nep-pub New Economics Papers
on Public Finance
Issue of 2019‒01‒28
sixteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Certain Effects of Uncertain Taxes By James R. Hines Jr.; Michael Keen
  2. Taxes, Wage Capitalization and the Ability of States to Redistribute Income By Giertz, Seth H.; Ramezani, Rasoul
  3. Assessing Income Tax Perturbations By Vidar Christiansen; Zhiyang Jia; Thor Olav Thoresen
  4. Tax avoidance and accounting conservatism By Bornemann, Tobias
  5. Corporate Income Taxation, Leverage at Entry, and the Growth of Entrepreneurial Companies By Da Rin, Marco; Di Giacomo, M.; Sembenelli, A.
  6. Intellectual Property and Taxation in Digital Platforms By Juan Manuel Sanchez-Cartas
  7. Age-Based Property Tax Exemptions By H. Spencer Banzhaf; Ryan Mickey; Carlianne E. Patrick
  8. Fuzzy Profit Shifting: A Model for Optimal Tax-induced Transfer Pricing with Fuzzy Arm's Length Parameter By Rathke, Alex A.T.
  9. Taxing Families: The Impact of Child-related Transfers on Maternal Labor Supply By Anne Hannusch
  10. The Impact of Carbon Tax on GDP and Environment By Khaerul Azis, Mohammad; Widodo, Tri
  11. Is an unfunded social security system good or bad for growth? A theoretical analysis of social security systems financed by VAT By Maebayashi, Noritaka
  12. Investment-Specific Technological Change, Taxation and Inequality in the U.S. By Brinca, Pedro; Oliveira, João; Duarte, João
  13. Frontloaded Income Taxation of Old-Age Pensions: For Efficiency and Fairness in a World of International Labor Mobility By Bernd Genser; Robert Holzmann
  14. Asymmetric impacts and over-provision of public goods By Louis-Gaëtan Giraudet; Céline Guivarch
  15. How do tax incentives affect business investment? Evidence from German bonus depreciation By Eichfelder, Sebastian; Schneider, Kerstin
  16. Municipal infrastructure spending capacity in South Africa: a panel smooth transition regression (PSTR) approach By Mbanda, Vandudzai; Bonga-Bonga, Lumengo

  1. By: James R. Hines Jr.; Michael Keen
    Abstract: This paper explores the implications of tax rate uncertainty, identifying circumstances in which revenue-neutral tax rate variability increases profitability, economic activity, and the efficiency of resource allocation. Furthermore, with heterogeneous taxpayers, tax rate variability is shown to perform an efficiency-enhancing screening function, imposing heavier expected tax burdens on less responsive taxpayers. And while efficient tax uncertainty enables governments to reduce average costs of taxation, it necessarily increases the marginal cost of taxation over some ranges of expected revenue, so may reduce efficient levels of government spending.
    JEL: H21 H22
    Date: 2018–12
  2. By: Giertz, Seth H.; Ramezani, Rasoul
    Abstract: Local and state governments attempt to lessen after-tax income inequality via progressive taxation. Migration responses of capital and labor undermine such attempts. Location theory predicts that cross-state migration will continue until the redistributive effects from taxation are fully capitalized into gross wages leaving after-tax wages unchanged. Empirical evidence has not reached a consensus on this issue. At one extreme, Feldstein and Wrobel (1998) report evidence of full tax capitalization for US states. At the other extreme, Leigh (2008) reports very little to no wage capitalization. We revisit this question by creating a pseudo panel from CPS data spanning years 1997 to 2015. Our “best” estimate is that pre-tax wages adjust in response to redistributive state and local taxes, negating roughly 50 percent of effect compared to counterfactual with no behavioral responses.
    Keywords: Fiscal federalism,Redistribution,State taxation,Tax capitalization,Progressivity,Migration
    JEL: H20 H71 H77
    Date: 2018
  3. By: Vidar Christiansen; Zhiyang Jia; Thor Olav Thoresen
    Abstract: Taking a piecemeal tax reform approach to tax analysis in the spirit of Feldstein (1976), we establish a framework for assessing perturbations of the income tax schedule. It decomposes a reform into a change in tax level and a structural reform part. Focussing on the latter, the analysis singles out four effects: A social efficiency effect measured as the change in tax revenue due to behavioural changes, distributional impact due to mechanical effects, total distributional effects, and overall welfare effects conditional on inequality aversion. When applying our approach to changes in the piecewise linear income tax in Norway during 2016-2018, we identify the cut-off value for the inequality aversion for which the reform is just welfare preserving. For lower inequality aversion the decision makers have accepted a reform which enhances social efficiency at the expense of redistribution in favour of the better-off households.
    Keywords: income tax, tax reform, tax perturbation
    JEL: H21
    Date: 2018
  4. By: Bornemann, Tobias
    Abstract: This study analyzes the relation between accounting conservatism, future tax rate cuts and countries' level of book-tax conformity. Firms have an incentive to increase conservatism in financial reporting when a tax rate cut is imminent to shift taxable income into the lower taxed future. Using a panel of firms across 18 countries from 1995 to 2010 I find that conditional conservatism is positively and significantly associated with future tax rate cuts when book-tax conformity is high. This effect is particularly pronounced for firms that concentrate the majority of their operations in the country in which the tax rate is cut. In contrast, there is no significant relation between future tax rate cuts and unconditional conservatism.
    Keywords: accounting conservatism,tax rate cuts,book-tax conformity
    JEL: H21 H25
    Date: 2018
  5. By: Da Rin, Marco (Tilburg University, Center For Economic Research); Di Giacomo, M.; Sembenelli, A.
    Abstract: We study whether corporate income taxation affects the long-term growth of newly incorporated companies through its effect on their choice of leverage at entry. We first document the distribution of initial leverage, which is persistent over several years. We then find that a decrease in corporate income taxation leads to a sizeable decrease in leverage at entry. This effect on initial conditions has long-term effects: an inverted-U relationship exists between leverage at entry and long-term corporate growth, conditional on survival. These effects are economically sizeable, and stronger in countries with better creditor rights and more transparent financial transactions.
    Keywords: Corporate income taxation; capital structure; entrepreneurial finance; corporate growth
    JEL: G32 H25 L25 L26
    Date: 2018
  6. By: Juan Manuel Sanchez-Cartas
    Abstract: I study the impact of competition and taxation on the openness and the intellectual property policies of two-sided digital platforms. I model a market in which two platforms compete for users and developers. First, I find that higher competition shortens the period of exclusivity granted to developers but does not influence the degree of openness of a platform. However, the higher the degree of differentiation in the developers market, the less open the platforms are. Second, I analyze two types of taxes, ad valorem and unit taxes. Ad-valorem taxes have no effect on the length of the exclusivity period. However, they increase the degree of openness of the platform when levied on users. Unit taxes instead limit the degree of openness and increase the period of exclusivity when levied on the developers market. Lastly, I find that multi-homing reduces the exclusivity period, but does not change the qualitative effects of taxation. My findings suggest that the new digital tax proposed by the European Commission, that should come into force in 2020, may reduce openness and innovation levels in the European Union.
    Keywords: Two-sided markets, Digital Platforms, Taxation, Intellectual Property, Openness
    JEL: H22 L13 L51 L86 O34
    Date: 2019
  7. By: H. Spencer Banzhaf; Ryan Mickey; Carlianne E. Patrick
    Abstract: Many local jurisdictions offer property tax exemptions or similar concessions to older citizens. Such exemptions represent substantial intergenerational transfers and may have important implications for local public finances. The consequences of age-based property tax exemptions depend upon the extent to which they influence households' location decisions, housing tenure decisions, and housing consumption. We provide the first evidence on (long-term) changes in household composition and housing consumption attributable to local, age-based property tax exemptions. We construct a unique database of local property tax exemptions in Georgia covering 100 years of county, school district, and selected city property tax laws. We use these data to estimate the effect of age-based property tax exemptions on the number of older home-owners from 1970-2010 attributable to the exemption. Using a "quadruple-difference" estimation strategy, we find a significant increase in older homeowners attributable to the combined effect of age-based property tax exemptions on location decisions and housing tenure. We also find evidence that age-based property tax exemptions increase housing consumption among older households. Finally, we estimate a sorting model to estimate the equilibrium effects of different tax policies.
    JEL: H7 R2
    Date: 2019–01
  8. By: Rathke, Alex A.T.
    Abstract: This paper proposes a model of optimal tax-induced transfer pricing with a fuzzy arm's length parameter. Fuzzy numbers provide a suitable structure for modelling the ambiguity that is intrinsic to the arm's length parameter. For the usual conditions regarding the anti-shifting mechanisms, the optimal transfer price becomes a maximising a-cut of the fuzzy arm's length parameter. Nonetheless, we show that it is profitable for firms to choose any maximising transfer price if the probability of tax audit is sufficiently low, even if the chosen price is considered a completely non-arm's length price by tax authorities. In this case, we derive the necessary and sufficient conditions to prevent this extreme shifting strategy.
    Keywords: fuzzy profit shifting, transfer pricing, tax evasion, tax enforcement, tax penalty.
    JEL: F23 H26 K34
    Date: 2019–01–12
  9. By: Anne Hannusch
    Abstract: Childbirth causes persistent gender differences in labor force participation and the difference in employment rates of married women with and without pre-school children varies substantially across countries. To what extent can child-related transfers account for this differential? To answer this question, I develop a life-cycle model of joint labor supply, in which female human capital evolves endogenously and a fraction of households has access to informal childcare. I calibrate the model to the US and Denmark, two countries in which the gap in employment rates of women with and without pre-school children differs in sign and magnitude: the gap is 13.2% in the US and -3.7% in Denmark. After taking the labor income tax treatment of married couples and variation in childcare fees into account, I find that child-related transfers are key to explaining the positive gap in the US and the negative gap in Denmark. I show that this mechanism is quantitatively important to account for variation in the maternal participation gap across other European countries as well.
    Keywords: Maternal Labor Supply, Two-earner Households, Family Transfers, Taxation
    JEL: E62 H31 J12 J22
    Date: 2019–01
  10. By: Khaerul Azis, Mohammad; Widodo, Tri
    Abstract: This study aims to examine the impact of imposing carbon taxes as an effort to reduce the effects of greenhouse gases. By using GTAP-E, this study found that the imposition of a vehicle carbon tax of 5 percent resulted in a reduction in the GDP rate of 0.01 percent and effectively reduced the level of carbon dioxide emissions by 0.06 percent.
    Keywords: Carbon tax, GTAP
    JEL: Q51 Q52 Q53 Q58
    Date: 2019–01–07
  11. By: Maebayashi, Noritaka
    Abstract: This study investigates (i) how unfunded public pensions financed by VAT, as discussed in Japan, affect economic growth, and (ii) whether payroll tax or VAT is the more growth-friendly tax structure for the finance of public pensions. We examine these issues in overlapping generations (OLG) models with parental altruism and find the following results. A public pension system financed by VAT itself may increase economic growth when bequests are operative. By contrast, when bequests are inoperative, public pensions hinder growth unless agents are sufficiently patient. Finally, public pensions financed by VAT have turned out to be more growth-friendly than those financed by payroll tax when bequests are operative.
    Keywords: Public pensions financed by VAT, Altruism, Education, Bequests, Growth
    JEL: D64 H20 H55 I20 O40
    Date: 2018–12–26
  12. By: Brinca, Pedro; Oliveira, João; Duarte, João
    Abstract: Since 1980 the U.S. economy has experienced a large increase in income inequality. To explain this phenomenon we develop a life-cycle, overlapping generations model with uninsurable labor market risk, a detailed tax system and investment-specific technological change (ISTC). We calibrate our model to match key characteristics of the U.S. economy and study how ISTC, shifts in taxation, government debt and employment have contributed to the rise in income inequality. We find that these structural changes can account for close to one third of the observed increase in the post-tax income Gini. The main mechanisms in play are the rise in the wage premium of non-routine workers, resulting from capital-non-routine complementarity, as well as a reduction of the progressivity of the labor income tax schedule, which increases post-tax inequality. We show that ISTC alone accounts for roughly 15% of the change observed in post-tax income Gini, while the reduction in progressivity accounts for 16%.
    Keywords: Income Inequality, Taxation, Automation
    JEL: E21 H21 J31
    Date: 2019
  13. By: Bernd Genser; Robert Holzmann
    Abstract: Strong evidence shows that the existing pattern of cross-border pension taxation in OECD countries and beyond is extremely diverse and inconsistent, generating a double fairness dilemma for individuals and countries alike. This paper argues that this dilemma cannot be solved within the current network of double-taxation treaties. Instead, it proposes a new approach for the taxation of old-age pensions in a world of high and increasing cross-border mobility of workers and pensioners. The paper demonstrates that a coordinated move to frontloaded pension taxation and exclusive source taxation would pave the way for an international pension tax order that eliminates the double fairness dilemma. An additional innovative element of frontloaded pension taxation is presented: the decoupling of individual tax assessment and tax payment, which may help curb political opposition against frontloaded pension taxation and smooth transitional effects after its introduction.
    Keywords: pension taxation, international taxation, international migration, double taxation convention
    JEL: H24 H55 H87 F22
    Date: 2018
  14. By: Louis-Gaëtan Giraudet (ENPC - École des Ponts ParisTech, CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Céline Guivarch (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, ENPC - École des Ponts ParisTech)
    Abstract: We elicit simple conditions for an old puzzle -- over-provision of a public good. An asymmetric public good that benefits some contributors while harming others is subject to both free riding and free driving. Even though aggregate impacts are net positive, it can be over-provided if free drivers face provision costs that are sufficiently lower than free riders'. Asymmetric impacts further impose restrictions on Hicks-Kaldor improvements. We establish these results in a parsimonious model that can easily be applied to a variety of so-called NIMBY problems, for instance new public infrastructures and global warming mitigation.
    Keywords: public good,externalities,free riding,free driving,NIMBY,global warming
    Date: 2018–12–19
  15. By: Eichfelder, Sebastian; Schneider, Kerstin
    Abstract: We analyse how tax incentives in the form of accelerated depreciations ("bonus depreciation") affect business investment. By exploiting exogenous variation in tax regulation of a regional bonus depreciation program in the former East Germany, we identify and quantify the impact from bonus depreciation on building and equipment investments at the extensive and intensive margins in the German manufacturing industry. We observe a stronger response for building investments and from large firms. There is only weak evidence of subsidy shopping but stronger evidence of investment shifting to years with more generous bonus depreciation regulations.
    Keywords: bonus depreciation,tax incentive,business taxation,heterogeneity
    JEL: G11 H25 H32 M41
    Date: 2018
  16. By: Mbanda, Vandudzai; Bonga-Bonga, Lumengo
    Abstract: This paper assesses the factors that contribute to underspending of the capital budget at the local government level by making use of a nonlinear model based on the panel smooth transition regression (PSTR) model. South Africa is used as a case study. Capital transfer is identified as an important threshold variable in that the degree to which municipalities spend their capital budget depends on a threshold determined by capital transfer. The results of the empirical analysis show that large amounts of capital transfers to local government contribute to underspending by municipalities in South Africa. Moreover, the results indicate that capital budget spending could be improved by ensuring that the trade-off between the current budget and capital budget is reduced, increasing the fiscal capacity of municipalities, which gives them financial autonomy to raise their own revenues.
    Keywords: capital spending, municipalities, capital transfer, nonlinear model
    JEL: C50 H72 H77
    Date: 2019

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