nep-pub New Economics Papers
on Public Finance
Issue of 2019‒02‒11
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxes, Incorporation, and Productivity By Robert J. Barro; Brian Wheaton
  2. Employment Structure and the Rise of the Modern Tax System By Anders Jensen
  3. Revenue Implications of Destination-Based Cash-Flow Taxation By Shafik Hebous; Alexander D Klemm; Saila Stausholm
  4. Corporate Tax Reform: From Income to Cash Flow Taxes By Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
  5. How Elastic is the Demand for Tax Havens? Evidence from the US Possessions Corporations Tax Credit By Daniel G. Garrett; Juan Carlos Suárez Serrato
  6. Investment-Specific Technological Change, Taxation and Inequality in the U.S. By Brinca, Pedro; Duarte, João B.; Holter, Hans A.; Oliveira, João G.
  7. The Elasticity of Taxable Labour Income in the Netherlands By Jongen, Egbert L. W.; Stoel, Maaike
  8. French Favored Redistributions Derived From Surveys: a Political Assessment of Optimal Tax Theory By Adrien Fabre
  9. Neutral carbon tax and environmental targets in Brazil By Paula Pereda; Andrea Lucchesi, Carolina Policarpo Garcia, Bruno Toni Palialol

  1. By: Robert J. Barro; Brian Wheaton
    Abstract: U.S. businesses can be C-corporations or pass-through entities in the forms of S-corporations, partnerships, and sole proprietorships. C-corporate status conveys benefits from perpetual legal identity, limited liability, potential for public trading of shares, and ability to retain earnings. However, legal changes have enhanced pass-through alternatives, notably through the invention of the S-corporation in 1958, the advent of publicly-traded partnerships in the early 1980s, and the improved legal status of limited liability companies (LLCs) at the end of the 1980s. C-corporate form is typically subject to a tax wedge, which offsets the productivity benefits. We specify a theoretical framework in which firms’ productivities under C-corporate and pass-through form are distributed as bivariate log-normal. The tax wedge determines the fraction of firms that opt for C-corporate status, overall business output (productivity), the share of output generated by C-corporations, and the sensitivity of this share to the tax wedge. This framework underlies our empirical analysis of C-corporate shares of business economic activity. Long-difference regressions for 1968-2013 show that a higher tax wedge reduces the C-corporate share of net capital stocks, equity (book value), gross assets, and positive net income, as well as the corporate share of gross investment. The C-corporate shares also exhibit downward trends, likely reflecting underlying legal changes. We infer from the quantitative findings that the reduction in the tax wedge since 1968 has expanded overall business productivity by about 4%.
    JEL: E62 H20 H25 L11 L22
    Date: 2019–01
  2. By: Anders Jensen
    Abstract: This paper studies how the transition from self-employment to employee-jobs over the long run of development explains growth in income tax capacity. I construct a new database which covers 100 household surveys across countries at different income levels and 140 years of historical data within the US (1870-2010). Using these data, I first establish four new stylized facts: 1) within country, the share of employees increases over the income distribution, and increases at all levels of income as a country develops; 2) the income tax exemption threshold moves down the income distribution as a country develops, tracking employee growth; 3) the employee share above the tax exemption threshold is maximized and remains constantly high; 4) movements in the tax exemption threshold account for the observed variation in tax collection across development. These findings are consistent with a model where a high employee share is a necessary condition for effective taxation and where the rise in income covered by information trails through increases in employee shares drives expansion of the income tax base. To provide a causal estimate of the impact of employee share on the exemption threshold, I study a state-led US development program implemented in the 1950s-60s which shifted up the level of employee share. The identification strategy exploits within-state changes in court-litigation status which generates quasi-experimental variation in the effective implementation date of the program. I find that the exogenous increase in employee share is associated with an expansion of the state income tax base and an increase in state income tax revenue.
    JEL: D31 H11 H21 H24 H26 H71 O15 O22
    Date: 2019–01
  3. By: Shafik Hebous; Alexander D 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.
    Date: 2019–01–15
  4. By: Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
    Abstract: This paper uses a multi-region, forward-looking, DSGE model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries’ exports benefit from additional investment in the country undertaking the reform and other countries’ domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP.
    Date: 2019–01–16
  5. By: Daniel G. Garrett; Juan Carlos Suárez Serrato
    Abstract: Why do some firms adopt certain tax havens and how sensitive is the demand for tax havens? We address these questions by studying how the repeal of Section 936 tax credits affected firms with affiliates in Puerto Rico. We first describe the characteristics of US multinationals that were exposed to Section 936. We then show that the market value of exposed firms decreased after losing access to Section 936, implying that firms could not perfectly substitute to other tax havens. Finally, we find that firms exposed to Section 936 did not respond by expanding their network of tax havens.
    JEL: F21 F23 H25 H26 H32
    Date: 2019–01
  6. By: Brinca, Pedro; Duarte, João B.; Holter, Hans A.; Oliveira, João G.
    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
  7. By: Jongen, Egbert L. W. (CPB Netherlands Bureau for Economic Policy Analysis); Stoel, Maaike (Ministry of Economic Affairs and Climate Policy)
    Abstract: We study the elasticity of taxable labour income in the Netherlands. We use a large and rich data set, including both financial and demographic variables, for the period 1999–2005. The 2001 tax reform generates large exogenous variation in marginal tax rates at different segments of the income distribution. For all workers, we find an elasticity of 0.10 in the short run, 1 year after the reform, rising to 0.24 in the medium to longer run, 5 years after the reform. Furthermore, we find that the elasticity is higher for higher incomes and women. Also, we find that the elasticity of taxable labour income is higher than the elasticity of (contractual) annual hours worked.
    Keywords: elasticity of taxable income, hours worked, Netherlands
    JEL: H24 H31 J22
    Date: 2019–01
  8. By: Adrien Fabre (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Keywords: Preferences for redistribution,Desired tax,Income tax rates,Income distribution,France
    Date: 2018–12
  9. By: Paula Pereda; Andrea Lucchesi, Carolina Policarpo Garcia, Bruno Toni Palialol
    Abstract: We evaluate the effects of a carbon tax in the Brazilian economy using an input-output framework. First, we consider the impacts of a carbon tax of US$ 10 and US$ 50/metric ton of CO2 equivalent. As usual, the adoption of the carbon tax generates adverse effects on GDP, wages and jobs in the short term, but reduces emissions and generates new government revenues, especially in the case of the greater tax. Second, we consider a broader tax system reform. In this reform, we replace distortionary taxes by a tax on value added. To compensate for the loss of government revenue, we assume a carbon tax with equivalent revenue. We find that the net effect is a GDP increase of 0.47%, the creation of 533 thousand jobs and reduction of 1.6 million tons of CO2 emissions. Both scenarios exempt exports and levy imports to correct adverse effects on the country’s competitiveness.
    Keywords: carbon tax; input-output analysis; revenue-recycling effect; neutral tax burden
    JEL: H22 Q52 Q58
    Date: 2019–02–04

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