nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒12‒19
thirteen papers chosen by
Thomas Andrén

  1. How Should Consumption Be Taxed? By Spencer Bastani; Sebastian Koehne
  2. Devising Administrative Approaches for Improving Tax Compliance By James Alm
  3. The Old and the New: A Tale of Two Local Property Taxes in Ireland By Gerard Turley
  4. A Ramsey Theory of Financial Distortions By Marco Bassetto; Wei Cui
  5. Development of approaches to improving the mechanism of taxation of personal income in the Russian Federation in the context of digitalization of tax administration By Milogolov Nikolai; Gromov Vladimir; Patel' Svetlana; Kostryikina Natalia; Koryitin Andrey; Melkova Elena
  6. Global Profit Shifting, 1975-2019 By Ludvig S. Wier; Gabriel Zucman
  7. Inequality, Debt Dynamics and the Incidence of Tax Rates: Addressing Macroeconomic Instability in a Post Keynesian Model By Clara Zanon Brenck
  8. Experience Rating as an Automatic Stabilizer By Mark Duggan; Andrew C. Johnston; Audrey Guo
  9. Taxing Consumption in Unequal Economies By Patrick Macnamara; Myroslav Pidkuyko; Raffaele Rossi
  10. CFO Working Experience and Tax Avoidance By Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu
  11. On the Geographic Implications of Carbon Taxes By Bruno Conte; Klaus Desmet; Esteban Rossi-Hansberg
  12. Strengthening the social safety net in Korea By Hyunjeong Hwang; Axel Purwin; Jon Pareliussen
  13. Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico By Calderón Cerbón Mariana; Cortés Espada Josué Fernando; Pérez Pérez Jorge; Salcedo Alejandrina

  1. By: Spencer Bastani; Sebastian Koehne
    Abstract: We review the theoretical justification of consumption taxes in advanced economies, providing a systematic overview of the vast public finance literature exploring how goods and services should be taxed. Our discussion focuses on both the determinants of the optimal level of consumption taxation in relation to other taxes, as well as the optimal differentiation of taxes across goods and services. We blend classical public finance results, recent developments in the optimal tax literature, as well as practical considerations. The purpose is to provide guidance to academics and policymakers about the key trade-offs in consumption taxation as well as point out important areas where more research is needed.
    Keywords: taxation, consumption, commodity, labor, capital, wealth
    JEL: H21 H24
    Date: 2022
  2. By: James Alm (Tulane University)
    Abstract: How can administrative policies be devised to improve tax compliance? To answer this broad question, I examine three specific questions. First, why do people pay their taxes? Second, that are the impacts of recent technological innovations on tax administration and tax compliance? Third, what are the implications of this research for tax administrations? In the spirit of much of Richard Bird’s work, I examine academic research on these questions that is relevant for both developed and developing countries, focusing on those aspects of research that may be of some use in administrative efforts to improve tax compliance. I conclude with some predictions about future research trends.
    Keywords: Tax compliance; tax administration; economics-of-crime approach; behavioral economics; technological changes; digitalization.
    JEL: C9 H26 H83
    Date: 2022–11
  3. By: Gerard Turley (University of Toronto)
    Abstract: Property taxes are common in countries around the world. While Ireland is no exception in its current tax treatment of real property, the background to its local taxes on non-residential and residential properties is unusual in that the former dates back more than 400 years while the latter, at least in its current configuration, has been in existence for less than 10 years. This research paper outlines the rationale, history, features, and administration of commercial rates (the “old”) and the residential Local Property Tax (the “new”). The purpose is to highlight, from a political economy and public policy perspective, improvements in the design and implementation of both taxes. While both taxes have some common features, the Local Property Tax has a number of unusual characteristics, including self assessment and valuation bands. While recognizing country-specific circumstances, the paper draws potential lessons from the Irish experience, identifies future opportunities, and explores challenges for policymakers. The Local Property Tax experience shows the importance of tax administration and the role of the central tax collection agency, and, in terms of design, the principle of simplicity combined with a tailored approach to suit local circumstances. Challenges include the relative tax burdens on non-residential and residential properties, the long-term sustainability of both tax regimes arising from legacy issues, the effects of current global trends and future revaluations, and, finally, the need for frequent property tax reform because of political and taxpayers’ opposition to a highly visible, unpopular, but good local tax.
    Keywords: local property taxes, municipal finance, property tax reform, Ireland
    JEL: H70 H71
    Date: 2022–11
  4. By: Marco Bassetto (Federal Reserve Bank of Minneapolis); Wei Cui (University College London; Centre for Macroeconomics (CFM))
    Abstract: We study optimal taxation in an economy with financial frictions, in which the government cannot directly redistribute towards the agents in need of liquidity but otherwise has access to a complete set of linear tax instruments. We establish a stark result. Provided this is feasible, optimal policy calls for the government to increase its debt, up to the point at which it provides sufficient liquidity to avoid financial constraints. In this case, capital-income taxes are zero in the long run, and the returns on government debt and capital are equalized. However, if the fiscal space is insufficient, a wedge opens between the rates of return on government debt and capital. In this case, optimal long-run tax policy is driven by a trade-off between the desire to mitigate financial frictions by subsidizing capital and the incentive to exploit the quasi-rents accruing to producers of capital by taxing capital instead. This latter incentive magnifies the wedge between rates of return on government debt and capital. It also makes it optimal to distort downward the interest rate on government debt in periods of high government spending.
    Keywords: Financing Constraints; Asset Directed Search; Capital Tax; Low Interest Rates; Optimal Level of Government Debt
    JEL: E22 E44 E62
    Date: 2021–02
  5. By: Milogolov Nikolai (Russian Presidential Academy of National Economy and Public Administration); Gromov Vladimir (Russian Presidential Academy of National Economy and Public Administration); Patel' Svetlana (Russian Presidential Academy of National Economy and Public Administration); Kostryikina Natalia (Russian Presidential Academy of National Economy and Public Administration); Koryitin Andrey (Russian Presidential Academy of National Economy and Public Administration); Melkova Elena (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The work is devoted to the prospects of transformation of bilateral tax treaties in digital conditions. To address this question, the authors studied the prerequisites for the transformation of tax systems in an environment of increasing use of digital technologies, and identified key tax challenges.
    Keywords: transformation of tax treaties, bilateral tax treaties
    Date: 2021–01
  6. By: Ludvig S. Wier; Gabriel Zucman
    Abstract: This paper constructs time series of global profit shifting covering the 2015–19 period, during which major international efforts were implemented to curb profit shifting. We find that (i) multinational profits grew faster than global profits, (ii) the share of multinational profits booked in tax havens remained constant at around 37 per cent, and (iii) the fraction of global corporate tax revenue lost due to profit shifting rose from 9 to 10 per cent. We extend our time series back to 1975 and document a remarkable increase of multinational profits and global profit shifting from 1975 to 2019.
    JEL: E25 F23 H26
    Date: 2022–11
  7. By: Clara Zanon Brenck (Department of Economics, New School for Social Research)
    Abstract: This paper explores different tax regimes in a Post-Keynesian model where workers get into debt to emulate the consumption of upper-income classes. The government taxes income to fund a social wage that would reduce workers’ need to get into debt. Three tax regimes are analyzed: taxing profits, managers’ wages, or both. In a numerical exercise, we explore the effects of changing the within-wage and functional inequalities. The government’s income tax choices and the distribution of the wage bill matter for the sustainability of the economy and for the relation between distribution and growth. Taxing only profits and reducing wage inequality is the best possible outcome if we were to wind down the unsustainability feature of Neoliberalism without sacrificing real performance.
    Keywords: Inequality, debt dynamics, tax regime, sustainable growth
    JEL: D31 E12 O41
    Date: 2022–11
  8. By: Mark Duggan; Andrew C. Johnston; Audrey Guo
    Abstract: Unemployment insurance taxes are experience-rated to penalize firms that dismiss workers. We examine whether experience rating acts as an automatic stabilizer in the labor market. We exploit the fact that penalties for layoffs vary by state using detailed data on state tax schedules, and we measure whether firms react less to labor-demand shocks in the presence of greater layoff penalties. The average penalty for layoffs reduces firm adjustment to negative shocks by 11 percent. The results imply experience rating has a stabilizing influence on labor markets. Experience rating saved, for instance, nearly a million jobs in the Great Recession.
    JEL: H25 H71 J23 J65
    Date: 2022–11
  9. By: Patrick Macnamara; Myroslav Pidkuyko; Raffaele Rossi
    Abstract: This paper shows that linear consumption taxes are a powerful tool to implement efficient redistribution. We derive this result in an estimated life-cycle economy with labor and capital income risk that reproduces the distribution of income and wealth in the United States. Optimal policy calls for raising all fiscal revenues from consumption, and providing social insurance via a highly progressive wage tax schedule. Capital income and wealth should not be taxed. This policy reduces inequality and increases productivity, and brings large welfare gains both relative to the status-quo and to the case where consumption is not taxed. More than two-thirds of these gains are due to redistribution. Considering transitional dynamics, we show that our reform also generates large welfare gains in the short run.
    Keywords: optimal policy; inequality; consumption taxation; life-cycle; entrepreneurs
    JEL: E62 H21 H24
    Date: 2022–11
  10. By: Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu
    Abstract: We ask whether CFO's managerial skills affect corporate tax avoidance using a sample of Chinese-listed companies. To that end, we develop a CFO managerial skills index based on four dimensions of the CFO's work experience: (1) the number of current positions a CFO holds, (2) the number of functional departments a CFO has worked in during his career, (3) the number of firms he has worked for, and (4) whether the CFO has political connections. We find that CFOs with high managerial skills are more likely to engage in aggressive tax avoidance. This effect is weakened when CFOs are in their first year of employment, approaching retirement, and are too busy. Moreover, we find that CFOs with general management skills are more likely to adjust corporate tax avoidance to levels similar to their peers.
    Keywords: Chief Financial Officer (CFO); work experience; managerial skills; tax avoidance
    JEL: G30 H26 J24 M41
    Date: 2022–11
  11. By: Bruno Conte; Klaus Desmet; Esteban Rossi-Hansberg
    Abstract: A unilateral carbon tax trades off the distortionary costs of taxation and the future gains from slowing down global warming. Because the cost is local and immediate, whereas the benefit is global and delayed, this tradeoff tends to be unfavorable to unilateral carbon taxes. We show that this logic breaks down in a world with trade and migration where economic geography is shaped by agglomeration economies and congestion forces. Using a multisector dynamic spatial integrated assessment model (S-IAM), this paper predicts that a carbon tax introduced by the European Union (EU) and rebated locally can, if not too large, increase the size of Europe’s economy by concentrating economic activity in its high-productivity non-agricultural core and by incentivizing immigration to the EU. The resulting change in the spatial distribution of economic activity improves global efficiency and welfare. A unilateral carbon tax with local rebating introduced by the US generates similar global welfare gains. Other forms of rebating can dilute or revert this positive effect.
    JEL: F18 H23 O13 O44 Q56 R11
    Date: 2022–11
  12. By: Hyunjeong Hwang; Axel Purwin; Jon Pareliussen
    Abstract: Social protection in Korea is designed around traditional forms of employment and excludes a substantial share of workers in non-standard employment. The resulting social protection gaps compound income inequality and undermine financial sustainability as uninsured persons rely on tax-financed benefits. Besides, Korea’s tax and benefit system discourages taking up or returning to low-paid work from social assistance or unemployment benefits. Expanding the reach of employment insurance while redesigning the tax and benefit system could boost work incentives and reduce inequality and poverty. The elderly poverty rate is persistently high, partly because public pensions and social insurance were introduced relatively recently. Better targeting the means-tested Basic Pension could reduce elderly poverty considerably. Lengthening careers is essential to ensure pension sustainability and adequate retirement income for future retirees. Shifting from a severance pay system to a corporate pension would help improve retirement income and lower employers’ incentives to push for early retirements. Reducing inequalities in access to health and long-term care will require expansion of primary care and affordable quality home-based care. This will also help address the overreliance on hospitals and cope with rising demand.
    Keywords: health and inequality, retirement policies, safety, Social security and public pensions
    JEL: H55 I13 J28 J08
    Date: 2022–11–30
  13. By: Calderón Cerbón Mariana; Cortés Espada Josué Fernando; Pérez Pérez Jorge; Salcedo Alejandrina
    Abstract: In January 2019, the authorities increased the minimum wage and decreased the value-added tax (VAT) in an effort to boost activity on the northern Mexican border. In this paper we estimate the effects of both policies on prices. We find that the upward pressures on prices due to the minimum wage hike were more than offset by the downward pressures associated with the VAT. In the absence of the VAT reduction policy, average prices in the northern Mexican border would have been higher. We estimate that the effects of the minimum wage on prices tended to be smaller for goods or services produced with a larger share of informal labor.
    Keywords: Minimum wage;Value-Added Tax;Prices
    JEL: J38 J46 H20
    Date: 2022–11

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