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on Public Finance |
| By: | Craig Brett (Mount Allison University); John A Weymark (Vanderbilt University) |
| Abstract: | When a government is unable to commit to its future tax policies, information about taxpayers' characteristics revealed by their behavior may be used to extract more taxes from them in the future. We examine the implications of this ratchet effect for the design of redistributive income and savings tax policies in a two-period model with two types of individuals who only differ in their skill levels. When commitment is not possible, it may be optimal to separate, pool, or partially pool different types in period one. The nature of the distortions to labor supplies and savings are investigated for each of these three regimes. Novel rationales for savings distortions are identified. |
| Keywords: | asymmetric information, commitment, optimal income taxation, ratchet effect, savings taxation |
| JEL: | H2 D8 |
| Date: | 2016–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-16-00007&r=pub |
| By: | Egebark, Johan (IFAU - Institute for Evaluation of Labour Market and Education Policy) |
| Abstract: | I study the link between taxes and youth self-employment. I make use of a Swedish reform, implemented in 2007–09, which suddenly made the payroll tax and the self-employment tax vary by age. The results suggest that youth self-employment is insensitive to tax reductions, both in the short run and in the somewhat longer run. I also study the effect of the tax reductions on income. For those that are defined as self-employed, I find positive effects on income from self-employment, and negative effects on income from wage employment. This finding suggests that the lower taxes caused the self-employed to reallocate time from employment to self- employment. |
| Keywords: | youth unemployment; self-employment tax; tax subsidy; self-employment |
| JEL: | H25 H32 J23 J38 J68 |
| Date: | 2016–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2016_004&r=pub |
| By: | Cremer, Helmuth; Pestieau, Pierre |
| Abstract: | There exists a wide variety of tax treatments of pensions across the world. And the reasons for such a range of regimes are not clear. This note reviews the general principles of pension taxes and analyses the theoretical foundations of why pension incomes ought to be taxed specifically. To do this, one has to distinguish between public and private pensions. The design of public pensions cannot be separated from the one of taxation. Regarding private pensions, the key issue is whether or not pension saving ought to be treated differently from other forms of saving. |
| Keywords: | private pensions, deferred tax, social security, retirement |
| JEL: | H21 H55 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:30269&r=pub |
| By: | Philippe Aghion; Ufuk Akcigit; Julia Cagé; William R. Kerr |
| Abstract: | We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the efficiency with which tax revenues are translated into infrastructure. The model predicts an inverted-U relationship between taxation and growth, with corruption reducing the optimal taxation level. We find evidence consistent with these predictions and the entrepreneurial channel using data from the Longitudinal Business Database of the US Census Bureau. The marginal effect of taxation for growth for a state at the 10th or 25th percentile of corruption is significantly positive; on the other hand, the marginal effects of taxation for growth for a state at the 90th percentile of corruption are much lower across the board. We make progress towards causality through Granger-style tests and by considering periphery counties where effective tax policy is largely driven by bordering states. Finally, we calibrate our model and find that the calibrated taxation rate of 37% is fairly close to the model's estimated welfare maximizing taxation rate of 42%. Reducing corruption provides the largest potential impact for welfare gain through its impact on the uses of tax revenues. |
| JEL: | H11 H21 H25 H41 H71 H72 M13 O11 O12 O40 R11 R12 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21928&r=pub |
| By: | Antonescu, Mihail; Antonescu, Ligia |
| Abstract: | The excessive increase of the tax burden, the existance of a bad legislation, the lack of effective fiscal control and insufficient education of taxpayers are the main causes of tax evasion. While impossible to determine the exact size of the tax evasion, approximate measures and statistical data are used for its measurement. This is necessary to determine the effectiveness of prevention and combating evasion methods but also to estimate the negative consequences. |
| Keywords: | Tax evasion, control of fiscal evasion |
| JEL: | H26 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69948&r=pub |
| By: | Roller, Marcus; Schmidheiny, Kurt |
| Abstract: | This paper proposes measures to quantify the effective level and the effective progressivity of taxation in a fiscally decentralized country taking income sorting into account. Using data on the universe of Swiss taxpayers, we find that rich households effectively face significantly lower average and marginal tax rates and lower progressivity than in the benchmark case that does not consider income sorting. This is because high-income households systematically avoid high taxation by locating in low-tax jurisdictions. The results are stronger for singles than for families, indicating that singles are more sensitive to spatial tax differentials than families. Although income tax schedules of the Swiss federation, the 26 cantons and the more than 2,600 municipalities are all strictly progressive, the effectively paid country-wide average tax rate is regressive for households with very high incomes and without children. The proposed measure of the effective average and marginal tax rates also allows us to adequately describe the evolution of the country-wide tax burden over time. We document that about half of the reduction in the tax burden on top incomes between 1975 and 2009 is due to reductions in statutory tax rates and about half to stronger income sorting of the population. Our results also hold when we account for the disutility from housing prices into which tax rates capitalize. |
| Keywords: | Effective Tax Rates; Fiscal Decentralization; Income Segregation; Progressive Taxation |
| JEL: | H71 H73 R23 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11152&r=pub |
| By: | Antoine Dechezleprêtre; Elias Einiö; Ralf Martin; Kieu-Trang Nguyen; John Van Reenen |
| Abstract: | We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme. |
| Keywords: | R&D, patents, tax, innovation, Regression Discontinuity design |
| JEL: | O31 O32 H23 H25 H32 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1413&r=pub |
| By: | Giacomo Ricotti; Marco Burroni (Banca d'Italia); Vincenzo Cuciniello (Banca d'Italia); Elena Padovani (Banca d'Italia); Elena Pisano (Banca d'Italia); Stefania Zotteri (Banca d'Italia) |
| Abstract: | Following the establishment of the Single Supervisory Mechanism (SSM), concerns about having a level playing field become more important due to the heterogeneity in bank taxation rules across Europe: measuring the tax burden can provide a first rough measure of the extent of heterogeneity across countries. After a review of the main differences in banks taxation between Italy, France, Germany, Spain and the UK, the paper provides estimates for the tax burden and deferred tax assets in these countries over the years 2006-2014; the impact of differences in taxation on bank profitability is also examined. Moreover, the paper carries out a more in-depth analysis of Italian banks by considering both individual balance sheet data and aggregate tax return data. The impact of tax measures on financial stability and on profitability is further analysed. The comparative analysis points to a wide heterogeneity across countries in the tax treatment of the banking sector. This suggests that it would be advantageous to explore possible ways to make the tax systems of the countries participating in the SSM more homogeneous; a first step could be to harmonize tax bases. |
| Keywords: | banking, taxation |
| JEL: | G21 H25 H87 K34 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_314_16&r=pub |
| By: | Brockmeyer,Anne; Hernandez,Marco |
| Abstract: | This paper studies tax withholding on business sales, a widely used compliance mechanism which is largely ignored by public finance theory. The study introduces a withholding scheme, whereby the payer in a transaction collects tax from the payee, in a standard evasion model. If the taxpayer can fully reclaim the tax withheld, withholding is irrelevant to her evasion decision. If reclaim is costly, however, withholding establishes a compliance default. To show this empirically, the analysis exploits a ten-year panel of registration, income tax and sales tax records from 400,000 firms in Costa Rica, and over 20 million third-party information and withholding reports. The paper first documents the anatomy of compliance, providing novel measures of compliance gaps on the extensive, intensive and payment margins. It then shows that interventions leveraging the existing third-party information reduce these compliance gaps only marginally. Coverage by a withholding scheme, in contrast, is correlated with higher reported taxable income both across firms and within firms across time. Quasi-experimental estimations show that a doubling of the withholding rate leads to a 40 percent increase in tax payment among treated firms and a 10 percent increase in aggregate revenue. The mechanisms are incomplete reclaim of the tax withheld and reduced misreporting. |
| Keywords: | Debt Markets,Tax Law,Taxation&Subsidies,Emerging Markets,Transport Economics Policy&Planning |
| Date: | 2016–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7600&r=pub |