nep-pub New Economics Papers
on Public Finance
Issue of 2013‒11‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Unionized Mixed Oligopoly and Privatization with Excess Burden of Taxation By Choi, Kangsik
  2. Taxation and corporate debt: are banks any different? By Jost Heckemeyer; Ruud de Mooij
  3. Federal Income Tax Revenue Volatility Since 1966 By Estelle P. Dauchy; Christopher Balding
  4. Do transfer pricing laws limit international income shifting? Evidence from European multinationals By Theresa Lohse; Nadine Riedel
  5. Distributional Implications of Tax Evasion and the Crisis in Greece By Matsaganis, Manos; Leventi, Chrysa; Flevotomou, Maria
  6. Indexing European carbon taxes to the EU ETS Permit Price: a good idea? By Carlén, Björn; Hernández, Aday
  7. Investor Valuations of Japan's Adoption of a Territorial Tax Regime: Quantifying the Direct and Competitive Effects of International Tax Reform By Estelle P. Dauchy; Sebastien Bradley; Makoto Hasegawa

  1. By: Choi, Kangsik
    Abstract: By introducing the excess burden of taxation into unionized mixed and privatized oligopolies, we show that (i) if the government that maximizes social welfare values with a small weight of excess burden of taxation, privatization matters regardless of the number of firms; however, (ii) when the degree of excess burden of taxation lies within a relatively large range, the results of both desirable privatization and nationalization materialize depending on the critical value of the excess burden of taxation. In contrast to the existing works on mixed oligopoly, we find privatization can enhance social welfare regardless of the number of firms, under mild conditions.
    Keywords: Excess Burden of Taxation, Mixed Oligopoly, Privatization, Union.
    JEL: H44 J51 L13
    Date: 2013–11–02
  2. By: Jost Heckemeyer (University of Mannheim); Ruud de Mooij (International Monetary Fund (IMF))
    Abstract: This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks,using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks,we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast,the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holdsfor the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.
    Keywords: Corporate tax; debt bias; leverage; banks; non-financial firms; quantile regressions
    JEL: G21 G32 H25
    Date: 2013
  3. By: Estelle P. Dauchy (New Economic School); Christopher Balding (Peking University HSBC Business School)
    Abstract: Over the past two decades, the United States federal income tax revenue has shown periods of increased volatility. Throughout the 1990s the growth rate of individual income taxes was between 5 and 10 percent, it has swung between H12 and +12 percent from 2000 to 2006. Meanwhile wage income has been relatively stable during this period while capital income annual growth has swung from H20 to +50 percent between 2000 and 2006. Looking deeper into the income composition of taxable sources, we find that tax revenue has increased its dependence on volatile capital gains income, due in part to an increasing dependence on highHincome taxpayers. In the decade ending 1976, capital and business income represented about 17.1 percent of gross income, including about 3.1 percent for capital gains and losses. While the share of capital and business incomes have been relatively stable over time, the share of net capital gains or losses has increased to about 5.8 percent of gross income, on average the decade ending 2006, an almost twofold compared to four decades ago. Using a database on individual tax files from 1966 to 2006 from the Internal Revenue Service Public Use Files, we estimate the sources of tax revenue volatility over time and by income groups. We find strong evidence that since 1966, the growth rate of tax revenue has become increasingly dependent on the growth rate of capital income, while its dependence on wage income has decreased. Before 1986, both capital income growth and wage income growth were negatively related with income tax growth, suggesting a smoothing effect of taxation. However, after 1986, capital income growth has been positively related to income tax revenue growth, and this positive relationship has increased more than tenfold in 20 years. We also find that this increased dependence of tax revenue growth on capital income is essentially related to top income earners. The results show evidence that capital income growth and tax revenue growth almost continuously increased from the bottom to the top quintile.
    Keywords: Tax, Tax Volatility, Public Revenue, Income Sources, Tax Policy, Inequality, Wage Income, Capital Markets, Built-in Flexibility
    JEL: H2 H21 H24
    Date: 2013–02
  4. By: Theresa Lohse (University of Mannheim); Nadine Riedel (University of Hohenheim, CESifo Munich & Oxford University CBT)
    Abstract: In recent years several countries have augmented their national tax laws by transfer pricing legislations which intend to limit the leeway of multinational firms to exploit international corporate tax rate diverences and relocate profit to low-tax affiliates by distorting intra-firm transfer prices. The aim of this paper is to empirically investigate whether these laws are instrumental in restricting shifting behaviour. To do so, we exploit unique information on the scope and evolution of national transfer pricing laws and link it with panel data on European multinationals. In line with previous studies, we find evidence for tax-motivated profit shifting. The analysis further suggests that transfer pricing rules significantly reduce shifting activities. The effect is economically relevant, suggesting that the legislations may be socially desirable despite the high administrative burden they impose on firms and tax authorities.
    Keywords: corporate taxation, international prot shifting, transfer pricing laws
    JEL: H25 F23
    Date: 2013
  5. By: Matsaganis, Manos; Leventi, Chrysa; Flevotomou, Maria
    Abstract: The current Greek crisis and the governments fiscal consolidation effort have elevated tax evasion to one of the most crucial policy issues in the domestic debate. The paper attempts to shed light on one aspect of the phenomenon, namely its distributional implications. We compare a large panel data sample of personal income tax returns in 2006-2010 (incomes earned in 2005-2009) with data from the European Union Survey of Income and Living Conditions of the same years. We show that the deviation of incomes between the two data sources is greater in the case of farming and self-employment income. Based on these findings we then calculate stylised factors of income under-reporting by income source. These factors are fed into a tax-benefit microsimulation model to provide tentative estimates of the size and distribution of income tax evasion in Greece in 2009. We estimate income under-reporting at 12.2%, resulting in a shortfall in personal income tax receipts of 29.7%. The paper shows that the effects of tax evasion in Greece are higher income inequality and much lower progressivity of the income tax system.
    Date: 2013–11–07
  6. By: Carlén, Björn (VTI); Hernández, Aday (University of Las Palmas de Gran Canaria)
    Abstract: We study an environmental policy that (i) tax some emitters while others are covered by a cap-and-trade system and (ii) index the tax level to the permit price. Such a policy could be attractive in a world where abatement costs are uncertain and the regulator has information about the correlation between the cost shocks to the two groups. We show that this index policy yields lower expected social cost than the policy mix studied in Mandell (2008). The value of indexing is higher the stronger the correlation is, the steeper the marginal abatement benefit curve is, and the more uncertain we are about the taxed sector’s abatement costs. The index policy may also outperform the uniform policy alternatives emission tax and cap-and-trade system. The conditions for this are more restrictive, though. Given parameter values plausible for the European climate change policy context, expected net-gains are small or negative.
    Keywords: Uncertainty; Environmental policy; Emissions tax; Tradable permits
    JEL: H23 Q23 Q58
    Date: 2013–10–31
  7. By: Estelle P. Dauchy (New Economic School); Sebastien Bradley (Department of Economics, LeBow College of Business, Drexel University); Makoto Hasegawa (National Graduate Institute for Policy Studies)
    Abstract: Globalization of firm operations has brought the issue of multinational taxation to the forefront of tax reform debates worldwide, with countries paying increasingly close attention to tax developments elsewhere around the world. Using an event study methodology that emphasizes specific firm attributes, we examine investor reactions in both the Japanese and U.S. stock markets to nine events leading up to the enactment of the 2009 Japanese dividend exemption in order to measure the perceived gains in short- and long-term after-tax profitability resulting from this reform. We thus aim to provide a comprehensive evaluation of the full range of direct tax savings effects and indirect effects associated with changes in firm competitiveness and international tax competition. Preliminary results suggest that investors capitalized gains of over 1 percent and 0.3 percent on the date that the bill was finally passed in the Japanese and U.S. markets, respectively, with further pronounced gains arising in the aftermath of select earlier events associated with the revelation of significant new information. Direct tax savings are responsible for a significant proportion of estimated abnormal returns across multiple event dates, even for U.S. Firms where these effects are necessarily largely in anticipation of the adoption of a similar territorial regime. Strikingly, the largest beneficiaries of the Japanese reform appear to be firms with less elaborate tax minimization strategies or with no foreign operations altogether, whereas U.S. multinationals with subsidiaries located in tax havens appear more heavily favored.
    Date: 2013–08

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