|
on Public Economics |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | This paper is the first to integrate corruption with respect to tax collection in a Mirrleesian model of optimal redistributive taxation. The analysis starts with a simple two-type model, showing that the optimal marginal tax structure resembles that of the original Stiglitz (1982) model, albeit for different reasons. We also extend the analysis to a framework with many types and present policy rules for marginal taxation over the whole ability distribution. The marginal income tax rates are all non-negative and can be expressed in terms of two key determinants: the distributional weights attached to taxpayers, and how the private cost to evade taxes varies with the taxpayers’ income. Finally, we consider the role of government expenditures directly targeting the incentives of the tax collector, such that these public expenditures and the optimal tax structure are implemented simultaneously. |
| Keywords: | Redistribution; taxation; corruption |
| JEL: | D73 H21 H26 |
| Date: | 2023–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1020&r=pbe |
| By: | James Alm (Tulane University) |
| Abstract: | How can tax policy â and other government policies â serve as a tool to promote âdistributive tax justiceâ? In this paper, I briefly discuss the many tax reform proposals that have been proposed by many others for the specific case of the United States. I then focus on a set of specific U.S. tax reforms that are, I believe, both feasible and effective in achieving distributive tax justice. If implemented, these policies would increase the taxes paid by the rich, reduce tax evasion by the rich, and decrease the tax burdens by the gender, race, and ethnicity of taxpayers, all of which would lead to what I believe would be a fairer (and a more productive) tax system. I also argue that these policies apply in some form to most other countries around the world. My basic themes are that tax changes must be feasible and effective rather than simply aspirational but that even within this somewhat limiting framework much can be done. Specifically, these policies all work through existing taxes, they are are all administratively (if not necessarily politically) feasible and effective, none of these policies raise statutory marginal tax rates, these policies are all broadly consistent with the standard âBroad Base, Low Rateâ approach to tax reform, and variants of all of these policies apply world-wide. |
| Keywords: | Distributive tax justice, inequality, tax reform, tax compliance |
| JEL: | H2 H26 D91 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2307&r=pbe |
| By: | Zhiyang Jia; Bodil M. Larsen; Bård Lian; Runa Nesbakken; Odd E. Nygård; Thor O. Thoresen; Trine E. Vattø (Statistics Norway) |
| Abstract: | Microsimulation models of the LOTTE system are key tools for tax policy-making in Norway and are extensively used in the budget process. The aim of this paper is to give an overview of the different modules in the LOTTE family – a non-behavioral tax-benefit model for personal income tax (LOTTESkatt), a labor supply model (LOTTE-Arbeid), and a model for distributional effects of commodity taxation (LOTTE-Konsum). In addition to providing descriptions of the designs of the three microsimulation models, we give examples of how the models are used in practical and academic work. |
| Keywords: | microsimulation; tax-benefit model; labor supply; commodity taxation |
| JEL: | C63 H24 H31 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:1009&r=pbe |
| By: | Katy Bergstrom (Tulane University); William Dodds (Tulane University) |
| Abstract: | Optimal taxation problems typically involve finding a tax schedule to maximize a welfare function. This paper considers the reverse problem of finding an inverse welfare function that rationalizes a given tax schedule as optimal. Inverse welfare functions encode the implicit interpersonal comparisons a society must make in order to justify a tax schedule. We develop a general theory to recover the inverse social welfare function not only for income tax schedules, but also for substantially more complex tax systems that incorporate many different forms of taxation and multidimensional agent heterogeneity. The key insight is that even in complex tax environments, the (Gateaux) derivative of government revenue with respect to the tax schedule is the key empirical object required to construct the inverse welfare function. Additionally, our framework allows us to characterize Pareto efficient schedules in complex environments and extend the Atkinson-Stiglitz result. Our framework can also be augmented to construct inverse welfare functions when there are general equilibrium effects of taxation and when agents make optimization errors. We provide a number of example inverse welfare function constructions related to the taxation of couples, income taxation with labor demand and endogenous wages, piecewise linear income taxation, and joint taxation of income and housing rent. |
| Keywords: | inverse optimal, inverse welfare, multidimensional taxation, multidimensional heterogeneity |
| JEL: | D82 D86 H21 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2309&r=pbe |
| By: | Barış Kaymak; Immo Schott |
| Abstract: | Companies face different effective marginal tax rates on their income. This can be detrimental to allocative efficiency unless taxes offset other distortions in the economy. This paper estimates the effect of tax rate heterogeneity on aggregate productivity in distorted economies with multiple frictions. Using firm-level balance-sheet data and estimates of marginal tax rates, we find that tax heterogeneity reduces total factor productivity by about 3 percent. Our findings highlight the positive correlation between marginal tax rates and other distortions to capital and especially labor. This implies that tax rate heterogeneity exacerbates the distortionary effects of other frictions in the economy. |
| Keywords: | business taxation; aggregate productivity; TFP; misallocation |
| JEL: | D24 H25 O47 |
| Date: | 2023–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97473&r=pbe |
| By: | Marika Viertola (VATT Institute for Economic Research) |
| Abstract: | This paper studies how Nordic multinational enterprises (MNEs) react to tax incentives generated by international corporate income tax rate differences and shift profit to low tax countries. A firm level panel data set containing ownership and accounting information is used to study profit shifting within the time period of 2012-2017. Applying a panel data adjusted Hines-Rice approach including firm and year fixed effects results in statistically significant tax semi-elasticity estimates between -0.7 to -1.3. The results are confirmed by several robustness checks as well as by applying the newest methods in two-way fixed effects literature. This suggests that MNEs with ultimate owners located in the Nordic countries seem to react to tax rate differences by shifting profit. Additionally, the MNEs within the euro area seem to engage more heavily in profit shifting. |
| Keywords: | Multinational frms; proft shifting; international corporate taxation; tax avoidance |
| JEL: | F23 H25 H26 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:fit:wpaper:18&r=pbe |
| By: | Felix Hugger; Ana Cinta González Cabral; Massimo Bucci; Maria Gesualdo; Pierce O’Reilly |
| Abstract: | The paper assesses the impact of the global minimum tax (GMT) on the taxation of multinational enterprises (MNEs), based on a comprehensive dataset capturing the global activities of large MNEs. It has four key findings. First, the GMT substantially reduces the incentives to shift profits. Second, the GMT is estimated to very substantially reduce low-taxed profit worldwide through lower profit shifting and top-up taxation. Third, the GMT is estimated to increase CIT revenues. Finally, the GMT is estimated to reduce tax rate differentials across jurisdictions with potential impacts on the allocation of investment and MNE activity. |
| JEL: | F23 H26 H25 |
| Date: | 2024–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:68-en&r=pbe |
| By: | Pauwels, Wilfried (University of Antwerp); Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax |
| Keywords: | economic incidence; legal incidence; statutory incidence; ad valorem taxes; invariance theorem |
| JEL: | H22 |
| Date: | 2023–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2023_023&r=pbe |
| By: | Xianglong Locky Liu; James Giesecke; Jason Nassios |
| Abstract: | We investigate the economic consequences and tax efficiency of a 5% international student levy (ISL). Like any tax, ceteris paribus, an ISL will reduce certain economic activities. At the industry level, the negative effects on activity will be largest for sectors involved in the export of education services. At the regional level, the negative economic consequences will be largest for regions that have relatively large export education sectors. Due to limited empirical evidence on the price elasticity of demand for export education, we test the sensitivity of our results under a range of elasticity estimates. For sufficiently inelastic demand for export education, an ISL improves the terms of trade and increases real consumption. By evaluating and comparing the marginal excess burden of an ISL with other hypothetical service export taxes, we demonstrate that these results stem from imposing an export tax at a low rate on a commodity that is generally tax-exempt and carries a low foreign export demand elasticity, rather than being a unique feature of the ISL. If the policy objective is to assist the education sector, our results draw into question the suitability of the ISL. |
| Keywords: | Taxation, International Student, CGE modelling, Excess Burden |
| JEL: | C68 H2 H5 H72 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-343&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. |
| Keywords: | capital accumulation, progressive wealth tax, wealth inequality, wealth preference |
| JEL: | D31 E21 E22 H20 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10824&r=pbe |
| By: | DELIS Fotis (European Commission - JRC); DELIS Manthos; LAEVEN Luc; ONGENA Steven |
| Abstract: | We provide estimates of profit shifting for over 2 million firm-year observations in 100 countries over the period 2009-2020. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine how profits for both parent and subsidiary firms within a multinational group respond to marginal changes in the composite tax indicator. The key merit of this approach is that it yields firm-year estimates of profit shifting. We find that multinational firms engage in extensive profit shifting by maintaining affiliates in low-tax countries and zero-tax havens. Multinational groups with an ultimate owner in tax havens exhibit the largest responses of profits to the tax incentive. Our comprehensive estimates of global profit-shifting volumes exceed those obtained elsewhere in the literature using firm-level data and are in line with estimates obtained using macro-level data. Our new database opens important avenues to analyse the sources and effects of profit shifting. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202312&r=pbe |
| By: | Leopold, Franziska; Blum, Bianca; Walter, Larissa |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fribpd:280325&r=pbe |
| By: | FATICA Serena (European Commission - JRC); PYCROFT Jonathan; STASIO Andrzej Leszek (European Commission - JRC); STOEHLKER Daniel (European Commission - JRC) |
| Abstract: | We examine the effect of compliance frictions in reclaiming foreign withholding taxes on Foreign Portfolio Investments (FPI) using a comprehensive panel of FPI stocks of 83 countries, including EU Member States, between 2005 and 2019 and country-pair-specific withholding tax rates. We find a negative and statistically significant elasticity of the FPI stock of equity and debt holdings to non-refundable withholding taxes. The estimated elasticities imply that a 10 percentage point reduction in non-refundable withholding taxes increases the FPI stock of equity holdings by 8.2%. In a second step, we employ a general equilibrium model to quantify the macroeconomic implications of compliance frictions. In absence of costs in the withholding tax reclaim process, average GDP in the EU27 countries would increase by 0.10%, capital and wages would rise by 0.21% and 0.06%, respectively, suggesting noticeable macroeconomic costs arising from such compliance frictions. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202309&r=pbe |
| By: | Sören Blomquist |
| Abstract: | Estimated labor supply functions are important tools when designing an optimal income tax or calculating the effect of tax reforms. It is therefore of large importance to use estimation methods that give reliable results and to know their properties. In this paper Monte Carlo simulations are used to evaluate two different methods to estimate labor supply functions; the discrete choice method and a nonparametric method suggested in Blomquist and Newey (2002). The focus is on the estimators’ ability to predict the hours of work for a given tax system and the change in hours of work when there is a tax reform. The simulations show that the DC method is quite sensitive to misspecifications of the likelihood function and to measurement errors in hours of work. A version of the Blomquist Newey method shows the overall best performance to predict the hours of work. |
| Keywords: | labor supply, tax reform, predictive power, estimation methods, Monte Carlo simulations |
| JEL: | C40 C52 C53 H20 H30 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10827&r=pbe |
| By: | Phuong Nguyen-Hoang (School of Planning and Public Affairs, University of Iowa); Yoon-Jung Choi (Department of Public Policy and Administration, Florida International University) |
| Abstract: | This is the first study to examine the potential effects of property tax levy limits on school infrastructure assets and expenditures (IAE). Specifically, we examine how the limit on school districts’ property tax levy in New York may affect school IAE. Although this limit imposes a restriction only on operating, rather than capital, property tax levy, we hypothesize that the limit may have spillover effects on school IAE. We examine this hypothesis by employing a difference-in-differences estimation approach together with an event-study design on a panel of school districts between 2011 and 2020. We find that at-limit school districts that exhaust their limit, especially urban high-need districts, reduce the expenditures on machinery and equipment. In addition, the limit has a negative effect on rural high-need infrastructure assets captured by the building value. We also find that at-limit school districts do not issue more debt and that urban high-need districts seek out more matching state infrastructure aid. All these results indicate that school districts that are most likely to be constrained by the limit treat operation and capital resources as complements, rather than substitutes. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper2326&r=pbe |
| By: | Alexandre Gaillard; Christian Hellwig; Philipp Wangner; Nicolas Werquin |
| Abstract: | We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and magnitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concentration puzzle. We match the cross-sectional data on these four Pareto tails by positing a combination of non-homothetic, wealth-dependent preferences and scale-dependent returns to capital. We underscore the importance of these results by showing that all four dimensions of top inequality jointly determine the long-run elasticity that governs the revenue-maximizing capital tax rate. |
| Keywords: | Spending; Consumption; Income Distribution; Modeling; Taxation and Subsidies; fiscal policies; Firm behavior |
| JEL: | E21 E25 E27 H21 H32 |
| Date: | 2023–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:97521&r=pbe |
| By: | Mr. Damien Capelle; Yang Liu |
| Abstract: | When inflation originates from distributional conflicts, shifts in inflation expectations, or energy price shocks, monetary policy (MP) is a costly stabilization instrument. We show that a tax on inflation policy (TIP), which would require firms to pay a tax proportional to the increase in their prices, would effectively correct externalities in firms’ pricing decisions, tackle excessive inflation and reduce output volatility, without exacerbating price distortions. While proposals from the 1970s saw TIP as a substitute to MP, we find that it is a complement, with TIP addressing markups and inflation expectation shocks, and MP addressing demand shocks. |
| Keywords: | Inflation; Markup Shock; Monetary Policy; Tax on Inflation; Taxbased Incomes Policies; Externality |
| Date: | 2023–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/254&r=pbe |