nep-pub New Economics Papers
on Public Finance
Issue of 2018‒09‒17
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Capital Taxes and Redistribution: The Role of Management Time and Tax Deductible Investment By Juan Carlos Conesa; Begona Dominguez
  2. Inequality in an OLG economy with heterogeneous cohorts and pension systems By Joanna Tyrowicz; Krzysztof Makarsk; Marcin Bielecki
  3. The Tax Cuts and Jobs Act: An Appraisal By Nigel A Chalk; Michael Keen; Victoria J Perry
  4. Should there be lower taxes on patent income? By Fabian Gaessler; Bronwyn H. Hall; Dietmar Harhoff
  5. Tax Evasion with a Conscience By Dufwenberg, Martin; Nordblom, Katarina
  6. The effects of tax changes on economic activity: a narrative approach to frequent anticipations By Sandra García- Uribe
  7. Tax Morale and the Role of Social Norms and Reciprocity: Evidence from a Randomized Survey Experiment By Doerrenberg, Philipp; Peichl, Andreas
  8. Estimating Bargaining-related Tax Advantages of Multinational Firms By Egger, Peter; Strecker, Nora; Zoller-Rydzek, Benedikt
  9. Why did people pay taxes? Fiscal innovation in Portugal and state making in times of political struggle (1500-1680) By Leonor Freire Costa; Paulo Brito
  10. Effects of State Taxation on Investment: Evidence from the Oil Industry By Brown, Jason; Maniloff, Peter; Manning, Dale T.

  1. By: Juan Carlos Conesa; Begona Dominguez
    Abstract: Should capital income be taxed for redistributional purposes? Judd (1985) suggests that it should not. He finds that the optimal capital tax is zero at steady state from the point of view of any agent. This paper re-examines this question in an innitely-lived worker-capitalist model, in which capitalists devote management time to build capital. Two forms of capital taxation are considered: one for which investment is not tax deductible (corporate tax) and a second one for which investment is fully and immediately tax deductible (dividend tax). Our main results are as follows. The optimal corporate tax is zero at steady state from the point of view of any agent. However, the optimal dividend tax is in general not zero at steady state and depends on preference parameters, life-time wealth and the point of view (Pareto weights) of the benevolent policymaker. For Pareto weights that lead to Pareto-improving reforms, we find that labor tax rates should be eliminated while dividend tax rates should be increased to around 36 percent at steady state.
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:nys:sunysb:18-10&r=pub
  2. By: Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Krzysztof Makarsk (Warsaw School of Economics); Marcin Bielecki (University of Warsaw)
    Abstract: We analyze the consumption and wealth inequality in an OLG model with mandatory pension systems. Our framework features within cohort heterogeneity of endowments and heterogeneity of preferences. We allow for population aging and gradual decline in TFP growth. We show four main results. First, increasing longevity translates to substantial increases in aggregate consumption inequality and wealth inequality. Second, a pension system reform from a defined benefit to a defined contribution works to reinforce consump- tion inequality and reduce wealth inequality. Third, minimum pension benefits are able to partially counteract an increase in inequality introduced by the defined contribution system, at a fiscal cost. Fourth the minimum pension benefit guarantee mostly addresses the sources of inequality which stem from differentiated endowments rather than those which stem from heterogeneous preferences.
    Keywords: consumption, wealth, inequality, longevity, defined contribution, defined benefit
    JEL: H55 E17 C60 C68 E21 D63
    Date: 2018–08
    URL: http://d.repec.org/n?u=RePEc:iaa:dpaper:201808&r=pub
  3. By: Nigel A Chalk; Michael Keen; Victoria J Perry
    Abstract: This paper assesses the landmark Tax Cuts and Jobs Act (TCJA), from the perspective of both the U.S. itself and the wider world. The reform has many positive aspects including steps to broaden the base of, and reduce marginal rates under, the personal income tax (PIT), reduce distortions to investment and financing decisions, and mitigate outward profit shifting. But the TCJA has a large fiscal price tag and leaves significant uncertainty as to how the U.S. tax system will develop. The PIT changes could have better targeted relief at low earners, and there is scope to more fully address distortions in business taxation. The novel international provisions create a complex array of both positive and negative international spillovers, and have the potential to significantly reshape the wider international tax system.
    Keywords: Tax policy;United States;Western Hemisphere;International taxation;Business Tax, Personal Income Tax, Pass-throughs, General
    Date: 2018–08–07
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:18/185&r=pub
  4. By: Fabian Gaessler (Institute for Fiscal Studies); Bronwyn H. Hall (Institute for Fiscal Studies and University of California, Berkeley); Dietmar Harhoff (Institute for Fiscal Studies and University of Munich)
    Abstract: A “patent box” is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patent filings at the European Patent Office, including information on ownership transfers pre- and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.
    Keywords: patent box, IP box, innovation tax, BEPS, EPO, invention incentive, patent ownership
    Date: 2018–07–25
    URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:18/19&r=pub
  5. By: Dufwenberg, Martin (University of Arizona, University of Gothenburg); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: How do moral concerns affect tax compliance and the need for audits? We propose answers by exploring an inspection game, modified to incorporate belief-dependent taxpayer guilt, unawareness, and third-party audience effects. Novel conclusions are drawn regarding whose behavior is affected by moral concerns (it's the authority's more than the citizen's) and regarding policy, in particular fines vs. jail, the role of information campaigns, and the use of a principle of public access whereby tax returns are made public information.
    Keywords: tax evasion; guilt; inspection game; policy
    JEL: D03 H26 H83
    Date: 2018–08
    URL: http://d.repec.org/n?u=RePEc:hhs:gunwpe:0738&r=pub
  6. By: Sandra García- Uribe (Banco de España)
    Abstract: This paper studies the effects of anticipations of tax changes in the USA through the release of tax news in the media. I construct a new measure that captures the anticipation of tax bill approvals by exploiting the content of news in the US television. Since this information typically flows faster than standard measures of GDP, I propose a mixed frequency dynamic factor model to estimate both the economic activity latent factor and the effects of anticipated tax shocks on it. I find that onemonth-ahead media anticipations of tax approvals significantly stimulate current economic activity. This stimulation comes from anticipations of tax cuts.
    Keywords: fiscal policy, taxation, mass media, information, beliefs, random forests
    JEL: E62 H20 N12 D80
    Date: 2018–09
    URL: http://d.repec.org/n?u=RePEc:bde:wpaper:1828&r=pub
  7. By: Doerrenberg, Philipp (ZEW Mannheim); Peichl, Andreas (Ifo Institute for Economic Research)
    Abstract: We present the first randomized survey experiment in the context of tax compliance to assess the role of social norms and reciprocity for intrinsic tax morale. We find that participants in a social-norm treatment have lower tax morale relative to a control group while participants in a reciprocity treatment have significantly higher tax morale than those in the social-norm group. This suggests that a potential backfire effect of social norms is outweighed if the consequences of violating the social norm are made salient. We further document the anatomy of intrinsic motivations for tax compliance and present first evidence that previously found gender effects in tax morale are not driven by differences in risk preferences.
    Keywords: tax compliance, tax evasion, intrinsic motivations, tax morale, social norms, reciprocity
    JEL: H20 H32 H50 C93
    Date: 2018–07
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp11714&r=pub
  8. By: Egger, Peter; Strecker, Nora; Zoller-Rydzek, Benedikt
    Abstract: The effective corporate profit tax rates (ETRs) of multinational enterprises (MNEs) differ from those of national enterprises (NEs). In this paper, we argue that the bargaining power of MNEs is an important factor in explaining these differences beyond profit shifting. First, larger and more profitable firms are more valuable for various reasons (in terms of absolute tax revenues, employment, etc.) for tax authorities. Thus, in threatening to move their operations to other jurisdictions, larger firms may be able to extract greater deductions. This potential bargaining advantage of larger firms may result in a regressive ETR schedule. As MNEs tend to be larger and more profitable than NEs, they may pay lower ETRs for merely size-related reasons. Second, MNEs face arguably lower costs to relocate their business (or profits) to foreign countries with a lower tax rate than NEs. This enhances their bargaining position even further when negotiating tax deductions. To quantify the importance of bargaining in the tax gap between MNEs and NEs, it is elemental to rigorously condition on the determinants of MNE status, profit taxation, as well as possible profit-shifting activities. To that end, we use French firm-level data and entropy balancing of the joint determinants of MNE status (including the possibility of profit shifting) and a firm's ETR. Empirically, we find that the empirical regressivity of the French tax schedule reduces French MNEs' ETRs by 2.52 percentage points on average due to their larger size, while the relocation threat of the same firms reduces their ETR by 3.58 percentage points relative to comparable NEs. The former is a tax advantage that any firm (MNE or NE) of the same size could obtain, while the latter is specific to MNEs and beyond the reach of NEs.
    Keywords: Profit taxation; Multinational firms; Entropy balancing.
    JEL: C2 F2 H2
    Date: 2018–08
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13143&r=pub
  9. By: Leonor Freire Costa; Paulo Brito
    Abstract: This paper considers growing fiscal capacity of the European early modern states as contingent to taxpayer’s consent in higher tax loads. It puts forward the hypothesis that war damages were the main factor guiding the taxpayer’s cost-benefit assessment of consenting or violently resisting to a fiscal innovation. To test the hypotheses, we consider data on Portugal in times of political struggle against the Habsburgs to restore and keep the political autonomy after 1640. The war was financed by an entirely new, universal income tax, remaining in the Portuguese fiscal system well until the liberal revolution in 1820, although enforced by a decentralized and nonspecialized administration. A model derives the optimal tax rate from the standpoint of the taxpayer as a function of war intensity, risk aversion, and awareness that evasion would enhance war damages. Data on damages, contemporary assessments of the tax base, and amounts enforced allow the model’s calibration. Results suggest the accuracy of the hypothesis and draw the conclusion that taxpayers’ utility in paying the new tax determined the e?ective tax rate (tax enforced). This paper claims that ultimately improvements in the fiscal capacity of states needed taxpayer’s perception of high levels of destruction, hence any political regime in early modern Europe must have found in war damages a persuasive argument to make e?ective a fiscal innovation. The other contribution of this case study is pointing out the advantage of the assignment of the tax collection to local, non-professional administration, for the endurance of a fiscal system, which incorporated an income tax that withstood the liberal revolution. It enhanced the role of peer monitoring and turned out to be an e?ective way of instilling social norms contributing to build up the taxpayer’s liability, which somehow the liberal state in 19th century exploited within a di?erent technological environment.
    Keywords: Portugal, early modern economies, income tax, state capacity JEL classification: N13, H31, H26
    Date: 2018
    URL: http://d.repec.org/n?u=RePEc:ise:gheswp:wp592018&r=pub
  10. By: Brown, Jason (Federal Reserve Bank of Kansas City); Maniloff, Peter; Manning, Dale T.
    Abstract: We provide theoretical and empirical evidence that firms do not in general respond equally to changes in prices and taxes in the setting of oil well drilling in the United States. Our key theoretical contribution is that in a multi-state model, a change in output price changes both the benefit and opportunity cost of drilling, whereas a change in a state tax rate only changes the benefit of drilling in that state. Thus, a firm responds more to a change in tax than a change in price. Our econometric results support this theoretical prediction. We find that a one dollar per barrel increase in price leads to a 1 percent increase in wells drilled, but a one dollar per barrel increase in tax leads to at least an 8 percent decrease in wells drilled. These estimates correspond to elasticities of about 0.5 and -0.3, respectively. These results are robust to interstate spillovers, other state regulations, and econometric specification. They imply that using state tax rate decreases to incentivize investment may lead to losses of government revenue.
    Keywords: Severance Tax; Drilling; Supply Elasticity
    JEL: Q32 Q48 R51
    Date: 2018–09–05
    URL: http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp18-07&r=pub

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