nep-pbe New Economics Papers
on Public Economics
Issue of 2023‒11‒27
twelve papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Tax simplicity or simplicity of evasion? Evidence from self-employment taxes in France By Philippe Aghion; Ufuk Akcigit; Maxime Gravoueille; Matthieu Lequien; Stefanie Stantcheva
  2. Organizational capacity and profit shifting By Katarzyna Bilicka; Daniela Scur
  3. The Impact of Tax Differences on Intrafirm Patent Transactions By Jesse LaBelle; Ana Maria Santacreu
  4. VAT pass-through and competition: evidence from the Greek Islands By Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki
  5. Value Added Tax in the Extractive Industries By Artur Swistak; Nate Vernon
  6. Identifying Network Ties from Panel Data: Theory and an application to tax competition By Imran Rasul; Pedro Souza; Aureo de Paula
  7. Welfare Effects of Indirect Tax Policies in West Africa By Bart Capéau; Alain Babatoundé; Romain Houssa
  8. Tax Competition for Automation Capital By KATO Hayato; Jonas LOEBBING
  9. How and Why the Gender Pension Gap in Urban China Decreased between 1988 and 2018 By Gustafsson, Björn Anders; Zhang, Peng; Jia, Hanrui
  10. The Effect of Pension Wealth on Female Labor Supply Before Retirement: Evidence From Germany By Giulia Giupponi
  11. The Global Housing Affordability Crisis: Policy Options and Strategies By Saiz, Albert
  12. Distributional and Financial Impact of Universal Inheritance in four European countries By Guillem Vidal-Lorda; Andreas Thiemann; Leire Salazar; José A. Noguera

  1. By: Philippe Aghion; Ufuk Akcigit; Maxime Gravoueille; Matthieu Lequien; Stefanie Stantcheva
    Abstract: We exploit individual panel information from introducing of new and simpler tax regimes for the self-employed in France, in order to assess the extent to which individuals' shift towards the new regimes is driven by a quest for tax simplicity, and the extent to which the demand for tax simplicity is itself at least partly driven by tax evasion motives. We find evidence of a quest for tax simplicity from observing a significant amount of bunching at the eligibility thresholds for the simpler self-employment tax regimes and from the fact that bunching is increasing in the degree of simplicity of the self-employment regime. We also argue that tax evasion plays an important role in accounting for individuals' attraction towards simpler tax regimes. Finally, we quantitatively assess the importance of simplicity and evasion motives for choosing a simpler self-employment regime. More precisely, we combine bunching estimates and a structural model to jointly estimate the real income elasticities, the value of tax simplicity, and the evasion elasticity. We find that the parameters values which generate the best fit with the observed bunching across different tax brackets and years, imply noticeable preference for tax simplicity with a sizeable evasion elasticity behind it, and a negligible real income elasticity.
    Keywords: tax simplicity, simplicity of evasion, taxation of self-employment, France
    Date: 2023–05–05
  2. By: Katarzyna Bilicka; Daniela Scur
    Abstract: Good organizational capacity drives productivity and potential taxable profits but may also enable multinationals (MNEs) to more efficiently re-allocate profits across tax jurisdictions, lowering actual taxable profits. We show that MNE subsidiaries with better organizational capacity report significantly lower profits and have a higher incidence of bunching around zero reported profitability in high-tax countries. This pattern is not present in low-tax countries. Further, responsiveness to corporate tax rate changes in terms of profit reporting is driven by firms with good organizational capacity. We show our results are consistent with profit-shifting behavior and rule out key alternative channels.
    Keywords: Organizational capacity, profit shifting, innovation, diffusion
    Date: 2022–12–06
  3. By: Jesse LaBelle; Ana Maria Santacreu
    Abstract: An analysis of global patent transfers found that international tax differences impact patent transactions between parent companies and foreign subsidiaries.
    Keywords: patents; patent transactions; patent transfers; taxes
    Date: 2023–06–13
  4. By: Lydia Dimitrakopoulou; Christos Genakos; Themistoklis Kampouris; Stella Papadokonstantaki
    Abstract: We examine how competition affects VAT pass-through in isolated oligopolistic markets as defined by the Greek islands. Using daily gasoline prices and a difference-in-differences methodology, we investigate how changes in VAT rates are passed through to consumers in islands with different market structure. We show that pass-through increases with competition, going from 50% in monopoly to around 80% in more competitive markets, but remains incomplete. We also discover a rapid rate of adjustment for VAT changes, as well as a positive relationship between competition and the rate of price adjustment. Finally, we document higher pass-through for products with more inelastic demand.
    Keywords: pass-through, tax incidence, gasoline, value added tax (VAT), market structure, competition, Greek Islands
    Date: 2023–05–30
  5. By: Artur Swistak; Nate Vernon
    Abstract: Lower capacity countries often struggle to administer the Value Added Tax (VAT) in the extractive industries, partly due to the large VAT refunds needs of this capital and export-intensive sector. Assuming that the first-best policy (apply the standard VAT to the extractive industry) is not possible in the medium-term, what should countries do? This paper systemically analyzes second-best VAT policy designs considering the impact of the VAT on three key stakeholders: the investor, domestic suppliers, and the tax administration. The analysis concludes that the generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies, although country characteristics (and, specifically the relative weighting of stakeholders) matter. Moreover, governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.
    Keywords: value added tax; tax policy; extractive industries; fiscal regime design; mining; hydrocarbons
    Date: 2023–10–27
  6. By: Imran Rasul; Pedro Souza; Aureo de Paula
    Abstract: Social interactions determine many economic behaviors, but information on social ties does not exist in most publicly available and widely used datasets. We present results on the identification of social networks from observational panel data that contains no information on social ties between agents. In the context of a canonical social interactions model, we provide sufficient conditions under which the social interactions matrix, endogenous and exogenous social effect parameters are all globally identified. While this result is relevant across different estimation strategies, we then describe how high-dimensional estimation techniques can be used to estimate the interactions model based on the Adaptive Elastic Net Generalized Method of Moments. We employ the method to study tax competition across US states. We find that the identified social interactions matrix implies tax competition differs markedly from the common assumption of competition between geographically neighboring states, providing further insights for the long-standing debate on the relative roles of factor mobility and yardstick competition in driving tax setting behavior across states. Most broadly, our identification and application show that the analysis of social interactions can be extended to economic realms where no network data exists. JEL Codes: C31, D85, H71.
    Date: 2023–10–18
  7. By: Bart Capéau; Alain Babatoundé; Romain Houssa
    Abstract: In West Africa, the Value Added Tax (VAT) policy consists of a standard tax rate, but several items are exempted. We provide an optimal tax framework to reflect on the welfare effects of such a tariff structure, in the context of current debates on domestic resource mobilisation in low-income countries (LICs). Our analysis includes the distinguishing feature that a significant part of the consumption goods in LICs stems from own production, and can therefore not be taxed. We also account for preference heterogeneity over market goods and auto-consumption. A preference consistent individual welfare measure is used. Individual welfare levels are aggregated by social welfare functions with different degrees of inequality aversion. In this setting, we show that a uniform tax rate on all market goods is not optimal, even in the absence of inequality aversion. An application with household data from Benin supports reforms for alternative welfare improving VAT rate structures. In comparison to the current VAT policy, our reforms yield higher average relative welfare gains for the lower deciles. Due to preferences heterogeneity, however, we find winners and losers in all welfare deciles. We develop a bootstrap procedure to construct confidence intervals on welfare indicators.
    Keywords: Africa, Value Added Tax (VAT), Optimal taxation, Taste heterogeneity, Domestic
    Date: 2023–11
  8. By: KATO Hayato; Jonas LOEBBING
    Abstract: Can national governments stop adverse effects of automation on workers from materializing in a world where capital is mobile? We tackle this question by studying tax competition between two governments for internationally mobile capital used in a non-automated sector and an automated sector, in the latter of which labor and capital are perfect substitutes in production. We compare the tax-competition outcome with the outcome in a closed economy without capital mobility and find contrasting results. In the closed-economy case, more efficient automation technology brings a higher wage to workers by allowing governments to choose a higher tax on capital and a lower tax on labor used in production. In the tax-competition case, however, the fear of capital relocation to countries with lower capital tax prevents each government from raising their capital tax and lowering their labor tax. Consequently, the wage paid to workers always declines and the social welfare may also decline if the governments prioritize the earnings of workers.
    Date: 2023–11
  9. By: Gustafsson, Björn Anders (Göteborg University); Zhang, Peng (Zhejiang University); Jia, Hanrui (Shanghai Administration Institute)
    Abstract: In urban China, gender gaps in employment and earnings have steadily increased since the 1990s. Such gender gaps are important because pension rights and amounts are based on labor force participation and wages. However, as this study demonstrates, despite the rise in gender differences in the urban labor market, the average gender pension gap decreased between 1988 and 2018. In the paper, we describe the evolution of the fragmented pension system in urban China using a quantitative approach that distinguishes between pension coverage rates and average benefit amounts. Additionally, we conducted a birth cohort analysis to gain further insights into the reasons for changes in the gender pension gap. We utilized data from the China Household Income Project, focusing on individuals aged 60 years and older. Therefore, this study demonstrates how changes in China's pension system have benefited women more than men during the aforementioned period.
    Keywords: gender pension gap, pension reforms, time effect, cohort effect, urban, China
    JEL: H55 J14 J26 P36
    Date: 2023–10
  10. By: Giulia Giupponi
    Abstract: Demographic trends have increased the potential labor supply of the elderly – women in particular – and its macroeconomic importance, but are simultaneously exerting mounting pressure on the financial sustainability of public old-age support programs. In response to these trends, many countries have implemented – or are planning to implement – pension reforms that aim to encourage longer labor force participation. A rich literature has investigated how the characteristics of public pension systems affect employment at older ages. However, the design of social security can affect labor supply well before retirement. For example, more generous systems might induce workers to reduce their lifetime labor supply. What are the effects of changes in pension benefits on labor supply prior to retirement? And, what is the relative importance of pension wealth (wealth effect) and implicit labor taxation (substitution effect) in affecting labor supply choices? Answering the second question has proven particularly challenging in the empirical literature, due to the difficulty in separately identifying wealth effects and substitution incentives of pension programs. This project will provide novel estimates of the effect of pension wealth on individual labor supply before retirement. The project exploits a German pension reform that changed the generosity of pension contributions credited to parents – mostly mothers – for the time spent raising their children. From July 2014, parents of children born before January 1, 1992 had their pension benefits increased by EUR 336 per year per child; the pension contributions of parents of children born on or after January 1, 1992 was left unchanged. The timing and nature of this policy reform – popularly known as ‘Mütterrente’ – generate a pure pension wealth effect on affected parents. Using administrative social security data on a large sample of German women, who had children in a neighborhood of the January 1, 1992 policy cutoff and were therefore aged approximately 45-60 at the time of the reform, the analysis examines preretirement labor supply responses to a substantial change in pension wealth. To identify the effect of interest, the empirical analysis adopts a difference-in-differences design, comparing the dynamics of labor supply before and after July 2014, for women who had children just before and just after January 1, 1992. The richness of administrative data allows to investigate various dimensions of heterogeneity, such as the work-disutility, income and age gradients of the wealth effect. Well-identified estimates of pension wealth effects in the female population and by various dimensions of heterogeneity are useful to inform models of policy evaluation and long-term projections. In this respect, the project sits within the Center’s research focal areas of ‘informing long-term projections and models’ and ‘requirements of work in the modern economy’.
    Date: 2023–05
  11. By: Saiz, Albert (Massachusetts Institute of Technology)
    Abstract: Housing prices are rising faster than incomes in many areas of the world, reducing well-being and engendering social discontent. Passivity by municipal and national governments is no longer an option. In this essay, I will describe the tradeoffs between different housing policy objectives of governments and the public. I suggest that policy goals should be made explicit, and their tradeoffs acknowledged. Due to the durable impact of real estate development, housing and land-use policies should seek broad inter-partisan consensus. To avoid pernicious general equilibrium effects and because of limited public resources, subsidies ought to be carefully targeted. I will describe the thirty major economic strategies underpinning housing policies worldwide and discuss their main advantages and caveats. Effective housing programs must skillfully deploy a combination of these basic economic strategies, as I will illustrate through several global case studies. Programs should be carefully designed to anticipate behavioral responses from individuals, firms, governments, and markets. Unideological and professional implementation is critical for their success.
    Keywords: real earnings, housing and family income, social policy
    JEL: H53 I38 R21 R31
    Date: 2023–10
  12. By: Guillem Vidal-Lorda (European Commmission - JRC); Andreas Thiemann (German Federal Ministry of Labour and Social Affairs); Leire Salazar (European Commmission - JRC); José A. Noguera (Universitat Autònoma de Barcelona (UAB))
    Abstract: The idea of a Universal Inheritance (UI) has been recently gaining weight amongst scholars concerned over increasing wealth inequality. A UI consists of a one-off public payment of an agreed sum to each citizen of young adulthood. In this article, we provide the results of novel simulations to assess the cost and the distributive impact of such policy by testing different parameters for both the benefit amount and its financing. The simulations run on a top-tail adjusted version of the Household Financial Consumption Survey covering four countries: Finland, Germany, Ireland, and Italy. We find that, under some parameters, a UI would significantly reduce inequality and could be realistically financed by taxing the top 1%.
    Keywords: Universal Inheritance; Wealth; Inequality; Simulation; Redistribution; Policy
    JEL: H24 D31 I38 H23
    Date: 2023–09

This nep-pbe issue is ©2023 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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