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on Public Economics |
| By: | Siamand Hesami (Department of Finance Bournemouth University, UK and Cambridge Resources International(CRI)); Hatice Jenkins (Department of Banking and Finance, Eastern Mediterranean University, Gazimagusa, Turkey); Glenn P. Jenkins (Department of Economics Queen’s University Canada, Cambridge Resources International Inc.and Cyprus International University, North Cyprus) |
| Abstract: | This paper systematically reviews the impact of electronic invoicing and prefilling tax returns on tax administration and compliance, adhering to the PRISMA guidelines. Our comprehensive literature search and analysis reveal that these technologies are crucial in reducing tax compliance and administration costs. The results indicate significant benefits, including reduced financial stress for firms, especially during development phases, and enhanced efficiency in tax administration processes. The study highlights how e-invoicing and prefilling systems simplify and improve the tracking of taxation, leading to increased efficiency in tax practices globally. This research contributes to understanding the transformative effects of digital technologies in taxation, demonstrating their potential in streamlining tax compliance and administrative procedures. |
| Keywords: | taxation; e-invoicing; prefilling of returns; tax administration; efficiency; compliance; tax technology. |
| JEL: | H25 H71 O33 M48 |
| Date: | 2024–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:qed:dpaper:4621 |
| By: | Schöndube, Jens Robert; Spaeth, Alexandra |
| Abstract: | In practice, both pre- and after-tax performance measures are used to incentivize managers. In this paper, we analyze the optimality of these performance measures in an agency setting, assuming that both the principal and the agent face tax base risks. Switching from a pre-tax to an after-tax measure introduces a risk effect, including an additional variance and a covariance effect, both of which stem from the principal's tax base risk. We show that the after-tax measure is the optimal performance measure if and only if the negative covariance effect dominates the variance effect. If the principal can evade taxes, there is a tax evasion effect in addition to the risk effect, which captures the distortion of tax evasion under the after-tax measure. Now, using the after-tax measure is only optimal, if the weighted risk effect is stronger than the tax evasion effect. Tax revenue may not be maximized by using the optimal performance measure if the agent's tax base risk and the firm's cash flow are positively correlated. While the pay-performance sensitivity of the optimal contract is independent of tax avoidance under the pre-tax measure, under the after-tax measure it is decreasing with increasing incentives for sheltering. If tax evasion is possible, lower levels of tax evasion under the after-tax measure result in an increase in tax revenue relative to the pre-tax measure. The results of our study have implications for contract design, tax political actions and tax revenues. |
| Keywords: | agency theory, performance measures, taxation, tax evasion, tax base risk |
| JEL: | D86 M41 M48 M52 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:han:dpaper:dp-727 |
| By: | Tom G. Meling; Magne Mogstad; Arnstein Vestre |
| Abstract: | We quantify the extent of crypto tax noncompliance and evasion, and assess the efficacy of alternative tax enforcement interventions. The context of the study is Norway. This context allows us to address key measurement challenges by combining de-anonymized crypto trading data with individual tax returns, survey data, and information from tax enforcement interventions. We find that crypto tax noncompliance is pervasive, even among investors trading on exchanges that share identifiable trading data with tax authorities. However, since most crypto investors owe little in crypto-related taxes, enforcement strategies need to be well-targeted or cheap for benefits to outweigh costs. |
| JEL: | G5 H2 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32865 |
| By: | Mary Ann Bronson; Daniel Haanwinckel; Maurizio Mazzocco |
| Abstract: | How do different income taxation systems affect household decisions and welfare? We answer this question by first documenting the strong labor supply disincentives for secondary earners of the U.S. tax system and by using variations from the Bush Tax Cuts to assess their effects on intra-household specialization. We then develop a lifecycle model incorporating labor supply, marriage and divorce decisions with limited commitment, household production, human capital accumulation, and assortative mating. After estimating and validating the model with various datasets, we evaluate four tax systems: a U.S.-like income-splitting system, an individual taxation system, a flexible general joint system, and an income-splitting system with secondary-earner deductions. We find that the individual taxation system provides higher welfare than income splitting but increases inequality. The general joint system offers the highest welfare but is complex to implement. The income-splitting system with a secondary-earner deduction improves welfare and reduces inequality while maintaining simplicity. |
| JEL: | H2 H3 J1 J2 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32861 |
| By: | Toshiyuki Uemura (School of Economics, Kwansei Gakuin University) |
| Abstract: | As of the 2024 fiscal year, Japan's R&D tax credit amounted to 763.7 billion yen, which is equivalent to approximately 5& of corporate tax revenue and the largest loss of tax revenue among special tax measures. Nevertheless, the R&D tax credit is still necessary because there is a positive externality in firms' R&D activities; even if results are produced, there is a public goods-like characteristic wherein they are free-ridden. Thus, if left to the market mechanism, firms' R&D activities will be underestimated. Information asymmetry, uncertainty, and the need to secure funding for R&D activities might also arise. While it is possible to support R&D activities through subsidies or other policy measures, the R&D tax credit has a lower application cost than subsidies requiring advanced applications and post-event reporting of results, thus offering greater benefits to firms. However, as this causes a significant loss in tax revenue, there is a great deal of interest in the results of the R&D tax system, which has led to many empirical analyses on this topic. Subsequently, this study comprehensively surveys previous empirical analyses of Japan's R&D tax credit system and highlights the importance of analyzing the system from the cost of capital perspective. I then present a model of firm behavior that incorporates the R&D tax system, derives the cost of capital, and theoretically examines the after-tax marginal cost of R&D and the B index. Finally, the results obtained from estimating the after-tax marginal cost and B index based on Japan's R&D tax system demonstrate that Japan's system favors small and medium-sized enterprises over large firms. |
| Keywords: | R&D tax system, after-tax marginal cost, B index |
| JEL: | H25 H32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:276 |
| By: | Nicolás Forteza; Elvira Prades; Marc Roca |
| Abstract: | On 28 December 2022, the Spanish government announced a temporary value added tax (VAT) rate reduction for selected products. VAT rates were cut on January 1, 2023 and are expected to go back to their previous level by mid-2024. Using a web-scraped data set, we leverage machine-learning techniques to classify each product according to categories of the official classification by the statistical office (COICOP5). Then we study the price effects of the temporary VAT rate reduction covering the daily prices of roughly 10, 000 food products sold on-line by a Spanish supermarket. To identify causal effects, we compare the evolution of prices for treated items (that is, subject to the tax policy) against a control group (food items out of the policy's scope). Our findings indicate that, at the supermarket level, the pass-through was almost complete. We observe differences in the speed of pass-through across different product types. |
| Keywords: | Price Rigidity, Inflation, Consumer Prices, Heterogeneity, Microdata, VAT Pass-Through |
| JEL: | E31 H22 H25 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:951 |
| By: | Jialin Dong; Kshama Dwarakanath; Svitlana Vyetrenko |
| Abstract: | There has been a growing interest in multi-agent simulators in the domain of economic modeling. However, contemporary research often involves developing reinforcement learning (RL) based models that focus solely on a single type of agents, such as households, firms, or the government. Such an approach overlooks the adaptation of interacting agents thereby failing to capture the complexity of real-world economic systems. In this work, we consider a multi-agent simulator comprised of RL agents of numerous types, including heterogeneous households, firm, central bank and government. In particular, we focus on the crucial role of the government in distributing tax credits to households. We conduct two broad categories of comprehensive experiments dealing with the impact of tax credits on 1) households with varied degrees of myopia (short-sightedness in spending and saving decisions), and 2) households with diverse liquidity profiles. The first category of experiments examines the impact of the frequency of tax credits (e.g. annual vs quarterly) on consumption patterns of myopic households. The second category of experiments focuses on the impact of varying tax credit distribution strategies on households with differing liquidities. We validate our simulation model by reproducing trends observed in real households upon receipt of unforeseen, uniform tax credits, as documented in a JPMorgan Chase report. Based on the results of the latter, we propose an innovative tax credit distribution strategy for the government to reduce inequality among households. We demonstrate the efficacy of this strategy in improving social welfare in our simulation results. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.10391 |
| By: | Cesa-Bianchi, Nicolò (Università degli Studi di Milano); Colomboni, Roberto (Università degli Studi di Milano); Kasy, Maximilian (University of Oxford) |
| Abstract: | We consider the problem of repeatedly choosing policies to maximize social welfare. Welfare is a weighted sum of private utility and public revenue. Earlier outcomes inform later policies. Utility is not observed, but indirectly inferred. Response functions are learned through experimentation. We derive a lower bound on regret, and a matching adversarial upper bound for a variant of the Exp3 algorithm. Cumulative regret grows at a rate of T2/3. This implies that (i) welfare maximization is harder than the multi-armed bandit problem (with a rate of T1/2 for finite policy sets), and (ii) our algorithm achieves the optimal rate. For the stochastic setting, if social welfare is concave, we can achieve a rate of T1/2 (for continuous policy sets), using a dyadic search algorithm. We analyze an extension to nonlinear income taxation, and sketch an extension to commodity taxation. We compare our setting to monopoly pricing (which is easier), and price setting for bilateral trade (which is harder). |
| Keywords: | optimal taxation, multi-armed bandits, experimental design |
| JEL: | C9 H21 C73 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17186 |
| By: | Elizabeth Ananat; Irwin Garfinkel |
| Abstract: | For many of those who worked to include an expanded Child Tax Credit in the 2021 American Rescue Plan, an important motivation was to test the feasibility and effectiveness of a permanent U.S. child allowance similar to those provided in other rich countries. Because this expansion was short-lived, however, evaluations of its effects cannot provide complete evidence on the long-run effects of a permanently expanded CTC. We leverage theoretical predictions from standard economic models, behavioral science, and child development frameworks, along with empirical evidence from literature evaluating previous long-term cash and quasi-cash transfers to families with children, to predict the likely long-run impacts of a permanent child allowance. We find that it would lead to increased future earnings and tax payments, improved health and longevity, and reduced health care, crime, and child protection costs; using conventional valuations, benefits to society outweigh costs nearly 10 to 1, with most benefits due to credit refundability. |
| JEL: | H31 I38 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32870 |
| By: | Matías Güizzo Altube (Inter-American Development Bank); Carlos Scartascini (Inter-American Development Bank); Mariano Tommasi (Universidad de San Andrés) |
| Abstract: | Inequality is a crucial issue in Latin America and the Caribbean, alongside very low productivity gains over the last 60 years and low levels of investment and efficiency. Most literature, especially on the political economy determinants of these problems, has considered these issues individually. This article revisits the discussion on the political economy of redistribution (or lack thereof) in the region, embedding it in a broader political economy debate. We characterize the region and its countries in terms of the size of the public sector, the extent of fiscal redistribution, and the efficiency of public action. We summarize various strands of literature that explain elements of the fiscal vector individually and provide a framework that combines elements from several strands, explaining why different countries exhibit different configurations of government size, redistribution, and efficiency. |
| Keywords: | Inequality, Redistribution, Political Economy, Growth, Poverty |
| JEL: | H20 H23 E62 P16 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:169 |
| By: | Shantanu Bagchi (Department of Economics, Towson University) |
| Abstract: | This paper uses a stylized overlapping-generations model to examine the effect of aggregate (or business cycle) risk on the macroeconomic and welfare implications of Social Security. In this model framework, unfunded public pensions provide partial insurance against inter- and intra-generational risks that are uninsured due to incomplete markets. I find that in this environment, Social Security’s macroeconomic and welfare effects are considerably smaller than those in a framework without aggregate risk, and that the persistence of the aggregate shock process is an important determinant of this difference. I also find that aggregate risk changes how the redistribution implicit in Social Security's benefit-earnings rule interacts with its inter- generational risk sharing mechanism. |
| Keywords: | Social Security, aggregate risk, business cycles, incomplete markets, intergenerational risk. |
| JEL: | E21 E62 H55 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tow:wpaper:2024-11 |
| By: | Adam Looney |
| Abstract: | The rising cost of college and graduate school is often cited as a cause of rising student loan borrowing. This paper analyzes long-term trends in tuition and student financing using data from the National Postsecondary Student Aid Study. While real top-line “sticker prices” have increased 114 percent since 1993, after accounting for increases in financial aid and tax benefits net tuition prices have not changed. Over the same period, student borrowing tripled. While certain groups, like graduate students and affluent undergraduates, have faced higher prices, aggregate increases in borrowing are hard to explain by average changes in net tuition prices. |
| Keywords: | student loans; college tuition; financial aid |
| JEL: | I22 H52 D14 |
| Date: | 2024–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:98755 |
| By: | Adriana Lleras-Muney; Hannes Schwandt; Laura Wherry |
| Abstract: | Poverty is strongly associated with worse health across countries and within countries across individuals. However, not all poor individuals suffer from poor health: the effects of poverty on health vary across place and time. In this review, we discuss the evidence documenting these patterns, and the reasons for the associations. We then provide an overview of what is known about policies that may improve the health of the poor. We focus primarily on the modern-day United States, but also discuss evidence from historical experiences and low- and middle-income countries. Throughout we discuss areas in need of future research. |
| JEL: | H50 I1 I14 I18 I30 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32866 |