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on Public Economics |
| By: | Valeria Merlo; Georg Wamser |
| Abstract: | This chapter reviews the literature providing empirical estimates on the tax elasticity of multinational profits and discusses the challenges faced when attempting to quantify tax-motivated profit shifting. We first use micro-level data to show that multinational corporations hold a disproportionately large share of profits and financial assets in tax havens, relative to real activities in these countries. We then argue that tax notches associated with anti-tax avoidance legislation may be exploited to better understand tax-motivated profit shifting. This approach suggests a semi-tax elasticity of pre-tax profits of about 0.22, which is substantially smaller than estimates provided in earlier studies. |
| Keywords: | corporate income taxes, profit shifting, tax havens, multinational corporations |
| JEL: | H25 H26 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11045&r=pbe |
| By: | Kristoffer Berg; Morten Håvarstein; Magnus E. Stubhaug |
| Abstract: | Surveys and experiments suggest that people hold workers more responsible for income gains stemming from merit, such as education, than circumstances, such as parental education. This paper shows how to design income taxes that account for merits. First, we introduce social welfare functions that accommodate individual preferences and hold workers responsible for their merits. Second, we show how to map social welfare function primitives into empirically measurable statistics and exploit long-run Norwegian income and family relations register data to examine the relationship between merit and income. Third, we simulate optimal income tax implications of our meritocratic social welfare functions. The result is that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends, but the difference is smaller when workers are not held responsible for merits that are explained by circumstances. |
| Keywords: | equality of opportunity, meritocracy, optimal income taxation, welfare criteria |
| JEL: | D31 D63 H21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11058&r=pbe |
| By: | Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Mikhail Miklyaev (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Owotomiwa Christiana Olubamiro (Cambridge Resources International Inc.); Siamand Hesami (Department of Banking and Finance Eastern Mediterarrean University and Cambridge Resources International Inc.) |
| Abstract: | In Finland, over 98% of the compliance costs incurred by VAT-registered entities are borne on micro, small and medium taxpayers. The Finnish Tax Administration (FTA) project "Design and Implementation of a New VAT Reporting Model" is an analysis of three interventions to enhance the current tax administration system. The three interventions are to expand the information collected on the VAT return (stage 1), to introduce electronic reporting of VAT invoices by all taxpayers to the FTA (stage 2), and finally, for the FTA to pre-fill the VAT returns for small, medium and micro taxpayers (stage 3). A Cost-Benefit Analysis approach is used to evaluate these proposals for potential implementation by measuring the potential costs and benefits of each stage of the reforms. The project's main aim is to increase tax revenues (reduce the tax gap) and reduce the economic costs associated with administration and compliance with the value-added tax (VAT) legislated obligations. Of the three interventions evaluated, the largest net economic benefits are created by the administrative pre-filling of the Value Added Tax returns. |
| Keywords: | Cost-Benefit Analysis, VAT, Compliance Cost, Micro & SME enterprises, Electronic Invoicing, Pre-Filled VAT Returns, Finland. |
| JEL: | D61 H21 H24 H26 |
| Date: | 2024–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4617&r=pbe |
| By: | Heckemeyer, Jost H.; Schulz, Inga; Spengel, Christoph; Winter, Sarah |
| Abstract: | This paper evaluates the Multilateral Convention to implement Pillar I Amount A, released by the OECD in October 2023, and the alternative proposal of Art. 12B for tax treaties suggested by the UN, with a particular emphasis on the perspective of developing countries. We conduct a comparative analysis of the proposals using an integrated economic and legal approach. Our assessment is based on the two proposals' ability to generate tax revenue and their implications for net-importing countries. Our legal analysis demonstrates significant differences between the two proposals in the implied reallocation of taxing rights, depending on the considered (digital) business model. Interestingly, we find that overall and despite its complexity, Pillar I Amount A addresses the specific interests of developing countries better than Art. 12B UN Model. In particular, Pillar I Amount A will likely outperform the UN's proposal in terms of its tax revenue potential. |
| Keywords: | Digital Economy, Corporate Tax, Global Tax Reform, OECD Pillar 1, Developing Countries |
| JEL: | F23 H25 H32 K34 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:290402&r=pbe |
| By: | Andreas Hauer (Seminar for Economic Policy, LMU); Hayato Kato (Graduate School of Economics, Osaka University) |
| Abstract: | The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold. We set up a simple model of tax competition and profit shifting by heterogeneous multinational firms to evaluate the e ects of this partial coverage of the GMT. A non-haven and a haven country are bound by the GMT rate for large multinationals, but can set tax rates for firms below the threshold non-cooperatively. We show that the introduction of the GMT with a moderate tax rate increases tax revenues in both the non-haven and the haven countries. Gradual increases in the GMT rate, however, trigger a sudden change in the tax competition equilibrium from a uniform to a split corporate tax rate, at which tax revenues in the non-haven country decline. In contrast, gradual increases in the coverage of the GMT never harm the non-haven country. We also discuss the quantitative e ects of introducing a 15% GMT rate in a calibrated version of our model. |
| Keywords: | multinational firms; tax avoidance; profit shifting; tax competitionInput-output |
| JEL: | F23 H25 H87 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2406&r=pbe |
| By: | Jan Behringer (Macroeconomic Policy Institute (IMK)); Lena Draeger (Leibniz University Hannover (LUH)); Sebastian Dullien (Macroeconomic Policy Institute (IMK)); Sebastian Gechert (Chemnitz University of Technology (TUC)) |
| Abstract: | We use novel German survey data to investigate how perceptions and information about public finances influence attitudes towards public debt and fiscal rules. On average, people strongly underestimate the debt-to-GDP ratio, overestimate the interest-to-tax-revenue ratio and favor a tighter German debt brake. In an information treatment experiment, people consider public debt to be a more (less) severe problem once they learn the actual debt-to-GDP or interest-to-tax-revenue ratio is higher (lower) than their estimate. However, the treatment effects partly vanish when anchoring respondents' beliefs with historical public debt figures. We find no treatment effects on attitudes towards the debt brake. |
| Keywords: | public debt, fiscal rules, information treatment, expectations |
| JEL: | D83 E60 H31 H60 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:223-2024&r=pbe |
| By: | Jacob Goldin; Tatiana Homonoff; Neel A. Lal; Ithai Lurie; Katherine Michelmore |
| Abstract: | The largest tax-based social welfare programs in the US limit their benefits to taxpayers with labor market income. Eliminating these work requirements would better target transfers to the neediest families but risks attenuating tax-based incentives to work. We study changes in labor force participation from the elimination of a work requirement in a tax credit for parents of young children, drawing on quasi-random variation in birth timing and administrative tax records. To do so, we develop and implement a novel approach for selecting an empirical specification to maximize the precision of our estimate. The unique design of the policy along with its subsequent reform allow us to isolate taxpayers' sensitivity to conditioning child tax benefits on work -- the parameter at the center of recent debates about the labor supply consequences of reforming federal tax policy for children. We estimate that eliminating the work requirement causes very few mothers to exit the labor force, with a 95% confidence interval excluding labor supply reductions of one-third of a percentage point or greater. Our results suggest expanding tax benefits for low-income children need not meaningfully reduce labor force participation. |
| JEL: | H24 I38 J22 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32343&r=pbe |
| By: | Johannes Brumm; Laurence J. Kotlikoff; Christopher Krause |
| Abstract: | Fiscal policy in the U.S. and other countries renders intertemporal budgets non-differentiable, nonconvex, and discontinuous. Consequently, assessing work and saving responses to policy requires global optimization. This paper develops the Global Life-Cycle Optimizer (GLO), a stochastic pattern-search algorithm. The GLO robustly, precisely, and quickly locates global optima in highly complex fiscal settings. We use the GLO to study how a stylized U.S. fiscal system distorts workers’ labor supply and saving assuming standard preferences. The system incorporates kinks from federal personal income tax brackets, Social Security’s FICA tax, and a notch from the provision of basic income below a threshold. The GLO reproduces theoretically predicted earnings bunching and flipping over a remarkably wide range of wage rates. Saving distortions can be equally dramatic. Associated excess burdens range from substantial to massive. Restricting labor supply to full-or part-time work can eliminate flipping when it’s optimal and produce flipping when it’s suboptimal. Joint filing can significantly reduce the earnings of lower-wage spouses relative to that of higher-wage spouses. The GLO can be applied to assess a country’s or state’s full set of work and saving disincentives. Consequently, it can facilitate analyses of structural labor supply and tax reform. |
| JEL: | H2 H3 H30 H31 I38 J22 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32335&r=pbe |
| By: | Gasteiger, Emanuel; Kuhn, Michael; Mistlbacher, Matthias; Prettner, Klaus |
| Abstract: | While automation technologies replace workers in ever more tasks, robots, 3D printers, and AI-based applications require substantial amounts of electricity. This raises concerns regarding the feasibility of the energy transition towards mitigating climate change. How does automation interact with conventional capital in driving energy demand and how do taxes on robots and taxes on electricity affect the adoption of robots and AI? To answer these questions, we generalize a standard economic growth model with automation and electricity use. In addition, we augment the model with electricity taxes and robot taxes and show the mechanisms by which these taxes affect automation. We find that an electricity tax serves a similar purpose as a robot tax. However, a robot tax is much more difficult to implement from a practical perspective. |
| Keywords: | Automation; Robots; Growth; Electricity Use; Energy Taxes; Robot Taxes |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:62095883&r=pbe |
| By: | Matej Lorko; Tomas Miklanek; Maros Servatka |
| Abstract: | While nudges have recently gained popularity, many nudging interventions fail, and the effects of successful ones are often short-lived. We conjecture that the success of a nudge depends on how it interacts with the underlying economic incentives that determine the payoffmaximizing behavior of the decision-maker. For example, in the domain of tax compliance, a nudge is likely to be effective only if it is financially optimal for the taxpayer to pay the tax. To test our conjecture, we run a multi-period experiment in which we manipulate tax audit probability, and nudge participants to report their income. In addition, we vary how often the nudge appears, to test whether more frequent nudging increases long-run compliance. We observe that the first application of a nudge has a positive immediate effect on income reporting irrespective of whether it is optimal to comply or not. However, subsequent nudges increase income reporting only if the nudge is aligned with the taxpayer’s incentives. More frequent nudging in the direction opposite to incentives yields no effects on long-run compliance. Policy implications are discussed. |
| Keywords: | nudge, incentives, tax compliance, experiment |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp777&r=pbe |
| By: | Helene Maisonnave (ULH - Université Le Havre Normandie - NU - Normandie Université, EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université); Pierre N Mamboundou (ULH - Université Le Havre Normandie - NU - Normandie Université, EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université) |
| Date: | 2022–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04535859&r=pbe |
| By: | ADACHI Daisuke; KAWAGUCHI Daiji; SAITO Yukiko |
| Abstract: | We study the effect of a tax policy on adopting industrial robots and firm performance, notably in terms of employment. Combining the policy variation in the Tax Credit for Promoting Productivity-Enhancing Equipment Investment (TC-PPEI) in Japan and newly collected Japanese firm-level longitudinal data on robot adoption, we find that the firms eligible for the TC-PPEI increased the adoption of robots. Our event-study analysis reveals that when firms adopt robots, they do not decrease the total number of workers but significantly increase employment after 1-3 years of adoption events and sales. Our results suggest that adopting robots can create employment instead of destroying it at the firm level. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24047&r=pbe |