nep-pub New Economics Papers
on Public Finance
Issue of 2017‒10‒22
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxes and the Fed : Theory and Evidence from Equities By Anthony M. Diercks; William Waller
  2. The Role of Corporate Taxes in the Decline of the Startup Rate By Neira, Julian; Singhania, Rish
  3. How Do Entrepreneurial Portfolios Respond to Taxation? By Frank Fossen; Ray Rees; Davud Rostam-Afschar; Viktor Steiner
  4. How Taxing Is Tax Filing? Using Revealed Preferences to Estimate Compliance Costs. By Youssef Benzarti
  5. Public debt, pollution and environmental taxes: Nash and Stackelberg equilibria By Halkos, George; Papageorgiou, George
  6. Public Finance and Right-Wing Populism By Aggeborn, Linuz; Persson, Lovisa
  7. The Taxman calls. How does Facebook answer? Global Effects of Taxation on Online Advertising By Angel Cuevas; Ruben Cuevas; Andrea Lassmann; Federica Liberini; Antonio Russo
  8. "Corporate Tax Incidence in India" By Samiksha Agarwal; Lekha S. Chakraboty
  9. Corporate Effective Tax Rate in Sub-Saharan Africa: Evidence from Formal Companies of Mali By Luisito Bertinelli; Arnaud Bourgain; "Abdoul Karim Diamoutene, University of Social Sciences and Management of Bamako, Mali "

  1. By: Anthony M. Diercks; William Waller
    Abstract: We provide a critical theoretical and empirical analysis that suggests a key driver of fiscal effects on equity markets is the Federal Reserve. For the Post-1980 era, tax cuts lead to higher cash flow news and higher discount rates. The discount rate news tends to dominate such that tax cuts are associated with lower equity returns. This result is flipped for the Pre-1980 era. Our results are confirmed across multiple measures of tax shocks (narrative, SVAR, municipal bonds, etc.) at different frequencies (daily, quarterly, annual). We motivate our empirical findings with a standard New Keynesian model (in addition to the FRB/US model) that exhibits a shift in the aggressiveness of monetary policy. Moreover in our theoretical framework, downward nominal wage rigidities account for observed asymmetries in the response to tax cuts versus tax increases.
    Keywords: Federal Reserve ; Fiscal policy ; News Decomposition ; Stock Market
    JEL: G0 E0 E63 G12 E5
    Date: 2017–10–11
  2. By: Neira, Julian; Singhania, Rish
    Abstract: The business startup rate in the United States has exhibited a large secular decline in recent decades. The reasons behind the decline are not well understood. This paper hypothesizes that the startup rate declined in large part because corporate taxes raised the opportunity cost of entrepreneurship. We formalize this thesis using a model of occupational choice that features firm entry and exit. Quantitatively, the model accounts for much of the decline in the startup rate. Taxes alone account for one-fifth of the decline. Cross-sectoral patterns in US data support our results.
    Keywords: Firm Entry, Startups, Corporate Taxes, Declining Business Dynamism, Occupational Choice
    JEL: D2 E2 E6 H2
    Date: 2017–09–26
  3. By: Frank Fossen; Ray Rees; Davud Rostam-Afschar; Viktor Steiner
    Abstract: We investigate how personal income taxes affect the portfolio share of personal wealth that entrepreneurs invest in their own business. In a reformulation of the standard portfolio choice model that allows for underreporting of private business income to tax authorities, we show that a fall in the tax rate may increase investment in risky entrepreneurial business equity at the intensive margin, but decrease entrepreneurial investment at the extensive margin. To test these hypotheses, we use household survey panel data for Germany eliciting the personal wealth composition in detail in 2002, 2007, and 2012. We analyze the effects of personal income taxes on the portfolio shares of six asset classes of private households, including private business equity. In a system of simultaneous demand equations in first differences, we identify the tax effects by an instrumental variables approach exploiting tax reforms during our observation period. To account for selection into entrepreneurship, we use changes in entry regulation into skilled trades. Estimation results are consistent with the predictions of our theoretical model. An important policy insight is that lower taxes drive out businesses that are viable only due to tax avoidance or evasion, but increase investment in private businesses that are also worthwhile in the absence of taxes.
    Keywords: taxation, entrepreneurship, portfolio choice, investment
    JEL: H24 H25 H26 L26 G11
    Date: 2017
  4. By: Youssef Benzarti
    Abstract: This paper uses a quasi-experimental design and a novel identification strategy to estimate the cost of filing income taxes. First, using US income tax returns, I observe how taxpayers choose between itemizing deductions and claiming the standard deduction. Taxpayers forgo tax savings to avoid compliance costs, which provides a revealed preference estimate of the compliance cost of itemizing. I find that this cost increases with income, consistent with a higher opportunity cost of time for richer house- holds. Second, using my estimates and estimates of the time required to file other schedules, I estimate the cost of filing federal income taxes. I find that this cost has been increasing since the 1980’s and has reached 1.2% of GDP in the most recent years.
    JEL: H24 H31 H83
    Date: 2017–10
  5. By: Halkos, George; Papageorgiou, George
    Abstract: Public debt accumulation and pollution result to disutility while time path must be sustainable. Policy weapons available to the government with regard to public debt is the generation of primary surpluses to sustain public debt while concerning pollution environmental taxation is expected to reduce emissions. In this paper, we address these factors in a simple dynamic game in order to find ways at which the notions of public debt, pollution, and taxation are interrelated. The starting point of the model is the identity of current account as the equation of motion of public debt, while public debt is considering as a stock and the stress of the regulator is to raise the nation’s primary surplus. Nash and Stackelberg differential game solutions are used to explore the strategic interactions. In the Nash equilibrium establishment of cyclical strategies, during the game between the polluters in one hand and the government on the other, requires that the discount rate of the polluters must be greater than government’s discount rate. That is the polluters must be more impatient than the government. In the case of hierarchical setting, the analytical expressions of the strategic variables and the steady state value of public debt stock are provided. Furthermore, we found the analytical expressions of the value functions, making, therefore, the policy implications an easy task. Finally, we found the conditions under which the conflict is more intensive, in the two cases of equilibrium, according to the shadow price of the environmental damages.
    Keywords: Public debt; Pollution; Taxation; Dynamic games; Nash equilibrium; Stackelberg equilibrium.
    JEL: C72 H23 H62 Q52 Q53 Q58
    Date: 2017–10
  6. By: Aggeborn, Linuz (Department of Government); Persson, Lovisa (Research Institute of Industrial Economics (IFN))
    Abstract: We build a public finance model that explains why voters vote for right-wing populists, and also under which conditions established politicians will adopt a right-wing populist policy platform. Voters with lower private income have a stronger demand for basic public services at the expense of spending on a global good; generosity of refugee support systems, foreign aid, and environmental protection. Low income voters are thus more prone to support right-wing populists who oppose spending on such global goods. We conclude that established politicians that are challenged by right-wing populists will implement a policy with no global good spending if the relative cost of the global good is high enough. Additionally, adoption of right-wing populist policy is more likely when the economy is in a recession.
    Keywords: Right-wing populism; Agency; Immigration
    JEL: D70 D72 H39
    Date: 2017–10–05
  7. By: Angel Cuevas (Universidad Carlos III Madrid); Ruben Cuevas (Universidad Carlos III Madrid); Andrea Lassmann (KOF, ETH Zurich); Federica Liberini (KOF, ETH Zurich); Antonio Russo (KOF, ETH Zurich)
    Abstract: We study the effects of the taxation of digital platforms on the online advertising market. We exploit novel data on daily unit prices of Facebook ads targeted to country-specific audiences, collected around a major change in the firm's accounting practices following the introduction of the UK Diverted Profit Tax. We show that a substantial increase in ads prices followed such change, although with heterogeneous intensity across countries. These results are in line with a model of a platform operating in the global advertising market. We show that taxation of profits generated in one country makes the price charged to advertisers from that country (resp. other countries) increase (decrease). Accordingly, we demonstrate that aggregate advertising prices in OECD countries increased more, after the policy change, the larger is the market share of UK-based advertisers.
    Keywords: tax incidence; digital economy; online advertising
    JEL: H22 H25 F16
    Date: 2017–09
  8. By: Samiksha Agarwal; Lekha S. Chakraboty
    Abstract: The paper attempts to measure the incidence of corporate income tax in India under a general equilibrium setting. Using seemingly uncorrelated regression coefficients and dynamic panel estimates, we tried to analyze both the relative burden of corporate tax borne by capital and labor and the efficiency effects of corporate income tax. The data for the study is compiled from corporate firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15. Our empirical estimates suggest that in India capital bears more of the burden of corporate taxes than labor. Though it is contrary to the Harberger (1962) hypothesis that the burden of corporate tax is shifted to labor rather than capital, it confirms the existing empirical results in the context of India.
    Keywords: Corporate Tax; Tax Incidence; Capital; Labor
    JEL: C33 H22 H25
    Date: 2017–10
  9. By: Luisito Bertinelli (CREA, Université du Luxembourg); Arnaud Bourgain (CREA, Université du Luxembourg); "Abdoul Karim Diamoutene, University of Social Sciences and Management of Bamako, Mali " (University of Social Sciences and Management of Bamako, Mali)
    Abstract: This paper analyses the tax burden borne by a large number of Malian companies (3 474) representing the totality of the formal sector of this country. By exploiting individual firm information collected from financial statements and balance sheets, we highlight determinants of effective tax rates such as firm’s size, industry, location or other corporate attributes. Our study is in line with the surge for more transparency in national fiscal practices.
    Keywords: Effective Tax Rate; Corporate income Tax; Taxation in Sub-Saharan Africa; Tax exemption,
    JEL: H25 O17 O55
    Date: 2017

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