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on Public Economics |
| By: | Xuyang Chen |
| Abstract: | Profit shifting by multinational enterprises (MNEs) causes considerable tax revenues losses globally. This thesis focuses on several developments of anti-avoidance measures, and theoretically investigates their effects on MNEs’ behavior and countries’ corporate taxes. Chapter 1 analyzes tax enforcements coordination and cooperation. We consider a fiscal competition game where the timing of countries’ enforcement decisions is endogenized. Countries differ in market size and tax enforcement productivity (captured by enforcement elasticity of tax revenue). We reveal that the low-enforcement productivity country will be the enforcement leader and will benefit more from enforcement cooperation. Chapter 2 is motivated by the fact that many countries are limiting tax deductibility and using turnover taxes targeted at gross revenues. Our analysis starts from the polar cases: a pure profit tax under separate accounting or formula apportionment, and a turnover tax. We derive conditions under which one tax regime dominates the other two in terms of tax revenue. In the general case of tax deductibility, we show that depending on tax capacity and production technologies, tax deductibility affects countries’ tax revenues very differently. Chapter 3 studies the OECD’s global minimum tax (GMT). Different from the minimum tax literature, we consider both profit shifting and capital investment responses of the MNE. We show that the GMT curbs profit shifting and always benefits the large country. In the short run where countries’ tax rates are fixed, introducing the GMT increases (decreases) the small country’s revenue under high (low) profit shifting cost. In the long run where countries can adjust tax rates, the GMT reshapes international tax competition game and may not bring countries’ tax rates above the minimum rate. Moreover, a marginal GMT reform does not necessarily benefit the small country. |
| Keywords: | Profit shifting; Tax competition; Tax enforcement; Tax deductibility; Tax haven; Global minimum tax |
| Date: | 2024–10–18 |
| URL: | https://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/378389 |
| By: | Kitae Cho (Yonsei University); Eunseong Ma (Yonsei University) |
| Abstract: | This paper investigates the effects of hours constraints on optimal progressive tax structures. To this end, we present a heterogeneous-agent model with a nonlinear progressive tax system. As a form of hours constraints, we introduce a wage penalty for those working below 40 hours per week, generating a realistic distribution of work hours predominantly concentrated at 40 hours. Our findings indicate that optimal tax progressivity should be significantly higher than the current level. Poor households benefit from the reform, while the rich experience welfare losses, primarily due to productive households being unable to adjust their labor supply under hours constraints. The optimal tax reform reduces overall inequality, albeit at the cost of decreased economic activity. Uncovering the Pareto weights in the social welfare functions, under the current tax system, the weight assigned to the richest households is approximately twice the average. |
| Keywords: | hours constraints, optimal tax progressivity, labor supply elasticity, redistribution |
| JEL: | E21 H21 H23 J22 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2024rwp-231 |
| By: | Changchen Ge |
| Abstract: | This paper examines the impact of discretionary tax changes on economic activity in Australia. I use written records such as the Budget Report and Election Speeches to identify the revenue effect, timing and motivation of all major Commonwealth tax policy actions from 1983Q4 to 2018Q4. This approach allows me to isolate legislated tax changes that are not taken for reasons related to prospective economic conditions. I then examine the effects on output by treating the unanticipated exogenous tax changes as an instrument for tax revenue. The resulting estimates indicate that tax cuts are expansionary but much less persistent. The large effects stems in considerable part from a strong positive effect of tax cuts on consumption. |
| Keywords: | narrative approach, tax multiplier, Australia |
| JEL: | E32 E62 H20 N17 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-63 |
| By: | Julien Albertini (Université Lumière Lyon 2, CNRS, Université Jean Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France); Xavier Fairise (GAINS, Le Mans Université); Anthony Terriau (GAINS, Le Mans Université) |
| Abstract: | This paper explores the differentiated effects of corporate tax changes based on firm characteristics and evaluates the potential impact of a tax system modulated by both firm size and age. Using tax rate variations across U.S. states and comparing adjacent counties across state borders, we find that corporate taxes significantly reduce employment in small and young firms, while having no notable impact on large and older firms. We then develop a model to analyze firm dynamics throughout their life cycle under different tax regimes. Our simulations show that a corporate tax system adjusted by both firm size and age is more effective than one based solely on size (and even more so than a system with a single rate). This approach lightens the tax burden on highly productive young firms and shifts it toward less productive older firms, ultimately boosting employment and welfare without reducing the fiscal surplus. |
| JEL: | H25 H32 J21 J23 E61 E62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2410 |
| By: | Enrico Di Gregorio (International Monetary Fund); Matteo Paradisi (EIEF); Elia Sartori (CSEF) |
| Abstract: | We show that tax authorities can stimulate tax compliance by strategically releasing audit-relevant information. We focus on audit policies that disclose to taxpayers that audit risk discretely drops above a threshold determined by their predicted revenues. In a theoretical framework, we derive conditions for the existence of improvements over flat undisclosed audit rules, and we build a test for such improvements that relies on a change in the probability jump at the threshold. Our empirical analysis relies on the Sector Studies, an Italian policy with a disclosed threshold-based design. We leverage more than 26 million Sector Study files submitted between 2007 and 2016. First, we show that taxpayers bunch at the threshold to a great extent, and that this behavior is related to evasion proxies, availability of evasion technologies, and tax incentives. Then, we exploit a staggered Sector Studies reform that widens the initial audit risk discontinuity. In line with our theory, taxpayers who benefit from audit exemptions above the threshold reduce their relative compliance, while those below the threshold improve it. However, mean reported profits increase by 16.2% in treated sectors over six years, suggesting – in light of our test – that a disclosed rule performs better than an undisclosed one. |
| Keywords: | tax compliance, enforcement, evasion, audit, disclosure, firm, bunching. |
| JEL: | D04 D22 H24 H25 H26 H32 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:729 |
| By: | Aldair Rivas (Instituto Nacional de Estadística y Geografía (INEGI)); Emmanuel Chavez (Division of Economics, CIDE); Irvin Rojas (Division of Economics, CIDE); Aaron Zaragoza (Division of Economics, CIDE) |
| Abstract: | This paper studies the price effects of two asymmetric value-added tax (VAT) reforms in Mexico: a 2014 VAT hike and a 2021 VAT cut implemented in the southern border region. Our estimates show that consumers pay for 25 percent of the VAT change in both reforms, but consumer incidence differs across goods. With the price effect estimates (real incidence), we determine the impact of the VAT reforms on income distribution and poverty. We compare these impacts with the full passthrough of the VAT on prices (legal incidence). Depending on the type of price incidence, the VAT is allocated differently along the income distribution. Moreover, the impact on poverty due to the VAT (hike or cut) real incidence is small (less than ±0.5 percent change). In contrast, the VAT cut legal incidence decreases extreme poverty by 8.3 percent. |
| Keywords: | VAT incidence, distributional effects, poverty |
| JEL: | H22 H23 H27 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:emc:wpaper:dte640 |
| By: | Tess C. Scharlemann; Eileen van Straelen |
| Abstract: | We study how the mortgage interest deduction (MID) constrains mortgage refinancing. Households who deduct mortgage interest from their taxes face a lower post-tax interest rate, reducing the interest savings from refinancing net of taxes. We estimate the effect of the MID on refinancing using the Tax Cuts and Jobs Act (TCJA) of 2017 as a natural experiment. The TCJA doubled the standard deduction, dramatically reducing MID uptake and value. This policy affected borrowers differently based on their pre-existing mortgage interest, federal and state tax rates, and property taxes. We use heterogeneity in borrowers' pre-TCJA exposure to the policy to show that, following the TCJA, the refinancing rate amongst households who lose the MID increased by 25%. In response to a 19 basis point increase in the after-tax mortgage rate, we estimate that refinancing increases 25%. These results suggest that reductions in the MID may improve the pass-through of monetary policy. |
| Keywords: | Consumption; Household Finance; Monetary policy; Mortgages |
| JEL: | E52 G21 E21 D14 |
| Date: | 2024–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-82 |
| By: | Marie Briere; James Poterba; Ariane Szafarz |
| Abstract: | This paper presents new evidence on how employees respond to tax incentives for retirement saving. Using administrative data from a large retirement plan administrator in France, we examine the voluntary saving choices of approximately 1.4 million workers before and after the implementation of the 2019 Loi Pacte, a reform that introduced tax-deductible voluntary contributions into employer-sponsored retirement plans. One of the features of this multi-part reform was a change in the provisions for voluntary individual contributions to employer-sponsored saving plans. Prior to the implementation of the Loi Pacte, voluntary contributions could only be made on a post-tax basis. Wage earnings, for example, would be taxed before a worker could make a contribution, so that the contribution was post-tax. The reform introduced the possibility of making pre-tax contributions. In this case, labor income could be contributed to the plan without any payment of tax. The tax liability on this income was deferred until the funds were withdrawn from the account, typically when the worker was retired. This postpones the tax payment, often by several decades, and, given the progressivity of income tax rates and the fact that the income of many retirees is lower than their income while working, can also result in a lower tax burden on the earned income. The net effect the Loi Pacte was therefore to increase the rate of return on saving through employer-sponsored plans. On a net-of-tax return basis, post-tax contributions often dominate pre-tax contributions. The reform increased contributions to retirement saving accounts, especially among higher-income, older workers and those who contributed to a voluntary saving plan on a post-tax basis before the pre-tax option became available. There was no decline in contributions to “medium term” saving plans, which are provided by employers and can be accessed after five years, suggesting little substitution between these accounts. |
| Keywords: | Retirement savings; Tax incentives; France; Long-term savings; Rothification; Voluntary contributions |
| JEL: | E21 G28 J32 H24 G41 H31 |
| Date: | 2024–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:sol:wpaper:2013/378653 |
| By: | Yang, Jinyang; Chen, Xi |
| Abstract: | We examine the multi-generational association of a nationwide social pension program in China, the New Rural Pension Scheme (NRPS). NRPS was rolled out on full scale in 2012, and rural enrollees over the age of 60 are eligible to receive an average of 102 CNY non-contributory monthly pension. We leverage age eligibility and variations in pension receipt to identify the intergenerational associations between NRPS and health among grandchildren. We find NRPS substantially increases child weight without impacting height. Overall, the child BMI z score increases by 0.87, which is largely driven by grandfathers' pension receipt raising rates of overweight and obesity among grandsons. Among the potential mechanisms, our findings are more plausibly explained by a mixture of income increase, knowledge bias of co-residing grandparents on childcare, and son preference. Potential biases from differential reporting of primary caregivers and epigenetic transmissions unlikely drive our findings. |
| Keywords: | Social pension, Child health, Inter-generational relationship, Intra-household allocation, Migration, Living arrangement, China |
| JEL: | H23 H31 H55 I38 J22 O15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1503 |
| By: | Guy Lacroix; Pierre-Carl Michaud |
| Abstract: | We provide empirical evidence on the effectiveness of a tax measure aimed at increasing the employment rates of older workers in Quebec, Canada. We use several data sources and various identification strategies. First, we use a Quebec-Ontario difference-in-differences design and do not detect robust effects on employment for most age groups except for those aged 60 to 64, but the common trend assumption is found not to hold. For this last group, we use an alternative identification strategy that exploits the variation in treatment intensity over time using longitudinal administrative tax data for Quebec only. Doing so, we do not f ind any effect on transitions in or out of the labour force. We do find a small positive effect on earnings (intensive margin) but a negative one on the affected workers’ net tax liability. Finally, addressing the invalid comparison with Ontario, we investigate the impact of the credit using a staggered adoption design exploiting differences across cohorts within Quebec. The results are consistent with the alternative approach. We conclude that the tax measure does not appear to be a cost-effective way of raising public revenues nor of increasing the employment rates of older workers. |
| Keywords: | older workers, labour market participation, tax incentives. |
| JEL: | J14 J16 H31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:rsi:cjpcha:02 |
| By: | Hansak, Alexander |
| JEL: | E24 H24 H31 I38 J24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302372 |
| By: | Denderski, Piotr; Kaas, Leo; Schulz, Bastian; Siassi, Nawid |
| JEL: | E24 H24 J63 J64 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302388 |
| By: | Domenico Ferraro (Arizona State University); Damián Pierri (ESCP Business School - Universidad Autónoma de Madrid) |
| Abstract: | We develop an equilibrium business cycle model of multi-plant firms with perfectly competitive product and labor markets. Plant-level production features a minimumlabor requirement, leading to occasionally binding capacity constraints at the firm level. The aggregate production function is kinked, displaying constant returns toscale when the economy is below capacity and decreasing returns when at capacity. We calibrate the model to U.S. data and show that the effects of distorting taxes are highly nonlinear and state-dependent, varying systematically with the state of the business cycle. The aggregate hours elasticity is higher in recessions and decreases with the size of the labor tax cut. Moreover, it differs from the structural preference parameter determining the individual-level labor supply elasticity. |
| Keywords: | Minimum labor requirement; Hours constraints; Capacity utilization; State dependence; Labor taxes; Aggregate hours elasticity |
| JEL: | E22 E23 E24 E32 E62 H24 H25 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:341 |
| By: | Alberto Botta; Eugenio Caverzasi; Alberto Russo |
| Abstract: | With central banks and national governments returning to more conservative monetary and fiscal policies after Covid, the debate about the macroeconomic effects of fiscal rules has revamped. We address this topic via an extended version of the hybrid ABM-SFC model in Botta et al. (2024) that includes a Taylor-type monetary policy rule and a variety of fiscal rules aimed at reducing the public debt-to-GDP ratio. We compare spending-based fiscal rules vastly advocated by international economic institutions with wealth tax-based fiscal policies. We do this in the context of a modern financialized economy where securitization and complex financial products like Asset-Backed Securities (ABS) alter economic dynamics and the effectiveness of monetary policy in controlling inflation. We assume heterogeneous households to track how alternative fiscal strategies affect income and wealth inequality. Our findings are threefold. First, spending-based fiscal rules can reduce the debt-to-GDP ratio in the long term but at the cost of significantly higher unemployment and permanently lower real GDP. Second, wealth tax-based fiscal policies reduce public debt without harming economic performance. Third, perhaps unexpectedly, in a financialized economy, spending-based fiscal austerity may hurt the relative position of rich households in wealth distribution as much as a wealth tax does; this is due to capital losses that spending cuts may eventually induce in households’ financial wealth. In the end, wealth taxes are preferable to spending cuts, and the usual political opposition against them by the rich appears largely unfounded given their potential economic benefits compared to spending-based fiscal austerity. |
| Keywords: | Spending-based fiscal rule, Wealth tax, Securitization |
| JEL: | E44 E63 H63 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2412 |
| By: | Yoshifumi Konishi (Faculty of Economics, Keio University); Sho Kuroda (Faculty of Commerce, Waseda University); Shunsuke Managi (Department of Urban and Environmental Engineering, School of Engineering, Kyushu University) |
| Abstract: | We empirically examine the distributional consequences of income-based versus place-based recycling of carbon tax revenues when automobile demand varies substantially over geographic space. Using a large household dataset from Japan, we estimate a discrete-continuous choice model that parsimoniously accounts for the geographic distribution of incomes, public transit, and portfolio preferences. The model outperforms a naive random-coefficient model in explaining the observed spatial distribution of automobile demand, and allows us to estimate the price and income elasticities that vary by income and public transit density. The estimated model is used to simulate the distributional impacts of income-based versus place-based revenue recycling on carbon emissions and consumer welfare. Our results show the following: first, the improvement in consumer welfare from rebates substantially outweighs the increase in negative externalities from the rebound in carbon emissions; second, place-based recycling outperforms income-based recycling in mitigating welfare losses for low-income and rural households, which face the greatest welfare losses from the carbon tax. |
| Keywords: | Carbon dividend, climate justice, equity-efficiency trade-off |
| JEL: | H23 H31 L62 Q54 Q56 |
| Date: | 2024–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:2024-019 |
| By: | Felder, Lars; Geyer, Johannes; Haan, Peter |
| JEL: | H55 J13 J21 J26 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302369 |
| By: | Franz Ostrizek (Sciences Po); Elia Sartori (CSEF) |
| Abstract: | We investigate the behavioral foundations of informed trade. We extend the canonical (Kyle, 1989) model to allow for wide range of misperception about the information environment (e.g. overconfidence and correlation delusion) as well as the market clearing condition (e.g. understatement of individual impact) and ask when a trading equilibrium can exist. We show that existence requires either i) the market clearing rule being perceived with (cognitive) noise of arbitrary size, or ii) sufficiently strong misperceptions that lead traders to overestimate the precision of their private information (relative to that of others) or underestimate their market impact. Following i) provides a cognitive foundation for the noise trader approach, while ii) yields a highly tractable linear model of (sufficiently) biased traders. Fixing the bias, a higher number of traders is beneficial for existence, though the economy is typically discontinuous in the countable-trader limit. In the latter case, equilibrium is characterized by limit uncertainty, a property which is satisfied if and only if traders perceive some correlation in their competitors’ information. |
| Keywords: | tax compliance, enforcement, evasion, audit, disclosure, firm, bunching. |
| JEL: | D04 D22 H24 H25 H26 H32 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:730 |
| By: | Cristina Bellés-Obrero; Manuel Flores; Pilar García-Gómez; Sergi Jiménez-Martín; Judit Vall-Castelló |
| Abstract: | This chapter studies social security reforms and trends in inequalities among older workers over the last decades in Spain. Its main goal is to analyze the redistributive impact of the various pension reforms on older income inequality. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:fda:fdaeee:eee2024-33 |