nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒02‒13
ten papers chosen by
Thomas Andrén

  1. What Do We Know About Taxpayer Responses to Tax Changes? By Carina Neisser
  2. Estimating Income in a Tax Compliance Game. A Bayesian Persuasion Approach By Raphaela Hennigs
  3. Labor Taxation in the Western Balkan: Looking Back and Forward By Mr. Alain Jousten; Mario Mansour; Irena Jankulov Suljagic; Charles Vellutini
  4. Equity and Efficiency Effects of Land Value Taxation By Gregor Schwerhoff; Ottmar Edenhofer; Marc Fleurbaey
  5. Tax Reforms and Network Effects By Delalibera, Bruno Ricardo; Ferreira, Pedro Cavalcanti; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
  6. Global Evidence on Profit Shifting Within Firms and Across Time By Fotis Delis; Manthos D. Delis; Luc Laeven; Steven Ongena
  7. Coming Clean on Your Taxes By Ruud A. de Mooij; Sebastian Beer
  8. Green taxation and renewable energy technologies adoption: A global evidence By Tii N. Nchofoung; Hervé Kaffo Fotio; Clovis Wendji Miamo
  9. Frames, Incentives, and Education: Effectiveness of Interventions to Delay Public Pension Claiming By Franca Glenzer; Pierre-Carl Michaud; Stefan Staubli
  10. Optimal social security timing By A. Y. Aydemir

  1. By: Carina Neisser (University of Cologne)
    Abstract: The classical trade-off between equity and efficiency is central to income tax policy. On the one hand, higher taxes imply more resources to redistribute; but on the other hand, they might negatively affect incentives to work and the reporting of income itself. The design of tax and transfer policies, therefore, requires estimating the magnitude of behavioural responses to tax rate changes. Roughly speaking, the larger the responses to taxation, the smaller optimal tax rates should be.
    Date: 2021–08
  2. By: Raphaela Hennigs
    Abstract: This paper studies the tax authority’s problem of how to estimate a tax payer’s income in a tax compliance game. The tax authority’s choice of how to estimate income is modelled using the Bayesian persuasion framework and assuming that income can be estimated arbitrarily precisely. I show that the tax authority can use income estimates as a commitment device: ex-post, the tax authority has an incentive to audit a tax payer if his income is estimated to be high. This allows the tax authority to increase tax compliance by strategically overestimating low income. If the probability with which low income is falsely estimated to be high is strictly positive, the tax authority audits a low income tax payer with a strictly positive probability. Anticipating to be audited with a sufficiently high probability, the tax payer prefers to report low and high income to avoid being audited and fined.
    Keywords: tax audits, tax compliance, information design, Bayesian persuasion
    JEL: D82 D83 H26
    Date: 2022–11
  3. By: Mr. Alain Jousten; Mario Mansour; Irena Jankulov Suljagic; Charles Vellutini
    Abstract: This paper examines how labor taxation (personal income taxes and social security contributions) in the Western Balkan contributes to labor market outcomes such as high informality and a significant gender gap in participation rates. We find that limited progressivity combined with high tax wedge on low incomes poses a major twin equity-efficiency challenge in the region, resulting in low redistributive capacity and inadequate incentives to enter the job market. Policy implications are discussed with a view to alleviating the excessively high tax wedges on low incomes, while improving progressivity of income taxation.
    Keywords: Western Balkan; labor taxation; labor tax wedge; personal income tax; corporate income tax; social security contributions; income taxation; SSC reduction; employer SSCs; Labor taxes; Tax wedge; Wages; Labor markets; Europe
    Date: 2022–12–02
  4. By: Gregor Schwerhoff; Ottmar Edenhofer; Marc Fleurbaey
    Abstract: It is a well-known result in economics that land value taxation is efficient since it does not distort the supply of the tax base. Considering only efficiency, land value should thus be fully taxed. Using optimal taxation theory with heterogeneous households, we show that it may be optimal not to tax land value fully for distributional reasons. The decisive variable is the covariance of land value held by households and their social welfare weight. Empirical data from the US and France, however, indicates that ownership of land value (in absolute terms) is negatively correlated to the social welfare weight. Middle income households would pay relatively more land value taxes than high income households, but less in absolute terms. With reasonable revenue recycling, land value taxation would thus reduce the net tax burden of low and middle income earners, because they would benefit more from the recycling than they pay in additional taxes.
    Keywords: land value taxation; inequality; optimal taxation; net tax burden; tax land value; income earner; land rent tax; Land tax; Income; Labor taxes; Housing; Labor supply
    Date: 2022–12–16
  5. By: Delalibera, Bruno Ricardo; Ferreira, Pedro Cavalcanti; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
    Abstract: This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model that includes multiple sectors with market power. Industries are connected through input-output linkages, and changes in tax costs are not confined within industries. The tax reform shocks propagate through the production network, which may amplify or mitigate their results. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating Value-Added Tax (VAT) rate dispersion leads to a 5.9% increase in GDP. As expected, sectors that were heavily taxed prior to the reform, as well as their suppliers, benefit the most. Yet, due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall. The reason is that their costs were reduced as a result of lower taxes on their suppliers and/or increased demand. Moreover, tax distortions were leading to a shorter and inefficient production chain as the reform significantly changed the linkage structure of the economy.
    Date: 2023–01
  6. By: Fotis Delis (European Commission, Joint Research Centre); Manthos D. Delis (Audencia Business School); Luc Laeven (European Central Bank (ECB); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))
    Abstract: We provide the first global estimates of profit shifting at the subsidiary-year level. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine the subsidiary-year responses of earnings to the composite tax indicator faced by all subsidiaries of a multinational firm. Our panel includes 26, 593 subsidiaries across 95 countries for the period 2009 2017. We extensively validate our results against aggregate estimates of previous studies and evidence from specific cases. We find that profit shifting decreased over this period in advanced economies but increased in other parts of the world where taxation policies are less stringent on average, consistent with tax arbitrage strategies. We also examine correlates of profit shifting, identifying that a key determinant is the subsidiaries’ ratio of intangible assets, and this channel is stronger in countries with weaker institutions. Both our new database and correlates open important avenues to analyze the sources and effects of profit shifting.
    Keywords: Profit shifting, multinational enterprises, nonparametric estimation, intangible assets, institutional quality, global sample
    JEL: F23 H25 H26 H32 M41
    Date: 2022–12
  7. By: Ruud A. de Mooij; Sebastian Beer
    Abstract: This paper develops a simple model to explore whether a higher detection probability for offshore tax evaders—e.g. because of improved exchange of information between countries and/or due to digitalization of tax administrations—renders it optimal for governments to introduce a voluntary disclosure program (VDP) and, if so, under what terms. We find that if the VDP is unanticipated, it is likely to be optimal for a revenue-maximizing government to introduce a VDP with relatively generous terms, i.e. a low or even negative penalty. When anticipated, however, the VDP is neither incentive compatible nor optimal, as it induces otherwise compliant taxpayers to evade tax. A VDP can then only be beneficial if tax evasion induces an external social cost beyond the direct revenue foregone, e.g., due to adverse effects on overall tax morale. In contrast to the common view that VDPs should come along with additional enforcement effort, we find that governments should relax enforcement if the VDP itself provides more powerful incentives to come clean.
    Keywords: Tax evasion; Voluntary disclosure program; Tax amnesty
    Date: 2023–01–13
  8. By: Tii N. Nchofoung (Ministry of Trade, Cameroon); Hervé Kaffo Fotio (University of Maroua, Cameroon); Clovis Wendji Miamo (University of Dschang, Cameroon)
    Abstract: There is substantial literature on the determinants of renewable energy consumption. This growing interest is related to the fact that renewable energy is not only one of the main drivers of greenhouse gas mitigation but also its contribution to the achievement of other sustainable goals. Despite this strategic role, the adoption level of renewable energy remains quite low. In this article, we address one of the determinants so far ignored by the literature, namely the environmental tax. This study, therefore, examines the effect of environmental taxes on the adoption of renewable technologies for 49 global samples between the 1996-2017 periods. The results through the FE Driscoll and Kraay, the Newey-West, the system GMM, and the quantile regression methodologies show that environmental tax increase the consumption of renewable energy. However, taking into account disparities in the level of development, the results suggest that the environmental tax spurs renewable energy technologies adoption in developed countries while it decreases renewable energy technologies adoption in developing countries. As policy implications, policymakers within this sample should consider the optimization of environmental taxation as a policy toward environmental protection. This would cause energy consumers to opt for renewable energy sources of energy to escape these taxes.
    Keywords: Green taxation; renewable energy; panel data; SDG7; environmental protection
    Date: 2023–01
  9. By: Franca Glenzer; Pierre-Carl Michaud; Stefan Staubli
    Abstract: Many near-retirees forgo a higher stream of public pension income by claiming early. We provide both quasi-experimental and survey-experimental evidence that the timing of public pension claiming is relatively inelastic to changes in financial incentives in Canada. Using the survey experiment, we evaluate the effect of two different educational interventions and different ways of framing the incentive to delay claiming. While all three types of interventions induce delays, these interventions have heterogeneous financial consequences for participants who react.
    Keywords: pension claiming; annuities; retirement; financial education; framing
    JEL: D91 H55 J14 J26
    Date: 2023
  10. By: A. Y. Aydemir
    Abstract: The optimal age that a retiree claims social security retirement benefits is in general a complicated function of many factors. However, if the beneficiary's finances and health are not the constraining factors, it is possible to formally derive mathematical models that maximize a well-defined measure of his total benefits. A model that takes into account various factors such as the increase in the benefits for delayed claims and the penalties for early retirement, the advantages of investing some of the benefits in the financial markets, and the effects of cost-of-living adjustments shows that not waiting until age 70 is almost always the better option. The optimal claiming age that maximizes the total benefits, however, depends on the expected market returns and the rate of cost-of-living adjustments, with the higher market rates in general pushing the optimal age lower. The models presented here can be easily tailored to address the particular circumstances and goals of any individual.
    Date: 2023–01

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