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on Public Economics |
| By: | Robert J. Barro; Varadarajan V. Chari |
| Abstract: | Chamley and Judd argued that optimal taxation dictates zero long-run tax rates on capital income, but Straub and Werning found that tax rates may be positive even in the steady state. These models feature a “period-zero problem” in the underlying Ramsey formulation, which omits past commitments but includes future ones. The period-zero policymaker then imposes capital levies on initial assets—directly or indirectly through positive tax rates on future asset income and non-constant tax rates on consumption. Chari, Nicolini, and Teles add commitment by the period-zero policymaker to households’ initial wealth in utility units. In this case, a nonzero capital levy may apply in period zero, future tax rates on asset income equal zero, and tax rates on consumption are constant. Time-consistency fails if future policymakers are unconstrained but holds if commitments to initial wealth in utility units are strict enough each period to motivate each policymaker to choose zero direct capital levies. In that case, a timeless perspective applies where period zero is not special, tax rates on asset income are always zero, and tax rates on consumption are constant. Introduction of uncertainty generates state-contingent levies on assets and random-walk-like variations in consumption tax rates. |
| JEL: | E6 H21 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32306&r=pbe |
| By: | Gschossmann, Emilia; Heckemeyer, Jost H.; Müller, Jessica; Spengel, Christoph; Spix, Julia; Wickel, Sophia |
| Abstract: | The European Commission recently implemented the minimum tax directive (Pillar Two) to ensure that corporate profits are at least taxed at 15%. At the same time, it proposed a legislative initiative aimed at reducing the tax-induced distortions between debt and equity financing (debt-equity bias reduction allowance directive, DEBRA). In our simulation analysis, we evaluate how the two measures and their interplay influence the EU Member States' effective tax levels and thus their location attractiveness. We find that DEBRA, on average, leads to a substantial reduction of the effective tax levels for equity-financed companies. In countries with a combined profit tax rate below 15%, Pillar Two increases the effective average tax burden. The simulation of the interaction of both regulations shows that the effect of Pillar Two dominates that of DEBRA. In addition, the results hold under a common tax base in accordance with the recently proposed "Business in Europe: Framework for Income Taxation" directive (BEFIT). |
| Keywords: | Business in Europe, Framework for Income Taxation, BEFIT, Effective tax rates, Debt-Equity Bias Reduction Allowance, DEBRA, Debt-equity bias, Devereux/Griffith Methodology, Global minimum tax, Pillar Two |
| JEL: | F23 H25 K34 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:289449&r=pbe |
| By: | Makoto HASEGAWA; Michi KAKEBAYASHI |
| Abstract: | Multinational corporations repatriate foreign profits through dividends, royalties, and interest paid by foreign affiliates to their parent firms. International tax rules concerning how to tax repatriated foreign earnings influence decisions on profit repatriation. In 2009, Japan introduced a foreign dividend exemption system (so-called territorial tax system) that exempted dividends received by Japanese firms from their foreign affiliates from home-country taxation. This paper examines the effects of this tax reform on profit repatriation through dividends, royalties, and interest. The enactment of the foreign dividend exemption system decreased the effective tax rate on foreign income repatriated through dividends on average by 6.8 percentage points in 2009. We find that in response to this tax rate reduction, Japanese-owned foreign affiliates increased dividend payments, but did not change either royalty or interest payments. As a result, these affiliates increased the total payments to their Japanese parents. |
| Keywords: | International taxation; Multinational corporations; Profit repatriation; Foreign dividend exemption; Worldwide tax system; Territorial tax system |
| JEL: | H25 H26 F23 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-20-004-v2&r=pbe |
| By: | Alou Adessé Dama (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Grégoire Rota-Graziosi (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Fayçal Sawadogo (FMI - Fonds Monétaire International - FMI, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | To attract Foreign Direct Investment crucial for their development, developing countries are multiplying the number of tax incentive schemes, and in particular Corporate Income Tax (CIT) exemptions. Dama et al. (2023) establish that this type of tax incentive is regressive, and therefore redundant and inefficient: More profitable firms benefit more from CIT exemptions (regressivity) and would have invested even without these exemptions (redundancy and inefficiency). Developed countries prefer CIT credits to CIT exemptions in their incentive systems. These credits improve the targeting of desired investments and reduce tax revenue losses. |
| Abstract: | Pour attirer les investissements directs étrangers si nécessaires à leur développement, les pays en développement multiplient les régimes fiscaux incitatifs et en particulier l'exonération d'impôt sur les sociétés (IS). Dama et al. (2023) montrent que ce type d'exonération est régressif, donc redondant et inefficace : les entreprises les plus profitables bénéficient davantage des exonération d'IS (régressivité) et auraient investi même en l'absence de ces exonérations (redondance et inefficacité). Les pays développés privilégient les crédits d'impôts aux exonérations dans leur régime incitatif. Ces crédits permettent un meilleur ciblage des investissements désirés et des pertes de recettes fiscales moindres. |
| Keywords: | Tax incentives, Corporate Income Tax, Transparency, Developing countries, Incitations fiscales, Impôt sur les sociétés, Transparence, Pays en développement |
| Date: | 2024–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04523632&r=pbe |
| By: | Eduardo Amaral Haddad; João Gabriel Sacco |
| Abstract: | - Brazil’s latest tax reform will replace five taxes on consumption with one single VAT to promote greater efficiency and sectoral isonomy. Forecasts produced by a detailed ICGE model point to sizeable gains in GDP exceeding 4% in the long run, even if spatially unequal. Exceptions to the rules reduce potential benefits in efficiency terms. Policies meant to promote regional development and close the gap deepened by the reform partially achieve their goal at the expense of efficiency gains. Lessons for the current tax reform in Morocco are drawn. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ocp:ppaper:pb02-24&r=pbe |
| By: | Wei Lyu; George Wehby; Robert Kaestner |
| Abstract: | During the COVID-19 pandemic, the federal government issued stimulus checks and expanded the child tax credit. These pandemic payments varied by marital status and the number of children in the household and were substantial with some families receiving several thousand dollars. We exploit this plausibly exogenous variation in income to obtain estimates of the effect income on infant health. We measure the total amount of pandemic payments received during pregnancy, or the year before birth, and examine how this additional income affects birthweight, the incidence of low birth weight, gestational age and fetal growth. Data are from birth certificates and analyses are conducted separately by maternal marital status and education (less than high school or high school) to isolate only the variation in pandemic payments due to differences in the number of children (parity). Estimates indicate that these pandemic cash payments had no statistically significant, or clinically or economically meaningful effects on infant health. Overall, the findings suggest that income transfers during pregnancy will have little effect on socioeconomic disparities in infant health. |
| JEL: | H51 I14 J13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32310&r=pbe |
| By: | David L. Sjoquist (Center for State and Local Finance, Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | Sales taxes have become an important source of revenue for local governments in Georgia. However, local sales tax revenues per capita vary widely across the state’s 159 counties. One reason is that residents of some counties do much of their shopping in other counties that are retail centers. Some think this is inequitable. This inequity could be addressed by providing grants to counties with small sales tax revenue per capita, funded either by the state or by transfers from counties with large sales tax revenue per capita. In this policy brief, we explore the variation across Georgia counties in sales tax revenue per capita and explore a grant program to address the inequities. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ays:cslfwp:cslf2401&r=pbe |
| By: | Dhaval M. Dave; Yang Liang; Johanna Catherine Maclean; Caterina Muratori; Joseph J. Sabia |
| Abstract: | Public health advocates warn that the rapid growth of legal markets for electronic nicotine delivery systems (ENDS) may generate a “gateway” to marijuana and harder drug consumption, particularly among teenagers. This study is the first to explore the effects of ENDS taxes on substance use. We find that a one-dollar increase in ENDS taxes (2019$) is associated with a 1-to-2 percentage point decline in teen marijuana use and a 0.8 percentage point reduction in adult marijuana use. This result is consistent with e-cigarettes and marijuana being economic complements. We find no evidence that ENDS taxes affect drug treatment admissions or consumption of illicit drugs other than marijuana such as cocaine, methamphetamine, or opioids over this sample period. |
| JEL: | H2 I12 I18 J13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32302&r=pbe |
| By: | Jack Mountjoy |
| Abstract: | This paper studies the causal impacts of public universities on the outcomes of their marginally admitted students. I use administrative admission records spanning all 35 public universities in Texas, which collectively enroll 10 percent of American public university students, to systematically identify and employ decentralized cutoffs in SAT/ACT scores that generate discontinuities in admission and enrollment. The typical marginally admitted student completes an additional year of education in the four-year sector, is 12 percentage points more likely to earn a bachelor's degree, and eventually earns 5-10 percent more than their marginally rejected but otherwise identical counterpart. Marginally admitted students pay no additional tuition costs thanks to offsetting grant aid; cost-benefit calculations show internal rates of return of 19-23 percent for the marginal students themselves, 10-12 percent for society (which must pay for the additional education), and 3-4 percent for the government budget. Finally, I develop a method to disentangle separate effects for students on the extensive margin of the four-year sector versus those who would fall back to another four-year school if rejected. Substantially larger extensive margin effects drive the results. |
| JEL: | H43 H75 I2 I20 I22 I23 I24 I26 I28 J24 J31 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32296&r=pbe |
| By: | Lucas Epstein; Erich Muehlegger |
| Abstract: | In 2018, California voters rejected Proposition 6, a ballot initiative that sought to repeal state gasoline taxes and vehicle fees enacted as part of the 2017 Road Repair and Accountability Act. We study the relationship between support for the proposition, political ideology and the economic burdens imposed by the Act. For every hundred dollars of annual per-household imposed costs, we estimate that support for the proposition rose by 3 - 9 percentage points. Notably, we find that the relationship between voting and the economic burden of the policy is seven times stronger in the most conservative tracts relative to the most liberal tracts. Since conservative areas in California and elsewhere tend to bear a higher burden from transportation and energy taxes than liberal areas, heterogeneity in the response to economic burdens has important implications for the popular support for environmental taxes and the ongoing policy debate about how to finance future road infrastructure. |
| JEL: | H23 R48 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32311&r=pbe |