nep-pub New Economics Papers
on Public Finance
Issue of 2017‒02‒19
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Nudge and Tax in an Environmental Public Goods Experiment: Does Environmental Sensitivity Matter? By Kene Boun My; Benjamin Ouvrard
  2. Design of optimal corrective taxes in the alcohol market By Griffith, Rachel; O'Connell, Martin; Smith, Kate
  3. International differences in corporate taxation, foreign direct investment and tax revenue By Øystein Bieltvedt Skeie
  4. Anti-avoidance rules against international tax planning: A classification By Åsa Johansson; Øystein Bieltvedt Skeie; Stéphane Sorbe
  5. Debt and tax planning by multinationals By Stéphane Sorbe; Åsa Johansson; Øystein Bieltvedt Skeie
  6. International tax planning and fixed investment By Stéphane Sorbe; Åsa Johansson
  7. CBO’s 2016 Long-Term Projections for Social Security: Additional Information By Congressional Budget Office
  8. The Intergenerational Causal Effect of Tax Evasion: Evidence from the Commuter Tax Allowance in Austria By Frimmel, Wolfgang; Halla, Martin; Paetzold, Jörg
  9. Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries By Nora Lustig

  1. By: Kene Boun My; Benjamin Ouvrard
    Abstract: We provide an experimental test of the theoretical predictions obtained in Ouvrard and Spaeter (2016). A public goods experiment is proposed in which the subjects can contribute to reduce the level of pollution, which is stochastic. A nudge (announcement of the socially optimal contribution) and a tax are implemented to improve the level of contributions. The environmental sensitivity and optimism of the subjects are also elicited. Our first result shows that the implementation of the nudge does not perform as well as the implementation of the tax. The reaction to the nudge depends directly on individuals’ environmental sensitivity, contrary to the reaction to the tax. Secondly, the nudge performs well with highly sensitive subjects only during the first half of its implementation. Lastly, the efficiency analysis shows that the implementation of the nudge significantly decreases the groups’ welfare for the least sensitive subjects, in comparison to the baseline. In sum, these results tend to corroborate the predictions obtained in Ouvrard and Spaeter (2016).
    Keywords: incentives, nudge, environmental sensitivity, optimism, tax.
    JEL: C91 H41 Q58
    Date: 2017
  2. By: Griffith, Rachel; O'Connell, Martin; Smith, Kate
    Abstract: Alcohol consumption is associated with costs to society due to its impact on crime and health. Tax can lead consumers to internalise these externalities. We study optimal corrective taxation in the alcohol market. We allow for the fact that the externality generating commodity (ethanol) is available in many differentiated products, over which consumers might have heterogeneous preferences, and that there may also be heterogeneity in marginal externalities across consumers. We show that, if there is correlation in preferences and marginal externalities, setting different tax rates across products can improve welfare relative to a single tax rate on ethanol. We estimate a model of demand in the UK alcohol market and numerically solve for the optimal tax rates. Moving to an optimal system that taxes alcohol types at different rates would close half of the welfare gap between the current UK system and the first best.
    Keywords: Alcohol; corrective taxes; externality
    JEL: D12 D62 H21 H23
    Date: 2017–02
  3. By: Øystein Bieltvedt Skeie
    Abstract: This paper assesses the redistribution of foreign direct investments (FDI) and tax revenues among countries due to multinationals’ response to international differences in corporate tax systems. The paper briefly reviews the literature on the tax sensitivity of FDI and uses a consensus estimate of this sensitivity in combination with bilateral FDI data to compute hypothetical bilateral FDI positions in the absence of tax rate differences. In a second step, tax revenue effects are estimated by assuming a conventional rate of return on investment. For most OECD countries, the effects of tax rate differentials on FDI positions range between -15% and 15% of current FDI positions. The calculated effects of taxes on FDI reflect real investments as well as tax planning behaviours and the methodology cannot distinguish between these two channels. The methodology only captures part of the tax planning activities of multinationals, since some of these activities are not reflected in the size of the FDI positions. Différences internationales de fiscalité des entreprises, investissements directs à l'étranger et recettes fiscales Ce document évalue la redistribution des investissements directs étrangers (IDE) et des recettes fiscales entre les pays en raison de la réponse des multinationales aux différences internationales entre les systèmes d'imposition des sociétés. Le document examine brièvement la littérature sur la sensibilité des IDE à la fiscalité et utilise une estimation du consensus de cette sensibilité en combinaison avec des données d'IDE bilatéraux pour calculer les positions d'IDE bilatéraux hypothétiques en l'absence de différences de taux d'imposition. Dans un deuxième temps, les effets sur les recettes fiscales sont estimés en supposant un taux conventionnel de retour sur investissement. Pour la plupart des pays de l'OCDE, les effets des écarts de taux d'imposition sur les stocks d'IDE se situent entre -15% et 15% des stocks d'IDE effectifs. Les effets calculés de la fiscalité sur les IDE reflètent des investissements réels ainsi que les comportements de planification fiscale et la méthodologie ne permet pas de distinguer entre ces deux canaux. La méthodologie ne capte qu'une partie des activités de planification fiscale des multinationales, puisque certaines de ces activités ne sont pas reflétées dans la taille des stocks d'IDE.
    Keywords: corporate tax, foreign direct investment, multinational tax planning
    JEL: F21 F23 H25 H26
    Date: 2017–02–16
  4. By: Åsa Johansson; Øystein Bieltvedt Skeie; Stéphane Sorbe
    Abstract: This paper describes the main anti-avoidance rules against international tax planning by multinational enterprises in OECD and G20 countries. Building on this information and on previous classification efforts in the literature, a new classification of anti-avoidance strength is compiled. It takes into account five key dimensions of anti-avoidance: (i) transfer price rules and documentation requirements; (ii) rules on interest deductibility such as thin capitalisation and interest-to-earnings rules to prevent the manipulation of debt location; (iii) controlled foreign company (CFC) rules; (iv) general anti-avoidance rules (GAARs); and (v) withholding taxes on interest payments, royalties and dividends, taking into account bilateral tax treaties. The classification is based on a simple framework aiming to capture the main features of anti-avoidance rules in a harmonised way across countries, although it inevitably leaves aside certain country-specific characteristics as well as the enforcement of existing rules. The empirical analysis in Johansson et al., (2016), which is based on this classification, suggests that strong anti-avoidance rules can reduce profit shifting. Règles anti-évitement contre la planification fiscale internationale : une classification Ce document décrit les principales règles anti-évitement contre la planification fiscale internationale par les entreprises multinationales dans les pays de l'OCDE et du G20. En s’appuyant sur cette description et sur les efforts de classification précédents dans la littérature, une nouvelle classification de la force des règles anti-évitement est compilée. Elle prend en compte cinq dimensions clés de l'anti-évitement: (i) les règles de prix de transfert et les exigences en matière de documentation ; (ii) les règles sur la déductibilité des intérêts pour empêcher la manipulation de l'emplacement de la dette, telles que les règles relatives à la sous-capitalisation ou portant sur les ratios intérêt-bénéfice ; (iii) les règles CFC sur les sociétés étrangères contrôlées ; (iv) les règles générales anti-évitement (GAAR) ; et (v) les impôts retenus à la source sur les paiements transnationaux d'intérêts, de redevances et de dividendes, en tenant compte des conventions fiscales bilatérales. Le classement est basé sur un cadre simple visant à capturer les principales caractéristiques des règles anti-évitement d'une manière harmonisée dans tous les pays, même si elle laisse inévitablement de côté certaines caractéristiques propres à chaque pays, ainsi que l'application des règles existantes. L'analyse empirique de Johansson et al., (2016), qui est basée sur cette classification, suggère que des règles anti-évitement fortes peuvent réduire les transferts de bénéfices des entreprises multinationales.
    Keywords: anti-avoidance rules, international tax planning
    JEL: F23 H26 K34
    Date: 2017–02–16
  5. By: Stéphane Sorbe; Åsa Johansson; Øystein Bieltvedt Skeie
    Abstract: Multinational enterprises (MNEs) manipulate the location of their debts to reduce their corporate tax burden. Indeed, by locating debts in higher-tax rate countries, MNEs can deduct interest payments against a higher tax rate. This paper provides evidence of such manipulation of debt location. The analysis is based on a large sample of firm-level data from the ORBIS database. By comparing the indebtedness of MNE entities with similar characteristics but different debt shifting opportunities, the analysis suggests that a 1 percentage point higher tax rate is associated with 1.3% higher third-party debt. This is a lower bound estimate of debt manipulation, since it excludes the manipulation of internal debt. The analysis also shows that strict rules limiting interest deductibility (e.g. thin capitalisation or interest-to-earnings rules) can reduce debt manipulation. The possibility to locate debts in higher-tax rate countries reduces the effective cost of debt for MNE groups. The empirical analysis suggests that this can lead MNE groups to increase their overall external indebtedness, compounding the “debt bias” existing in most tax systems. Dette et planification fiscale des multinationales Les entreprises multinationales manipulent l'emplacement de leurs dettes pour réduire le montant de leur impôt sur les sociétés. En effet, en plaçant des dettes dans les pays à taux élevé d'impôt, les entreprises multinationales peuvent déduire les paiements d'intérêts contre un taux d'imposition plus élevé. Ce document fournit la preuve d'une telle manipulation de l'emplacement de la dette. L'analyse est basée sur un large échantillon de données d’entreprises de la base de données ORBIS. En comparant l'endettement des entités multinationales ayant des caractéristiques similaires mais différentes possibilités de manipuler l’emplacement leur dette, l'analyse suggère qu’un taux d'imposition de 1 point de pourcentage plus élevé est associé à une dette externe accrue de 1,3%. Ceci est une estimation de la limite inférieure de l’ampleur de la manipulation de la dette, car elle exclut la manipulation de la dette interne. L'analyse montre également que les règles strictes limitant la déductibilité des intérêts (par exemple des règles relatives à la sous-capitalisation ou de règles sur les ratios intérêts-bénéfices) peuvent réduire la manipulation de la dette. La possibilité de localiser les dettes dans les pays à taux d'imposition élevé réduit le coût effectif de la dette pour les groupes multinationaux. L'analyse empirique suggère que cela peut entraîner des groupes multinationaux à augmenter leur endettement global externe, ce qui aggrave le biais en faveur du financement par la dette existant dans la plupart des systèmes fiscaux.
    Keywords: capital structure, debt bias, interest-to-earnings, multinational tax planning, thin capitalisation rules
    JEL: G32 H25 H26
    Date: 2017–02–16
  6. By: Stéphane Sorbe; Åsa Johansson
    Abstract: This paper assesses how international tax planning affects real business investment by multinationals. Earlier studies have shown that corporate taxes reduce business investment. This paper shows that tax planning multinationals are less sensitive to corporate taxes than other firms in their investment decisions. This is presumably because tax planning multinationals do not face the full tax burden associated with their investments, since they shift part of the resulting profits to lower-tax rate countries. On average across industries, a 5 percentage point corporate tax rate increase is found to reduce investment by 5% in the long term. In industries with a strong presence of multinationals with profit-shifting opportunities, this effect is halved. These results obtained with industry-level data are confirmed by a firm-level analysis. Consistently with these results, the investment of tax planning multinationals is found to be more sensitive to taxes when strong rules against tax planning are in place. Planification fiscale internationale et investissement des entreprises Cet article évalue comment la planification fiscale internationale affecte l'investissement réel des entreprises multinationales. Des études antérieures ont montré que l’impôt sur les sociétés réduit l’investissement des entreprises. Cet article montre que les multinationales engagées dans la planification fiscale sont moins sensibles à l’impôt sur les sociétés que les autres entreprises dans leurs décisions d'investissement. C’est sans doute parce que les multinationales engagés dans la planification fiscale ne sont pas confrontées à la charge fiscale totale associée à leurs investissements, car elles transfèrent une partie des bénéfices qui en résultent dans des pays à taux d'imposition plus faible. En moyenne dans les différents secteurs, une augmentation du taux d'imposition des sociétés de 5 points de pourcentage réduirait l'investissement de 5% sur le long terme. Dans les secteurs avec une forte présence des multinationales avec des opportunités de transferts de bénéfices, cet effet est réduit de moitié. Ces résultats obtenus avec des données au niveau sectoriel sont confirmés par une analyse au niveau de l'entreprise. En cohérence avec ces résultats, l'investissement des multinationales engagées dans la planification fiscale serait plus sensible aux taxes lorsque des règles strictes contre la planification fiscale sont en place.
    Keywords: anti-avoidance rules, corporate tax, investment, multinational tax planning
    JEL: E22 F23 H26
    Date: 2017–02–16
  7. By: Congressional Budget Office
    Abstract: This report presents additional information about CBO’s long-term projections for Social Security’s revenues and outlays and its analysis of benefits and payroll taxes for recipients grouped by birth year and lifetime earnings. Under current law, CBO projects, Social Security’s trust funds, considered together, will be exhausted in 2029, and shortfalls will be larger than CBO projected in last year’s edition of this report.
    JEL: H55 H60 H68 J26
    Date: 2016–12–21
  8. By: Frimmel, Wolfgang (University of Linz); Halla, Martin (University of Innsbruck); Paetzold, Jörg (University of Salzburg)
    Abstract: Does tax evasion run in the family? To answer this question, we study the case of the commuter tax allowance in Austria. This allowance is designed as a step function of the distance between the residence and the workplace, creating sharp discontinuities at each bracket threshold. The distance to these brackets is a strong determinant of compliance since it corresponds to the probability of detection. The match of different administrative data sources allows us to observe actual compliance behavior at the individual level across two generations. To identify the intergenerational causal effect in tax evasion behavior, we use the paternal distance-to-bracket as an instrumental variable for paternal compliance. We find that paternal noncompliance increases children's non-compliance by about 20 percent.
    Keywords: tax evasion, tax morale, intergenerational correlation, intergenerational causal effect
    JEL: H26 A13 H24 J62 D14
    Date: 2017–01
  9. By: Nora Lustig (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQI).)
    Abstract: Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing but not always propoor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.
    Keywords: Fiscal incidence, social spending, inequality, poverty, developing countries
    JEL: H22 H5 D31 I3
    Date: 2017–01

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