nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒06‒26
thirteen papers chosen by
Thomas Andrén

  1. Multinational Taxation under Pressure: The Role of Tax Deductibility By Chen, Xuyang; Hindriks, Jean
  2. The Taxation of Couples By Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer
  3. Macroeconomic Effects of Dividend Taxation with Investment Credit Limits By Matteo Ghilardi; Roy Zilberman
  4. Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda By Maria Jouste; Tina Kaidu Barugahara; Joseph Okello Ayo; Jukka Pirttilä; Pia Rattenhuber
  5. Digitalization against the shadow economy: evidence on the role of company size By Bálint Ván; Csaba G. Tóth; Gábor Lovics; Katalin Szõke
  6. Tax expenditures in OECD countries: Findings from the Global Tax Expenditures Database By Beznoska, Martin; von Haldenwang, Christian; Schüler, Ruth M.
  7. The taxation of Financial Transactions: An estimate of Global Tax Revenues By Gunther Capelle-Blancard
  8. Government Spending and Tax Revenue Decentralization and Public Sector Efficiency: Do Natural Disasters Matter? By António Afonso; João Tovar Jalles; Ana Venâncio
  9. Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction during the Covid-19 Pandemic By Victoria Baudisch; Matthias Neuenkirch
  10. Belgium: Technical Assistance Report-Revenue Administration Gap Analysis Program–The Value Added Tax By International Monetary Fund
  11. ‘Earned, Not Given’? The Effect of Lowering the Full Retirement Age on Retirement Decisions By Mathias Dolls; Carla Krolage
  12. Social mobility and populist values By Perelman, Sergio; Pestieau, Pierre
  13. The Heterogeneous Effects of Social Assistance and Unemployment Insurance: Evidence from a Life-Cycle Model of Family Labor Supply and Savings By Peter Haan; Victoria Prowse

  1. By: Chen, Xuyang (Université catholique de Louvain, LIDAM/CORE, Belgium); Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: To address international profit shifting by multinational enterprises, a number of countries are broadening their tax bases and using turnover tax to secure corporate tax revenues. This paper investigates the impact of tax deductibility on multinationals’ behavior and corporate taxes by considering a model of corporate tax competition with two countries and a tax haven. A pure profit tax (with either separate accounting or formula apportionment) giving deductions for all costs can preserve production efficiency at the expense of tax base erosion. In contrast, a turnover tax with no deductibility of costs can eliminate profit shifting incentives at the expense of production distortion. We show that profit tax with formula apportionment dominates the other two tax regimes when the output elasticity is high and tax capacity is intermediate. In other cases, turnover tax (profit tax with separate accounting) can dominate under low (high) tax capacity. We then analyze the general case to allow for partial tax deductibility and revisit the Diamond-Mirrlees production efficiency theorem in the profit shifting context. We show that less deductibility can yield more revenue when tax capacity is low, but that revenue increases with deductibility when tax capacity is sufficiently high. Simulations further suggest that the optimal deductibility rate increases with the tax capacity and the output elasticity.
    Keywords: Corporate taxes ; Profit shifting ; Tax haven ; Tax deductibility ; Tax competition ; Digital economy ; Extractive sector
    JEL: H25 H71 H73 F23 D24
    Date: 2023–04–28
  2. By: Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer
    Abstract: This paper studies the tax treatment of couples. We develop two different approaches. One is tailored to the analysis of tax systems that stick to the principle that the tax base for couples is the sum of their incomes. One is tailored to the analysis of reforms toward individual taxation. We study the US federal income tax since the 1960s through the lens of this framework. We find that, in the recent past, realizing efficiency gains requires lowering marginal tax rates for secondary earners. We also find that revenue-neutral reforms towards individual taxation are in the interest of couples with high secondary earnings while couples with low secondary earnings are worse off. The support for such a reform recently passed the majority threshold. It is rejected, however, by a Rawlsian social welfare function. Thus, there is a tension between Rawlsian and Feminist notions of social welfare.
    Keywords: taxation of couples, tax reforms, optimal taxation, political economy, non-linear income taxation
    JEL: C72 D72 D82 H21
    Date: 2023
  3. By: Matteo Ghilardi; Roy Zilberman
    Abstract: A dynamic general equilibrium model augmented for an occasionally-binding investment borrowing limit reconciles competing views on the macroeconomic effects of dividend taxation. Permanent tax reforms are distortionary in the credit-constrained long-run equilibrium but are neutral otherwise. Temporary tax cuts may be expansionary or contractionary in the short-term depending on their scale and on the firm's initial and interim credit position. Interactions between payout tax shocks and the financial constraint tightness produce state-contingent, non-linear, and asymmetrical macroeconomic dynamics. These findings are consistent with the varied responses in investment rates and asset prices observed in the data following historical dividend tax changes.
    Keywords: Dividend Taxation, Occasionally-Binding Borrowing Constraints, Investment, Tobin's q, Business Activity
    JEL: E22 E32 E44 E62 H25 H30 H32
    Date: 2023
  4. By: Maria Jouste (UNU-WIDER, Helsinki, Finland); Tina Kaidu Barugahara (Uganda Revenue Authority, Kampala, Uganda); Joseph Okello Ayo (University of Helsinki, Finland); Jukka Pirttilä (University of Helsinki, Finland; and VATT Institute for Economic Research, Helsinki, Finland); Pia Rattenhuber (UNU-WIDER, Helsinki, Finland)
    Abstract: We evaluate a major personal income tax reform in Uganda that came into effect in 2012–13, contributing to the scarce literature on the effects of personal income tax reform on employees’ income in a low-income country in Africa. The reform increased the tax-free lower threshold, increased tax rates for higher incomes, and introduced an additional highest tax band for top 1% of income earners. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.
    Keywords: personal income tax, Uganda, administrative data, tax reform
    JEL: C31 H24 O23
    Date: 2023–06
  5. By: Bálint Ván (Ministry of Finance); Csaba G. Tóth (KRTK KTI and CIAS); Gábor Lovics (Hungarian Central Statistical Office); Katalin Szõke (Central Bank of Hungary)
    Abstract: Online cash registers (OCRs) are important tools for reducing the size of the shadow economy. This paper analyzes the impact on reported turnover and tax liability of introducing OCRs in Hungary using a fixed-effects panel and event study model. We identify strong size-related heterogeneity in the retail and the accommodation and food services sectors: smaller companies increased their reported turnover more than larger ones. Since large companies pay the dominant part of value-added tax, the effects on the payment of this tax were mitigated. We find significant spillover effects in both sectors, which are slightly stronger among larger companies.
    Keywords: Value-Added Tax, Tax Evasion, Shadow Economy
    JEL: E26 H25 H26
    Date: 2022–12
  6. By: Beznoska, Martin; von Haldenwang, Christian; Schüler, Ruth M.
    Abstract: The Global Tax Expenditures Database ( collects national reports on tax expenditures for 101 countries for the period from 1990 to the present. Based on these data, the development of tax expenditures in the 38 OECD countries between 1999 and today is examined. A look at the data shows that even in countries with high GDP and comprehensive tax coverage, reporting is often incomplete. For a subset of 16 OECD countries for which (relatively) continuous reporting over the period is available, we look at the development of tax benefits for households and firms. We can show that data availability improves over time. For the development of business tax expenditures, a weakly significant positive trend can be identified in terms of tax revenues foregone, driven mainly by the Netherlands and Ireland. Both countries are known for wanting to strengthen their business location through generous tax expenditures for businesses. Tax expenditures for private households, which are on average higher than the level of tax expenditures for businesses in the countries under review, do not show any significant time trend, even though they were increasingly used to relieve the burden on private households and businesses during the financial crisis of 2008/09. In order to compare tax expenditures between countries and to better assess their effectiveness, regular reporting at the national level, transparent definitions and ideally uniform standards would be helpful. Regular monitoring by a commission of experts could contribute to the consistency and comparability.
    Keywords: OECD, Tax Expenditures, Tax Incentives
    JEL: C82 H24 H25
    Date: 2023
  7. By: Gunther Capelle-Blancard (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The financial transaction tax (FTT) is often described as a utopia whose implementation would signify an insurmountable impediment to financial markets. However, stock market transactions have been taxed in the United Kingdom since as early as the seventeenth century, in the form of a stamp duty which generates around 4 billion euros each year – and does so without hampering the City's development. Virtually all developed countries have used it at some point, and even today more than thirty countries in the world tax financial transactions, including Switzerland, Hong Kong or Taiwan, as well as France. Actually, it seems that the FTT has the attributes of a good tax. The FTT is not particularly distortive, tax revenues are potentially high, and the collection costs are minimal. It also has a redistributive effect. The equivalent of the UK stamp duty or the French FTT applied by the G20 countries, notwithstanding its numerous exemptions, would raise between 156 and 260 billion euros per year (according to a nominal rate of 0.3% or 0.5%). Extending the tax to derivatives and intraday trades would bring additional revenue, while improving transparency in financial markets.
    Abstract: L'idée d'une taxe sur les transactions financières (TTF) est souvent présentée comme une douce utopie, impossible à mettre en pratique, à moins de représenter un « handicap insurmontable » pour les places financières. Les transactions boursières sont pourtant taxées au Royaume-Uni depuis le XVIIe siècle, sous la forme d'un droit de timbre (stamp duty) qui rapporte environ 4 milliards d'euros chaque année, sans que le développement de La City n'ait été entravé. Pratiquement tous les pays développés y ont eu recours, et encore aujourd'hui plus d'une trentaine de pays dans le monde taxent les transactions financières, parmi lesquels la Suisse, Hong Kong ou Taiwan, ainsi bien sûr que la France. La TTF présente les atouts qui font un bon impôt : la TTF est peu distorsive, les recettes fiscales sont potentiellement élevées et les frais de recouvrement minimes ; elle a en outre un effet redistributif. L'équivalent du stamp duty britannique ou de la TTF française appliqué par les pays du G20 permettrait de lever, malgré ses très nombreuses exemptions, entre 156 et 260 milliards d'euros par an (selon que l'on retient un taux nominal de 0, 3% ou de 0, 5%). L'étendre aux instruments dérivés et aux transactions intra-journalières apporterait des recettes supplémentaires, tout en améliorant la transparence sur les marchés financiers.
    Keywords: Securities Transaction Tax, Tobin tax, Innovative financing, Financial transaction tax, Taxe sur les transactions financières, taxe Tobin, financements innovants
    Date: 2023–04–27
  8. By: António Afonso; João Tovar Jalles; Ana Venâncio
    Abstract: We assess notably how do extreme events affect the public sector efficiency of decentralized governance. Hence, we empirically link the public sector efficiency scores, to tax revenue and spending decentralization. First, we compute government spending efficiency scores via data envelopment analysis. Second, relying on panel data and impulse response approaches, we estimate the effect of decentralization on public sector efficiency and how extreme natural disasters mediate this relationship. The sample covers 36 OECD countries between 2006 and 2019. Our results show that tax revenue decentralization decreases public sector efficiency, while spending decentralization and a regional authority index are positively related to public sector efficiency, both for local projections and panel analysis. For instance, efficiency rises by 10 percent following a spending decentralization shock (reaching over 20 percent after 4 years). Nevertheless, in cases of natural disasters, spending decentralization reduces public sector efficiency. Specifically, in the presence of most extreme natural disasters, the improvement in public sector efficiency after a spending decentralization shock is smaller than in their absence. Moreover, extreme natural disasters also deteriorate the negative effect of tax revenue decentralization on public sector efficiency. These results suggest that sub-national discretionary spending and tax revenue responses might be less fruitful when such extreme events occur.
    Keywords: public sector efficiency, data envelopment analysis, local projections, revenue decentralization, spending decentralization, natural disasters, OECD
    JEL: C14 C23 E62 H11 H50
    Date: 2023
  9. By: Victoria Baudisch; Matthias Neuenkirch
    Abstract: We evaluate Germany’s temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects.
    Keywords: consumption, Covid-19, synthetic control, temporary VAT cut, unconventional fiscal policy
    JEL: E21 E62 E65 H31
    Date: 2023
  10. By: International Monetary Fund
    Abstract: This report presents the results of applying the RA-GAP VAT gap estimation methodology to Belgium for the period 2011-2021. The Revenue Administration Gap Analysis Program (RAGAP) methodology employs a top-down approach for estimating the potential Value-Added Tax (VAT) base, using statistical data on value-added generated in each sector. There are two main components to this methodology for estimating the VAT gap: 1) estimate the potential VAT collections for a given period; and 2) determine the accrued VAT collections for that period. The difference between the two values is the VAT gap.
    Date: 2023–05–17
  11. By: Mathias Dolls; Carla Krolage
    Abstract: This paper analyzes behavioral responses to a 2014 reform in the German public pension system that lowered the full retirement age (FRA) of individuals with a long contribution history by up to two years and framed the new FRA as reference age for retirement. Using administrative data from public pension insurance accounts, we first document a substantial bunching response at the FRA exceeding the control group’s bunching by 83%. Second, we show in a difference-in-difference setting that a 1.0 year decrease in the FRA leads to a reduction in the average pension claiming age by 0.3-0.4 years. Treated individuals neither have poorer health nor are more likely to be liquidity-constrained than individuals in the control group. Our results suggest that the strong responses to the reform are driven both by the new FRA serving as a reference point and by financial incentives. Estimated fiscal costs of the reform are at the upper end of the range of previous back-of-the-envelope calculations.
    Keywords: retirement age, early retirement, pension reform
    JEL: H55 J14 J18 J26
    Date: 2023
  12. By: Perelman, Sergio (Université de Liège); Pestieau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Despite some successes in Europe, the welfare state has not been able to renew itself to meet the challenge of various social divides. The major source of these divides is undoubtedly the failure of the social elevator. One might conjecture that the welfare state has probably been too preoccupied with income inequality and poverty and not enough with social mobility. To support this hypothesis, it is important to have good measures of intergenerational mobility and of populist attitudes to compare them with indicators of redistribution. If redistribution and social mobility are indeed found to be negatively correlated, this would invalidate the famous Gatsby Curve. In this paper, we rely on the several waves of the European Social Survey (ESS) to elicit indicators of mobility and of populism and show how the lack of social mobility can explain populist attitudes across a number of European countries.
    Keywords: Populism, social mobility, education policy, Gatsby curve
    JEL: H20 H31 H50
    Date: 2023–05–01
  13. By: Peter Haan; Victoria Prowse
    Abstract: We empirically analyze the heterogeneous welfare effects of unemployment insurance and social assistance. We estimate a structural life-cycle model of singles’ and married couples’ labor supply and savings decisions. The model includes heterogeneity by age, education, wealth, sex and household composition. In aggregate, social assistance dominates unemployment insurance; however, the opposite holds true for married men, whose leisure time declines more than that of their spouses when unemployment insurance is reduced. A revenue-neutral rebalancing of social support away from unemployment insurance and toward social assistance increases aggregate welfare. Income pooling in married households decreases the welfare value of social assistance.
    Keywords: Life-cycle labor supply, Family labor supply, Unemployment insurance, Social assistance, Household savings, Employment risk, Added worker effect, Intra-household insurance
    JEL: J18 J68 H21 I38
    Date: 2023–06–07

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