nep-pub New Economics Papers
on Public Finance
Issue of 2016‒04‒23
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  2. A new approach to financial VAT By Julio López-Laborda; Guillermo Peña
  3. Corporate tax minimization and stock price reactions By Blaufus, Kay; Möhlmann, Axel; Schwäbe, Alexander
  4. The Effect of Local Taxes on Firm Performance: Evidence from Geo-referenced Data By Federico Belotti; Edoardo Di Porto; Gianluca Santoni

  1. By: D'Souza, Errol
    Abstract: The literature on tax evasion assumes that taxpayers wish to evade their taxes entirely and the only reason they do not do so is that there is some non-zero probability of being caught by the government. Also, it is assumed that government uses the taxes and fines from caught evaders on goods that it consumes which produce no utility to taxpayer-citizens. In a developing country, however, we argue that taxpayers use tax evasion to compensate for imperfect financial markets as well as government expenditure patterns that do not benefit them. We demonstrate that imperfect financial markets result in situations where when individuals find the chance of earning high returns from investments, it causes them to overcome their aversion to risk and participate in actuarially unfair tax evasion gambles. Also, tax evasion increases when either public goods are underprovided, or the government is sufficiently predatory , or the government directs policies at groups that the taxpayer is not a member of. In such a situation tax evasion is viewed by the taxpayer as a means of shifting the allocation of his income in favor of investments and away from government expenditure policies that give little benefit to him.
  2. By: Julio López-Laborda (University of Zaragoza, Department of Public Economics, Universidad de Zaragoza); Guillermo Peña (University of Zaragoza, Department of Public Economics,)
    Abstract: Many methods of taxing financial services have been developed in recent decades, but so far, none of them is definitive. The cash-flow method, considered one of the most theoretically accurate approaches, has turned out not to be viable. The purpose of this article is to propose a new approach to taxing financial services that would be theoretically accurate and could be applied practically across countries. We develop an approach called the “mobile-ratio” method that taxes financial transactions using a rate that obtains, roughly, full taxation of the value added by financial services. The simple, neutral method generated can easily be administered by entities. This paper will be useful for public economists and policy-makers in order to raise tax revenue and improve economic efficiency and neutrality.
    Keywords: Financial VAT exemption, mobile-ratio method
    Date: 2016–04–19
  3. By: Blaufus, Kay; Möhlmann, Axel; Schwäbe, Alexander
    Abstract: Tax minimization strategies may lead to significant tax savings, which could, in turn, increase firm value. However, such strategies are also associated with significant costs, such as expected penalties and planning, agency, and reputation costs. The overall impact of firms' tax minimization strategies on firm value is, therefore, unclear. To investigate whether corporate tax minimization increases firm value, we analyze the stock price reaction to news concerning corporate tax avoidance or evasion. Our hand-collected dataset includes 139 tax news items regarding listed German firms over the period from 2003 to 2014. In contrast to previous research, we explicitly distinguish between news about legal tax minimization (tax avoidance) and illegal tax minimization (tax evasion). We show that stock market responses differ significantly between news items concerning legal and illegal activities. While we find negative abnormal returns for tax evasion news, we find positive abnormal returns for tax avoidance news. Our results do not indicate any reputation effect of legal tax minimization. Conversely, the positive market reaction to tax avoidance news is associated with firms that face high reputation risk.
    Keywords: tax avoidance,tax evasion,tax aggressiveness,tax risk,market reaction,event study
    JEL: G14 G30 H25 H26
    Date: 2016
  4. By: Federico Belotti (CEIS,University of Rome "Tor Vergata"); Edoardo Di Porto (University of Naples Federico II, CSEF and UCFS Uppsala University); Gianluca Santoni (CEPII)
    Abstract: This paper investigates the impact of business property taxation on firms' performance using a panel of italian manufacturing firms. To account for endogeneity in local taxation, we exploit a pairwise spatial differenced generalized method of moments estimator. As well as providing robust inference, we also improve on existing work by exploiting the exogenous variation in local taxes generated by the political alignment of each local government with the central one. We find that property taxation exerts a negative impact on firms' employment, capital and sales to such an extent as to significantly affect total factor productivity.
    Keywords: Local taxation, endogeneity, spatial differencing, two-way clustering.
    JEL: H22 H71 R38
    Date: 2016–04–13

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