nep-pub New Economics Papers
on Public Finance
Issue of 2018‒03‒26
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On the Political Economy of Income Taxation By Berliant, Marcus; Gouveia, Miguel
  2. Tax Simplicity and Heterogeneous Learning By P. Aghion; U. Akcigit; M. Lequien; S. Stantcheva
  3. How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equlibrium Approach By María T. Alvarez-Martínez; Salvador Barrios; Diego d'Andria; Maria Gesualdo; Gaëtan Nicodème; Jonathan Pycroft
  4. Large and Influential: Firm Size and Governments' Corporate Tax Rate Choice By Nadine Riedel; Martin Simmler
  5. Political Alignment, Attitudes Toward Government and Tax Evasion By Julie Berry Cullen; Nicholas Turner; Ebonya Washington
  6. Sustainability and adequacy of the Spanish pension system after the 2013 reform: a microsimulation analysis. By Meritxell Solé; Guadalupe Souto; Concepció Patxot
  7. Revisiting yardstick competition and spillover effects in in the new era of spatial econometrics: evidence from Italian cities By Massimiliano Ferraresi
  8. Forecasting tax revenues in an emerging economy: The case of Albania By Sabaj, Ernil; Kahveci, Mustafa

  1. By: Berliant, Marcus; Gouveia, Miguel
    Abstract: The literatures dealing with voting, optimal income taxation, and implementation are integrated here to address the problem of voting over income taxes. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realizations of the abilities of consumers drawn from a known distribution, but must meet the realization-dependent budget. Even though the space of alternatives is infinite dimensional, conditions on tax requirements such that a majority rule equilibrium exists are found. Finally, conditions are found to assure existence of a majority rule equilibrium when agents vote over both a public good and income taxes to finance it.
    Keywords: Voting; Income taxation; Public good
    JEL: D72 D82 H21 H41
    Date: 2018–02–07
  2. By: P. Aghion; U. Akcigit; M. Lequien; S. Stantcheva
    Abstract: We study how strongly individuals respond to tax simplicity and how they learn about the complexities of the tax system. We use new French tax returns data on the self-employed from 1994 to 2012. France has three fiscal regimes for the self-employed, which differ in their monetary tax incentives and in their tax simplicity. These regimes are subject to eligibility thresholds: we find large excess masses (bunching) right below the latter. The regimes impact different agents heterogeneously and have changed extensively over time. We estimate a large value for tax simplicity of up to 650 euros per year per individual. Tax complexity has sizable costs: agents are not immediately able to understand what the right regime choice is, leave significant money on the table, and learn over time. These costs are “regressive”, impacting more the uneducated, low income, and low skill agents.
    Keywords: Taxation, personal income and business taxes, tax evasion, income elasticity.
    JEL: H21 H24 H25 H26
    Date: 2018
  3. By: María T. Alvarez-Martínez; Salvador Barrios; Diego d'Andria; Maria Gesualdo; Gaëtan Nicodème; Jonathan Pycroft
    Abstract: This paper estimates the size and macroeconomic effects of base erosion and profit shifting (BEPS) using a computable general equilibrium model designed for corporate taxation and multinationals. Our central estimate of the impact of BEPS on corporate tax losses for the EU amounts to €36 billion annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to loose tax revenues respectively of €101 and €24 billion per year or 10.7% of corporate tax revenues in both cases. These estimates are consistent with gaps in bilateral multinationals´ activities reported by creditor and debtor countries using official statistics for the EU. Our results suggest that by increasing the cost of capital, eliminating profit shifting would slightly reduce investment and GDP. It would however raise corporate tax revenues thanks to enhanced domestic production. This in turn could reduce other taxes and increase welfare.
    Keywords: BEPS, corporate taxation, profit shifting, tax avoidance, CGE model
    JEL: C68 E62 H25 H26 H87
    Date: 2018
  4. By: Nadine Riedel; Martin Simmler
    Abstract: Theory suggests that large firms are more likely to engage in lobbying behaviour and are geographically more mobile than smaller entities. Conditional on jurisdiction size, policy choices are thus predicted to depend on the shape of a jurisdiction’s firm size distribution, with more business-oriented policies being enacted if jurisdictions host large firms. The paper empirically tests this prediction using local business taxation in Germany as a testing ground. Exploiting rich and exogenous variation in localities’ firm size structures, we find evidence for an inverse relationship between the size of hosted entities and communities’ local business tax choices. The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies.
    Keywords: firm size, corporation tax, political economy
    JEL: H20 H70
    Date: 2018
  5. By: Julie Berry Cullen; Nicholas Turner; Ebonya 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.
    Keywords: tax evasion, tax morale
    JEL: D72 H24 H26 H30
    Date: 2018
  6. By: Meritxell Solé (Universitat de Barcelona); Guadalupe Souto (Universitat Autònoma de Barcelona); Concepció Patxot (Universitat de Barcelona)
    Abstract: Concerns about the consequences of demographic ageing on the sustainability of the pension system has led to the adoption of reforms reducing pension expenditure. However, the impact of these reforms on pension adequacy is now coming under increasing scrutiny. Taking recent Spanish reform as an example, this paper analyses the extent to which fostering pension sustainability threatens pension adequacy. Using an extension of the DyPeS behavioural microsimulation model, results show that the introduction of mechanisms linking retirement pensions to the evolution of the social security budget balance has strong and negative effects on adequacy. The gains in sustainability are mainly driven by the significant fall in the benefit ratio (average pension to average wage), worsening the relative economic position of pensioners throughout forthcoming decades, reversing the past trend.
    Keywords: Pension adequacy, behavioural microsimulation, pension system reforms, pension sustainability, Spain.
    JEL: H53 H68 H55
    Date: 2018
  7. By: Massimiliano Ferraresi (European Commission, Directorate I)
    Abstract: This paper exploits political features of Italian local governments to identify the presence of spatial interactions in spending decisions over the period 2001-2011. In particular, I take advantage of the political cycle to isolate the effect of spending decisions of one municipality on neighbors’ municipalities. The results of this analysis point to the presence of strategic interaction between neighboring municipalities, and indicate that such a fiscal behavior is more pronounced during electoral years, that is municipalities are engaged in yardstick competition. Moreover, to isolate any other source of spatial interactions from yardstick competition, I rely on a sample of municipalities experiencing a council dismissal, for which the political process is expected to be less marked - as they are led by a commissioner, who does not have any political concern. In this case, I build a measure of intensity of commissioner to induce variation in the spending decisions, finding, however, no evidence of spatial dependencies. Taken together these results suggest that the observed spatial dependence in spending decisions is unlikely to be driven by spillover e?ects, rather, it seems to be consent with the yardstick competition hypothesis.
    Keywords: spatial interactions, yardstick competition, spillover, political budget cycle, commissioner, external instruments
    JEL: H20 H71 H77
    Date: 2018–03
  8. By: Sabaj, Ernil; Kahveci, Mustafa
    Abstract: Fiscal balance is one of the main concerns of fiscal policy. Although academic and political choices on budget deficit vary due to perspective differences, improving the quality of revenue and expenditure forecasting has become prominent. The seminal researches on this topic present that tax revenue forecasts suffer from high positive biases. As tax forecasts have chain implications on the expenditures side as well, this might lead to high unexpected deficits. According to the IMF 2016 country report on Albania, emerging market economies are suffering higher than advanced ones in tax revenue forecasting. The aim of this paper is to implement new forecasting models and to apply forecast combinations for Albania, where forecast errors are higher than average. The estimation results show that influence of internal and external factors on tax revenue forecasting create a significant improvement on tax revenue accuracy. The estimations and forecast combinations of this paper perform lower errors than official forecasts, which indicate that revision of tax forecasting methodology can increase the accuracy of predictions for emerging market economies.
    Keywords: Tax revenue, Forecasting, Combination, Emerging market
    JEL: C52 C53 E27 E6 E62 H68
    Date: 2018–02–07

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