nep-pub New Economics Papers
on Public Finance
Issue of 2015‒05‒22
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. VAT Notches By Liu, Li; Lockwood, Ben
  2. Optimal Income, Education, and Bequest Taxes in an Intergenerational Model By Stefanie Stantcheva
  3. On the Double Taxation of Corporate Profits By Alexis Anagnostopoulos; Orhan Erem Atesagaoglu; Eva Carceles-Poveda
  4. Measuring the Impact of Financial Taxation on Capital By Correa, Juan; Lorca, Miguel; Parro, Francisco
  5. Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement By Carrillo, Paul; Pomeranz, Dina; Singhal, Monica
  6. The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists By Moretti, Enrico; Wilson, Daniel J
  7. Fiscal federalism and tax enforcement By Bönke, Timm; Joachimsen, Beate; Schröder, Carsten
  8. Wealthy Tax Non-Filers in a Developing Nation: The Roles of Taxpayer Knowledge, Perceived Corruption and Service Orientation in Pakistan By Katharina Gangl; Erich Kirchler; Christian Lorenz; Benno Torgler
  9. Changes in the income tax system during the economic crisis of 2010/2014 By Ivan Reiner
  10. The impact of tax changes on the short-run investment behaviour of New Zealand firms By Richard Fabling; Richard Kneller; Lynda Sanderson
  11. Taxation and Investment in Colombia By Sarah Perret; Bert Brys

  1. By: Liu, Li; Lockwood, Ben
    Abstract: We develop a conceptual framework which captures the effect of the VAT system on profit by two effective taxes. This allows (i) predictions of the determinants of voluntary registration and bunching at the registration threshold; (ii) develops a formula for estimating the elasticity of value-added with respect to the statutory tax. We show that the marginal excess burden of the tax on suppliers is measured by this elasticity, extending Feldstein's analysis of the elasticity of taxable income to an indirect tax setting. We bring the theory to the data, using linked administrative VAT and corporation tax records in the UK from 2004-2009. Consistently with the theory, voluntary registration is positively related to the intensity of input use and negatively related to the share of B2C transactions. There is bunching at the VAT threshold, and the amount of bunching is negatively related to the intensity of input use and positively related to the share of B2C transactions, again consistently with the theory. We provide an estimate of the elasticity of the VAT tax base in the range of 0.09 and 0.18.
    Keywords: bunching; elasticity; tax notches; VAT; voluntary registration
    JEL: H25 H32
    Date: 2015–05
  2. By: Stefanie Stantcheva
    Abstract: This paper considers dynamic optimal income, education, and bequest taxes in a Barro-Becker dynastic setup. Parents can transfer resources to their children in two ways: First, through education investments, which have heterogeneous and stochastic returns for children, and, second, through financial bequests, which yield a safe, uniform return. Each generation's productivity and preferences are subject to idiosyncratic shocks. I derive optimal linear formulas for each tax, as functions of estimable sufficient statistics, robust to underlying heterogeneities in preferences, and at any given level of all other taxes. It is in general not optimal to make education expenses fully tax deductible and the optimal education subsidy, income tax and bequest tax can, but need not, move together at the optimum. I also show how to derive optimal formulas using “reform-specific elasticities” that can be targeted to empirical estimates from existing reforms. I extend the model to an OLG model with altruism to study the effects of credit constraints on optimal policies. Finally, I solve for the fully unrestricted policies and show that, if education is highly complementary to children's ability, it is optimal to distort parents' trade-off between education and bequests and to tax education investments relative to bequests.
    JEL: H21 H24 H31 I24
    Date: 2015–05
  3. By: Alexis Anagnostopoulos; Orhan Erem Atesagaoglu; Eva Carceles-Poveda
    Date: 2014
  4. By: Correa, Juan; Lorca, Miguel; Parro, Francisco
    Abstract: Using panel data from Chilean manufacturing plants, we present an empirical model to measure the impact of a financial transaction tax on capital stock. Our results show a statistically significant negative effect of the tax on the stock of capital. We also find that the impact on plants is heterogeneous, depending on the intensity of different types of capital held by plants. Indeed, plants with a higher percentage of infrastructure assets, such as land and buildings, are affected relatively less by the tax.
    Keywords: financial transaction tax, stock of capital, manufacturing industry
    JEL: H20 L60
    Date: 2015–04
  5. By: Carrillo, Paul; Pomeranz, Dina; Singhal, Monica
    Abstract: Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature argues that cross-checks of taxpayer reports against third-party information are critical for effective tax enforcement. However, such cross-checks may have limited effectiveness if taxpayers can make offsetting adjustments on other margins. We present a simple framework demonstrating conditions under which this occurs and empirical evidence from a natural experiment in Ecuador. When firms are notified about detected revenue discrepancies, they increase reported revenues - but also reported costs (by 96 cents per dollar of revenue adjustment), resulting in minor increases in tax collection.
    Keywords: Ecuador; evasion; tax
    JEL: H25 H26 O23 O38
    Date: 2015–05
  6. By: Moretti, Enrico; Wilson, Daniel J
    Abstract: Using data on the universe of U.S. patents filed between 1976 and 2010, we quantify how sensitive is migration by star scientist to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal and corporate taxes on star scientists’ migration patterns. The long run elasticity of mobility relative to taxes is 1.6 for personal income taxes, 2.3 for state corporate income tax and -2.6 for the investment tax credit. The effect on mobility is small in the short run, and tends to grow over time. We find no evidence of pre-trends: Changes in mobility follow changes in taxes and do not to precede them. Consistent with their high income, star scientists migratory flows are sensitive to changes in the 99th percentile marginal tax rate, but are insensitive to changes in taxes for the median income. As expected, the effect of corporate income taxes is concentrated among private sector inventors: no effect is found on academic and government researchers. Moreover, corporate taxes only matter in states where the wage bill enters the state’s formula for apportioning multi-state income. No effect is found in states that apportion income based only on sales (in which case labor’s location has little or no effect on the tax bill). We also find no evidence that changes in state taxes are correlated with changes in the fortunes of local firms in the innovation sector in the years leading up to the tax change. Overall, we conclude that state taxes have significant effect of the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.
    Keywords: economic geography; innovation; taxes
    JEL: H2 J01
    Date: 2015–05
  7. By: Bönke, Timm; Joachimsen, Beate; Schröder, Carsten
    Abstract: In many countries organized as federations, fiscal-equalization schemes have been implemented to mitigate vertical or horizontal imbalances. Such schemes usually imply that the member states of the federation can only partly internalize marginal tax revenue before redistribution. Aside from this internalized revenue, referred to as the marginal tax-back rate, the remainder is redistributed. We investigate the extent to which extent state-level authorities in such federation under-exploit their tax bases. By means of a stylized model we show that the member states have an incentive to align the effective tax rates on their residents with the level of the tax-back rate. We empirically test the model using state-level and micro-level taxpayer data, OLS regressions and natural experiments. Our empirical findings support the results from our theoretical model. Particularly, we find that states with a higher marginal tax-back rate exploit the tax base to a higher extent.
    Keywords: fiscal federalism,fiscal externalities,natural experiment,treatment analysis,statistical matching
    JEL: C21 H21 H77
    Date: 2015
  8. By: Katharina Gangl; Erich Kirchler; Christian Lorenz; Benno Torgler
    Abstract: Although tax non-filing and the resulting tax evasion are a challenge to public welfare of developing countries, scholarly knowledge on the subject is minimal. The present paper compares rich self- employed identified as non-filers with a randomized group of tax filers in terms of two bases of perceived tax system legitimacy: knowledge of taxpayers’ rights and perceived corruption. The results indicate that both factors relate to tax non-filing and moreover, that perceived service orientation of the tax administration, which reduces citizens’ ignorance of tax rights and doubts about authorities’ correct behaviour might foster perceived legitimacy and in turn increase tax compliance.
    Keywords: Wealthy tax non-filers; tax morale; tax compliance; tax knowledge; knowledge of rights; corruption; tax evasion; developing countries; Pakistan
    JEL: H26 O17 E26 H70 I30
    Date: 2015–05
  9. By: Ivan Reiner (Faculty of law, University of Zagreb)
    Abstract: The paper has the intention to display a systematic and continuous changes in the taxation of personal income since the beginning of the economic crisis that engulfed the Republic of Croatia in 2009-the year, and even today does not indicate its direction and move into a phase of recovery of the national economy.Emphasis will be upon the changes in tax rates (the percentage and number of tax rates in the application), and nontaxable part of personal income, which leads to different heights nominal tax liability.Such an attitude derives from the fact that the Republic of Croatia has a synthetic form of income tax (introduced in 1994) with the application of several progressive tax rates in the slice system progression.I want to determine whether changes are in accordance with the announced program of the legislator, to reduce the tax burden for individual (per different economic strength) taxpayers, and whether such changes are aiming for social benefits and relieving the pressure on taxpayers or have the sole objective of fiscal revenue collection for the government, and (via surtax on income tax), local budgets.
    Keywords: taxation of personal income, changes, slice system, progression tax rates
  10. By: Richard Fabling (Motu Economic and Public Policy Research); Richard Kneller (University of Nottingham); Lynda Sanderson (New Zealand Treasury)
    Abstract: This paper examines firm-level investment responses to exogenous changes in the forward looking user cost of capital associated with reforms to the corporate and personal tax system over the last decade. Adjustments to personal tax rates and fiscal depreciation allowances provide a direct lever through which government policy can affect the cost of capital faced by firms. The effect of these tax adjustments differs across firms according to their asset structure, providing both inter-temporal and inter-firm variation in UCCs and enabling an assessment of the short-run impact of UCC changes on investment behaviour. This analysis shows that while tax-induced changes in the UCC have significantly affected investment behaviour among some firms, the aggregate impacts are likely to have been negligible as the industries in which investment impacts are observed make a very small contribution to aggregate investment.
    Keywords: Tax, Depreciation, User Cost of Capital
    Date: 2015–05
  11. By: Sarah Perret; Bert Brys
    Abstract: The Colombian corporate tax system is highly complex and distortive. The effective tax burden on businesses is very high due to the combined effect of the corporate income tax, the corporate surtax introduced in 2012 (CREE), the net wealth tax on business assets and the value added tax (VAT) on fixed assets. Indeed, in addition to high statutory taxes on corporate income, formal sector businesses are subject to a wealth tax on their net assets and to a production-based VAT system under which VAT paid on the purchases of fixed assets is not creditable against output VAT. Calculations in this paper find that the total marginal effective tax rate reaches about 60% for equity-financed investments. Such a high effective corporate tax burden is likely to deter investment and to further encourage tax evasion in the future and therefore calls for a fundamental business tax reform. This paper also reviews the other key elements of the capital income tax system in Colombia. This Working Paper relates to the 2014 OECD Economic Survey of Colombia (<P>Fiscalité et investissement en Colombie<BR>Le système d'imposition des sociétés en Colombie est très complexe et génère d’importantes distorsions. La charge fiscale effective sur les entreprises est très élevée en raison de l'effet combiné de l’impôt sur les sociétés, de la surtaxe sur les sociétés introduite en 2012 (CREE), de l'impôt sur les actifs nets des entreprises et de la taxe sur la valeur ajoutée (TVA) afférente aux immobilisations. En effet, en plus d’impôts élevés sur les sociétés, les entreprises du secteur formel sont soumises à un impôt sur leurs actifs nets et à un système de TVA selon lequel la TVA payée sur les actifs immobilisés n’est pas déductible. Les calculs dans cet article montrent que le taux marginal d’imposition effectif atteint au total environ 60 % pour les investissements financés par fonds propres. Une telle charge fiscale effective sur les entreprises est de nature à dissuader l'investissement et à encourager davantage l'évasion fiscale à l’avenir et nécessite donc une réforme structurelle de la fiscalité des entreprises. Cet article examine aussi les autres éléments clés de la taxation des revenus du capital en Colombie. Ce document de travail se rapporte à l’Étude économique 2014 de l’OCDE sur la Colombie ( ique-colombie.htm).
    Keywords: taxation, investment, Colombia, Colombie, investissement, fiscalité
    Date: 2015–04–30

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