nep-pub New Economics Papers
on Public Finance
Issue of 2013‒08‒10
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cyclicality of statutory tax rates By Strawczynski, Michel
  2. Fair tax evasion and majority voting over redistributive taxation By Weinreich, Daniel
  3. Taxing Multinationals in the Presence of Internal Capital Markets By Marko Köthenbürger; Michael Stimmelmayr

  1. By: Strawczynski, Michel
    Abstract: Most studies on cyclical fiscal policy ignore statutory taxes due to a lack of data. In this paper I build on singular data on statutory tax rates in Israel, in order to study how they are changed by the government in expansions and recessions. After differentiating between ideological (exogenous) tax changes, to those that react to the cycle (endogenous) using Romer and Romer (2010) technique, I check whether endogenous statutory tax rates are a-cyclical or counter-cyclical, as recommended by theoretical models. I found that while direct taxes are a-cyclical, indirect taxes (and in particular VAT) are changed procyclically. A pseudo-panel analysis based on the different types of taxation and a panel analysis based on indirect taxation, show that the main reason for statutory tax changes is the existence of economic crises; this explanation is stronger than economic considerations like population or expenditure growth, legal considerations like the rigidity for changing statutory taxes, and income distribution considerations like the incidence on the bottom income decile.
    Keywords: Cyclicality, Statutory Taxes, Crisis
    JEL: H20 H30
    Date: 2013–08–02
  2. By: Weinreich, Daniel
    Abstract: We shed some light on fairness preferences regarding tax evasion. Individuals perceive income inequality which they are responsible for as fair (e.g. work effort) while inequality resulting from factors outside their reach is regarded as unfair (e.g. productivity or wage rate). This affects the incentives to hide income from tax authorities and supply labor. We set up a model where individuals simultaneously choose unreported income and work effort given a linear taxation scheme. We show the conditions for which individuals respond with lower or higher unreported income and work effort when fair tax evasion is introduced. Beyond, it can be shown that unreported income increases while work effort decreases when the tax rate is raised. Finally, we consider a majority voting over redistributive taxation. Thereby, it is shown that the median voter prefers lower (higher) taxation if she evades less (more) taxes than would be fair since raising the tax rate would enlarge (reduce) the deviation from fair tax evasion. This affects the moral cost as peceived by the individuals.
    Keywords: redistributive taxation, majority voting fairness, tax evasion, labor supply
    JEL: D31 D78 H26 H30
    Date: 2013–08
  3. By: Marko Köthenbürger (ETH Zurich and CESifo); Michael Stimmelmayr (University of Munich and CESifo)
    Abstract: There is ample evidence that internal capital markets incur efficiency costs for multinational enterprises (MNEs). This paper analyzes whether tax avoidance behavior interacts with the costs of running an internal capital market and how policies of competing governments respond to it. We show that the interaction in itself may lead to profit taxes that are too high (low) from a social perspective, provided the costs are attenuated (magnified) by higher profit taxes. We also show that internal efficiency costs might render infrastructure provision inefficiently low. Further, we clarify the implications of the MNE’s decision to set up an internal capital market and the effect of external finance on the behavior of competing governments.
    Keywords: fiscal competition, multinational firms, internal efficiency costs, corporate finance, corporate tax avoidance.
    JEL: H25 D21 F23
    Date: 2013–02

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