nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒06‒12
ten papers chosen by
Thomas Andrén

  1. Profit shifting of multinational enterprises: evidence from the Nordics By Viertola, Marika
  2. Following a new tax leader: the urge to implement Formulary Apportionment in the European Union By Joana Andrade Vicente
  3. Ethical behavior, auditing strength, and tax evasion: A worldwide perspective By Ramzi Benkraiem; Ali Uyar; Merve Kilic; Friedrich Schneider
  4. Who Benefits from State Corporate Tax Cuts? A Local Labor Market Approach with Heterogeneous Firms: Further Results By Juan Carlos Suárez Serrato; Owen M. Zidar
  5. Optimal Dynamic Tax-Transfer Policies in Heterogeneous-Agents Economies By YiLi Chien; Yi Wen
  6. The Micro-Foundations of Permanent Austerity: Income Stagnation and the Decline of Taxability in Advanced Democracies By Olivier Jacques; David Weisstanner
  7. Toward an Understanding of Tax Amnesties: Theory and Evidence from a Natural Field Experiment By Patricia Gil; Justin E. Holz; John A. List; Andrew Simon; Alejandro Zentner
  8. Political Regimes and Firms' Decisions to Pay Bribes: Theory and Evidence from Firm-level Surveys By Shuichiro Nishioka; Sumi Sharma; Tuan Le
  9. The concentration of personal wealth in Italy 1995–2016 By Acciari, Paolo; Alvaredo, Facundo; Morelli, Salvatore
  10. Specialisation precedes diversification: R&D productivity effects By Foreman-Peck, James; Zhou, Peng

  1. By: Viertola, Marika
    Abstract: This paper studies how Nordic multinational enterprises (MNEs) react to tax incentives generated by international corporate income tax rate differences and shift profit to low tax countries. A firm level panel data set containing ownership and accounting information is used to study profit shifting within the time period of 2012-2017. Applying a panel data adjusted Hines-Rice approach including firm and year fixed effects results in statistically significant tax semi-elasticity estimates between -0.7 to -1.3. The results are confirmed by several robustness checks as well as by applying the newest methods in two-way fixed effects literature. This suggests that MNEs with ultimate owners located in the Nordic countries seem to react to tax rate differences by shifting profit. Additionally, the MNEs within the euro area seem to engage more heavily in profit shifting.
    Keywords: multinational firms, profit shifting, international corporate taxation, tax avoidance, Business taxation and regulation, F23, H25, H26, fi=Verotus|sv=Beskattning|en=Taxation|,
    Date: 2023
  2. By: Joana Andrade Vicente
    Abstract: In this paper we analyse the United States’ role as the current international tax leader, acting as an institutional leader uncapable of pushing forward towards a new, more suitable international corporate tax regime, due to the particularities of its international taxation system and economic preferences. After assessing United States multinationals’ activity in the Single Market, we find evidence of artificial profit shifting across Member States under the current method to allocate multinational enterprises’ profits. Such actions challenge a fair international taxation in the European Union, distorting European internal competition and hampering tax revenues collection. Although it may not be (yet) the time for a worldwide unitary taxation approach, the analysis performed highlights the urge for the European Union to overcome the United States political power and to unilaterally adopt the Formulary Apportionment approach, overhauling a century-old set of global tax rules based in the separate entity approach.
    Keywords: Country-by-Country Reporting; European Union; Formulary Apportionment; United States multinationals enterprises; tax havens.
    JEL: F23 H25 H26
    Date: 2023–05
  3. By: Ramzi Benkraiem (Audencia Business School); Ali Uyar; Merve Kilic; Friedrich Schneider
    Date: 2021–06
  4. By: Juan Carlos Suárez Serrato; Owen M. Zidar
    Abstract: This paper estimates the incidence of state corporate taxes using new data and methods for estimating the effects on profits. We extend Suarez Serrato and Zidar (2016) by developing two new identification approaches that use the effects of business taxes on the labor demand of incumbent firms and local productivity to identify profit effects. We estimate these reduced-form effects using data from Census, show how reduced-form moments identify incidence and parameters, and provide incidence estimates using a variety of reduced-form approaches as well as a structural model. Across these approaches, we find that owners bear a substantial portion of incidence. Our central estimate is that firm owners bear half of the incidence, while workers and landowners bear 35-40 percent and 10-15 percent, respectively.
    JEL: H22 H25 H32 H71 J23 R30 R58
    Date: 2023–05
  5. By: YiLi Chien; Yi Wen
    Abstract: In the design of an optimal tax-transfer system, there are two complementary conventional wisdoms: the labor-efficiency argument and the debt-efficiency argument. The former emphasizes the trade-off between redistribution and distortions in the labor market, while the latter emphasizes the trade-off between gains from monopoly rents and distortions in the asset market. We use an analytically tractable infinite-horizon model with both ex-ante and ex-post heterogeneity to show that neither argument is complete in the design of the tax-transfer system. Instead, in Aiyagari-type models the optimal system should be determined at the point where the intertemporal wedge between the market interest rate and the time discount rate is completely eliminated, provided that the government fiscal space permits an interior Ramsey steady state. Otherwise the optimal labor tax rate approaches 100% regardless of the Pareto weight distribution in the social welfare function.
    Keywords: Ramsey redistribution; optimal tax-transfer system; optimal interest rate; Laffer curve; incomplete markets; heterogeneity
    JEL: E13 E62 H21 H30
    Date: 2023–05–01
  6. By: Olivier Jacques; David Weisstanner
    Abstract: The slowdown of economic growth and the stagnation of incomes for substantial parts of the population in recent decades are well-known. But what are the implications of these changes for the politics of taxation? The consensus in the literature is that income change either has no effect or that large income decline raises support for welfare policies. Focusing on the revenue side of the welfare state rather than the spending side, we present the opposite argument: We predict that economic decline makes individuals less tolerant of paying taxes, because tax increases would imply a reduction of their consumption level. We test this argument using longitudinal data from both repeated cross-sections and panel surveys in the United States, Canada and Japan. Our main finding is that tolerance of paying taxes is lower when individuals perceive that their economic situation deteriorates. Thus, perceived economic decline can create political obstacles against higher taxation.
    Date: 2022–06
  7. By: Patricia Gil; Justin E. Holz; John A. List; Andrew Simon; Alejandro Zentner
    Abstract: In modern economies, when debt and trust issues arise, a partial forgiveness policy is often the solution to induce payment and increase disclosure. For their part, governments around the globe continue to use tax amnesties as a strategy to allow debtors to make amends for past misdeeds in exchange for partial debt forgiveness. While ubiquitous, much remains unknown about the basic facts of how well amnesties work, for whom, and why. We present a simple theoretical construct that provides both economic clarity into tax amnesties as well as insights into the necessary behavioral parameters that one must estimate to understand the consequences of tax amnesties. We partner with the Dominican Republic Tax Authorities to design a natural field experiment that is linked to the theory to estimate key causal mechanisms. Empirical results from our field experiment, which covers 125, 452 taxpayers who collectively owe $5.2 billion (5.5% of GDP) in known debt, highlight the import of deterrence laws, beliefs about future amnesties, and tax morale for debt payment and increased disclosure. Importantly, we find large short run effects: our most effective treatment (deterrence) increased payments of known debt by 25% and hidden debt by 48%. Further, we find no evidence of our intervention backfiring on subsequent tax payments.
    JEL: C93 H2
    Date: 2023–05
  8. By: Shuichiro Nishioka (West Virginia University); Sumi Sharma (Independent researcher); Tuan Le (University of Findlay)
    Abstract: This paper makes the most of the observed actions of bribe takers and givers from the World Bank Enterprise Surveys and studies how a taker’s action influences a giver's decision to pay bribes. To motivate our empirical study, we consider Kaufmann and Wei's (1999) Stackelberg game between a tax authority and a firm that undergoes tax inspection. The model predicts that, when the authority can use its action as a credible threat for the firm's profitability, the authority disturbs the firm by inspecting more, and the firm is more likely to pay bribes. Consistent with the theoretical prediction, we find correlational evidence that the propensity to pay bribes increases with the number of inspection visits, particularly for non-democratic countries.
    Keywords: Corruption, Autocracy, Policy implementation times, World Bank Enterprise Surveys
    JEL: H22 H32 O25 O43
    Date: 2023–04
  9. By: Acciari, Paolo; Alvaredo, Facundo; Morelli, Salvatore
    Abstract: Italy is one the countries with the highest wealth-to-income ratio in the developed world, but knowledge about the size distribution of wealth is currently limited. In this paper we estimate the distribution of personal wealth between 1995 and 2016, a period of economic turbulence and structural reforms. For this, we use a novel source on the full records of inheritance tax files, combined with surveys and national accounts. Unlike available statistics from household surveys alone, our estimates point to a sharp inversion of fortunes between the top and the bottom of the wealth distribution since the mid-1990s. Whereas the level of wealth concentration in Italy is in line with other European countries, its time trend appears more in line with the U.S., showing a large increase. Moreover, Italy stands out as one of the countries with the strongest decline in the wealth share of the bottom 50% of the population. A range of alternative series of wealth concentration, including estimates applying no adjustments and imputations, confirm our main findings. The paper also sheds new light on the determinants of wealth inequality trends. First, we show that although average wealth increases with age, dispersion within age groups remains very high; hence age plays a marginal role in explaining wealth concentration. Second, we show that house prices explain little of the change in wealth across the distribution since 1995. Changes in equity prices account for a large share of wealth growth above the 99th percentile. However, all in all, changes in the volume of assets and savings appear to be the predominant force behind the increase in wealth inequality, even at the top. The probability of top earners to climb to the top of the wealth distribution has doubled since the 2000s. Third, we document the growing role of life-time wealth transfers receipts, their increasing concentration at the top, and their increasingly favourable tax treatment for the wealthy.
    Keywords: wealth inequality; wealth distribution; top wealth shares; distributional national accounts; estate concentration; inheritance and gifts; inheritance tax
    JEL: D30 H24 N30
    Date: 2023–04–01
  10. By: Foreman-Peck, James (Cardiff Business School); Zhou, Peng (Cardiff Business School)
    Abstract: We model how R&D enters the innovation system in four ways (intramural, extramural, cooperative, and spillover). Despite measuring three different spillovers together, for a very large sample of European enterprises we conclude that the productivity effects of spillovers were at best smaller than intramural R&D productivity effects. We also find that building on the greater skills and experience of enterprises already undertaking R&D (intensity) raised labour productivity more than providing support for those beginning R&D (extensity). Optimal extramural R&D intensity was higher than the actual level; sample firms could boost productivity either by abandoning extramural R&D or by doing much more. There were substantial differences in our sample between enterprises and countries in terms of R&D spillovers. Greater multinational corporation incidence in new EU members accounted for these countries’ high direct R&D intensity productivity, regardless of their generally low overall labour productivity. Absorptive capacity made little difference to the utilisation of spillovers.
    Keywords: R&D; innovation; knowledge spillover
    JEL: L53 L21 H71 H25
    Date: 2023–05

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