nep-pub New Economics Papers
on Public Finance
Issue of 2015‒09‒05
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Marginal tax rates under asymmetric taxation By Kruschwitz, Lutz; Löffler, Andreas
  2. The impact of taxes on bilateral royalty flows By Dudar, Olena; Spengel, Christoph; Voget, Johannes
  3. Global tax policy and the synchronization of business cycles By Sly, Nicholas; Weber, Caroline
  4. On the External Validity of Laboratory Tax Compliance Experiments By James Alm; Kim M. Bloomquist; Michael McKee
  5. Enforcement, Socio-Economic Diversity, and Tax Filing Compliance in the United States By James Alm; Jeremy Clark; Kara Leibel
  6. Decomposing income polarization and tax-benefit changes across 31 European countries and Europe wide, 2004-2012 By Wang, Jinxian; Caminada, Koen; Goudswaard, Kees; Wang, Chen
  7. Taxation of Dividend Income and Economic Growth: The Case of Europe By Dackehag, Margareta; Hansson, Åsa
  8. How does fuel taxation impact new car purchases? An evaluation using French consumer-level dataset By P. GIVORD; C. GRISLAIN-LETRÉMY; H. NAEGELE
  9. Tax elasticity to business cycle: an overview of three taxes from 1979 to 2013 in France By Q. LAFFÉTER; M. PAK
  10. Tax Policy in MENA Countries: Looking Back and Forward By Mario Mansour

  1. By: Kruschwitz, Lutz; Löffler, Andreas
    Abstract: This paper attempts to analytically determine the impact a tax shield (marginal tax rate) has on the value of a levered firm assuming that gains and losses are taxed differently. Previous research has done this by employing empirical methods and simulation studies. We are able to present closed-form solutions for two popular financing policies. Our solutions reveal that the marginal tax rate is a function with an order greater than one.
    Date: 2015
  2. By: Dudar, Olena; Spengel, Christoph; Voget, Johannes
    Abstract: In 2013 the OECD introduced its Action Plan on base erosion and profit shifting (BEPS). One of the major concerns of this Plan is a strategic use of intangible assets as an instrument for profit shifting. The main purpose of this paper is to test whether multinational enterprises use intangibles as an important BEPS channel by empirically analysing the relationship between taxation and bilateral royalty flows. We employ the OECD data on 3,660 country-pairs for the time period of 1990-2012 and apply the Poisson pseudo-maximum likelihood estimator in a fixed-effects framework. The main results point to a negative impact of taxation on bilateral royalty flows. Moreover, we find that tax differentials, which represent a relative level of taxation in a recipient state compared to other potential royalty recipients, have a significant influence on royalty payments as well. For tax policy considerations, the paper provides various insights to the ongoing work on BEPS by the G20, the OECD, and the European Commission. For example, we find that such reform suggestions of the OECD Action Plan as an enforcement of the Nexus Approach, as well as an introduction of strict Controlled Foreign Company rules and transfer pricing regulations are likely to reduce international royalty flows.
    Keywords: royalty,intangible assets,tax planning,corporate taxation
    JEL: H25 F23 H26 H3
    Date: 2015
  3. By: Sly, Nicholas (Federal Reserve Bank of Kansas City); Weber, Caroline
    Abstract: Using a 30-year panel of quarterly GDP fluctuations from of a broad set of countries, we demonstrate that the signing of a bilateral tax treaty increases the comovement of treaty partners' business cycles by 1/2 a standard deviation. This effect of fiscal policy is as large as the effect of trade linkages on comovement, and stronger than the effects of several other common financial and investment linkages. We also show that bilateral tax treaties increase comovement in shocks to nations’ GDP trends, demonstrating the permanent effects of coordination on fiscal policy rules. We estimate trend and business cycle components of nations' output series using an unobserved-components model in order to measure comovement between countries, and then estimate the impact of tax treaties using generalized estimating equations.
    Keywords: Bilateral Tax Treaties; Fiscal policy; GDP; Tax treaties
    JEL: E62 F42 H32 H87
    Date: 2015–08–01
  4. By: James Alm (Department of Economics, Tulane University); Kim M. Bloomquist (Office of Research, U.S. Internal Revenue Service); Michael McKee (Department of Economics, Appalachian State University)
    Abstract: An essential issue for laboratory experiments to inform policy debates is the "external validity" of the experimental results; that is, does behavior in the laboratory apply to behavior that occurs in the naturally occurring world? We examine this issue of external validity in the specific context of laboratory experiments on tax compliance, using two different types of evidence. We find that the behavioral patterns of subjects in the laboratory conform to that of individuals making a similar decision in naturally occurring settings. We also find that the behavioral responses of students are largely the same as non-students in identical experiments.
    Keywords: marriage, experimental methods, external validity, tax compliance
    JEL: H2 H26 C9
    Date: 2015–08
  5. By: James Alm (Department of Economics, Tulane University); Jeremy Clark (Department of Economics and Finance, University of Canterbury); Kara Leibel (Office of Research, Internal Revenue Service)
    Abstract: In this paper we examine the determinants of tax filing compliance in the United States. We use county-level data on non-filing rates for the tax year 2000, obtained directly from the Internal Revenue Service. We include explanatory variables identified in the "rational compliance" framework, including an enforcement index against identified non-filers, the audit rate of filers, and the average penalty rate for both filers and non-filers. We also examine the role of socio-economic diversity on tax compliance, testing whether within-county heterogeneity in household income, language, race, and religion can help explain variation in non-filing rates. We find that non-filing is increasing with heterogeneity by race, though not by income or language, and that non-filing is decreasing with heterogeneity by religious membership. As for enforcement variables, we find that non-filing rates tend to fall with the enforcement index. Other variables have somewhat mixed results.
    Keywords: tax evasion, social capital, diversity
    JEL: H2 H26 H31
    Date: 2015–08
  6. By: Wang, Jinxian; Caminada, Koen; Goudswaard, Kees; Wang, Chen
    Abstract: Polarization is an interesting additional social indicator for analyzing income inequality and poverty across countries, as it captures the phenomenon of ‘clustering around extreme poles’. Rising income polarization can be harmful since it is closely linked to poverty, social exclusion, social tension and social unrest (Brzezinski, 2013). However, so far little literature has been devoted to the changes in income polarization across countries over time, especially within Europe. Moreover, not much is known about whether and to what extent market income and the tax-transfer system contribute to changes of polarization. This paper provides theoretical and empirical insights into a relatively new dimension of income distribution: polarization. Rising income polarization has been observed outside Europe, but within the EU, polarization is relatively unexplored. We therefore broaden the analysis using micro-data from EU-SILC to 28 EU countries and 3 non-EU countries over the period 2004-2012. The paper estimates income polarization and decomposes the estimated polarization by country clusters, and Europe-wide, using a decomposition technique we developed. The main conclusions are: (1) Income polarization is rather stable over the decade in European countries, and Europe-wide. It was rising among West-EU15 countries in the sub-period 2004-2008, but declining afterwards. The opposite development is witnessed for CEE New Member States. Despite the Great Recession we do not find a sizeable increase in income polarization. (2) The causes of changes in polarization between 2004 and 2012 vary to a large extent across countries – no general pattern is found, although polarization was upward driven by market income (mainly capital income), while tax-benefit systems were polarization-reducing.
    Keywords: income polarization, inequality, poverty, welfare state reform, EU-SILC
    JEL: H53 H55 I32
    Date: 2015–08–17
  7. By: Dackehag, Margareta (Department of Economics, Lund University); Hansson, Åsa (Department of Economics, Lund University)
    Abstract: More recently researchers have turned to analyze how the tax structure, rather than the overall tax level, affects economic performance. For instance, several papers have investigated how taxation on corporate and individual (labor) income influences growth. Taxation of dividend income may also influence growth via its impact on investments and firm behavior. Within the academic community there is conflicting views about the impact taxation of dividends has on firm behavior and, hence, on economic performance. According to the “traditional view”, taxation of dividends is distortionary and increases the cost of equity. According to the “new view”, taxation of dividends does not influence the marginal cost of capital and consequently has no impact on investment decisions. To our knowledge, this paper is the first study to explore how tax rates on dividends affect economic growth, by using panel data from 1990 till 2008 for 18 European countries. We find that taxation of dividend income negatively influences economic growth, a result that corroborates the old view of dividends taxation as distortionary and also has some policy implication for the European countries in question.
    Keywords: Economic growth; taxation of corporate income; taxation of personal income
    JEL: H21 H24 H25 O40
    Date: 2015–08–14
    Abstract: This paper sets out to identify the impact of fuel prices on new car purchases, using exhaustive individual-level data of monthly registration of new private cars in France from 2003 to 2007. Detailed information on the car holder enables us to account for heterogeneous preferences across purchasers. We identify demand parameters through the large oil price fluctuations of this period. We find that the sensitivity of short-term demand with respect to fuel prices is generally low. Using these estimates, we assess the impact of a policy equalizing diesel and gasoline taxes, assuming that consumers react similarly to fuel price changes from tax and from oil price variations. Such a policy would slightly reduce the share of diesel in new cars purchases in the short-run (i.e. before supply side adjustments take place), without substantially changing the average fuel consumption or CO2 emission levels of new cars. Alternatively, a carbon tax (at 15 ¬/ton of CO2) could slightly decrease these emissions in the short-run.
    Keywords: fuel prices, automobiles, carbon dioxide emissions, environmental tax
    JEL: C25 D12 H23 L62 Q53
    Date: 2014
  9. By: Q. LAFFÉTER (Insee); M. PAK (Insee)
    Abstract: Taxes in France have not always increased as anticipated, since tax revenue was sometimes higher than expected, for instance during the jackpot episode in 1999, or lower than expected, in 2009 and more recently in 2013. The purpose of this study is to examine the sensitivity of the three main State taxes in France to the business cycle over the 1979-2013 period: the personal income tax (PIT), the value added tax (VAT), and the corporate income tax (CIT). First these taxes need to be corrected for the effects of discretionary measures, which partly influence how taxes grow. Second, the elasticities of these taxes, broadly measured under an unchanged tax system, are estimated. Starting with a simple model to estimate the instantaneous elasticity of each tax to GDP, more complex specifications relying on the existing literature are then tested, in order to acknowledge sensitivity of each tax to the economic environment. According to our results, PIT revenues instantaneous elasticity to an activity shock is almost equal to one if annual inflation adjustments are considered as automatic rather than discretionary. VAT revenues behave almost in a similar way. However this response to activity is slightly stronger when stemming from a shock on volume rather than a shock on price. The CIT is a tax based on the previous year, but it is very sensitive to instantaneous shock, thus acting as a stabilizer. It is also sensitive to asset prices.
    Keywords: personal income tax, corporate income tax, VAT, discretionary measures, endogenous growth of tax receipts, tax elasticities
    JEL: H24 H25 H31 H32
    Date: 2015
  10. By: Mario Mansour
    Abstract: This paper reviews trends in taxation and revenue in MENA countries over 1990-2012, with a focus on non-resource taxes. On average, non-resource revenues declined slightly, while resource revenues soared. Country experiences vary: rates of main taxes and their revenues tend to be higher in the Magreb than in the Mashreq, except for the value-added tax, where lower rates are associated with equal or higher revenue; most oil producers raise little tax revenues—generally less than 5 percent of GDP—and most have reduced them since the late 1990s. But there are similarities: unlike common experience around the world, income taxes (not indirect taxes) have partially compensated for lost revenue from trade liberalization; revenues from indirect taxes have remained stable; personal income taxes have played an unimportant role as a revenue tool; and fees and stamp duties are significant revenue sources. Looking forward, tax reform challenges will also vary across countries: the Maghreb needs to focus on efficiency-enhancing reforms, especially in capital income and consumption taxes; the Mashreq have some room to increase revenue; and, there are ample opportunities to improve equity and reduce complexity of tax systems in all countries. Finally, the recent decline in oil prices and revenues is a reminder that even resource-rich GCC countries need to lay the basis of a tax system for the future.
    Keywords: Corporate income taxes;Consumption taxes;Cross country analysis;Algeria;Egypt;Saudi Arabia;Oman;Personal income taxes;Jordan;Kuwait;Libyan Arab Jamahiriya;Lebanon;Iraq;Iran, Islamic Republic of;Morocco;North Africa;Middle East;Mauritania;Yemen, Republic of;Syrian Arab Republic;Tax policy;Stamp duties;Taxation;Tax revenues;United Arab Emirates;Tunisia;resource revenues, tax reform, MENA, tax, revenues, revenue, taxes, General, Personal Income and Other Nonbusiness Taxes and Subsidies, Business Taxes and Subsidies, Taxation, Subsidies, and Revenues: Other Sources of Revenue, Other,
    Date: 2015–05–05

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