nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒09‒04
ten papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Taxation of the rich and the cost of raising tax revenue By Geir H. M. Bjertnæs
  2. From corporate tax competition to global cooperation? Trends, prospects and effects on German family businesses By Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
  3. Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches By Jaqueline Hansen; Valeria Merlo; Georg Wamser
  4. Corporate taxes, productivity, and business dynamism By Colciago, Andrea; Lewis, Vivien; Matyska, Branka
  5. Fantastic tax cuts and where to find them By Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
  6. Politics and income taxes: progress and progressivity By Berliant, Marcus; Boyer, Pierre
  7. The spillover effect of managerial taxes on mutual fund risk-taking By Bührle, Anna Theresa; Yen, Chia-Yi
  8. How to Combat Value-Added Tax Refund Fraud By Cedric Andrew; Ms. Katherine Baer
  9. REDISTRIBUTION OF TAX REVENUES BETWEEN THE LEVELS OF THE BUDGET SYSTEM IN THE RUSSIAN FEDERATION By Arlashkin, Igor (Арлашкин, Игорь); Barbashova, Natalya (Барбашова, Наталья); Deryugin, Aleksandr (Дерюгин, Александр); Komarnitskaya, Anna (Комарницкая, Анна)
  10. PROTECTION OF PUBLIC VALUES: EVALUATING STATE REGULATORY ENFORCEMENT ACTIVITY FROM CITIZEN PERSPECTIVE By Yuzhakov, Vladimir (Южаков, Владимир); Dobrolyubova, Elena (Добролюбова, Елена); Pokida, Andrei (Покида, Андрей); Zybunovskaya, Natalia (Зыбуновская, Наталья)

  1. By: Geir H. M. Bjertnæs (Statistics Norway)
    Abstract: Taxation of capital income and wealth designed to redistribute from the rich may harm small open economies with a globalized capital market as investments are distorted. This study shows that raising tax revenue by taxing wealth is less costly than by taxing labor income within a simplified model framework designed for modest levels of taxes on capital income and wealth. The explanation is that a recidence based tax on wealth collects tax revenue from wealthy investors without distorting investments. The study also shows that raising tax revenue by increasing the tax rate on capital income marginally above the foreign tax level is less costly than by increasing the tax rate on labor income even though foreign investments is distorted. An assessment of these results together with other empirical and theoretical studies uncover that the cost of taxing capital income and wealth is likely to increase with the level of these taxes, however.
    Keywords: Taxation; capital income; wealth
    JEL: H2 H21 F21
    Date: 2023–05
  2. By: Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
    Abstract: This study provides an overview of current political developments in the tax competition debate, emphasizing the consequences for large German family businesses. We analyze new tax competition trends in Europe and selected industrialized countries in recent years. Subsequently, we discuss various international tax policy counter-reactions, namely the Anti-Tax Avoidance Directive and country-by-country reporting on the European level as well as the OECD's two-pillar project. We outline a potential shift in tax competition away from companies towards highly wealthy and highly qualified individuals. The implications of these developments on large German family businesses are emphasized, offering insights into the evolving landscape of tax competition.
    Keywords: tax competition, family businesses, international tax policy
    JEL: H25 H24 K34
    Date: 2023
  3. By: Jaqueline Hansen; Valeria Merlo; Georg Wamser
    Abstract: We exploit exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs) and its consequences for real activity. Using new data on CFC rules and information on direct parent-affiliate ownership links, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. Removing incentives to shift profits to particular low-tax locations leads to profit relocation to ‘next-best’ low-tax countries, allowing firms to circumvent domestic taxation. We do not find any significant effects on parent shareholders, neither in terms of repatriated profit nor in terms of their real economic activity. Other entities within the MNE, where profits get relocated to, see a significant increase in various measures of real activity.
    Keywords: corporate taxation, profit shifting anti-tax-avoidance rules, multinational enterprise, firm organization
    JEL: F23 H25
    Date: 2023
  4. By: Colciago, Andrea; Lewis, Vivien; Matyska, Branka
    Abstract: We identify the effects of corporate income tax shocks on key US macroeconomic aggregates. In response to a corporate income tax cut, we find that: (i) labor productivity increases; (ii) entry increases with delay; (iii) exit increases; (iv) total labor increases by more than production labor. To rationalize these empirical findings, we build a New Keynesian model with idiosyncratic firm productivity, and entry and exit. Our model features productivity gains due to selection and cleansing along the entry and exit margins. Models with homogeneous firms fail to account for the selection and cleansing process and produce counterfactual results.
    Keywords: corporate taxation, productivity, firm entry and exit
    JEL: E62 E32 H25
    Date: 2023
  5. By: Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
    Abstract: An important question in public economics is whether, and under what conditions, it may be possible to design a self-financing tax cut. This column provides new theoretical insights on the requirements for a tax reform that makes everyone better off. Furthermore, it shows that if there is no self-financing tax cut with changes to one or two income brackets, then a more complicated reform will also not work. It applies these insights to the US Earned Income Tax Credit reform in 1975. Although this reform had the correct properties, the analysis concludes that it was not fully self-financing.
    Date: 2023–08
  6. By: Berliant, Marcus; Boyer, Pierre
    Abstract: This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of non-linear taxes derived in the context of voting. Next, we present new results on the existence of majority voting equilibrium that unify work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit (EITC), and increased progressivity in the middle of the income distribution.
    Keywords: Non-linear income taxation; Tax reform; Political economy; Optimal taxation; EITC
    JEL: C72 D72 D82 H21
    Date: 2023–07–26
  7. By: Bührle, Anna Theresa; Yen, Chia-Yi
    Abstract: When faced with higher managerial taxes, mutual fund managers who personally invest in the funds they manage take on greater risk. By exploiting the enactment of the American Taxpayer Relief Act 2012 as an exogenous tax shock, we observe that co-investing fund managers increase risk-taking by 8%. Specifically, these managers adjust their portfolios by investing in stocks with higher beta. The observed effect appears to be driven by agency incentives, particularly for funds with a more convex flow-performance relationship and for managers who have underperformed compared to their peers in the past two years. Such tax-induced behavior is associated with negative fund performance. We highlight the role of co-investment in transmitting managerial tax shocks to mutual funds.
    Keywords: risk-taking, taxation, mutual funds, co-investment
    JEL: G11 G18 G23 H24
    Date: 2023
  8. By: Cedric Andrew; Ms. Katherine Baer
    Abstract: A previous IMF Working Paper on value-added tax (VAT) refunds (WP/07/31, by Keen and Smith) describes the main forms of VAT noncompliance and concludes that VAT is susceptible to evasion and fraud like any other tax. This paper shows the insidious nature and extent of VAT refund fraud in selected EU countries and argues that this type of noncompliance requires tax administrations to adopt a coordinated strategy and deploy a range of countermeasures to combat this threat. Because such fraud is primarily a criminal legal issue, tackling it successfully will require cooperation, both internationally between VAT administrations and nationally between tax authorities and the judiciary. The paper’s focus is primarily on advanced economies in the context of the EU, but many of the recommendations are applicable to emerging market and developing countries. A separate IMF How to Note discusses managing VAT refunds in developing countries.
    Keywords: value-added tax; refund; fraud; strategies; cooperation; refund fraud; acquisition fraud scheme; return fraud; MTIC VAT Contra carousel scheme; Customs and Excise tax office case study; Tax refunds; Tax administration core functions; Middle East
    Date: 2023–08–04
  9. By: Arlashkin, Igor (Арлашкин, Игорь) (The Russian Presidential Academy of National Economy and Public Administration); Barbashova, Natalya (Барбашова, Наталья) (The Russian Presidential Academy of National Economy and Public Administration); Deryugin, Aleksandr (Дерюгин, Александр) (The Russian Presidential Academy of National Economy and Public Administration); Komarnitskaya, Anna (Комарницкая, Анна) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The subject of the study is the distribution of tax revenues between the levels of the budget system in the Russian Federation. The relevance of the study is caused by the need to strengthen the vertical balance of the budget system through tax decentralization in the context of the restructuring of the Russian economy. The aim of the study is to find parameters of tax decentralization that do not worsen the horizontal balance of regional budgets. The research method is the modeling of tax revenues of the consolidated regional budgets. The study used data from the Federal Treasury, the Federal Tax Service and the Ministry of Finance of Russia for 2019–2021. The scientific novelty of the study consists in modeling the effects of tax decentralization on the level of differentiation of regional tax revenues using the latest available data. As a result of the study, it was shown that an increase in regional shares for personal income tax, some components of the MET, water tax and fees for the use of aquatic biological objects up to 100 % will not lead to an increase in inter-regional differentiation of per capita tax revenues. The conclusion of the study is that there is a potential for tax decentralization in Russia, which can be realized by redistributing tax revenues to the regional level without worsening the horizontal budget balance. The prospects of the study are to take into account the effects of the structural transformation of the economy on the territorial distribution of tax bases and the level of taxation, as well as to detail the calculations of the MET as new data are accumulated.
    JEL: H71 H73 H77
    Date: 2022–11
  10. By: Yuzhakov, Vladimir (Южаков, Владимир) (The Russian Presidential Academy of National Economy and Public Administration); Dobrolyubova, Elena (Добролюбова, Елена) (The Russian Presidential Academy of National Economy and Public Administration); Pokida, Andrei (Покида, Андрей) (The Russian Presidential Academy of National Economy and Public Administration); Zybunovskaya, Natalia (Зыбуновская, Наталья) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The federal legislation defines a list of regulatory enforcement activities aimed at minimizing risks to legally protected public values (such as life and health, property, privacy, other human rights, plants and animals, natural habitats). Therefore, monitoring studies aiming at collecting public perceptions of the protection of these public values are highly relevant for tracking the reform progress. The goal of this paper is to identify public perceptions of the extent of protection of public values and evaluate regulatory enforcement performance. The subject of the study is regulatory enforcement activity aimed at reducing risks to the public values. The primary method of the study is a representative public survey, the findings of which are compared to earlier surveys carried out in 2018, 2019, 2020, and 2021. The results presented in the paper include an analysis of the dynamics in public perception of the effectiveness and efficiency of the state regulatory enforcement activities. The paper concludes that while there are some positive trends in improving public perceptions of the safety of public values, the overall level of these perceptions is unsatisfactory. Less than a half of all the survey participants have positive perceptions on any of the risks considered. The frequency of risk events remains high: half of the respondents faced at least one risk in the 2 years preceding the survey. Both time and financial costs borne by citizens applying for protection to the state regulatory and enforcement authorities have not changed significantly. This shows that the efficiency of state regulatory enforcement authorities has not improved in the public view. The novelty of the study is related to collecting and analyzing empirical data to evaluate the effectiveness and efficiency of state regulatory enforcement bodies, as perceived by the public. The paper recommends streamlining the procedures for handling citizen complaints to state regulatory enforcement bodies and improving public access to information on the ways of protecting public values from the risks.
    Keywords: Effectiveness, governance, public values protected by law, regulatory enforcement bodies, public sociological survey, safety perceptions, client centricity, state regulatory enforcement and inspections activity.
    JEL: H11 H41 H83
    Date: 2022–09

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