nep-pub New Economics Papers
on Public Finance
Issue of 2019‒02‒04
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How Taxes Affect the Incentive to Invest in New Intangible Assets By Congressional Budget Office
  2. Revenue Implications of Destination-Based Cash-Flow Taxation By Shafik Hebous; Alexander Klemm; Saila Stausholm
  3. Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets By Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur
  4. Using distance functions to derive optimal progressive earnings tax and commodity tax structures By John Burbidge
  5. Marginal Federal Tax Rates on Labor Income: 1962 to 2028 By Congressional Budget Office
  6. Salience of Inherited Wealth and the Support for Inheritance Taxation By Bastani, Spencer; Waldenström, Daniel
  7. Options for Reducing the Deficit: 2019 to 2028 By Congressional Budget Office
  8. The challenge of moving to a Common Consolidated Corporate Tax Base in the EU By Hentze, Tobias
  9. Greener and Fairer: A Progressive Environmental Tax Reform for Spain By Christoph Boehringer; Xaquin Garcia-Muros; Mikel González-Eguino
  10. Property Tax in African Secondary Cities: Insights from the Cases of Kisumu (Kenya) and M’Bour (Senegal) By Cirolia, Lisa R.; Mizes, James C.

  1. By: Congressional Budget Office
    Abstract: In this report, CBO extends its analysis of the tax burden on income from investments to include investments in intangible assets, whose value is not derived from physical attributes—for example, software, chemical formulas arising from research and development, and literary works.
    JEL: H25
    Date: 2018–11–15
  2. By: Shafik Hebous; Alexander Klemm; Saila Stausholm
    Abstract: We estimate the revenue implications of a Destination Based Cash Flow Tax (DBCFT) for 80 countries. On a global average, DBCFT revenues under unchanged tax rates would remain similar to the existing corporate income tax (CIT) revenue, but with sizable redistribution of revenue across countries. Countries are more likely to gain revenue if they have trade deficits, are not reliant on the resource sector, and/or—perhaps surprisingly—are developing economies. DBCFT revenues tend to be more volatile than CIT revenues. Moreover, we consider the revenue losses resulting from spillovers in case of unilateral implementation of a DBCFT. Results suggest that these spillover effects are sizeable if the adopting country is large and globally integrated. These spillovers generate strong revenue-based incentives for many—but not all—other countries to follow the DBCFT adoption.
    Keywords: tax revenue, destination-based cash flow tax, border adjustment tax
    JEL: H25 H87
    Date: 2019
  3. By: Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur
    Abstract: This paper considers time-inconsistent output subsidy/tax policies in free-entry mixed markets and compares committed and non-committed regimes under different competition modes. In a committed regime where the subsidy is determined before the private firms enter the market, the optimal rate is zero in either Cournot game or Stackelberg game when the public firm is a follower, while it is negative in Stackelberg game with public leadership. However, in the non-committed regime where the subsidy is not determined before entry, the optimal rate is always positive. Finally, we show that private leadership is the best for social welfare regardless of the timing of output subsidy/tax policies.
    Keywords: Free-entry mixed market, Committed policy, Non-committed policy, Output subsidy
    JEL: H20 H42 L13
    Date: 2019–01–14
  4. By: John Burbidge (Department of Economics, University of Waterloo)
    Abstract: Much of the research program in optimal taxation rests on the Atkinson-Stiglitz theorem (1976) | in the presence of optimal nonlinear earnings taxation, if leisure is weakly separable from goods, there is no role for differential commodity taxation. The nonlinear earnings tax in the theorem is one where, conditional on reported earnings, the government can choose tax paid and the marginal tax rate (mtr). The relationship between the average tax rate (atr) and mtr is unrestricted. Most governments operate progressive nonlinear tax systems in which, for each person paying taxes, mtr is not less than atr. I build on Deaton's work on distance functions and taxation to show that the AS theorem fails in the presence of optimal progressive earnings taxation. Conditional on mtr atr, the search for optimal earnings tax structures cannot be undertaken without simultaneously studying optimal commodity taxation whether or not leisure is weakly separable from goods. The formal theory in the paper assumes two types. I also discuss a nite-type example of an optimal progressive earnings, and commodity, tax structure and present numerical examples with four types.
    JEL: H21
    Date: 2018–11–12
  5. By: Congressional Budget Office
    Abstract: The marginal federal tax rate on labor income is the percentage of additional income an individual earns that is paid in payroll taxes and federal income taxes. For payroll taxes, CBO estimates that the economywide marginal rate on labor income grew rapidly between the early 1960s and the early 1980s and has remained fairly stable thereafter. The rate on individual income taxes has fluctuated greatly over the past five decades. Marginal tax rates vary widely among families.
    JEL: H20 H24
    Date: 2019–01–24
  6. By: Bastani, Spencer (Department of Economics and Statistics, Linnaeus University); Waldenström, Daniel (Paris School of Economics)
    Abstract: We study how attitudes to inheritance taxation are influenced by information about the role of inherited wealth in society. Using a randomized experiment in a register-linked Swedish survey, we find that informing individuals about the large aggregate importance of inherited wealth and its link to inequality of opportunity significantly increases the support for inheritance taxation. The effect is almost uniform across socio-economic groups and survives a battery of robustness tests. Changes in the perceived economic importance of inherited wealth and altered views on whether luck matters most for economic success appear to be the main driving factors behind the treatment effect. Our findings suggest that the low salience of inherited wealth could be one explanation behind the relatively marginalized role of inheritance taxation in developed economies.
    Keywords: Capital taxation; Tax attitudes; Equality of opportunity; Randomized experiment
    JEL: D31 H20 H31
    Date: 2019–01–24
  7. By: Congressional Budget Office
    Abstract: Since 2007, federal debt held by the public has more than doubled in relation to the size of the economy. The Congress faces an array of policy choices as it confronts the challenges posed by such large and growing debt. To help inform lawmakers, CBO periodically issues a volume of options—this year’s installment presents 121—that would decrease federal spending or increase federal revenues over the next decade.
    JEL: H20 H60 H61 H62 H63
    Date: 2018–12–13
  8. By: Hentze, Tobias
    Abstract: The introduction of a Common Consolidated Corporate Tax Base (CCCTB) in the European Union (EU) would substantially change the rules of the game in international taxation. According to the proposal by the European Commission (EC), the profits of a Multinational Enterprise (MNE) would no longer be assessed by using the arm's length principles and (hypothetical) market prices, but split based on a formulary apportionment. This implies that an allocation key consisting of sales volume, number of employees and capital invested would be applied to distribute the taxable profits of an MNE. From an economic perspective, the principle of taxing profits at source would be thereby abolished. However, due to the current difficulty for taxpayers and tax authorities to agree on adequate transfer prices, a radical change as proposed by the EC might be reasonable. Hence, the EC proposal for the CCCTB is a promising goal as it could lower the red tape burden for MNE as well as tax authorities. Furthermore, the adjustment of the debt bias and the encouragement of R&D as additional items of the EC proposal could stimulate economic growth. A main obstacle for the implementation of a CCCTB would be the expected shifts in tax revenue which make a political agreement at the EU level very difficult. The application of a CCCTB would substantially redistribute corporate profits among the EU member states as a simulation by the German Economic Institute (IW) shows. Especially, Ireland, Luxembourg and Malta would receive significantly less tax revenue since sales volume, number of employees and capital invested are relatively small in these countries. France and Italy, in contrast, would be on the winning side. Germany would also benefit even though to a rather low degree. A main reason for this result is that the strongly exporting German corporations today pay a large proportion of their corporate taxes in Germany. With the application of the CCCTB, parts of the taxable profits would be allocated to foreign countries. From a systematic point of view, the CCCTB is only convincing if there is a global commitment. A simulation of the tax revenue effects for the G20 countries when applying a CCCTB shows that the shift would also be drastic. The EU member states - even the big ones - would have to accept lower taxable corporate profits. Instead, the United States could increase the corporate tax base mainly because of the high consumption level. China and India would benefit due to the large number of employees. Thus, whether a country ranks among the winners or losers in terms of tax revenue depends foremost on the peer group.
    JEL: H25 H26
    Date: 2019
  9. By: Christoph Boehringer (University of Oldenburg, Department of Economics); Xaquin Garcia-Muros (Basque Centre for Climate Change (BC3), Leioa, Spain); Mikel González-Eguino (University of the Basque Country (UPV/EHU), Bilbao, Spain)
    Abstract: Environmental externalities call for the use of environmental taxes to get prices right and thereby reduce environmental pressures. To date, however, the Spanish government makes only limited use of environmental taxes. One major reason for the policy reluctance are concerns on the regressive impacts of environmental taxes. We argue that policy can hedge against these concerns by means of revenue recycling. More specifically, we assess the impacts of a green tax reform where additional revenues are redistributed lump-sum to Spanish households on an equal-per-capita basis. Based on quantitative evidence from coupled microsimulation and computable equilibrium analyses we find that such a green tax reform leads to a substantial reduction in harmful emissions while having a progressive impact.
    Keywords: Environmental tax reform, household incidence, computable general equilibrium, microsimulation
    Date: 2019–01
  10. By: Cirolia, Lisa R.; Mizes, James C.
    Abstract: This working paper adopts an urban lens on property tax. It focuses specifically on how property tax operates in two African secondary cities, Kisumu (Kenya) and M’Bour (Senegal). The paper identifies three factors shaping the low levels of property tax collection in the two case cities. These are the misalignment between the spatial scale of property tax collection and the utilisation of funds; constrained resources and capacity for collection; and tax administrators’ own perceptions of the legitimacy of property taxation. These factors have tangible effects on the everyday workings of property taxation. The cases also demonstrate that tax administrators make sustained efforts to improve taxation. While the same types of challenges are evident in the cities of Kisumu and M’Bour, how administrators respond reflects the unique and particular context of each place and the perspective of the administrators who work there. This finding confirms that local tax administrators are not simply the recipients of tax policy, but are active agents in shaping how policies operate in practice. Overall, improving property taxation requires interventions to address alignment, capacity, and legitimacy. However, rather than attempting top-down reform, this research suggests that building on the perceptions and practices of tax administrators will offer a more effective pathway to incrementally improving property tax in Africa’s smaller urban centres.
    Keywords: Finance, Governance,
    Date: 2019

This nep-pub issue is ©2019 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.