nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒10‒02
twelve papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. The Bright Side of Tax Evasion By Wladislaw Mill; Cornelius Schneider
  2. Rethinking corporate taxation in the European Union: how and where to tax Multinational Enterprises By Joana Andrade Vicente
  3. The Tax-Elasticity of Tangible Fixed Assets: Evidence from Novel Corporate Tax Data By Sean Mc Auliffe; Georg U. Thunecke; Georg Wamser
  4. Corporate Tax Cuts and the Decline of the Manufacturing Labor Share By Barış Kaymak; Immo Schott
  5. Corporate Tax Transparency Issues and Concerns in Bangladesh By Khondaker Golam Moazzem; Shah Md Ahsan Habib; Chowdhury Fariha; Moumita
  6. Profit Shifting and Firm Credit By Fotis Delis; Manthos D. Delis; Sotirios Kokas; Luc Laeven; Steven Ongena
  7. Beyond greed: why armed groups tax By Bandula-irwin, Tanya; Gallien, Max; Jackson, Ashley; Van Den Boogaard, Vanessa; Weigand, Florian
  8. Women’s representation in parliament and tax mobilization By Hoang, Thon T.C.; Nguyen, Dung T.K.
  9. Public Spending and Inclusive Growth in Developing Asia By Benedict Clements; Sanjeev Gupta; João Tovar Jalles
  10. Catch Them If You Can: The Politics and Practice of a Taxpayer Registration Exercise By Gallien, Max; Occhiali, Giovanni; van den Boogaard, Vanessa
  11. The impact of the Covid Pension Fund Withdrawals in Chile on the future retirement income of the Social Security affiliates and their households By Alejandra Inzunza; Carlos Madeira
  12. Fiscal multipliers, public debt anchor and government credibility in a behavioural macroeconomic model By Amelie Barbier-Gauchard; Thierry Betti; Theo Metz

  1. By: Wladislaw Mill; Cornelius Schneider
    Abstract: This paper investigates whether tax evasion can be beneficial for an optimal income tax schedule. Past theoretical discussions have presented mixed outcomes as to whether allowing taxpayers to opt into uncertainty could indeed enhance overall tax revenues. In this study, we conducted an original real effort experiment in an online labor market with almost 1, 000 participants to test this hypothesis empirically. Our findings show significant positive labor supply responses to the opportunity to evade (increased labor supply by 37%). More importantly, the expected tax revenue significantly and substantially increased by up to more than 50%. As an example, our data suggests that a 40% tax rate with complete enforcement could be replaced with a 28% tax rate with the option of tax evasion, without any loss in tax revenue. Strikingly, this effect persists when comparing effective tax rates: Lowering effective tax rates through probabilistic enforcement (the opportunity to evade) is more efficient than simply lowering statutory tax rates. Our findings suggest that the opportunity for tax evasion can increase tax revenues beyond what a corresponding decrease in nominal rates would achieve. For welfare analyses, this highlights the importance of not only considering the elasticity of taxable income (ETI) but total earned income elasticities.
    Keywords: tax evasion, tax revenues, labor supply, optimal taxation, experiment
    JEL: H21 H24 H26 J22 C91
    Date: 2023
  2. By: Joana Andrade Vicente
    Abstract: In this paper we conduct an empirical analysis to assess the redistributional impact of implementing a Formulary Apportionment approach in the European Union, compared to the current system based on the separate entity approach, aiming to contribute with databased evidence to the ongoing sensitive political debate about the much-needed change in the international (and, specifically, European) corporate tax regime. We update and extend prior research to estimate which Member States will likely gain and lose in terms of corporate tax base and revenues from the implementation of the ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative, planned to be soon launched by the European Commission. Using recently published Country-by-Country Reporting data released by the Internal Revenue Service, our findings show that the redistributional impact among Member States would be significant. Results are in line with international tax literature: larger economies with higher tax rates (such as Germany and France) would experience a considerable tax base increase, transferred from smaller countries with lower tax rates (like the Netherlands and Ireland), as multinational enterprises would have more restricted opportunities to engage in artificial profit shifting activities.
    Keywords: Country-by-Country Reporting; European Union; Formulary Apportionment; profit shifting; United States multinational enterprises.
    JEL: F23 H25 H26
    Date: 2023–08
  3. By: Sean Mc Auliffe; Georg U. Thunecke; Georg Wamser
    Abstract: This paper develops a new approach to calculate country-industry-year-specific forward-looking effective tax rates (FLETRs) based on a panel of 19 industries, 221 countries, and the years 2001 to 2020. Besides statutory corporate tax rate and tax base determinants, the FLETRs account for typical country-industry-specific financing structures as well as asset compositions. We show that FLETRs suffer from significant measurement error when the latter information is neglected, owing primarily to inappropriately assigned asset weights to statutory depreciation allowances. Our empirical analysis exploits the substantial variation in FLETRs over time to provide estimates of the tax semi-elasticity of corporate investment in tangible fixed assets. Based on more than 24 million firm-entity observations, our results suggest a statistically significant tax semi-elasticity of -0.41, which is at the lower end of previous findings. We further show that different subgroups of firms respond very heterogeneously to tax incentives.
    Keywords: corporate taxation, depreciation allowances, effective marginal tax rates, investment responses, predictive mean matching
    JEL: H25 H32 F23
    Date: 2023
  4. By: Barış Kaymak; Immo Schott
    Abstract: We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment.
    Keywords: Labor share of income; Corporate taxation; Industry dynamics; Firm size distribution
    JEL: E25 H32 L11 L60
    Date: 2023–08–30
  5. By: Khondaker Golam Moazzem; Shah Md Ahsan Habib; Chowdhury Fariha; Moumita
    Abstract: The study primarily reviewed existing literature and analysed data from reports and research articles on selected developing countries, while the objective was to understand the tax structure and issues related to tax avoidance and evasion. This document is a brief version of the study that examines the tax framework in developing nations, the connection between the informal economy and tax income, and an examination of the tax-to-GDP ratio and corporate tax rate in Bangladesh throughout the years. It also examines secrecy scores across various indicators and the occurrence of tax abuse at varying desired levels of the tax-to-GDP ratio. Furthermore, it presents a set of suggestions derived from primary and secondary data to promote corporate tax transparency in Bangladesh.
    Keywords: Corporate Tax, Transparency, tax avoidance, tax evasion, tax-to-GDP ratio, tax abuse
    Date: 2023–08
  6. By: Fotis Delis (European Commission Joint Research Centre); Manthos D. Delis (Audencia Business School); Sotirios Kokas (University of Essex); Luc Laeven (European Central Bank (ECB); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich; KU Leuven; Swiss Finance Institute; NTNU Business School; Centre for Economic Policy Research (CEPR))
    Abstract: Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information.
    Keywords: Corporate taxes; Profit shifting; Bank credit; Loan Spreads; Taxation policy
    JEL: G21 H25 H26 F23 F42
    Date: 2023–08
  7. By: Bandula-irwin, Tanya; Gallien, Max; Jackson, Ashley; Van Den Boogaard, Vanessa; Weigand, Florian
    Abstract: Based on a review of the diverse practices of how armed groups tax, we highlight that a full account of why armed groups tax needs to go beyond revenue motivations, to also engage with explanations related to ideology, legitimacy, institution building, legibility and control of populations, and the performance of public authority. This article builds on two distinct literatures, on armed groups and on taxation, to provide the first systematic exploration of the motivations of armed group taxation. We problematize common approaches toward armed group taxation and state-building, and outline key questions of a new research agenda.
    JEL: E6
    Date: 2022–02–22
  8. By: Hoang, Thon T.C.; Nguyen, Dung T.K.
    Abstract: Some studies show that the higher share of female politicians enhances the implementation of policies that benefiting for women such as childcare services, childcare spots, antenatal and childhood health services, and early education. As a result, they encourage women to participate in labor market. It is also suggested that women have higher tax compliance level and countries having higher proportion of women undergo lower corruption level. This research attempts to examine the relationship between female politicians and tax revenue mobilization. If the positive relationship is proven, there is a fiscal reason to support female politicians and the policies benefiting women. In this study, panel data of 137 countries from 1998 to 2019 will be combined with fixed effect models. The results show the positive influence of the female politicians on tax mobilization. The positive influence is still significant when year effect, interaction variables with income groups, and exponents are included in the model. The study also indicates that while the presence of female politicians in parliament has no discernible impact on tax revenue in high-income groups, in other income groups, a 1 percent increase in female representation in parliament corresponds to a 0.1 percent increase in tax revenue as a percentage of GDP.
    Keywords: Female politicians, tax mobilization, fixed effect, high-order polynomial
    JEL: H20 J16
    Date: 2023–08–17
  9. By: Benedict Clements (Universidad de Las Americas); Sanjeev Gupta (Center for Global Development); João Tovar Jalles (University of Lisbon-Lisbon School of Economics and Management (ISEG); Universidade de Lisboa-ISEG; Universidade Nova de Lisboa-Nova School of Business and Economics IPAG Business School)
    Abstract: This paper discusses the determinants of inclusive growth in developing Asia, with a focus on government expenditures. We find that higher levels of fiscal redistribution (through income taxes and direct transfers) increase the probability of achieving inclusive growth, as well as the level of government spending on health and education. To spur inclusive growth in the aftermath of the COVID pandemic, countries with limited fiscal space will need to focus on improving efficiency and reallocate existing outlays to activities that benefit low-income groups. Reallocating health spending toward primary care, and education spending toward primary and secondary education, would help lead to more equitable growth. There is also scope to better target social benefits to the poor.
    Keywords: income inequality, economic growth, inclusive growth, binary choice models, health expenditure, education, social protection
    JEL: H5 H11 I14
    Date: 2023–08–30
  10. By: Gallien, Max; Occhiali, Giovanni; van den Boogaard, Vanessa
    Abstract: Tax registration drives have become an increasingly popular intervention to expand the coverage of tax nets across sub-Saharan Africa. Promising increased revenue for states and formalisation benefits for newly registered enterprises, the appeal of these interventions is intuitive. However, there is increasing evidence that registration drives do not lead to a substantial increase in revenue and disproportionately target lower income groups.
    Keywords: Finance, Politics and Power,
    Date: 2023
  11. By: Alejandra Inzunza; Carlos Madeira
    Abstract: During the COVID-19 pandemic, Chile enacted three exceptional laws to allow withdrawals from the affiliates’ pension accounts. We analyse the impact of these withdrawals on the pension savings and projected future retirement income of the individual affiliates and their households. We document heterogeneous withdrawal behaviors among income levels, with lower income households using up a higher percentage of their retirement savings. Additionally, we simulate the workers’ contributions to retirement, showing an average reduction of 21% in their contributory pensions. However, due to the increase in non-contributory pension benefits, the average loss in the total pension income is just 8%.
    Date: 2023–08
  12. By: Amelie Barbier-Gauchard (University of Strasbourg); Thierry Betti (University of Strasbourg); Theo Metz (University of Strasbourg)
    Abstract: We develop a behavioural macroeconomic model to investigate the question of fiscal policy credibility and how agents’ expectations about the output gap, public debt, expenditure and taxation affect the fiscal multiplier and debt stability. To do this, we model heterogeneous expectation-formation processes in a market populated by fundamentalists and chartists, agents being able to switch from one rule to another depending on the effective outcome in each period. This model produces waves of optimism and pessimism along the business cycle. We show in this article that when agents are optimistic about the future output gap and public debt, the fiscal multiplier tends to be larger whatever the nature of the fiscal shock. It also appears that fiscal expansion has less of a negative effect on public debt. Furthermore, agents’ expectations about public debt and the fiscal credibility of the government affect indicators of government performance (the fiscal multiplier and public debt stability).
    Keywords: public debt anchor, fiscal multipliers, fiscal credibility, behavioural
    JEL: H
    Date: 2023

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