nep-pub New Economics Papers
on Public Finance
Issue of 2018‒04‒02
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Experimental Evidence on Tax Salience and Tax Incidence By Morone, Andrea; Nemore, Francesco; Nuzzo, Simone
  2. Tax Evasion and Inequality By Alstadsaeter, Annette; Johannesen, Niels; Zucman, Gabriel
  3. Behavioral Effects of Withholding Taxes on Labor Supply By Johannes Becker; Jonas Fooken; Melanie Steinhoff
  4. The tax tectonics: Well-being and wealth inequality in relation to a shift in the tax mix from direct to indirect taxes By Wijtvliet, Laurens
  5. An age-differentiated tax on bequests By PESTIEAU Pierre; PONTHIERE Gregory
  6. Optimal Mixed Taxation, Credit Constraints and the Timing of Income Tax Reporting By Robin Boadway; Jean-Denis Garon; Louis Perrault
  7. Transfer Pricing and Partial Tax Harmonization By Wolfgang Eggert; Gideon Goerdt; Sebastian Felix Heitzmann
  8. A Viable International Tax-Order for Cross-Border Pensions By Bernd Genser
  9. A Review of U.S. Federal and State Means-Tested Programs By Robert Moffitt
  10. Boosting taxes for boasting about houses? Status concerns in the housing market By Schünemann, Johannes; Trimborn, Timo
  11. Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts By Niels Johannesen; Patrick Langetieg; Daniel Reck; Max Risch; Joel Slemrod
  12. Labour tax reforms, cross-country coordination and the monetary policy stance in the euro area: a structural model-based approach By Jacquinot, Pascal; Lozej, Matija; Pisani, Massimiliano
  13. Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark By Katrine Jakobsen; Kristian Jakobsen; Henrik Kleven; Gabriel Zucman
  14. The Dynamic Effects of Computerized VAT Invoices on Chinese Manufacturing Firms By Fan, Haichao; Liu, Yu; Qian, Nancy; Wen, Jaya

  1. By: Morone, Andrea; Nemore, Francesco; Nuzzo, Simone
    Abstract: While a basic theoretical principle in public economics assumes that individuals optimize fully with respect to the introduction of a tax, a growing body of research is proving that several heuristics are in place when people take decisions. We re-examine the well-known Liability Side Equivalence principle in the light of the concept of salience. While these two topics have been extensively investigated in isolation, this paper innovates on the previous literature in that it focuses on their joint effects. Is tax incidence dependent on whether the subjects face a salient rather than a non-salient tax? Does the salience of a tax exert a different effect depending on who is legally committed to bear the tax burden? We address these questions through a laboratory experiment in which one unit of a fictitious good is being traded through a double-auction market institution. Based on a panel data analysis, our contribution shows that point of collection matter and determine the economic incidence of tax. Additionally we found that the joint effect of salience and statutory incidence does not alter the informative efficiency, but has a positive effect on buyers’ allocational efficiency when the tax is levied on sellers.
    Keywords: Tax incidence, Tax salience, Liability Side Equivalence, choice behaviour, laboratory.
    JEL: C91 D41 D44 H22
    Date: 2018–03–07
  2. By: Alstadsaeter, Annette; Johannesen, Niels; Zucman, Gabriel
    Abstract: This paper estimates the size and distribution of tax evasion. We combine random audits, tax amnesties, and leaks from offshore financial institutions matched to wealth records in Scandinavia. Tax evasion rises sharply with wealth: 3% of personal taxes are evaded on average, versus 25%–30% in the top 0.01% of the wealth distribution. A model of the supply of evasion services can explain this gradient. Taking tax evasion into account increases inequality substantially. After using tax amnesties, evaders do not seem to increase legal tax avoidance, suggesting that fighting evasion can allow governments to collect more taxes from the wealthy.
    Date: 2018–03
  3. By: Johannes Becker (University of Muenster); Jonas Fooken (School of Economics, The University of Queensland); Melanie Steinhoff (University of Muenster)
    Abstract: Income tax collection in most advanced economies uses third-party reporting and withholding at the employer level before the employee receives her wage income. Since withholding taxes do not necessarily reflect the true effective tax burden, they may give false signals on the net-of-tax pay. We report results of laboratory experiments in which labor supply effects of such misperceptions are tested. Withholding taxes (and resulting tax refunds) should be behaviorally neutral in the experiment, but our results suggest that withholding taxes reduce effort and tax adjustments lead to adjustments of effort for our most relevant group of participants, those motivated by monetary incentives. This indicates that withholding taxes may be behaviorally relevant and deserve attention of policy-makers
    Keywords: Withholding taxes; experiment; tax perceptions
    JEL: H25 M41 G32
    Date: 2018–03–07
  4. By: Wijtvliet, Laurens (Tilburg University, School of Economics and Management)
    Abstract: Indirect taxes are on the rise – both in terms of geographical spread and fiscal importance – at the expense of the proportion of direct taxes. This shift from direct to indirect taxes (tax shift) is primarily driven by a desire to boost economic growth (GDP) and job creation. At the same time, scholars and supranational bodies are increasingly arguing that economic policy should not solely be directed at economic growth, but at more-encompassing, multidimensional well-being. This study confronts both bodies of thought. It examines how the tax shift can be consonant with the general goal of promoting well-being that is paramount in many countries. It does so by assessing the tax shift’s impact on the distribution of wealth and identifying various well-being-related tendencies that this changing distribution could potentially entail.
    Date: 2018
  5. By: PESTIEAU Pierre (Université de Liège, CORE and Paris School of Economics); PONTHIERE Gregory (Université Paris 12, Paris School of Economics and Institut universitaire de France)
    Abstract: Although fiscal systems around the world tax bequests at rates that do not explicitly depend on the age of the deceased, there exist several theoretical reasons to use that observable characteristic to differentiate the tax rate on bequests. This paper presents four arguments supporting an age-differentiated tax on bequests, that is, a tax rate on bequests that is varying with the age of the deceased. A first argument, which relies on the standard utilitarian criterion, supports a tax rate decreasing with the age of the deceased on the grounds that, as age increases, the accidental (inelastic) component of bequests declines, making taxation less desirable on efficiency grounds. However, three other arguments - avoiding influence of the tax on testamentary dispositions, compensating the unlucky short-lived and redistributing towards orphans in need - all support a tax rate on bequests increasing with the age of the deceased.
    Keywords: bequest, taxation, age discrimination, mortality
    JEL: H21 H23
    Date: 2018–03–12
  6. By: Robin Boadway; Jean-Denis Garon; Louis Perrault
    Abstract: We study optimal income and commodity tax policy with credit-constrained low-income households. Workers are assumed to receive an even ow of income during the tax year, but make tax payments or receive transfers at the end of the year. They use their disposable income to purchase multiple commodities over the year. We show that differentiated subsidies on commodities can be optimal even if the Atkinson-Stiglitz Theorem conditions apply. When the optimal policy leaves low-income households with binding credit constraints, it is optimal to subsidize the good that is consumed in higher proportion by them. We show that this involves subsidizing more goods that fulfill basic needs, such as food or dwelling. The benefits of such subsidies have to be balanced with the costs of financing them, since unconstrained households also benefit from the rebate early in the fiscal year.
    Keywords: commodity taxation, optimal taxation, credit constraints
    Date: 2018
  7. By: Wolfgang Eggert; Gideon Goerdt; Sebastian Felix Heitzmann
    Abstract: This paper investigates regulation on corporate income taxation with multinationals and transfer pricing. We recommend full cooperation within the EU if profit shifting costs are sufficiently low and cannot be influenced to a large extend. Otherwise, high profit shifting costs or the potential to significantly influence them imply that partial cooperation is beneficial for all member states.
    Keywords: tax harmonization, transfer pricing, multinational, profit shifting
    JEL: F21 H21 H26
    Date: 2018
  8. By: Bernd Genser (Professor of Economics, University of Konstanz; Professor of Economics and Fellow of the Austrian Academy of Sciences (Vienna))
    Abstract: There is strong evidence that the existing pattern of cross-border pension taxation in OECD countries and beyond is extremely diverse and inconsistent and thus generates a double equity dilemma for individuals and countries alike. We argue that this dilemma cannot be solved within the current double-taxation treaty network and therefore propose a new conceptual framework for the taxation of old-age pensions in a world of high and increasing cross-border mobility of workers and pensioners. We demonstrate that a coordinated move to a front-loaded pension tax system and exclusive source taxation would pave the way for an international pension tax order which eliminates the double equity dilemma. As an additional innovative element of front-loaded pension taxation we discuss the decoupling of individual tax assessment and tax payment which may prove helpful by smoothing transitional effects when the front-loaded pension tax system is introduced.
    Keywords: International Tax-Order; Cross-Border Pensions
    Date: 2018–03–01
  9. By: Robert Moffitt (Johns Hopkins University)
    Abstract: This report presents a review of the major U.S. federal and state means-tested programs, including a review of how they operate, common features, and rules governing eligibility. The review covers the nature of the target recipient population, the nature of the benefits (cash or in-kind), whether the program is an entitlement, as well as financial and nonfinancial eligibility rules and benefit determination. Each of the features is compared to that of the Supplemental Security Income (SSI) program. The review reveals that SSI has many common features with other transfer programs, and that many other differences follow naturally from its particular goals and aims. However, large differences between SSI and other programs exist in financial eligibility rules. The current upper income limits for SSI are in the approximate range of 75 to 80 percent of the poverty line for single and married-couple recipients, respectively, below the 100- to 130-percent of the poverty line income limits for Supplemental Nutrition Assistance Program (SNAP), the 130- to 185-percent limits for school food programs, the 185 percent limits for Women, Infants, and Children (WIC), the 138-percent limits for Medicaid, and the 100-percent limits for Workforce Innovation and Opportunity Act (WIOA). Another significant difference is in resource and asset tests in SSI, which have been held constant in nominal dollars since 1989 and hence have been becoming more restrictive in real terms over time. Most other transfer programs have been moving in the opposite direction, reducing the restrictiveness of their asset tests, exempting additional items from countable assets, and in many cases eliminating asset tests entirely.
    Date: 2018–02
  10. By: Schünemann, Johannes; Trimborn, Timo
    Abstract: There is empirical evidence that households use residential houses as status goods. In particular, people are shown to compare their houses with those at the top of the distribution. In this paper, we introduce a residential housing sector and status concerns for housing into a neoclassical model with heterogeneous agents. We find that status concerns exert a negative externality and calculate a progressive Pigovian tax schedule that corrects for the externality, implying a housing tax for rich households of 4.6%. Implementing the tax schedule is associated with a sizable welfare gain. We also find that when the utilitarian social planner is constrained to housing taxes, Pigovian taxation is not constrained efficient. Further increasing the tax for rich households to 7.9% would maximize welfare in the constrained optimum.
    Keywords: Status Concerns,Residential Housing,Pigovian Tax,Constrained Efficiency
    JEL: O10 D10 H21 R31
    Date: 2018
  11. By: Niels Johannesen; Patrick Langetieg; Daniel Reck; Max Risch; Joel Slemrod
    Abstract: In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of the enforcement efforts on taxpayers’ reporting of offshore accounts and income. Enforcement caused approximately 60,000 individuals to disclose offshore accounts with a combined value of around $120 billion. Most disclosures happened outside offshore voluntary disclosure programs by individuals who never admitted prior noncompliance. The disclosed accounts were concentrated in countries whose institutions facilitate tax evasion. The enforcement-driven disclosures increased annual reported capital income by $2.5-$4 billion corresponding to $0.7-$1.0 billion in additional tax revenue.
    JEL: H24 H26
    Date: 2018–03
  12. By: Jacquinot, Pascal; Lozej, Matija; Pisani, Massimiliano
    Abstract: We evaluate the effects of permanently reducing labour tax rates in the euro area (EA) by simulating a large-scale open economy dynamic general equilibrium model. The model features the EA as a monetary union, split in two regions (Home and the rest of the EA - REA), the US, and the rest of the world, region-specific labour markets with search and matching frictions, and public employment. Our results are as follows. First, a permanent reduction in labour tax rates in the Home region would have stimulating effects on domestic economic activity and employment. Second, reducing labour tax rates simultaneously in both Home and REA would have additional expansionary effects on the Home region. Third, in the short run the expansionary effects on the EA economy of a EA-wide tax reduction are enhanced if the EA monetary policy is accommodative. JEL Classification: E24, E32, E52, E62, F45
    Keywords: DSGE models, labour taxes, monetary union, open-economy macroeconomics, unemployment
    Date: 2018–02
  13. By: Katrine Jakobsen; Kristian Jakobsen; Henrik Kleven; Gabriel Zucman
    Abstract: Using administrative wealth records from Denmark, we study the effects of wealth taxes on wealth accumulation. Denmark used to impose one of the world’s highest marginal tax rates on wealth, but this tax was drastically reduced and ultimately abolished between 1989 and 1997. Due to the specific design of the wealth tax, these changes provide a compelling quasi-experiment for understanding behavioral responses among the wealthiest segments of the population. We find clear reduced-form effects of wealth taxes in the short and medium run, with larger effects on the very wealthy than on the moderately wealthy. We develop a simple lifecycle model with utility of residual wealth (bequests) allowing us to interpret the evidence in terms of structural primitives. We calibrate the model to the quasi-experimental moments and simulate the model forward to estimate the long-run effect of wealth taxes on wealth accumulation. Our simulations show that the long-run elasticity of wealth with respect to the net-of-tax return is sizeable at the top of distribution. Our paper provides the type of evidence needed to assess optimal capital taxation.
    JEL: E2 E6 H2 H3
    Date: 2018–03
  14. By: Fan, Haichao; Liu, Yu; Qian, Nancy; Wen, Jaya
    Abstract: This paper uses a balanced panel of large manufacturing firms to study the dynamic effects of computerizing VAT invoices on tax revenues and firm behavior in China, 1998-2007. We find that computerization explains 10.8% of cumulative VAT revenues and increases the effective average tax rate by approximately 9-12% in the seven subsequent years. The evidence suggests that the effects of computerization change over time: tax revenue gains are likely to be smaller in the long run. Meanwhile, firms reduce output and input, and increase productivity monotonically over time.
    Keywords: economic development; Firm Growth; state capacity; taxation; technology
    JEL: H25 H26 O12
    Date: 2018–03

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