nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒04‒10
thirteen papers chosen by
Thomas Andrén

  1. The Effects of the Tax Cuts and Jobs Act on the Tax-Competitiveness of Multinational Corporations By Michael Overesch; Leon G. A. Reichert; Georg Wamser
  2. Tax planning and investment responses to dividend taxation By Koivisto, Aliisa
  3. Does capital bear the burden of local corporate taxes? Evidence from Germany By Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
  4. The changes to the Italian tax and welfare system implemented in 2022: fairness and efficiency profiles By Emanuele Dicarlo; Pasquale Recchia; Antonella Tomasi
  5. Coming Clean on Your Taxes By Sebastian Beer; Ruud de Mooij; Ruud A. De Mooij
  6. The importance of escape clauses. Firm response to thin capitalization rules By Martin Eckhoff Andresen; Lars Thorvaldsen
  7. The Economics of the Global Minimum Tax By Schjelderup, Guttorm; Stähler, Frank
  8. The South African personal income tax base, 2011-2018: Income and taxable income, adjusted for retirement fund and medical expense reporting changes By Andrew R. Donaldson
  9. Taxing Uber By David R. Agrawal; Weihua Zhao
  10. Was the German fuel discount passed on to consumers? By Mats Petter Kahl
  11. Taxing Financial Transactions: A Mirrleesian Approach By Rochet, Jean-Charles; Biais, Bruno
  12. Do Older Adults Accurately Forecast Their Social Security Benefits? By Grant M. Seiter; Sita Slavov
  13. Getting into the Nitty-Gritty of Fiscal Multipliers: Small Details, Big Impacts By José Federico Geli; Afonso S. Moura

  1. By: Michael Overesch; Leon G. A. Reichert; Georg Wamser
    Abstract: We exploit the 2017 US tax reform to learn about the tax-competitiveness of US multinational corporations (MNCs) relative to their international peers. Matching on the propensity score, we compare pairs of similar US and European firms listed on the S&P500 or StoxxEurope600 in a difference-in-differences setting. Our results suggest significantly lower effective tax rates of US MNCs compared to their European competitors after the US tax reform. Additional tests show (i) that US MNCs have gained substantially in what we call tax-competitiveness, (ii) that the reform effect is more pronounced for MNCs with a high share of domestic activity, and (iii) that the tax reform did not change the international tax-planning behavior of US MNCs. We provide evidence that US MNCs already successfully engaged in international tax planning prior to the reform, and this behavior is unchanged after the tax reform.
    Keywords: effective tax rate, tax reform, tax-competitiveness, tax avoidance, pair matching, difference-in-differences analysis, profit shifting
    JEL: H25 H26 K34
    Date: 2023
  2. By: Koivisto, Aliisa
    Abstract: This study explores how business owners respond to dividend taxes in different margins including tax planning and investment. I use administrative tax data on all privately held Finnish corporations and their main owners in 2006–2016. By using tax schedule discontinuities and changes in the schedule as variation, I find exceptionally clear dividend payment responses to tax rates. Evidence on the asset composition of firms indicates that a notable part of the payment response is due to inter-temporal income-smoothing, while changes in the tax schedule did not cause significant real responses in output or investment. Hence, dividend taxes capitalize into share values, as earnings are left in the firms to avoid higher dividend tax. In addition, studying the income composition of owners around tax changes reveals income-shifting between wage and dividends with negligible effect on gross income received from the firm.
    Keywords: dividend taxation, investment, income-shifting, bunching, Business taxation and regulation, G38, H21, H24, H25, fi=Verotus|sv=Beskattning|en=Taxation|,
    Date: 2023
  3. By: Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
    Keywords: Otax incidence, corporate tax, event study
    JEL: H22 H25
    Date: 2023
  4. By: Emanuele Dicarlo (Bank of Italy); Pasquale Recchia (Bank of Italy); Antonella Tomasi (Bank of Italy)
    Abstract: The paper presents the effects of two revision interventions of the Italian tax and benefits system implemented in 2022: (i) the introduction of the single and universal allowance for children (AUU); (ii) changes to the structure of personal income tax (IRPEF). Using BIMic, the static microsimulation model of the Bank of Italy, the analysis shows how the combined effect of the two interventions increases the progressivity of the system and reduces inequality (these effects are mainly attributable to the introduction of the AUU). The two changes - and in particular the intervention on personal income tax - also contribute to reducing the monetary disincentives to the supply of labour both at the extensive margin and at the intensive margin and contribute to mitigating the irregular trend of the effective marginal rates.
    Keywords: family policies, personal income tax, redistribution, efficiency, microsimulation
    JEL: H22 H23 H24 H31 C15 C63 H2 D31
    Date: 2023–03
  5. By: Sebastian Beer; Ruud de Mooij; Ruud A. De Mooij
    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
    JEL: H26
    Date: 2023
  6. By: Martin Eckhoff Andresen (Statistics Norway); Lars Thorvaldsen
    Abstract: Escape clauses, where small firms are exempt from particular tax rules, is a crucial feature of a number of corporate tax schemes, but creates incentives to avoid taxation by manipulating the measures that determine inclusion. We evaluate the impact of thin capitalization rules, which commonly feature such escape clauses, by exploiting the introduction of these rules in Norway in 2014. Combining difference-indifferences, regression discontinuity and bunching estimates, we show that what appears to be a strong response in the capital structure among exposed firms primarily reflect within-group reallocation of debt to avoid exposure to the rules through escape clauses. We observe sharp bunching among both new and existing subsidiaries at both thresholds for rule inclusion, and find that internal corporate group debt is offloaded to these bunching subsidiaries in order to avoid additional tax costs. As a result, significant and large effects on firm-level capital structure in response to the thin capitalization rules is driven by reshuffling of capital within corporate groups with little real effects. Re-estimating the difference-indifference specification at the corporate group level confirms this finding, questioning the extent to which thin capitalization rules have the intended effect due to the presence of escape clauses.
    Keywords: Thin capitalization rules; capital structure; escape clauses; difference-in-differences; bunching
    JEL: H25 H26 G30
    Date: 2023–02
  7. By: Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics); Stähler, Frank (Faculty of Economics and Social Sciences, University of Tübingen)
    Abstract: This paper shows that the OECD inclusive framework of Pillar Two fails to implement the claimed 15% minimum corporate tax for all subsidiaries of multinational corporations that are not shell companies. The reason is that the Substance-based Income Exclusion of Pillar Two allows to tax-deduct payroll costs and user costs of intangible assets twice from the tax base of the top-up tax. Employing a standard multinational firm model, we show that Pillar Two changes the employment, investment and import incentives. For a sufficiently large cost share of labor and/or capital, the Substance-based Income Exclusion is equivalent to a production subsidy.
    Keywords: Corporate taxation; BEPS; Pillar Two; minimum tax
    JEL: F23 F55 H25 H73
    Date: 2023–03–14
  8. By: Andrew R. Donaldson
    Abstract: Tax administration statistics now provide considerably more complete and reliable measures of South African personal income and its distribution than the available household or other survey sources. However, there are difficulties in using tax data across time, as both policy and reporting changes influence the administrative statistics of income.
    Keywords: Income distribution, Personal income tax, Statistics
    Date: 2023
  9. By: David R. Agrawal; Weihua Zhao
    Abstract: Ride-hailing applications create new challenges for governments providing transit services, but also create new opportunities to raise tax revenue. To shed light on the effect of taxing or subsidizing ride-hailing applications, we extend a pseudo-monocentric city model to include multiple endogenously chosen transportation modes, including ride-hailing applications and endogenous car ownership. We show that most tax and spending programs that cities have currently adopted mildly increase public transit usage. However, the model predicts more significant increases in public transit ridership when ride-hailing applications are subsidized as a “last-mile” provider. Our model indicates that whether ride-hailing services and public transit are substitutes or complements is a policy choice.
    Keywords: ride-hailing, taxation, public transit, traffic congestion, optimal tolls
    JEL: C60 H25 H71 L88 L98 R41 R51
    Date: 2023
  10. By: Mats Petter Kahl (Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre)
    Abstract: In this article, I analyze whether German gasoline stations passed on the gasoline tax reduction to consumers. I use a difference-in-differences approach with France as the control group, as well as data for all countries in the European Union. The German fuel discount was in effect from June to August 2022. It was intensely debated in the general public whether German gasoline stations had increased prices before the tax reduction. Such a price increase would have made it easier for gasoline stations to disguise a price increase. Further questions follow: How long did it take for the full tax reduction to be passed on to consumers? Did gasoline stations reduce the pass-on after a few weeks? As I am the first to use complete French and German high-frequency data for the entire treatment period, I can examine how the pass-through of the tax cut evolved over time. I find substantial variance in pass-through rates over time. The average pass-through is very high but remains incomplete for all fuel types.
    Keywords: pass-through, gasoline market, tax reduction, fuel taxes, petrol prices
    JEL: H22 L13 L41
    Date: 2023–03
  11. By: Rochet, Jean-Charles; Biais, Bruno
    Abstract: Taxing financial transactions is often advocated for Pigouvian reasons, when financial speculation is supposed to generate inefficiencies. We adopt instead a Mirrleesian approach, and study the optimal taxation of financial transactions when financial markets are efficient, but the tax system is imperfect, due to asymmetric information. In our model, financial transactions are used by entrepreneurs to hedge shocks on their skills, in line with the New Dynamic Public Finance literature. Entrepreneurs privately observe their skills, but trades in financial markets are publicly observable. The optimal mechanism maximizes a convex combination of utilitarian welfare and Rawlsian criterion, subject to feasibility and incentive constraints. Entrepreneurial projects are subject to liquidity shocks, which can be smoothed by conducting financial transactions. Better skilled entrepreneurs’ projects have larger expected profits, but also larger shocks. Trades therefore signal skills, implying it is optimal to tax financial transactions, in addition to capital income and wealth.
    Date: 2023–03–03
  12. By: Grant M. Seiter; Sita Slavov
    Abstract: How accurate are older people’s expectations about their future Social Security benefits? Using panel data from the Health and Retirement Study, we compare respondents’ observed Social Security claiming ages and benefits with subjective expectations provided during their 50s and early 60s. We find that, while older adults generally have accurate expectations about their claiming age, they underestimate their annual Social Security income by approximately $1, 896 (11.5 percent) on average. However, both accuracy and precision increase with age, and the forecast error for people in their early 60s is not statistically different from zero. Exploiting plausibly exogenous variation in the mailing of Social Security statements, which contain personalized information about future benefits, we show that information provision reduces the forecast error in annual income by $344 (2.1 percent of the average benefit).
    JEL: E21 H55 J14 J26
    Date: 2023–03
  13. By: José Federico Geli; Afonso S. Moura
    Abstract: Despite the remarkable progress the literature has made throughout the past years in studying fiscal multipliers, estimates still vary considerably across studies. Partly, estimates differ because of context-specific variables that affect multipliers, but also because of the lack of a standardized framework to calculate and report them, making comparisons among studies hard to make. In this paper, we use a large panel of countries to study how some important methodological details affect the empirical estimates. Focusing on emerging economies, we show how slight changes in the filtering approach of fiscal forecast errors or the accumulation procedure of responses can significantly impact estimates. We emphasize that one of the most important features of estimating multipliers is the endogenous dynamic responses of fiscal variables to fiscal shocks, and therefore we argue against reporting multipliers as simply the output response to exogenous fiscal innovations. Although our baseline results are in line with the previous studies, our standardized framework allow us to make fairer comparisons of multiplier estimates across budgetary items and country income groups.
    Keywords: Fiscal policy; Fiscal multipliers.; multiplier estimate; estimating multiplier; government investment multiplier; empirical estimate; multiplier definition; fiscal shock; Public investment spending; Fiscal multipliers; Personal income tax; Consumption
    Date: 2023–02–10

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