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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: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13184&r=pbe |
| By: | Mr. Shafik Hebous; Andualem Mengistu |
| Abstract: | The international agreement on a corporate minimum tax is a milestone in global corporate tax arrangements. The minimum tax disturbs the equivalence between otherwise equivalent forms of efficient economic rent taxation: cash-flow tax and allowance for corporate equity. The marginal effective tax rate initially declines as the statutory tax rate rises, reaching zero where the minimum tax is inapplicable, and increases thereafter. This kink occurs at a lower statutory rate under cash-flow taxation. We relax the assumption of full loss offset; provide a routine for computing effective rates under different designs; and discuss policy implications of the minimum tax. |
| Keywords: | Investment; Minimum Taxation; Corporate Tax Reform; International Taxation; Rent Tax; ACE; Effective Tax Rate |
| Date: | 2024–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/057&r=pbe |
| By: | Deng, Guoying; Du, Pengcheng; Hernandez, Manuel A.; Xu, Shu |
| Abstract: | This paper examines the association between corporate income taxes and labor market informality. We present a theoretical framework showing that a higher tax enforcement can push firms to pass on the burden to workers by reducing their social security compliance as well as downsizing and lowering wages. The model propositions are tested using a regression discontinuity design that exploits a national corporate tax reform in China. We find that for every one percentage point increase in the effective tax rate, firms reduce their probability of making basic social security contributions by 0.8%, their compliance rate by 1.4 percentage points, and the probability of making supplementary contributions by 0.6%, while the number of workers and wages fall by 4.4% and 0.7%, respectively. We observe that the effects are more salient among firms privately owned and controlled, large businesses, and in locations where social security contributions are directly collected by the social security administration. The findings suggest that workers not only bear part of the higher corporate taxes faced by firms, but an increase in firms’ tax burden contributes to social security evasion and informality in labor markets. |
| Keywords: | taxes; labour market; social security; remuneration; China; Asia; Eastern Asia |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:2244&r=pbe |
| By: | Joshi, Anuradha; Kangave, Jalia; van den Boogaard, Vanessa |
| Abstract: | Increased attention has been paid to the gender dimensions of taxation in recent years, though there has been limited research on the subject – particularly in lower-income contexts. Understanding how tax policies might affect women in lower-income countries is important at the current time, when governments are looking for new ways to increase domestic revenue – particularly through expanding the tax base. Given that women have historically represented only a small part of the formal workforce in these contexts, a shift towards indirect taxes and taxing the informal economy are likely to have a disproportionate effect on poorer households, and women in particular. Understanding whether, and in what specific ways, tax policy in lower-income countries affects the ability of women to participate in the workforce and carry out their caring responsibilities within households is critical for ensuring development with gender justice. This paper reviews the existing literature and related debates on gender and tax in lower income countries. It identifies knowledge gaps, and maps broader issues that are relevant for understanding the gendered impact of taxation. The paper makes four broad observations. First, existing research focuses on formal direct taxes that are less relevant for women in lower-income contexts, given their high participation rates in the informal economy. Instead, presumptive taxes, user fees and informal taxes place a disproportionate burden on low income women. Second, there needs to be greater attention paid to the ways in which women in senior and junior positions in tax administration can affect how taxpayers interact with tax authorities. Third, any assessment of tax policy’s impact on gender needs to consider revenue and expenditure together to ensure that the positive effects of tax policies are not undermined by budgets, or vice versa. Finally, we show that there has been insufficient gender-disaggregated data collection and analysis, which is required to draw generalizable conclusions about the gendered impact of tax policy. We argue that tax specialists need to think about research questions that address these gaps, and simultaneously address methodological challenges by gender disaggregation in data collection, as well as impact evaluation of tax policy implementation and innovation. Our overall conclusions are that tax policies can be made gender-neutral by paying careful attention to where they affect women differentially. There are opportunities for governments to explore policies that positively discriminate as a way to address structural gendered inequities. At the same time we recognise that, barring a few exceptions, tax policy and administration is often an unwieldy instrument to address gender equity directly. Instead other policies relating to labour markets, social protection and public services are better placed to be gender-transformative. |
| Keywords: | Finance, |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18276&r=pbe |
| By: | Leonardo Barros Torres; Gilberto Tadeu Lima; Jaylson Jair da Silveira |
| Abstract: | We incorporate tax evasion to a demand-led macrodynamic model of capacity utilization and output growth rate. The frequency of tax evaders is endogenously time-varying, driven by imitation-augmented satisficing evolutionary dynamics involving pecuniary and non-pecuniary factors reflecting the distribution of tax morale across taxpayers. Consequently, the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co-evolutionarily coupled. Matching empirical evidence, long-run heterogeneity in tax compliance is a stable evolutionary equilibrium, and the higher the median tax morale, the lower the frequency of tax evaders. Other comparative statics matching empirical evidence are obtained analytically and through numerical simulations. |
| Keywords: | Tax compliance behavior; tax morale; satisficing evolutionary dynamics; capacity utilization; output growth rate |
| JEL: | B52 C52 D33 E12 E70 H26 |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2024wpecon10&r=pbe |
| By: | Gustafsson, Johan (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University) |
| Abstract: | This paper concerns the timing of taxation in an economy with trade unions. By using insights from the industrial organization literature, we show within the framework of an overlapping generations model where agents work in the first period of life and are retired in the second that trade unions can obtain an advantageous bargaining outcome vis-à-vis firms by delegating authority to a negotiator who (i) discounts the future at a higher rate than the union members, and (ii) treats the workers´ labor supply and saving decisions as given. In this context, the timing of taxation of first period labor income matters for wage formation and we show that the welfare can be improved by implementing an income-based pension for retired workers (i.e. a negative delayed income tax) when there is unemployment in equilibrium. We also outline when the welfare can be improved by implementing a positive delayed income tax. Finally, we show that if the trade union delegates authority to a negotiator who recognizes the workers´ labor supply and saving responses, the welfare cannot be improved by implementing a second period tax/pension. |
| Keywords: | Timing of taxation; labor market distortion; pensions |
| JEL: | H21 H55 J51 |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1024&r=pbe |
| By: | Johan Saeverud (Dept. of Economics, University of Copenhagen) |
| Abstract: | I investigate a Danish policy reform that postpones social security eligibility tied to an increase in life expectancy. The reform creates sharp discontinuities based on exact birth dates, allowing for the identification of causal effects. Using both administrativeand survey data, I document a substantial increase in labor force participation of 20 percentage points as a result of postponing social security eligibility. The effect isstrongest among individuals with low pension wealth. This pattern is consistent across multiple retirement age thresholds and cohorts, including both individuals who havealready retired and in expectation for younger cohorts who are not yet retired. This research offers new insights into the impacts of life expectancy-based adjustments tosocial security eligibility. Welfare assessments show overall gains, but also that welfare effects are unequally distributed. Individuals with low pension wealth show the largestincreases in labor supply, but also face the largest personal costs in terms of foregone consumption smoothing. |
| Keywords: | retirement, social security, labor supply |
| JEL: | J26 H55 |
| Date: | 2024–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2405&r=pbe |
| By: | Youssef Benzarti; Santiago Garriga; Darío Tortarolo |
| Abstract: | This paper estimates the effect of a temporary and large (21 p.p.) value-added tax (VAT) cut along with anti-profiteering measures on food necessities during a period of high inflation in Argentina. Using barcode-level data across more than 3, 000 supermarkets, we find that (1) absent the anti-profiteering measures, the pass-through of the temporary VAT cut to prices was asymmetric: prices responded less to the VAT cut than its repeal resulting in prices that were higher than their pre-VAT cut levels; (2) imposing anti-profiteering measures, such as setting a ceiling on price increases, led to symmetric pass-through rates. Using a household welfare model, we show that the VAT cut resulted in progressive welfare effects and that the anti-profiteering measures were successful at dampening the regressive welfare effects of the asymmetric pass-through. However, we show that these policies benefited high-income households more because pass-through rates are more asymmetric in independent grocery stores, which is precisely where low-income households tend to shop the most. |
| JEL: | H0 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32241&r=pbe |
| By: | Guizzo Altube, Matías; 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 dont 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: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13194&r=pbe |
| By: | Renato E. Reside, Jr. (University of the Philippines School of Economics); Ma. Lourdes Lacson (ACERD); Fernando T. Aldaba (Ateneo de Manila University) |
| Abstract: | The Passive Income and Financial Intermediary Taxation Act (PIFITA) has been passed by the Philippine Congress to the Senate and is currently awaiting ratification. However, there currently are no estimates of the impact of passage of the bill into law on the Philippine economy. This paper attempts to do this by gauging its impact on investment through the changes in the user cost of capital. The results of regression analysis confirms that a reduction of various taxes on passive income lowers the user cost of capital, which stimulates investment. |
| Keywords: | Philippines, taxation, investment, financial intermediation, user cost of capital |
| JEL: | H20 K34 O16 G2 E22 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:agy:dpaper:202406&r=pbe |
| By: | David R. Agrawal; Elke J. Jahn; Eckhard Janeba |
| Abstract: | An unappreciated potential benefit of commuting subsidies is that they can expand the choice set of feasible job opportunities in a way that facilitates a better job match quality. Variations in wages and initial commuting distances, combined with major reforms of the commuting subsidy formula in Germany, generate worker-specific variation in commuting subsidy changes. We study the effect of changes in these subsidies on a worker’s position in the wage distribution. Increases in the generosity of commuting subsidies induce workers to switch to higher-paying jobs with longer commutes. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality. |
| Keywords: | commuting, commuting subsidies, taxes, wage distribution, local labor markets, AKM, assortativity |
| JEL: | H20 H31 J20 J61 R23 R48 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10981&r=pbe |