nep-pub New Economics Papers
on Public Finance
Issue of 2018‒12‒24
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Personal Income Tax Progressivity: Trends and Implications By Claudia Gerber; Alexander D Klemm; Li Liu; Victor Mylonas
  2. Spending Multipliers with Distortionary Taxes: Does the Level of Public Debt Matter? By Rym Aloui; Aurélien Eyquem
  3. The Elasticity of Taxable Income: A Meta-Regression Analysis By Neisser, Carina
  4. Capital gains taxation and funding for start-ups By Edwards, Alexander; Todtenhaupt, Maximilian
  5. The Relationship between Privatization and Corporate Taxation Policies By Liu, Yi; Matsumura, Toshihiro; Zeng, Chenhang
  6. A Destination-Based Allowance for Corporate Equity By Shafik Hebous; Alexander Klemm
  7. The concept of tax gaps - Corporate Income Tax Gap Estimation Methodologies By FISCALIS Tax Gap Project Group
  8. Tax policies for inclusive growth in a changing world By Pierce O’Reilly
  9. Taxation and Market Power in the Legal Marijuana Industry By Hollenbeck, Brett; Uetake, Kosuke
  10. A progressive consumption tax: an important instrument for stabilizing business cycles, or just an exotic idea? By Vasilev, Aleksandar

  1. By: Claudia Gerber; Alexander D Klemm; Li Liu; Victor Mylonas
    Abstract: This paper discusses how the structure of the tax system affects its progressivity. It suggests a measure of progressive capacity of tax systems, based on the Kakwani index, but independent of pre-tax income distributions. Using this and other progressivity measures, the paper (i) documents a decline in progressivity over the last decades and (ii) examines the relationship between progressivity and economic growth. Regressions do not reveal a significant impact of progressivity on growth, suggesting that efficiency costs of progressivity may be small—at least for degrees of progressivity observed in the sample.
    Keywords: Progressive taxation;Personal income taxes;Tax systems;Income inequality;Economic growth;Progressivity; Growth; Personal Income Tax; Tax Wedge; Inequality, Progressivity, Growth, Personal Income Tax, Tax Wedge, Inequality, Household
    Date: 2018–11–20
  2. By: Rym Aloui (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France ; Institut Universitaire de France)
    Abstract: We investigate the link between the size of government indebtedness and the effectiveness of government spending shocks in normal times and at the Zero Lower Bound (ZLB). We develop a New Keynesian model with capital, distortionary taxes and public debt in which the ZLB constraint on the nominal interest rate may be binding. In normal times, high steady-state levels of government debt to GDP lead to reduced output multipliers. After a negative capital quality shock that pushes the economy at the ZLB however, high steadystate debt levels produce larger output multipliers. Our results rely on the fact that fiscal policy becomes self-financing at the ZLB, and that distortionary taxes rise (respectively fall) after a spending shock at the steady state (resp. ZLB). Our results have non-trivial consequences on the design of optimized spending policies in the event of large economic downturns.
    Keywords: Zero Lower Bound, Fiscal Policy, Distortionary Taxes, Public Debt
    JEL: E62 E32
    Date: 2018
  3. By: Neisser, Carina (ZEW Mannheim)
    Abstract: The elasticities of taxable and broad income are key parameters in tax policy analysis. To examine the large variation in estimates found in the literature, I conduct a comprehensive meta-regression analysis using information from 51 studies containing 1,448 estimates. Heterogeneity in reported estimates is driven by regression techniques, sample restrictions and variations across countries and time. Moreover, I provide descriptive evidence of the correlation between contextual factors and the magnitude of an elasticity estimate. Selective reporting bias is prevalent in the literature and the direction of reporting bias depends on whether or not deductions are included in the tax base.
    Keywords: elasticity of taxable income, income tax, behavioural response, meta-regression, analysis
    JEL: C81 H24 H26
    Date: 2018–11
  4. By: Edwards, Alexander; Todtenhaupt, Maximilian
    Abstract: We examine how capital gains taxes affect investment in start-up (i.e., pre-IPO) firms. Using data on capital raised by start-up firms in individual funding rounds, we estimate the effect of the SBJA of 2010, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of higher expected after-tax returns (lower future capital gains taxes), we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. We also provide evidence that this effect is concentrated in start-up firms that are likely to be more financially sophisticated.
    Keywords: Capital Gains Taxes,Start-ups,Tax Capitalization
    JEL: M13 G24 H25
    Date: 2018
  5. By: Liu, Yi; Matsumura, Toshihiro; Zeng, Chenhang
    Abstract: This paper investigate how the corporate (profit) tax rate affects the optimal degree of privatization in a mixed duopoly, while introducing a minimum profit constraint for the private firm. Firstly, we show that the profit tax rate directly affects the behavior of the partially privatized firm and affects the behavior of the private firm through strategic interaction. In addition, we investigate the relationship between the optimal privatization policy and corporate tax policy, and find that the optimal degree of privatization increases with the corporate tax rate, regardless of whether the constraint is binding. The optimal degree of privatization decreases (increases) with the foreign ownership share in the private firm if the constraint is ineffective (effective). This result suggests that a minimum profit constraint can be crucial in the optimal privatization policy.
    Keywords: profit tax, minimum profit constraint, foreign ownership, optimal public ownership
    JEL: D43 H44 L33
    Date: 2018–08
  6. By: Shafik Hebous; Alexander Klemm
    Abstract: Following renewed academic and policy interest in the destination-based principle for taxing profits—particularly through a destination-based cash flow tax (DBCFT)—this paper studies other forms of efficient destination-based taxes. Specifically, it analyzes the Destination-Based Allowance for Corporate Equity (DBACE) and Allowance for Corporate Capital (DBACC). It describes adjustments that are required to turn an origin into a destination-based versions of these taxes. These include adjustments to capital and equity, which are additional to the border adjustments needed under a DBCFT. The paper finds that the DBACC and DBACE reduce profit shifting and tax competition, but cannot fully eliminate them, with the DBACE more sensitive than the DBACC. Overall, given the potential major political cost of switching from an origin to a destination-based tax system, we conclude that advantages of the DBCFT are likely to outweigh the transitional advantages of the DBACE/DBACC.
    Keywords: destination-based taxation, ACE, ACC
    JEL: H21 H25
    Date: 2018
  7. By: FISCALIS Tax Gap Project Group
    Abstract: The corporate income tax gap (CIT Gap) is the gap between corporate tax revenues as they “should be” collected and as they “are” collected. The gap is an indication of potential CIT revenue losses. This report defines the CIT gap as encompassing both non-deliberate actions by taxpayers (such as errors or omissions) and deliberate actions (such as fraud, evasion and avoidance) that lead to shortfall in revenues. This report reflects the objective of the Tax Gap Project Group (TGPG) to map and share expertise and good practices. The two main approaches to estimating the tax gap – the top-down and bottom-up methods – have both advantages and disadvantages. The choice of the estimation method depends heavily on the availability of data, resources and purposes of the estimate.
    Keywords: corporate taxation, tax gap, european union, tax avoidance
    JEL: H25 H26 H83
    Date: 2018–11
  8. By: Pierce O’Reilly
    Abstract: This paper, Tax policies for inclusive growth in a changing world, has been prepared in support of Argentina’s G20 Presidency. While this paper is focused on taxation policy, it forms part of a broader contribution that the OECD has made in support of Argentina’s G20 presidency.Against a backdrop of increased inequality and persistently low productivity growth, this paper considers the challenges and opportunities confronting policy makers in a rapidly changing world as a result of globalisation, technological change and the changing world of work. The paper focusses on:• The impact of the tax system on the market distribution of income, by supporting employment, skills investments, and labour market formality.• How shifting tax mixes towards growth-friendly taxes can be combined with measures to improve progressivity, particularly through base-broadening and through removing inefficient and regressive tax expenditures.• Ways in which personal income taxes and social transfers can foster inclusive growth by raising the efficiency and equity of labour and capital income tax systems.• How tax policy can foster business dynamism and productivity, including through support for investment and innovation, and can raise efficiency by continuing to combat BEPS.• How tax capacity can be raised, and how tax administration can be strengthened, including through international co-operationThe paper provides tax policy advice and recommendations to support governments in their pursuit of tax and transfer policies conducive to inclusive growth, while supporting innovation and increased productivity growth; preserving the revenue-raising capacity of the tax system; and ensuring the sustainability of public spending.
    Keywords: inclusive Growth, taxation
    JEL: H2 H24 D31
    Date: 2018–12–18
  9. By: Hollenbeck, Brett; Uetake, Kosuke
    Abstract: In 2012 the state of Washington created a legal framework for production and retail sales of marijuana. Nine other U.S. states and Canada have followed. These states hope to generate tax revenue for their state budgets while limiting harms associated with marijuana consumption. We use a unique administrative dataset containing all transactions in the history of the industry in Washington to evaluate the effectiveness of different tax and regulatory policies under consideration by policymakers and study the role of imperfect competition in determining these results. We examine 3 main research questions. First, how effective is Washington’s excise tax at raising revenue? With the nation’s highest tax rate on marijuana, is Washington maximizing revenue or potentially overtaxing, leading to reduced legal sales and lower tax revenue. Second, what is the incidence of taxes in this industry? Finally, most states have restricted entry, resulting in firms with substantial market power. What is the role of imperfect competition in studying these basic questions on tax policy? We combine structural methods and a reduced form sufficient statistic approach to show a number of results. First, Washington’s 37% excise tax is still on the upward sloping portion of the Laffer curve and state revenue could be substantially higher with a higher tax rate. The amount of revenue generated by a tax increase is significantly larger due to retailer market power than it would be under perfect competition. In addition, these taxes are primarily borne by consumers and not by firms, and there is a large social cost associated with each dollar raised.
    Keywords: tax incidence, marijuana, pass-through, imperfect competition, regulation
    JEL: D22 H21 H22 L13 L51 L81
    Date: 2018–11–12
  10. By: Vasilev, Aleksandar
    Abstract: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical fluctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles,progressive consumption taxation,Bulgaria
    JEL: E24 E32
    Date: 2018

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