nep-pub New Economics Papers
on Public Finance
Issue of 2019‒10‒21
nine papers chosen by

  1. Taxation and the Superrich By Scheuer, Florian; Slemrod, Joel
  2. The Economics of the Digital Services Tax By Wolfram F. Richter
  3. Measuring tax complexity across countries: A survey study on MNCs By Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren
  4. The conditional contribution mechanism for repeated public goods: The general case By Oechssler, Joerg; Reischmann, Andreas; Sofianos, Andis
  5. Measuring R&D tax support: Findings from the new OECD R&D Tax Incentives Database By Silvia Appelt; Fernando Galindo-Rueda; Ana Cinta González Cabral
  6. Tax Policy and Lumpy Investment Behavior: Evidence from China's VAT Reform By Zhao Chen; Xian Jiang; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Xu
  7. Personal income distribution and progressive taxation in a neo-Kaleckian model: Insights from the Italian case By Barbieri Góes, Maria Cristina
  8. The «burden» of Swiss public debt: Lessons from research and options for the future By Cédric Tille
  9. Behavioral Responses to Wealth Taxes: Evidence from Switzerland By Brülhart, Marius; Gruber, Jonathan; Krapf, Matthias; Schmidheiny, Kurt

  1. By: Scheuer, Florian; Slemrod, Joel
    Abstract: This paper addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different than others. Some may be "superstars," for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters, and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with special attention to capital gains, which comprise a large fraction of the taxable income of the superrich.
    Keywords: Plasticity of Taxable Income; Superrich; Superstars; Tax Systems; Wealth Taxes; Winner-Take-All Markets
    JEL: E6 H2 I3 J3 J6
    Date: 2019–08
  2. By: Wolfram F. Richter
    Abstract: The use of digital services is largely non-rival. This paper argues that vanishing marginal costs of supply change policy incentives. Small countries are incentivized to tax the import of digital services. In fact, various countries have already moved towards expanded source taxation of online business activities. If such practice spreads, the quality of digital services will be negatively affected. This paper argues that countries exporting digital services have reason to respond by promoting an international tax regime in which the profit earned on remote supplies of digital business services is split between the countries involved.
    Keywords: digital services, remote supply, import tax, alleviating double taxation, profit splitting
    JEL: H25 M48
    Date: 2019
  3. By: Hoppe, Thomas; Schanz, Deborah; Sturm, Susann; Sureth, Caren
    Abstract: Despite prior literature emphasizing the increasing role of tax complexity, there is still no comprehensive tax complexity measure. This paper fills this gap and introduces the Tax Complexity Index (TCI), which consists of a tax code subindex and a tax framework subindex. The indices are designed to capture the multidimensional nature of tax complexity from an MNC's perspective and extend previous measures that have so far only focused on selected countries or facets of tax complexity. Based on a survey of highly experienced tax consultants of the largest international tax services networks, the indices are calculated for 100 countries for the year 2016. Our findings indicate that the level of tax complexity varies considerably across countries. From a global perspective, tax complexity is strongly affected by the complexity of transfer pricing regulations in the tax code and by the complexity of tax audits in the tax framework. While we identify countries that turn out to be complex in both their tax code and tax framework, we also observe that many countries differ in their rankings on tax code and tax framework complexity, i.e., they either have a high tax code complexity and a low tax framework complexity or vice versa. When analyzing the associations between tax complexity and other country characteristics, we identify different correlation patterns. For example, we find that tax (framework) complexity is negatively associated with countries' governance, suggesting that strongly governed countries tend to have less complex tax frameworks. In contrast, we find a positive association between tax (code) complexity and the statutory tax rate, indicating that high-tax countries tend to have more complex tax codes. However, none of the observed associations is very strong. We conclude that tax complexity represents a distinct country characteristic and propose to use the TCI and its subindices as new proxies for MNCs' varying exposures to tax complexity in the assessment of country-specific corporate decisions.
    Keywords: tax complexity,tax index,tax system,multinational corporations,tax consultants
    JEL: H20 H25 C83 O57
    Date: 2019
  4. By: Oechssler, Joerg; Reischmann, Andreas; Sofianos, Andis
    Abstract: We present a new and simple mechanism for repeated public good environments. In the Conditional Contribution Mechanism (CCM), agents send two message of the form, "I am willing to contribute x units to the public good if in total y units are contributed." This mechanism offers agents risk-free strategies, which we call unexploitable. We prove that if agents choose unexploitable messages in a Better Response Dynamics model, all stable outcomes of the CCM are Pareto efficient. We conduct a laboratory experiment to investigate whether observed behavior is consistent with this prediction. In the complete information case we find that indeed almost 80% of outcomes are Pareto optimal. Furthermore, comparison treatments with the Voluntary Contribution Mechanism show that the CCM leads to significantly higher contribution rates. Even under incomplete information, contributions are fairly high and do not deteriorate over time.
    Keywords: Experimental Economics,Public Goods,Mechanism Design,Better Response Dynamics
    JEL: C72 C92 D82 H41
    Date: 2019
  5. By: Silvia Appelt; Fernando Galindo-Rueda; Ana Cinta González Cabral
    Abstract: Investment in research and experimental development (R&D) is an important driver of innovation and economic growth. Over the past two decades, tax incentives have become a key policy instrument for promoting business R&D. This raises a number of policy questions: How has the role of tax incentives in the R&D support policy mix evolved across OECD countries and other major economies? How generous are tax relief provisions for different types of firms? How effective are they in stimulating business R&D investment? The OECD R&D Tax Incentives Database ( aims to contribute to the data infrastructure available to policy makers and researchers to examine the use and impact of R&D tax incentives across OECD countries and partner economies. This paper provides a practical guide to using this new database, describing the recently released R&D tax incentive data and highlighting their potential for internationally comparative work through descriptive indicators and econometric analysis.
    Date: 2019–10–15
  6. By: Zhao Chen; Xian Jiang; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Xu
    Abstract: A universal fact of firm-level data is that investment is lumpy: firms either replace a considerable fraction of their existing capital (spike) or do not invest at all (inaction). This paper incorporates the lumpy nature of investment into the study of how tax policy affects investment behavior. We show that tax policy can directly impact the lumpiness of investment and that the effectiveness of tax incentives in stimulating investment depends crucially on interactions with investment frictions. We illustrate these results by studying one of the largest tax incentives for investment in recent history: China's 2009 VAT reform. Using administrative tax data and a difference-in-differences design, we document that the reform increased investment by 36% and that this effect is driven by additional investment spikes. We then simulate the fiscal cost of stimulating investment through different tax policies using a dynamic investment model that is consistent with the reduced-form effects of the reform. Policies that directly reduce the likelihood of firm inaction (e.g., investment tax credits) are more effective at stimulating investment than policies that only reduce the tax cost of investment (e.g., corporate income tax cuts).
    JEL: E22 H25
    Date: 2019–10
  7. By: Barbieri Góes, Maria Cristina
    Abstract: This paper develops a stylized short-run neo-Kaleckian model incorporating personal income inequality and income taxes based on You and Dutt (1996). The main goal is to investigate how changes in income taxes and personal income distribution affect output growth. The theoretical discussion of the stylized model is then empirically assessed, using data for Italy retrieved from the Survey of Household Income and Wealth published by the Bank of Italy. The empirical analysis confirms both the heterogeneity of the propensities to consume of Italian households and the dominance of absolute income effects in the Italian consumer behavior that assures the negative trade-off between inequality and aggregate demand. More specifically, it is shown that, overall, Italians are still income constrained, not allowing for a compensation of the demand-depressing effects of raising inequality via debt and wealth-based consumption. Likewise, it is argued that decreasing personal income inequality via progressive income tax reforms would have positive effects on aggregate demand, utilization, and growth.
    Keywords: Income inequality,Personal Income Distribution,Income Taxes,Kaleckian model
    JEL: D11 D12 D31 E12 E21 H24
    Date: 2019
  8. By: Cédric Tille (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: The Swiss Federal government finances are in an excellent shape: debt is small (and decreasing), and carries a low interest rate. This paper reviews the prospects for the Swiss finances drawing on the recent literature. We argue that the current policy of running surpluses and paying down the debt is inefficient, and propose three alternatives. First, as the interest rate on the debt is much lower than the GDP growth rate – a pattern that is not unusual – Switzerland could stabilize the debt to GDP ratio and run a primary deficit of abut CHF 2.6 billion (0.37% of GDP). Second, the low cost of debt implies that investments in education and infrastructure are more attractive than in the past. Third, Switzerland could use its implicit asset (the trust of investors) and set up a sovereign wealth fund financed by government debt. We estimate that a fund amounting to 10% of GDP could generate an annual revenue between CHF 0.7 to 2 billion (0.1% to 0.3% of GDP), though these estimates could be refined further.
    Keywords: public debt, low interest rates, sovereign wealth fund, Switzerland
    JEL: E62 F3 H6
    Date: 2019–09–30
  9. By: Brülhart, Marius; Gruber, Jonathan; Krapf, Matthias; Schmidheiny, Kurt
    Abstract: We study how reported wealth responds to changes in wealth tax rates. Exploiting rich intra-national variation in Switzerland, the country with the highest revenue share of annual wealth taxation in the OECD, we find that a 1 percentage point drop in the wealth tax rate raises reported wealth by at least 43% after 6 years. Administrative tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility and 20% from house price capitalization. Savings responses appear unable to explain more than a small fraction of the remainder, suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth.
    Keywords: Behavioral Responses; Switzerland; tax evasion; taxpayer mobility; Wealth Taxation
    JEL: H24 H31 H73
    Date: 2019–10

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