nep-pub New Economics Papers
on Public Finance
Issue of 2016‒07‒16
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Nominal GDP targeting and the tax burden By Hatcher, Michael
  2. Disclosure of Corporate Tax Reports, Tax Enforcement, and Insider Trading By Jordi Caballé; Ariadna Dumitrescu
  3. Do healthcare tax credits help poor healthy individuals on low incomes? By Cinzia Di Novi; Anna Marenzi; Dino Rizzi
  4. Redeem or Revalue? Some Public-Debt Calculus. By Bar-Ilan, Avner; Gliksberg, Baruch
  5. 2014-2015 tax changes in EU Member States vs the Commission’s tax policy recommendations By Luigi Bernardi
  6. Do Multinationals Pay Less in Taxes than Domestic Firms? Evidence from the Swedish Manufacturing Sector By Hansson, Åsa; Olofsdotter, Karin; Thede, Susanna

  1. By: Hatcher, Michael
    Abstract: An overlapping generations model is set out in which monetary policy matters for distortionary taxes because unanticipated inflation has real wealth effects on households with nominal government debt. The model is used to study the tax burden under inflation and nominal GDP targeting. Nominal GDP targeting makes taxes less volatile than inflation targeting but raises average taxes. With a quadratic loss function, the expected tax burden is minimized with only indexed debt under inflation targeting, but with both indexed and nominal debt under nominal GDP targeting. Nominal GDP targeting lowers the tax burden relative to inflation targeting (except at very high indexation shares), but this conclusion hinges on risk aversion, productivity persistence and the loss function for the tax burden.
    Date: 2016–07–04
  2. By: Jordi Caballé; Ariadna Dumitrescu
    Abstract: In this paper, we analyze the effects of disclosing corporate tax reports on the performance of financial markets and the use of asset prices by the tax enforcement agency in order to infer the true corporate cash flows. We model the interaction between a firm and the tax auditing agency, and highlight the role played by the tax report as a public signal used by the market dealer and the role of prices as a signal used by the tax authority. We discuss the determinants of both the reporting strategy of the firm and the auditing policy of the tax authority. Our model suggests that, despite disclosure of the tax reports being beneficial for market performance (as the spreads and trading costs are smaller than under no disclosure), the tax agency might have incentives to not disclose the tax report when its objective is to maximize expected net tax collection.
    Keywords: disclosure, corporate tax, Insider Trading
    JEL: G12 G14
    Date: 2016–07
  3. By: Cinzia Di Novi; Anna Marenzi; Dino Rizzi
    Abstract: In several countries, personal income tax permits tax credits for out-of-pocket healthcare expenditures. Tax credits produce two effects on taxpayers’ disposable income. On the one hand, they benefit taxpayers at all income levels by reducing their net tax liability; on the other hand, they modify the price of out-of-pocket expenditure and, to the extent that consumer demand is price elastic, they may influence the amount of eligible healthcare expenditure for which taxpayers may claim a credit. These two effects influence, in turn, income redistribution and may affect taxpayers’ health status and therefore income-related inequality in health. Redistributive consequences of tax credits have been widely investigated; however, little is known about the ability of tax credits to ensure a more equitable distribution of healthcare expenditure and, consequently, to alleviate health inequality. In this paper, we study the potential effects that tax credits for health expenses may have on health-related inequality with reference to the Italian institutional setting. The analysis is performed using a tax-benefit microsimulation model which reproduces the personal income tax and incorporates taxpayers’ behavioural responses to changes in tax credit rate. Our results suggest that a healthcare tax credit design that does not rely on income, like the one implemented in the Italian personal income tax, is not effective in improving equity in health and tends to favour the richest part of the population.
    Keywords: personal income tax, health-related tax credit, health inequality
    JEL: I10 I14 H24
    Date: 2016
  4. By: Bar-Ilan, Avner (Department of Economics, University of Haifa); Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: This paper studies the scal-monetary response to a sharp increase in the level of the public debt. To that end, we employ a general equilibrium model with distortionary income tax, distortionary nancing, and endogenous capital accumulation. The model is calibrated to the US and EU economies. A main result is that in both economies the QE is superior, welfare-wise, to other policy prescriptions to the problem of explosive debt. A major di¤erence between the EU and the US is that a Taylor rule of tight monetary and scal policy could reduce the US public debt, but given the fundamental properties of the EU economy, this policy cannot achieve this goal in Europe.
    Keywords: Distorting Taxes; Fiscal Solvency; La¤er curve in a monetary economy; Liquidity ; Rate of self nancing of tax cuts; Quantitative Easing
    JEL: E44 E47 E58 E63 H30 H63
  5. By: Luigi Bernardi (Università di Pavia)
    Abstract: At first glance, it would seem that in recent years the tax changes adopted by EU Member States have diverged from the European Commission’s tax policy recommendations. Member States generally appear to go no further than making minor changes to existing tax rules. The Commission, on the other hand, recommends far broader reforms designed to help tax systems meet the challenges raised by the current economic crisis. Therefore, the purpose of this paper is to monitor this situation, and to offer an overall picture of the 2014-2015 tax changes made by European Union Member States. Furthermore, we shall be discussing the EU’s 2015 tax policy recommendations to Member States. By doing so we are in a position to affirm that the said divergence appears to exist, and we offer a number of observations regarding this result.
    Keywords: Tax reforms, European Union, 2014-2015
    JEL: H20 H24 H29
  6. By: Hansson, Åsa (Department of Economics, Lund University); Olofsdotter, Karin (Department of Economics, Lund University); Thede, Susanna (University of Malta)
    Abstract: There is a strong general concern amongst policymakers worldwide that multinational enterprises engage in far-reaching tax-planning activities. It is generally thought that by using transfer pricing or other techniques to shift profits, multinational enterprises can avoid taxation and thereby erode tax bases. Several attempts have been made to tackle this problem, not least through the OECD/G20 initiated Action Plan on Base Erosion and Profit Shifting. It is hard, however, to empirically quantify the magnitude of tax-planning activities that takes place. In this paper, we rely on census data from tax return and income statements and balance sheets reported by Swedish manufacturing firms in the 1997-2007 time period to identify possible profit-shifting activities by multinational enterprises. We study systematic differences between multinational and comparable domestic firms in tax payments, profits, earnings before interest and taxes, and equity ratios using difference-in-differences estimations based on propensity score matching. The detailed data allow us to narrow down the empirical focus and investigate not only whether multinational pay less in taxes than domestic firms, but also how tax planning activities may take place through transfer pricing and/or internal debt set-ups.
    Keywords: Firm behavior; Tax planning; Profit shifting
    JEL: F23 H26 L20
    Date: 2016–07–04

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