nep-pbe New Economics Papers
on Public Economics
Issue of 2024‒05‒13
thirteen papers chosen by
Thomas Andrén, Konjunkturinstitutet

  1. Wealth Tax Mobility and Tax Coordination By David R. Agrawal; Dirk Foremny; Clara Martínez-Toledano
  2. Discovering tax decentralization: Does it impact marginal willingness to pay taxes? By José Mª Durán-Cabré; Alejandro Esteller-Moré; Luca Salvadori
  3. Optimal Dynamic Income Taxation under Quasi-Hyperbolic Discounting and Idiosyncratic Productivity Shocks By Yunmin Chen; Jang-Ting Guo
  4. Framed Norms. The effect of choice-belief information on tax compliance By F. Atzori; V. Pelligra
  5. Design and Consequences of CFC and GILTI Rules: A Review and Potential Lessons for the Global Minimum Tax By Michael Overesch; Dirk Schindler; Georg Wamser
  6. Designing a Progressive VAT By Artur Swistak; Rita de la Feria
  7. Fiscal competition and two-way migration By Patrice Pieretti; Giuseppe Pulina; Skerdilajda Zanaj
  8. Digital IDs and Digital Payments – Opportunities and Challenges for Tax Administration By Santoro, Fabrizio; Prichard, Wilson; Mascagni, Giulia
  9. Capitalizing Data: Case Studies of Tax Forms and Individual Credit Reports By Rachel Soloveichik
  10. Fiscal Space in African Economies and Base Erosion and Profit Shifting (BEPS) By Otaviano Canuto; Fahd Azaroual
  11. Multilateral Carbon Tax Treaty (MCTT) By Falcão, Tatiana
  12. Top Income Shares in Japan from the Survey and Tax Data in 2014 and 2019: Following the Distributional National Accounts Guidelines By Masahiro Mikayama; Tomotsugu Imahori; Taro Ohno; Yasutaka Yoneta; Junji Ueda
  13. Combining Part-Time Work and Social Benefits: Empirical Evidence from Finland By Kalin, Salla; Kyyrä, Tomi; Matikka, Tuomas

  1. By: David R. Agrawal; Dirk Foremny; Clara Martínez-Toledano
    Abstract: We study the effects of decentralized wealth taxation on mobility and the effectiveness of tax coordination at mitigating tax competition. We exploit the reintroduction of the Spanish wealth tax, after which all regions except Madrid levied positive tax rates. We find the mobility responses to wealth taxes are within the range of prior estimates with respect to income taxes. However, wealth tax mobility responses generate losses to personal income tax revenues that are six times larger than the direct losses to wealth taxes. Madrid could achieve higher total regional revenues by agreeing to a harmonized positive tax rate.
    Keywords: wealth taxes, mobility, fiscal decentralization, fiscal federalism, tax coordination
    JEL: E21 H24 H31 H73 J61 R23
    Date: 2024
  2. By: José Mª Durán-Cabré (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Luca Salvadori (UAB & BSE & IEB & TARC (University of Exeter))
    Abstract: Decentralized fiscal decision-making should serve to enhance welfare by promoting allocative efficiency gains and fostering greater political accountability. Within such an institutional framework, individuals are assumed to be willing to pay, at least, no less taxes than those they pay in a centralized system. We test this hypothesis by means of a survey experiment, leveraging the process of decentralization that has unfolded in Spain over the last 25 years. Our results suggest that individuals have very limited awareness of the tier of government to which they pay their taxes, frequently assuming the system to be centralized. This holds true even in regions where tax decentralization is maximum, as is the case of Spain’s foral communities. On ‘discovering decentralization’ (i.e., being informed that a tax is more decentralized than initially perceived), an individual’s marginal willingness to pay taxes undergoes only a minimal change, with the exception of that of personal income tax. These findings raise questions about the purported benefits of tax decentralization.
    Keywords: Tax Decentralization; Fiscal Knowledge; Survey Data
    JEL: H11 H71 H77
    Date: 2024
  3. By: Yunmin Chen (National Central University, Taiwan); Jang-Ting Guo (Department of Economics, University of California Riverside)
    Abstract: In the context of a dynamic (three-period) general equilibrium model, this paper examines the optimal tax rates on capital savings and labor income under quasi-hyperbolic discounting and idiosyncratic productivity shocks. In the absence of skill-type uncertainty, we analytically show that the marginal capital tax wedges on agents' first-period savings are negative for correcting inherent preference internalities, and that these tax rates will be higher when productivity disturbances are incorporated. In the stochastic two-type setting with exogenously-given factor input prices, our calibrated numerical experiments find that the marginal capital wedges for both types on their period-1 savings are positive, indicating the government's motive to relax individuals' incentive-compatibility constraints. We also quantitatively find that the optimal tax rates for both types on their first- and second-period capital savings, as well as the economy's social welfare, are ceteris paribus decreasing in the degree of quasi-hyperbolic discounting because of a stronger need to rectify negative utility internalities.
    Keywords: Optimal Dynamic Income Taxation; Quasi-Hyperbolic Discounting; Idiosyncratic Productivity Shocks.
    JEL: D91 H21 H24
    Date: 2024–04
  4. By: F. Atzori; V. Pelligra
    Abstract: Understanding the factors influencing people's choices in tax compliance decision-making is still important because tax evasion is a crucial issue for governments everywhere. This lab experiment investigates how social norms influence tax compliance behavior. We examine the effects of positive and negative empirical and normative expectations using the opinion-matching approach for measurement. According to our results, normative expectations—as opposed to empirical expectations—most strongly impact people's behavior. Surprisingly, positive empirical messages may have a negative effect, increasing tax evasion. Furthering our understanding of the causes of tax evasion, we also include a norm-following task to assess participants' propensity to adhere to norms. This study presents new viewpoints on tax compliance while replicating some established conclusions from previous research sheds new light on the interaction between tax compliance and social norms.
    Keywords: H26;E26;O17;D91;C92
    Date: 2024
  5. By: Michael Overesch; Dirk Schindler; Georg Wamser
    Abstract: This chapter provides a description of one of the key anti-tax-avoidance rules to combat profit shifting by multinational corporations, so called Controlled Foreign Corporation (CFC) rules that directly target income in low-tax countries. We explain some key institutional features of CFC provisions. We then present some data and descriptive statistics before we review existing theoretical and empirical research analyzing CFC rules. Our review also includes the new U.S. GILTI rules. CFC rules are effective in curbing profit shifting, but their effect on the real economy is still unclear. In contrast, GILTI seems to be ineffective when it comes to profit shifting, but it has consequences for real activity. We finally argue that research on CFC regulations and GILTI can be informative in assessing the recent global minimum tax initiative.
    Keywords: Controlled-foreign-company (CFC) Rules, Global Intangible Low-taxed Income (GILTI), tax havens, tax avoidance, effects of regulation, global minimum tax
    JEL: H25 F23
    Date: 2024
  6. By: Artur Swistak; Rita de la Feria
    Abstract: This paper presents a novel approach to addressing VAT regressivity, by proposing the adoption of a progressive VAT: a single-rate, broad-base, VAT, whereby tax paid on consumption is re-paid to lower income households in real-time, at the moment of purchase. Such a system can effectively eliminate regressivity, while minimizing the political economy, cash-flow, and welfare stigma obstacles that are often associated with standard welfare transfers used in modern VAT systems. It would also have other significant advantages, particularly in terms of compliance incentives.
    Date: 2024–04–05
  7. By: Patrice Pieretti; Giuseppe Pulina; Skerdilajda Zanaj
    Abstract: In this paper, we model two-way migration as the outcome of strategic public policies adopted by competing jurisdictions. We assume that two economies, distinguished by different technological levels, host a continuum of mobile individuals with varying skill levels. To maximize their net revenues, governments compete for mobile workers by taxing wages and providing a public good that enhances firm productivity (public input). We show that the most skilled workers migrate to the technologically advanced economy. However, the government in the less technologically developed economy can retain some of its skilled workers and attract workers from abroad by offering lower taxes or more public inputs. As a result, a two-way migration pattern emerges, driven by governments’ strategic policy choices. Finally, the introduction of heterogeneity in population size does not significantly alter the results.
    Keywords: Bilateral migration, tax competition; heterogeneous skills, technological gap, policy competition.
    JEL: H20 H32 H54 H87 F22 F60
    Date: 2024–03
  8. By: Santoro, Fabrizio; Prichard, Wilson; Mascagni, Giulia
    Abstract: Tax administrations in Africa and, more broadly, low-income countries (LICs), are increasingly investing in advanced digital technologies, in an effort to build more effective, rules-based and efficient tax systems. Those efforts fit within broader government efforts towards e-government and the establishment of digital public infrastructures (DPI). 1 While these efforts to digitalise tax administration are multi faceted, affecting all aspects of administration, recent years have seen growing attention to the potential impacts of digital ID systems (DIS) and digital merchant payments (DMP), both of which are linked closely to broader discussions of the potential of DPI to strengthen development outcomes. This growing attention has been driven by hopes that building such systems can contribute to significant improvements in tax systems and revenue collection as part of broader and ambitious digitalisation efforts undertaken by African governments (World Bank 2016; IMF 2020).
    Keywords: Finance, Technology,
    Date: 2024
  9. By: Rachel Soloveichik
    Abstract: Early papers on capitalizing data focused on complex digital data that are stored on supercomputers and managed by highly skilled computer scientists (Statistics Canada 2019) (Eurostat 2020) (Coyle 2022) (Calderon and Rassier 2022) (Mitchell et al. 2022). This paper studies two very different types of data: tax forms and individual credit reports. Both types of data are simple text records that can be stored on any computer or even on paper (Brenton 1964) and managed by workers with only a high school degree (Bureau of Labor Statistics 2022a) (Weedmark 2021). Despite their simplicity, these two data types are expensive to create. This paper estimates that tax forms had a creation cost of $0.4 trillion in 2017 and individual credit reports had a creation cost of $0.6 trillion in 2017.
    JEL: D14 E01 G14
    Date: 2023–06
  10. By: Otaviano Canuto; Fahd Azaroual
    Abstract: Base erosion and profit shifting (BEPS) involving multinational companies is a complex, multi-dimensional problem resulting from loopholes and inconsistencies between countries’ tax systems. Addressing it requires coordinated action at the international level. Several organizations have taken initiatives in this direction, including the Organization for Economic Co-operation and Development (OECD), which, with the support of the G20, launched an ambitious project to combat BEPS in 2013. The OECD has proposed 15 measures to strengthen international tax rules in various areas, including transfer pricing, combating harmful tax practices, preventing treaty abuse, and promoting transparency and tax information exchange.
    Date: 2023–08
  11. By: Falcão, Tatiana
    Abstract: These are the draft articles of the Multilateral Carbon Tax Treaty (MCTT). It is the product of the many comments received from the commentators invited to provide inputs to the MCTT. The MCTT comprises 31 articles that together establish an obligation on contracting states to tax carbon contained in fossil fuel ore or one of its byproducts, at the level of extraction. If the country entitled to tax at the level of extraction chooses not to exercise its right to tax, it allows first the country of refining or processing, and second, the country of consumption, under a secondary and tertiary allocation of rights. The MCTT identifies a minimum carbon tax, but not a ceiling. It provides for different tax rate schedules according to the country’s level of development and following the principle of common but differentiated responsibilities. This is an environmental agreement that uses a tax instrument (a carbon tax) to assist countries in meeting the mitigation objective contained in the nationally determined contributions, as set forth in the Paris Agreement. In other words, it is an environmental agreement that enables countries to use a tax instrument to quantify and reduce carbon dioxide emissions in furtherance of the climate commitments assumed under the Paris Agreement.
    Keywords: Climate Change, Development Policy, Environment, Politics and Power,
    Date: 2024
  12. By: Masahiro Mikayama (Visiting Scholar, Policy Research Institute, Ministry of Finance); Tomotsugu Imahori (Visiting Scholar, Policy Research Institute, Ministry of Finance); Taro Ohno (Chief Economist, Policy Research Institute, Ministry of Finance); Yasutaka Yoneta (Senior Economist, Policy Research Institute, Ministry of Finance); Junji Ueda (Director-General, Policy Research Institute, Ministry of Finance)
    Abstract: This paper shows the results of estimating top income shares in Japan using the 2014 and 2019 household survey dataset and the newly aggregated tax dataset from income tax microdata following the Distributional National Accounts (DINA) Guidelines. The guidelines are presenting the concepts, data sources, and methods to keep consistency for international comparison and used for making data series in the World Inequality Database (WID). By following the DINA procedure, we combine the survey dataset and the newly aggregated income tax dataset for 2014 and 2019 using the method presented by Blanchet et al. (2022). In addition, we consider various types of incomes which are not included in the survey and tax datasets but are included in the Net National Income (NNI) concept. The main results by using the most recent Japanese survey and tax data show that the top 1% income share in Japan was 8.44%, and the top 10% income share was 33.79% in 2019, which are much lower than the results for the United States and France presented in the World Inequality Report 2022 (Chancel et al., 2021).
    Keywords: Top income shares, Inequality, Distributional National Accounts (DINA), Survey data, Tax data, Net National Income (NNI)
    JEL: D3 E01 H2 J3
    Date: 2023–10
  13. By: Kalin, Salla (University of Helsinki); Kyyrä, Tomi (VATT, Helsinki); Matikka, Tuomas (VATT, Helsinki)
    Abstract: We use detailed, population-wide data from Finland to provide evidence of the impact of earnings disregard policies on part-time work during unemployment spells, and describe the longer-run trends in combining part-time work and social benefits. We find that part-time work while receiving unemployment benefits is strongly concentrated in the service and social and health care sectors, and that women participate in part-time work much more commonly than men (25% vs. 12% of benefit recipients). The share of part-time workers among benefit recipients increased sharply from 10% to 18% over a few years after the implementation of earnings disregards in unemployment benefits and housing allowances, which allowed individuals to earn up to 300 euros per month without reductions in their benefits. Using variation in the impact of the reforms on incentives between individuals eligible for different types of benefits, we estimate a 16–28% increase in participation in part-time work due to the implementation of earnings disregards. However, we find no evidence of economically significant positive or negative effects of increased participation in part-time work on transitions to full-time employment.
    Keywords: labor supply, social benefits, part-time work, earnings disregards
    JEL: H24 J21 J22
    Date: 2024–04

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