nep-pub New Economics Papers
on Public Finance
Issue of 2016‒02‒23
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Stock Option Taxation and Venture Capital Activity: A Cross-Country Comparison By Henrekson, Magnus; Sanandaji, Tino
  2. Tax Structure and Corruption: Cross-Country Evidence By Yongzheng Liu; Haibo Feng
  3. Do Natural Disasters Hurt Tax Resource Mobilization? By Rasmané OUEDRAOGO; Somlanare Romuald KINDA; Eric Nazindigouba KERE
  4. Fiscal Policy and Financial Distress: A Balance Sheet Perspective By John FitzGerald; Philip Lane
  5. The Elasticity of Taxable Income: Evidence from Changes in Municipal Income Tax Rates in Finland By Tuomas Matikka
  6. Book-tax conformity and reporting behavior: A quasi-experiment By Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina

  1. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: One response to uncertainty and transactions costs in VC-finance is to compensate founders (and other key personnel) with stock options under complex contracts. Entrepreneurs are granted stock options contingent on firm performance, vesting and other criteria. While most countries tax stock options as labor earnings, the United States allow them to be taxed at a low capital gains tax rate. The interaction of favorable tax treatment and inherent advantages has led to near universal use of stock options in American venture capital deals, while this remains less common in Europe. The effective tax treatment of stock options depends on tax practices and is not readily observed using statutory tax rates. We asked the local offices of the tax consultancy firm PwC to calculate the effective tax rate for a standardized entrepreneurial case in 22 countries, finding that countries with favorable tax treatment have more VC activity. One advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.
    Keywords: Business taxation; Corporate governance; Entrepreneurship; Innovation; Institutions; Tax policy; Venture capital
    JEL: H25 H30 K34 L26
    Date: 2016–01–11
  2. By: Yongzheng Liu (Renmin University of China); Haibo Feng (Jinan University)
    Abstract: The determinants of corruption have long been an important subject for research in the elds of economics and political science. The literature has identied a wide range of factors that cause corruption; however, little research has been done on how the design of government policy in uences corruption. We advance a new factor, the tax structure being measured as both tax mix and tax complexity, as another potential cause of corruption, and present strong supporting evidence by using a large sample of countries over the period 1995-2009. Our ndings indicate that: (1) countries relying more heavily on direct taxes tend to enjoy a lower level of corruption, as opposed to countries with higher reliance on indirect taxes; and (2) countries with more complex tax systems tend to have a higher level of corruption, as opposed to countries with less complex tax systems. These results are robust across alternative measures of corruption and tax structure, and alternative estimations with and without correcting the potential endogeneity issue of the tax structure variables.
    Keywords: Tax Structure; Direct versus Indirect Taxes; Tax Complexity; Corruption
    Date: 2014–06–28
  3. By: Rasmané OUEDRAOGO; Somlanare Romuald KINDA (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Eric Nazindigouba KERE
    Abstract: According to several reports, natural disasters and climate change will intensify and dampen development if appropriate measures are not implemented. Our paper contributes to this literature and analyzes the impact of natural disasters on domestic resource mobilization in developing countries. Using propensity score matching estimators over the period of 1980-2012 for 120 developing countries, our results conclude that government revenues decrease in the aftermath of natural disasters. Moreover natural disasters that occur in border countries have a negative impact on government revenues of neighbor countries. However, the adverse effects of natural disasters are dampened in countries with high level of resilience capacity and stronger governance.
    Keywords: Natural disasters ; Tax revenue ; Resilience capacity ; Corruption.
    JEL: P52 E62 H20 O11 Q54
    Date: 2015–12
  4. By: John FitzGerald (Department of Economics, Trinity College Dublin); Philip Lane (Department of Economics, Trinity College Dublin)
    Abstract: Governments actively manage the public balance sheet during episodes of financial distress. Under these circumstances, the stock of gross public debt is not a sufficient statistic for fiscal sustainability. In this paper, we examine the roles of financial asset acquisition, liquidity management, debt management and the central bank balance sheet in determining the fiscal health of a government. We argue that a strategy of “under-promising and over-delivering” is essential in restoring market access.
    Keywords: Government balance sheet, public debt, management of debt
    JEL: H63 E58
    Date: 2016–02
  5. By: Tuomas Matikka
    Abstract: The elasticity of taxable income (ETI) is a key parameter in income tax analysis both in terms of efficiency and tax revenue. This paper uses Finnish panel data to analyze ETI. I use changes in flat municipal income tax rates as an instrument for overall changes in marginal tax rates. This instrument is not a function of individual income, which is the basis for an exogenous instrument. In general, instruments used in previous studies do not have this feature. My preferred estimate for the average ETI is 0.16. The preferred specification includes extensive regional and individual controlling. Earlier version of this paper was published in February 2014 ("Taxable income elasticity and the anatomy of behavioral response: Evidence from Finland" Government Institute for Economic Research (VATT) Working Papers 55).
    Keywords: elasticity of taxable income, income taxation
    JEL: J22 H24 H21
    Date: 2015–12–18
  6. By: Evers, Maria Theresia; Meier, Ina; Nicolay, Katharina
    Abstract: We examine how a comprehensive change in book-tax conformity affects firms' reporting behavior. To this end, we exploit a Reform Act as a quasi-natural experiment which implied a decrease in book-tax conformity in Germany in 2010. In particular, this reform allows firms to exercise tax accounting options independently from financial accounting. Our study builds on a unique dataset of linked individual financial statements and actual tax return data. It covers roughly 150 incorporated firms for the years 2008 to 2012. Exploiting the exceptional change in conformity, we contribute to the ongoing debate on the impact of booktax conformity. Our results show that profitable companies, which have a clear tax sheltering incentive, actually use the newly introduced reporting leeway to manage taxable income downwards. This is especially attributable to companies exploiting favorable tax depreciation rules. Moreover, we find larger opportunistic tax reporting responses for small companies with less complex and predominantly domestic group structures. In addition, we observe that a decrease in book-tax conformity induces a decrease in the general persistence of taxable income, but at the same time gives rise to higher financial earnings persistence. This corroborates our finding of increased tax sheltering activity in post reform years.
    Keywords: book-tax conformity,book-tax differences,tax sheltering,earnings persistence
    JEL: H20 H25 K34 M41
    Date: 2016

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