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on Public Economics |
| By: | Margit Schratzenstaller |
| Abstract: | Wealth inequality and concentration, together with the search for options to secure long-term sufficiency of tax systems in face of ageing societies, have recently moved the taxation of inheritances into the spotlight. The question if and to what extent behavioral responses by bequeathers may undermine the revenue potential of inheritance taxes is central for policy design. This survey of the empirical literature finds an overall moderate impact of inheritance taxation on wealth accumulation and residential choice. This holds true also for the impact of inheritance taxes on tax planning and avoidance in general as well as inter vivos transfers in particular. Tax planning, avoidance and evasion responses are more pronounced than real responses. Behavioral responses to an inheritance tax are smaller compared to a recurrent net wealth tax. Therefore, policymakers aiming at the minimization of (revenue-reducing) behavioral responses should prefer an inheritance tax over a recurrent net wealth tax. Furthermore, the containment of (illegal) tax avoidance should be a priority for policymakers in order to secure legitimacy of and public support for inheritance taxation, but also to ensure that inheritance taxes are an efficient tool to reduce inequality, considering that avoidance and evasion are highly concentrated among the rich. |
| Keywords: | Inheritance taxation, Wealth taxation, Behavioural responses, Tax elasticities, Tax avoidance |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2023:i:668&r=pbe |
| By: | Emmanuel Saez; Gabriel Zucman |
| Abstract: | This paper proposes a new framework to study the distribution of taxes and the effects of tax reforms, connecting classical tax incidence analysis to optimal tax theory. To study the distribution of current taxes, labor taxes are assigned to the corresponding workers, capital taxes to the corresponding asset owners, and consumption taxes to consumers. The tax rates are the wedges between pre-tax prices (relevant for production) and after-tax prices (relevant for the work, saving, and consumption decisions of households). In contrast to the conventional approach that shifts taxes across production factors, our approach measures actual incomes, is internally consistent, and maximizes the comparability of tax progressivity and inequality over time and across countries. Applying this methodology to the United States, we find that the effective tax rate of the top 1% has declined from about 50% in the early 1950s to 32% in 2021. It is through the corporate tax that a high degree of tax progressivity was achieved in the middle of the 20th century. To analyze the distributional effects of tax reforms, mechanical changes in tax liability by income groups and aggregate revenue effects due to household behavioral responses are sufficient statistics in neoclassical optimal tax models. The effects of taxes on pre-tax prices at the heart of classical tax incidence analysis are irrelevant. This neoclassical framework can be extended to incorporate non-standard behavioral responses uncovered by the recent empirical literature. We apply this framework by providing a distributional analysis of frequently discussed tax reforms, including replacing employer-provided health insurance contributions by a payroll tax. |
| JEL: | H20 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31912&r=pbe |
| By: | Youssef Benzarti; Luisa Wallossek |
| Abstract: | This paper provides novel estimates on the cost of filing taxes over time and in different countries. First, we ran a survey of US taxpayers. We find that taxpayers perceive that tax complexity and filing costs have been increasing and that the majority would be willing to pay for simplifying the tax system and adopting pre-populated tax returns. Second, we use word counts of the tax codes in several countries dating as far back as the early 1980’s as a proxy for tax compliance costs. This measure shows that compliance costs have been steadily increasing. |
| JEL: | H0 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31944&r=pbe |
| By: | Nguyen Thi, Hoang Ha |
| JEL: | H26 J12 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277651&r=pbe |
| By: | James R. Hines Jr. |
| Abstract: | Tax harmonization entails a uniform rate that may not suit all governments. Harmonization can advance collective governmental objectives only if the standard deviation of tax rates is less than the average downward effect of tax competition on rates. Since an efficient harmonized tax rate undoes the effect of competition, an efficient rate equals or exceeds the sum of the observed average tax rate and the standard deviation of rates. In 2020, the mean world corporate tax rate was 25.9%, and the standard deviation 4.5%, so if there is an efficient harmonized world tax rate, it must be 30.4% or higher. |
| JEL: | H21 H25 H71 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31900&r=pbe |
| By: | Dhammika Dharmapala |
| Abstract: | The 2017 US tax legislation - widely referred to as the Tax Cut and Jobs Act (TCJA) - fundamentally transformed the US system of international taxation. It ostensibly ended worldwide taxation but introduced, for instance, a new tax on “Global Intangible Low-Taxed Income” (GILTI). This paper surveys the emerging empirical literature on the impact of the TCJA’s international provisions. It documents five robust findings in this empirical literature. First, the TCJA led to a general decline in US MNCs’ foreign acquisitions. Second, the TCJA increased US MNCs’ investment in routine foreign tangible assets. Third, the reform did not lead to any change in profit shifting by US MNCs beyond the magnitude that would be expected based on the TCJA’s tax rate reduction. Fourth, The TCJA appears to have reduced the market value of US MNCs relative to domestic US firms. Fifth, the TCJA does not appear to have had any detectable impact on domestic US investment and wages (although there are some contrary results for capital expenditures). The welfare implications of these findings depend crucially on whether US MNCs’ are viewed as having engaged in too much or too little foreign activity prior to the TCJA. This depends on the choice of theoretical framework and the relevant normative benchmark, and cannot readily be resolved empirically. |
| Keywords: | international taxation, multinational firms, Tax Cut and Jobs Act (TCJA), repatriation taxes, global intangible low-taxed income tax |
| JEL: | H25 F23 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10802&r=pbe |
| By: | Herault, Nicolas; Jenkins, Stephen P. |
| Abstract: | We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). In the first such application to the UK, and using yearly data covering 1977–2020, we find that redistributive effect increased over the period. However, there is no clear trend in horizontal inequity and this component forms a very small fraction of total redistributive effect by comparison with reranking and especially vertical components. It is also the vertical component that best tracks trends in redistributive effect. We give specific attention to the choice of the bandwidth used to define ‘close equals’ in terms of pre-tax income. We also show that implausible estimates of the horizontal inequity component arise for some years regardless of bandwidth used. |
| Keywords: | redistributive effect; redistribution; horizontal inequity; reranking; urban-Lambert decomposition; income tax |
| JEL: | D31 H24 H50 I38 |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120996&r=pbe |
| By: | Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Martin Lopez-Daneri (Virginia Commonwealth University); Gustavo Ventura (Arizona State University) |
| Abstract: | How should the U.S. confront the growing revenue needs driven by higher spending requirements? We investigate the mix of potential tax increases that generate a given revenue need at the minimum welfare cost and evaluate its macroeconomic impact. We do so in the context of a life-cycle growth model that captures key aspects of the earnings and wealth distributions and the non-linear shape of taxes and transfers in place. Our findings show that a proportional consumption tax combined with a lump-sum transfer to all households and a reduction in income tax progressivity consistently emerges as the best alternative to minimize welfare costs associated with a given increase in revenue. A 30% long-run increase in Federal tax revenue requires a consumption tax rate of 27.8%, a transfer of about 12% of mean household income to all households, and a reduction of top marginal income tax rates of more than 5 percentage points—output declines by 7.9% in the long run. While transfers are substantial, smaller transfers can accomplish most of the reduction in welfare costs. We find no role for wealth taxes in increasing revenues or minimizing welfare costs. |
| Keywords: | Taxation, progressivity, tax revenue. |
| JEL: | E6 H2 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2023_2305&r=pbe |
| By: | Mathilde Muñoz |
| Abstract: | This paper quantifies the unequal welfare effects of tax competition. I derive the optimal tax and transfer schedules in a free mobility union composed of countries that can either compete or set a uniform federal tax rate. In the absence of fiscal coordination, governments internalize that any decentralized tax reform can lead to the out-migration of taxpayers at the top of the income distribution while increasing the in-migration of transfer recipients. As a result, the optimal level of redistribution is always lower in the tax competition equilibrium. Numerical calibrations show that being in a competition union rather than in a federal union decreases poorer individuals’ welfare by up to -20 percent. In contrast, the rich experience higher welfare in the tax competition equilibrium due to lower tax rates. |
| JEL: | H31 H73 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31920&r=pbe |
| By: | Patrick Macnamara (University of Manchester); Myroslav Pidkuyko (Banco de España); Raffaele Rossi (University of Birmingham) |
| Abstract: | This paper shows that linear consumption taxes are a powerful tool to implement efficient redistribution. We derive this result in a quantitative life-cycle model that reproduces the distribution of income and wealth in the United States. Optimal policy calls for raising all fiscal revenues from consumption, and providing redistribution via a highly progressive wage tax schedule. Capital income and wealth should not be taxed. This policy reduces inequality and increases productivity, and brings large welfare gains relative to the status quo. Around two-thirds of these gains are due to redistribution. Finally, our reform is also welfare improving in the short-run. |
| Keywords: | optimal policy, inequality, consumption taxation, life-cycle, entrepreneurs |
| JEL: | E62 H21 H24 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2331&r=pbe |
| By: | James Alm (Tulane University); Lilith Burgstaller (University of Freiburg, Walter Eucken Institute); Arrita Domi (Walter Eucken Institute); Amanda März (Walter Eucken Institute); Matthias Kasper (Walter Eucken Institute) |
| Abstract: | This paper discusses current developments in tax compliance research, with a focus on three aspects. First, we summarize empirical evidence on the traditional deterrence or enforcement approach, suggesting that tax audits and fines for noncompliance are critical in taxpayersâ compliance decisions. However, recent research indicates that the effects of deterrence are more nuanced than initially thought, suggesting that other interventions are needed to improve tax compliance. Second, therefore, we discuss research on behavioral approaches to increase tax compliance, starting with research that analyzes the effects of "nudges", or interventions that use behavioral economics to alter the ways in which the choice architecture facing individuals is communicated to them by the tax administration. As applied to tax compliance, we conclude that nudges have had mixed effects on increasing tax compliance, suggesting that the specific design and implementation of these interventions determines their effectiveness. Third, we extend our discussion to other behavioral economics interventions that have not yet been studied widely in tax compliance research. These include "sludge", or institutional features that complicate compliance, and "boosts", or initiatives that target individualsâ competences and thereby help them to make better decisions. Our central argument is that all three of these behavioral interventions should be utilized in the design of tax policies. However, for these methods to effectively complement traditional deterrence approaches, tax administrations should evaluate them before implementing them in the field. Closer cooperation between administrators and academics should thus be facilitated and encouraged. |
| Keywords: | Tax compliance, deterrence theory, behavioral economics, nudges, boosts, sludge |
| JEL: | H2 H26 D91 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2308&r=pbe |
| By: | Eko Arief Yogama (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield, S1 4DT, UK.); Daniel J. Gray (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield, S1 4DT, UK.); Matthew D. Rablen (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield, S1 4DT, UK.) |
| Abstract: | We conducted a randomised controlled trial in Indonesia to evaluate the effect of three intervention letters on tax penalty compliance behaviour. Over 10, 000 individual taxpayers are randomly assigned to receive either a deterrence, information, or simplification letter, or no letter. Our results indicate that simplification, which makes paying a penalty less burdensome administratively by providing billing codes to pay the penalties, yields the highest probability of timely settlement, increasing compliance by 32 per cent compared to the control group. Deterrence also positively impacts penalty compliance, increasing timely settlement rates by 27 per cent. The least effective intervention is the information letter. Although associated with a 12 per cent increase in tax compliance, this effect is only statistically significant at the 10 per cent confidence level. Our results suggest that strategic messaging by tax authorities in developing countries can be a cost-effective tool for improving tax penalty payment compliance. |
| Keywords: | Tax penalties; Tax compliance; RCT; Simplification; Deterrence; Information; Indonesia |
| JEL: | C93 D91 H26 Z18 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2023023&r=pbe |
| By: | Jeffrey Hicks (Department of Economics, University of Toronto); Gaëlle Simard-Duplain (Department of Economics, Carleton University); David A. Green (Vancouver School of Economics, University of British Columbia); William Warburton (Enterprise Economic Consulting) |
| Abstract: | Welfare caseloads in North America halved following reforms in the 1990s and 2000s. We study how this shift affected families by linking Canadian welfare records to tax returns, medical spending, educational attainment, and crime data. We find substantial and heterogenous employment responses that increased average income despite reduced transfers. We find zero effects on aggregate health expenditures, but mothers saw reduced preventative care and increased mental health treatment, consistent with the transition to employment elevating time pressure and stress. We find no effect on teenagers' education and criminal charges as young adults but do find evidence of intergenerational welfare transmission. |
| JEL: | H23 H31 I14 I24 I38 J62 |
| Date: | 2023–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:23-05&r=pbe |
| By: | Juan Pablo Gama (Cedeplar/UFMG); Rodrigo J. Raad (Cedeplar/UFMG) |
| Abstract: | This paper analyses a three-period Ramsey’s model with heterogeneous agents and a bond offered by a central planner. We show that Ramsey’s taxation property holds, that is, tax rates are higher for markets with lower price elasticity in the social optimal allocation. Additionally, we show that a central planner optimal strategy based only on a partial default on interest payments implements the former goods allocation with taxation. Therefore, an increment on public expenditure due to a public health crisis such as the COVID-19 cannot be financed by a partial default on the public debt. Indeed, it overburdens agents who consume larger amount of inelastic goods, that is, those with lower income. We conclude that an emergency expenditure must be financed through an increase of Value-Added taxes, precautionary savings, or income taxes who do not participate directly on the emergency planning of a public health crisis. |
| Keywords: | Optimal taxation, General equilibrium, Default, Public expenditure shocks, COVID-19 |
| JEL: | D50 D52 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td665&r=pbe |
| By: | Chernyakova, Elena (Чернякова, Елена) (The Russian Presidential Academy of National Economy and Public Administration); Yastrebova, Ekaterina (Ястребова, Екатерина) (The Russian Presidential Academy of National Economy and Public Administration); Aslapovskaya, Lyubov (Аслаповская, Любовь) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | Deepening digitalization leads to increasing involvement of people in pastimes and activities on various platforms, and, accordingly, a significant increase in the income of individuals from YouTube (YouTube), VK, and other similar sources of income through subscriptions, donations, advertising, etc. The changes that began in Russia in the spring of 2022, changes in the composition of digital income sources (change in the number of foreign sources, reorientation to Asian platforms, and the growth in the number of popular Russian platforms), do not change the essence of the situation with the need to control digital income. The coronavirus pandemic has changed many areas of life and the activities of individuals, companies, and countries. It should be noted that the coronavirus pandemic, in which people were in self-isolation, and some people lost their jobs, also contributed to a significant increase in income from the respective platforms. Another modern trend is the widespread use of self-employed regimes in the economy, the work of people outside labor contracts. The use of these regimes not only simplifies the involvement of individuals in legal business activities but also provides additional opportunities for tax evasion. The most striking example is the Uber case in the UK. The expansion of the use of cryptocurrencies and the beginning of the actual taxation of income from cryptocurrencies is also another modern trend. All the above trends indicate the relevance of the work and require detailed analysis, based on the results of which it is advisable to adjust the tax legislation of Russia. The subject of the study is the income of individuals received from sources that exist in digital form. The main goal of the study is to modernize some aspects of the current system of taxation of individuals to ensure the rights of citizens of the Russian Federation and the fiscal interests of the state. The main tasks to be solved within the framework of the study: an overview of the main modern changes in the world and Russia that affect or may affect the taxation of individuals; identification and analysis of modern trends in the taxation of individuals in the world; identification and analysis of additional modern trends in the taxation of individuals, characteristic of Russia; preparation of proposals for improving the taxation of individuals in Russia. Research methods - a set of general scientific and special methods of cognition, namely, system analysis, the method of analogy, and the general logical method of generalization, comparative legal, structural, and functional analysis. The sources of information in the study are research materials of Russian and foreign scientists, legislative bases, websites of tax authorities of the countries of the world, the information presented on the digital platforms themselves, the media, and other sources. The scientific novelty of the study is primarily due to the novelty of the very issue of obtaining significant income for individuals from sources that exist in digital form. In addition, the scientific novelty of the study is due to the analysis of the latest scientific research on this issue, as well as the latest changes in tax legislation and initiatives of the tax authorities of foreign countries on the topic of the study. It should be noted that regulation in the field of cryptocurrencies is only being formed in the world. The result of the work will be the preparation of proposals for improving the legislative framework for taxation and administration of income of individuals in Russia received from sources that exist in digital form. As a result of the analysis of foreign experience, the following conclusions were drawn both at the country level and the OECD level, there is a tendency to involve platforms in the fulfillment of tax obligations by taxpayers when they receive income in digital form. However, the level of platform engagement varies. This is how Youtube withholds tax on the income of individuals at the source, and for example, Twitch and Patreon accumulate information about the income received by individuals and share it with taxpayers and the tax service, leaving the obligation to pay tax for individuals. In terms of advertising, it can be said that there are several options for the interaction of creators with advertising companies, in some cases, such interaction can be qualified as labor activity. Accordingly, the taxation of income received may vary. We point out that from September 1, 2022, amendments to the law on advertising came into force in Russia, which can fill with practical meaning the theoretical possibility of various taxation of income from the interaction of creators with advertising companies. Also interesting is the experience in terms of dividing a person's activities into hobbies and entrepreneurship and, accordingly, the difference in taxation. In terms of cryptocurrencies, the initiatives of Asian countries are primarily interesting. As recommendations, it seems appropriate to consider foreign experience in terms of the taxation of such individuals as bloggers and streamers, and the involvement of digital platforms in the fulfillment by individuals of their tax obligations. In the future, this work can become the basis for work to improve the taxation of the entire system for obtaining relevant income, including not only individuals but also companies. |
| Keywords: | personal income taxes, sharing economy, gig economy, cryptocurrencies, blogger, streamer, social networks, labor relations |
| Date: | 2022–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:w20220283&r=pbe |
| By: | Stern, Lennart |
| JEL: | R40 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277667&r=pbe |
| By: | Mario Mansour; Patrick Petit; Fayçal Sawadogo |
| Abstract: | This How to Note examines the complex interplay between excise taxes on alcohol and alcoholic beverages, their revenue yield, and the public health concerns related to alcohol consumption. The note suggests guidance on how countries can approach the design of excise taxes on alcohol based on theoretical principles as well as empirical evidence drawn from international experience. Key questions addressed include: How important is alcohol consumption, and what form does it take across countries of different income levels? What has been the trend in alcohol excise tax revenue? How can countries design simple excise regimes that yield revenue while having the potential to contribute to reducing the externalities and internalities caused by alcohol consumption? |
| Keywords: | excise taxes; alcohol consumption; public health |
| Date: | 2023–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:2023/004&r=pbe |
| By: | Clement Anne; Cyril Chalendard; Ana Fernandes; Bob Rijkers; Vincent Vicard; Ana Margarida Fernandes |
| Abstract: | To identify transactions at risk of tariff evasion, this paper matches export transaction data from France with import transaction data from Madagascar using container identifiers. Reporting discrepancies between exporters and importers are prevalent but small, with over two-fifths of importers reporting in a way that increases their tariff liability. Yet, aggregate tariff revenues are 24 percent lower due to discrepancies. These revenue losses are highly concentrated: the top five evaders account for three-quarters of all tariff revenue losses and larger shipments are more at risk of evasion. Tariff enforcement in Madagascar is ineffective and only marginally mitigates revenue losses. |
| Keywords: | tax evasion, mirror statistics, trade, corruption, exporters, importers, tariffs |
| JEL: | F13 D73 H26 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10795&r=pbe |
| By: | Jean-Baptiste Michau; Yoshiyasu Ono; Matthias Schlegl |
| Abstract: | What are the consequences of the preference for wealth for the accumulation of capital and for the dynamics of wealth inequality? Assuming that wealth per se is a luxury good, inequality tends to rise whenever the interest rate is larger than the economic growth rate. This induces the economy to converge towards an equilibrium with extreme wealth inequality, where the capital stock is equal to the golden rule level. Far from immiseration, this equilibrium results in high wages and in the golden rule level consumption for ordinary households. We then introduce shocks to the preference for wealth and show that progressive wealth taxation prevents wealth from being held by people with high saving rates. This permanently reduces the capital stock, which is detrimental to the welfare of future generation of workers. This also raises the interest rate, to the benefit of the property-owning upper-middle class. By contrast, a progressive consumption tax successfully and persistently redistributes welfare from the very rich to the poor. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1223&r=pbe |
| By: | David Koll; Dominik Sachs; Fabian Stürmer-Heiber; Hélène Turon |
| Abstract: | We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket”. We analyze the MECR of an income-contingent childcare subsidy program and the income tax within the German context, using a dynamic structural heterogeneous-household model of childcare demand and maternal labor supply. This allows us to compare which of these two policies is more efficient in achieving redistributive goals. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the income tax. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. For reasonably large Pareto weights on children, we find that (ii) dominates (i) and therefore the childcare subsidy is the more efficient redistribution tool. |
| Keywords: | female labor supply, childcare, family policies, fiscal externalities, dynamic discrete choice, redistribution |
| JEL: | H23 H31 J13 J22 J24 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10793&r=pbe |
| By: | Jialin Dong; Kshama Dwarakanath; Svitlana Vyetrenko |
| Abstract: | In economic modeling, there has been an increasing investigation into multi-agent simulators. Nevertheless, state-of-the-art studies establish the model based on reinforcement learning (RL) exclusively for specific agent categories, e.g., households, firms, or the government. It lacks concerns over the resulting adaptation of other pivotal agents, thereby disregarding the complex interactions within a real-world economic system. Furthermore, we pay attention to the vital role of the government policy in distributing tax credits. Instead of uniform distribution considered in state-of-the-art, it requires a well-designed strategy to reduce disparities among households and improve social welfare. To address these limitations, we propose an expansive multi-agent economic model comprising reinforcement learning agents of numerous types. Additionally, our research comprehensively explores the impact of tax credit allocation on household behavior and captures the spectrum of spending patterns that can be observed across diverse households. Further, we propose an innovative government policy to distribute tax credits, strategically leveraging insights from tax credit spending patterns. Simulation results illustrate the efficacy of the proposed government strategy in ameliorating inequalities across households. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.17252&r=pbe |
| By: | Marina Azzimonti; Nirvana Mitra |
| Abstract: | Emerging countries exhibit volatile fiscal policies and frequent sovereign debt crises, that significantly diminish the well-being of their citizens. International advisors typically suggest developed-world solutions as a remedy. We argue that the root of the problem lies in the institutional environment, which does not incentivize responsible policymaking, particularly tax-smoothing practices. Focusing on democratic representation and control of corruption, our dynamic political-economy bargaining model shows that nations with weaker institutions experience frequent default episodes and greater economic volatility. Our results are in line with stylized facts from a panel of 58 countries between 1990 and 2022. Through counterfactual experiments, we find that while emerging economy policymakers might favor moderate reforms to improve democratic representation, achieving the institutional depth seen in developed countries is politically unfeasible, despite its clear advantages for citizens. |
| JEL: | D72 E43 E62 F34 F40 F41 H20 H4 H6 P33 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31943&r=pbe |
| By: | Andrey Timofeev (International Center for Public Policy, Georgia State University) |
| Abstract: | For over 50 years, the IMF and other international organizations have compared tax performance across countries. Over this time, both data availability and sophistication of statistical methods have improved considerably. However, these new tools cannot eliminate the fundamental problem of imperfect information, as the observed tax outcome is a joint product of unobservable tax effort and tax capacity. This paper aims to serve as a refresher on the purposes and assumptions underlying this kind of empirical study and to reassess the best technical solutions of currently available modeling approaches, given the improvements in the availability of longitudinal data and advances in dynamic panel analysis made over these 50 years. Using an error-correction model in this paper, I attempt to disentangle the long-run relationship between tax capacity and economic development from short-run adjustments in response to economic cycles and other transient shocks. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper2321&r=pbe |