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on Public Finance |
| By: | Suresh Nallareddy; Ethan Rouen; Juan Carlos Suárez Serrato |
| Abstract: | This paper studies the effects of corporate tax changes on income inequality. Using state corporate tax rate changes as a setting, we show that cutting state corporate tax rates leads to increases in income inequality. This result is robust to using regression and matching approaches, and to controlling for a host of potential confounders. Contrary to the effects of tax cuts, we find no effects of tax increases on income inequality at the state level. We then use data from the IRS Statistics of Income to explore the mechanism behind the rise in income inequality. We find tax cuts lead to higher reported capital income and a decrease in wage and salary income. These effects are concentrated among top earners, and we find no effects for those reporting less than $200,000 in income. This result provides evidence that one mechanism for the relation between tax cuts and inequality is that wealthy individuals shift their income to reduce taxes while others do not. Finally, we explore the effects of corporate tax cuts on capital investment using data from the Annual Survey of Manufactures. We find that tax cuts lead to an increase in real investment, suggesting a trade-off between investment and inequality at the state level. |
| JEL: | H2 H22 H25 H7 H71 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24598&r=pub |
| By: | Pascal Belan; Erwan Moussault (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We consider a two-period overlapping generation model with rational altruism a la Barro, where time transfers and bequests are available to parents. Starting from a steady state where public spendings are nanced through taxation on capital income and labor income, we analyze a tax reform that consists in a shift of the tax burden from capital income tax towards inheritance tax. In the standard Barro model with no time transfer and inelastic labor supply, such a policy decreases steady-state welfare. In our setting, inheritance tax modi es parent's trade-o between time transfers and bequests. We identify situations where the tax reform increases welfare for all generations. Welfare improvement mainly depends on the magnitude of the e ect of higher time transfers on the labor supply of the young. |
| Keywords: | family transfers, altruism, time transfers, inheritance tax. |
| JEL: | D64 H22 H24 J22 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2018-05&r=pub |
| By: | David Amaglobeli; Valerio Crispolti; Era Dabla-Norris; Pooja Karnane; Florian Misch |
| Abstract: | This paper describes a new, comprehensive database of tax policy measures in 23 advanced and emerging market economies over the last four decades. We extract this information from more than 900 OECD Economic Surveys and 37,000 tax-related news from the International Bureau of Fiscal Documentation using text-mining techniques. The innovation of this dataset lies in its granularity: changes in the rates and bases of personal and corporate income taxes, value added and sale taxes, social security contributions, excise, and property taxes are systematically documented. In addition, the database provides information on the announcement and implementation dates, whether the measures represent major changes, are part of a broader tax package, and phased in over several years. The paper also presents a range of stylized facts suggesting that information from this database is useful to deepen the analysis of tax policy changes for research and policy purposes. |
| Date: | 2018–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/110&r=pub |
| By: | Rui Costa (London School of Economics); Nikhil Datta (London School of Economics); Stephen Machin (University College London); Sandra McNally (London School of Economics) |
| Abstract: | Estimates from the US suggest that increasing levels of human capital over the second half of the last century accounted for approximately one third of productivity growth, while some estimates of the social rate of return to R&D in the manufacturing sector have exceeded one hundred percent. Despite the contribution of both human capital and R&D to economic growth, the UK fiscal system does not treat the two equally when it comes to employer incentives to invest. Firms that invest in R&D are able to claim generous tax relief on their investments whereas there is no such across-the-board incentive to invest in the training of their workers. This is despite the fact that the rationale for government support to firm investment in human capital is similar to that for R&D and both are important for economic growth. We explain the economic rationale for government support in the form of tax credits, discuss current practice in the UK in relation to R&D, and address the evidence on effectiveness. We then discuss how the policy might be adapted to provide similar incentives for investing in human capital. |
| Keywords: | human capital, research and development, r&d, tax relief, United Kingdom |
| JEL: | H23 J24 O30 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2018-030&r=pub |
| By: | Johannes Becker; Niels Johannesen; Nadine Riedel |
| Abstract: | This paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the multinational firm. Theoretically, we show that unconstrained firms optimally allocate all their risk to high-tax countries to maximize risk sharing with governments and all their profits to low-tax countries to minimize expected tax payments. However, transfer pricing rules requiring risk to be compensated with a higher expected return introduce a trade-off: the risk sharing motive to allocate risk to high-tax countries must be balanced against a pro.t shifting motive to allocate risk to low-tax countries. Empirically, we consistently find that multinational firms disproportionately allocate risk to low-tax countries. This suggests that the intra-firm allocation of risk and profits is effectively constrained by transfer pricing rules and that the profit shifting motive dominates the risk sharing motive. Finally, we show that within-firm differences in risk can account for a significant fraction of the well-established correlation between profits and tax rates suggesting that risk shifting is a quantitatively important channel for profit shifting. |
| JEL: | H20 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7033&r=pub |
| By: | Elias Steinmüller; Georg U. Thunecke; Georg Wamser |
| Abstract: | This study provides a survey on corporate taxes around the world. Our analysis has three main objectives. First, we collect tax data and calculate (forward-looking) effective tax measures for a large sample of countries and recent years. We particularly describe how these measures vary over time and across countries. Second, we augment the country-level information with firm- and industry-level data (providing weights for financial structure and asset composition) to contrast statutory measures at the level of countries with measures accounting for firm- and industry-specific weights. Third, we utilize our new data to (i) estimate Laffer-Curves, i.e., the relationship between statutory tax rate and tax revenue, based on non-parametric as well as parametric specifications; (ii) examine how taxes affect investment in fixed assets at the level of firms. As for the latter, our preferred specification, in which we use a firm-specific effective marginal tax rate to capture tax incentives, suggests an elasticity of -0.33. |
| Keywords: | corporate taxes, depreciation allowances, effective marginal (average) tax rates, Laffer-Curve, investment responses |
| JEL: | H25 H21 F23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7050&r=pub |
| By: | Bastani, Spencer (Uppsala University); Waldenström, Daniel (Paris School of Economics) |
| Abstract: | This paper presents a comprehensive analysis of the role of capital taxation in advanced economies with a focus on the Swedish experience. We synthesize the existing theoretical literature, present facts about the capital stock and its distribution, review current capital tax practices and empirical findings regarding their effects on economic activity. The paper also examines the political feasibility of capital taxation by presenting results from a unique attitude survey targeted to a large representative sample of the Swedish population. Finally, we tie together our findings and discuss their implications for tax policy. |
| Keywords: | optimal taxation, capital taxation, wealth tax, inheritance tax, corporate tax, income inequality, wealth inequality, political economy, preferences for redistribution |
| JEL: | D31 H21 H24 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11475&r=pub |
| By: | Li Du and Zhongxiang Zhang |
| Abstract: | Personal income tax is a commonly used redistributive instrument to deal with inequality. Whether it achieves that efficacy requires an appropriate measurement. This paper aims to examine the redistributive effects of personal income tax (PIT) based on the generalized entropy indexes. Compared with the commonly used approach based on the Gini coefficient, the generalized entropy indexes are more sensitive to the structural features of the redistributive effects and can lead to more reliable evaluation about the redistributive policy adjustments. Based on this new approach, we assess the redistributive effects of the 2011 PIT adjustment in China by using the urban household survey data. Different from previous studies, our results show that the 2011 PIT adjustment has effectively reduced the inequality within high income group, and if hidden income is taken into consideration, the overall inequality reduction resulted from the tax adjustment turns out to be positive. This finding highlights the importance of judging the redistributive effects of PIT on the basis of right household income data and that China should pay more attention to the hidden income in designing the redistributive tax rules. |
| Keywords: | generalised entropy index, personal income tax, redistributive effects, hidden income, China |
| Date: | 2018–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:een:appswp:201817&r=pub |