nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒09‒25
twelve papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Priorities for Strengthening Key Revenue Sources in Asia By Sanjeev Gupta; João Tovar Jalles
  2. Corporate Tax Increases and Shareholder-Level Capital Income Tax Neutrality in Japan -An Analysis of Fundamental Reforms Using Effective Tax Rates- By Toshiyuki Uemura
  3. Unpacking ‘Tax Morale’: Distinguishing Between Conditional and Unconditional Views of Tax Compliance By Prichard, Wilson
  4. Offshore tax evasion and wealth inequality: Evidence from a tax amnesty in the Netherlands By Leenders, Wouter; Lejour, Arjan; Rabate, Simon; Riet, Maarten van ‘t
  5. Dynamic Tax Evasion and Capital Misallocation in General Equilibrium By Francesco Menoncin; Andrea Modena; Luca Regis
  6. Can Policy Packaging Help Overcome Pigouvian Tax Aversion? A Lab Experiment on Combining Taxes and Subsidies By Gøril L. Andreassen; Steffen Kallbekken; Knut Einar Rosendahl
  7. Rethinking the Welfare State By Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
  8. The immeasurable tax gains by Dutch shell companies By Lejour, Arjan; Möhlmann, Jan; Riet, Maarten van ’t
  9. Digitalisation and Subnational Tax Administration in Nigeria By Mas’ud, Abdulsalam; Mohammed, Sani Damamisau; Gimba, Yusuf Abdu
  10. Meeting Health Challenges in Developing Asia with Corrective Taxes on Alcohol, Tobacco, and Unhealthy Foods By Chris Lane
  11. Is there a ‘new consensus’ on inequality? By Ferreira, Francisco H G
  12. Consumption Commitments and Unemployment Insurance By Javier López Segovia

  1. By: Sanjeev Gupta (Center for Global Development); João Tovar Jalles (University of Lisbon; IPAG Business School)
    Abstract: This paper discusses the evolution of key taxes in the past 20 years in developing Asia and fiscal challenges that these countries face in light of the COVID-19 pandemic. It presents estimates of tax capacity and tax potential and discusses the productivity of key taxes in the region. The paper finds that developing Asia has potential to raise more revenues—of up to 4 percent of GDP on average. While corporate income tax productivity is high vis-à-vis other regions, the same does not apply to personal income tax or the value added tax. There is potential to raise more revenues by improving the compliance and design of the value added tax. It is important to ensure that the tax systems in developing Asia become more progressive with expansion of personal income and property taxes. Increased allocations and better targeting of social spending would help offset some of the regressivity stemming from indirect taxes. An important source of revenue leakage is tax expenditures granted by countries in the region.
    JEL: C33 H20 H23 H30 N15 O53
    Date: 2022–04–06
  2. By: Toshiyuki Uemura (School of Economics, Kwansei Gakuin University)
    Abstract: Although Japan is considering increasing the corporate income tax rate, the tax base requires reforms to maintain or lower the effective tax rate from an economic perspective. In this case, capital income tax at the shareholder and corporate levels is important. This study focuses on financing neutrality and analyzes it using forward-looking effective tax rates. The reform proposals are the Comprehensive Income Business Tax (CBIT), Allowance for Corporate Equity (ACE), and Allowance for Corporate Capital (ACC). This study reveals that the CBIT ensures financing neutrality at both the corporate and shareholder levels but raises the cost of capital, effective marginal tax rate (EMTR), and effective average tax rate (EATR). In contrast, ACE/ACC lowers the costs of capital, EMTR, and EATR. At the corporate level, the ACC is more financing neutral than the ACE, though these policies have similar financing neutrality at the shareholder level. Therefore, whether to adopt the ACE or ACC depends on the practical perspective. In this regard, many countries adopt the ACE, and there is room for consideration as tax rates in Japan increase.
    Keywords: corporate tax, shareholder-level capital income tax neutrality, fundamental tax reforms, forward-looking effective tax rates
    JEL: H25 H32
    Date: 2023–09
  3. By: Prichard, Wilson
    Abstract: The concept of ‘tax morale’ seeks to capture an individual’s willingness (or unwillingness) to pay taxes. The study of tax morale in lower-income countries is significant for understanding “quasi-voluntary†tax compliance, popular support for tax reform programs, and the broader character of social contracts. While interest in tax morale research has surged over the past decade, the use of the concept in research has often been relatively broad and imprecise. This risks a lack of comparability across studies. More importantly, insufficiently nuanced research risks telling an incomplete or misleading story. As part of a broader effort for greater conceptual precision, this paper highlights the importance of distinguishing between conditional and unconditional understandings of tax morale
    Keywords: Development Policy, Finance, Governance,
    Date: 2023
  4. By: Leenders, Wouter; Lejour, Arjan (Tilburg University, School of Economics and Management); Rabate, Simon; Riet, Maarten van ‘t
    Date: 2023
  5. By: Francesco Menoncin; Andrea Modena; Luca Regis
    Abstract: We study tax evasion in a dynamic macroeconomic model where utility-maximizing entrepreneurs use capital to produce or buy bonds, depending on their firm’s stochastic productivity. The government provides productivity-enhancing public goods financed through taxes and bond issuance. Entrepreneurs can increase their income by evading taxes at the risk of being audited and fined. Lower productivity boosts evasion incentives, exacerbating capital misallocation because unproductive entrepreneurs accumulate wealth at their peers’ expense. Consistently with OECD data, the model predicts a negative relation between tax evasion and productivity in the aggregate but heterogeneous signs and magnitudes across productivities. Public goods provision affects these outcomes ambiguously.
    Keywords: dynamic tax evasion, financial frictions, general equilibrium, misallocation
    JEL: E25 E26 H23 H26
    Date: 2023–08
  6. By: Gøril L. Andreassen; Steffen Kallbekken; Knut Einar Rosendahl
    Abstract: Tax aversion makes it politically challenging to introduce Pigouvian taxes. One proposed solution to overcome this resistance is to package policies. Using an online lab experiment, we investigate whether combining a tax and a subsidy is perceived as more acceptable than the tax or the subsidy alone. The purpose of the policies is to reduce demand for a good with a negative externality to the socially optimal level. We find that support for a combination of a tax and a subsidy equals the simple average of support for the two instruments alone. Combining a tax and a subsidy therefore does not reduce tax aversion, other than through lower tax rates in the combinations. We also examine potential mechanisms behind the tax aversion. Participants hold more pessimistic beliefs about what share of the tax revenue they will receive when the tax is implemented alone than when it is combined with a subsidy. Furthermore, we find that the participants expect the tax to be more effective in reducing demand for the good with a negative externality than both the subsidy alone and the combinations of tax and subsidy. This belief does not, however, translate into support for the tax.
    Keywords: Pigouvian taxes, policy packaging, public support, lab experiment, tax aversion
    JEL: D72 H23 Q54 Q58
    Date: 2023
  7. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Remzi Kaygusuz (Durham University & Sabanci University); Gustavo Ventura (Arizona State University)
    Abstract: The U.S. spends signifficant amounts on non-medical transfers for its working-age population in a wide range of programs that support low and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If instead per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per-person transfers to all households is costly, and reducing tax distortions helps to provide for resources to expand redistribution.
    Keywords: Taxes and transfers, universal basic income, household labor supply, income risk, social insurance.
    JEL: E62 H24 H31
    Date: 2023–08
  8. By: Lejour, Arjan (Tilburg University, School of Economics and Management); Möhlmann, Jan; Riet, Maarten van ’t
    Date: 2022
  9. By: Mas’ud, Abdulsalam; Mohammed, Sani Damamisau; Gimba, Yusuf Abdu
    Abstract: Recently, there has been an expansion in the deployment of digital systems and digital IDs among taxing authorities. However, little is known about the extent to which such technologies are being adopted, or about whether the data from them is being used strategically to improve tax administration. Even less is known about this in the context of subnational tax administration, although this could be very relevant in some contexts, such as Nigeria. This study investigates the extent of the adoption and strategic usage of data from e-tax systems and digital IDs among state internal revenue services (SIRSs) in Nigeria. Data was collected through qualitative interviews conducted within the SIRSs – one from each of the country’s six geopolitical zones, and within the Federal Inland Revenue Service (FIRS). The qualitative data from the interviews was evaluated using thematic analysis. The findings revealed that there is scope for improvement in the adoption and usage of data from e-tax systems and digital IDs among the SIRSs. It was also found that the extent of adoption and strategic data usage from e-tax systems by SIRSs likely improves states’ per capita internally generated revenue (IGR), but similar insights on the impact of digital IDs have not been obtained. Lastly, it was found that there are some lessons SIRSs could learn from FIRS in terms of strategic use of data from e-tax systems and digital IDs. Specifically, SIRSs need to integrate an audit risk engine and machine learning for performing analytics into their e-tax systems, and also automate the estimation of annual credits for withholding tax suffered, tax refunds and penalties, as well as tax audit management including case selection, allocation of auditors and generating audit reports. Some policy recommendations are offered that are consistent with these findings.
    Keywords: Finance,
    Date: 2023
  10. By: Chris Lane (Center for Global Development)
    Abstract: In developing Asia there is potential for higher corrective taxes to help prevent many non-communicable diseases (NCDs) and contribute revenue. The productivity loss from death and disability from alcohol, tobacco and diets high in sugar-sweetened beverages in purchasing power parity dollars is PPP$ 879 billion (2 percent of Developing Asia GDP) with close to half these costs arising in China (PPP$ 431 billion), and another 20 percent in India (PPP$ 187 billion). Corrective taxes applied to these products can be a powerful tool to reduce harmful consumption. But effective implementation needs to consider tax design, demand responses, distributional consequences, and the use of corrective tax revenues including the costs and benefits of earmarking revenue to the health sector. It is estimated that corrective taxes, primarily on alcohol and tobacco, could raise an additional 0.6-0.7 percent of GDP in revenues, while improving health outcomes and cutting medical costs.
    Date: 2022–04–20
  11. By: Ferreira, Francisco H G
    Abstract: Thirty years after the “Washington Consensus”, is there a new policy consensus that addresses the problem of inequality? This paper argues that there is widespread acceptance that multiple, interrelated and mutually reinforcing inequalities exist – in income, wealth, education, health, power, and recognition – and that these inequalities are generally “too high”. There has also been a significant shift towards a shared view that these inequalities matter, both intrinsically and because of their instrumental effects on economic efficiency and political institutions. There is much less consensus, perhaps surprisingly, on what the actual levels of income inequality are, and there are common misperceptions about their trends. In policy terms, there is something approaching a consensus regarding the desirability of various “pre-distribution” policies, ranging from early childhood development to investment in better teaching. In certain quarters, there is also agreement that sharper antitrust regulation, freer labor unions, and more progressive taxation is needed in most countries. But much less is known about how to provide the poor with genuine opportunities to break the cycle of intergenerational transmission of disadvantage in a durable way.
    Keywords: inequality; redistribution; policy consensus
    JEL: D31 D63 H20
    Date: 2023–08–01
  12. By: Javier López Segovia
    Abstract: Households allocate around 40% of their budget to goods and services that are difficult to adjust, such as rents, mortgages, or mobile plans, which are called “commitments”. Only about 11% of households adjust the consumption of these goods every quarter. Commitments imply monthly payments that are hard to avoid and make employment and income fluctuations more costly. This paper analyzes the role of unemployment insurance in the presence of commitments using a heterogeneous agents search model with incomplete markets and unemployment shocks. The model is calibrated to the US data and matches key features of the US labor market. Using this framework, we show that the existence of commitment goods amplifies the effects of unemployment insurance on search effort and unemployment duration. Commitments also induce households to build larger precautionary savings. Morover, we show that welfare gains from elimating UI increase from 3.4% to 4.2% when commitments are considered. The optimal replacement rate is 57% in the benchmark economy, higher than the current US policy (50%).
    Keywords: unemployment, consumption commitments, precautionary savings, optimal unemployment insurance
    JEL: E2 H2 I38 J64
    Date: 2023–08

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