nep-pub New Economics Papers
on Public Finance
Issue of 2018‒05‒14
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Corporate Social Responsibility and Environmental Taxation with Endogenous Entry By Xu, Lili; Lee, Sang-Ho
  2. The Elasticity of Taxable Income in the Presence of Intertemporal Income Shifting By Aspen Gorry; R. Glenn Hubbard; Aparna Mathur
  3. How to calibrate fiscal rules : a primer By Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
  4. Financial Policy By Dirk Niepelt
  5. Tax Evasion and Financial Development under Asymmetric Information in Credit Markets By Jang-Ting Guo; Fu-Sheng Hung
  6. Dynamic Tax Externalities and the U.S. Fiscal Transformation in the 1930s By Dirk Niepelt
  7. When do developing countries negotiate away their corporate tax base? By Hearson, Martin
  8. The Elasticity of Corporate Income: Panel Data Evidence from Switzerland By David Staubli

  1. By: Xu, Lili; Lee, Sang-Ho
    Abstract: This study considers Corporate Social Responsibility (CSR) in Cournot markets with endogenous entry and investigates the effects of CSR on environmental taxation and welfare consequences. We show that the optimal tax under free entry is higher than that under blockaded entry and also higher than marginal environmental damage. We then show that a higher taxation is socially excessive from the viewpoint of socially optimal CSR, which requires an appropriate regulatory framework for CSR promotion. Finally, we show that the environment is less damaged but social welfare deteriorates accompanied with CSR when the fixed cost is low, while pollution abatement activities will reduce the optimal tax and improves both environmental quality and social welfare.
    Keywords: consumer-friendly firm; corporate social responsibility; environmental tax; free entry; blockaded entry
    JEL: L13 L31 Q5
    Date: 2018–04–01
  2. By: Aspen Gorry; R. Glenn Hubbard; Aparna Mathur
    Abstract: Knowing the elasticity of taxable income (ETI) is crucial for understanding the effects of taxation on taxpayer behavior and consequently on tax revenues. Previous research finds that high-income individuals are the most sensitive to tax policy changes. However, these individuals have more opportunities to defer income to future tax bases by altering the composition of their compensation than lower-income individuals. This paper considers the taxable income elasticity when individuals can shift income across tax bases and thereby defer taxation. We decompose the elasticity of taxable income into a real response as well as an income shifting response. We measure the tax rate on deferred income by the expected tax gain from deferring income using stock options as developed by Hall and Liebman (2000). Our results demonstrate that income shifting is an important component of previous estimates of the ETI. Because shifted income is taxed at future dates, income shifting decreases the welfare loss from personal income taxation associated with previous estimates.
    JEL: G30 H24 H31 J33
    Date: 2018–04
  3. By: Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
    Abstract: This note provides guidance on how to calibrate fiscal rules; that is, how to determine the thresholds (ceiling, floor, or target) for specific fiscal aggregates constrained by rules. The note focuses, more specifically, on the calibration of the debt, balance, and expenditure rules.
    Keywords: fiscal rules, stochastic simulations
    JEL: C13 C15 H3 H6
    Date: 2018–03
  4. By: Dirk Niepelt
    Abstract: This paper reviews theoretical results on financial policy. We use basic accounting identities to illustrate relations between gross assets and liabilities, net debt positions and the appropriation of (primary) budget surplus funds. We then discuss Ramsey policies, answering the question how a committed government may use financial instruments to pursue its objectives. Finally, we discuss additional roles for financial policy that arise as a consequence of political frictions, in particular lack of commitment.
    Date: 2018–03
  5. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Fu-Sheng Hung (National Chengchi University, Taiwan)
    Abstract: Recent empirical studies have documented that the incidence of firms' tax evasion on their sales is negatively correlated with the country's level of financial development. Our analysis shows that this stylized fact can be theoretically accounted for within a small-open-economy model of optimal tax enforcement under asymmetric information in credit markets. In an economy with a more developed financial sector that exhibits smaller agency costs, we find that the government will raise its optimal probability of tax auditing, which in turn leads to more tax compliance. It follows that financial development and tax evasion are inversely related, as observed in the actual data.
    Keywords: Tax Evasion; Financial Development; Asymmetric Information; Credit Rationing.
    JEL: D82 H26 H32
    Date: 2018–05
  6. By: Dirk Niepelt
    Abstract: We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium implications which are rationally internalized at the federal, but not at the regional level. The political support for taxation therefore differs across levels of government. Complementarities on the spending side decouple the equilibrium composition of spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, it accounts for between 30% and 100% of the federal revenue share’s doubling in the 1930s, and for the long-term increase in federal grants.
    Keywords: Fiscal policy, Federalism, Politico-economic equilibrium, Markov equilibrium, Public goods, Grants, Political Economy
    JEL: D72 E62 H41 H77
    Date: 2018–03
  7. By: Hearson, Martin
    Abstract: Developing countries have concluded thousands of bilateral tax treaties, which restrict their ‘taxing rights’ over international investment. Qualitative case studies of these negotiation outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the eventual distribution of taxing rights between signatories, yet such insights are absent from cross‐country quantitative work. This paper bridges the gap by replicating two quantitative studies, introducing new data on countries' ability to mobilize tax revenue and the outcomes of tax treaty negotiations. It provides statistical support for the insights from qualitative research. The size of a government's revenue base, and its reliance on corporate tax, might affect the salience of the revenue sacrifice in policy makers' minds. These variables influence the likelihood of signing a tax treaty and the particular concessions made. Power asymmetries between signatories lead to more unequal distributions of taxing rights away from developing countries, in contrast to the findings of earlier studies. Developing countries also become better negotiators as they gain experience.
    Keywords: developing countries; foreign direct investment; corporate taxation; double taxation; treaties; multinational corporations
    JEL: F53 H25 K34 O23
    Date: 2018–03–13
  8. By: David Staubli
    Abstract: I estimate the tax elasticity of corporate income. The analysis is based on panel variation o ered by decentralized corporate taxation in Switzerland. According to the baseline estimate, an increase in a municipality's corporate tax rate by 1% results in a decrease of aggregate corporate income (defined as the sum of corporate taxable incomes in that municipality) by about 0.43%. The elasticity is fairly stable across municipality types regarding population size, centrality of location, and average income. Furthermore, I find evidence that a significant part of the aggregate-level elasticity is attributable to firm mobility across jurisdictions.
    Keywords: Corporate Income Tax; Tax Elasticity; Fiscal Federalism
    JEL: H21 H25 H32
    Date: 2018–04

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