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on Public Finance |
| By: | Rubolino, Enrico (Uppsala University); Waldenström, Daniel (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We study the link between tax progressivity and top income shares. Using variation from large-scale Western tax reforms in the 1980s and 1990s and the novel synthetic control method, we find large and lasting boosting impacts on top income shares from the progressivity reductions. Effects are largest in the very top groups while earners in the bottom half of the top decile were almost unaffected by the reforms. Cuts in top marginal tax rates account for most of this outcome whereas reduced overall progressivity contributed less. Searching for mechanisms, real income responses as measured by growth in aggregate GDP per capita, registered patents and tax revenues were unaffected by the reforms. By contrast, tax avoidance behavior related to the management of capital incomes in the very income top appears to lie behind the observed effects. |
| Keywords: | Income inequality; Tax policy |
| JEL: | H21 H24 H26 |
| Date: | 2017–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1161&r=pub |
| By: | Rubolino, Enrico (Uppsala University); Waldenström, Daniel (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We compile data spanning the period 1900–2014 and up to 30 countries to study long-run patterns in the tax elasticity of top incomes. Our results show that top tax elasticities vary tremendously over time; they were medium-to-low before 1950, virtually zero during the postwar era up to 1980 and have thereafter increased to unprecedented levels. We document a strong income gradient in tax response within the top, underlining the importance to study even small top groups separately. Several mechanisms are investigated. Tax-driven income shifting between wage and capital income is important in the very top. Wars, financial crises, and country-specific effects and trends have bearing on top elasticities whereas standard macroeconomic factors and indicators of “real responses” do not. |
| Keywords: | Economic history; Income inequality; Taxation |
| JEL: | D31 H21 H24 H26 N40 |
| Date: | 2017–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1160&r=pub |
| By: | Osmundsen, Petter (UiS); Lovas, Kjell; Emhjellen, Magne |
| Abstract: | The recent dramatic fall in oil prices has led to extensive capital rationing in international oil companies, and subsequent fierce competition between resource extraction countries to attract scarce investment. This situation is not adequately addressed by the large literature on international taxation and multinational companies, since it fails to take account of capital rationing in its assumption that companies sanction all projects with a positive net present value. The paper examines the effect of tax design on international capital allocation when companies ration capital. We analyse capital allocation and government take for four equal oil projects in three different fiscal regimes: the US GoM, UK upstream and Norway offshore. Implications for optimal tax design are discussed. |
| Keywords: | Taxation; international companies; project metrics; project valuation; oil projects |
| JEL: | F23 G12 G31 H21 H25 |
| Date: | 2017–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2017_005&r=pub |
| By: | Caroline Freund (Peterson Institute for International Economics); Joseph E. Gagnon (Peterson Institute for International Economics) |
| Abstract: | This paper examines the effects of border-adjusted consumption taxes (mainly value added taxes or VATs) in a sample of 34 advanced economies from 1970 through 2015. We find that the real exchange rate tends to rise by the full amount of any consumption tax increase, with little effect on the current account balance and modest offsetting effects on the trade and income balances. Case studies suggest that adjustment comes initially through prices. We note that the border-adjusted cash flow tax of the House Republicans differs in important ways from consumption taxes used in our study, which raises the possibility of a slower adjustment process with temporarily larger trade effects. |
| Keywords: | VAT, border tax adjustment, exchange rate adjustment, current account adjustment |
| JEL: | F31 F32 H20 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp17-5&r=pub |
| By: | Tsikas, Stefanos A. |
| Abstract: | The "Slippery Slope Framework" hypothesizes that (an individual's) tax compliance is determined by both the tax authority's powerfulness and its trustworthiness, and that the two dimensions moderate each other. By employing a within-country fixed effects analysis for 25 European countries, this paper tests the conjecture that a slippery slope exists also on the aggregate level. Results show that both trust and power are positively correlated with higher tax compliance. Trust and power also moderate each other: the lower trust, the greater the compliance-increasing impact of power. However, the positive effect decreases with increasing coercion. Strong deterrence policies may eventually damage tax compliance. |
| Keywords: | Tax compliance; Slippery Slope Framework; trust; power; institutions |
| JEL: | E62 H26 H30 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-589&r=pub |
| By: | Patrice Ollivaud |
| Abstract: | Indonesia's fiscal position is generally sound and policy making prudent. However, the country still faces important challenges in terms of economic and social development. Infrastructure, education, health and social security are all spending areas that the government is trying to improve further, because the nation has yet to converge to the superior outcomes achieved by other countries at a similar level of development. The government's size is small, and raising more revenues will take time, which forces the authorities to get the most out of existing resources and prioritise enhancing the efficiency of public spending. To achieve such an improvement a whole-of-government approach is required, including in the budgeting process and in the establishment of medium-term goals. A key element of Indonesia's recent history lies in the tremendous efforts as from the late 1990s to go from a very centralised system of governance towards one with several nested levels of government. According to some metrics it was a success. Nonetheless, despite the considerable resources already devoted to decentralisation, there is still ample room for improvement in terms of coordination, transparency, accountability and service provision. More broadly, moving away from spending objectives and adopting performance-based incentives would lift outcomes. At the national level, Indonesia would also benefit from scrapping a certain number of inefficient expenditures, such as energy and fertiliser subsidies, and from concentrating on those policies with the highest payoffs, like filling infrastructure gaps and expanding conditional cash transfer schemes. While public employment, especially by some subnational governments, could be streamlined, improving its capacity should be the focus, including for teachers. The fight against corruption should continue by all available means, in particular with a more generalised use of electronic public procurement. |
| Keywords: | effectiveness, efficiency, government expenditures, public spending |
| JEL: | E61 H11 H50 H70 I18 I28 |
| Date: | 2017–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1381-en&r=pub |