nep-pub New Economics Papers
on Public Finance
Issue of 2019‒07‒29
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Sales Taxation, Spatial Agglomeration, and the Internet By David R. Agrawal; David E. Wildasin
  2. Tax avoidance - are banks any different? By Gawehn, Vanessa; Müller, Jens
  3. Education, Taxation and the Perceived Effects of Sin Good Consumption By Annamaria Menichini; Giovanni Immordino; Maria Grazia Romano
  4. Emission Taxes, Feed-in Subsidies and the Investment in a Clean Technology by a Polluting Monopoly By Ángela García-Alamino; Santiago J. Rubio
  5. The Digital Services Tax as a Tax on Location-Specific Rent By Wei Cui; Nigar Hashimzade
  6. Welfare Losses of Road Congestion By Antonio Russo; Martin W. Adler; Federica Liberini; Jos N. van Ommeren
  7. Composition of taxes and growth: Evidence from OECD panel data By Luo, Weijie
  8. Fiscal rules and budget forecast errors of Italian Municipalities By Matteo Picchio; Raffaella Santolini
  9. The elasticity of taxable income in Spain: 1999-2014 By Miguel Almunia; David López-Rodríguez
  10. Fear of taxes By Leal-Ordoñez Julio C.; Mandujano Javier

  1. By: David R. Agrawal; David E. Wildasin
    Abstract: Technological innovations facilitating e-commerce have well-documented effects on consumer behavior and firm organization in the retail sector, but the effects of these new transaction technologies on fiscal systems remain unknown. By extending models of commodity tax competition to include urban spatial structure (agglomeration) and online commerce, one can analyze strategic tax-policy interactions among neighboring localities. Consumers buy different types of commodities, sold either by traditional or by online vendors. When the cost of online shopping falls, we show that equilibrium tax rates and revenues increase in small jurisdictions and decrease in large jurisdictions with retail shopping centers. Policy commentators warn that e-commerce erodes tax revenue - true enough for some localities - but, more accurately, changing transaction costs can generate entirely new commercial and fiscal equilibria that ultimately “redistribute” tax revenues from localities with concentrations of traditional vendors toward other, typically smaller, localities.
    Keywords: sales tax, retail shopping, agglomeration, e-commerce, fiscal competition
    JEL: H25 H71 H73 L81 R50
    Date: 2019
  2. By: Gawehn, Vanessa; Müller, Jens
    Abstract: While the public has noticed the need for the detection of potential tax loopholes and demand further improvement in the taxation of banks, there is scarce empirical evidence of whether banks' degree of tax avoidance actually differs from that of non-banks. We try to close this gap by investigating U.S. banks' tax avoidance behavior for a sample period from 2004 to 2016. To anchor banks' tax avoidance, we use annual Cash ETRs and GAAP ETRs and compare them to the tax avoidance behavior of non-banks. As there are various channels of tax avoidance, we account for differences in several areas such as corporate fundamentals, the degree of multinationality and regulatory scrutiny. We provide cautious evidence that banks have significantly larger Cash ETRs than non-banks. Via the use of quantile regression we find evidence that the assocation between banks and ETRs is not constant over the whole tax avoidance distribution, but shows a positive association for lower parts of the tax avoidance distribution and a negative association for higher parts. In line with recent research, we provide some evidence that the difference in Cash ETRs between banks and non-banks is more pronounced for worse-capitalized, than for better-capitalized banks.
    Date: 2019
  3. By: Annamaria Menichini (CSEF, Università di Salerno); Giovanni Immordino (Università di Napoli Federico II and CSEF); Maria Grazia Romano (University of Salerno and CSEF)
    Abstract: In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education initiatives and/or taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation and the relative efficiency of educational measures, the two instruments can be used as substitutes or complements. When both optimistic and pessimistic consumers coexist, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on pessimistic ones. In this framework, educational measures, by aligning both consumers' perceptions closer to the true probability of health damages, are more effective than taxation.
    Keywords: Overoptimism, Taxation, Educational initiatives, Sin goods.
    JEL: D03 H21 L51
    Date: 2019–07–20
  4. By: Ángela García-Alamino (University of Castilla-La Mancha); Santiago J. Rubio (University of Valencia)
    Abstract: The paper studies the use of emission taxes and feed-in subsidies for the regulation of a monopoly that can produce the same good with a technology that employs a polluting input and a clean technology. The second-best tax and subsidy are calculated solving a two-stage policy game between the regulator and the monopoly with the regulator acting as the leader of the game. We find that the second-best tax rate is the Pigouvian tax. The tax implements the efficient level of the dirty output but does not affect the total output. On the other hand, the subsidy leads to the monopoly to reduce the dirty output but also to increase the total output. This increase in total output may yield a larger net social welfare when the subsidy is used provided that the marginal cost of clean output is not very high, as a linear-quadratic specification of the model confirms. Finally, it is showed that the combination of an emission tax with a feed-in subsidy induces the firm to choose the efficient outputs, but in this case the first-best tax must be lower than the Pigouvian tax. Thus, the findings of this paper support the idea that feed-in subsidies open the possibility for improving the regulation of a polluting firm with market power.
    Keywords: Monopoly, Polluting Inputs, Clean Technology, Production-mix, Emission Tax, Feed-in Subsidy
    JEL: D42 H23 L12 Q58
    Date: 2019–07
  5. By: Wei Cui; Nigar Hashimzade
    Abstract: In 2018, the European Council and the UK and Spanish governments each proposed to introduce a Digital Services Tax (DST), to be levied on the revenue of large digital platforms from advertising, online intermediation, and/or the transmission of data. We offer a rationalization of the DST as a tax on location-specific rent (LSR). That is, just as many countries already levy royalties on rent from extracting natural resources, one can think of the DST as levied on rent earned by digital platforms from particular locations. We provide stylized illustrations of how platform rent can be assigned to specific locations, even when users from multiple jurisdictions participate. We then elaborate the analogy between the DST and resource royalties, and analyze the DST’s incidence and effect on consumer welfare using a simple model. Finally, we argue that the DST suggests useful directions for redesigning international taxation in the age of labor-replacing AI technology.
    Keywords: digital services tax, international taxation, location-specific rent, digital platforms
    JEL: H25 K34 M37 M48
    Date: 2019
  6. By: Antonio Russo; Martin W. Adler; Federica Liberini; Jos N. van Ommeren
    Abstract: We estimate the marginal external congestion cost of motor-vehicle travel for Rome, Italy, using a methodology that accounts for hypercongestion (a situation where congestion decreases a road’s throughput). We show that the external cost – even when roads are not hypercongested – is substantial, equaling about two thirds of the private (time) cost of travel. About one third of this cost is borne by public transport users. Most roads are never hypercongested, but some are hypercongested for more than one hour per day. Hypercongestion accounts for about 40 percent of congestion-related welfare losses. Welfare losses incurred on roads that are hypercongested are substantial, predominantly because of a reduction in speed rather than throughput. Our results suggest policies that reduce congestion can result in important welfare gains.
    Keywords: marginal external congestion cost, deadweight loss, hypercongestion, public transport
    JEL: D62 R41 H23
    Date: 2019
  7. By: Luo, Weijie
    Abstract: This paper analyzes the impact of the composition of taxes on economic growth using a panel of OECD countries. In contrast to Kneller et al. (Fiscal policy and growth: evidence from OECD countries, 1999), over 1980-2005 distortionary taxation did not reduce growth, while an increase in non-distortionary taxation had a negative association with growth. When the data are extended to the great recession and its recovery period (1980−2015), distortionary taxation significantly reduces growth as originally conjectured, but the negative effect of non-distortionary taxation survives. This paper argues that distortions from expenditure taxes in recent years can be accounted for by a combination of an exploding increased debt/GDP and globalization.
    Keywords: distortionary taxation,non-distortionary taxation,growth
    JEL: H20 E62 O40
    Date: 2019
  8. By: Matteo Picchio (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche); Raffaella Santolini (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: We study the impact of the domestic stability pact on the budget forecast errors of Italian municipalities. The identification of the causal effect exploits a quasi-natural experiment generated by the removal in 2001 of the fiscal restraints on budget decisions for municipalities with less than 5,000 inhabitants and by stricter budgetary restrictions and severe penalties for noncompliers in 2002. We find that relaxing fiscal rules had a sizeable impact on budget forecast errors, especially in 2002. Revenue (expenditure) forecast errors for municipalities below 5,000 inhabitants became indeed 26% (22%) larger than in the past.
    Keywords: budget forecast errors, sub-central fiscal rules, Italian municipalities, quasi-natural experiment, differencein-discontinuities design.
    JEL: E62 H68 H72
    Date: 2019–07
  9. By: Miguel Almunia (CUNEF); David López-Rodríguez (Banco de España)
    Abstract: We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999-2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for selfemployed taxpayers than for employees, and larger for business income than for labor and capital income. The elasticity of broad income (EBI) is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions, and also robust to potential biases created by mean reversion and heterogeneous income trends.
    Keywords: elasticity of taxable income, ETI, personal income tax, mean reversion, tax deductions, Spain
    JEL: H24 H31 D63
    Date: 2019–07
  10. By: Leal-Ordoñez Julio C.; Mandujano Javier
    Abstract: This paper documents that Mexican households anticipated the fiscal reform of 2014 several months before enacted. This change in expectations is documented using a novel source of information available in Google Trends, among other sources. It then analyzes the economic consequences of this change using a general equilibrium growth model with taxes and uncertainty. The model also considers the presence of generic distortions in the form of wedges in the first order conditions to isolate the effect of taxation. The paper provides an explanation for the unusual trajectories of investment and GDP of the Mexican economy around 2013.
    Keywords: business cycles;expectations;taxes;investment
    JEL: E30 E22 E62
    Date: 2019–06

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