nep-pub New Economics Papers
on Public Finance
Issue of 2018‒02‒12
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation under Different Concepts of Justness By Robin Jessen; Maria Metzing; Davud Rostam-Afschar
  2. Tax simplicity and heterogeneous learning By Aghion, Philippe; Akcigit, Ufuk; Lequien, Matthieu; Stantcheva, Stefanie
  3. Tax influence on financial structures of M&As By Harendt, Christoph
  4. Welfare Effects of Housing Transaction Taxes By Terviö, Marko; Määttänen, Niku
  5. Social Security: Progressive Benefits but Regressive Outcome? By Monisankar Bishnu; Nick L. Guo; Cagri S Kumru
  6. R&D tax credits and their macroeconomic impact in the EU: an assessment using QUEST III By Miguel Sanchez-Martinez; Cristiana Benedetti-Fasil; Peder Christensen; Nicolas Robledo-Bottcher

  1. By: Robin Jessen; Maria Metzing; Davud Rostam-Afschar
    Abstract: A common assumption in the optimal taxation literature is that the social planner maximizes a welfarist social welfare function with weights decreasing with income. However, high transfer withdrawal rates in many countries imply very low weights for the working poor in practice. We reconcile this puzzle by generalizing the optimal taxation framework by Saez (2002) to allow for alternatives to welfarism. We calculate weights of a social planner’s function as implied by the German tax and transfer system based on the concepts of welfarism, minimum absolute and relative sacrifice, as well as subjective justness. For the latter we use a novel question from the German Socio-Economic Panel. We find that the minimum absolute sacrifice principle is in line with social weights that decline with net income. Absolute subjective justness is roughly in line with decreasing social weights, which is reflected by preferences of men, West Germans, and supporters of the grand coalition parties.
    Keywords: Justness, Optimal Taxation, Income Redistribution, Equal Sacrifice, Inequality, Subjective Preferences
    JEL: D63 D60 H21 H23 I38
    Date: 2017
  2. By: Aghion, Philippe; Akcigit, Ufuk; Lequien, Matthieu; Stantcheva, Stefanie
    Abstract: We study the effects of fiscal incentives for self-employment using new French tax data from 1994 to 2012. France serves as a good quasi-laboratory: It has three fiscal regimes - or modes of taxation - for the self-employed, which differ in their financial payoffs and in their administrative simplicity. These regimes have changed extensively over time - offering the opportunity to study how people learn about them and understand them. We find that the self-employed respond to the tax and administrative notches created by the eligibility thresholds: there is strong bunching right before the eligibility thresholds, which we use to estimate self-employed taxable income elasticities and the value of administrative simplicity. Even a small preference for administrative simplicity could explain the bunching observed. There is a sizable cost of tax complexity; agents are not immediately able to understand what the right regime choice is and there is evidence for costly learning over time. The cost of complexity is regressive because it affects mostly the uneducated, low income, and low skill agents. Agents who can be viewed as more informed and knowledgeable (e.g., the more educated or high-skilled) are more likely to make the correct regime choice and to learn faster
    Keywords: self-employment; taxation; entrepreneurship
    JEL: H21
    Date: 2017–11–01
  3. By: Harendt, Christoph
    Abstract: In this paper, I investigate the influence of tax incentives on the financial structures of mergers and acquisitions (M&A) conducted by multinational entities (MNE). Previous research has already found evidence for tax avoidance by debt shifting. I analyze the importance of locating debt at holdings which own the operating firm. Placing debt at the level of the holding is more advantageous since it allows inter alia for debt financing up to the purchase price. Accordingly, by using firm-level data provided by the German Central Bank I show empirically that the probability that a firm is held by a holding in the same country increases with the tax rate in that country (though the effect is rather small). As a limitation, I find this effect only for a sample of all firms and no additional effect in case of M&As (denoted as M&A firms). Since this way of debt financing requires that interest payments of holdings are used to offset profits of the operating firms, I consolidate financial structures of holdings and the operating firms. I discuss theoretically and show with descriptive statistics that this consolidation - the major contribution of my paper - leads to a higher total debt ratio compared to the unconsolidated case. However, this effect can only be observed in particular for the subsample of those M&A firms which actually belong to such structures of holdings and operating firms and does not lead to an increase of the debt ratio in the sample of all M&A firms. Finally, I show that the tax sensitivity of external debt financing increases with the consolidation (though again with no additional effect in case of M&A firms). I conclude that those findings may be one explanation why previous studies have found relatively low effects of taxes on debt financing.
    Keywords: Corporate Taxation,Multinational Firms,Foreign Direct Investment,Capital structure,Mergers and acquisitions,Empirical Analysis,Firm-level data
    JEL: F23 G32 G34 H25 H26 H32
    Date: 2018
  4. By: Terviö, Marko; Määttänen, Niku
    Abstract: We evaluate the welfare cost of ad valorem housing transaction taxes, focusing on distortions in the suboptimal matching of houses and households as the channel of welfare effects. We present a one-sided assignment model with transaction costs and imperfectly transferable utility where households are heterogeneous by incomes, houses are heterogeneous by quality, and housing is a normal good. We calibrate the model with data from the Helsinki metropolitan region to assess the welfare impact of a counterfactual tax reform, where the transaction tax is replaced by a revenue equivalent ad valorem property tax. The aggregate welfare gain would be 13% of the tax revenue at the current 2% tax rate. The share of ex post losers from the reform is increasing in the tax rate even though the aggregate welfare cost of transaction taxation increases rapidly with the tax rate, with the Laffer curve peaking at about 10%.
    Keywords: transaction tax; stamp duty; housing market; assignment models
    JEL: D31 R21
    Date: 2017–12
  5. By: Monisankar Bishnu; Nick L. Guo; Cagri S Kumru
    Abstract: In this paper, we study under what conditions a Pay As You Go (PAYG) type social security program can have regressive outcomes even though the benefits of this program are designed to be progressive. Since a PAYG social security program collects payroll taxes whenever agents are working, and it pays retirement benefits as long as retirees are alive, each individual's well being depends on how long they contribute to and receive payments from this program as well as how much. Empirical evidence suggests that agents who have low income tend to start working earlier and have shorter longevity than those with middle or high income. Implications of the low income groups' shorter mortality are examined both analytically and quantitatively in this paper. We find the conditions under which a PAYG social security program may have a regressive outcome in a simple two period partial equilibrium model. Afterwards, we created a large scale quantitative OLG model calibrated to the US economy to compare aggregate and welfare implications of the US type PAYG, a no progressive PAYG, and a means tested pension program. Our results indicate that incorporating differential mortality into account change the welfare implications.
    JEL: E21 E43 G11
    Date: 2017–12
  6. By: Miguel Sanchez-Martinez (European Commission - JRC); Cristiana Benedetti-Fasil (European Commission – JRC); Peder Christensen (European Commission - JRC); Nicolas Robledo-Bottcher (European Commission - JRC)
    Abstract: R&D tax credits are currently used by 25 Member States as a means to stimulate R&D investment and, ultimately, economic growth and employment. This paper is a first attempt to provide an in-depth analysis of the structural economic factors that, other things equal, affect or condition the potential macroeconomic impacts of expanding (or start implementing) R&D tax credit schemes. The analysis is based on the European Commission's QUEST III semi-endogenous growth model. Our main conclusion is that, while the short and medium-term impacts of increased R&D tax credits on Member States' GDP and other macroeconomic aggregates are overall significantly positive, there remains space to substantially improve the cost-effectiveness of these policies.
    Keywords: R&D tax credits, innovation, economic growth, macroeconomic modelling
    Date: 2017–12

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