nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒11‒14
sixteen papers chosen by
Thomas Andrén

  1. Cheating Responses to Tax Evasion By Martinangeli, Andrea; Windsteiger, Lisa
  2. Migration and tax policy: Evidence from Finnish full population data By Kalin, Salla; Kauppinen, Ilpo; Kotakorpi, Kaisa; Pirttilä, Jukka
  3. Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals By Makoto HASEGAWA
  4. Taxation of Top Incomes and Tax Avoidance By Di Nola, Alessandro; Kocharkov, Georgi; Scholl, Almuth; Tkhir, Anna-Mariia; Wang, Haomin
  5. Taxes and Telework: The Impacts of State Income Taxes in a Work-from-Home Economy By David R. Agrawal; Jan K. Brueckner
  6. Politics and income taxes: progress and progressivity By Berliant, Marcus; Boyer, Pierre
  7. Optimal Taxation with Multiple Dimensions of Heterogeneity By Bergstrom,Katy Ann; Dodds,William
  8. Incidence and Avoidance Effects of Spatial Fuel Tax Differentials: Evidence using Regional Tax Variation in Spain By Ander Iraizoz; José M Labeaga
  9. Trickle Down Tax Morale : A Cross Country Survey Experiment By Mellon,Jonathan; Peixoto,Tiago Carneiro; Sjoberg,Fredrik Matias; Gauri,Varun
  10. How to account for tax planning and tax uncertainty in valuation: Separate vs. composite view By Knaisch, Jonas
  11. Taming Private Leviathans : Regulation versus Taxation By Arezki,Rabah; Islam,Asif Mohammed; Rota-Graziosi,Gregoire
  12. Privatizing Disability Insurance By Arthur Seibold; Sebastian Seitz; Sebastian Siegloch
  13. Markups, Taxes, and Rising Inequality By Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
  14. VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products By Alisa Frey; Justus Haucap
  15. Older Workers’ Employment and Social Security Spillovers through the Second Year of the COVID-19 Pandemic By Gopi Shah Goda; Emilie Jackson; Lauren Hersch Nicholas; Sarah Stith
  16. Earnings Losses and the Role of the Welfare State During the COVID-19 Pandemic: Evidence from Sweden By Adermon, Adrian; Laun, Lisa; Lind, Patrik; Olsson, Martin; Sauermann, Jan; Sjögren, Anna

  1. By: Martinangeli, Andrea; Windsteiger, Lisa
    JEL: D01 D31 D63 H23 H26
    Date: 2022
  2. By: Kalin, Salla; Kauppinen, Ilpo; Kotakorpi, Kaisa; Pirttilä, Jukka
    Abstract: While evidence on the impact of taxation on the international migration of certain special groups of workers has expanded, evidence on the links between taxes and migration of the general population is extremely limited. We aim to fll this gap by estimating the impact of taxation on the migration decisions of the entire working population in a high-tax source country, Finland. We fnd that the average domestic elasticity of migration with respect to the domestic tax rate is very small (around 0.001). This holds for various occupational and income groups of interest. We also provide a frst empirical implementation of the theoretical results of Lehmann et al. (2014), who show that if a fully nonlinear income tax schedule at the top is used, the key suÿcient statistic for the optimal tax is a semi-elasticity of migration. Our estimates indicate that the migration responses increase for top earners, but remain very small, at least up to the top per mille of income earners.
    Keywords: taxation, emigration, Social security, taxation and inequality, Labour markets and education, J61, H31, fi=Verotus|sv=Beskattning|en=Taxation|,
    Date: 2022
  3. By: Makoto HASEGAWA
    Abstract: In 2009, Japan adopted a territorial tax regime by exempting dividends paid by Japanese-owned foreign subsidiaries to their parent firms from home-country taxation. This paper examines the impact of this tax reform on profit shifting by Japanese multi- nationals. I find that the semi-elasticity of pre-tax profits with respect to host-country corporate tax rates for Japanese-owned foreign subsidiaries, particularly large sub- sidiaries, sharply increased after the 2008 announcement of the implementation of the territorial tax regime, relative to that for US-owned foreign subsidiaries. This suggests that the territorial tax reform encouraged profit shifting by Japanese multinationals that owned large foreign subsidiaries.
    Keywords: International taxation; Multinational corporations; Profit shifting; World-wide tax system; Territorial tax system
    JEL: H25 H26 F23
    Date: 2022–10
  4. By: Di Nola, Alessandro; Kocharkov, Georgi; Scholl, Almuth; Tkhir, Anna-Mariia; Wang, Haomin
    JEL: E21 E62 H26
    Date: 2022
  5. By: David R. Agrawal; Jan K. Brueckner
    Abstract: This paper studies the interstate effects of decentralized taxation and spending when individuals can work from home (WFH). Because WFH decouples population and employment, the analysis of tax impacts on state populations, employment levels, wages and housing prices is radically different than in the standard model where individuals live and work in the same state. Which state can tax teleworkers—leading to either source or residence taxation—matters for tax impacts under WFH. Our main findings, which pertain to the employment and wage effects of WFH, show that a shift from a non-WFH economy to WFH reduces employment and raises the wage in high-tax states, with larger effects under source taxation. Once WHF is established, an increase in a state’s tax rate either reduces employment further while raising the wage (source taxation) or leaves the labor market unaffected (residence taxation). The analysis also shows that the residence-taxation equilibrium is efficient, while source taxation is inefficient.
    Keywords: state income taxes, telework, work-from-home
    JEL: H20 H73 R12
    Date: 2022
  6. By: Berliant, Marcus; Boyer, Pierre
    Abstract: This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of non-linear taxes derived in the context of voting. Next, we present new results on the existence of majority voting equilibrium that unify work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit (EITC), and increased progressivity in the middle of the income distribution.
    Keywords: Non-linear income taxation; Tax reform; Political economy; Optimal taxation; EITC
    JEL: C72 D72 D82 H21
    Date: 2022–10–13
  7. By: Bergstrom,Katy Ann; Dodds,William
    Abstract: This paper develops a general theory of optimal income taxation with multiple dimensions of agent heterogeneity. The main technical hurdle in developing this theory is the possibility that individuals have multiple optimal incomes. Using a perturbation approach, optimal tax formulas are derived that account for the possibility that individuals have multiple optima and, hence, account for the possibility that individuals jump between their optimal income levels when the tax schedule is perturbed. The magnitude of these effects is quantified, thereby augmenting the optimal tax formulas from Saez (2001) with additional “jumping effect†terms. The paper provides a partial characterization of when individuals with multiple optimal incomes may exist under the optimal tax schedule. Finally, the paper derives a new methodology to simulate optimal income tax schedules with multidimensional heterogeneity. This method is implemented numerically, showing that individuals with multiple optimal income levels can exist under the optimal tax schedule.
    Keywords: Macro-Fiscal Policy,Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Economic Adjustment and Lending,Labor Markets,Services&Transfers to Poor,Economic Assistance,Access of Poor to Social Services,Disability,Taxation&Subsidies
    Date: 2021–03–08
  8. By: Ander Iraizoz (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); José M Labeaga (UNED - Universidad Estatal a Distancia)
    Abstract: In this paper, we study the effect of spatial tax differentials on fuel tax pass-though and sales responses. We use two-way fixed effects methods to exploit regional variation in diesel excise taxes in Spain. Using a dataset containing daily diesel prices for the universe of petrol stations in Spain, we find that diesel tax pass-through is asymmetric depending on the sign of tax differentials with bordering regions. Petrol stations bordering with lower tax regions pass-through only 56% of fuel taxes, petrol stations bordering with higher tax regions pass-through 120% of fuel taxes. We provide evidence to attribute the asymmetric spatial incidence of fuel taxes to the market power given by the competitive tax advantage relative to competitors. Furthermore, we use diesel sales data aggregated at the province level and we find significant spatial tax avoidance responses to regional fuel tax differentials.
    Keywords: Automotive Fuel,Tax Incidence,Spatial Avoidance
    Date: 2022–09
  9. By: Mellon,Jonathan; Peixoto,Tiago Carneiro; Sjoberg,Fredrik Matias; Gauri,Varun
    Abstract: Studies have encouraged pro-social behavior by experimentally manipulating people's views of what others like them tend to do (descriptive norms). These studies positively change behaviors, including charitable giving, littering, organ donation, and tax compliance. This paper argues that these results may be explained by a tendency to reciprocate positive actions and avoid being taken advantage of. The descriptive norm account predicts that positively describing the behavior of ordinary people will be most effective at increasing citizens’ willingness to pay taxes, and messages describing the behavior of other groups should be less effective. However, reciprocity theory suggests that highlighting pro-social behavior by groups believed not to contribute their fair share, such as rich people, should be effective because it will reduce the subject's perception that they are being taken advantage of when they pay taxes. These theories are tested in an online experiment in Kenya, Australia, the United States, the Philippines, and South Africa. The findings show that the descriptive norms treatment is ineffective, while the rich people treatment significantly increases tax morale, supporting reciprocity theory. The findings suggest that tax agencies may increase tax compliance by visibly tackling tax avoidance among groups believed to avoid taxes, such as rich citizens.
    Keywords: Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Tax Administration,Tax Law,Employment and Unemployment,Gender and Development
    Date: 2021–01–13
  10. By: Knaisch, Jonas
    Abstract: I investigate how investors value tax planning and tax uncertainty for the case of publicly listed German firms. I compare two recent approaches how to account for tax uncertainty: the separate view by Drake et al. (2019) and the composite view by Jacob and Schütt (2020) to find the better suited way to incorporate tax planning and uncertainty simultaneously. In a battery of tests, I fail to produce results consistent with the separate view. In contrast, the composite view yields robust results that are in line with theory and prior literature: A one standard deviation increase in the quality of tax planning leads to an increase in the positive effect of the return on equity on the firm value of 7.7%. Investors seem to not only care about the level of firms' tax planning, but also how it is achieved. Only combining the degree of tax planning and its associated uncertainty in a single measure (Tax Planning Score) leads to robust results, thereby providing support for the notion of Jacob and Schütt (2020) that these constructs should be considered jointly.
    Keywords: Tax Avoidance,Tax Uncertainty,Firm Value,Tax Planning Score
    JEL: G32 H25 H26 M21 M41
    Date: 2022
  11. By: Arezki,Rabah; Islam,Asif Mohammed; Rota-Graziosi,Gregoire
    Abstract: This paper explores the interplay between concentration of wealth and policies, namely regulation and taxation. The paper exploits variation in exposure to international commodity prices. Using a global panel data set of the net worth of billionaires, the results point to a positive relationship between commodity prices and the concentration of wealth at the top. Regulation especially pertaining to competition is found to limit the effects of commodity price shocks on the concentration of wealth, while taxation has little effect. Moreover, commodity price shocks crowd out non-resource tax revenue, hence limiting the scope for income transfers and redistribution. The results are consistent with the primacy of ex ante interventions over ex post ones for addressing wealth inequality.
    Keywords: Energy and Natural Resources,Coastal and Marine Resources,Food Security,Oil Refining&Gas Industry,Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Macro-Fiscal Policy,Taxation&Subsidies,Economic Adjustment and Lending
    Date: 2021–01–29
  12. By: Arthur Seibold; Sebastian Seitz; Sebastian Siegloch
    Abstract: Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger workers, we find that despite significant crowding-in effects, overall private DI take-up remains modest. We do not find any evidence of adverse selection on unpriced risk. On the contrary, private DI tends to be concentrated among high-income, high-education and low-risk individuals. Using a revealed preferences approach, we estimate individual DI valuations, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing DI partly via a private insurance market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public DI mandate.
    Keywords: disability insurance, social insurance, mandate, privatization, risk-based selection, welfare
    JEL: H55 G22 G52
    Date: 2022
  13. By: Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
    Abstract: How to explain rising income and wealth inequality? We build an original heterogeneous-agent model with three key features: (i) an explicit link between firm’s market power and top income shares, (ii) a granular representation of the tax and transfer system, and (iii) three assets with endogenous portfolio decisions. Using France as an illustration, we look at how changes in markups, taxes, factor productivity, and asset prices affect inequality dynamics over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.
    Keywords: heterogeneous agents, taxes, market power, income inequality, wealth inequality
    JEL: D40 E20 H20 O40 O52
    Date: 2022
  14. By: Alisa Frey; Justus Haucap
    Abstract: This paper is about the price effects caused by a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: The exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely passed through to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is larger.
    Keywords: VAT reduction, pass-through, hygiene products, retailer competition
    JEL: H22 H25 H32 K34
    Date: 2022
  15. By: Gopi Shah Goda; Emilie Jackson; Lauren Hersch Nicholas; Sarah Stith
    Abstract: The COVID-19 pandemic triggered a large and immediate drop in employment among US workers, along with major expansions of unemployment insurance and work from home. We use Current Population Survey and Social Security application data to study employment among older adults and their participation in disability and retirement insurance programs through the second year of the pandemic. We find ongoing improvements in employment outcomes among older workers in the labor force, along with sustained higher levels in the share no longer in the labor force during this period. Applications for Social Security disability benefits remain depressed, particularly for Supplemental Security Income. In models accounting for the expiration of expanded unemployment insurance, we find that the loss of these additional financial supports is associated with a drop in older adult unemployment rates and an increase in Social Security Disability Insurance claiming. Social Security retirement benefit claiming has rebounded to pre-pandemic levels, but has shifted from offline to online applications.
    JEL: H31 H5 J14 J26
    Date: 2022–10
  16. By: Adermon, Adrian (Institute for Evaluation of Labour Market and Education Policy (IFAU)); Laun, Lisa (Institute for Evaluation of Labour Market and Education Policy (IFAU)); Lind, Patrik (Institute for Evaluation of Labour Market and Education Policy (IFAU)); Olsson, Martin (Research Institute of Industrial Economics (IFN)); Sauermann, Jan (Institute for Evaluation of Labour Market and Education Policy (IFAU)); Sjögren, Anna (Institute for Evaluation of Labour Market and Education Policy (IFAU))
    Abstract: Many governments introduced temporary adjustments to counter the economic and health consequences of the COVID-19 pandemic. We study the importance of already existing government transfers and pandemic measures to mitigate individual income losses during the pandemic in Sweden using a difference-in-differences approach and population-wide data on monthly earnings and government transfer payments. We find that labor earnings dropped by 2.7 percent in 2020. Existing transfers and pandemic measures reduced earnings losses to 1.5 percent. These average effects mask considerable differences in income losses, which were, by and large, evened out by existing transfers and pandemic measures.
    Keywords: COVID-19; Income inequality; Government transfers; Short-time work
    JEL: C23 D31 E24 H12 H20
    Date: 2022–10–27

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