nep-pub New Economics Papers
on Public Finance
Issue of 2019‒12‒23
six papers chosen by

  1. Taxation and the life cycle of firms By Andrés Erosa; Beatriz González
  2. Overhauling corporate taxation in the digital economy By Carpentieri, Loredana; Micossi, Stefano; Parascandolo, Paola
  3. Productivity and Tax Evasion By Era Dabla-Norris; Mark Gradstein; Fedor Miryugin; Florian Misch
  4. Does the tax undermine the effect of remittances on shadow economy? By Schneider, Friedrich; Khan, Shabeer; Baharom Abdul Hamid; Khan, Abidullah
  5. The Costs of Tax Havens: Evidence from Industry-Level Data By Petr Jansky
  6. Cyclicality of Fiscal Transfers for a Latin American Small Open Economy: The Perils of Earmarked Transfers By Javier Torres; Alexandra Málaga; Rodrigo Chang

  1. By: Andrés Erosa (Universidad Carlos III de Madrid); Beatriz González (Banco de España and Universidad Carlos III de Madrid)
    Abstract: The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms’ investment and financial policies over their life cycle. Corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income taxation reduces external equity financing, but it does not affect size at maturity. Capital gains taxes make firms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.
    Keywords: macroeconomics, capital income taxation, firm dynamics, investment
    JEL: D21 E22 E62 G32 H32
    Date: 2019–12
  2. By: Carpentieri, Loredana; Micossi, Stefano; Parascandolo, Paola
    Abstract: Is the corporate income tax (CIT) still an efficient system for taxing companies today? The CIT was introduced when economies were characterised primarily by tangible assets and goods and by limited international trade. Globalisation, digitalisation and the increasing weight of immaterial goods in company transactions and balance sheets have rendered that system outdated. These radical changes call for equally radical reflections on how to reform the CIT, bearing in mind the need for a corporate tax system that is fit for both the digital and the traditional economy, in developing and developed countries alike. Rather than offering a complete solution, this paper discusses various approaches that could contribute to a solution. First, we suggest that the CIT base should always be strictly aligned with the accounting profit and loss account, eschewing special adjustments for tax purposes. Second, a more radical possibility would be to abandon altogether the reference to corporate income and tax companies instead on cash flow, based on destination. And, third, the possibility could also be explored to tax companies with reference to ‘presumptive’ indicators of activity, rather than on the basis of public accounts. Presumptive indicators are already used in federal systems to allocate corporate income among decentralised jurisdictions. These propositions would not be viable without international agreement, at least at the level of the European Union. Such an agreement may prove difficult given the conflicts of interest between EU member states and between them and the United States.
    Date: 2019–10
  3. By: Era Dabla-Norris; Mark Gradstein; Fedor Miryugin; Florian Misch
    Abstract: The extent of tax compliance has important implications for revenue yield, efficiency and the fairness of any tax system. Tax evasion undermines revenue collection, distorts competition, and undermines a country’s development prospects. In this paper, we investigate whether higher productivity causally leads to lower tax evasion. We first present stylized facts consistent with this view and develop a model that illustrates one potential transmission channel. Second, we test the model predictions at the firm level using the self-reported share of declared income as proxy for tax evasion for a large sample of emerging and developing economies. Our results suggests that productivity improvements by firms can lead to lower tax evasion.
    Date: 2019–11–27
  4. By: Schneider, Friedrich; Khan, Shabeer; Baharom Abdul Hamid; Khan, Abidullah
    Abstract: There are considerable studies regarding the contribution of international migrants' remittances to economic growth while there is a lack of studies which investigate the effect of remittances on shadow economy. The authors explore empirically the effect of remittances and its interaction effect with tax on shadow economy by using panel data covering the period 2004-2015 and applying the GMM method for 141 countries. Their empirical model, in which a remittance-recipient government, operating in tax environment of some regimes (imposition of different levels and kinds of taxes), predicts a negative effect of remittances on shadow economy, is mitigated by a higher tax regime. In other words, the paper argues that a well-established negative correlation between remittances and shadow economy has been weakened by tax rule. The study contributes to the current literature on public policy that gives importance to know the causes of shadow economy and boost remittances effect. The authors' baseline results are robust to various computations of macroeconomics variables, institutions variables and freedom variables.
    Keywords: remittances,shadow economy,tax regime,panel technique
    JEL: O17 H24 H71 F24
    Date: 2019
  5. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)
    Abstract: Multinational enterprises make use of tax havens to avoid paying corporate income taxes and this costs hundreds billion USD in lost government revenue worldwide according to an increasing number of recent studies. None of those studies assigns these costs to industries. I aim to shed more light on this gap by using some of the best available industry-level US data to determine to what extent the location of the MNEs’ profit is aligned with the location of their economic activities. My first finding is that the most important tax havens for US multinational enterprises are the Netherlands, Ireland and Luxembourg (all EU member states). Second, I systematically identify the specific industries in specific tax havens responsible for the costs, which should be useful information for tax authorities aiming to reduce tax avoidance. Finally, I argue that the current data are not detailed enough to provide a reliable industry breakdown of the costs, but the prospect of combining input-output tables with forthcoming country-by-country data seems more promising.
    Keywords: Multinational enterprises; foreign direct investment; tax havens; industry-level data
    JEL: F21 F23 H25 H26 H87
    Date: 2019–12
  6. By: Javier Torres (Universidad del Pacífico); Alexandra Málaga (Universidad del Pacífico); Rodrigo Chang (Universidad del Pacífico)
    Abstract: We construct the largest fiscal transfers database for Peru (from 1999 to 2015) to analyze the relationship between government transfers and the economic cycle. Although most transfers of social programs behave independently of the economic cycle, two of the largest transfer programs to sub-national governments, FONCOMUN and Windfall & Royalties transfers, are clearly procyclical. They are earmarked to the national Value-Added tax revenue and to the corporate tax of extractive industries, respectively. These transfer rules could lead to scarcity of resources for sub-national governments during a drop in terms-of-trade induced recession.
    Keywords: Economic Cycle, Fiscal Transfers
    JEL: E32 H53 H77
    Date: 2019–12

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