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on Public Economics |
| By: | Dyck, Daniel; Kourouxous, Thomas; Lorenz, Johannes |
| Abstract: | We investigate how tax authorities use joint tax audits as a coordinated enforcement tool in cross-border transactions of a multinational firm. Joint tax audits aim to resolve potential tax disputes early, before such disputes escalate into costly and time-consuming resolution procedures that may not fully eliminate double taxation. Employing a game-theoretic model, we identify settings in which we expect joint audits to occur and investigate their effect on the firm's expected tax payments and tax audit efficiency. We find that the occurrence of joint audits critically depends on the double taxation risk in the absence of joint audits. Unless tax rules are consistently applied, joint audits can occur more often when this risk is higher. The reason is that the firm changes its income-shifting strategy to reduce its expected tax payments, and thereby also enables tax authorities to better target tax disputes via joint audits that would otherwise escalate. However, we identify conditions under which joint audits are then detrimental to tax audit efficiency, particularly when the firm prefers them most. Our results imply that cost-sharing arrangements for joint audits should be tailored to the level of double taxation risk, with firm involvement having the potential to improve efficiency when this risk is high. |
| Keywords: | joint tax audits, double taxation, dispute prevention, income shifting |
| JEL: | H26 H87 F23 M42 C72 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:324870 |
| By: | Kimiko Terai (Faculty of Economics, Keio University) |
| Abstract: | This study investigates interjurisdictional tax competition aimed at attracting foreign creditors' portfolio investments in sovereign bonds and corporate loans. In each of two jurisdictions with lower and higher capital, governments seek to maximize workers' expected utility by determining the volume of sovereign bond issuance to fund public inputs, the tax rate on creditors' interest income, and the extent of compliance with bilateral treaty provisions concerning the exchange of information on creditors' income. Under a bilateral treaty mandating only information exchange, the jurisdiction with initially lower capital tends to set a lower tax rate and exhibits less compliance effort, effectively functioning as a tax haven. Conversely, the jurisdiction with higher capital imposes a higher tax rate and demonstrates greater compliance, benefiting from the residence principle due to its substantial global interest income. Alternatively, under a bilateral treaty that includes provisions of both information exchange and withholding tax at the source for foreign creditors, the jurisdiction with lower capital sets a higher tax rate on domestic creditors and allocates more resources to public inputs than its wealthier counterpart, even at the risk of increasing sovereign default potential. These findings suggest that the specific design of international tax cooperation agreements significantly influences jurisdictions' fiscal behaviors, leading to divergent outcomes despite a shared objective of implementing residence-based taxation. |
| Keywords: | tax haven, interest income tax, sovereign default, Tax Information Exchange Agreement, Double Taxation Agreement |
| JEL: | H26 H54 H63 H73 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2025-016 |
| By: | Dong, Sarah (Australian National University); Satyadini, Agung (Australian National University); Sinning, Mathias (Australian National University) |
| Abstract: | Both theory and evidence suggest an ambiguous relationship between business tax compliance and geographic proximity to tax offices. We study this issue using a large-scale natural field experiment with Indonesia’s tax authority involving 12, 000 micro, small, and medium enterprises (MSMEs). Businesses were randomly assigned to receive deterrence, information, or public goods letters, or no message. All letters improved compliance, with deterrence messages producing the largest gains - substantially increasing filing rates and raising monthly tax payments. Each dollar spent on deterrence letters generated about US$30 in additional revenue over the course of a year. We observe high compliance among non-treated MSMEs near metropolitan tax offices and find that enforcement messages successfully raise compliance in non-metropolitan regions to comparable levels. However, targeting already compliant MSMEs near metropolitan tax offices backfires, underscoring the need for geographically tailored tax administration strategies. These results provide novel experimental evidence on the relation between geographic proximity and the effectiveness of tax enforcement, helping to reconcile mixed findings in the tax compliance literature. |
| Keywords: | behavioral insights, natural field experiment, tax compliance |
| JEL: | C93 D90 H25 H26 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18108 |
| By: | Adam M. Lavecchia; James Stutely |
| Abstract: | This paper documents sharp bunching in third-party reported employment earnings at a basic exemption for social security contributions among older workers. Beginning in 2012, workers age 60-64 who were receiving a public pension were required to make social security contributions equal to 9.9 percent of their employment earnings above a basic exemption threshold of $3, 500. Using administrative data on third-party reported earnings and a differences-in-bunching estimator we document sharp bunching at the $3, 500 threshold. We argue that our results represent new evidence on the role of firms in mediating the earnings response to payroll taxes. |
| Keywords: | Social security contributions; Sharp bunching; Employment Earnings |
| JEL: | H20 H24 H25 H31 H32 H55 J22 J23 J38 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mcm:deptwp:2025-07 |
| By: | Georgy Lukyanov; Emin Ablyatifov |
| Abstract: | We embed honesty-based reputation into a Ramsey taxation framework with competitive firms and households. In a static benchmark with exogenous trust, there is a sharp cutoff below which the optimal policy sets no taxes and above which the optimal tax take rises with trust. In the dynamic model, beliefs evolve through noisy public monitoring of delivered public goods; the planner's problem is well posed, the value is increasing and convex in beliefs, and optimal revenue is monotone in reputation with a trust threshold that is weakly below the static cutoff. With multiple broad instruments and symmetric monitoring, the dynamic force acts through the total revenue scale; the tax mix is indeterminate along an equivalence frontier. Blackwell-improving monitoring and greater type persistence expand the optimal scale and shift the trust threshold inward. The model delivers clear policy prescriptions for building fiscal capacity in low-trust environments and testable links between measured trust, verifiability, and revenue. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.03087 |
| By: | Lesley-Ann Daniels; Frank Borge Wietzke |
| Abstract: | Bellicose theories of state-building suggest that wars enable the emergence of strong states via the mechanism of increased war-time fiscal capacities. We explore the hitherto little-analysed micro-level foundations of this claim. Does the experience of war increase public support for higher taxation? Furthermore, is this support limited to only defensive purposes, or does it extend to other war-related but forward-looking goals like post-war reconstruction and cohesion-building? We implement a survey experiment during the ongoing war in Ukraine to address the above questions. |
| Keywords: | War, Statebuilding, Taxation, Fiscal capacity, Ukraine, Experimental design |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-57 |
| By: | Baute, Sharon; Bellani, Luna; Hecht, Katharina |
| Abstract: | Wealth is increasingly unequally distributed in many countries. This study examines public perceptions of wealth deservingness and preferences for taxing the wealth of the rich, focusing on how opinions vary based on the amount, use, and origin of wealth. Drawing on an original vignette experiment conducted in Germany (n=6, 018), our results show a consistent pattern: as wealth increases, its perceived deservingness declines, while support for taxation rises. Similarly, spending on luxury items is seen as less deserving than philanthropic or nonprofit investments, leading to greater support for taxing the wealth of luxury spending rich people. However, wealth obtained through inheritance presents a puzzling exception: although it is perceived as the least deserving compared to wealth gained through entrepreneurship or management, this does not translate into a stronger preference for taxing inheritors over managers. These findings, which hold across different income and wealth groups as well as political affiliations, highlight the complex and sometimes contradictory public attitudes toward the rich and the taxation of their wealth. |
| Keywords: | Inequality, Redistribution, Richness, Survey experiment, Wealth taxation |
| JEL: | D3 D6 H2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cexwps:324862 |
| By: | Alejandro Rodriguez Arana (Universidad Iberoamericana Mexico City) |
| Abstract: | A two-sector general equilibrium model is presented. In the absence of externalities and public goods, the solution for market consumption and production would be the same as that of a hypothetical central planner if the fiscal balance is in equilibrium and there is a uniform consumption tax across all goods. Next, the effect of a negative externality generated by the consumption of one of the goods is analyzed. In this case, the optimal solution would be to establish a higher consumption tax rate for the good that generates the externality. Finally, the possibility of public goods is examined. Here, the optimal solution is for the government to set a target for the provision of these goods and generate fiscal resources to meet it, while maintaining a uniform consumption tax on all private goods. |
| JEL: | C68 H21 H41 |
| Date: | 2025–09–08 |
| URL: | https://d.repec.org/n?u=RePEc:smx:wpaper:2025003 |
| By: | Jean-Philippe Meloche; Fanny Tremblay-Racicot (University of Toronto) |
| Abstract: | Eco-fiscal tools are tax measures that target behaviour or the consumption of goods or services that contribute to environmental degradation. These taxes, fees, or charges correct market price signals to help internalize the social and environmental costs of individual choices, while providing financial resources to supply public goods and services. In Canada, an important part of the eco-fiscal debate focuses on carbon emissions (such as the carbon market and carbon taxes). Although central governments are backtracking on efforts to limit environmental degradation, municipalities are playing an increasingly important role in the eco-fiscal field. The tools they are using do not raise significant revenues, but they are helping to change behaviours. This paper explains the main arguments for the use of eco-fiscal tools and reviews the literature on their impact. It explores the range of eco-fiscal tools implemented by Canadian municipalities and proposes innovative tools that could be implemented in the future. |
| Keywords: | Eco-fiscal tools, environmental taxes, local public finance, municipalities, Canada |
| JEL: | H23 H71 R51 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mfg:wpaper:71 |
| By: | Yang, Tianli (Renmin University of China); Zhao, Zhong (Renmin University of China) |
| Abstract: | This paper examines the impact of Long-Term Care Insurance (LTCI) policy on the development of elderly care enterprises in China. Employing a policy shock and a difference-in-differences design, we find that the implementation of LTCI significantly promotes the the number of new entries and survival rate of elderly care enterprises, particularly for individual businesses, enterprises in the health and social work industry, and those located in eastern regions. Notably, service-only LTCI policy exhibits stronger effect on the development of elderly care enterprises compared to policy combining service and cash benefits. Mechanism analysis suggests that LTCI stimulates market demand for formal elderly care services and increases government expenditures on social security and healthcare, both of which drive the development of elderly care enterprises. We also find that LTCI policy boosts labor demand in the elderly care industry. Overall, our empirical findings suggest that LTCI can help address the shortage of long-term care services and enhance family welfare. |
| Keywords: | elderly care enterprises, long-term care insurance, China |
| JEL: | H55 I28 J14 J26 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18104 |