nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒10‒10
fifteen papers chosen by
Thomas Andrén

  1. Inattention and the Taxation Bias By Boccanfuso, Jérémy; Ferey, Antoine
  2. Fiscal consequences of corporate tax avoidance By Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský
  3. "Property Tax Competition: A Quantitative Assessment" By Rainald Borck; Jun Oshiro; Yasuhiro Sato
  4. Unpacking ‘Tax Morale’: Distinguishing Between Conditional and Unconditional Views of Tax Compliance By Prichard, Wilson
  5. Universal Basic Income, Taxes, and the Poor By Nora Lustig; Valentina Martinez Pabon
  6. Taxing Mobile and Overconfident Top Earners By Haufler, Andreas; Nishimura, Yukihiro
  7. Tax Elasticity of Border Sales: A Meta-Analysis By Huynh, Dat; Sokolova, Anna; Tosun, Mehmet S.
  8. Mobile Money Taxation and Informal Workers: Evidence from Ghana’s E-Levy By Akua Anyidoho, Nana; Gallien, Max; Rogan, Mike; van den Boogaard, Vanessa
  9. Attracting Profit Shifting or Fostering Innovation? On Patent Boxes and RD Subsidies By Haufler, Andreas; Schindler, Dirk
  10. The Social Tax: Redistributive Pressure and Labor Supply By Eliana Carranza; Aletheia Donald; Florian Grosset; Supreet Kaur
  11. Politics of Public Education and Pension Reform with Endogenous Fertility By Uchida, Yuki; Ono, Tetsuo
  12. Does aid fragmentation affect tax revenue dynamics in developing countries?: Observations with new tax data By Ali Compaoré; Abrams M.E. Tagem
  13. The Cyclical Behaviour of Fiscal Policy During the Covid-19 Crisis By Philipp Heimberger
  14. Unemployment Benefits and Wage Subsidies -- Effects of Labour Market Policies during a Pandemic By Yahong Zhang
  15. Assessing tax relief from targeted investment tax incentives through corporate effective tax rates: Methodology and initial findings for seven Sub-Saharan African countries By Alessandra Celani; Luisa Dressler; Tibor Hanappi

  1. By: Boccanfuso, Jérémy (University of Bologna); Ferey, Antoine (LMU Munich)
    Abstract: This paper shows that agent inattention to taxes generates a time-inconsistency problem in the choice of tax policy. In equilibrium, inattention leads to inefficiently high tax rates and a taxation bias emerges. Combining structural and sufficient statistics approaches, we quantify the magnitude and the welfare effects of this policy distortion for US income tax rates, and find that the taxation bias is large, alters the progressivity of income taxes, and significantly reduces social welfare. Overall, our findings shed new light on the policy and welfare implications of inattention and misperceptions.
    Keywords: optimal taxation; inattention;
    JEL: H21 D03
    Date: 2022–04–13
  2. By: Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský
    Abstract: Multinational corporations shift a large share of their foreign profits to tax havens and, due to this corporate tax avoidance, governments worldwide lose a portion of their tax revenues. In this paper we study the consequences of multinational tax avoidance for the structure of government tax revenues. First, we show that, at the country level, countries with large revenue losses due to profit shifting have lower corporate tax revenues and rates. At the same time, they raise a larger share of tax revenues from personal and indirect taxes and have higher indirect tax rates.
    Keywords: Corporate tax, Tax avoidance, Profit shifting, Multinational firms, Tax revenue, Government tax revenue
    Date: 2022
  3. By: Rainald Borck (The Faculty of Economic and Social Sciences, University of Potsdam); Jun Oshiro (Grobal and Regional Studies, University of the Ryukyus); Yasuhiro Sato (Faculty of Economics, The University of Tokyo)
    Abstract: We develop a model of property taxation and characterize equilibria under three alternative taxation regimes often used in the public finance literature: decentralized taxation, centralized taxation, and "rent seeking" regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
    Date: 2022–09
  4. By: Prichard, Wilson
    Abstract: The past decade has witnessed a surge in international interest in the importance of tax morale. This is often defined, broadly, as taxpayer’s ‘non-pecuniary motivations for tax compliance’ (Luttmer and Singhal 2014: 150) – as a key component of strategies for strengthening tax compliance in lower-income countries. Whereas classic models of tax compliance focused on the importance of the threat of enforcement and the cost of compliance in shaping compliance, compliance decisions are also significantly shaped by non-pecuniary motivations. They can, for example, be an intrinsic commitment to paying taxes, expectations of reciprocity from government, or broader social norms. This has been reflected in growing interest in strategies for strengthening tax morale in order to encourage quasi-voluntary tax compliance (Prichard et al. 2019). A significant part of this literature has relied on surveys to measure taxpayer attitudes towards tax compliance (tax morale), and, in turn, to identify factors associated with higher or lower levels of reported tax morale.
    Keywords: Finance,
    Date: 2022
  5. By: Nora Lustig (Tulane University); Valentina Martinez Pabon (Yale University)
    Abstract: A Universal Basic Income (UBI) is often seen as an attractive policy option to replace existing targeted transfer and subsidy programs. However, in a budget-neutral switch to a UBI there is a trade-off between the generosity of the universal transfer, and hence its poverty impact, and the implied increase in tax burden. We summarize our results for fourteen low- and middle-income countries. We find that, with the exception of Russia, a poverty reducing, budget-neutral UBI would entail a significant increase in the net tax burden of top deciles. The efficiency cost and political resistance for such a policy would likely be too high.
    Keywords: universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: D31 D63 H22 I32 I38
    Date: 2022–09
  6. By: Haufler, Andreas (LMU Munich and CESifo); Nishimura, Yukihiro (Osaka University and CESifo)
    Abstract: We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased.
    Keywords: overconfidence; bonus taxes; tax competition; migration;
    JEL: H20 H87 G28
    Date: 2022–02–14
  7. By: Huynh, Dat (University of Nevada, Reno); Sokolova, Anna (University of Nevada, Reno); Tosun, Mehmet S. (University of Nevada, Reno)
    Abstract: When regions in close proximity have different tax rates, residents may engage in cross-border shopping and take advantage of tax differentials. The extent of this activity can be captured by the tax elasticity of border sales (TEBS). We collect 749 estimates of TEBS reported in 60 studies, and conduct the first meta-analysis of this literature. We show that the literature is prone to selective reporting: positive estimates of TEBS are systematically discarded—this biases the mean reported estimate away from the 'true' underlying effect. Reported estimates also vary widely; we construct 29 control variables that capture empirical strategies used to obtain them, and employ Bayesian Model Averaging to pin down the sources of this variation. We find that sales of food, retail and fuel are more elastic compared to sales of tobacco and other individual 'sin' products; that while the cross-border shopping is prominent in the US, it is much less prevalent in Europe and other countries.
    Keywords: cross-border shopping, taxation, tax elasticity, meta-analysis, Bayesian Model Averaging
    JEL: H71 H73 H26 H22 R12 H31
    Date: 2022–08
  8. By: Akua Anyidoho, Nana; Gallien, Max; Rogan, Mike; van den Boogaard, Vanessa
    Abstract: The use of digital financial services, including money transfers and mobile money, have expanded widely in lower-income countries in the past decade; 47 per cent of the population of sub-Saharan Africa (548 million) had a registered mobile money account in 2020, with 29 per cent of those accounts representing active users (Andersson-Manjang and Naghavi 2021: 8). Among lower-income countries for which data is available, the average number of mobile money accounts is more than double the number of commercial bank accounts. In many lower-middle-income countries, mobile money usage is the same or more than commercial bank usage (Bazarbash et al. 2020). Alongside this growth, governments have increasingly sought to tax DFS, rooted in deeper discussions about the role that technology can play in increasing tax revenue and strengthening overall state capacity (Fan et al. 2020; Okunogbe and Santoro 2021). While capturing revenue from DFS can come from many sources, mobile money taxes in particular have often been introduced due to the untapped revenue potential and the relatively convenient and easy nature of the tax handle (Lees and Akol 2021a) – particularly in relation to, say, corporate income taxes on financial service providers. As noted above, the search for revenue is often closely linked to a desire to capture revenue from workers in the informal economy, who are often framed as tax evaders.
    Keywords: Finance, Work and Labour,
    Date: 2022
  9. By: Haufler, Andreas (LMU Munich and CESifo); Schindler, Dirk (Erasmus University Rotterdam)
    Abstract: Many countries have introduced patent box regimes in recent years, offering a reduced tax rate to businesses for their IP-related income. In this paper, we analyze the effects of patent box regimes when countries can simultaneously use patent boxes and R&D subsidies to promote innovation. We show that when countries set their tax policies non-cooperatively, innovation is fostered, at the margin, only by the R&D subsidy, whereas the patent box tax rate is targeted at attracting international profit shifting. In equilibrium, patent box regimes emerge endogenously under policy competition, but never under policy coordination. We also compare the competition for mobile patents with the competition for mobile R&D units and show that enforcing a nexus principle is likely to reduce the aggressiveness of patent box regimes.
    Keywords: corporate taxation; profit shifting; patent boxes; R&D tax credits; tax competition;
    JEL: H25 H87 F23
    Date: 2022–09–09
  10. By: Eliana Carranza; Aletheia Donald; Florian Grosset; Supreet Kaur
    Abstract: In low-income communities, pressure to share income with others may disincentivize work, distorting labor supply. We document that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, we enable piece-rate factory workers in Côte d’Ivoire to shield income using blocked savings accounts over 3-9 months. Workers may only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. We vary whether the offered account is private or known to the worker’s network, altering the likelihood of transfer requests against saved income. When accounts are private, take-up is substantively higher (60% vs. 14%). Offering private accounts sharply increases labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers do not decline, indicating no loss in redistribution. Our estimates imply a 9-14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
    JEL: H0 J0 O1 O4 O55
    Date: 2022–09
  11. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: We demonstrate the interaction between short-lived governments’ decisions on education and pension policies and parents’ decisions on fertility in an overlapping generations growth model. Our analysis shows that increased life expectancy lowers fertility, decreases the ratio of education expenditure to GDP, and increases the ratio of pension benefits to GDP as well as per capita GDP growth rate. We also consider a reform that reduces pension benefits designed by a long-lived planner and show that the reduction is optimal from a social welfare perspective when the planner gives a large weight to future generations.
    Keywords: Public Pension; Public Education; Probabilistic Voting; Overlapping Generations
    JEL: D70 E62 H52 H55
    Date: 2022–09–10
  12. By: Ali Compaoré; Abrams M.E. Tagem
    Abstract: There exists a burgeoning empirical literature on the impact of aid fragmentation on development outcomes in aid-receiving countries, with it being widely recognized that aid fragmentation is deleterious. This paper adds to the existing literature by estimating the impact of aid fragmentation on tax revenue mobilization in developing countries. Drawing on the popular system generalized method of moments technique to counter endogeneity issues, this study focuses on a sample of 90 developing countries covering the period from 2000 to 2020.
    Keywords: Aid fragmentation, Tax revenue, Institutional quality, Aid effectiveness
    Date: 2022
  13. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the cyclicality of fiscal policy (discretionary versus automatic) for 28 advanced economies over 1995-2021 by paying special attention to the Covid-19 crisis. We find evidence that discretionary fiscal policy during the Covid-19 crisis (2020-2021) was significantly more countercyclical than before – in particular in the Eurozone. We do not find comparable evidence for more counter-cyclicality during the financial crisis or Euro crisis, which lends support to the argument that discretionary fiscal policy responded especially forceful to stabilise the economy during the Covid-19 crisis. Furthermore, automatic fiscal stabilisers contributed significantly to counter-cyclical stabilisation, although their performance over 2020-2021 was more in line with the past than for discretionary fiscal policy. Overall, fiscal policy in non-Eurozone advanced countries is more countercyclical than in the Eurozone. However, the cyclicality varies markedly across countries. Our findings shed light on how the cyclical behaviour of fiscal policy varies across countries and time.
    Keywords: Fiscal policy; Covid-19 crisis; financial crisis; Euro crisis; automatic stabilisers; discretionary fiscal policy
    JEL: E62 H11 H61
    Date: 2022–09
  14. By: Yahong Zhang (Department of Economics, University of Windsor)
    Abstract: To mitigate the job and income loss due to COVID-19, the Canadian government implemented a variety of programs. Among them, the most significant initiatives include the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS). In this paper, I use a dynamic general equilibrium model with labour market frictions to examine the effect of these two programs. In the model, a pandemic shock is captured by a combination of an exogenous rise in the separation rate and a decline in matching efficiency. I show that the shock generates a large rise in the unemployment rate and a steep decline in employment, output and consumption. I then use the model to quantify the effect of the two programs, showing that compared to the CERB program, the CEWS program is more effective in mitigating the loss of employment, output and consumption.
    Keywords: unemployment, labour market, pandemic
    JEL: J65 J68 H2
    Date: 2022–09
  15. By: Alessandra Celani; Luisa Dressler; Tibor Hanappi
    Abstract: Corporate tax incentives reduce investment costs for businesses, which may affect investment and location decisions. They apply through different designs and interact with countries’ standard tax systems, often making it difficult for tax policy makers and researchers to compare their generosity and assess their impacts across countries. This paper develops a methodology to calculate forward-looking corporate effective tax rates (ETRs) summarising tax relief from investment tax incentives into comparable indicators. It presents ETR indicators for seven Sub-Saharan African countries. Empirical results show that tax incentives substantially lower corporate taxation across these countries. On average, tax incentives reduce ETRs by 30% in the food and automotive industries compared to the standard tax treatment. ETRs often differ among taxpayers in a same sector and country - by up to 55%. The most generous tax treatment is typically offered within Special Economic Zones, where tax incentives can reduce ETRs to near zero.
    Keywords: Corporate taxation, Effective tax rates, FDI, Sub-Saharan Africa, Tax incentives
    JEL: H25 H32 O14 F21
    Date: 2022–09–22

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