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on Public Economics |
| By: | Casi, Elisa (Dept. of Business and Management Science, Norwegian School of Economics); Lisowsky, Petro (Questrom School of Business, Boston University); Stage, Barbara M. B. (WHU - Otto Beisheim School of Management); Todtenhaupt, Maximilian (Institute of Public Finance, Leibniz University Hannover) |
| Abstract: | We examine the effect of business model digitalization on competition and how corporate tax savings through digitalization may augment this relationship. Global policymakers express concern that digitalization-related tax savings unfairly benefit the competitive standing of rival firms over their competitors. Using textual analysis techniques to identify firms’ business models, we show that rivals’ adoption of a digital business model leads to negative economic effects on the performance of their non-digitalizing competitors. We estimate that a one standard deviation increase in the share of digitalized rivals in a market reduces a competitor’s market share by 4.6%. Suggesting significant tax savings from digitalizing, we also find that digitalizing rivals substantially reduce their effective tax rates, mostly by increased use of tax havens. However, when we test whether the detected competitive externalities vary depending on the share of digitalizing rivals with versus without substantial digitalization-related tax savings, we find the economic magnitudes of their effects are quantitatively similar. Therefore, contrary to policymakers’ concerns of digitalization-related tax savings unfairly shaping competition, our findings suggest that tax savings from digitalization is not a key driver of altering competition between digitalized and non-digitalized firms. |
| Keywords: | Digital; Tax; Product Market; Competition; Business Model |
| JEL: | D40 H25 H26 L22 O33 |
| Date: | 2024–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2024_006&r=pbe |
| By: | Brugués, Felipe; De Simone, Rebeca |
| Abstract: | We study the interaction of market structure and tax-and-subsidy strategies utilizing pass-through estimates from the unexpected introduction of a loan tax in Ecuador, a quantitative model, and a comprehensive commercial-loan dataset. Our model generalizes bank competition theories, including Bertrand-Nash competition, credit rationing, and joint-maximization. While we find the loan tax is distortionary, neglecting the possibility of non-competitive lending inflates estimated tax deadweight loss by 80% because non-competitive banks internalize some of the burden. Conversely, subsidies are less effective in non-competitive settings. If competition were stronger, tax revenue would be 10% lower. The findings suggest that policymakers should consider market structure in tax-and-subsidy strategies. |
| Keywords: | Banks;Government regulation of banks;Taxation and subsidies;market structure;firm strategy;market performance |
| JEL: | G21 G28 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13409&r=pbe |
| By: | Gabriel Chodorow-Reich; Matthew Smith; Owen M. Zidar; Eric Zwick |
| Abstract: | We evaluate the 2017 Tax Cuts and Jobs Act. Combining reduced-form estimates from tax data with a global investment model, we estimate responses, identify parameters, and conduct counterfactuals. Domestic investment of firms with the mean tax change increases 20% versus a no-change baseline. Due to novel foreign incentives, foreign capital of U.S. multinationals rises substantially. These incentives also boost domestic investment, indicating complementarity between domestic and foreign capital. In the model, the long-run effect on domestic capital in general equilibrium is 7% and the tax revenue feedback from growth offsets only 2p.p. of the direct cost of 41% of pre-TCJA corporate revenue. |
| JEL: | E22 F21 F23 H0 H25 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32180&r=pbe |
| By: | Bohne, Albrecht; Koumpias, Antonios M.; Tassi, Annalisa |
| Abstract: | This paper explores the connection between the proliferation of cashless, or e-money, payments and value-added tax (VAT) compliance. We present both visual and descriptive evidence that illustrates a negative correlation between e-money use and VAT evasion, proxied by the VAT compliance gap for countries in the European Union, from 2001 until 2021. We find that increased e-money usage by 100 percentage points (pp) is associated with a reduction in the VAT gap of 0.3pp or 1.92% of the aggregate VAT compliance gap over time. Moreover, we contribute a novel estimate of the causal impact of cashless payments on VAT evasion during the COVID-19 public health emergency. We identify a link between mobility restrictions in the European Union and reductions in VAT compliance gaps, facilitated by changes in payment norms. An estimated rise of 1pp or 5.51% in e-money use results in an 11.9% reduction in the VAT compliance gap. Our findings suggest that changes in transaction payment behavior such as the adoption of cashless payments may yield significantly more tax revenues by curbing non-compliance. Policies aimed at promoting e-money usage and limiting cash circulation are relevant steps forward in this direction. |
| Keywords: | Tax evasion, VAT gap, cashless payments, e-money, mobility restrictions, COVID-19 pandemic |
| JEL: | H26 K42 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283581&r=pbe |
| By: | Odran Bonnet (Insee); Etienne Fize (Institut des Politiques Publiques, Paris School of Economics); Tristan Loisel (Insee, Crest); Lionel Wilner (Insee, Crest) |
| Abstract: | This article exploits both the crude oil price surge consecutive to the invasion of Ukraine and 2022 fuel excise tax rebates in France as quasi-natural experiments to infer the price sensitivity of fuel demand. Based on granular individual bank account data at the transaction level, we properly disentangle anticipation effects from price effects, and estimate an average price elasticity of -0.31. It varies little with respect to income and location but substantially decreases, in absolute, with respect to fuel spending and is higher for retirees. We evaluate financial and distributional effects of the actual tax policy as well as its impact on CO2 emissions based on counterfactual simulations. We empirically demonstrate that resorting to transfers, be they targeted or not, achieves only imperfect compensation against fuel inflation. However, we show that a policy maker subject to a tight budget constraint and seeking to alleviate excessive losses, relative to income, prefers means-tested transfers to rebates. |
| Keywords: | Commodity taxation; Excise tax; Tax-and-transfer schemes; Fuel price elasticity; Anticipatory behavior; Transaction-level data. |
| JEL: | C18 C51 D12 H23 H31 L71 Q31 Q35 Q41 |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2024-05&r=pbe |
| By: | Samuel Bryson; Evaristo Mwale; Kwabena Adu-Ababio |
| Abstract: | This paper explores two policy interventions in Zambia, a minimum wage hike in 2018 and an upward revision in the first kink in the progressive income tax schedule in 2017, to examine and compare the impact of minimum wage and tax kink changes on wages and the earnings distribution in the formal and informal sectors. The analysis builds on two thus far separate strands of literature that investigate the effects of minimum wages and bunching around tax kinks in developing countries using Zambian personal income tax data and data from the ILO Labour Force Surveys over the period 2012-21. |
| Keywords: | Personal income tax, Minimum wage, Informality, Zambia |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-10&r=pbe |
| By: | Giorgio Fabbri (Univ. Grenoble Alpes, CNRS, INRAE, Grenoble INP, GAEL); Marie-Louise Leroux (Departement des Sciences Economiques, ESG-UQAM; CORE, Louvain-la-Neuve; CESifo, Munich); Paolo Melindi-Ghidi (Aix-Marseille Univ., CNRS, AMSE, Marseille, France); Willem Sas (University of Stirling; Hasselt University; CESifo, Munich; UCLouvain & KU Leuven) |
| Abstract: | This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a 'comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society. |
| Keywords: | Curative Health Investments, PAYG Pension System, Disability, overlapping generations, long-term care |
| JEL: | H55 I15 O41 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2407&r=pbe |
| By: | Zantomio, Francesca (Ca' Foscari University of Venice); Belloni, Michele (University of Torino); Carrieri, Vincenzo (University of Calabria); Farina, Elena (ASL TO3 Grugliasco); Simonetti, Irene (Ca' Foscari University of Venice) |
| Abstract: | We investigate behavioral responses to the generosity of Disability Insurance (DI) within the context of work compatibility. Exploiting an institutional discontinuity leading to exogenous variation in replacement rates, we use rich administrative data on the work and health histories of Italian private sector workers and focus on individuals impacted by acute CVD shocks leading to unplanned hospitalizations. Using a Regression Discontinuity strategy, we identify a substantial DI response to benefit generosity, suggesting an elasticity of DI participation of 1.26. Additionally, we observe a smaller employment response, with an estimated elasticity of -0.15. Our findings indicate that the receipt of DI is widely perceived as a complement to labour income within a framework of work compatibility. These results carry significant implications for the design of labour-inclusive DI scheme. |
| Keywords: | disability insurance, elasticity, replacement rate, labour supply, regression discontinuity |
| JEL: | I38 J14 J22 H55 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16819&r=pbe |
| By: | Ernst, Ekkehard,; Langot, François,; Merola, Rossana,; Tripier, Fabien, |
| Abstract: | Out of four major structural changes affecting the US economy – namely a rising share of skilled workers, skill-biased technological change, decreasing progressiveness of taxation and productivity slowdown – we show that the decline in productivity growth not only is the main driver of the widening wealth disparities observed in the United States of America over the past few decades, but is also the only mechanism that can explain inequalities both within and between skill groups. |
| Keywords: | wealth, economic disparity |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:995353092902676&r=pbe |
| By: | Youssouf Sangare (Paderborn University); Edem Adotey (University of Ghana) |
| Abstract: | Drawing on primary sources – colonial public finance documents and existing literature – this article examines the financial challenges associated with British and French colonial expansion in Africa. It highlights the important role that revenue extraction through colonial taxation played in establishing and maintaining colonial administrative institutions. We believe that this factor is at the root of postcolonial institutional dualism and, by extension, the weakness of the rule of law in the former colonies. The article concludes that concerns about the rising administrative operating costs of colonial rule influenced and dictated all aspects of colonial policymaking and institutions adopted by imperial powers, ultimately shaping the structure of governance in postcolonial Africa. |
| Keywords: | Institutions, Economic development, colonialism, Colonial Taxes, postcolonial |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:ciepap:159&r=pbe |
| By: | Löffler, Verena |
| Abstract: | In a given society, those who are least advantaged would allegedly benefit the most from receiving a basic income. However, the merits of such a policy are generally debated according to the effects on society as a whole, not specifically on the most marginalized; thus, the potential benefits of a basic income for marginalized groups is unclear. To address this gap, I identify homeless people in Germany as the least advantaged and assess how this group would be impacted by a basic income based on real libertarian, liberal egalitarian, and republican theories of justice. Specifically, I show how introducing a basic income would affect the homeless population in Germany in terms of income, self-respect, and power. While a basic income could increase most of the homeless population's income and improve communal relations, the stigma attached to homelessness will only decrease insofar as the basic income policy helps people exit homelessness. Moreover, a basic income would decrease power imbalances between the homeless population and state agencies, but the policy's effects on relations between homeless persons and fellow citizens, particularly landlords, are ambiguous. This article contributes to the theoretical discussion on a basic income, providing a new concern about whether such a policy is fair to the homeless population. Moreover, this article is relevant in practice, as the discussed effects may prompt avenues for designing future social policies that address the homeless population as the most vulnerable group in modern welfare states. |
| Keywords: | basic income, homelessness, public policy, social justice |
| JEL: | D31 D63 H55 I32 I38 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fribis:285375&r=pbe |
| By: | Chakraborty, Lekha (National Institute of Public Finance and Policy); Thomas, Emmanuel (JNU) |
| Abstract: | Against the backdrop of fiscal transition concomitant to energy transition policies with climate change commitments, revenue from extractive sector needs a recalibration in subnational fiscal space. Extractive tax is the payment due to the government in exchange for the right to extract the mineral substance. Extractive tax has been fixed and paid in multiple tax regimes, sometimes on the measures of ad valorem (value based) or profits or as the unit of the mineral extracted. Using the ARDL methodology, this paper analyses the buoyancy of extractive revenue across the States in India, for the period 1991-92 to 2022-23 and analysed the short run and long run coefficients and their speed of adjustment. There are no identified structural breaks in the series predominantly because of the homogenous extractive policy regime shift to ad valorem from unit based regime. Our findings revealed that extractive tax is a buoyant source of own revenue, though there is distinct State-specific differentials. The policy implication of our study is crucial for "just transition" related to climate change commitments where extractive industries' tax buoyancy is compared to other tax buoyancy across Indian States, and be used as the base scenario to estimate the loss of revenue when fiscal transition sets in with energy transition policies. |
| Keywords: | fiscal rules ; energy transition ; tax buoyancy ; ARDL ; extractive sector regime |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:24/407&r=pbe |
| By: | Ernst, Ekkehard; Merola, Rossana; Reljic, Jelena |
| Abstract: | This study provides a critical assessment of various fiscal policy instruments - including direct public job creation, active labour market and care policies, social protection measures and tax reforms - and their effectiveness in supporting the most vulnerable groups in the labour market. Although much of the literature has focused on the quantitative effects of fiscal policy, this article concentrates on the qualitative aspects and examines the role of fiscal instruments in achieving a more inclusive and fair labour market. Our review shows that the empirical literature tends to overemphasise the capacity of individual policies to mitigate inequalities, neglecting the complex interdependencies among various mechanisms and policies in place. We argue, instead, that a systematic approach is necessary to ensure equitable access to good jobs and to address the disparities between different labour market groups. We also identify significant research gaps, such as the need for longitudinal studies on the long-term policy impacts, an exploration of the regional disparities within the policy-inequality nexus and the sector-specific effects of fiscal measures, especially relevant in the context of the green and digital transition. |
| Keywords: | fiscal policy, policy coordination, policy implementation, labour market outcomes, inclusive labour markets, social protection |
| JEL: | E6 H2 H3 H5 J1 J2 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1406&r=pbe |
| By: | Thiemo Fetzer (University of Warwick & Bonn and affiliated with CEPR, CAGE, NIESR, ECONtribute, Grantham Institute); Callum Shaw (London School of Economics); Jacob Edenhofer (University of Oxford) |
| Abstract: | Formal conceptions of state capacity have mostly focused on indirect measures of state capacity – by, for instance, using the state’s fiscal or extractive capacity as a proxy for its overall capacity. Yet, this input or extractive view of state capacity falls short, especially since cross-country empirical evidence suggests that similar levels of fiscal capacity, measured by tax revenues as a percent-age of GDP, can produce starkly different outputs – both in classic economic terms and in broader terms that citizens would recognize as desirable outcomes, including quality of life, health, security, equality of opportunity, and inter-generational mobility. This paper argues that a central step towards addressing these shortcomings of the conventional view is to account for a crucial and largely ignored boundary of the state or dimension of state capacity: its capac-ity to gather, process, and deploy information in its conduct of fiscal policy. Specifically, we study how the presence or lack of such informational capacity constrains governments in responding to crises, such as the recent energy price shock. Our framework provides the analytical toolkit to examine how the infor-mational boundary of the state shapes the incentives for policymakers to resort to untargeted and/or distortionary policy instruments, as opposed to targeted and non-distortionary ones, in responding to crises. The policy response to the energy crisis following the invasion of Ukraine provides the empirical context upon which we bring this theoretical framework to bear on data, though the latter can be straightforwardly extended to other recent crises. |
| Keywords: | state capacity, economic development, carbon taxation, political economy, pork-barrel politics |
| JEL: | H11 O43 D63 D73 Q48 P16 C21 C55 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:282&r=pbe |
| By: | Michael Christl (Universidad Loyola Andalucia); Silvia De Poli (Universidad Complutense de Madrid); Monika Köppl-Turyna (ECO Austria) |
| Abstract: | This paper analyzes the relation between economic growth, inequality and redistribution. In a cross-country setting for 25 EU countries over the period between 2007 and 2019, we show that market-income inequality is related to higher growth in the short term. To estimate the impact of redistribution to low-income earners, we introduce a new measure, the so called net benefit share (NBS). Contrary to other findings, we show that this (targeted) redistribution to low-income earners (Q1 NBS) fosters growth in the short term, driven by the consumption and private investment channel. On the other hand, untargeted redistribution towards higher-income earners reduces growth. |
| Keywords: | growth, redistribution, inequality, European Union |
| JEL: | H23 O47 D63 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2024-668&r=pbe |
| By: | Esteban Muñoz-Sobrado; Amedeo Piolatto; Antoine Zerbini; Federica Braccioli |
| Abstract: | During the past two decades, several factors have challenged the stability of national states, adding tensions to the connection between the state and the individual. This paper reviews the literature on state capacity. First, it introduces the origin of the literature and presents the well-established positive correlation between state capacity and economic development. Second, it touches upon fiscal and administrative capacity and conflict. It concludes with a provocative reflection on digital nomads to push the research frontier in analysing the connection between the state and the individual. |
| Keywords: | aministrative capacity, fiscal capacity, state capacity, conflict |
| JEL: | H11 H20 E62 H77 D73 H83 D72 D74 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1432&r=pbe |