nep-pub New Economics Papers
on Public Finance
Issue of 2019‒11‒25
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium By Sachs, Dominik; Tsyvinski, Aleh; Werquin, Nicolas
  2. Corporate Taxation, Tax Administration and Financial Development By Mohammed Mardan
  3. Does a Wealth Tax Discriminate against Domestic Investors? By Bjerksund, Petter; Schjelderup, Guttorm
  4. National Pension Policy and Globalization: A New Approach to Strive for Efficient Portability and Equitable Taxation By Bernd Genser; Robert Holzmann
  5. Global inequalities in taxing rights: An early evaluation of the OECD tax reform proposals By Cobham, Alex; Faccio, Tommaso; FitzGerald, Valpy
  6. The EU Commission’s Digital Tax Proposals and its Cross-platform Impact in the EU and the OECD By Lips, Wouter
  7. The contribution of proportional taxes and tax-free cash benefits to income redistribution over the period 2005-2018: Evidence from Italy By Boscolo, Stefano
  8. Digitalization to Improve Tax Compliance: Evidence from VAT e-Invoicing in Peru By Matthieu Bellon; Jillie Chang; Era Dabla-Norris; Salma Khalid; Frederico Lima; Enrique Rojas; Pilar Villena
  9. The tax elasticity of formal work in African countries By Pirttilä Jukka; McKay Andy; Schimanski Caroline

  1. By: Sachs, Dominik; Tsyvinski, Aleh; Werquin, Nicolas
    Abstract: We study the incidence of nonlinear labor income taxes in an economy with a continuum of endogenous wages. We derive in closed form the effects of reforming nonlinearly an arbitrary tax system, by showing that this problem can be formalized as an integral equation. Our tax incidence formulas are valid both when the underlying assignment of skills to tasks is fixed or endogenous. We show qualitatively and quantitatively that contrary to conventional wisdom, if the tax system is initially suboptimal and progressive, the general-equilibrium trickle-down forces may raise the benefits of increasing the marginal tax rates on high incomes. We finally derive a parsimonious characterization of optimal taxes.
    Date: 2019–11
  2. By: Mohammed Mardan
    Abstract: This paper analyzes corporate tax-related policies and the difference between them in developed and developing countries. I show that the relationship between financial development and corporate income tax rates as well as the tax administrations’ effectiveness follows a U-shaped pattern, a discrepancy to the observation that developing countries usually have the weakest administrative structures. However, this observation can be explained under the premise that the tax administration’s effectiveness is determined at a later stage, and not simultaneously with the corporate tax rate. Moreover, I show that, under this premise, fighting tax havens increases tax revenues in developed countries, but decreases them in developing countries. Instead, if policies are simultaneously considered, the fight against tax havens will also benefit developing countries.
    Keywords: developing countries, profit shifting, tax administration, tax competition, tax haven
    JEL: H25 O23 F23
    Date: 2019
  3. By: Bjerksund, Petter (Dept. of Business and Management Science, Norwegian School of Economics); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: This paper studies the impact of a capital-income tax and a wealth tax on investor behavior in an efficient capital market under various assumptions regarding uncertainty and time horizons. We show that investors who face capital taxes have a lower discount rate, but that their willingness to pay for a company’s stock is not affected by these taxes. In a second step, we show that if a company owner increases her required rate of return from the company because of capital taxes, she will harm the company’s market value and thus her own wealth.
    Keywords: Capital-income tax; wealth tax; investor behavior
    JEL: G10 G12 H20 H25
    Date: 2019–11–21
  4. By: Bernd Genser (University of Konstanz (retired), Konstanz, Germany); Robert Holzmann (Austrian National Bank (governor) and Austrian Academy of Sciences, Vienna, Austria)
    Abstract: As part of globalization, individuals increasingly spend part of their working or retirement life abroad and want to keep or move their acquired rights, accumulated retirement assets, or benefits in payment freely across borders. This raises the issue of the portability and taxation of cross-border pensions in accumulation and disbursement. This paper addresses both portability and taxation issues from the angle of which type of pension scheme – defined benefits (DB) or defined contributions (DC) – and which regime of cross border pension taxation is more aligned with globalization in establishing individual fairness, fiscal fairness, and bureaucratic efficiency. The paper summarizes the limited literature on portability and taxation of cross-border pensions and concludes that the current taxation approach is unsustainable in a global setting. We present a proposal to move from deferred toward front-loaded taxation of pensions and point at the gains in fairness for individuals and states and some other attractive features of this regime change with respect to taxation and portability.
    Keywords: portability of pensions, pension taxation, international taxation, international migration, model tax convention
    JEL: H55 H24 H87 F22
    Date: 2019–11–13
  5. By: Cobham, Alex; Faccio, Tommaso; FitzGerald, Valpy
    Abstract: The current OECD process to reform the international rules governing corporate tax, aimed to achieve a consensus solution by 2020, has finally recognised the need to introduce elements of formulary apportionment to allocate the profits of multinationals and is framed explicitly in terms of redistributing taxing rights between countries. In this paper we provide the first public evaluation of the redistribution of taxing rights associated with the leading proposals of the OECD, IMF and the Independent Commission for the Reform of International Corporate Taxation (ICRICT). The first key finding is that that reallocation of taxing rights towards “market jurisdictions”, as it is currently understood, is likely to be of little benefit to non-OECD countries. Indeed, the proposal is likely to reduce revenues for a range of lower-income countries. Second, all of the proposals deliver a much broader distribution of benefits if some element of taxing rights is apportioned according to the location of multinationals’ employment, and not only of sales.
    Date: 2019–10–03
  6. By: Lips, Wouter
    Abstract: The EU Commission’s directive proposals on corporate taxation of digital multinationals, especially the digital services tax (DST), show the increased assertiveness of the Commission on taxation matters. Both inward and outwards in the parallel OECD negotiations on digital taxation. By drawing on Kingdon’s Multiple Streams Framework, elite interviews and policy documents, I assess the dynamics of the proposal at the EU and OECD. While the DST will fall short in the EU Council due to unanimity requirements, I argue that the Commission actually achieved its pre-prescribed goals. Within the EU, it provided coherency for unilateral DSTs by member states. At the OECD, the proposals increased the threat of uncoordinated unilateral measures. This created a period of uncertainty and pressured laggard states, which helped lead to a tentative window for reform. As such, the proposals are an example of cross-platform policy entrepreneurship by the EU Commission, projecting influence despite unanimity constraints.
    Date: 2019–10–09
  7. By: Boscolo, Stefano
    Abstract: Over the last two decades a growing interest in understanding what determines the redistributive role of tax-benefit systems has emerged worldwide. In the case of Italy, previous analyses were mainly focused on quantifying the contribution of marginal tax rates, deductions and tax credits to the redistributive capacity of personal income tax (PIT), while neglecting the effect on income redistribution of proportional taxes and income sources exempt from taxation such as tax-free cash benefits. This paper aims to fill this gap by applying two alternative Gini-based decomposition methodologies (Onrubia et al., 2014; Urban, 2014) to the redistributive effects of the Italian tax-benefit system over the period 2005-2018. The contribution of each tax-benefit instrument is quantified for several scenarios which diverge from each other in that they are representative of different degrees of extension of the tax-benefit system under examination.
    Date: 2019–11–14
  8. By: Matthieu Bellon; Jillie Chang; Era Dabla-Norris; Salma Khalid; Frederico Lima; Enrique Rojas; Pilar Villena
    Abstract: This paper examines the impact of e-invoicing on firm tax compliance and performance using administrative tax data and quasi-experimental variation in the rollout of VAT electronic invoicing in Peru. We find that e-invoicing increases reported firm sales, purchases and value-added by over 5 percent in the first year after adoption. The impact is concentrated among smaller firms and sectors with higher rates of non-compliance, suggesting that e-invoicing enhances compliance by lowering compliance costs and strengthening deterrence. The reform’s positive effects on tax collection are hindered by shortcomings in the VAT refund mechanism in Peru, suggesting that digital tools such as e-invoicing should be complemented by other reforms to improve revenue mobilization.
    Date: 2019–11–01
  9. By: Pirttilä Jukka; McKay Andy; Schimanski Caroline
    Abstract: A key policy problem in most developing countries is the size of the informal sectorÂÂ and its persistence over time. In need to increase their tax revenues, policy makers face a trade-offÂÂ between decreasing tax rates (making formalizing potentially more attractive) and alternativelyÂÂ raising tax rates (potentially slowing down the formalization of the economy if people preferÂÂ informal employment or self-employment). Evidence on formal versus informal wages and jobÂÂ characteristics in different sectors and the impact of tax changes on the extent of informality inÂÂ developing countries is, however, very limited.This paper estimates the tax responsiveness of theÂÂ extensive margin of formality, that is the propensity to be a formal rather than informal worker,ÂÂ for four sub-Saharan African countries. Using repeated cross-sections of household data andÂÂ applying grouping estimator techniques, this paper does not find robust effects of taxes on theÂÂ extent of formal work, although in a pooled sample taxes appear to lower the share of formalÂÂ workers in some specifications.
    Keywords: Labour supply,Sub-Saharan Africa,Taxation,Developing countries,Informality
    Date: 2019

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