nep-pub New Economics Papers
on Public Finance
Issue of 2018‒10‒15
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal income taxation with composition effects By Laurence Jacquet; Etienne Lehmann
  2. Shaming for tax enforcement: Evidence from a new policy By Dwenger, Nadja; Treber, Lukas
  3. The paradox of tax competition: Effective corporate tax rates as a determinant of foreign direct investment in a modified neo-Kaleckian model By Woodgate, Ryan
  4. Majority Choice of Taxation and Redistribution in a Federation By Stephen Calabrese; Dennis Epple; Richard Romano
  5. How Do Firms Respond To Place-Based Tax Incentives? By Hyejin Ku; Uta Schönberg; Ragnhild C. Schreiner
  6. Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs By Fabian Kindermann; Lukas Mayr; Dominik Sachs

  1. By: Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique); Etienne Lehmann (CRED - Centre de Recherches en Economie et Droit - UP2 - Université Panthéon-Assas, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique)
    Date: 2018–09–21
  2. By: Dwenger, Nadja; Treber, Lukas
    Abstract: Can public shaming increase tax compliance through social pressure? Many tax authorities make ample use of public shaming. However, empirical evidence from outside the laboratory on how a new shaming law affects overall compliance is lacking. We provide the first evidence from the field, exploiting comprehensive administrative tax data and the introduction of a novel naming-and-shaming policy in Slovenia in 2012. The policy aims to reduce outstanding tax debt among the self-employed and corporations. Our empirical strategy exploits the variation across taxpayers in ex ante exposure to the shaming policy. We find that taxpayers reduce their tax debt by 8.5% to avoid shaming, particularly in industries where reputational concerns are likely to be important. The publication of the first naming-and-shaming list further reduces tax debt among shamed taxpayers because of social learning. This effect, however, is marginal in terms of revenue and tapers off quickly.
    Keywords: compliance,tax debt,shaming,enforcement,social image concerns,penalty
    JEL: H26 D1 K34 K42 Z13
    Date: 2018
  3. By: Woodgate, Ryan
    Abstract: After demonstrating the empirical relevance of tax competition effects across OECD countries, we incorporate such effects into a Kaleckian model. Corporate tax rates are seen as affecting investment by the effect on the location of multinational enterprise (MNE) investment, not on the total size of worldwide MNE investment. Hence, unlike the neoclassical approach, in our analysis investment is not driven by tax rates affecting the cost of capital, which is objectionable from a post-Keynesian perspective. With this locational qualification in place, we augment a traditional neo-Kaleckian model with the effects of MNE investment and determine under what conditions a country's policymakers can stimulate demand by raising corporate tax rates (via the usual Kaleckian redistribution channel) or lowering tax rates (via the tax competition FDI channel). The result of this exercise shows that our model predicts countries of small economic size will be more likely to engage in tax competition. Moreover, if the usual Keynesian stability condition holds, we can show that the effect of higher corporate tax rates on demand is much more likely to be negative than positive. To see how an interdependent world system of corporate tax rates may interact and develop over time, we use a procedural-based simulation approach using the conditions derived from our modified neo-Kaleckian model to inform the behavioural rules of our simulated policymakers. The simulations show a propensity of corporate tax rates around the world to convergence and to fall in systems with realistic parameter ranges, offering an explanation for the empirical phenomenon of the so-called "race to the bottom" in corporate tax rates. The "bottom" is shown within our model to be a bad equilibrium, from which tax coordination is proposed as a means of escape.
    Keywords: tax competition,Kalecki,multinational enterprises,race to the bottom,simulation,foreign direct investment,policy coordination
    JEL: E11 E12 E62 F55 H25
    Date: 2018
  4. By: Stephen Calabrese; Dennis Epple; Richard Romano
    Abstract: We provide a model with a federal government and multiple local governments, the former with power to levy an income tax for redistribution, and the latter choosing a local income tax, property tax, lump-sum tax or subsidy, and a local public good. Policy is set by majority choice at each tier of government by households that differ by income and ability to move across communities. We provide sufficient conditions for existence of equilibrium and examine its properties. Central findings are federal income distribution, little local redistribution, and local preference for property taxation over income taxation to fund local public goods.
    JEL: H2 H7 H71
    Date: 2018–09
  5. By: Hyejin Ku; Uta Schönberg; Ragnhild C. Schreiner
    Abstract: In this paper, we evaluate the effects of payroll tax changes on firm behavior, by exploiting a unique policy setting in Norway, where a system of geographically differentiated payroll taxes was suddenly abolished due to an EU regulation. We find that firms are only partially able to shift the increased costs from higher payroll tax rates onto workers’ wages. Instead, firms respond to the tax increase primarily by reducing employment. The drop in employment following the tax reform is particularly pronounced in labor intensive firms—which experience a larger windfall loss due to the tax reform than non-labor intensive firms—and in multi-establishment firms—which respond to the payroll tax increase in part by reducing the number of establishments per firm. Overall, our findings point to liquidity effects whereby a sudden and largely unexpected payroll tax increase aggravates firms’ liquidity constraints, forcing them to cut employment to bring down costs.
    JEL: D22 H25 H32 J18 J23
    Date: 2018–09
  6. By: Fabian Kindermann; Lukas Mayr; Dominik Sachs
    Abstract: The taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects. This leads to an increase in future labor income tax revenue on top of direct bequest tax revenue. We first show in a theoretical model that a simple back-of-the-envelope calculation, based on existing estimates for the reduction in earnings after wealth transfers, fails: the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because (i) heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting, and (ii) when bequest receipt is stochastic, even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests. We quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life-cycle model that we calibrate to the German economy. Besides the joint distribution of income and inheritances, quasi-experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration. We find that for each Euro of bequest tax revenue the government mechanically generates, it obtains an additional 9 Cents of labor income tax revenue (in net present value) through higher labor supply of (non-)heirs.
    JEL: C68 H22 H31 J22
    Date: 2018–09

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