nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒03‒20
eleven papers chosen by
Thomas Andrén

  1. Effect of Tax Cut on Investment: Evidence from Indian Manufacturing firms. By Hussain, Adam
  2. Corporate Taxes and Economic Inequality: A Credit Channel By Delis, Manthos; Galariotis, Emilios; Iosifidi, Maria
  3. A Strategic Tax Mechanism By Giorgos Stamatopoulos
  4. Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates By Ben Lockwood; Martin Simmler; Eddy H.F. Tam; Benjamin Lockwood
  5. The effect of pension wealth on employment By Sebastian Becker; Hermann Buslei; Johannes Geyer; Peter Haan
  6. Can Tax Incentives Bring Brains Back? Returnees Tax Schemes and High-Skilled Migration in Italy By Jacopo Bassetto; Giuseppe Ippedico
  7. How Do Corporate Tax Hikes Affect Investment Allocation within Multinationals? By Antonio De Vito; Martin Jacob; Dirk Schindler; Guosong Xu
  8. Effects of the Expanded Child Tax Credit on Household Expenditures:Preliminary Intent-to-Treat Estimates from the Consumer Expenditure Survey By Sophie M. Collyer; Thesia Garner; Neeraj Kaushal; Jiwan Lee; Jake Schild; Jane Waldfogel; Christopher T. Wimer
  9. Why does education expenditure differ across countries? The role of income inequality, human capital and the inclusiveness of education systems By Debora Di Gioacchino; Laura Sabani; Stefano Usai
  10. The Debt-to-GDP Ratio as a Tool for Debt Management: Not Good for LICs By J. Atsu Amegashie
  11. The Employment Effects of Generous and Unconditional Cash Support By Xavier Ramos; Timo Verlaat; Federico Todeschini

  1. By: Hussain, Adam (National Institute of Public Finance and Policy)
    Abstract: Does a reduction in the corporate income tax rate trigger investments in developing countries? This paper answers this question in a difference in differences framework. Using firm-level data on Indian manufacturing firms. I study the effect of the 2019 and 2020 Indian tax reform that reduced the corporate income tax rate for domestic firms by 5%. I find that the reduction in corporate income tax led to a significant increase in the investments of domestic firms. The magnitude of the effect is found to be stronger for large domestic firms than the smaller ones. These results imply that the corporate income tax cuts can increase investment in developing countries and large domestic firms benefit more than small firms from a tax cut.
    Keywords: Investment ; Corporate tax ; Indian manufacturing firms
    JEL: G31 H25 H71
    Date: 2023–02
  2. By: Delis, Manthos; Galariotis, Emilios; Iosifidi, Maria
    Abstract: Corporate taxation can have redistributive effects on income and wealth. We hypothesize and empirically establish such an effect working via bank credit. Using a unique sample of majority-owned firms that apply for credit, we show that after a decrease in corporate tax rates the relative-ly poor get easier access to credit. However, this policy also considerably increases loan amounts and decreases loan spreads for the relatively rich. Ultimately, reducing the corporate tax rate pre-dominantly increases the future income and wealth of relatively rich business owners.
    Keywords: Corporate taxes; Economic inequality; Bank credit; Credit score
    JEL: D63 G20 G21 H25
    Date: 2023–02–19
  3. By: Giorgos Stamatopoulos (Department of Economics, University of Crete, Greece)
    Abstract: We analyze a novel tax mechanism in imperfectly competitive markets. The government announces an excise tax rate and auctions-off a number of tax exemptions. Namely, it invites the firms in a market to acquire the right to be exempted from the excise tax. The highest bidders are exempted by paying their bids; and all other firms remain subject to it.
    Keywords: commodity tax; tax exemption; auction; entry
    JEL: H25 L13
    Date: 2023–02–02
  4. By: Ben Lockwood; Martin Simmler; Eddy H.F. Tam; Benjamin Lockwood
    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: H25 H32 R30 R38
    Date: 2023
  5. By: Sebastian Becker; Hermann Buslei; Johannes Geyer; Peter Haan
    Abstract: This study provides novel evidence about the pension wealth elasticity of employment. For the identification we exploit reform-induced variation of pension wealth that is related to the number of children but which does not affect the implicit tax rate of employment. We use a difference-in-differences estimator based on administrative data from the German pension insurance and find that, on average, the negative employment effect of pension wealth is significant and economically important. Heterogeneity analyses document a strong age pattern showing that the employment effects are driven by behavioral responses of women close to retirement. The age pattern is partly explained by the positive effect of pension wealth on disability pensions after the age of 60.
    Keywords: pension reform, pension wealth elasticity, female labour supply, retirement, differences in differences
    JEL: H55 J13 J21 J26
    Date: 2023–01–03
  6. By: Jacopo Bassetto; Giuseppe Ippedico
    Abstract: Brain drain is a growing concern for many countries experiencing large emigration rates of their highly educated citizens. While several European countries have designed preferential tax schemes to attract high-skilled individuals, there is limited empirical evidence on the effectiveness of fiscal incentives in a context of brain drain, and on migration responses beyond top earners. In this paper we investigate the effects of the Italian 2010 tax scheme “Controesodo”, which granted a generous income tax exemption to young high-skilled expatriates who relocate to Italy. Eligibility requires a college degree as well as being born in 1969 or later, which creates suitable quasi-experimental conditions to identify the effect of tax incentives. Using a Triple Difference design and administrative data on return migration, we find that eligible individuals are 27% more likely to move back to Italy post-reform. Additionally, using social security data from the main origin country of Italian returnees (Germany), we uncover significant effects throughout the wage distribution, suggesting that mobility in response to tax incentives is a broad phenomenon not limited to top earners. A cost-benefit analysis reveals that the direct fiscal impact of the reform – a lower bound of the total effect in the presence of human capital externalities – is marginally positive, by virtue of the tax scheme targeting young high-skilled individuals.
    JEL: J60 H20 F22
    Date: 2023
  7. By: Antonio De Vito; Martin Jacob; Dirk Schindler; Guosong Xu
    Abstract: This paper studies how corporate tax hikes transmit across countries through multinationals’ internal networks of subsidiaries. We build a parsimonious multicountry model to underscore two opposing spillover effects: While tax competition between countries generates positive investment spillover, intra-firm production linkages predict negative spillover. Using subsidiary-level data and exogenous corporate tax hikes, we find that local business units cut investment by 0.4% for a 1% increase in foreign corporate tax. This result highlights the importance of production linkages in propagating foreign tax shocks, as the supply-chain-induced negative spillover dominates the positive spillover effect suggested by the conventional wisdom of tax competition.
    Keywords: tax hike, investment, internal networks, multinationals, spillover effects
    Date: 2023
  8. By: Sophie M. Collyer; Thesia Garner; Neeraj Kaushal; Jiwan Lee; Jake Schild; Jane Waldfogel; Christopher T. Wimer
    Abstract: /2022/ec220040.htm
    Date: 2022
  9. By: Debora Di Gioacchino; Laura Sabani; Stefano Usai
    Abstract: This paper provides a simple model of hierarchical education to study the political determinants of the public education budget and its allocation between different stages of education (basic education and advanced education). The model integrates private education decisions by allowing parents, who are differentiated according to income and human capital, to opt out of the public system and enrol their offspring at private universities. Majority voting decides the size of the budget allocated to education and the expenditure composition. The model exhibits a potential for multiple equilibria and 'low education' traps. Income inequality, the distribution of the adult population's human capital and the inclusiveness of the education system play a fundamental role in deciding the equilibrium public education budget and its allocation between different tiers of education. The main predictions of the theory are broadly consistent with cross-country evidence collected for OECD countries and help to explain why some OECD countries, such as Italy, seem to remain stuck in a 'low education' equilibrium.
    Keywords: Education Funding; Political Economy; Majority Voting; Opting Out; Income Inequality; Redistribution
    JEL: H23 H26 H42 H52 I28
    Date: 2023–02
  10. By: J. Atsu Amegashie
    Abstract: There have been criticisms of debt sustainability analysis in general, including the IMF’s own evaluation of the usefulness of its debt sustainability methodology (e.g., IMF, 2017). This paper’s focus is narrow. On the basis of theoretical arguments and empirical evidence, it argues that the debt-to-GDP ratio is a poor metric for debt management in low-income countries (LICs). It makes a case for explicit revenue-based metrics of debt management. In LICs or countries with weak institutions, the debt-to-GDP may be manipulated by understating the stock of debt, resorting to dubious accounting methods, and there is a weak correlation between GDP and revenue as result of inefficiencies in the tax administration and a large informal sector. It is also arelatively inefficient predictor of debt distress. Other reasons are given in the paper.
    Keywords: debt-to-GDP ratio. debt service-to-revenue ratio, debt sustainability, liquidity, solvency
    JEL: H63 E62
    Date: 2023
  11. By: Xavier Ramos (Universitat Autònoma de Barcelona); Timo Verlaat (Utrecht University); Federico Todeschini (Universitat Pompeu Fabra)
    Abstract: While unconditional cash transfers have been studied extensively in developingcountries, little is known about their effects in a wealthier context. Through arandomized controlled trial, we study the employment effects of a generous andunconditional transfer targeting low-income families in Spain. Two years into theprogram, subjects assigned to treatment are 20 percent less likely to work thansubjects assigned to a control group. Assignment to an activation plan does notattenuate adverse effects; a more lenient transfer withdrawal rate does. It appearsthat effects are driven by subjects with children, suggesting substitution of labourfor care tasks.
    Keywords: welfare reform, cash transfer, basic income, policy evaluation, RCT
    JEL: C93 H53 I38 J64
    Date: 2023–03

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