nep-pub New Economics Papers
on Public Finance
Issue of 2015‒12‒08
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Determinants of Effective Tax Rates: Firms’ Characteristics and Corporate Governance By Ana Isabel Martins Ribeiro; António Cerqueira; Elísio Brandão
  2. The Role of Tax Exemptions and Credits By James Alm; Bibek Adhikari
  3. An Economic Analysis of Pension Tax Proposals By Angus Armstrong; Philip Davis; Monique Ebell
  4. Taxation Challenges in Developing Countries By Michael Carnahan
  5. Virginia Local Tax Rates: 2013 By John Knapp; Stephen Kulp

  1. By: Ana Isabel Martins Ribeiro (University of Porto, School of Economics and Management); António Cerqueira (University of Porto, School of Economics and Management); Elísio Brandão (University of Porto, School of Economics and Management)
    Abstract: Investors, managers and shareholders benefit from the study of what influences and determines corporate effective tax rates (ETRs) as this analysis may contribute to potential tax savings. Moreover, standard setters, regulators and policy makers have a crucial interest in identifying the main factors driving corporate taxes. Therefore, the purpose of our investigation and contribution is twofold. Firstly, we provide evidence of how ETRs are determined by firms’ financial and operational characteristics. Secondly, our objective is to show the role of Corporate Governance attributes in explaining ETRs. As the literature about this topic using non-US firms is not abundant, to address these questions we select a sample of 704 non-financial firms listed on the London Stock Exchange between 2010 and 2013. We estimate our econometric model by using GLS cross-section weights. Our results show that larger and more profitable firms have higher ETRs. On the contrary, capital intensity, leverage and R&D expenses have a negative impact on ETRs. Regarding ownership structure and board composition, our findings reveal that managerial ownership contributes to lower ETRs. On the other hand, more independent firms from controlling shareholders exhibit higher ETRs. Moreover, a larger number of board members and non-executive directors results in higher ETRs
    Keywords: Effective tax rate; Corporate Finance; Corporate Governance
    JEL: G30 H20
    Date: 2015–12
  2. By: James Alm (Department of Economics, Tulane University); Bibek Adhikari (Department of Economics, Tulane University)
    JEL: H71 H72
    Date: 2015–12
  3. By: Angus Armstrong (National Institute of Economic and Social Research (NIESR); Centre for Macroeconomics (CFM)); Philip Davis (National Institute of Economic and Social Research (NIESR); Centre for Macroeconomics (CFM)); Monique Ebell (National Institute of Economic and Social Research (NIESR); Centre for Macroeconomics (CFM))
    Abstract: The Government has recently issued a consultation document which raises the possibility of a substantial change in the taxation of pensions. In this paper we assess the economic consequences of changing from the existing EET system (where pension savings and returns are exempt from income tax, but pension income is taxed) to a TEE system (pension savings would be from taxed income but with no further taxation thereafter), making use of two complementary approaches. First, we review the economic and empirical literature, and second we construct a general equilibrium overlapping generations (OLG) model parameterised to UK data and the UK tax system. Both approaches lead to the same outcome: that changing from EET to TEE would lead to a fall in personal savings. In addition, our analysis shows that the move would be counter to a series of pension reform principles the Government has set out. Our review of published literature shows most authors find EET (which is used in 22 of 30 OECD countries) more economically beneficial. This benefit manifests itself in an increased amount of personal and national saving, as well as in the risk on retirement portfolios, the effect on capital markets and overall benefits to economic growth. These findings are supported by our general equilibrium overlapping generations (OLG) model. OLG models are ideally suited to the analysis of life-cycle issues such as pensions, as they allow several cohorts or generations to be alive and interacting at once. General equilibrium allows us to capture all the complex feedback effects between taxes, savings decisions, and other variables such as investment, productivity, output (GDP), wages and interest rates. Our model shows that switching from EET to TEE would lead to a fall in personal savings, even if there are top-ups or subsidies from the Government. The intuition is simple: moving from EET to TEE frontloads the tax burden onto younger households. Bringing forward taxation would reduce the resources available to working aged households, leading to reductions in both consumption and savings. In addition, the current EET system provides added incentives for higher and additional rate taxpayers to save, in order to benefit from lower tax rates in retirement. This reduction in savings would have broader macroeconomic consequences including lower aggregate consumption, a lower capital stock, lower productivity and a higher real interest rate. The Government has stated that any reform must encourage people to save more; our analysis suggests that the proposed policy change will deliver the opposite outcome. Another principle set out by the Government is that the proposal ought to be consistent with its fiscal framework. The TEE system would lead to an immediate tax revenue gain from removing the current tax relief, which would improve today’s headline fiscal deficit. However, this would be at the expense of tomorrow’s fiscal accounts. We note that the only scenario where output (almost) and consumption return to the levels comparable to the current EET system are with a 50% government pension subsidy which would likely be detrimental on a Whole Government Accounts basis. Our model also reveals that a move from EET to TEE is inconsistent with the Government’s requirement that any reform should encourage individuals to take personal responsibility for adequate retirement savings. There is a dynamic inconsistency problem inherent in TEE because no government can credibly commit to never re-introducing taxation on pension income given likely challenges ahead. Retirement savings largely depend on future Government pension policy, and it is easy to see that the scrapping of taxation on pension income might be reversed in the future. As a result, individuals would be less, rather than more, willing to take personal responsibility under a TEE regime. The final principal set out by the Government is that the policy is simple and transparent. We note that the transition from EET to TEE would require earmarking different pension pots of savings as accumulated under different tax regimes. The transitional costs for defined contribution pensions could be considerable (assuming they would be forced to pay additional top-ups out of taxed income). We are unconvinced that having separate pension savings under different tax regimes would be beneficial in terms of transparency and simplicity.
    Date: 2015–11
  4. By: Michael Carnahan
    Abstract: A well-functioning revenue system is a necessary condition for strong, sustained and inclusive economic development. However, the revenue systems in some developing countries have fundamental shortcomings. Using Public Expenditure and Financial Accountability assessment data, this article provides a summary of the revenue raising capabilities across 58 developing countries. Tax reforms or tax system changes need to be made mindful of that current capacity. The optimal choice of tax regime may be different when administrative capacity is low. The increasing globalisation of economic activity adds a further layer of complexity that developing countries need to manage in building and maintaining their revenue systems. Finally, any proposals to change the revenue system in a developing country need to recognise that, like developed countries, tax reforms are highly political endeavours.
    Keywords: tax policy;tax administration;tax reform;developing countries;fiscal policy
    Date: 2015–01–28
  5. By: John Knapp (Weldon Cooper Center for Public Service); Stephen Kulp (Weldon Cooper Center for Public Service)
    Abstract: This is the thirty-second edition of the Cooper Center annual publication on tax rates levied by Virginia local governments. In addition to information about tax rates, the publication contains details about tax administration, valuation methods and due dates. There is also information on water and sewer rates, waste disposal charges and numerous other aspects of local government finance. This comprehensive guide to local taxes is based on information gathered in the spring, summer, and early fall of 2013. The study includes all of Virginia's 39 independent cities and 95 counties and 133 of the 190 incorporated towns. The included towns account for 90 percent of the state population in towns. In addition to survey data, the study includes information from several outside sources, including two Department of Taxation studies, 2013 Legislative Summary and The 2011 Assessment/Sales Ratio Study, as well as Department of Taxation information on the assessed value of real estate by type of property. We also used the Comparative Report of Local Government Revenues and Expenditures, Year Ended June 30, 2012 from the state Auditor of Public Accounts, the Report on Proffered Cash Payments and Expenditures by Virginia Counties, Cities and Towns, 2011-2012 from the Commission on Local Government, and Virginia Enterprise Zone Program 2012 Grant Year Annual Report from the Department of Housing and Community Development. Additional sources included regional transportation commission information on taxes and fees.
    Keywords: Virginia; taxes; tax rates; local government
    Date: 2014–01–15

This nep-pub issue is ©2015 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.