nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒01‒16
fourteen papers chosen by
Thomas Andrén

  1. May I Calculate Your Taxes?: The Effect of Bookkeeping on Tax Compliance under a Simplified Regime By Bando, Rosangela; Canozzi, Otavio; Martínez Carrasco, José; Dezolt, Ana Lúcia
  2. Lower Taxes At All Costs? Evidence from a Survey Experiment in Four European Countries By Bremer, Björn; Bürgisser, Reto
  3. Corporate tax cuts and the decline of the manufacturing labor share By Barış Kaymak; Immo Schott
  4. Is Charitable Giving Political? Evidence from Wealth and Income Tax Returns By Julia Cagé; Malka Guillot
  5. Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates By Lockwood, Ben; Simmler, Martin; Tam, Eddy H. F.
  6. Herding, rent-seeking taxpayers, and endemic corruption By Gil S. Epstein; Ira N. Gang
  7. How Quantitatively Important are Shocks to Consumption and Income Tax Rates for Business Cycle Fluctuations? Lessons from Bulgaria (1999-2020) By Aleksandar Vasilev
  8. When Do Nations Tax? The Adoption of Property Tax Codes by First Nations in Canada By Feir, Donn. L.; Jones, Maggie E. C.; Scoones, David
  9. Impact of Tax Reforms in Applied Models: Which Functional Forms Should Be Chosen for the Demand System? Theory and Application for Morocco By Touhami Abdelkhalek; Dorothee Boccanfuso
  10. The Effect of International Migration on Tax Morale in the Home Country: Evidence from Poland By Jan Brzozowski; Nicola Daniele Coniglio
  11. Equilibrium Effects of Payroll Tax Reductions and Optimal Policy Design By Breda, Thomas; Haywood, Luke; Wang, Haomin
  12. The Effects of Employers' Disability and Unemployment Insurance Costs on Benefit Inflows By Kyyrä, Tomi; Tuomala, Juha
  13. Judging Nudging: Toward an Understanding of the Welfare Effects of Nudges Versus Taxes By John List; Matthias Rodemeier; Sutanuka Roy; Gregory Sun
  14. Redistribution in a Globalized World By David R. Agrawal; Dirk Foremny

  1. By: Bando, Rosangela; Canozzi, Otavio; Martínez Carrasco, José; Dezolt, Ana Lúcia
    Abstract: Many countries worldwide face significant miss reporting in tax declarations. Miss reporting leads to undesired low revenue and economic distortions. This paper discusses the extent to which the residual bookkeeping burden faced by small firms in simplified regimes influence tax declarations. A randomized control trial among 1,500 irregular firms in Piaui, Brazil showed that adding the tax amount due and records on transactions to a warning notification improved compliance in 21 percentage points and increased the reported revenue in 39 percent. Firms without an accountant were less likely to regularize their status without the added information. These findings suggest the use of third party information to support voluntary compliance may present an opportunity for digital services to improve tax revenue services.
    Keywords: Tax compliance;Taxpayer support;Accounting;Tax Support
    JEL: H30 H26 O38 H32
    Date: 2021–07
  2. By: Bremer, Björn (Max Planck Institute for the Study of Societies); Bürgisser, Reto (University of Zurich)
    Abstract: It is commonly assumed that voters favor lower taxes, which undermines the ability of governments to raise revenues. How does the demand for lower taxes change when it involves fiscal trade-offs? Who supports tax cuts at all costs? We use a survey experiment conducted in four European countries (Germany, Italy, Spain, and the UK) to answer these questions, studying preferences on income taxes, value added taxes (VAT), and top income taxes. The results show that support for income tax and VAT cuts drops profoundly when it implies lower government spending or higher government debt. Lower top income taxes are always unpopular. Both interest and ideology influence preferences, but for cross-pressured people, ideology dominates: high-income voters that are left-wing oppose tax cuts. The results are important because they suggest that a progressive coalition against lower taxes – including low-income voters and the high-income left – is possible.
    Date: 2022–12–27
  3. By: Barış Kaymak; Immo Schott
    Abstract: We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment.
    JEL: E25 H32 L11 L60
    Date: 2022–12–20
  4. By: Julia Cagé (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Malka Guillot (Université de Liège)
    Abstract: Is charitable giving politically motivated? In this article, we use exhaustive administrative household panel data and a natural experiment to quantify empirically the motivations for giving. Our dataset includes all the households filing their income tax and/or their wealth tax returns in France between 2006 and 2019. In France, both charitable and political donations benefit from a 66% income tax credit, but only the charitable ones are eligible for the 75% wealth tax credit. We exploit the 2017 wealth-tax reform – a change in the taxable base that led to a drop of two third in the number of liable households and, as a result, an increase in the price of charitable giving – and show that charitable and political donations are substitute. According to our estimates, a one-percent increase in the price of charitable giving leads to an increase of around 0.12% in political donations. Next, using city-level information, we show that the increase in the price of charitable giving mostly benefits pro-business political parties. Finally, we document that the drop in charitable donations is mostly driven by politically-involved nonprofit organizations, pointing toward political motivations behind charitable giving.
    Keywords: Charitable giving, Political donations, Tax incentives for giving, Tax deductions, Wealth tax credit, Cross-elasticity of donations, Nonprofit organizations
    Date: 2021–06–30
  5. 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
  6. By: Gil S. Epstein; Ira N. Gang
    Abstract: In an environment with extensive corruption where much of the population evades paying their full taxes due, we tackle the question of optimal taxation when constituencies with opposing objectives (the poor and the rich) push tax policy in different directions. We think in terms of a government policy-maker, here called the tax administrator (TA), and rent-seeking lobbying efforts by poor and rich constituencies. We recognize taxpayers' inter-dependency as reflected in increased evasion likelihood when others are thought to be evading.
    Keywords: Tax evasion, Corruption, Rent-seeking, Tax administration, Poor
    Date: 2022
  7. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: This paper analyzes the macroeconomic effects of fluctuations in the marginal tax rates of consumption and income. To this end, stochastic tax rates are introduced as in Braun (1992), into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of stochastic taxation is investigated for the stabilization of cyclical fluctuations in Bulgaria. The quantitative effect of such shocks to the marginal tax rates is found to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, stochastic consumption and income taxes, Bulgaria
    JEL: E24 E32
    Date: 2023–01
  8. By: Feir, Donn. L. (University of Victoria); Jones, Maggie E. C. (University of Victoria); Scoones, David (University of Victoria)
    Abstract: Recent changes in Canadian legislation have enabled First Nations to adopt property taxation and other forms of taxation on reserves, thereby allowing them to directly finance their local governments through local tax revenues. In this paper, we compile data on the passage of First Nations tax laws over a thirty year period from a centralized national database on First Nations by-laws, the First Nations Gazette. We combine these data with additional sources to analyze the factors that are associated with First Nations exercising their taxation authority. We find evidence of geographic policy diffusion consistent with First Nations learning from their neighbours and direct evidence that formal educational and institutional resources are important correlates of tax law adoption. Understanding this process informs the broader literature on the evolution of taxation structures and local political incentives, and may contain important lessons for Indigenous tax jurisdiction in other contexts. It is also a critical first step towards assessing the long-term consequences of First Nations' new fiscal powers.
    Keywords: state evolution, First Nations, Indigenous, taxation, property, public finance
    JEL: H11 H12 H71 P48
    Date: 2022–12
  9. By: Touhami Abdelkhalek (Université Mohammed VI Polytechnique); Dorothee Boccanfuso (Université Mohammed VI Polytechnique)
    Abstract: When researchers and policymakers conduct impact analyses of economic reforms, especially fiscal reforms, the specification of the household demand system becomes crucial. There is a trade-off between demand systems that are simple to manipulate but less realistic, and other systems that are more realistic but are often more complex and difficult to estimate or calibrate. In this paper, we compare the results of two different demand systems: a simple one, the CobbDouglas (CD), and a more complex one, the Constant Difference Elasticity (CDE). We develop a hybrid method of estimation-calibration based on the estimation of the parameters and elasticities of a QUAIDS system and on the calibration of those of the CDE system using a cross-entropy approach. The estimates obtained are introduced into a micro-simulated partial equilibrium model to approximate the impact of the VAT reform on poverty measures in Morocco. We show that when the simulated shocks are moderate, the gain of using a CDE system instead of a CD system is marginal, but when these shocks are stronger, the differences become significant and increase. Therefore, the use of these models can lead to different results when evaluating public policies and their impacts on poverty measures.
    Date: 2022–02–20
  10. By: Jan Brzozowski (Jagiellonian University, Cracow, Poland.); Nicola Daniele Coniglio (University of Bari Aldo Moro, Italy)
    Abstract: International migration represents a potential channel for the transmission of norms, attitudes, and values back to the home countries. In this paper, we explore how the international migration of individuals affects tax morale and aversion to the free-riding of their household members left in the home country. We use a rich longitudinal household-level database which is representative of Polish society in the period 2007- 2015 — one of the most important countries of emigration in the EU — and allows us to observe social attitudes and values of individuals before and after the actual migration of a member of the household. Our results show that having a migrant in the household has a significant and positive effect on tax morale and increases aversion toward free-riding of those who stay put. We demonstrate that the transmission of this important form of social remittances crucially depends on the characteristics — gender, level of education, role in the household — of both those who migrate and those who stay put within the household. The identification of the effects relies on individual-level longitudinal data which allows us to rule out any time-constant confounding factor affecting both international migrations of family members and individual attitudes toward tax avoidance.
    Keywords: international migration, social remittances, values’ transfer, tax morale
    JEL: D83 F22 F24 H26 P20 Z10
    Date: 2022–12
  11. By: Breda, Thomas (Paris School of Economics); Haywood, Luke (Mercator Research Institute on Global Commons and Climate Change (MCC)); Wang, Haomin (University of Konstanz)
    Abstract: Recent empirical literature documents that targeted tax reductions or minimum wages can have unintended reallocation and spillover effects on workers not directly targeted by these policies. We quantify these effects using an equilibrium search-and-matching model estimated on French data before a low-wage payroll tax reduction in 1995; the model features heterogeneous workers and firms, labor taxation, and a minimum wage. Based on our model, the tax reduction led to changes in the vacancy distribution such that it becomes harder for workers to move up the job ladder in terms of firm productivity. We refer to this as the negative reallocation effect. The tax reduction also increased labor force participation of low-productivity workers, leading to a negative spillover effect because these workers create congestion in the labor market, lowering the job-finding rate for all workers. Given these unintended effects, low-wage tax reduction should cover jobs in a broad wage range. Finally, we find that the efficiency-maximizing policy mix involves moderately regressive payroll taxation and a low but binding minimum wage.
    Keywords: payroll tax, minimum wage, equilibrium job search, worker and firm heterogeneity
    JEL: J64 E24 H24 J38
    Date: 2022–12
  12. By: Kyyrä, Tomi (VATT, Helsinki); Tuomala, Juha (VATT, Helsinki)
    Abstract: In Finland, large firms are partially liable for the costs of disability and unemployment benefits paid to their former workers. To estimate the effects of such costs, we exploit a reform that extended this cost-sharing to cover a new group of blue-collar workers. We show that experience rating in disability insurance reduces inflows to sickness and disability benefits and increases participation in vocational rehabilitation programs, whereas employers' unemployment insurance costs reduce excess layoffs of older workers who are eligible for extended unemployment benefits until retirement age. We find no evidence of spillover effects: employers' costs in one benefit type do not affect inflows to other types of the benefits.
    Keywords: experience rating, coinsurance, disability insurance, unemployment insurance
    JEL: J14 J26 H32
    Date: 2022–12
  13. By: John List; Matthias Rodemeier; Sutanuka Roy; Gregory Sun
    Abstract: While non-price interventions ("nudges") have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behaviour in all three markets, they are not necessarily the most efficient policy. We find that nudges are more efficient in the market for cigarettes, while taxes are more efficient in the energy market. For influenza vaccinations, nudges may offer similar welfare gains to optimal vaccine subsidies. Importantly, two key factors govern the difference in results across markets: i) the standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii).
    Date: 2022
  14. By: David R. Agrawal; Dirk Foremny
    Abstract: Due to technological change, the opening of borders, and increased economic integration, the financial costs of relocating businesses and factors of production, moving residences, changing jobs, and transporting goods and services across borders pose new challenges for countries and subnational governments seeking to implement redistributive policies. This increasing mobility across borders implies that redistributive policies may amplify interjurisdictional fiscal externalities. In this article, we selectively review the literature relating to redistributive policy in an open economy setting. We then consider some of the implications of globalization for policy design, both within federal systems and across countries. Although globalization poses new challenges for fiscal systems, it does not necessarily imply that redistributive policy becomes untenable and possibly enhances the need for redistribution.
    Keywords: globalization, redistributive policy, mobility
    JEL: H20 H70 F60
    Date: 2022

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