nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒10‒23
fourteen papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Taxation and Mobility: Evidence from Tax Decentralization in Italy By Enrico Rubolino; Tommaso Giommoni
  2. The State Capacity Ceiling on Tax Rates: Evidence from Randomized Tax Abatements in the DRC By Augustin Bergeron; Gabriel Z. Tourek; Jonathan L. Weigel
  3. Willing but Unable to Pay?: The Role of Gender in Tax Compliance By López-Luzuriaga, Andrea; Scartascini, Carlos
  4. A Modern Excess Profit Tax By Manon François; Carlos Oliveira; Bluebery Planterose; Gabriel Zucman
  5. Too complex to digest? Federal tax bills and their processing in US financial markets By Hamza Bennani; Matthias Neuenkirch
  6. Education, mobility and redistribution By Pierre Pestieau; Maria Racionero
  7. Revenue Effects of the Global Minimum Tax: Country-by-Country Estimates By Mona Barake; Theresa Neef; Paul-Emmanuel Chouc; Gabriel Zucman
  8. Detecting Envelope Wages with E-billing Information By Calijuri, Mónica; Pessino, Carola; López-Luzuriaga, Andrea; Schächtele, Simeon; González, Ubaldo; Chamorro, Carla
  9. Long-Run Effects of Incentivizing Work After Childbirth By Elira Kuka; Na’ama Shenhav
  10. A Personalized VAT with Capital Transfers: A Reform to Protect Low-Income Households in Mexico By Kotlikoff, Laurence J.; Lagarda, Guillermo; Marin, Gabriel
  11. Inclusive and Effective International Tax Cooperation: Views From the Global South By Cazdow, Lucinda; Hearson, Martin; Heitmüller, Frederik; Kuhn, Katharina; Okagna, Okanga; Randriamanalina, Tovony
  12. Profit shifting under the arm's length principle By Alex A. T. Rathke
  13. Cryptocarbon: How Much Is the Corrective Tax? By Mr. Shafik Hebous; Nate Vernon
  14. Stimulating Long-Term Growth and Welfare in the U.S. By James Malley; Apostolis Philippopoulos; Jim Malley

  1. By: Enrico Rubolino; Tommaso Giommoni
    Abstract: We study the impact of taxation on the location choices of individuals and tax bases in Italy. We exploit some recent tax decentralization reforms, which granted regions and municipalities greater power in setting income tax rates across brackets. Combining granular micro-level data on tax residence transfers with tax rate variations both within and across locations, we show that taxation significantly shapes location decisions. The mobility response greatly varies across the income distribution, with higher responsiveness among top incomes. Yet, our estimates imply that revenue losses due to tax-induced mobility are small, making local redistribution feasible at least over the medium-run.
    Keywords: local income taxation, migration, tax decentralization
    JEL: H24 H71 J61
    Date: 2023
  2. By: Augustin Bergeron; Gabriel Z. Tourek; Jonathan L. Weigel
    Abstract: This paper investigates how tax rates and tax enforcement jointly impact fiscal capacity in low-income countries. We study a policy experiment in the D.R. Congo that randomly assigned 38, 028 property owners to the status quo tax rate or to a rate reduction. This variation in tax liabilities reveals that the status quo rate lies above the revenue-maximizing tax rate (RMTR). Reducing rates by about one-third would maximize government revenue by increasing tax compliance. We then exploit two sources of variation in enforcement — randomized enforcement letters and random assignment of tax collectors — to show that the RMTR increases with enforcement. Including an enforcement message on tax letters or replacing tax collectors in the bottom quartile of enforcement capacity with average collectors would raise the RMTR by about 40%. Tax rates and enforcement are thus complementary levers. Jointly optimizing tax rates and enforcement would lead to 26% higher revenue gains than optimizing them independently. These findings provide experimental evidence that low government enforcement capacity sets a binding ceiling on the revenue-maximizing tax rate in some developing countries, thereby demonstrating the value of increasing tax rates in tandem with enforcement to expand fiscal capacity.
    JEL: H11 H21 H26 H71 O12
    Date: 2023–09
  3. By: López-Luzuriaga, Andrea; Scartascini, Carlos
    Abstract: The existing literature shows that women are more likely to pay taxes than men. Yet, there is less consensus on the gendered responses to interventions aimed at boosting tax compliance among non-payers. In this study, we exploit a field experiment designed to increase property tax compliance to investigate this gender disparity. Our findings reaffirm that women are typically more diligent in paying their taxes than men. Interestingly, while the receipt of a deterrence letter prompts women to pay earlier, it does not necessarily augment their overall compliance. Conversely, men, upon receiving a deterrence letter, show a marked improvement in overall compliance. We also find that the size of the tax bill influences women's compliance behavior (the likelihood of paying'increases substantially for small bills), but not men's. To unpack this intriguing finding, we examine survey data to uncover the differing motivations and resources between genders. This analysis suggests that, although women may be more motivated to pay, they might encounter significant liquidity constraints. Our observations are consistent with a simple analytical model that correlates compliance to tax morale, risk aversion, and budget constraints. This research underscores the potential for tax policies and enforcement procedures to exacerbate income inequality between genders, especially in low tax-enforcement contexts where tax evasion is substantial.
    Keywords: taxes;Tax compliance;Field experiment;Development;Latin America and the Caribbea
    JEL: H24 D31 J16
    Date: 2023–07
  4. By: Manon François (EU Tax - EU Tax Observatory); Carlos Oliveira; Bluebery Planterose (EU Tax - EU Tax Observatory); Gabriel Zucman (EU Tax - EU Tax Observatory, UC Berkeley - University of California [Berkeley] - UC - University of California)
    Abstract: This note presents a new way to tax excess profits. We propose to tax the rise in the stock market capitalization of companies that benefit from extraordinary circumstances, such as energy firms following the invasion of Ukraine in February 2022. Targeting the rise in stock market capitalization (which is easily observable) makes the tax much harder to avoid than standard excess profit taxes, and allows to capture rents irrespective of where multinational companies book their profits. We apply this proposal to energy companies that are headquartered or have sales in the European Union. We estimate that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33% would generate around €65 billion in revenue (0.3% of GDP) for the European Union. We discuss implementation practicalities and compare our proposals to other plans made to tax excess profits.
    Date: 2022–11
  5. By: Hamza Bennani (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris] - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université - IUML - FR 3473 Institut universitaire Mer et Littoral - UM - Le Mans Université - UA - Université d'Angers - UBS - Université de Bretagne Sud - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université - Nantes Univ - ECN - École Centrale de Nantes - Nantes Univ - Nantes Université); Matthias Neuenkirch (Trier University)
    Abstract: In this paper, we analyze whether the textual complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer (Am Econ Rev 100(3):763–801, 2010)in the period 1962–2003, we assess the relationship between tax bills' textual complexity and financial markets in various windows around the signing of a bill. Our results show a negative (positive) and significant relationship between the present value of tax bills and changes in the 10-year government bond yields (S &P 500 returns). The magnitude of this relationship increases over time, suggesting that market participants underreact at first and need a couple of days to digest the information contained in the tax bills. This delay can be explained by the textual characteristics of the bills in the case of the 10-year yields as a lower readability partly counteracts the negative relationship for up to three days after the signing of a tax bill. In the case of the stock market, we find similar evidence, but only for a part of the readability measures employed in this paper.
    Keywords: Complexity, Financial Markets, Readability, Tax Bills
    Date: 2023
  6. By: Pierre Pestieau; Maria Racionero
    Abstract: Recent evidence suggests that social mobility has declined in many developed countries despite some of them pursuing proactive redistribution policies. In this paper we characterize the optimal mix of income tax and education policies that a government should adopt to maximize a long-term social objective that includes considerations for income redistribution and upward mobility. We show that switching from an elitist to a meritocratic education system, or from a short-term to a long-term vision of social welfare, fosters upward mobility but it can sometimes lead to increased inequality
    Keywords: social mobility; education policy; Great Gatsby curve
    JEL: H21 H31 H52
    Date: 2023–09
  7. By: Mona Barake (EU Tax - EU Tax Observatory); Theresa Neef (EU Tax - EU Tax Observatory); Paul-Emmanuel Chouc (EU Tax - EU Tax Observatory); Gabriel Zucman (EU Tax - EU Tax Observatory, UC Berkeley - University of California [Berkeley] - UC - University of California)
    Abstract: In October 2021, 136 countries and jurisdictions agreed on the swift implementation of a major reform of the international corporate tax system. In this note, we present simulations of the revenue effects of the global minimum tax of 15% laid out in this agreement. We base our analysis on the most recent country-by-country statistics released by the OECD.
    Date: 2021–10
  8. By: Calijuri, Mónica; Pessino, Carola; López-Luzuriaga, Andrea; Schächtele, Simeon; González, Ubaldo; Chamorro, Carla
    Abstract: This paper studies tax evasion in the form of under-reported wages in Ecuador using microdata from a combination of electronic billing and personal income tax returns filed in 2017. Bringing together this novel combination of data, the study applies the standard method Pissarides and Weber (1989) used to estimate the under-reporting of income by comparing public- and private-sector employees. The results demonstrate empirically that under-reporting of income in private-sector employees is between 7 and 9 percent of their income, which translates to an estimated 3 percent of unregistered GDP. The under-reporting has important implications for social security, reducing these contributions by about 10 percent. Beyond the overall picture of under-reporting, the study detects substantial heterogeneities concerning firm size, concluding that the gap size is negatively correlated with the number of employees at the firm, which is consistent with different risks and administrative costs of envelope wages in small versus large firms.
    Keywords: income tax;Evasion;electronic billing
    JEL: H24 H26 D83
    Date: 2023–05
  9. By: Elira Kuka; Na’ama Shenhav
    Abstract: This paper identifies the impact of increasing post-childbirth work incentives on mothers’ long-run careers. We exploit variation in work incentives across mothers based on the timing of a first birth and eligibility for the 1993 expansion of the Earned Income Tax Credit. Ten to nineteen years after a first birth, single mothers who were exposed to the expansion immediately after birth (“early”), rather than 3 6 years later (“late”), have 0.62 more years of work experience and 4.2% higher earnings conditional on working. We show that higher earnings are primarily explained by improved wages due to greater work experience.
    Keywords: employment; children; incentives; Earned Income Tax Credit (EITC)
    JEL: J16 J22 J31 H20
    Date: 2023–06–23
  10. By: Kotlikoff, Laurence J.; Lagarda, Guillermo; Marin, Gabriel
    Abstract: The Value-Added Tax (VAT) is the most prevalent consumption tax globally, yet it is frequently deemed highly regressive. To address this, we propose a Personalized VAT (PVAT) devised in conjunction with a distributional policy. We aim to achieve three objectives: increase revenue collection, achieve progressivity, and disrupt the intergenerational dependency of low-income households. We use Mexico as a case study, showing that eliminating all special VAT regimes and standardizing the rate at 16% could contribute an additional 2.2% of GDP to fiscal revenues. However, such a reform could have severe negative welfare impacts on the poor. To tackle this dilemma, we propose several PVAT scenarios. Our results indicate that a PVAT could be fiscally neutral or even increase revenues by up to 0.83% of GDP, while benefiting the lowest-income households. Lastly, we analyze the general equilibrium effects of a PVAT and various distributional policies, including lump-sum and capital transfers. For this purpose, we employ an overlapping generations model calibrated for Mexico. Our simulations reveal welfare enhancing and output growth results through a PVAT policy that includes capital transfers, thereby presenting a viable strategy for breaking intergenerational dependency.
    Keywords: Value-added tax;Personalized value-added Tax;Tax reform;Overlapping generations;Inci-dence
    JEL: E62 H21 O11 O12
    Date: 2023–07
  11. By: Cazdow, Lucinda; Hearson, Martin; Heitmüller, Frederik; Kuhn, Katharina; Okagna, Okanga; Randriamanalina, Tovony
    Abstract: In 2023, demands for the United Nations to take up a larger role in global tax governance are louder than ever before. Nevertheless, there is not yet a global consensus on the way forward. In this paper we investigate how the United Nations (UN) could create a more inclusive and effective space for international cooperation. We define the current governance architecture as an ‘international regime complex’, emphasising the fact that several institutions govern international tax cooperation, without there being a hierarchy between them. Based on evidence drawn from interviews with 33 government officials (mainly from lower-income countries) conducted from May to July 2023, and from literature reviews on global governance arrangements in other policy areas, we discuss what role the UN could take in this international regime complex.
    Date: 2023
  12. By: Alex A. T. Rathke
    Abstract: This study analyses the tax-induced profit shifting behaviour of firms and the impact of governments' anti-shifting rules. We derive a model of a firm that combines internal sales and internal debt in a full profit shifting strategy, and which is required to apply the arm's length principle and a general thin capitalisation rule. We find several cases where the firm may shift profits to low-tax countries while satisfying the usual arm's length conditions in all countries. Internal sales and internal debt may be regarded either as complementary or as substitute shifting channels, depending on how the implicit concealment costs vary after changes in all transactions. We show that the cross-effect between the shifting channels facilitates profit shifting by means of accepted transfer prices and interest rates.
    Date: 2023–09
  13. By: Mr. Shafik Hebous; Nate Vernon
    Abstract: With increasing awareness of past environmental damage from crypto mining, questions arise as to how persistent the problem will be in the future and how taxation can help in addressing this negative externality. We estimate that the global demand for electricity by crypto miners reached that of Australia or Spain, resulting in 0.33% of global CO2 emissions in 2022. Projections suggest sustained future electricity demand and indicate further increases in CO2 emissions if crypto prices significantly increase and the energy efficiency of mining hardware is low. To address global warming, we estimate the corrective excise on the electricity used by crypto miners to be USD 0.045 per kWh, on average. Considering also air pollution costs raises the tax to USD 0.087 per kWh. Country-specific estimates vary depending on their electricity sources.
    Keywords: Corrective Taxes; Carbon Tax; Mitigation Policy; Crypto Assets; Crypto Mining; Bitcoin
    Date: 2023–09–15
  14. By: James Malley; Apostolis Philippopoulos; Jim Malley
    Abstract: We develop an endogenous growth model to quantify how permanent structural policy changes that enhance the fiscal policy mix, markets’ functioning, and public institutions’ quality affect long-term growth and welfare. The reforms include increased public investment, reduced market power through lower price markups for patents and intermediate goods, and an improved institutional framework that reduces rent-seeking. All reforms, except lower patent prices, lead to per-capita output and welfare gains along the transition and balanced growth paths. In contrast, a lower markup in the research sector hurts innovation, leading to lower growth over both paths and welfare losses along the transition.
    Keywords: endogenous growth, structural policy, welfare
    JEL: H30 O41 O43
    Date: 2023

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