoid taxes including tax heavens, underground economy, aggressive tax optimization, parallel financial markets and cryptocurrencies. We also propose several actions to deal with tax non-compliance across the globe including prevention, peer reporting, active monitoring of compliance indicators and international cooperation. Theses actions might be combined to achieve optimal results in reducing the iompact of tax evasion and tax avoidance.
    Keywords: tax evasion, tax avoidance, tax compliance
    JEL: M48
    Date: 2022
  2. By: Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo; Manzo, Marco; Riganti, Andrea
    Abstract: We use a rich administrative dataset on individual tax returns from 2008 to 2015 to analyse the behavioural and distributive effects of a flat tax (FT) reform introduced in 2011 for residential property income in Italy replacing the progressive personal income tax. Linking a panel of individual tax data with cadastral property records, and using a difference-in-difference identification strategy, we address five research questions: (i) does the FT increase the probability of declaring a positive rental income to the tax authorities? (ii) does the FT increase the declared tax base? (iii) is the reduced tax burden shared with the tenant? (iv) does the FT affect the overall tax revenue? (v) who are the gainers of the policy? The estimated intention-to-treat effects suggest that the decrease of tax evasion is limited whereas tax burden reduction is large, it is not shared with tenants and it mostly benefits top-income taxpayers. Overall, top 1% of property owners reap about 20% of the overall lost tax revenues.
    Keywords: Flat tax reform; administrative data; tax evasion; income distribution
    JEL: D12 H24 H25
    Date: 2022–07–01
  3. By: Louis Kaplow
    Abstract: This article explores subjects in optimal income taxation characterized by recent research interest, practical importance in light of concerns about inequality, potential for misunderstanding, and prospects for advancement. Throughout, the analysis highlights paths for further investigation. Areas of focus include multidimensional abilities and endogenous wages; asymmetric information and the income of founders; production and consumption externalities from labor effort; market power and rents; behavioral phenomena relating to perceptions of the income tax schedule, myopic labor supply, and the interactions of savings, savings policies, and labor supply; optimal income transfers; the relationship between optimal income taxation and the use of other instruments; and issues relating to the social welfare function and utility functions, including nonwelfarist objectives, welfare weights, heterogeneous preferences, and taxation of the family.
    JEL: A13 D61 D62 D63 D82 D83 H20 H21 H23 H24 H41 H43 H53 H55 J22 L40
    Date: 2022–07
  4. By: Burgstaller, Lilith; Pfeil, Katharina
    Abstract: Collaborative evasion of taxes and social security fees is prevalent in household services, when a household hires a service provider and no third party is involved. However, evidence on the determinants of collaborative tax evasion in general and the household context in particular is lacking. This paper examines two coordination mechanisms of collaborative tax evasion: A partner's signaled intention and information about majority's evasion behavior (empirical evasion expectation). We implement an interactive tax evasion game in an online labor market (MTurk) with 560 participants. Our findings show that priming with an empirical evasion expectation increases the fraction of evaded transactions by 20 percentage points. Our treatment manipulation of intention signals does not render a significant effect on evasion. However, when willingness to evade is signaled first in the chat, the probability of evasion increases by 45 percentage points.
    Keywords: Collaborative Tax Evasion,Compliance,Social Norm,Intention,Online Experiment
    JEL: H26 E26 O17 D91
    Date: 2022
  5. By: David R. Agrawal; Kirk J. Stark
    Abstract: The remote work revolution raises the possibility that a larger segment of the population will be able to sever the geographic linkage between home and work. What are the taxing rights of states as to nonresident remote workers? May a state impose income taxes on nonresident employees only to the extent they are physically working within the state? Does state taxing power extend to all income derived from in-state firms, including wages paid to those who never set foot in the state? Standard sourcing rules attribute wage income to the employee’s physical location. In the presence of remote work, however, rigid adherence to this physical presence rule could intensify the progressivity-limiting dynamics of federalism by reducing the costs to households of exploiting labor income tax differentials across jurisdictions. We document the rise of remote work and the status of state-level income tax progressivity as well as its evolution over time. We consider how alternative legal rules for the sourcing of income can affect telework-induced mobility, but conclude that, regardless of which sourcing regime prevails in coming legal battles, the rise of remote work is likely to limit redistribution via state income taxes. While some sourcing rules may better preserve progressivity in the short term than others, the more fundamental threat to progressive state tax regimes derives from remote work’s long-term erosion of the benefits of urban spatial clustering. To the extent that the nation’s productive cities lose their allure as centers of agglomeration and the wages of high-skilled workers in these cities fall, the ability of their host states to pursue redistributive tax policies will likely be constrained. These deglomeration effects will arise regardless of how state taxing rights are adapted for the remote work era, and therefore may carry with them implications for income tax progressivity at the federal level.
    Keywords: income tax, remote work, sourcing rules, progressivity
    JEL: H20 H70 J60 K30 R50
    Date: 2022
  6. By: Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: The main objective of this paper is to extract practical lessons on increasing tax revenue effort that are relevant to developing countries. Specifically, it focuses on insights from two dimensions: the political economy requirements to generate public support for reform and the technical factors (“nuts and bolts”) of substantially increasing tax revenue effort. General topics covered include the political economy preconditions that facilitate tax reform, how and by whom tax reform should be implemented, the timing of reform efforts, determinants of current tax effort, tax policy choice options, tax administration options, and the enhancement of tax morale and compliance norms. The paper also profiles successful examples of recent tax reforms from 29 countries worldwide. It concludes with lessons from both the literature and these countries’ experiences, empowering reform-minded politicians and administrators to shape their own jurisdictions’ strategies for increasing tax revenue effort.
    Date: 2021–11–18
  7. By: Dedola, Luca; Osbat, Chiara; Reinelt, Timo
    Abstract: We estimate the response of product-level retail prices to changes in the corporate tax rates paid by wholesale producers (pass-through). Under perfect competition in goods and factor markets, pass-through of corporate taxes should be zero, and their incidence mainly falls on factor prices. We use variation in tax rates across time and space in Germany, where municipalities set the local business tax once a year, to provide estimates of tax pass-through into the retail prices of more than 125,000 food and personal care products sold across Germany. By leveraging 1,058 changes in the local business tax rate between 2013 and 2017, we find that a one percentage point tax increase results in a 0.4% increase in the retail prices of goods produced by taxed _rms and purchased by consumers in the rest of Germany, who thus end up bearing a substantial share of the tax burden. This finding suggests that manufacturers may exploit their market power to shield profits from corporate taxes, complicating the analysis of the redistributive effects of tax reforms. We also explore various dimensions of heterogeneity in pass-through related to market power, including producer size, market shares, and retail store types. While producer heterogeneity does not seem to matter, the significant passthrough of corporate taxes to consumer prices in the low inflation period covered by our sample is mostly due to price changes in supermarkets and hypermarkets. JEL Classification: F12, F45, E13, H71, L11
    Keywords: corporate taxes, imperfect competition, producer pass-through to retail prices, vertical interactions
    Date: 2022–07
  8. By: Daniele Spinelli; Paolo Berta; Alessandro Santoro
    Abstract: Tax audits are the main tool adopted by tax administrations to collect taxes. Their optimal number depends on two parameters, i.e. the enforcement elasticity of tax revenue with respect to the audit effort and the sum of private compliance costs and public administrative costs entailed by audits. In turn, the enforcement elasticity critically depends on audit selection criteria actually chosen by tax authorities. In this paper, we apply a machine learning approach to Italian data and we provide evidence that, in 2010 and 2011, audited taxpayers are those whose reporting behaviour in between the report year and the audit year has deviated from the business cycle. We use these audit criteria to match audited taxpayers to non-audited ones and we obtain an estimate of the enforcement elasticity that allows us to characterize the optimal number of tax audits as a function of the ratio between private compliance and public administrative costs.
    Keywords: Optimal Tax Administration, Enforcement Elasticity of Tax Revenue.
    JEL: H26 C55
    Date: 2022–04
  9. By: Laurence JACQUET; Etienne LEHMANN
    Date: 2021
  10. By: Lucia Del Carpio; Samuel Kapon; Sylvain Chassang
    Abstract: In the context of collecting property taxes from 13432 households in a district of Lima (Peru), we investigate whether prioritized enforcement can improve the effective use of limited enforcement capacity. We randomly assign households to two treatment arms: one replicating the city’s usual collection policy, and one implementing a prioritized enforcement rule in which households are ordered according to a suitable rank and sequentially issued clear short-term promises of collection if they fail to make minimum tax payments. Raw findings show that prioritized enforcement improved tax collection by increasing tax revenue, and decreasing the number of costly collection actions taken. We identify an important friction ignored by existing theory: tax-payers’ response to incentives is slow, which changes the optimal management of collection promises. Finally, we estimate a model of tax-payer behavior and use it to produce counterfactual treatment estimates for other collection policies of interest. In particular, we estimate that, keeping the number of collection actions fixed, prioritized enforcement would increase tax revenue over 5 months by 11.3%.
    JEL: C72 D04 D82 H26
    Date: 2022–07
  11. By: Jorge Martinez-Vazquez (International Studies Program. Andrew Young School of Policy Studies, Georgia State University); Eduardo Sanz-Arcega (Department of Applied Economics, Faculty of Social Sciences and Social Work, University of Zaragoza, 23 Violante de Hungría, 50009, Zaragoza, Spain); José Manuel Tránchez-Martín (UNED, Spanish Distance University, Faculty of Law, Obispo Trejo 2, 28040, Madrid, Spain)
    Abstract: This paper surveys recent trends in tax administration reform with the main goal of identifying contemporaneous lessons for improving the efficacy and efficiency of revenue collection and tax enforcement. The paper first reviews the impact that globalization and the digital economy have made on shaping the three paradigms jointly structuring modern tax administrations´ performance –enforcement, facilitation (service) and trust. The paper also reviews modern trends in tax administrations institutional design and the roles played here by financial sufficiency and managerial efficiency. But, ultimately, successful tax administration reform appears to rest on the presence of a broad sociopolitical consensus on the need for higher and more fairly distributed tax revenues.
    Keywords: Tax administration, tax compliance, policy reform, globalization, digital economy
    Date: 2022–01–01
  12. By: Paul Dutronc-Postel (IPP - Institut des politiques publiques); Brice Fabre (IPP - Institut des politiques publiques); Chloé Lallemand (IPP - Institut des politiques publiques); Nolwenn Loisel (IPP - Institut des politiques publiques); Lukas Puschnig (IPP - Institut des politiques publiques)
    Abstract: Numerous social spending and tax reforms were decided during the 2017–2022 French presidential term. On average, these measures improved households' standard of living by 1.9%, essentially due to reductions in compulsory levies. However, this average effect masks strong heterogeneity according to the level of household income. Although these reforms led to an average increase in disposable income for all households classified by standard-of-living percentile, the gains were only 0.8% for the poorest 5%, compared with 3.3% for the wealthiest 1%. In line with the government's objectives of encouraging work, the employed experienced an average gain of 2.6%, compared with 0.6% for pensioners and a loss of 1.1% for the unemployed. These effects are due to the switch of social security contributions to the CSG (contribution sociale généralisée), revaluation of the employment bonus (prime d'activité) and the reform of unemployment insurance. The larger gains for the highest incomes can be explained both by the transformation of the wealth tax (impôt de solidarité sur la fortune, ISF) into the tax on real estate assets (impôt sur la fortune immobilière, IFI) and by the introduction of the single flat-rate levy (prélèvement forfaitaire unique, PFU) on capital income. Within each standard-of-living percentile, there is a significant share of losers – 24% on average – despite positive average gains. The combination of increases in indirect taxation (tobacco and energy) with certain reductions in social benefits (housing) or their revaluation below inflation (especially for retirement pensions) has had a negative impact on the disposable income of certain households which have not necessarily benefited from the reductions in compulsory levies.
    Date: 2022–03
  13. By: Julio López-Laborda (Departamento de Estructura e Historia Económica y Economía Pública, University of Zaragoza and FEDEA [Fundación de Estudios de Economía Aplicada]); Fernando Rodrigo Sauco (Departamento de Estructura e Historia Económica y Economía Pública, University of Zaragoza); Eduardo Sanz-Arcega (Departamento de Estructura e Historia Económica y Economía Pública, University of Zaragoza)
    Abstract: A necessary condition for the efficiency gains that the theory of fiscal federalism attributes to decentralization to be effective is that citizens rightly assign the governmental responsibility for public action. However, surveys show that most Spaniards are unable to correctly identify the taxes received by the various levels of government. Exploiting the 2015 wave of the Spanish Institute for Fiscal Studies’ Fiscal Barometer, this paper empirically determines the profile of citizens who are best able to identify the allocation of taxes among levels of government in Spain. The estimates suggest that these citizens are those who are able to identify the government that provides the services financed by those taxes, who correctly identify other taxes received by the same government, who reside in a chartered (“foral”) region, and who enjoy a high level of education.
    Date: 2021–09–13
  14. By: Richard Jaimes; Ed Westerhout; Ed Westerhout
    Abstract: We analyze optimal social security in a two-period overlapping generations model with endogenous retirement and demographic change. In this model, households choose to spend the second period of their lives in full retirement if the tax rate on labor income exceeds a certain threshold. We find that this threshold is increasing in life expectancy and decreasing in the fertility rate, which implies that both types of demographic change increase the relevance of the partial retirement case in which households participate on the labor market. Related, both an increase in life expectancy and a drop in fertility imply that retirement is delayed in the partial retirement case. We also show that when the government decides about the retirement age, the command optimum can be replicated through social security policies as long as the laissez-faire equilibrium features an overaccumulation of capital. When households decide about their retirement age themselves, however, replication of the command optimum is not possible, even if overaccumulation of capital applies. In both cases, it is optimal to expand social security when longevity increases and to reduce it when fertility drops.
    Keywords: Aging, Retirement, Optimal taxation.
    JEL: J11 J26 H21
    Date: 2022–06–14
  15. By: Jaimes, Richard; Westerhout, Ed (Tilburg University, Center For Economic Research)
    Keywords: Aging; Retirement; Optimal taxation
    Date: 2022
  16. By: Yuanyuan Gu; Jhorland Ayala-García
    Abstract: According to the World Migration Report 2020, the number of international migrants increased from 84 million in 1970 to 272 million in 2019, accounting for 3.5% of the world’s population. This paper investigates the aggregated effect of emigration on the tax revenue of sending countries with a focus on developing nations. Using a gravity approach, we construct a time-varying exogenous instrument out of geographic time-invariant dyadic characteristics that allow us to estimate the predicted emigration rate for every country. Then, we follow an instrumental variable approach where we use our predicted emigration rate as an instrument of the observed migration rate. The results show that the predicted emigration rate is a good instrument of the current emigration rate for developing countries, and that there is a positive aggregated effect of emigration on tax revenue of sending countries. The results vary depending on the type of tax: emigration increases goods and services tax revenue, but it decreases income, profit, and capital gains tax revenue. **** RESUMEN: Según el World Migration Report de 2020, el número de migrantes internacionales aumentó de 84 millones en 1970 a 272 millones en 2019, lo que representa el 3,5 % de la población mundial. Este documento investiga el efecto agregado de la emigración en los ingresos fiscales de los países de origen haciendo énfasis en países en vía de desarrollo. Usando un modelo de gravedad, construimos un instrumento exógeno que varía en el tiempo a partir de características diádicas geográficas invariantes en el tiempo, los cuales nos permiten estimar la tasa de emigración predicha para cada país. Luego utilizamos la tasa de emigración predicha como un instrumento de la tasa de migración observada. Los resultados muestran que la tasa de emigración pronosticada es un buen instrumento de la tasa de emigración de los países en desarrollo, y que existe un efecto agregado positivo de la emigración sobre los ingresos fiscales de los países de origen. Los resultados varían según el tipo de impuesto: la emigración aumenta los ingresos fiscales por impuestos sobre bienes y servicios, pero disminuye los ingresos por impuestos sobre la renta, las ganancias y las ganancias de capital.
    Keywords: Emigration, Tax Revenue, Developing Countries, Gravity, emigración, ingresos fiscales, países en desarrollo, gravedad
    JEL: H24 H25 F22 C26
    Date: 2022–07–18

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