nep-pub New Economics Papers
on Public Finance
Issue of 2019‒10‒14
ten papers chosen by

  1. Taxation and Social Justice By Boyan Durankev
  2. The Possible Effects of Personal Income Tax and Value Added Tax on Consumer Behaviors By Ahmet Ak; Oner Gumus
  3. Can Whistleblower Programs Reduce Tax Evasion? Experimental Evidence By David Masclet; Claude Montmarquette; Nathalie Viennot-Briot
  4. Tax law and the transfer of start-up losses: A European overview and categorization By Bührle, Anna Theresa; Spengel, Christoph
  5. Secular Trends in Wealth and Heterogeneous Capital: Land is Back... and Should Be Taxed By Odran Bonnet; Guillaume Chapelle; Alain Trannoy; Etienne Wasmer
  6. VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence By Almunia, Miguel; Liu, Li; Lockwood, Ben; Tam, Eddy H.F.
  8. The impact of international tax information exchange agreements on the use of tax amnesty: evidence from Norway By Andersson, Jonas; Schroyen, Fred; Torsvik, Gaute
  9. Profit shifting and the effect of stricter transfer pricing regulation on tax revenue By Bakke, Julia Tropina; Hopland, Arnt Ove; Møen, Jarle
  10. Spatial dependence of per capita property tax income in South Africa By Kabeya Clement Mulamba; Fiona Tergenna

  1. By: Boyan Durankev
    Abstract: The link between taxation and justice is a classic debate issue, while also being very relevant at a time of changing environmental factors and conditions of the social and economic system. Technologically speaking, there are three types of taxes: progressive, proportional and regressive. Although justice, like freedom, is an element and manifestation of the imagined reality in citizens minds, the state must comply with it. In particular, the tax system has to adapt to the mass imagined reality in order for it to appear fairer and more acceptable.
    Date: 2019–10
  2. By: Ahmet Ak; Oner Gumus
    Abstract: In economics literature, it is accepted that all people are rational and they try to maximize their utilities as possible as they can. In addition, economic theories are formed with the assumptions not suitable to real life. For instance, indifference curves are drawn with the assumptions that there are two goods, people are rational, more is preferred to less and so on. Hence, the consumer behaviors are guessed according to this analysis. Nevertheless, these are invalid in real life. And this inconsistencey are examined by behavioral economics and neuroeconomics. Behavioral economics claims that people can behave what they are not expected since people can be irrational, their willpower is limited and altruistic behaviors can be seen and they can give more value to what they own. As a result of these, consumer behaviors become more different than that of economic theory. In addition to behavioral economics, neuroeconomics also examines consumer behaviors more differently than mainstream economic theory. It emphasizes the people using prefrontial cortex of the brain are more rational than the people using hippocampus of the brain. Therefore, people can make illogical choices compared to economic theory. In these cases, levying taxes such as personal income tax or value added tax can be ineffective or effective. In other words, the effect becomes ambigious. Hence,the hypothesis that if government desires to levy personal income tax or value added tax, it makes a detailed research in terms of productivity of taxes forms the fundamental of this study.
    Date: 2019–09
  3. By: David Masclet (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal); Claude Montmarquette (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal); Nathalie Viennot-Briot (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal)
    Abstract: There are many ways of tackling tax evasion. The traditional strategies implemented by tax authorities fight fiscal fraud through audits and penalties. However, there also exist a plethora of unconventional methods, such as whistleblower programs. Although there is rich economic literature on tax evasion, auditing and penalties, tax agencies‘ heavy reliance on whistleblower programs has mostly been ignored. We ran an experiment in which taxpayers can punish tax evaders by reporting them to the authorities, even though it is costly for them to do so and despite the lack of any material benefit from doing so. Information on other taxpayers' compliance rates together with the opportunity to report tax evaders have a positive and very significant effect on the level of income reported. Observing the compliance rates of other participants alone does not suffice to increase tax revenues.
    Keywords: fiscal fraud,whistleblowers,ambiguous risk,laboratory experiment.
    Date: 2019–09
  4. By: Bührle, Anna Theresa; Spengel, Christoph
    Abstract: Most of the European Member States employ anti-loss trafficking rules. They aim to prevent the acquisition of mere corporate shells with high tax loss carryforwards for the tax asset to be utilized in profitable companies. However, other corporations can unintentionally be affected by the anti-abuse regulations if there is a change in ownership or activity. The transfer restrictions have been argued to impair start-up financing, as investors are faced with the risk of losing accumulated loss carryforwards in the corporation upon the entering of new or the capital increase of existing investors. This study provides an overview over the design and development of loss transfer restrictions in the EU28 over a time period of 19 years (2000-2018). Different aspects of the regulations are analyzed against the background of their impact on start-ups. Finally, the rules are categorized with respect to their strictness. Over time, more countries introduced restrictions. At the same time, the regulations became more lenient, offering start-ups more opportunities to maintain their loss carryforwards and, therefore, decreasing the risk for investors.
    Keywords: tax loss carryforward,loss trafficking,loss transfer,entrepreneurship,start-ups
    JEL: M13 H25 H32 L52
    Date: 2019
  5. By: Odran Bonnet (Sciences Po); Guillaume Chapelle (Sciences Po); Alain Trannoy (Aix-Marseille School of Economics (CNRS / AMU / EHESS)); Etienne Wasmer (Département d'économie)
    Abstract: The increase in wealth-to-income ratios in the second half of XXth century has recently received much attention. We decompose the trend in physical capital and housing, further decomposed into structures and land. In four out of five major countries analyzed, the positive trend in capital-income ratio arises from housing and specifically from its land component. We therefore revisit the question of wealth inequality and taxation in adopting a Georgist perspective (from Henry George, 1879) subsequently endorsed by prominent economists. We introduce land and housing structures in Judd’s optimal taxation framework. We show that an optimal taxation implies a property tax on land and no tax on capital. When the range of property taxes is politically constrained, taxing the product of housing rents is not optimal, even with additional taxes on "imputed rents". Rent taxes are however less distortive than a capital tax. The distortion depends on the share of housing structures and how they react to the tax on rents. However, a tax on rents complemented by a subsidy on structures investments in rental housing units does almost as well as a land tax. As a side result, we find that Judd’s result of no second best capital taxation extends to a larger range of parameters at the steady-state.
    Keywords: Capital; Wealth; Housing; Land; Optimal Tax; First Best; Second Best
    JEL: D91 O11 R14
    Date: 2019–10
  6. By: Almunia, Miguel; Liu, Li; Lockwood, Ben; Tam, Eddy H.F.
    Abstract: Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.
    Keywords: bunching; UK; Value-Added Tax (VAT); Voluntary registration
    JEL: H21 H25 H32
    Date: 2019–09
  7. By: Daunfeldt, Sven-Olov (Institute of Retail Economics (Handelns Forskningsinstitut)); Gidehag, Anton (Institute of Retail Economics (Handelns Forskningsinstitut)); Rudholm, Niklas (Institute of Retail Economics (Handelns Forskningsinstitut))
    Abstract: One way for policymakers to reduce labor costs and stimulate the recruitment of marginalized groups of labor in a highly unionized economy is to lower payroll taxes. However, the efficiency of this policy instrument has been questioned, and previous evaluations have mostly found small employment effects for such reforms. We investigate the effects of a payroll tax cut in Sweden that decreased firms’ labor costs in relation to the number of young employees that they had employed when the reform was implemented in 2007. We find that most firms received small labor cost savings as a result of the reform, but those that received larger cost savings increased their number of employees significantly more than firms that received no, or minor, labor cost savings. Our findings also suggest that the payroll tax cut increased the total wages paid to incumbent workers, but the wage effect was too small to offset the positive extensive-margin employment effect of the reform. In total, we find that the Swedish payroll tax reform created 18,100 jobs over the period 2006-2008; most of these jobs were within the targeted group of young employees.
    Keywords: Payroll tax reform; labor demand; employment; wages
    JEL: H25 H32 J23 J32 L20
    Date: 2019–10–08
  8. By: Andersson, Jonas (Dept of Business and Management Science NHH and NoCeT); Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration); Torsvik, Gaute (University of Oslo, Dept of Economics and OFS)
    Abstract: In this paper we develop a model for tax amnesty applications in a multi-period setting. One key insight from the model is that applying for amnesty becomes more attractive at the moment when stricter enforcement is announced, even if the implementation of the policy is in the distant future. We use our model to make sense of how international tax information exchange agreements affects voluntary disclosure of wealth and income previously hidden in tax havens. Our data is from Norway. In accordance with the dynamic amnesty model we observe a strong announcement effect of a tax information exchange agreement between Norway and Switzerland and Luxembourg, the two most important tax havens for Norwegian tax evaders. However, the effect levels off very quickly, much faster than our model predicts. We think this is because the initial announcement of the tax agreement exaggerated the risk the agreement imposed to those who had hidden taxable income and wealth in Switzerland. We also estimate and find significant effects of the press releases the Norwegian Tax Authority issues to inform taxpayers about new international tax agreements and the amnesty, or voluntary disclosure, option that exists in the Norwegian tax code.
    Keywords: Tax Evasion; Tax Amnesty; Tax Information Exchange Agreement
    JEL: C22 C23 H26 H27 K34
    Date: 2019–09–30
  9. By: Bakke, Julia Tropina (Dept. of Business and Management Science, Norwegian School of Economics); Hopland, Arnt Ove (Dept. of Business and Management Science, Norwegian School of Economics); Møen, Jarle (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Using a 20-year-long, population-wide panel with detailed firm and group level data from Norway, we study the profitability change in companies that shift from being domestic to being multinational as well as companies that shift from being multinational to being domestic. Profitability falls when domestic companies become multinational and increases when multinational companies become domestic. The average change in profitability is about 24 %, all else equal. We attribute our findings to the profit shifting opportunities that are available for multinational companies, and we display several patterns in the data that are consistent with this interpretation. We find that the extent of profit shifting decreases after the introduction of stricter transfer pricing regulations, and an increase in transfer pricing audits, starting in 2007/2008. Our best estimate of the total corporate tax revenue lost due to profit shifting is about 6 % in the last year of the sample, 2012. We estimate that the revenue loss would have been twice as large in absence of the new regulatory framework.
    Keywords: Multinational companies; profit shifting; BEPS; Transfer pricing; Tax gap
    JEL: F23 H25 H26
    Date: 2019–10–03
  10. By: Kabeya Clement Mulamba; Fiona Tergenna
    Abstract: We investigate spatial dependence of per capita property tax income among South African municipalities. One original contribution of our study is the use of per capita property tax income, rather than the property tax rate, as the outcome variable. Per capita property tax income is indicative of tax burden on residents. In addition, whilst most studies focus on advanced countries that have had institutionalised fiscal decentralisation for many decades, this paper focuses on South Africa, which is a developing country and implemented fiscal decentralisation only 18 years ago. Using Bayesian spatial econometric approach, we establish the presence of spatial dependence.
    Keywords: Municipalities, per capita property tax income, spatial, Spatial dependence, South Africa
    JEL: H70 H77 C31
    Date: 2019–10

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