nep-pub New Economics Papers
on Public Finance
Issue of 2019‒01‒07
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. What Happened to CIT collection? Solving the Rates-Revenues Puzzle By Caiumi, Antonella; Majewski, Ina; Nicodème, Gaëtan
  2. Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy By Takeo Hori; Noritaka Maebayashi; Keiichi Morimoto
  3. Progressive tax reforms in flat tax countries By Salvador Barrios; Viginta Ivaskaite-Tamosiune; Anamaria Maftei; Edlira Narazani; Janos Varga
  4. Corporate Social Responsibility and Regulation: Taxing Ethical behaviour By Dina KASSAB
  5. Collusive Tax Evasion by Employers and Employees: Evidence from a Randomized Field Experiment in Norway By Marie Bjørneby; Annette Alstadsæter; Kjetil Telle
  6. Social Security and Retirement Timing: Evidence from a National Sample of Teachers By Melinda S. Morrill; John Westall

  1. By: Caiumi, Antonella; Majewski, Ina; Nicodème, Gaëtan
    Abstract: Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.
    Keywords: corporate tax; European Union; Implicit Tax Rate; Incorporation; Tax Reforms
    JEL: E62 H25 O52
    Date: 2018–12
  2. By: Takeo Hori (Department of Industrial Engineering and Economics, Tokyo Institute of Technology); Noritaka Maebayashi (Faculty of Economics and Business Aminstration, The University of Kitakyushu); Keiichi Morimoto (Department of Economics, Meisei University)
    Abstract: We explore how tax evasion by firms affects the growth- and welfare-maximizing rates of corporate income tax (CIT) in an endogenous growth model with productive public service. We show that the negative effect of CIT on growth is mitigated in the presence of tax evasion. This increases the benefit of raising the CIT rate for public service provision. Thus, in contrast to Barro (1990), the optimal tax rate is higher than the output elasticity of public service. Through numerical exercises, we demonstrate that the role of tax evasion by firms is quantitatively significant.
    Keywords: corporate income tax, tax evasion, growth, welfare
    JEL: H21 H26 O40
    Date: 2018–12
  3. By: Salvador Barrios (European Commission - JRC); Viginta Ivaskaite-Tamosiune (European Commission - JRC); Anamaria Maftei (European Commission - JRC); Edlira Narazani (European Commission - JRC); Janos Varga (European Commission - ECFIN)
    Abstract: Much of the literature on flat tax reforms has highlighted the benefits of introducing flat personal income tax systems in transition economies. The advocated benefits of flat tax systems range from their simplicity, higher compliance and lower distortionary effects on growth and employment. These arguments have often been cited to support policy recommendations favouring the adoption of flat tax systems in Central and Eastern European (CEE) countries in the 1990s and the 2000s. However since income inequality is notoriously high in these countries, the question of introducing some progressivity in the tax system has come to the fore in both policy and academic circles. In this paper, we analyse the fiscal, redistributive and macroeconomic impact of (re-) introducing progressivity in a number of CEE countries with flat tax systems. Combining microsimulation and macro models, we find that a significant reduction in income inequality can be achieved by moving from a flat to a progressive tax system with positive, albeit negligible, macroeconomic and employment impact. The magnitude of these effects depends on country-specificities and tax system characteristics, due in particular to the existence of tax allowances and tax credits.
    Keywords: Flat tax, microsimulation model, DSGE model, inequality progressivity, employment, growth
    JEL: H24 H31 I32 D63
    Date: 2018–12
  4. By: Dina KASSAB (Faculty of Economics and Political Science – Cairo University)
    Abstract: This paper analyzes the impact of Corporate Social Responsibility in a monopoly setup and the implications of government intervention through a consumption tax or subsidy. Assuming that consumers have heterogeneous preferences regarding the CSR content of the private good they purchase and that their degree of altruism is positively related to their income, the paper assesses whether taxing CSR products could be welfare improving, when the tax revenues are recycled in the form of government provision of a public good that either substitutes for or complements the firm's CSR investments. When private and public investments are perfect substitutes, CSR activities should benefit from tax exemptions. However, when they are complements, the CSR products should be taxed when there is a sufficiently large marginal willingness to pay for such activities. Taxing the CSR product can then be viewed as a form of progressive taxation whereby more taxes are levied on wealthier consumers to make the public good available to everyone. Finally, given different objectives of the regulator, the question of whether taxes on CSR goods disfavor the efficient producers or rather the inefficient ones is discussed.
    Keywords: Corporate Social Responsibility, Public Good, Progressive Taxation, Regulation
    JEL: M14 H41 D6 H11 L21
    Date: 2018–12
  5. By: Marie Bjørneby; Annette Alstadsæter; Kjetil Telle
    Abstract: Third-party reporting and employers’ tax withholding are powerful compliance mechanisms, as long as the employer and employee do not collude to evade. Using data from randomly assigned on-site audits among 2,462 Norwegian firms, we provide evidence of collusive tax evasion. We find that firms assigned to be audited increased their subsequent wage reporting on behalf of their employees by 18 percent relative to firms assigned to the control group. The effect is more pronounced among small firms with few employees. Our results document the limitations of third-party reporting, but also that these limitations can be counteracted by relatively inexpensive on-site audits.
    Keywords: collaborative tax evasion, collusive tax evasion, random audits, undeclared work, third-party reporting
    JEL: E26 H26 H32
    Date: 2018
  6. By: Melinda S. Morrill; John Westall
    Abstract: This study documents an important role for Social Security income in workers' retirement timing. About 40 percent of public school teachers are not covered by Social Security. This provides an opportunity to analyze the causal impact of Social Security on retirement timing by comparing covered and non-covered teachers. Using individual-level data from the American Community Survey, we find robust evidence of higher rates of retirement among covered teachers at Social Security eligibility ages. This pattern is confirmed using an alternative regression model of participation in the teacher labor force. These estimates suggest that, should the federal government mandate full inclusion in Social Security for all public sector workers, the retirement timing patterns of newly covered teachers and other public sector workers would likely change.
    JEL: H55 H75 I28 J26
    Date: 2018–12

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