nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒01‒09
nineteen papers chosen by
Thomas Andrén

  1. Dividend tax credits and the elasticity of taxable income: evidence from small businesses By Pablo Gutierrez Cubillos
  2. Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation By Sergio Ocampo; Fatih Guvenen; Gueorgui Kambourov; Burhan Kuruscu; Daphne Chen
  3. The Importance of Modeling Income Taxes Over time. U.S. Reforms and Outcomes By Margherita Borella; Mariacristina De Nardi; Michael Pak; Nicolo Russo; Fang Yang
  4. Labor Supply Responses to Income Taxation among Older Couples: Evidence from a Canadian Reform By Derek Messacar
  6. Strengthening the tax system to reduce inequalities and increase revenues in South Africa By Falilou Fall
  7. Tax compliance as a tool for deregulating the economy By Levashenko Antonina; Koval' Alexandra
  8. Taxing Multinational Enterprises: A Theory-Based Approach to Reform By Wolfram F. Richter
  9. How do tax technology and controversy expertise affect tax disputes? By Dyck, Daniel; Lorenz, Johannes; Sureth, Caren
  10. Taxes and the Labor Supply of the Stars By Daniel Keniston; Abigail Allison M. Peralta
  11. Population ageing and government revenue: Expected trends and policy considerations to boost revenue By David Crowe; Jörg Haas; Valentine Millot; Łukasz Rawdanowicz; Sébastien Turban
  12. The Social Tax: Redistributive Pressure and Labor Supply By Carranza, Eliana; Donald, Aletheia; Grosset, Florian; Kaur, Supreet
  13. CFO Working Experience and Tax Avoidance By Panagiotis Karavitis; Pantelis Kazakis; Tianyue Xu
  14. Dynamic scoring of tax reforms in real time By BARRIOS Salvador; REUT Adriana; RISCADO Sara; VAN DER WIELEN Wouter
  15. Tax and Occupancy of Business Properties : Theory and Evidence from UK Business Rates By Lockwood, Ben; Simmler, Martin; Tam, Eddy H.F.
  16. An Introduction to Digital Tax Payment Systems in Low-and Middle-Income Countries By Arewa, Moyosore; Santoro, Fabrizio
  17. An Evaluation of the French Innovation Tax Credit By Simon Bunel; Benjamin Hadjibeyli
  18. The Impact of Immovable Property Tax on the Macro Economy By Joeng, Young Sik; Kang, Eunjung; Kim, Kyunghun; Kim, Jeehye
  19. Output Effects of Fiscal Consolidations: Does Spending Composition Matter? By Ardanaz, Martín; Cavallo, Eduardo A.; Izquierdo, Alejandro; Puig, Jorge

  1. By: Pablo Gutierrez Cubillos (University of Chile)
    Abstract: We assess firms’ taxable income response to a dividend tax credit increase whencorporate and personal taxes are integrated. First, we theoretically show that, in anintegrated tax system, welfare changes stemming from a rise in corporate taxes dependon two parameters: the elasticity of taxable income with respect to the corporate taxrate and with respect to the dividend tax credit. Second, to estimate both parameters, we propose an identification strategy that relies on the bunching methodology and theexcess bunching difference before and after a tax reform that increased the dividendtax credit. Using Canadian administrative tax data and the presence of a kink inthe corporate tax system, we estimate these elasticities and empirically show that theincrease in the dividend tax credit reduced the deadweight loss associated with anincrease in the corporate tax by more than 50%. Our results are robust to a battery ofrobustness checks, including nonparametric estimates of the counterfactual densityin the bunching procedure.
    Keywords: Bunching Estimation, Corporate taxation, Dividend taxation, Elasticity of taxable income, Small business, Tax integration
    JEL: H25
    Date: 2022–12
  2. By: Sergio Ocampo (University of Western Ontario); Fatih Guvenen (University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER); Gueorgui Kambourov (University of Toronto); Burhan Kuruscu (University of Toronto); Daphne Chen (Econ One)
    Abstract: How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent return heterogeneity, we revisit this question. With heterogeneity, the two tax systems typically have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive and therefore generate more income pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average welfare. Turning to optimal taxation, the optimal wealth tax (OWT) is positive and yields large welfare gains by raising efficiency and lowering inequality. In contrast, the optimal capital income tax (OKIT) is negative—a subsidy—and delivers lower welfare gains than OWT, owing to the welfare losses from higher inequality. Furthermore, when the transition path is considered, the gains from OKIT turn into significant welfare losses for existing cohorts, whereas OWT continues to deliver robust welfare gains. These results suggest that moderate wealth taxation may be a more appealing alternative than capital income taxation, which can be significantly more distorting under return heterogeneity than under the equal-returns assumption.
    Keywords: wealth tax, capital income tax, optimal taxation, rate of return heterogeneity, power law models, Pareto tail, wealth inequality
    JEL: E21 E22 E62 H21
    Date: 2022
  3. By: Margherita Borella; Mariacristina De Nardi; Michael Pak; Nicolo Russo; Fang Yang
    Abstract: While "'Tis impossible to be sure of any thing but Death and Taxes" (Bullock, 1716), the structure of taxes and their burden has undergone large and frequent changes over time. We provide a brief history of the U.S. federal income tax reforms since the 1960s, we calculate effective federal income tax rates for each wave of the Panel Study of Income Dynamics, and we discuss how effective taxation has changed over time from 1969 to 2016. We show that most tax regimes are short-lived and that the variation in taxes over time and across groups is large. We also use an estimated dynamic model of couples and singles to show that the various tax regimes that we estimate imply very different labor market and saving behavior. This stresses the importance of studying and modeling tax changes over time and across groups.
    JEL: H2 H30
    Date: 2022–12
  4. By: Derek Messacar
    Abstract: This paper estimates real and avoidance responses to income taxation among older couples in Canada. Using administrative data and exploiting a unique reform affecting tax on pension income, I observe large effects on labor supply using an instrumental variables approach. However, workers respond to compensated changes in their average rather than marginal tax rates, consistent with ‘schmeduling’ behavior. Further, I show that taxable incomes vary with the availability of deductions, offering credible evidence of tax planning within couples. These findings provide new insights into the black box of intra-household labor supply and have implications for estimating excess burden of taxation.
    Keywords: Elasticity of taxable income; tax avoidance; unitary model; collective model; schmeduling; empirical density design; instrumental variables
    JEL: D13 H24 H26
    Date: 2022
  5. By: Sokolov Ilya (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Today, a significant share of tax revenue in most countries comes from VAT. So, for example, according to data for 2017, for OECD countries the average share of VAT tax revenues is about 20-25%. This indicator is second only to insurance premiums and personal income tax (PIT). At the same time, there is a very heated discussion about how the VAT affects public welfare, especially in the context of switching from other forms of taxation.
    Keywords: value added tax, factor analysis
    Date: 2021–01
  6. By: Falilou Fall
    Abstract: The Covid-19 crisis has exacerbated the already deteriorating fiscal situation in South Africa. The current consolidation strategy, based on spending cuts and reprioritisation of spending items, has reached its limits and is insufficient to stabilise the debt ratio in the medium term and fund unmet public services needs. The tax-benefit system needs to be redesigned to create fiscal space in the years to come to finance growth-enhancing reforms and to reduce inequalities. The challenge is to generate additional revenues without generating inefficiencies or exacerbating inequality. Income taxes represent around half of total tax revenues, but are levied on small tax bases, partly reflecting the unequal distribution of income. Only the value-added tax has a relatively broad basis combined with a moderate tax rate. There is some scope to raise revenues further while reducing existing tax distortions, notably by broadening the base of corporate and personal income taxes, as well as consumption taxes. Taxes with a less harmful impact on growth, such as property taxes, are limited by the inefficient municipal rates system. There remains scope to further increase environmentally-related taxes.
    Keywords: Business tax, Goods and services tax, government revenues, Personal Income tax, Tax
    JEL: H23 H24 H25 H26 H27
    Date: 2022–12–22
  7. By: Levashenko Antonina (Russian Presidential Academy of National Economy and Public Administration); Koval' Alexandra (Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The work analyzed international standards in the field of tax compliance, the practice of OECD countries and OECD partners in the application and implementation of tax compliance instruments.
    Keywords: tax compliance, OECD, due diligence procedures, joint compliance, tax monitoring
    Date: 2021–01
  8. By: Wolfram F. Richter
    Abstract: Almost 140 countries have agreed to reallocate the rights to tax international corporate profits and to introduce minimum tax rates. The agreed plan is the product of pragmatism and a search for consensus, but ambitious. It includes steps towards unitary taxation to be established by a multilateral convention that the world has not yet seen in comparable format. This paper argues for a reform that retains separate entity accounting and addresses the flaws in the current system of corporate taxation at their root rather than merely fixing symptoms. To this end, a reform aimed specifically at the rules governing the taxation of intangible assets is recommended.
    Keywords: OECD/G20 BEPS Project, formula apportionment, separate entity accounting, Shapley assignment of taxing rights, residual profit allocation/splitting
    JEL: H25 F23 M48
    Date: 2022
  9. By: Dyck, Daniel; Lorenz, Johannes; Sureth, Caren
    Abstract: Given the rising number, magnitude, and harshness of tax disputes between firms and tax authorities, firms increasingly call on tax technology and controversy expertise to try to resolve these disputes. This study investigates how tax technology embedded in the firm's Tax Risk Management System (TRMS) and the expertise of tax controversy managers affect dispute outcomes and compliance incentives. Using a game-theoretic model, we derive equilibrium strategies for a tax manager's compliance effort, a controversy manager's dispute resolution effort, and a tax authority's litigation decision. Absent a controversy manager, we find that improving a firm's TRMS quality unambiguously decreases the litigation probability. However, in the presence of a controversy manager, we surprisingly find that improving TRMS quality crowds out compliance efforts and can increase litigation probability. Overall we find that a high-quality TRMS is essential to take advantage of the dispute resolution function of a controversy manager.
    Keywords: tax dispute resolution,tax risk management,tax technology,controversy expertise,litigation
    JEL: H25 H26 C72 K34
    Date: 2022
  10. By: Daniel Keniston; Abigail Allison M. Peralta
    Abstract: Do high taxes cause superstars to work less? We test this hypothesis using complete data on Hollywood movie stars' labor supply from 1927 to 2014. Changes to marginal tax rates in high tax brackets have no significant effect on the number of films a movie star makes each year. However, in years with high taxes, stars produce more highly rated movies with award-winning directors, potentially substituting prestigious films for pecuniary gains
    JEL: H24 J22 J32 L82
    Date: 2022–12
  11. By: David Crowe; Jörg Haas; Valentine Millot; Łukasz Rawdanowicz; Sébastien Turban
    Abstract: Population ageing is expected to result in significantly higher government spending in many OECD countries in the coming decades. This paper sheds light on the macroeconomic consequences of population ageing for government revenue in a framework consistent with the OECD long-term model. If the labour and capital income shares in GDP remain constant and pension income increases in relation to GDP, the tax revenue-to-GDP ratio will increase slightly. However, this will not be enough to cover the total increase in government spending due to population ageing. If governments do not mitigate spending pressures by structural reforms or cuts in pension entitlements, they will have to boost tax revenue significantly to prevent public debt from expanding. In many countries, it will not be possible, nor advisable, to completely finance the increase in long-term spending with only one tax instrument as it would require a massive rise in the tax rate, with risks of ensuing distortions. Thus, governments will have to choose mixes of tax increases, accounting for growth, equity and political considerations. This paper reviews these considerations for several specific tax categories.
    Keywords: pensions, population ageing, public finances, tax policy, tax revenue
    JEL: H21 H23 H24 H55 I38 J14 E17
    Date: 2022–12–13
  12. By: Carranza, Eliana (World Bank); Donald, Aletheia (World Bank); Grosset, Florian (Columbia University); Kaur, Supreet (University of California, Berkeley)
    Abstract: In low-income communities in both rich and poor countries, redistributive transfers within kin and social networks are frequent. Such arrangements may distort labor supply—acting as a "social tax" that dampens the incentive to work. We document that across countries, from Cote d'Ivoire to the United States, 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.
    Keywords: kin tax, informal insurance, illiquid savings, transfers, labor supply
    JEL: J22 J24 H24 D61 O12
    Date: 2022–11
  13. 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
  14. By: BARRIOS Salvador (European Commission - JRC); REUT Adriana; RISCADO Sara; VAN DER WIELEN Wouter
    Abstract: In this paper, we propose a novel approach for the ex-ante assessment of tax reforms accounting for second-round effects, i.e. the dynamic scoring of tax reforms. We combine a microsimulation model for selected European countries with VAR estimates of macro responses and, exploiting a unique database of tax reforms in the EU, compare our estimates with the real-time assessment of tax reforms conducted by the EU Member States as well as with ex-post realisations. This is the first time dynamic scoring of tax reforms is conducted in real-time and compared to ex-post realizations in a systematic way. The novelty of our approach hinges on the use of a macro-econometric model combined with a microsimulation model which represents a more flexible tool than (computable) general equilibrium models in order to conduct real-time dynamic scoring analysis. Our results suggest that on average personal income tax cuts resulted in medium-term increases in output and employment; however, the second-round revenue impact is found to be small relative to the first-round microsimulation results.
    Keywords: Fiscal policy, tax reforms, real-time, microsimulation, EUROMOD, VAR models
    Date: 2022–12
  15. By: Lockwood, Ben (University of Warwick and Oxford University Centre for Business Taxation); Simmler, Martin (Oxford University Centre for Business Taxation and Thuenen Institute of Rural Economics); Tam, Eddy H.F. (King's College London and Oxford University Centre for Business Taxation)
    Abstract: We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the "High St") is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.
    Keywords: Commercial Property ; Vacancy ; Occupancy ; Property Taxation JEL Codes: H25 ; H32 ; R30 ; R38
    Date: 2022
  16. By: Arewa, Moyosore; Santoro, Fabrizio
    Abstract: National tax administrations are increasingly investing in the digital facilities needed to make it possible for taxpayers to go online both to file their routine tax returns (e-filing) and remit the tax payments due (e-payment). These facilities potentially benefit both taxpayers and tax administrations. This paper first maps the landscape, explaining which filing and payment technologies are used for tax collection in Africa. We then examine why these technologies are not used to their full potential. Some constraints are on the demand side. These include taxpayers’ preferences for cash and in-person relations and low familiarity with and trust in digital technology. Other constraints lie in infrastructure deficits and broader political, regulatory, and institutional factors. Unlocking the full potential of e-filing and e-payment systems thus seems to depend on meeting several pre-conditions, including solid political will, sound regulatory frameworks, reliable payment infrastructure and adequate investment in human capital. However, there is relatively little reliable evidence of the actual effectiveness of e-services in tax collection. We conclude by outlining some research priorities.
    Keywords: Governance,
    Date: 2022
  17. By: Simon Bunel; Benjamin Hadjibeyli
    Abstract: The Innovation tax credit (crédit d’impôt innovation, CII) is an extension of the Research tax credit (crédit d’impôt recherche, CIR) intended to boost the incentive effect of the latter on SMEs to encourage them to engage in the creation of new products via the development of prototypes or pilot plants. Introduced in 2013, it amounted to €120 million of tax credit in 2014 for some 5,300 recipients. This article seeks to measure the impact of the introduction of this scheme on its beneficiaries over the period from 2013 to 2016. Using a difference-in-differences method following propensity score matching, we find a greater increase in employment in the short term for firms benefiting from the scheme, along with a more pronounced increase in their sales turnover in the medium term. A greater increase in the number of new products produced by the beneficiaries is also observed. Finally, the introduction of the CII went along with a reduction in the research expenditure reported under the CIR.
    Keywords: Innovation, Tax credit, Evaluation, Products
    JEL: C21 D22 H32 L25 O31
    Date: 2022
    Abstract: Since the 2008 global financial crisis, inequality has been increasing worldwide. In particular, wealth (asset) inequality is getting worse than income inequality. And Korea is no exception. This deepening of inequality is more worrisome in that it leads to inequality of opportunity while suppressing movement between classes, which in turn deepens inequality, creating a vicious cycle of inequality. This is a bigger problem than the inequality itself. The international communities are calling for stronger property taxes, including recurrent taxes on immovable property, as part of mitigating inequality and promoting inclusive growth. In Korea, there is heated discussion on property taxes, such as recurrent taxes on immovable property including the comprehensive real estate tax. Therefore, this study aims to investigate policy directions in international organizations and major countries on immovable property tax and examine the effect of property tax on the macro economy. This study examine international comparisons of immovable property tax burdens using OECD data. Next, this study analyzes the effect of immovable property tax on housing prices, inequality, and economic growth. Finally, we suggest policy implications to Korea through this. Based on our results, we present policy implications for Korea.
    Keywords: Immovable Property Tax; Inequality; Economic growth; Housing Price
    Date: 2022–07–01
  19. By: Ardanaz, Martín; Cavallo, Eduardo A.; Izquierdo, Alejandro; Puig, Jorge
    Abstract: This paper studies whether changes in the composition of public spending affect the macroeconomic consequences of fiscal consolidations. Based on a sample of 44 developing countries and 26 advanced economies during 1980-2019, results show that while fiscal consolidations tend to be on average, contractionary, the size of the output fall depends on the behavior of public investment vis-a-vis public consumption during the fiscal adjustment, with heterogeneous responses growing over time. When public investment is penalized relative to public consumption and thus, its share in public expenditures decreases, a 1 percent of GDP consolidation reduces output by 0.7 percent within three years of the fiscal shock. In contrast, safeguarding public investment from budget cuts vis-a-vis public consumption can neutralize the contractionary effects of fiscal adjustments on impact, and can even spur output growth over the medium term. The component of GDP that mostly drives the heterogeneity between both types of adjustments is private investment. The results hold up to a number of robustness tests, including alternative identification strategies of fiscal shocks. The findings have policy implications for the design of fiscal adjustment strategies to protect economic growth as countries recover from the coronavirus pandemic.
    Keywords: Fiscal consolidations;public investment;public consumption;?scal multiplier
    JEL: H50 H54 O40
    Date: 2021–12

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