nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒03‒13
fifteen papers chosen by
Thomas Andrén

  1. The design of presumptive tax regimes By Mariona Mas-Montserrat; Céline Colin; Eugénie Ribault; Bert Brys
  2. Optimal Fiscal Reform with Many Taxes By Daniel R. Carroll; Andre Luduvice; Eric R. Young
  3. Public transportation, fare policies and tax salience. By María Cervini-Plá; Mariona Tomàs; Javier Vázquez-Grenno
  4. Effects of Corporate Transparency on Tax Avoidance: Evidence from Country-by-Country Reporting By Tijmen Tuinsma; Kristof De Witte; Petr Janskı; Miroslav Palanskı; Vitezslav Titl
  5. Dynamic Tax Evasion and Growth with Heterogeneous Agents By Francesco Menoncin; Andrea Modena
  6. Tax Avoidance and the Complexity of Multinational Enterprises By Manon Francois; Vincent Vicard
  7. A Welfare and Pass-Through Effects of Regulations within Imperfect Competition By Alali, Walid Y; Ellalee, Haider
  8. Tax exile versus legitimate taxation By Jean-Marie Monnier
  9. The Economic Consequences of Effective Carbon Taxes By Felix Kapfhammer
  10. Euro Area inflation differentials: the role of fiscal policies revisited By Checherita-Westphal, Cristina; Leiner-Killinger, Nadine; Schildmann, Teresa
  11. Marriage, Labor Supply and the Dynamics of the Social Safety Net By Hamish Low; Costas Meghir; Luigi Pistaferri; Alessandra Voena
  12. Usage of Automatic Valuation Models for taxation purposes: a case study in Greece By Dimitris Karlis; Dimitrios Papastamos; Dimitrios Andritsos
  13. Population ageing and the public finance burden of dementia: A simulation analysis By María Noel Pi Alperin; Magali Perquin; Gastón A. Giordana
  14. Major Issues in Categorizing Small Businesses: Supporting Small Businesses through Improved Categorization By Gil, Eunsun
  15. Chile: Technical Assistance Report-An Evaluation of Improved Tax Options By International Monetary Fund

  1. By: Mariona Mas-Montserrat; Céline Colin; Eugénie Ribault; Bert Brys
    Abstract: Presumptive tax regimes, also known as simplified tax regimes, simplify the tax compliance process for micro and small businesses. By reducing tax compliance costs and levying lower tax rates compared to the standard tax system, these regimes aim at encouraging business formalisation and compliance. They are particularly useful in situations where actual taxable income is difficult to quantify as a taxpayer’s tax base is determined using alternative indicators. Although these regimes exist in many tax systems, they vary greatly in their design. This OECD working paper provides an analytical framework for characterising and comparing these regimes. It also highlights key design aspects that deserve further consideration and lists a series of best practices on the design and administration of these regimes.
    Keywords: micro and small business taxation, presumptive tax regimes, simplified tax regimes, tax policy design
    JEL: H25
    Date: 2023–02–14
  2. By: Daniel R. Carroll; Andre Luduvice; Eric R. Young
    Abstract: We study the optimal one-shot tax reform in the standard incomplete markets model where households differ in their wealth, earnings, permanent labor skill, and age. The government can provide transfers by raising tax revenue and has several tax instruments at its disposal: a flat capital income tax, a flat consumption tax, and a non-linear labor income tax. The optimal fiscal policy funds a transfer that is nearly 50 percent of GDP through a combination of very high taxes on consumption and capital income. The labor tax schedule has a high average rate but is also moderately progressive. We find an identical outcome when policy is instead determined by majority voting. Finally, we offer suggestive empirical evidence that households’ preferences for tax and redistribution are more strongly associated with political identity than economic status.
    Keywords: Optimal Taxation; Inequality; Heterogeneous Agents; Incomplete Markets; Voting
    JEL: E62 E21 D72 H21
    Date: 2023–02–09
  3. By: María Cervini-Plá (Universitat Autònoma de Barcelona and EQUALITAS); Mariona Tomàs; Javier Vázquez-Grenno (Universitat de Barcelona and IEB)
    Abstract: This paper empirically tests whether property owners react to the salience of taxes in terms of their consumption of public services. Exploiting a policy change that reduced fares on public transport in various municipalities of the metropolitan area of Barcelona, we find that salience of the tax to finance the fare reduction increases the consumption of public transportation. Our empirical findings support the hypothesis that the salience of taxes may affect the consumption behavior of taxpayers and our main results contribute to previous empirical evidence relating tax salience and consumption behavior regarding public services.
    Keywords: Tax salience, Public transportation, Fare policy
    JEL: D12 H24 R41 R48
    Date: 2022
  4. By: Tijmen Tuinsma (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium.); Kristof De Witte (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & UNU-MERIT, Maastricht University, Maastricht, The Netherlands.); Petr Janskı (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Miroslav Palanskı (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Vitezslav Titl (Leuven Economics of Education Research, Katholieke Universiteit Leuven, Leuven, Belgium & Utrecht University School of Economics, Utrecht University, Utrecht, The Netherlands.)
    Abstract: Private Country-by-Country Reporting (CbCR) is a measure against tax avoidance by large multinationals, implemented throughout the EU in 2016. Multinational companies with an annual revenue over EUR 750 million have been required to report their global activities on a country-by-country basis to tax authorities. Using this cutoff in a sharp regression discontinuity design, we find causal evidence for an increase in effective tax rates for affected companies, indicating an increase in tax compliance. We estimate the increase in effective tax rates at 5 to 6 percentage points locally. However, significant cross-sectional variation is present: the most aggressive multinationals with tax haven affiliates are at most moderately affected, while almost the full effect is concentrated in medium-aggressive firms. From a policy perspective, the results suggest that while CbCR was effective in combating some forms of tax avoidance, profit shifting opportunities in tax havens mostly negate this effect.
    Keywords: corporate tax avoidance, tax havens, financial transparency
    JEL: F23 H25 H26
    Date: 2023–02
  5. By: Francesco Menoncin; Andrea Modena
    Abstract: We develop a tractable model of a production economy in which public capital improves aggregate productivity and the taxpayers have heterogeneous evasion opportunities. We show that, by issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. Moreover, we demonstrate that a higher share of tax evaders reduces the economy’s total factor productivity but has a hump-shaped relationship with the growth rate of aggregate capital.
    Keywords: Dynamic tax evasion; general equilibrium; growth; heterogeneous agents
    JEL: E20 G11 H26
    Date: 2023–02
  6. By: Manon Francois; Vincent Vicard
    Abstract: Does the complexity of the ownership structure of multinational enterprises' (MNEs) serve tax avoidance? We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to bunch around zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results show that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern.
    Keywords: Complexity;Firm organization;Multinational enterprises;Profit shifting;Tax avoidance
    JEL: F23 H2 L22
    Date: 2023–02
  7. By: Alali, Walid Y; Ellalee, Haider
    Abstract: Abstract: This paper furnishes an inclusive framework to examine the welfare effects of the interventions of multiple policies, and other exterior alterations under imperfect competition and an assertion on particular and .the leading case of the ad valorem taxes. In particular, for the tax pass-through, we furnish ‘‘sufficient statistics” equations for measures of the two welfare under the demand of the impartially general class, market competition and production cost. The measures are i) Public fund of the marginal value, ii) Incidence. We start with the status of symmetric firms' face up with both ad valorem taxes and unit tax to derive an empirically pertinent set of formulas and simple. Next, we make a substantial generalization of these results to include firm heterogeneity using the idea of tax revenue defined as a public function defined by a vector of policy instruments including governmental and non-governmental interventions and other non-tax costs.
    Keywords: Imperfect Competition, Pass-through, Marginal Value of Public, Funds, Incidence, Sufficient Statistics
    Date: 2022
  8. By: Jean-Marie Monnier (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The anti-tax argument has coalesced in recent years on the issue of tax exile considered as the symptom of tax persecution of the rich. The article aims to show that this approach ignores the nature of the relationship between the State and each individual tax-payer. Tax is not linked to the advantages that each citizen derives from public action nor from the individual appreciation of each to take charge of public financing needs. Secondly it recalls that tax progressivity must make it possible not to tax the subsistence minimum and that in reality, those who are avertaxed are at the bottom of the income range. Finally, there is no tax exile and tax expatriation stems from a desire to free oneself from national rules and take advantage of the competitive game between countries.
    Abstract: L'argumentaire anti-fiscal s'est coagulé ces dernières années autour de la question de l'exil fiscal considéré comme le symptôme d'une persécution fiscale des riches. L'article vise à montrer que cette approche méconnait la nature des relations entre le fisc et le contribuable individuel. Dans un premier temps, il montre qu'il n'y a pas de contrat marchand entre l'Etat et chaque contribuable individuel. L'impôt n'est pas lié aux avantages que retire chaque citoyen de l'action publique ni de l'appréciation individuelle de chacun à prendre en charge les besoins publics de financement. Dans un second temps on rappelle que la progressivité doit permettre de ne pas taxer le minimum de subsistance et que dans la réalité, ceux qui sont surimposés se situent dans le bas de l'éventail des revenus. Finalement, il n'y a pas d'exil fiscal et l'expatriation fiscale procède d'une volonté de s'affranchir des règles nationales et profiter du jeu concurrentiel entre pays.
    Keywords: tax evasion, tax exile, tax justice, tax policy, evasion fiscale, exil fiscal, justice fiscale, politique fiscale
    Date: 2022
  9. By: Felix Kapfhammer
    Abstract: This paper studies the economic consequences of carbon taxes at the macroeconomic and sectoral level. I propose a novel monthly measure of effective carbon tax rates, which, in contrast to the measures used by the existing literature, accounts for the time-varying emission coverage of taxes that are both explicitly and implicitly levied on greenhouse gas-emitting goods. Employing the new measure for four Nordic countries, I find that effective carbon taxes reduce emissions as expected but also decrease macroeconomic and sectoral activity - though there is some heterogeneity in the effects within and across the Nordic countries.
    Date: 2023–01
  10. By: Checherita-Westphal, Cristina; Leiner-Killinger, Nadine; Schildmann, Teresa
    Abstract: This paper provides a comprehensive empirical analysis of the role of discretionary fiscal policy for inflation differentials across the 19 euro area countries over the period 1999-2019. The results confirm existing (older) literature that it is difficult to find robust evidence of the fiscal policy stance or impulse impacting directly on inflation differentials. We do find, however, support for an indirect effect of discretionary fiscal policy on inflation differentials working through the output gap channel. There is also some evidence that fiscal policy may be especially potent in influencing inflation differentials – with fiscal tightening cooling (and fiscal expansion increasing) inflation pressures – when the economy is above its potential. Finally, going from the overall fiscal stance or impulse to individual fiscal instruments, we find that value added tax (VAT) rate changes and public wage growth are statistically significant determinants of inflation differentials in our sample. JEL Classification: E31, E62, E63, F45
    Keywords: fiscal policy, inflation differentials, public wages, tax policy
    Date: 2023–02
  11. By: Hamish Low (University of Oxford and IFS); Costas Meghir (Cowles Foundation, Yale University); Luigi Pistaferri (Stanford University, NBER, CEPR and SIEPR); Alessandra Voena (Stanford University, NBER, CEPR and SIEPR)
    Abstract: The 1996 US welfare reform introduced time limits on welfare receipt. We use quasi-experimental evidence and a lifecycle model of marriage, divorce, program participa-tion, labor supply and savings to understand the impact of time limits on behavior and well-being. Time limits cause women to defer claiming in anticipation of future needs, an effect that depends on the probabilities of marriage and divorce. Time limits cost women 0.5% of life-time consumption, net of revenue savings redistributed by reduced taxation, with some groups affected much more. Expectations over future marital status are important determinants of the value of the social safety net.
    Keywords: Time limits, Welfare reform, Life-cycle, marriage and divorce, time limits, limited commitment, intrahousehold allocations
    JEL: D91 H53 J12 J21
    Date: 2022–12
  12. By: Dimitris Karlis; Dimitrios Papastamos; Dimitrios Andritsos
    Abstract: The usage of Automated Valuation Models for taxation purposes has been discussed extensively at the past. Here we work in detail such an approach for Greece. In Greece, taxation is based on a system of zones. Each property belongs to one and only zone, and then from an initial objective value per square meter and with the use of certain coefficients one adjusts and calculates the objective value for each property. This value is used further for taxation and other purposes. There is always a big question/debate whether such values represent the market values of the properties (or they approach them at least) leaving aside of course discussion about taxation policies of the government. Triggered by the recent update of the zone values, we attempt to compare those values with market values obtained, based on historical data, via our AVM. The scope is to examine the plausibility and realism for the existing system as well as to demonstrate potential improvement if somebody needs to keep using such an approach. Our results show that there is a huge number of zones with rather impossible low values, below the average cost of building a new property as well as problems in the coefficients used to adjust the characteristics of the property. In general the objective values underestimate the market values in a great extend. Further discussion and suggestions for improvements is made.
    Keywords: automatic valuation models; Taxation
    JEL: R3
    Date: 2022–01–01
  13. By: María Noel Pi Alperin; Magali Perquin; Gastón A. Giordana
    Abstract: This paper uses long-term population projections to study the evolution of dementia in Luxembourg through 2070, as well as its impact on public expenditure through healthcare and long-term care. We extend the Giordana and Pi Alperin (2022) model by adding an algorithm to identify individuals suffering from dementia. This allows us to simulate dementia prevalence among individuals aged 50 and more in several scenarios incorporating alternative hypotheses about risk factors, new treatments and comorbidities (including long-run effects of COVID-19). Public health policies reducing stroke and hypertension risk could lower dementia prevalence by 17% and public expenditure on healthcare for dementia patients by a similar amount. A new treatment extending the mild dementia phase could nearly double prevalence and possibly triple the associated healthcare costs. Finally, past exposure to COVID-19 could raise prevalence by 12% to 24% in the medium term and public expenditure on dementia healthcare by 6% to 12%. Public expenditure on long-term care for dementia patients would increase even more, generally doubling by 2070.
    Keywords: Dementia, Dynamic micro-simulation, Healthcare, Health-related public expenditure, Long-term care, Luxembourg, SHARE
    JEL: D3 H30 I10 I12 I13 I18
    Date: 2023–01
  14. By: Gil, Eunsun (Korea Institute for Industrial Economics and Trade)
    Abstract: The Korean government is considering providing a fourth round of disaster relief funding to support small businesses hard-hit by the prolonged social distancing measures implemented to contain the spread of COVID-19. However, determining which businesses should benefit from this support is quite tricky. Legal business entities such as microenterprises and privately-owned companies are not the same as struggling, self-employed small businesses. During the second and third rounds of support, only privately-owned microenterprises were eligible for relief. The amount of financial support available varied depending on whether businesses were ordered to limit the number of customers, had restrictions placed on business hours, or suffered losses in revenue. Small business establishments categorized neither as microenterprises nor as privately-owned companies have been excluded from receiving support, regardless of the economic hardship they face. Moreover, privately-owned microenterprises (many of which are far from being small businesses with narrow operating margins) are not excluded from receiving support. This paper explores proposals for policy that would address these issues to ensure greater equity in COVID-19 disaster relief.
    Keywords: COVID-19; Korea; subsidies; subsidy policy; support policy; small businesses; SMEs; small and medium-sized enterprises; policy support; disaster relief; disaster relief policy; stimulus policy; disaster aid; COVID-19 relief; bailouts; credits; loan guarantees; government loans
    JEL: H12 H20 H25 H81 H84 L50 L53
    Date: 2021–02–19
  15. By: International Monetary Fund
    Abstract: At the request of the Chilean Minister of Finance, a team from the IMF Fiscal Affairs Department (FAD) conducted a capacity development mission in Santiago to evaluate options to improve green taxes in Chile, as part of a general tax reform presented to Congress in July 2022. The mission reviewed existing carbon taxes in the country, including revenue performance, coverage, and selected design issues. It also discussed changes to green taxes that will take effect in 2023, as well as new mitigation tools introduced in the Framework Law on Climate Change. The mission presented the authorities with four different carbon pricing reform scenarios that would bring Chile closer to or in line with its Nationally Determined Contribution (NDC) for 2030, and the legally binding net-zero pledge for 2050. The mission also stated that additional measures under all proposed scenarios, such as improved energy efficiency policies, introduction of feebates schemes and faster adoption of low and zero emission sources for transport, power, and industry, would further contribute to achieve climate goals. The mission used the Climate Policy Assessment Tool (CPAT) to perform the analysis. The tool was subsequently transferred to the authorities through a four-day hands-on capacity development workshop, which was attended by officials from the Ministries of Finance, Energy, Environment, and Transportation.
    Keywords: Climate mitigation policy carbon pricing carbon taxation climate change emissions energy; IMF Fiscal Affairs Department; Ministry of Finance staff; Ministry of Environment discussion; output price increase; C. energy price; Carbon tax; Greenhouse gas emissions; Climate policy; Global; Caribbean; Western Hemisphere
    Date: 2023–01–19

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