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on Public Economics |
| By: | Pessino, Carola; Rasteletti, Alejandro; Artana, Daniel; Lustig, Nora |
| Abstract: | This chapter analyzes the incidence on income distribution by a comprehensive array of direct and indirect taxes in ten Latin American countries circa 2018. The study finds that although there is a significant heterogeneity, the redistributive impact is equalizing for direct taxes and unequalizing for indirect taxes. Overall, redistribution through taxes, without accounting for spending effects and interactions, is slightly equalizing for some countries and unequalizing for others, but the burden on the poor is high and even higher than on the rich. This is mainly a consequence of the high share of indirect taxes in the tax structures, and of low personal income tax collection and coverage. The inclusion of the redistributive effect of the corporate income tax contributes to improve redistribution and accounts for better comparison with the redistributive impact in more developed countries, where dividends are taxed heavily with personal income taxes rather than corporate income taxes as in Latin America. High levels of evasion and informality make payroll taxes more regressive in integrated labor markets with high informality, but make indirect taxes less regressive, since the poor pay little or no indirect taxes on some of their purchases. |
| Keywords: | taxes; inequality; informality; Latin America |
| JEL: | D31 E26 H22 H26 N36 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120697&r=pbe |
| By: | Corti Paul Lakuma; Rehema Kahunde |
| Abstract: | This paper simulates the impact of the global minimum corporate tax rate (GMCTR) in Uganda by estimating the difference between the mechanical and the behavioural changes in tax revenue. Overall, implementation of GMCTR will increase tax revenue, and the revenue increase is inversely proportional to the behavioural response. The differences in elasticities may introduce tax competition. In addition, the revenue gain is positive but quantitatively small. There are also sectoral differences in revenue gain resulting from the GMCTR. |
| Keywords: | Corporate tax, Effective tax rate, Tax revenue, Tax administration, Base erosion, Profit shifting |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-137&r=pbe |
| By: | Lucas Menescal; José Alves |
| Abstract: | This study examines the effects of the tax structure composition for public sector efficiency in a sample of 41 developing countries for the period between 1997-2019. We start by calculating Public Sector Performance (PSP) composite indicators and use them as outputs to compute data envelopment analysis (DEA) efficiency scores under different orientation setups. After using a general-to-specific approach to identify the most determinant variables, we analyze the relevance of different taxes for public efficiency in a panel regression specification. We find that tax effects are significantly different depending on the orientation of DEA scores. Notably, we observe that taxation presents stronger detrimental effects to input-oriented scores in comparison to output-oriented, and that Opportunity PSP indicators seem more affected by property taxes and working contributions, while Musgravian PSP indicators are more closely related to individual and corporate income taxes. Our results allow us to provide policy implications regarding better tax structures to improve efficiency on the provision of public goods and services. |
| Keywords: | public sector performance, government efficiency, tax structure, data envelopment analysis, developing countries, panel data |
| JEL: | C14 C23 H11 H21 H50 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10726&r=pbe |
| By: | OECD |
| Abstract: | This document provides an integrated view on income-based tax incentives for R&D and innovation. It brings together the latest evidence on the adoption, design, generosity, cost and take-up of income-based tax incentives, and gives new insights into both the long-term and short-term trends in the take-up of income-based tax incentives by business and their cost to governments, including role of policy design changes. Furthermore, the report explores the scope for developing indicators that provide a more complete picture of the value of expenditure- and income-based tax relief for R&D and innovation in the OECD area and beyond. |
| Keywords: | innovation, Research and development, tax incentives |
| JEL: | H25 O38 O34 |
| Date: | 2023–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaac:161-en&r=pbe |
| By: | Bührle, Anna Theresa; Casi-Eberhard, Elisa; Stage, Barbara; Voget, Johannes |
| Abstract: | We study the economic consequences of anti-loss trafficking rules, which disallow the use of loss carry-forwards as tax shield after a substantial ownership change. Using staggered changes to these rules, we find that limiting the transfer of tax losses reduces the number of M&As with loss-making targets by 22%. We further observe decreases in birth and survival rates of young companies in response to stricter regulations and vice versa. Tightening (loosening) anti-loss trafficking rules impairs (increases) return on assets, especially for R&D-intensive firms, and stricter rules lead to a decrease in successful patent applications. |
| Keywords: | Mergers and acquisitions, anti-loss trafficking rules, taxes, market entry, market exit, productivity, innovation |
| JEL: | G34 G38 H25 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:279548&r=pbe |
| By: | Andrea Amado; Koji Kotani; Makoto Kakinaka; Shunsuke Managi |
| Abstract: | People worldwide aim to reduce the adverse impacts from carbon emissions by adopting clean energy sources. While the literature identifies potential policies, such as carbon taxes, to address this issue, few studies have investigated how these policies can be concretely designed to facilitate cleaner-energy transition. We pose a question of how a carbon tax can be an effective instrument at transitioning to clean energy and hypothesize that providing a set of crucial information with respect to the tax persuades people to support it. We experimentally examine the determinants influencing public support for the introduction of a carbon tax via a vignette experiment with 1500 Japanese subjects. The vignette policy dimensions include “who pays the tax, †“how the tax gets paid, †“where the revenue gets used†and “how much the burden becomes, †each of which is introduced as a treatment with the baseline of “no information†provision. The results indicate that public support comparatively increases when the entities specified to pay are producers, when the tax revenue is used towards renewable energies and when the burden is sufficiently low. Overall, we demonstrate that a carbon tax can be an effective policy instrument for cleaner-energy transition, while garnering public support and ample revenue. To this end, it is necessary to inform people that the carbon-tax policy design targets producers and renewable energy along with a per-capita burden between 500 JPY to 3000 JPY a month. |
| Keywords: | carbon tax, clean energy, policy design, vignette experiment |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:kch:wpaper:sdes-2023-6&r=pbe |
| By: | Alstadsæter, Annette (School of Economics and Business, Norwegian University of Life Sciences); Casi, Elisa (Dept. of Business and Management Science, Norwegian School of Economics); Miethe, Jakob (Dept. of Economics, University of Munich); Stage, Barbara M. B. (WHU – Otto Beisheim School of Management) |
| Abstract: | This paper studies how national implementation shapes individual responses to global agreements by looking at the introduction of the multilateral standard for automatic information exchange on financial assets, i.e., the Common Reporting Standard (CRS). We utilize rich micro-level data on all bank transfers to Norway. This provides us with unparalleled detail on hidden ownership structures. These data show a significant increase in cash repatriation from tax havens post-CRS implementation. Yet, we document substantial heterogeneity in responses down to a null result if CRS enforcement is weak. Relying on macroeconomic data on cross-border bank deposits, we employ model averaging techniques to establish the most important characteristics of the receiving countries that make the CRS more effective. Our results suggest that a highly digitized tax administration triggers twice the drop in tax haven deposits compared to a tax administration relying on paper tax returns. These results have implications for global policy initiatives more broadly. |
| Keywords: | Global Tax Agreements; Tax Evasion; Financial Flows; Tax Enforcement |
| JEL: | F42 G21 H26 |
| Date: | 2023–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2023_022&r=pbe |
| By: | Clement E. Bohr; Charles A. Holt; Alexandra V. Schubert |
| Abstract: | Motivated by a popular perception that Roth accounts are welfare-improving for most people, this paper compares the effects of mandated Traditional (tax-deferred) or Roth (taxprepaid) retirement policies in a controlled laboratory setting. Selection effects, which complicate analyses of observational data, are avoided by random assignment to policies. Subjects receive exogenous incomes during “working” periods, followed by no-income “retirement” periods. In each period, subjects decide how many lab dollars to convert into “takehome pay, ” akin to consumption with diminishing returns. Subjects’ decisions determine retirement savings and tax payments. Flat income and tax-rate profiles facilitate the analysis of behavioral factors like present-period tax avoidance, while optimal consumption and after-tax savings are identical for both treatments. Our results show that observed savings are suboptimal in both treatments and are influenced by gender, patience, and risk aversion measures. In contrast to conventional wisdom, there are no significant differences between policies; if anything, the Traditional treatment leads to marginally higher post-retirement consumption. |
| Keywords: | Retirement, tax-deferred savings, Roth, IRA, compound interest bias, laboratory experiments |
| JEL: | C91 D84 D91 E21 H24 J32 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:440&r=pbe |
| By: | Alkis Blanz (University of Potsdam, MCC Berlin); Ulrich Eydam (University of Potsdam); Maik Heinemann (University of Potsdam); Matthias Kalkuhl (University of Potsdam, MCC Berlin); Nikolaj Moretti (University of Potsdam, MCC Berlin) |
| Abstract: | The effects of energy price increases are heterogeneous between households and firms. Financially constrained poorer households, who spend a larger relative share of their income on energy, are particularly affected. In this analysis, we examine the macroeconomic and welfare effects of energy price shocks in the presence of credit-constrained households that have subsistence-level energy demand. Within a Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the German economy, we compare the performance of different policy measures (transfers and energy subsidies) and different financing schemes (income tax vs. debt). Our results show that credit-constrained households prefer debt over tax financing regardless of the compensation measure due to their difficulty to smooth consumption. On the contrary, rich households tend to prefer tax-financed measures as they increase the labor supply of poor households. From an aggregate perspective, tax-financed measures targeting firms effectively cushion aggregate output losses. |
| Keywords: | energy prices, E-DSGE, fiscal policy, welfare |
| JEL: | E62 E64 H31 H32 Q43 Q52 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:pot:cepadp:70&r=pbe |
| By: | Nakatani, Ryota |
| Abstract: | Does government revenue decentralization affect the probability of a fiscal crisis? Is there a tipping point where revenue decentralization worsens the probability of a fiscal crisis? To answer these questions, we use cross-country panel data on 66 countries from 1982 to 2019. The binary choice models show that revenue decentralization is positively associated with crisis probability when countries exceed a certain threshold of decentralization. When more than 16-17 percent of general government revenue is decentralized to local governments, this adverse effect of revenue decentralization occurs. This is consistent with the recent theoretical prediction that tax revenue collection efforts weaken as the government decentralizes revenue more. The adverse effects of revenue decentralization are large in low-income countries. Our finding implies the benefits of revenue centralization, such as economies of scale for revenue agencies, eliminating externalities due to tax competition, and the intergovernmental insurance role of federal transfers against local shocks. |
| Keywords: | Revenue Decentralization; Fiscal Crisis; Binary Choice Model; Federalism; Local Government |
| JEL: | H71 H74 H77 |
| Date: | 2023–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119032&r=pbe |
| By: | Aart Gerritsen |
| Abstract: | I consider the case for the minimum wage alongside (optimal) income taxes when workers differ in both wages and working hours, such that a given level of income corresponds to multiple wage rates. The minimum wage is directly targeted at the lowest-wage workers, while income taxes are at most targeted at all low-income workers, regardless of their hourly wage rates. This renders the minimum wage unambiguously desirable in a discrete-type model of the labor market. Desirability of the minimum wage is a priori ambiguous in a continuous-type model of the labor market. Compared to the minimum wage, income taxes are less effective in compressing the wage distribution but more effective in redistributing income. Desirability of the minimum wage depends on this trade-off between the “predistributional advantage” of the minimum wage and the “redistributional advantage” of the income tax. I derive a desirability condition for the minimum wage and write it in terms of empirical sufficient statistics. A numerical application to the US suggests a strong case for a higher federal minimum wage – especially if social preferences for the lowest-wage workers are relatively strong and the wage elasticity of labor demand relatively small. |
| Keywords: | minimum wage, income taxation, optimal redistribution, multidimensional heterogeneity |
| JEL: | H21 J38 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10734&r=pbe |
| By: | Hassan Adan; Jean-Marc B. Atsebi; Nikolay Gueorguiev; Mr. Jiro Honda; Manabu Nose |
| Abstract: | Despite the criticality of tax administration (TA) reforms in enhancing domestic revenue mobilization, few studies have attempted to quantify the revenue impact of such reforms. This paper fills this gap by estimating the revenue yields associated with various tax administration capabilities, based on the International Survey on Tax Administration (ISORA), the Tax Administration Diagnostic Assessment Tool (TADAT), and TA reform episodes datasets (identified by Akitoby et al., 2020). It uses a Hausman-Taylor cross-country panel regression and an event study for specific TA reform episodes. Our results (using the ISORA data) show that an increase in the overall strength of TA from the 40th percentile to the 60th percentile is associated with an increase in tax revenue by 1.8 pp. of GDP (with a 95 percent confidence range of 0.5‒2.6 pp. of GDP). Similarly, the event-study assessment shows that sustained TA reforms led to an increase in tax revenues between 2 to 3 pp. of GDP, in line with the experience in three country cases (Jamaica, Rwanda, and Senegal). Also, the revenue yields are increasing over time to more than 3 pp. of GDP after the 6th year following a comprehensive reform. The analysis also highlights the significant impact of specific measures including: i) strengthening compliance risks management, ii) enhancing public accountability, iii) establishing Large Taxpayer Offices (LTO), iv) strengthening accountability and transparency, and v) enhancing timely filing of tax declarations. |
| Keywords: | Tax Revenues Yields; Tax Administration; ISORA; TADAT |
| Date: | 2023–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/231&r=pbe |
| By: | Altube, Matias Guizzo; Scartascini, Carlos; Tommasi, Mariano |
| Abstract: | Predominant views on the political economy of Latin America and the Caribbean tend to emphasize that elite domination helps to understand the high levels of inequality. The contemporary fiscal version of that assertion goes something like “the rich are powerful and they don't like taxes, hence we have little taxation and little redistribution.” That is a good approximation to the reality of some countries, but not of others. There are cases in the region where there are high levels of taxation and non-negligible redistributive efforts. But in some of those cases such redistribution comes hand in hand with macroeconomic imbalances, high inflation, low growth, as well as low-quality public policies. When redistributive efforts are short-sighted and attempted with inefficient public policies, fiscal imbalances lead to inflation and to frequent macroeconomic crises that reduce growth and thwart poverty reduction efforts. The argument of this paper is that there are various possible political configurations (including elite domination and populism among others) that lead to different economic and social outcomes (including the degree of redistribution and others). We postulate that each configuration of social outcomes emerges out of different political economy equilibria. Different countries in the region will be in different political economy equilibria, and hence will have different combinations of political economy syndromes and of socioeconomic outcomes. In this paper, we characterize the countries regarding the size of the public sector, how much fiscal redistribution there is, and how efficient this public action is. We summarize various strands of literature that attempt to explain some elements of that fiscal vector one at a time; and then attempt to provide a simple framework that might explain why different countries present different configurations of size, distributiveness, and efficiency. |
| Keywords: | inequality; redistribution; political economy; growth; poverty |
| JEL: | H20 H23 E62 P16 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120678&r=pbe |
| By: | Hang Lai; Stanimira Milcheva |
| Abstract: | UK housing policy has focused on restricting investment behaviour and boosting the homeownership rate in recent years. This article estimates the effect of a 3% additional transaction tax (stamp duty land tax) on the Buy-to-Rent, known as Buy-to-Let (BTL) market in the UK. We find evidence of average price decreases but with the trend of immediate increase after policy announcement and decrease rapidly after the implementation date. The additional stamp duty land tax (SDLT) not only affects the transaction price but also leads to a significant drop in BTL transaction volume and an increase in the rental price, showing that landlords compensate their loss in investment by increasing the burden of tenant and indirectly affecting the ability of tenants for owning a home. |
| Keywords: | Build-to-Rent; Housing Policy; Rental Housing; Transaction tax |
| JEL: | R3 |
| Date: | 2023–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:arz:wpaper:eres2023_140&r=pbe |
| By: | Altamirano, Alvaro; Oliveri, María Laura; Bosch, Mariano; Tapia, Waldo |
| Abstract: | This paper examines the implicit subsidies within pension systems across Latin America and the Caribbean (LAC) region. We first calculate the theoretical benefits of pension for hypothetical workers in 25 countries in LAC. We show that, on average, LAC's pension systems are subsidized, as they provide pensions above what workers would have obtained by investing pension contributions in a safe asset. Similarly, pension systems are designed to be progressive by offering higher replacement rates (pensions relative to earnings) for low-income workers. Despite this progressivity, in some countries, absolute subsidies could be higher for high-income workers. This occurs because the cost of one percentage point of the replacement increases with the average pension. Second, using data from social protection surveys, we estimate the incidence of pension systems in five LAC countries. We show that, on average, all five systems provide important subsidies to those workers who obtain a pension. However, given the high levels of informal work, in some countries, those subsidies are highly concentrated among high-income workers. Variation is large across countries. The three highest labor income deciles concentrate 70-95% of all subsidies in defined benefit systems such as Paraguay and Colombia. In defined contribution systems, subsidies are much more progressive, but still, because low-income workers do not qualify for minimum pensions, between 50-60% of subsidies concentrate in the high-income deciles. Countries like Chile, with explicit subsidies targeted at the bottom of the income distribution, obtain a more progressive distribution of subsidies. Because of relatively low participation rates, women have a weaker link with the pension system. They are also less likely to benefit from implicit subsidies. Finally, we show that non-contributory pensions, if well-targeted, largely improve the redistributive properties of pension systems in LAC. |
| Keywords: | pensions; subsidies; taxes; Latin America |
| JEL: | H55 J11 J14 J18 J26 J32 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120684&r=pbe |
| By: | Niklas Potrafke |
| Abstract: | Fiscal rules are controversial. They mitigate politicians’ flexibility in responding to shocks and pursuing expansionary fiscal policy. They help, however, to handle politicians’ commitment problem in fiscal policies. I portray the new and fast growing empirical literature in public economics that examines the economic consequences of fiscal rules. The survey encompasses the literature on fiscal rules at the national, sub-national and local level. The results show that fiscal rules reduce budget deficits, public spending and borrowing costs and increase GDP growth. The results do not suggest that fiscal rules decrease public investment. Future research should examine in more detail the unintended effects of fiscal rules such as how they relate to creative accounting. |
| Keywords: | fiscal rules |
| JEL: | H50 H60 H70 N10 O10 R10 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10765&r=pbe |
| By: | Martin Besfamille; Nicolás Figueroa; Léon Guzmán |
| Abstract: | We consider a model featuring a single-product natural monopoly, which faces evaders, i.e., individuals that may not pay the price. By exerting a costly effort, the firm can deter evasion. To maximize the total surplus, a regulator sets the price, the level of deterrence effort, and socially costly transfers to ensure the monopoly’s participation. We obtain a modified Ramsey formula, which clearly shows that the mere existence of evaders dampens the use of the price as a mean to finance the firm’s deficit. The regulated price is always below the monopoly price and, under sufficient conditions, also below marginal cost. Then, we generalize the model to incorporate moral hazard. Finally, we undertake an empirical application of our results, which shows quantitatively that the downward tendency of regulated prices in a context of high evasion is significant. |
| Keywords: | regulation, natural monopoly, evasion and marginal cost of public funds |
| JEL: | D42 H20 L43 L51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10732&r=pbe |
| By: | Mette Gørtz; Bent Jesper Christensen; Nabanita Datta Gupta |
| Abstract: | The population is aging in Denmark, as in many other countries, due to increasing life expectancy and a low total fertility rate. This potentially puts the Danish welfare state under pressure. This paper discusses the demographic and socioeconomic situation of the elderly in Denmark, focusing on the health status and financial situation of the elderly, and the provision of long-term care (LTC). We rely on a combination of survey data, mainly from the Survey of Health and Retirement in Europe (SHARE), and high-quality register data covering the entire Danish population. We find that a large fraction of the elderly is in good health, but that those in the older age group, 85+, face considerably more functional limitations in daily living. One in three of the elderly receives some form of long-term care, and more than half the 85+ group. The paper further identifies a number of current challenges regarding organization of the long-term care sector, including recruitment of personnel for health care and LTC. Finally, the paper sheds light on the extent of informal care provided by family and friends. While informal care is offered voluntarily and is generally unpaid, it represents a substantial opportunity cost to society. |
| JEL: | H51 I1 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31889&r=pbe |