nep-pub New Economics Papers
on Public Finance
Issue of 2018‒03‒19
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax certainty: Proposals for the short term and the long term By Diaz de Sarralde, Santiago; von Haldenwang, Christian; Hentze, Tobias; Monkam, Nara
  2. Progressive taxation and (in)stability in an exogenous growth model with non-market ("home") production By Vasilev, Aleksandar
  3. Optimal capital and labor income taxation in small and developing countries By Avdiu, Besart
  4. Increasing resource rent taxation when the corporate income tax is reduced? By Lund, Diderik
  5. Political Alignment, Attitudes Toward Government and Tax Evasion By Julie Berry Cullen; Nicholas Turner; Ebonya L. Washington
  6. Optimal Redistribution with a Shadow Economy By Pawel Doligalski; Luis E. Rojas
  7. The effect of Double Taxation Treaties and Territorial Tax Systems on Foreign Direct Investment: Evidence for Spain By Castillo-Murciego, Ángela; López Laborda, Julio
  8. Public Tax-Return Disclosure By Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
  9. Tax evasion in Former Yugoslavian countries By Marko Crnogorac; Santiago Lago-Peñas

  1. By: Diaz de Sarralde, Santiago; von Haldenwang, Christian; Hentze, Tobias; Monkam, Nara
    Abstract: Tax certainty aims at the stabilization of expectations of both, taxpayers and governments. Improving tax payer service, easing cooperation channels and clarifying legal framework are strategies already in place to increase tax certainty, even though to different extent depending on the countries level of development. For the short run, concrete measures can be recommended through which international cooperation can contribute to strengthening tax certainty. These measures concern the establishment of enhanced engagement programs, the development of model legislation as a tool for the implementation of international rules and standards, the alignment of bilateral treaties and domestic legislation to international good practices, using the country-by-country-report as an indicator for the adequacy of tax payments and setting up investment incentives. In the long run, a radical change in the international tax scheme is suggested since, amongst others, the current rules do not match with the emerging digital economy. A unitary taxation system might be therefore the appropriate response even if the implementation on an international level is complex.
    Keywords: corporate taxation,international profit shifting,tax certainty
    JEL: H25 H26 O19
    Date: 2018
  2. By: Vasilev, Aleksandar
    Abstract: We show that in a exogenous growth model with non-market ("home") sector calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the economy exhibits equilibrium indeterminacy due to the presence of non-market production. These results are in line with the findings in Benhabib and Farmer (1994, 1996) and Farmer (1999). Also, the findings in this paper are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Under the flat tax regime (2008-16), the economy calibrated to Bulgarian data displays saddle-path stability. The decrease in the average effective tax rate addresses the indeterminacy issue and eliminates the "stable focus" dynamics.
    Keywords: Progressive taxation,Non-market sector,Home production,Equilibrium (In)determinacy
    JEL: O41
    Date: 2018
  3. By: Avdiu, Besart
    Abstract: This paper argues that smaller and poorer countries have lower optimal tax rates on capital and labor income than their larger and richer counterparts. It further provides an alternative explanation for such empirically observed differences in tax rates. The model focuses on a closed economy, but is extended by introducing mobile capital. The difference in tax rates here is efficient and not due to tax competition. For the result, less than perfect competition is necessary. The intuition is that monopolistic markups distort markets in a similar way as taxes. Hence, optimal tax rates are inversely related to markups and I show theoretically that smaller and poorer countries have larger markups. Therefore, these countries have lower optimal tax rates. Since smaller and poorer countries face larger competition distortions, there is less space for tax distortions. Hence, a smaller tax rate itself is insufficient to conclude a country is engaging in tax competition. Empirical analysis of the banking industry also shows that smaller and poorer countries have larger markups.
    Keywords: Optimal Taxation, Monopolistic Competition, Developing Countries, International Fiscal Issues, Tax Competition
    JEL: D43 H21 O23
    Date: 2018–03–01
  4. By: Lund, Diderik (Dept. of Economics, University of Oslo)
    Abstract: Under international tax competition, corporate income tax rates are predicted to decrease, and the tax burden will shift onto immobile factors. This case study considers tax changes that illustrate the predictions for Norway 2012–2018. Petroleum rent was taxed at high rates in 2012, and while corporate income tax rates were reduced in four steps, the marginal tax on rent was kept constant. The four steps are analyzed in light of the tax burden shift predicted by theory, and possible intentions of the government. The tax on petroleum rent has not been increased. Government intentions seem to have been shifting.
    Keywords: rent taxation; tax competition; immobile factors; petroleum; Norway
    JEL: H21 H25 H87 Q30
    Date: 2018–02–15
  5. By: Julie Berry Cullen; Nicholas Turner; Ebonya L. Washington
    Abstract: We ask whether attitudes toward government play a causal role in the evasion of U.S. personal income taxes. We first use individual-level survey data to demonstrate a link between sharing the party of the president and trust in the administration generally and opinions on taxation and spending policy, more specifically. Next, we move to the county level, and measure tax behavior as elections, decided by the voting behavior in swing-states, push voters in partisan counties into and out of alignment with the party of the president. Using IRS data, we find that reported taxable income increases as a county moves into alignment, with the increases concentrated in income sources that are easily evaded, due to lack of third-party reporting. Corroborating the view that evasion falls, potentially suspect EITC claims and audit rates also fall. Our results provide real-world evidence that a positive outlook on government lowers tax evasion.
    JEL: D72 H24 H26 H3
    Date: 2018–02
  6. By: Pawel Doligalski; Luis E. Rojas
    Abstract: We extend the theory of the optimal redistributive taxation to economies with an informal labor market. The optimal tax formula contains two new terms capturing reported income responses of informal workers on an intensive and an extensive margin. Both terms decrease the optimal tax rates. We quantitatively show that this reduction can be substantial, exceeding 30 percentage points, and we document a large welfare gain of up to 6.4% of consumption from following our tax formula rather than the standard formula. We also provide a novel decomposition of the welfare impact of the shadow economy into labor efficiency and redistribution components. In the quantitative model estimated with Colombian data the shadow economy benefits efficiency at the expense of redistribution. As a result, conditional on the optimal tax policy, the presence of the informal sector does not substantially affect social welfare unless social preferences for redistribution are strong.
    Keywords: informal sector, optimal taxation.
    JEL: H21 H26
    Date: 2018–03–13
  7. By: Castillo-Murciego, Ángela; López Laborda, Julio
    Abstract: The present paper evaluates the effect of Double Taxation Treaties and the Territorial Tax System of countries on Spain's inward and outward FDI for the period 1993-2013. Estimations produce a positive and statistically significant effect of Treaties for both samples when using a simple binary variable for measuring the effect of the mere existence of the same. These outcomes keep for old and new Treaties and for the sub-sample of developed partner countries of Spain. However, regarding developing countries, the positive result exists only for the outbound sample. Also for the global samples and the sub-samples of developed countries, there is an additional positive effect on investments for countries applying the Territorial Tax System for taxing foreign income.
    Keywords: Foreign Direct Investment,Double Taxation Treaty,Territorial Tax System,Spain
    JEL: F21 F23 H25 H32 H87
    Date: 2018
  8. By: Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
    Abstract: We investigate the consequences of public disclosure of information from company income tax returns filed in Australia. Supporters of more disclosure argue that increased transparency will improve tax compliance, while opponents argue that it will divulge sensitive information that is, in many cases, misunderstood. Our results show that in Australia large private companies experienced some consumer backlash and, perhaps partly in anticipation, some acted to avoid disclosure. We detect a small increase (decrease) in tax payments for private (public) firms subject to disclosure suggesting differential costs of disclosure across firms. Finally, we find that investors react negatively to anticipated and actual disclosure of tax information, most likely due to anticipated policy backlash rather than consumer backlash or the revelation of negative information about cash flows. These findings are important for both managers and policy makers, as the trend towards increased tax disclosure continues to rise globally.
    JEL: H25 H26 M4
    Date: 2018–02
  9. By: Marko Crnogorac; Santiago Lago-Peñas
    Abstract: This article estimates tax evasion in all Former Yugoslavian countries during the last two decades. The scarcely available fiscal and national accounts data only allow an estimate of tax evasion based on data on the shadow economy. Nevertheless, the contribution of this paper to the existing literature is unique since tax evasion is estimated for the first time for some of the countries. We also estimate evasion of some single taxes. Lastly, we derive implications for the control of tax evasion and observed tax collections.
    Keywords: Tax evasion, Yugoslavia.
    JEL: H26
    Date: 2018–03

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