nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒05‒01
twelve papers chosen by
Thomas Andrén

  1. Finnish Companies in the Vortex of International Tax Reforms By Ropponen, Olli; Viertola, Marika; Kari, Seppo; Valkonen, Tarmo
  2. State Taxation of Nonresident Income and the Location of Work By Agrawal, David R.; Tester, Kenneth
  3. Wayfair: A Step Towards the Destination, But Sales Tax Competition Remains By Donald Bruce; William F. Fox; Alannah M. Shute
  4. Excise Tax Incidence: The Inequity of Taxing Obesity and Beauty By Osaid Alshamleh; Glenn P. Jenkins; Tufan Ekici
  5. Optimal income taxation with tax avoidance and endogenous labor supply By Georges Casamatta
  6. Simplifying and Improving: Revisiting Bulgaria's Revenue Forecasting Models By Fabio Ashtar Telarico
  7. Election-Day Market Reactions to Tax Proposals: Evidence from a Close Vote By Masanori Orihara
  8. Optimal automatic stabilizers By McKay, Alisdair; Reis, Ricardo
  9. Wealth and Property Taxation in the United States By Sacha Dray; Camille Landais; Stefanie Stantcheva
  10. Tax competition, public input, and market power By Steve Billon
  11. Rates of Return Taxation from Private Capital in Canada By Glenn P. Jenkins
  12. The Health Wedge and Labor Market Inequality By Amy Finkelstein; Casey C. McQuillan; Owen M. Zidar; Eric Zwick

  1. By: Ropponen, Olli; Viertola, Marika; Kari, Seppo; Valkonen, Tarmo
    Abstract: Abstract International corporate tax system does not succeed very well in taxing the cross-border business of the multinational enterprises. Therefore, both the European Union (EU) and the Organization for Economic Cooperation and Development (OECD) have proposed several tax reforms. We recognize in this Etla Report the most central corporate tax reform proposals and evaluate their effects on the tax burden of the Finnish companies and on the tax revenues in Finland. The common consolidated corporate tax base (CCCTB) proposed by the OECD, would reduce the investment incentives by increasing the tax burden of companies. It would also reduce the corporate tax revenues in Finland. The reallocation of residual profits (Pillar 1) would neither affect Finnish companies nor tax revenues in Finland. Minimum tax (Pillar 2) is the only reform that provides favorable outcomes for both companies and government. It increases the investment incentives of companies by reducing their tax burden, while at the same time increasing the tax revenues in Finland. The proposed 15 percent minimum tax rate is better option from both the company and the government perspective than higher minimum tax rates. See also Etla Brief no 120 The Devil Is in the Details: Suomalaiset yritykset kansainvälisten veroreformien pyörteissä.
    Keywords: International corporate taxation, Multinational enterprises (MNEs), Investments, Business in Europe: Framework for Income Taxation (BEFIT), Pillar 1, Pillar 2, Common (Consolidated) Corporate Tax Base (C(C)CTB)
    JEL: H25 H71 F21 F23 G11
    Date: 2023–04–12
  2. By: Agrawal, David R.; Tester, Kenneth
    Abstract: Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of-tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34, and consistent with superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top-earners: the spatial relocation of labor supply by nonresidents.
    Keywords: state taxes, superstars, taxing the rich, avoidance, mobility, highfrequency labor supply
    JEL: J22 J61 H26 H73 R50
    Date: 2023
  3. By: Donald Bruce; William F. Fox; Alannah M. Shute
    Abstract: The U.S. Supreme Court decision in the landmark 2018 Wayfair case greatly improved state governments’ ability to enforce collection of sales taxes on a destination basis. This has reduced state tax competition with an essentially-untaxed internet, but has brought traditional cross-border shopping, which is often subject to origin taxation, back to prominence among policy makers and researchers. We provide a detailed discussion of state and local sales tax features and the extent to which they have fostered sales tax competition in recent decades. We then explore the extent to which greater destination taxation has influenced the location of (a) consumer purchases and (b) business locations using two different empirical approaches. First, we analyze county-level data for Tennessee and select surrounding states to provide suggestive evidence that sales tax collections have grown more in rural Tennessee counties and less in Tennessee border counties since Wayfair. Additionally, we show that collections have grown more since Wayfair in North Carolina counties along the Tennessee border, where the tax rate differential is on the order of 3.3 percentage points. Second, we examine state-level data to show that business applications have grown at much faster rates after Wayfair in states with the highest sales tax rates. We attribute this to the removal of the significant disincentive to establish sales tax nexus that dominated the pre-Wayfair environment.
    JEL: H20 H26 H27 H71 H77
    Date: 2023–03
  4. By: Osaid Alshamleh (Department of Accounting and Finance, Cyprus International University, Hespolat, Mersin 10, Turkey); Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada and Cambridge Resources International Inc.); Tufan Ekici (Department of Economics, Ramapo College of New Jersey, Mahwah, N.J. USA)
    Abstract: The estimation and analysis of the distribution of the negative health impacts of certain commodities subject to excise taxes in Belize and the distribution of the burdens of the excise taxes across households of different income levels are the focus of this article. Particular attention is given to the taxation of soft drinks and cosmetics. We examine the income distribution and tax revenue impacts using the commodity data from the household expenditure survey by and the effective tax rates expressed as a percentage of the value of the final consumption of each item. As in many developing countries, taxes on alcoholic beverages and tobacco products are found to be regressive. The most regressive excise taxes are on soft drinks and cosmetics. Households across the economy pay more in excise taxes on cosmetics than they do on either alcoholic beverages or tobacco products. Relative to the level of household expenditures, the burden of the excise taxes on cosmetics is highest for households in the lowest quintile of total expenditures. The impact of soft drinks in creating obesity is likely to be much greater for high income households whose total consumption per household is twice that of low-income households.
    Keywords: excise tax, tax incidence, cosmetics, soft drinks, obesity, regressivity, Belize
    JEL: H22 L66
    Date: 2023–04–10
  5. By: Georges Casamatta (LISA - Lieux, Identités, eSpaces, Activités - UPP - Université Pascal Paoli - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We determine the optimal income tax schedule when individuals both choose endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the formula of the standard Mirrlees model to the case of tax avoidance. We also show that the results obtained by Casamatta (2021) in the fixed income case hold true when labor supply is endogenous: with a low enough marginal cost of avoidance, it is optimal to let some taxpayers, located in the interior of the skill distribution, avoid taxes.
    Abstract: Nous déterminons le système d'imposition optimale sur le revenu lorsque les individus choisissent de manière endogène leur offre de travail et qu'ils ont de plus la possibilité d'éviter le paiement de l'impôt. Nous considérons une fonction de coût de dissimulation du revenu convexe et proposons une formule pour le taux marginal de taxation optimal, qui généralise la formule du modèle de Mirrlees au cas de l'optimisation fiscale. Nous montrons également que les résultats obtenus par Casamatta (2021) dans le cas d'un revenu fixe restent vrais lorsque l'offre de travail est endogène: lorsque le coût marginal de l'optimisation fiscale est suffisamment faible, il est optimal de laisser certains contribuables, situés à l'intérieur de la distribution des productivités, dissimuler une partie de leur revenu.
    Keywords: tax avoidance optimal income taxation labor supply. JEL: H21 H26, tax avoidance, optimal income taxation, labor supply., JEL classification: H21
    Date: 2021–05–05
  6. By: Fabio Ashtar Telarico
    Abstract: In the thirty years since the end of real socialism, Bulgaria's went from having a rather radically 'different' tax system to adopting flat-rate taxation with marginal tax rates that fell from figures as high as 40% to 10% for both the corporate-income tax and the personal-income tax. Crucially, the econometric forecasting models in use at the Bulgarian Ministry of Finance hinted at an increase in tax revenue compatible with the so-called 'Laffer curve'. Similarly, many economists held the view that revenues would have increased. However, reality fell short of those expectations based on forecasting models and rooted in mainstream economic theory. Thus, this paper asks whether there are betterperforming forecasting models for personal-and corporate-income tax-revenues in Bulgaria that are readily implementable and overperform the ones currently in use. After articulating a constructive critique of the current forecasting models, the paper offers readily implementable, transparent alternatives and proves their superiority.
    Date: 2023–02
  7. By: Masanori Orihara (Department of Policy and Planning Sciences, Faculty of Engineering, Information and Systems, University of Tsukuba)
    Abstract: We ask whether the stock market immediately reacts to the underlying will of political leaders to tax shareholders from the moment of their election, much earlier than previously documented. Our natural laboratory is the surprising outcome of the September 2021 Japanese Prime Ministerial election: whereby the winning candidate secured a narrow victory of just one vote and thus promoted a second “runoff” election. The eventual election victor—Fumio Kishida—proposed increasing taxes on shareholders, leading to a market drop referred to as “Kishida Shock” by news outlets such as the Financial Times and The Wall Street Journal. Using an event study approach, we find firms that were vulnerable to a potential tax increase, such as dividend payers, experienced lower stock returns. As predicted by financial constraints theory, smaller firms with more cash holdings could lessen their losses. Likewise, larger firms could reduce the severity of their negative stock returns via bond market access. As a direct target of the potential tax increase, it appears that domestic individual investors sold their highdividend yield stocks while foreign investors in fact purchased shares of the same.
    Keywords: Taxation, Election, Financing, Ownership Structure, Dividend, Japan
    JEL: G32 G35 G38 H24 H25
    Date: 2023–03
  8. By: McKay, Alisdair; Reis, Ricardo
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as business cycles that are inefficient due to the presence of matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity of the social insurance system depends on a macroeconomic stabilization term. This term pushes for an increase in generosity when the level of economic activity is more responsive to social programmes in recessions than in booms. A calibration to the US economy shows that taking concerns for macroeconomic stabilization into account substantially raises the optimal unemployment insurance replacement rate but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programmes as automatic stabilizers affects their optimal design.
    Keywords: counter-cyclical fiscal policy; redistribution; disortionary taxes
    JEL: E62 H21 H30
    Date: 2021–10–01
  9. By: Sacha Dray; Camille Landais; Stefanie Stantcheva
    Abstract: We study the history and geography of wealth accumulation in the US, using newly collected historical property tax records since the early 1800s. The US General Property Tax was a comprehensive tax on all types of property (real, personal, and financial), making it one of the first “wealth taxes.” Drawing on many historical records, we construct long-run, consistent, high-frequency wealth series at the county, state, and national levels. We first document the long-term evolution of household wealth in the US since the early 1800s. The US experienced extraordinary wealth accumulation after the Civil war and until the Great Depression. Second, we reveal that spatial inequality in the US has been large and highly persistent since the mid-1800s, driven mainly by Southern states, whose long-run divergence from the rest of the US predated the Civil War. Before the Civil war, enslaved people were assessed as personal property of the enslavers, representing almost one-half of total taxable property in Southern states. In addition to the moral and ethical issues involved, this system wrongly counted forced labor income as capital. The regional distribution of wealth and the effects of the Civil war appear very different if enslaved people are not included in the property measure. Third, we investigate the determinants of long-term wealth growth and capital accumulation. Among others, we find that counties with a higher share of enslaved property before the Civil War or higher levels of wealth inequality experienced lower subsequent long-run growth in property.
    JEL: E01 H20 H71 J15 N31 R12
    Date: 2023–03
  10. By: Steve Billon (LARGE - Laboratoire de Recherche en Gestion et Economie - UNISTRA - Université de Strasbourg)
    Date: 2022–11–15
  11. By: Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada and Cambridge Resources International Inc.)
    Abstract: Information on the rates of return and effective rates of taxation from capital in the private sectors of an economy are prerequisites for both rational public sector project evaluation and for the measurement of the degree of equity and distortion resulting from the economy’s taxation system. Yet, in many countries, accurate knowledge of the values of these variables is absent. The principal objective of this study is to overcome this dearth of information for Canada.
    Keywords: rates of return, public sector, taxation, Canada
    JEL: G10 H20
    Date: 2023–04–10
  12. By: Amy Finkelstein; Casey C. McQuillan; Owen M. Zidar; Eric Zwick
    Abstract: Over half of the U.S. population receives health insurance through an employer, with employer premium contributions creating a flat "head tax" per worker, independent of their earnings. This paper develops and calibrates a stylized model of the labor market to explore how this uniquely American approach to financing health insurance contributes to labor market inequality. We consider a partial-equilibrium counterfactual in which employer-provided health insurance is instead financed by a statutory payroll tax on firms. We find that, under this counterfactual financing, in 2019 the college wage premium would have been 11 percent lower, non-college annual earnings would have been $1, 700 (3 percent) higher, and non-college employment would have been nearly 500, 000 higher. These calibrated labor market effects of switching from head-tax to payroll-tax financing are in the same ballpark as estimates of the impact of other leading drivers of labor market inequality, including changes in outsourcing, robot adoption, rising trade, unionization, and the real minimum wage. We also consider a separate partial-equilibrium counterfactual in which the current head-tax financing is maintained, but 2019 U.S. health care spending as a share of GDP is reduced to the Canadian share; here, we estimate that the 2019 college wage premium would have been 5 percent lower and non-college annual earnings would have been 5 percent higher. These findings suggest that health care costs and the financing of health insurance warrant greater attention in both public policy and research on U.S. labor market inequality.
    JEL: H22 H24 I13 I14 J20 J31 J32 J38
    Date: 2023–03

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