nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒04‒17
eleven papers chosen by
Thomas Andrén

  1. Optimal Tax Administration Responses to Fake Mobility and Underreporting By Alejandro Esteller-Moré; Umberto Galmarini
  2. Budget-Neutral Capital Tax Cuts By Frédéric Dufourt; Lisa Kerdelhué; Océane Piétri
  3. Does going cashless make you tax-rich? Evidence from India's demonetization experiment By Satadru Das; Lucie Gadenne; Tushar Nandi; Ross Warwick
  4. Asymmetric Double Tax Treaties and FDI in Developing Countries: The Role of the Relief Method and Tax Sparing By Shehaj, Pranvera; Zagler, Martin
  5. Tax-Price Elasticities of Charitable Giving and Selection of Declaration: Panel Study of South Korea By Hiroki Kato; Tsuyoshi Goto; Youngrok Kim
  6. Negative Tax Incidence with Multiproduct Firms By Anna D’Annunzio; Antonio Russo
  7. How to improve tax compliance? Evidence from population-wide experiments in Belgium By De Neve, Jan-Emmanuel; Imbert, Clement; Spinnewijn, Johannes; Tsankova, Teodora; Luts, Maarten
  8. Informality, Consumption Taxes and Redistribution By Pierre Bachas; Lucie Gadenne; Anders Jensen
  9. The Offshore World According to FATCA: New Evidence on the Foreign Wealth of U.S. Households By Niels Johannesen; Daniel Reck; Max Risch; Joel Slemrod; John Guyton; Patrick Langetieg
  10. Working Longer, Working Stronger? The Forward-Looking Effects of Increasing the Retirement Age on (Un)employment Behaviour By Niklas Gohl
  11. Tax elimination on terminal handling charges of the sectoral importers: assessing the economic effects in Brazil By Betarelli Junior, Admir Antonio; Domingues, Edson; Faria, Weslem; Magalhães, Aline; Proque, Andressa

  1. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell’Insubria & IEB)
    Abstract: In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment.
    Keywords: Personal taxation; Residence principle; Tax avoidance; Tax competition; Tax administration; Tax havens; Taxation of the rich; Leviathan governments
    JEL: H21 H24 H26 H73
    Date: 2023
  2. By: Frédéric Dufourt (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Lisa Kerdelhué (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, Centre de recherche de la Banque de France - Banque de France); Océane Piétri (University of Konstanz)
    Abstract: We revisit the canonical policy of eliminating capital taxation by increasing labor taxation in a endogenous-labor, heterogeneous-agent model with income and wealth heterogeneity, when the government is subject to a strict (per-period) balanced-budget constraint. By contrast with its non-budget neutral equivalent-associated with a constant tax rate over time and a permanent increase in the level of public debt-we show that the obtained endogenous path for the labor tax rate is sharply increasing in the initial period and decreasing over time. The policy then generates a deeper recession in the short-run and a greater expansion in the long-run, as well as a smaller decline in wealth inequality associated with a reduced incentive to save for precautionary motives. Overall, the policy still generates significant losses in average welfare.
    Keywords: Fiscal Policy, Capital Tax Cut, Tax Composition, Heterogeneous Agents, Wealth Redistribution
    Date: 2022–06
  3. By: Satadru Das (Reserve Bank of India); Lucie Gadenne (Queen Mary University of London); Tushar Nandi (Indian Institute of Science Education and Research (IISER)); Ross Warwick (Institute for Fiscal Studies)
    Abstract: This paper investigates the effect of electronic payment technology on tax compliance in a large developing economy. We consider India's demonetization policy which, by limiting cash availability, led to a large increase in the use of electronic forms of payments. Using administrative data on firms' tax returns and variation in the strength of the demonetization shock across local areas, we find that greater use of electronic payments leads to firms reporting more sales to the tax authorities. Our estimates imply that the shift to electronic payments increased reported sales by 5% despite demonetization's negative effect on economic activity.
    Keywords: tax compliance, electronic payments, demonetization
    JEL: H26 O23 H25
    Date: 2022–10–21
  4. By: Shehaj, Pranvera; Zagler, Martin
    Abstract: This study focuses on asymmetric tax treaties and investigates the impact of OECD member states’ double tax relief method and of treaty tax sparing provisions on investments in developing countries, while considering network effects. In addition, it analyses the impact of a residence country’s tax relief method on the source country’s tax policy. Our results suggest that having a treaty between the OECD member state and the developing country, which improves the investor’s conditions in terms of tax burden by changing the unilateral tax relief method, increases FDI to the developing country. The positive effect prevails when investigated within investments made through the direct route from home to host. Furthermore, results suggest that OECD member states offer tax sparing provisions mostly to less-developed economies, which already receive very low, if any, foreign direct investment. Finally, we find that developing countries set higher CIT when the OECD member state relieves double taxation through the exemption method, as compared to when it offers a foreign tax credit, while the inclusion of tax sparing agreements has a positive effect on the CIT.
    Keywords: Finance,
    Date: 2023
  5. By: Hiroki Kato (Graduate School of Economics, Osaka University, Osaka, Japan); Tsuyoshi Goto (Graduate School of Social Sciences, Chiba University, Chiba, Japan); Youngrok Kim (Research Institute for Socionetwork Strategies, Kansai University, Osaka, Japan)
    Abstract: This study estimates the tax-price elasticity of donations, considering the bias caused by the fact that the claim of tax incentives for charitable giving depends on the taxpayer’s decision. We first present a way to eliminate this bias by supporting the intention-to-treat analysis. We then estimate the price elasticity by our method, using exogenous variation in tax incentives due to the 2014 tax reform in South Korea. We find that a 1% increase in donation prices reduces donor contributions by 1.6% and the donor ratio by 2.6%. Next, we use the control function approach, one of the instrumental variable methods, to examine how endogeneity from the decision to use tax incentives biases the estimation of price elasticity. We find that those with large amounts of charitable giving without tax incentives do not declare their giving, leading to an underestimation (in absolute value) of the price elasticity of donors’ contribution amount.
    Keywords: Charitable giving, Tax incentives, Price elasticities, Selection, Declaration.
    JEL: D64 H24 H31
    Date: 2023–03
  6. By: Anna D’Annunzio (TBS Business School, CSEF (University Federico II) and Toulouse School of Economics); Antonio Russo (University of Sheffield and CESifo)
    Abstract: A fundamental result in the theory of commodity taxation is that taxes increase consumer prices and reduce supply, aggravating the distortions caused by market power. This result hinges on the assumption that each firm provides a single product. We study the effects of commodity taxes in presence of multiproduct firms that have market power. We consider a monopolist providing two goods and obtain simple conditions such that differentiated ad valorem tax reduce the prices and increases the supply of both goods, thereby increasing total surplus. We show that these conditions can hold in a variety of settings, including add-on pricing, multiproduct retailing with price advertising, intertemporal models with switching costs and two-sided markets. Differentiated unit taxes can induce prices to decrease (as the Edgeworth’s paradox states), but the quantity of the taxed good always decreases.
    Keywords: Commodity taxation; tax incidence; multi-product firms
    JEL: D42 H21 H22
    Date: 2023–03
  7. By: De Neve, Jan-Emmanuel; Imbert, Clement; Spinnewijn, Johannes; Tsankova, Teodora; Luts, Maarten
    Abstract: We study the impact of simplification, deterrence and tax morale on tax compliance. We ran four natural field experiments varying the communication of the tax administration with the universe of income taxpayers in Belgium throughout the tax process. A consistent picture emerges across experiments: (i) simplifying communi- cation substantially increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective, and often backfires. A discon- tinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. We find that simpli- fication is far more cost-effective, allowing for substantial savings on enforcement costs.
    Keywords: tax compliance; field experiments; simplification; enforcement
    JEL: C93 D91 H20
    Date: 2021–05–01
  8. By: Pierre Bachas (World Bank Research); Lucie Gadenne (Queen Mary University); Anders Jensen (Harvard Kennedy School and NBER)
    Abstract: Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries we proxy for informal consumption using the type of store where purchases occur. We establish that the budget share spent in informal stores steeply declines with income, so that richer households pay a substantially larger share of their income in taxes. Our findings imply that the widespread policy of exempting food from taxation is hard to justify on equity grounds in low-income countries.
    Keywords: Budget Surveys, Inequality, Informality, Redistribution, Taxes.
    JEL: E26 H21 H23
    Date: 2022–12–09
  9. By: Niels Johannesen; Daniel Reck; Max Risch; Joel Slemrod; John Guyton; Patrick Langetieg
    Abstract: This paper uses account-level information, reported to the IRS by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA), to produce new evidence on the foreign financial wealth of U.S. households. We find that U.S. taxpayers hold around $4 trillion in foreign accounts, almost half in jurisdictions usually considered tax havens. Combining the FATCA reports with other administrative tax data and tracing account ownership through partnerships, we document a steep income gradient in the propensity to hold assets in foreign financial institutions. Specifically, more than 60% of the individuals in the top 0.01% of the income distribution own foreign accounts, the vast majority in tax havens and more than half through a partnership. We discuss the likely implications of these findings for the overall impact of FATCA on tax compliance and government revenue.
    JEL: H24 H26
    Date: 2023–03
  10. By: Niklas Gohl (University of Potsdam, Berlin School of Economics, DIW)
    Abstract: Leveraging two cohort-specific pension reforms, this paper estimates the forward-looking effects of an exogenous increase in the working horizon on (un)employment behaviour for individuals with a long remaining statutory working life. Using difference-in-differences and regression discontinuity approaches based on administrative and survey data, I show that a longer legal working horizon increases individuals’ subjective expectations about the length of their work life, raises the probability of employment, decreases the probability of unemployment, and increases the intensity of job search among the unemployed. Heterogeneity analyses show that the demonstrated employment effects are strongest for women and in occupations with comparatively low physical intensity, i.e., occupations that can be performed at older ages.
    Keywords: retirement policies, employment, DiD
    JEL: J24 J26 H21
    Date: 2023–03
  11. By: Betarelli Junior, Admir Antonio; Domingues, Edson; Faria, Weslem; Magalhães, Aline; Proque, Andressa
    Abstract: In Brazil, the terminal handling charges (THC) or wharfage services at destination for import cargo occurs between the unloading of the goods in the national territory and the customs clearance. This rate inflates the customs value of imported products and the basis for charging all imports on Brazilian imports. Incompatible with the rules of the World Trade Organization (WTO), this practice distorts the competitive trends of Brazilian sectors in the domestic and foreign markets, whose concern is recurrent of the Brazilian commercial policy. Our study contributes to this debate in course and analyzes the economic impacts of THC in the calculation basis for the incidence of taxes. We estimated the annual average THC and simulate their removal in Brazilian import values from a SAM and R&D based computable general equilibrium (CGE) model. With policy change, the main findings indicate the Brazilian economy would become more industrialized and with greater technological intensity in the long run. Investment in physical capital and R&D would grow, while the export and foreign trade agenda would become more diversified in manufactured goods, even with the greater penetration of imports. The expansion of the private sector would ease future dependence on the public sector in the generation of knowledge and physical capital.
    Keywords: International Relations/Trade, Public Economics
    Date: 2022

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