nep-pub New Economics Papers
on Public Finance
Issue of 2019‒04‒22
fifteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation in the digital economy: Recent policy developments and the question of value creation By Olbert, Marcel; Spengel, Christoph
  2. Shifting tax burden to top income earners: What is the best way to reduce inequality? By Onrubia Fernández, Jorge; Picos, Fidel; Rodado, María del Carmen
  3. Charity, Status, and Optimal Taxation: Welfarist and Paternalist Approaches By Aronsson, Thomas; Johansson-Stenman, Olof; Wendner, Ronald
  4. Financial Constraints and Firm Tax Evasion By James Alm; Yongzheng Liu; Kewei Zhang
  5. Tax Morale and Perceived Intergenerational Mobility: a Machine Learning Predictive Approach By Caferra, Rocco; Morone, Andrea
  6. What Motivates Tax Compliance By James Alm
  7. Tax reform, public revenue and public revenue instability in developing countries: Does development aid matter? By Jean-François Brun; Sèna Kimm Gnangnon
  8. Tax Competition and the Efficiency of “Benefit-Related†Business Taxes By Gugl, Elisabeth; Zodrow, George R.
  9. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini
  10. On the macroeconomic and fiscal effects of the tax cuts and jobs act By Lieberknecht, Philipp; Wieland, Volker
  11. How Effective Was the UK Carbon Tax? — A Machine Learning Approach to Policy Evaluation By Jan Abrell; Mirjam Kosch; Sebastian Rausch
  12. Re-assessing the Costs of the Stepped-up Tax Basis Rule By Jay A. Soled; Richard L. Schmalbeck; James Alm
  13. Tax Progressivity in Australia: Facts, Measurements and Estimates By Chung Tran; Nabeeh Zakariyya
  14. Price Elasticities and Implied Tax Revenue for Alcoholic Beverages. Evidence from Poland, France and Spain By Benjamin Bittschi; Ines Fortin; Sebastian Koch; Richard Sellner; Simon Loretz; Gregor Zwirn
  15. The Impact of Interstate Mobility on the Effectiveness of Property Tax Reduction in Georgia By Andrew Feltenstein; Mark Rider; David L. Sjoquist; John V. Winters

  1. By: Olbert, Marcel; Spengel, Christoph
    Abstract: The paper reviews the evidence on the challenges of digitalization for direct (corporate profit) and indirect (consumption) taxation. Based on both anecdotal and empirical evidence, we evaluate ongoing developments at the OECD and European Union level and argue that there is no justification for introducing a new tax order for digital businesses. In particular, the significant digital presence and the digital services tax as put forward by the European Commission will most likely distort corporate decisions and spur tax competition. To contribute to the development of tax rules in line with value creation as the gold standard for profit taxation the paper discusses data as a "new" value-driving asset in the digital economy. It draws on insights from interdisciplinary research to highlight that the value of data emerges through proprietary activities conducted within businesses. We ultimately discuss how existing transfer pricing solutions can be adapted to business models employing data mining.
    Keywords: Digital Economy,Corporate Taxation,Business Model Analysis,Data Mining,Tax Planning
    JEL: H20 H25 H26 L21 L86 M14
    Date: 2019
  2. By: Onrubia Fernández, Jorge; Picos, Fidel; Rodado, María del Carmen
    Abstract: The authors analyze to what extent and how the tax burden should be shifted towards top income earners in order to reduce income inequality. Starting from Lambert and Aronson (Inequality decomposition analysis and the Gini coefficient revisited 1993) and Alvaredo (A note on the relationship between top income shares and the Gini coefficient 2011) decomposition by income groups, they prove that for three types of revenue-neutral linear personal income tax reforms based on Pfähler (1984) the redistributive effect is always higher than before the reform; and when the size of the rich group is sufficiently small (e.g. 1%), the best option is allocating tax changes proportionally to net income, and the worst doing it proportionally to tax liabilities. An empirical illustration of the theoretical results is provided using micro data from the Spanish PIT.
    Keywords: top incomes,inequality,personal income tax,progressivity,redistribution
    JEL: D31 D33 D63 H23 H24
    Date: 2019
  3. By: Aronsson, Thomas (Department of Economics, Umeå School of Business, Economics and Statistics, Umeå University, Sweden); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University); Wendner, Ronald (Department of Economics, University of Graz, Austria)
    Abstract: This paper deals with tax policy responses to charitable giving, defined in terms of voluntary contributions to a public good, to which the government also contributes through public revenue; the set of tax instruments contains general, nonlinear taxes on income and charitable giving. In addition to consumption, leisure and a public good, individuals obtain utility from the warm glow of giving and social status generated by their relative contributions to charity as well as their relative consumption compared with others. We analyze the conditions under which it is optimal to tax or subsidize charitable giving and derive corresponding optimal policy rules. Another aim of the paper is to compare the optimal tax policy and public good provision by a conventional welfarist government with those by two kinds of paternalist governments: The first kind does not respect the consumer preferences for status in terms of relative giving and relative consumption, while the second kind in addition does not respect preferences for warm glow of giving. The optimal policy rules for marginal taxation and public good provision are similar across governments, except for the stronger incentive to tax charitable giving at the margin under the more extensive kind of paternalism. Numerical simulations supplement the theoretical results.
    Keywords: Conspicuous consumption; conspicuous charitable giving; optimal taxation; warm glow
    JEL: D03 D62 H21 H23
    Date: 2019–04
  4. By: James Alm (Tulane University); Yongzheng Liu (Renmin University of China); Kewei Zhang (Renmin University of China)
    Abstract: Most analyses of tax evasion examine individual behavior, not firm behavior, given obvious and recognized data issues. We use data from the Business Environment and Enterprise Performance Survey to examine tax evasion at the firm level, focusing on a novel determinant of firm tax evasion: the financial constraints (or credit constraints) faced by the firm. Our empirical results indicate across a range of alternative specifications that more financially constrained firms are more likely to be involved in tax evasion activities, largely because evasion helps them deal with financing issues created by financial and credit constraints. We further show that the effects of financial constraints are heterogeneous across firm ownership, firm age, and firm size. Lastly, we present some suggestive evidence on the possible channels through which the impact of financial constraints on firm tax evasion may operate, including a reduction of information disclosure through the banking system, an increase in the use of cash for transactions, and an increase in bribe activities in exchange for tax evasion opportunities.
    Keywords: Tax evasion; financial constraints; firm-level data.
    JEL: E26 G2 H26
    Date: 2019–04
  5. By: Caferra, Rocco; Morone, Andrea
    Abstract: The purpose of this paper is to investigate the linkage between the perceived intergenerational mobility and the preferences for tax payment. Unfortunately, we do not have a unique dataset, however missing data might be predicted by employing di�erent methods. We compare the efficiency of k-nearest-neighbors (kNN), Random Forest (RF) and Tobit-2-sample-2-Stage (T2S2S) techniques in predicting the perceived inter- generational mobility, hence we exploit the predicted values to estimate the relation with tax morale. Results provide evidence of a strong negative relation between perceived mobility and tax cheating, suggesting that fairness in tax payment has also to be seen on the light of the perceived efficiency of the welfare state in providing more opportunities across generations.
    Keywords: intergenerational mobility; tax morale; missing data;
    JEL: D63 I31 I32
    Date: 2019–04
  6. By: James Alm (Tulane University)
    Abstract: In this paper, I review and assess what we have learned about what motivates individuals to pay - or to not pay - their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestions - and some predictions - for future research.
    Keywords: Tax evasion; behavioural economics; controlled field experiments; laboratory experiments.
    JEL: H2 H26 D03 C9
    Date: 2019–04
  7. By: Jean-François Brun (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Sèna Kimm Gnangnon (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper addresses two main questions concerning the relationship between tax reform, development aid, public revenue and public revenue instability in developing countries. Tax reform involves here a change in the tax structure in favour of domestic public revenue and at the expense of international trade tax revenue. The analysis uses an unbalanced panel dataset of 95 developing countries over the period 1981-2015, and the two-step system Generalized Methods of Moments approach. Empirical findings show that tax reform exerts a positive and significant effect on tax revenue-to-GDP ratio, with the magnitude of this positive effect increasing as the amount of development aid flows that accrue to developing countries increases. In addition, while tax reform exerts a reducing effect on tax revenue instability, the magnitude of this reducing effect diminishes as the degree of development aid volatility increases. Specifically, beyond a certain level of development aid volatility, tax reform enhances tax revenue instability. Overall, these findings suggest that a rise in development aid flows to developing countries should be accompanied by a lower aid volatility so as to ensure that tax reform would induce higher tax revenue while concomitantly reducing tax revenue instability in recipient-countries.
    Keywords: Tax reform,Public revenue,Public revenue instability,Development aid,Development aid volatility,Developing countries
    Date: 2019–03–09
  8. By: Gugl, Elisabeth (U of Victoria); Zodrow, George R. (Rice U and Centre for Business Taxation, Oxford U)
    Abstract: We construct a tax competition model in which local governments finance business public services with either a source-based tax on mobile capital, such as a property tax, or a tax on production, such as an origin-based Value Added Tax, and then assess which of the two tax instruments is more efficient. Many taxes on business apply to mobile inputs or outputs, such as property taxes, retail sales taxes, and destination-based VATs, and their inefficiency has been examined in the literature; however, proposals from several prominent tax experts to utilize a local origin-based VAT have not been analyzed theoretically. Our primary finding is that the production tax is less inefficient than the capital tax under many--but not all--conditions. The intuition underlying this result is that the efficiency of a user fee on the public business input is roughly approximated by a production tax, which applies to both the public input and immobile labor (in addition to mobile capital). In marked contrast, the capital tax applies only to mobile capital and is thus likely to be relatively inefficient.
    Date: 2019
  9. By: Marco Battaglini; Luigi Guiso; Chiara Lacava; Eleonora Patacchini
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    JEL: H26 K34
    Date: 2019–04
  10. By: Lieberknecht, Philipp; Wieland, Volker
    Abstract: There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect.
    Keywords: tax reform,corporate taxes,capital taxes,labor income taxes,spending cuts,fiscal stimulus
    JEL: E62 E63 E65
    Date: 2019
  11. By: Jan Abrell (ZHAW Winterthur and ETH Zurich, Switzerland); Mirjam Kosch (ZHAW Winterthur and ETH Zurich, Switzerland); Sebastian Rausch (ETH Zurich, Switzerland)
    Abstract: Carbon taxes are commonly seen as a rational policy response to climate change, but little is known about their performance from an ex-post perspective. This paper analyzes the emissions and cost impacts of the UK CPS, a carbon tax levied on all fossil-fired power plants. To overcome the problem of a missing control group, we propose a novel approach for policy evaluation which leverages economic theory and machine learning techniques for counterfactual prediction. Our results indicate that in the period 2013-2016 the CPS lowered emissions by 6.2 percent at an average cost of € 18 per ton. We find substantial temporal heterogeneity in tax-induced impacts which stems from variation in relative fuel prices. An important implication for climate policy is that a higher carbon tax does not necessarily lead to higher emissions reductions or higher costs.
    Keywords: Climate Policy, Carbon Tax, Carbon Pricing, Electricity, Coal, Natural Gas, United Kingdom, Carbon Price Surcharge, Policy Evaluation, Causal Inference, Machine Learning
    JEL: C54 Q48 Q52 Q58 L94
    Date: 2019–04
  12. By: Jay A. Soled (Rutgers Business School); Richard L. Schmalbeck (Duke Law School); James Alm (Tulane University)
    Abstract: The stepped-up basis rule applicable at death (IRC section 1014) has always been a major source of revenue loss. Now, in the absence of a meaningful estate tax regime, taxpayers and their estate executors and administrators are likely to report inflated date-of-death asset values. As a result, the revenue loss associated with this tax expenditure, called the “stepped-up tax basis rule†, will surely increase markedly. The Internal Revenue Service will no doubt attempt to police excessive tax basis adjustments, but the agency lacks the resources to do so adequately. Congress should therefore institute reforms to ensure proper tax basis identification.
    Keywords: Estate tax, capital gains, stepped-up basis tax rule.
    JEL: H2 H3
    Date: 2019–04
  13. By: Chung Tran; Nabeeh Zakariyya
    Abstract: We study the progressivity of Australia's personal income tax system after the introduction of a New Tax System (Goods and Services Tax) Act 1999. We use two data sets: administrative data from Australian Tax Office (ATO) 2004-16 and survey data from the Household Income and Labour Dynamics in Australia (HILDA) survey 2001-16. We first document the distributions of income and tax liabilities, properties of the joint distributions of taxes paid and income, and discuss how taxes are varied across households and over time. We next provide estimates of tax progressivity using two approaches: one based on tax liability progression and one based on tax liability distribution relative to income distribution. The result obtained from the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result obtained from the tax distribution approach indicates a tax progressivity cycle with a modest decline up to 2006, then a sharp increase until 2010, and a slight decline thereafter. The personal income tax cuts for all taxpayers in early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and its interactions with bracket creep strongly affect the overall progressivity level of Australia's income tax system. Hence, our findings provide new insights into the dynamics of income growth and tax progressivity, which has implications for tax policy debates in Australia.
    Keywords: Taxation, progressiveness, income dynamics, inequality, parametric tax function, Suits index, Kakwani index.
    JEL: E62 H24 H31
    Date: 2019–03
  14. By: Benjamin Bittschi; Ines Fortin; Sebastian Koch; Richard Sellner; Simon Loretz (WIFO); Gregor Zwirn
    Abstract: The study estimates the tax revenue effects of changes in alcohol excise taxes for Spain, France and Poland. In addition to excise tax and VAT revenue effects, the price pass-through and the impact on market volumes is estimated. The main parameters – the tax pass-through rate of excise duties to consumer prices and the price elasticities of demand for alcoholic beverages – are estimated via state-of-the-art econometric approaches based a combination of household-levels and macro data. In a first step, the literature survey finds very diverse estimates for price elasticities of alcoholic beverages. We find evidence that excise taxes are typically fully passed onto consumer prices. Using micro data at the household level, we find price elasticities of demand for Spain, France and Poland which are higher (in absolute terms) than those typically found in the literature. This implies that price increases lead to larger drops in sales volume and, thus, tax increases might not result in the expected additional tax revenues. A macro level estimation of the relation between excise tax rates and revenues confirms a Laffer-curve type relationship, i.e., tax revenues cease to increase if excise tax rates reach a certain threshold level. The empirical evidence in this study suggests that the tax rates for beer and wine are well below this revenue maximising saddle point, but the evidence is inconclusive for spirits in the countries in question. Using the simulation tool developed in this study, it is found that a 1 percent increase in the excise tax rates of each alcoholic beverage prevailing in 2017 in each of the countries will have the strongest negative effect on the market volumes of spirits, while for beer and wine these increases translate to by and large higher collected tax revenues. Noteworthily, in some scenarios excise tax increases result in decreases in VAT revenues due to a significant reduction in the higher value on-trade sales.
    Keywords: alcoholic beverages, excise taxation, VAT, price elasticity
    Date: 2019–04–11
  15. By: Andrew Feltenstein (The Center for State and Local Finance, Georgia State University, USA); Mark Rider (The Center for State and Local Finance, Georgia State University, USA); David L. Sjoquist (The Center for State and Local Finance, Georgia State University, USA); John V. Winters (Iowa State University, USA)
    Abstract: This paper develop a computable general equilibrium (CGE) model and a microsimulation model (MSM) to analyze the economic and welfare effects of a Georgia propoerty tax proposal, which would have effectively eliminated school property taxes on homesteaded properties and replaced the lost revenue with a revenue-neutral increase in the state sales tax. Our CGE model, which is a modification of that used in Condon et al. (2015), explores the effects of significantly reducing or eliminating Georgia’s income tax and implementing a revenue-neutral increase in the state sales tax. This paper is set up as follows. We describe the Georgia proposal to reduce property taxes. Following that is a description of the CGE model, and a discussion of the outcomes of that model. The next section presents the MSM and its results. The last section concludes.
    Date: 2019–04

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