nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒07‒10
sixteen papers chosen by
Thomas Andrén

  1. Impact of Local Corporate Income Taxes on the Effective Corporate Income Tax Rates: Excess Taxation and Tax Deductibility in Japan By Toshiyuki Uemura
  2. Fiscal Consequences of Corporate Tax Avoidance By Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský; Katarzyna Anna Bilicka
  3. Do household tax credits increase consumption? The role of demand elasticity and the extent of demand By Jarkko Harju; Sami Jysmä; Aliisa Koivisto; Tuomas Kosonen Koivisto
  4. Who Gains from Corporate Tax Cuts? By James Cloyne; Ezgi Kurt; Paolo Surico
  5. Bearing the burden – Implications of tax reporting institutions and image concerns on evasion and incidence By Kaisa Kotakorpi; Topi Miettinen; Satu Metsälampi
  6. Theoretical and Practical Study on Value Added Tax at National and Community Level (First part) By Agatador Mihaela Popescu; Mariana Rodica Tirlea
  7. Overview of the Characteristics of Tax Haven By Dhammika Dharmapala
  8. Firm Responses to an Interest Barrier: Empirical Evidence By Jarkko Harju; Ilpo Kauppinen; Olli Ropponen
  9. On the behavioral effects of tax policy By Massenz, Gabriella
  10. Firm Heterogeneity and the Impact of Payroll Taxes By Anikó Bíró; Réka Branyiczki; Attila Lindner; Lili Márk; Dániel Prinz
  11. Incentives, Health, and Retirement - Evidence from a Finnish Pension Reform By Joonas Ollonqvist; Kaisa Kotakorpi; Mikko Laaksonen; Pekka Martikainen; Jukka Pirttilä; Lasse Tarkiainen
  12. Technology and Tax: Adoption and Impacts of E-services in Rwanda By Megersa, Kelbesa; Santoro, Fabrizio; Lees, Adrienne; Carreras, Marco; Mukamana, Theonille; Hakizimana, Naphtal; Nsengiyumva, Yves
  13. Forward-Looking Labor Supply Responses to Changes in Pension Wealth: Evidence from Germany By Elisabeth Artmann; Nicola Fuchs-Schündeln; Giulia Giupponi
  14. Prescription behavior of physicians in the public and private sector By Elina Jussila; Kaisa Kotakorpi; Jouko Verho
  15. Weaknesses and perspectives of municipal finance in southern Italy in the eve of Covid-19 By Alfredo Bardozzetti; Paolo Chiades; Anna Laura Mancini; Vanni Mengotto; Giacomo Ziglio
  16. Labour Costs and the Decision to Hire the First Employee By Bart Cockx; Sam Desiere

  1. By: Toshiyuki Uemura (School of Economics, Kwansei Gakuin University)
    Abstract: This study explores local corporate income taxes in Japan, which are considered unique from an international perspective. Few countries impose local corporate income taxes. Although corporate income tax rates have decreased worldwide, countries with local corporate income taxes may show less flexibility in corporate income tax reform than countries without, as effective corporate income tax rates based on statutory tax rates remain higher than those without local corporate income taxes. Japan's local corporate income tax system allows for excess taxation and deductibility of corporate enterprise taxes. Countries such as Japan, where local corporate income tax revenues account for a significant share of total tax revenues, may need to reform their local corporate income tax systems. Germany's 2008 business tax reform, which abolished deductibility and lowered the tax rate, provides a helpful reference. This study incorporates the permanent effect of deductibility into the forward-looking effective tax rates by Klemm (2008, 2012) and analyzes the impact of excessive taxation and effective corporate tax rates of reforms of the deductibility of enterprise taxes, following the German business tax reform. First, the excessive taxation of the corporate inhabitant tax rate and the enterprise tax rate impacts 0.9 to 1.1% when converted to the real interest rate. Second, abolishing the deductibility of enterprise taxes and reducing the tax rate improves financing neutrality, possibly reducing the tax rate by approximately 1%. Third, a reform that changes the timing of deductibility in the current period has less impact than abolishing deductibility. Future reforms must be implemented in Japan's local corporate income taxes while considering the current impact on effective corporate income tax rates.
    Keywords: local corporate income tax, excess taxation, tax deductibility
    JEL: H25 H32
    Date: 2023–06
  2. By: Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský; Katarzyna Anna Bilicka
    Abstract: We study the consequences of multinational tax avoidance on the structure of government tax revenues. To motivate our analysis, we show that countries with high revenue losses due to profit shifting have lower corporate tax revenues and rates and higher indirect tax revenues and rates. To establish causality, we use German municipal data and analyse how changes in municipal trade tax rates levied on corporate profits affect local tax revenue structure. Following a trade tax rate increase, we find that municipalities with high exposure to aggressive multinationals experience a significant decline in trade tax revenue levels and shares.
    Keywords: corporate tax avoidance, profit shifting, multinational corporations, government tax revenue structure
    JEL: E62 H26 H71
    Date: 2023
  3. By: Jarkko Harju (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT)); Sami Jysmä (Labour Institute for Economic Research Labore); Aliisa Koivisto (VATT Institute for Economic Research); Tuomas Kosonen Koivisto (VATT Institute for Economic Research, Finnish Centre of Excellence in Tax Systems Research (FIT))
    Abstract: This paper studies the effects of household tax credit (HTC) on service demand and tax evasion. HTC is a tax credit for consumers to reclaim a share of the labor costs of home improvement services, such as renovation and cleaning work. The aim of this widely used tax credit has been both to increase demand for services to boost employment in the service sector and to curb tax evasion. We use data on firm-level monthly value added tax reports and annual tax filings to study the effects of the introduction of HTC for home cleaning services in Sweden in July 2007 together with a difference-in-differences approach using small Finnish service sector firms as a control group. Our results show that, at best, the HTC system has very limited effects on demand for services in the cleaning sector. We provide counterfactual analysis suggesting that the demand elasticity is low, and that the extent of population consuming cleaning services could be low, which is important to consider in ex ante policy analysis. In addition, we do not find HTC to be ef- ficient in reducing tax evasion. Our survey evidence suggests that consumers are poorly informed about the details of HTC rules, which is one likely explanation for the limited responses to the tax credit.
    Keywords: Household tax credit, demand, employment, consumer price, tax evasion
    JEL: H24 H25 H26 H31
    Date: 2023–03
  4. By: James Cloyne; Ezgi Kurt; Paolo Surico
    Abstract: Goods producers increase their capital expenditure and employment in response to a cut in marginal corporate income tax rates or an increase in investment tax credits. In contrast, companies in the service sector mostly use any tax windfall to increase dividend payouts. We base our conclusions on a novel measure of U.S. firm-specific tax shocks that combines changes in statutory tax rates faced by each firm with narrative identified legislated U.S. federal tax changes between 1950 and 2006.
    JEL: E32 E62 H32
    Date: 2023–05
  5. By: Kaisa Kotakorpi (Finnish Centre of Excellence in Tax Systems Research (FIT), Tampere University and VATT Institute for Economic Research; Hanken School of Economics and Helsinki GSE); Topi Miettinen (Hanken School of Economics and Helsinki GSE); Satu Metsälampi (University of Turku)
    Abstract: We investigate effects of tax reporting institutions on evasion and incidence using an experimental double auction market setting. We find that 28% of the sellers are truthful when only sellers report, but that 88% and 64% of them are truthful under costless and costly third-party reporting by buyers, respectively. Reporting behavior therefore responds to the intensity of deterrence. However, we find that prices do not fully reflect the lower taxes of the evaders. Thus, when sellers can unilaterally evade taxes, tax incidence deviates from the prediction of the standard model, and there is deadweight loss even if tax revenue is low. Pricing, incidence, and reporting patterns in all treatments can be explained by a model of lying costs with image concerns that give rise to a motivation to appear honest.
    Keywords: Tax Evasion, Tax Incidence, Third-Party Reporting, Double Auction, Social image, Experiment
    JEL: H21 H22 H26 D40 D44 D91
    Date: 2022–11
  6. By: Agatador Mihaela Popescu (Dimitrie Cantemir Christian University of Bucharest, Romania); Mariana Rodica Tirlea (Dimitrie Cantemir Christian University of Bucharest, Romania)
    Abstract: Value Added Tax qualifies as an indirect tax. Indirect taxes are applied in the sphere of the circulation of goods or the provision of services and are included in the sale price of goods and services. In terms of taxation, the first interventions of the European Community concerned indirect taxes, motivated by the raising of borders between European states, and implicitly the raising of customs duties. As a result, they led to the development of normative acts regarding the harmonization of national legislation with European requirements in the matter of indirect taxes. The study follows aspects of a theoretical and practical nature regarding the Value Added Tax. The results of the research allowed us to clarify the theoretical conceptual framework regarding the Value Added Tax, and at a practical level, the research of the legislative framework was carried out over an extended period of time 2002-2022, which allowed us to observe, at the national level, the legislative evolution and the changes since its establishment of this type of tax until now and to carry out a comparative analysis of the Value Added Tax practiced by our country and the Community member states.
    Keywords: Value Added Tax, taxation, tax, indirect tax, technical elements, tax base, standard rate, reduced rates, very reduced rates
    Date: 2022–10
  7. By: Dhammika Dharmapala
    Abstract: Tax havens have become a subject of great interest among policymakers, scholars and the general public, and are central to many important current policy debates. This chapter provides an overview of the scholarly literature on the characteristics and origins of tax havens. The earlier literature, used cross-country analysis and found evidence that tax havens tend to have stronger governance institutions than comparable nonhaven countries. The more recent literature analyses the historical origins of tax havens and undertakes longitudinal analysis of their adoption of haven-like laws. This chapter also presents a descriptive analysis of the relationship between tax haven status and quantitative measures of countries’ historical characteristics. This descriptive analysis suggests that tax haven jurisdictions are not appreciably different from nonhavens in their historical experience of foreign rule and in other historical characteristics. This suggests some caution in attributing tax havens’ status to their colonial history or to other historical variables.
    Keywords: tax havens, international taxation, colonial history, governance, economic development, comparative economics
    JEL: H87 O10
    Date: 2023
  8. By: Jarkko Harju (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT), VATT Institute for Economic Research and CESifo); Ilpo Kauppinen (VATT Institute for Economic Research and CESifo); Olli Ropponen (Etla Economic Research)
    Abstract: This paper studies the effects of an interest barrier (IB) that was introduced in Finland to restrict the profit-shifting opportunities of multinational enterprises (MNEs). We employ Orbis database on Finnish, Swedish and Danish MNEs and a difference-in-differences methodology, where Swedish and Danish MNEs serve as a control group. We find that Finnish MNEs responded to IB by decreasing their financial expenses. We also find that the most affected firms decreased their debt levels due to the reform. Our results suggest that the financial expense response is followed by a change in the use of transfer pricing as a method to shift profits between tax jurisdictions. We do not find evidence of total output changes among treated firms, suggesting that the IB did not affect the real activity of MNEs.
    Keywords: Corporate income tax, Multinational firms, Capital structure, Profit shifting, Interest barrier
    JEL: H25 H26 G32
    Date: 2023–02
  9. By: Massenz, Gabriella (Tilburg University, School of Economics and Management)
    Date: 2023
  10. By: Anikó Bíró (Centre for Economic and Regional Studies); Réka Branyiczki (CEU, TÁRKI); Attila Lindner (UCL); Lili Márk (CEU); Dániel Prinz (World Bank)
    Abstract: We study the impact of a large payroll tax cut for older workers in Hungary. Motivated by the predictions of a standard equilibrium job search model, we examine the heterogeneous impact of the policy. Employment increases most at low-productivity firms offering low-wage jobs, which tend to hire from unemployment, while the effects are more muted for high-productivity firms offering high-wage jobs. At the same time, wages only increase at high-productivity firms. These results point to important heterogeneity in the incidence of payroll tax cuts across firms and highlight that payroll taxes have a significant impact on the composition of jobs in the labor market.
    Keywords: payroll tax, tax incidence, firm heterogeneity
    JEL: H24 H32 J23 J31
    Date: 2022–11
  11. By: Joonas Ollonqvist (Finnish Institute for Health and Welfare); Kaisa Kotakorpi (Tampere University, Finnish Centre of Excellence in Tax Systems Research); Mikko Laaksonen (Finnish Centre for Pensions); Pekka Martikainen (University of Helsinki, Max Planck Institute for Demographic Research, and Max Planck â University of Helsinki Center for Social Inequalities in Population Health); Jukka Pirttilä (University of Helsinki, VATT Institute for Economic Research, and Finnish Centre of Excellence in Tax Systems Research); Lasse Tarkiainen (University of Helsinki)
    Abstract: We analyse the effects of changes in retirement incentives on retirement behaviour, utilising a Finnish pension reform implemented in 2005. The reform generated financial incentives to postpone retirement for some groups of individuals. Using detailed administrative data on individual health, we focus on whether individual reactions to incentives vary according to health status, and analyse whether individuals with poor health are also able to take advantage of the potential monetary benefits associated with the reform. We find that many types of individuals react to retirement incentives, and the reaction does not vary according to health status in a systematic way. Hence there does not seem to be a trade-off between providing incentives to postpone retirement and equal treatment of individuals with different health status.
    Keywords: Pension reform, retirement incentives, health
    JEL: H55 J26
    Date: 2023–05
  12. By: Megersa, Kelbesa; Santoro, Fabrizio; Lees, Adrienne; Carreras, Marco; Mukamana, Theonille; Hakizimana, Naphtal; Nsengiyumva, Yves
    Abstract: Many low-income countries are increasingly digitising their tax services, which can bring a range of benefits, from reducing compliance costs and improving record-keeping, to limiting opportunities for corruption and increasing fairness in the tax system. However, the success of these benefits depends on adequate levels of awareness and adoption of e-services among taxpayers; where these levels are suboptimal, tax e-services may produce only partial benefits. This paper examines the extent of awareness and uptake of tax e-services in Rwanda from a pre-pandemic situation up to two years into the COVID-19 crisis. The country has increasingly digitalised its tax administration, even more so during the pandemic. Electronic filing and payment of taxes have been mandatory since 2015, and two different e-services are available: E-tax, a free web-based platform designed to be used on computers and smartphones, and M-declaration, a feature phone-based application which enables mobile money payments and a simpler process for filing a return. This allows us to run a comparative analysis of the two solutions. We apply a mixed methods approach, using a nationally representative panel survey of 2, 000 corporate (CIT) and personal (PIT) income taxpayers, with baseline information collected pre-COVID-19 and four follow-up rounds carried out after the pandemic hit, and focus group discussions (FGDs) with 24 e-services users. Summary of Working Paper 153.
    Keywords: Finance, Technology,
    Date: 2023
  13. By: Elisabeth Artmann; Nicola Fuchs-Schündeln; Giulia Giupponi
    Abstract: We provide new evidence of forward-looking labor supply responses to changes in pension wealth. We exploit a 2014 German reform that increased pension wealth for mothers by an average of 4.4% per child born before January 1, 1992. Using administrative data on the universe of working histories, we implement a difference-in-differences design comparing women who had their first child before versus after January 1, 1992. We document significant reductions in labor earnings, driven by intensive margin responses. Our estimates imply that, on average, an extra euro of pension wealth in a given period reduces unconditional labor earnings by 54 cents.
    Keywords: labor supply, social security, pension wealth
    JEL: H55 J22 J26
    Date: 2023
  14. By: Elina Jussila (Tampere University and Finnish Centre of Excellence in Tax Systems Research (FIT)); Kaisa Kotakorpi (Tampere University, Finnish Centre of Excellence in Tax Systems Research (FIT), VATT Institute for Economic Research and CESifo); Jouko Verho (VATT Institute for Economic Research, Finnish Centre of Excellence in Tax Systems Research (FIT) and CESifo)
    Abstract: We analyze prescription behavior of physicians in the public and private sector. We study two major diseases for which an effective, widely accepted low-cost treatment and alternative, more expensive treatments are available. We find that private sector physicians are more likely to prescribe the expensive medication. The result holds after controlling for individual-level factors including health indicators based on detailed administrative data, and patient fixed effects. In one of our cases, we further find that the same physicians prescribe different medication when working in different sectors. These results are consistent with higher 2nd degree moral hazard in the private sector.
    Keywords: taxation, emigration
    JEL: I11 H42 I18
    Date: 2022–12
  15. By: Alfredo Bardozzetti (Bank of Italy); Paolo Chiades (Bank of Italy); Anna Laura Mancini (Bank of Italy); Vanni Mengotto (Bank of Italy); Giacomo Ziglio (Bank of Italy)
    Abstract: The Covid-19 pandemic hit Southern Italian municipalities during a period when they were already suffering from significant budgetary challenges, especially for those of bigger size. On the revenue side, southern cities depend heavily on central government transfers, in part because of a smaller local tax base and more difficulties in collecting taxes. Their current expenditures show a higher share of non-squeezable items (personnel costs, interest on the debt and coverage of the previous deficit). Over the last decade, southern municipalities have been heavily affected by the contraction in government transfers and the tightening of local fiscal rules. Consequently, they have been less able, with respect to the rest of the country, to provide essential public services and to invest. Looking ahead, the difficulties of southern cities can be overcome through the completion of an equalization system that takes full account of the differences in expenditure needs and fiscal capacities, better enforcement of tax collection and more efficient use of resources.
    Keywords: Municipal finance, Southern Italy
    JEL: H70 H71 H72
    Date: 2022–07
  16. By: Bart Cockx; Sam Desiere
    Abstract: Firms without paid employees account for up to 80% of all firms, but only a small minority ever hires. This paper investigates the relationship between labour costs and the decision to hire a first employee and become an employer. Leveraging a unique policy in Belgium that permanently reduced the labour cost of the first employee by 13%, we find that the number of new, first-time employers jumped by 31% immediately following the reform. The elasticity of the probability to hire the first employee with respect to the labour cost is −2.39 [95% CI: −3.45, −1.25].
    Keywords: nonemployers, hiring decisions, payroll taxes, small businesses
    JEL: D22 H25 J08 J23 L26 M13
    Date: 2023

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