nep-pub New Economics Papers
on Public Finance
Issue of 2007‒10‒20
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Evasion: Cheating Rationally or Deciding Emotionally? By Giorgio Coricelli; Mateus Joffily; Claude Montmarquette; Marie-Claire Villeval
  2. Tax Compliance, Tax Morale and Governance Quality By Benno Torgler; Markus Schaffner; Alison Macintyre
  3. A Chronology Of Postwar U.S. Federal Income Tax Policy By Shu-Chun Susan Yang
  4. Taxing corporate income By Alan Auerbach; Michael P Devereux; Helen Simpson
  5. The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence By Michael P Devereux
  6. Taxes in the EU New Member States and the Location of Capital and Profit By Michael P Devereux
  7. Developments in the Taxation of Corporate Profit in the OECD since 1965: Rates, Bases and Revenues By Michael P Devereux
  8. The Effects of EU Formula Apportionment on Corporate Tax Revenues By Michael P Devereux; Simon Loretz
  9. The Incidence of Corporate Income Tax on Wages By Wiji Arulampalam; Michael P Devereux; Giorgia Maffini
  10. Corporation Tax Buoyancy and Revenue Elasticity in the UK By John Creedy; Norman Gemmell
  11. Corporation Tax Revenue Growth in the UK: A Microsimulation Analysis By John Creedy; Norman Gemmell
  12. Europe Slowly Lurches to a Common Consolidated Corporate Tax Base: Issues at Stake By Jack M Mintz
  13. Should Capital Income be Subject to Consumption-Based Taxation? By George R. Zodrow
  14. Corporate Tax Policy and Incorporation in the EU By Ruud A. de Mooij; Gaëtan Nicodème

  1. By: Giorgio Coricelli; Mateus Joffily; Claude Montmarquette; Marie-Claire Villeval
    Abstract: The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance. <P>Les modèles économiques d'évasion fiscale prédisent que les individus devraient frauder dès que le bénéfice attendu de l'évasion dépasse son coût espéré. Sous cette condition, le fort taux de revenu déclaré pourtant observé constitue une énigme. Dans cet article, nous nous intéressons au rôle des émotions comme explication possible de ce phénomène. Notre expérience de laboratoire montre que l'intensité des émotions, mesurée par la conductance de la peau, augmente avec la proportion du revenu qui n'est pas déclarée. La perspective d'une sanction à l'issue d'un contrôle, en particulier lorsque la photo des contrevenants est diffusée, soulève également des émotions. Nous montrons qu'une politique de contrôle qui suscite la honte chez les fraudeurs favorise l'honnêteté fiscale.
    Keywords: tax evasion, emotions, neuro-economics, physiological measures, shame, experiments., fraude fiscale, émotions, neuro-économie, mesures physiologiques, honte, expériences.
    JEL: C91 C92 D87 H26
    Date: 2007–10–01
  2. By: Benno Torgler; Markus Schaffner; Alison Macintyre
    Abstract: Taxpayers are more compliant than the traditional economic models predict. Why? The literature calls it the “puzzle of tax compliance”. In this paper we use field, experimental and survey data to investigate the empirical evidence on whether presence of tax morale helps to resolve this puzzle. The results reveal a strong correlation between tax morale and tax evasion/compliance which confirms the value of taking the research a step further by looking at the determinants of tax morale. We explore this question with a particular focus on the importance of governance quality.
    Keywords: tax morale; tax compliance; tax evasion; institutional and governance quality; social capital
    JEL: H26
    Date: 2007–09
  3. By: Shu-Chun Susan Yang (Institute of Economics, Academia Sinica)
    Abstract: This note provides a chronology of major tax events that involved changes in federal taxes on individual and corporate income from 1948 to 2006. For each event, the note provides background and policy motivation, major provisions, legislative timeline, and estimated revenue changes. As most tax changes were preceded by extensive legislative delays, this chronology suggests that people were likely to have foreknowledge about tax policy. It also finds that postwar income tax policy was typically motivated by one of three rationales: 1) balancing the budget or reducing deficits, 2) controlling inflation, and 3) stimulating economic activity or promoting growth.
    Keywords: Policy Foresight, Timeline of Tax Events, Tax Policy, Fiscal Policy
    JEL: E62 E61 N42
    Date: 2007–10
  4. By: Alan Auerbach; Michael P Devereux; Helen Simpson
    Abstract: Following Meade (1978), we reconsider issues in the design of taxes on corporate income. We outline developments in economies and in economic thought over the last thirty years, and investigate how these developments should affect the design of taxes on corporate income. We consider a number of tax systems which have been proposed, distinguishing them in two main dimensions: the definition of what is to be taxed, and where it is to be taxed.
    Date: 2007
  5. By: Michael P Devereux (Oxford University Centre for Business Taxation, IFS, CEPR and CESifo)
    Date: 2007
  6. By: Michael P Devereux (Oxford University Centre for Business Taxation, IFS, CEPR and CESifo)
    Date: 2007
  7. By: Michael P Devereux (Oxford University Centre for Business Taxation, IFS, CEPR and CESifo)
    Abstract: This paper describes developments in corporation taxes in the OECD over the last 40 years. It pays particular attention to the apparent divergence in the trends of the average statutory corporation tax rate and the average ratio of corporation tax revenues to GDP: the former has declined over time, while the latter has risen. It develops a simple framework for assessing the expected effect of the tax rate on tax revenues, and estimates the relationship using a panel of aggregate data for 20 OECD countries from 1965 to 2004, controlling for a measure of the tax base and other factors. There is only weak evidence of any relationship between the two. Evidence which does support a relationship is consistent with the finding of Clausing (2006) that the relationship is nonlinear, and that the implied revenue-maximising tax rate is likely to be low.
    Date: 2007
  8. By: Michael P Devereux; Simon Loretz
    Abstract: The European Commission proposes to replace the current system of taxing corporate income of separate accounting by a two-step 'consolidate and apportionment' procedure. This paper uses a large set of unconsolidated firm-level data to assess the likely impact on corporate tax revenues in each Member State. Taking pre-tax profit as given, overall tax revenues would be likely to drop by 2.5 % if companies can choose whether to participate. By contrast, if they were forced to participate, total tax revenues would be likely to increase by more than 2 %, leaving some European countries, and most notably Spain, Sweden and the United Kingdom better off. We investigate how sensitive these results are to the apportionment factors used.
    Keywords: Corporate Taxation; International Loss Consolidation; Apportionment Rules
    JEL: H25 H87
    Date: 2007
  9. By: Wiji Arulampalam (University of Warwick and Oxford University Centre for Business Taxation); Michael P Devereux (Oxford University Centre for Business Taxation); Giorgia Maffini (University of Warwick and Oxford University Centre for Business Taxation)
    Abstract: We examine the extent to which taxes on corporate income are shifted onto the workforce in the form of lower wages. We use data on 23,000 companies located in 10 countries over the period 1993-2003. We identify two channels by which taxes can affect wages: indirectly through a lower capital stock, and more directly through wage bargaining for net of tax, location-specific rents. We find that a significant part of the effective incidence of the tax falls on wages. Our central estimate is that 54% of any additional tax is passed on in lower wages, even in the short run; other estimates are larger than this. In the longer run, a $1 rise in the tax liability results in a fall in total employee compensation in excess of $1.
    Date: 2007
  10. By: John Creedy (The University of Melbourne); Norman Gemmell (University of Nottingham, Oxford University Centre for Business Taxation)
    Abstract: Observed changes in corporation tax revenues from year to year, which include the effects of changes in tax rates, deductions and compliance, appear to be highly volatile relative to profits, the tax base. This paper examines whether the ‘built-in’ fiscal drag properties of corporation tax can be expected to display similar properties. Simple, conceptual modelling demonstrates that the corporate tax revenue elasticity does indeed display this property in the presence of regular cyclical fluctuation in profit growth, suggesting that much of the observed volatility is inherent to the corporation tax system.
    Date: 2007
  11. By: John Creedy (The University of Melbourne); Norman Gemmell (University of Nottingham, Oxford University Centre for Business Taxation)
    Abstract: This paper examines the built-in flexibility properties — as measured by the elasticity of revenue with respect to profits — of the UK corporation tax system. Emphasis is placed on determining some of the major influences on the extent to which total corporation tax revenue changes when profits change over the economic cycle. A microsimulation model, CorpSim, is constructed and used to obtain numerical results. In the model, corporations use group relief, capital allowances and losses in a tax-minimising manner. The growth of aggregate corporation tax revenue in practice in the UK appears to be highly volatile in relation to the growth of profits. High volatility in revenue elasticities is found to be especially associated with economic downturns. In mild economic downturns, corporation tax revenue elasticities may rise (because tax growth falls less than profit growth), but in more severe downturns, large but temporary decreases in revenue elasticities (and even negative elasticities) can be expected.
    Date: 2007
  12. By: Jack M Mintz (J. L. Rotman School of Management,University of Toronto, New York University Law School)
    Date: 2007
  13. By: George R. Zodrow (James A. Baker III Institute for Public Policy Rice University)
    Date: 2007
  14. By: Ruud A. de Mooij (CPB Netherlands Bureau for Economic Policy Analysis, Erasmus University Rotterdam, CESifo and Tinbergen Institute); Gaëtan Nicodème (European Commission, CEB (Solvay Business School) and ECARES (ULB))
    Abstract: In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25%-points since the early 1990s.
    Keywords: Corporate tax; Personal tax; Incorporation; Income shifting
    JEL: H25 L26
    Date: 2007

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