nep-pub New Economics Papers
on Public Finance
Issue of 2019‒12‒09
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Earned Income Tax Credit and Infant Health Revisited By Daniel L. Dench; Theodore J. Joyce
  2. Twenty years of tax autonomy across levels of government: Measurement and applications By Sean Dougherty; Michelle Harding; Andrew Reschovsky
  3. Multinational Corporations and Tax Havens: Evidence from Country-by-Country Reporting By Javier Garcia-Bernardo; Petr Jansky; Thomas Torslov
  4. Shrinking the Tax Gap: Approaches and Revenue Potential By Natasha Sarin; Lawrence H. Summers
  5. Multi-City Study Shows Beverage Taxes Raise Prices, Reduce and Shift Purchases By John Cawley; David Frisvold; David Jones
  6. Multi-tier tax competition on Gasoline By Marie-Laure BREUILLÉ; Emmanuelle TAUGOURDEAU
  7. Ring-fencing digital corporations: Investor reaction to the European Commission's digital tax proposals By Klein, Daniel; Ludwig, Christopher A.; Spengel, Christoph
  8. Long-term responses to car-tax policies: distributional effects and reduced carbon emissions By Pyddoke, Roger; Swärdh, Jan-Erik; Algers, Staffan; Habibi, Shiva; Sedehi Zadeh, Noor
  9. Ethnicity and tax filing behavior By Bastani, Spencer; Giebe, Thomas; Miao, Chizheng
  10. Decentralized leadership in a federation with competition for mobile firms: Does economic integration matter? By Thierry MADIÈS; Emmanuelle TAUGOURDEAU

  1. By: Daniel L. Dench; Theodore J. Joyce
    Abstract: Hoynes, Miller and Simon (2015), henceforth HMS, report that the national expansion of the Earned Income Tax Credit (EITC) is associated with decreases in low birth weight. We question their findings. HMS’s difference-in-differences estimates are unidentified in some comparisons, while failed placebo tests undermine others. Their effects lack a plausible mechanism as the association between the EITC and prenatal smoking also fails placebo tests. We contend that the waning of the crack epidemic is a possible confound, but we show that any number of policies directed at poor women also eliminate the effect of the EITC when aggregated to the national level. Identifying small, causal effects of a national policy at a single point in time is exceedingly challenging.
    JEL: H24 I38 J13
    Date: 2019–11
  2. By: Sean Dougherty; Michelle Harding; Andrew Reschovsky
    Abstract: The Network on Fiscal Relations has been assessing the degree of sub-central government tax autonomy in OECD countries for almost two decades. This paper provides an in-depth description of the methodology used to characterise tax autonomy. After summarizing the wide-spread use of the tax autonomy results by researchers addressing a range of policy issues, the paper highlights recent trends in sub-central government revenues and presents the results of the latest survey of tax autonomy, completed in 2017. Using the OECD’s tax autonomy methodology, the paper for the first time assesses local government tax autonomy in the 50 US states. The analysis reveals that US local governments have somewhat more tax autonomy than local governments in the average OECD country. The paper includes suggestions for further refinements of the tax autonomy methodology.
    Keywords: fiscal decentralisation, local taxation, property tax design, sub-national governments, tax autonomy
    JEL: H20 H71
    Date: 2019–12–04
  3. By: Javier Garcia-Bernardo (University of Amsterdam, Faculty of Social and Behavioural Sciences, Spui 21, 1012 WX Amsterdam, The Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Thomas Torslov (Faculty of Social Sciences, Oster Farimagsgade 5, DK-1353 Copenhagen K, Denmark)
    Abstract: A growing body of economics literature shows that multinational corporations (MNCs) shift their profits to tax havens. We contribute to this evidence by comparing a range of available data sets focusing on US MNCs, including country-by-country reporting data which has been released in December 2018 for the first time. With each of the datasets, we analyse the effective tax rates that US MNCs face in each country and the amount of profits they report. Using country-by-country reporting data, we have been able to establish that lower effective corporate tax rates are associated with higher levels of reported profits when compared with different indicators of real economic activity. This corresponds to the notion that MNCs often shift profits to countries with low effective tax rates – without also shifting substantive economic activity. Consequently, we identify the most important tax havens for US MNCs as countries with both low effective tax rates and high profits misaligned with economic activity.
    Keywords: Effective tax rate, profit shifting, tax haven, country-by-country reporting, multinational enterprise, foreign direct investment, tax competition
    JEL: C81 F21 F23 H25 H26
    Date: 2019–10
  4. By: Natasha Sarin; Lawrence H. Summers
    Abstract: Between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due. It is not possible to calculate with precision how much of this “tax gap” could be collected. This paper offers a naïve approach. The analysis suggests that with feasible changes in policy, the IRS could aspire to shrink the tax gap by around 15 percent in the next decade—generating over $1 trillion in additional revenue by performing more audits (especially of high-income earners), increasing information reporting requirements, and investing in information technology. These investments will increase efficiency and are likely to be very progressive.
    JEL: H0 H2 H26
    Date: 2019–11
  5. By: John Cawley; David Frisvold; David Jones
    Abstract: This issue brief synthesizes findings on beverage taxes in Philadelphia and Oakland, specifically on the taxes’ impacts on purchases, consumption, and retailer business strategies. It also reports new findings from national consumer receipt data comparing purchases in four U.S. cities.
    Keywords: Soda, Sugar, Obesity, Tax, Oakland, Philadelphia
  6. By: Marie-Laure BREUILLÉ (CESAER, INRA.); Emmanuelle TAUGOURDEAU (CREST, University of Paris-Saclay, ENS Paris-Saclay.)
    Abstract: This paper analyzes the fiscal interactions arising from gasoline taxation in a federation. We adopt a general theoretical model for studying simultaneous vertical and horizontal tax competition by i) introducing a specific monetary cost of refueling ii) assuming that the price of gasoline is affected by either excise taxes (regional and federal) and the VAT rate, ii) considering elastic demand for gasoline. We show that at the symmetric equilibrium, horizontal taxes are strategic complements but vertical taxes are strategic may be substitutes. Moreover, horizontal excise taxes are strategic substitutes with VAT whereas the result is unclear for the reaction between regional and federal excise taxes. Finally, we show that the tax reaction functions and thus the equilibria crucially differ according to the pattern of decision-making (social planner, Nash or defederalized leadership).
    Keywords: Fiscal Federalism, Gasoline Taxation, Horizontal and Vertical Tax Interactions.
    JEL: E62 H7 Q48
    Date: 2019–11–19
  7. By: Klein, Daniel; Ludwig, Christopher A.; Spengel, Christoph
    Abstract: We study the effect of digital tax measures on firm value. By employing an event study methodology, we analyze investor reaction to the European Commission's proposals on the taxation of digital corporations. Examining the stock returns of potentially affected corporations surrounding the draft directives' release, we find a significant abnormal capital market reaction of -0.692 percentage points. The investor reaction is more pronounced for firms that engage more actively in tax avoidance, have a higher profit shifting potential, and for those with higher exposure to the EU. The market value of digital and innovative corporations decreased by at least 52 billion euro in excess of the regular market movement during the event window. Overall, our study reveals that expectations about ringfencing digital tax measures impact firm values.
    Keywords: digital taxation,corporate tax,digital economy,event study
    JEL: H25 H26 K34 G14
    Date: 2019
  8. By: Pyddoke, Roger (Research Programme in Transport Economics); Swärdh, Jan-Erik (Research Programme in Transport Economics); Algers, Staffan (TP mod AB); Habibi, Shiva (Chalmers University of Technology); Sedehi Zadeh, Noor (Research Programme in Transport Economics)
    Abstract: We analyze the long-term effects on the car fleet and welfare distribution of three car-related policy instruments intended to reduce CO2 emissions: increased fossil-fuel taxes, an intensified bonus-malus system for new cars, and increased mandated biofuel blending. The effects on the car fleet are analyzed in terms of energy source, weight, and CO2 emissions. Distributional effects are analyzed in terms of income and geographical residence areas. The increased fuel taxes reduce CO2 emissions by 36%, mainly through less driving of fossil-fuel cars. The intensified bonus-malus system for new cars reduces CO2 emissions by 5%. Both these policies shift the car fleet toward increased shares of electric vehicles and increased average weight. Increased mandated biofuel blending has no estimated effect on the car fleet unless prices increase differently from in the reference scenario. The two first policy instruments are weakly progressive to slightly regressive over most of the income distribution, but barely regressive if the highest income group is also included. The fraction of each population group incurring substantial welfare losses is higher the lower the income group. In the geographical dimension, for all policies the rural areas bear the largest burden, small cities the second largest burden, and large cities the smallest burden. The burden in the long term versus the short term is lower for high-income earners and urban residents.
    Keywords: Distributional effects; Equity; Fuel tax; Feebate; Bonus; Malus; Mandated biofuel blend; Car choice
    JEL: D63 H23 R48
    Date: 2019–11–26
  9. By: Bastani, Spencer; Giebe, Thomas; Miao, Chizheng
    Abstract: We analyze differences in tax filing between natives and immigrants, focusing on two empirical examples. First, we study deductions for costs associated with traveling between home and work allowed in the Swedish tax code. Using the total population of commuters within Sweden's largest commuting zone, we find that newly arrived immigrants file substantially less than natives, immigrants with a longer stay behave more like natives, and immigrants with the longest stay file the most, even more than natives. Second, we analyze bunching behavior among the self-employed at a large salient kink point of the Swedish income tax schedule. We find much less bunching among immigrants, even after a long time in the host country, and the largest differences relative to natives in residential areas with a high immigrant concentration. Our findings have implications for the equity and efficiency of the tax system and the spatial patterns of residential and occupational choices for different ethnic groups.
    Keywords: deductions, tax filing, bunching, immigrants, natives, integration
    JEL: D31 H21 H24 H26 J22 J61 R23
    Date: 2019–11–06
  10. By: Thierry MADIÈS (Université de Fribourg); Emmanuelle TAUGOURDEAU (CREST, University of Paris-Saclay, ENS Paris-Saclay.)
    Abstract: Our paper presents a model of decentralized leadership with fiscal equalization and imperfect economic integration. The degree of trade integration (reflected by trade costs) turns out to have ane effect on both the state tax rates and the ex-post vertical equalization transfers. Our main results are the following: Ex post vertical transfers are welfare deteriorating for low levels of trade integration while they are welfare improving compared to tax competition when trade integration is high enough. However, when public goods are highly valued by the citizens of the federation, ex post transfers are always welfare enhancing.
    Keywords: Tax competition, Trade Integration, Decentralized Leadership.
    JEL: H7 H2 R3 R5
    Date: 2019–11–19

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