nep-pub New Economics Papers
on Public Finance
Issue of 2020‒03‒02
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation of Digital Platforms By Marko Köthenbürger
  2. General or Central Government? Empirical Evidence on Political Cycles in Budget Composition Using New Data for OECD Countries By Niklas Potrafke
  3. The Employment Effects of the Social Security Earnings Test By Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
  4. Where Does Multinational Profit Go with Territorial Taxation? Evidence from the UK By Dominika Langenmayr; Li Liu
  5. Solidarity for public goods under single-peaked preferences: characterizing target set correspondences By Bettina Klaus; Panos Protopapas
  6. Tax Housing or Land? Distributional Effects of Property Taxation in Germany By Rafael Barbosa; Simon Skipka
  7. Statutory, Effective and Optimal Net Tax Schedules in Lithuania By Nerijus Cerniauskas; Alain Jousten

  1. By: Marko Köthenbürger
    Abstract: Tech giants such as Google and Facebook generate significant amounts of advertising income, which is mainly reported in low-tax countries. This has created a policy discussion of how to re-align the location of value creation and taxation. The success of the business model of these digital platforms relies on the existence of indirect network effects, which are the prime reason why platforms exist and generate advertising income. To account for these effects, conventional tax policy needs to be adjusted. This includes an adjusted concept of nexus that should rely on the location of users, which generate the relevant indirect network effects. The recent EU proposal of a digital service tax goes in this direction and constitutes a policy option for other countries.
    Date: 2020
  2. By: Niklas Potrafke
    Abstract: Previous studies used general government data to examine whether national governments’ electoral motives and ideology influenced budget composition in OECD countries. General government data includes, however, the state and local level. Using new data for general and central government over the period 1995–2016, I reexamine political cycles in budget composition. The results suggest that, both at the general and central government level, leftwing governments spent more on education and less on public services than rightwing governments. Defense expenditure was somewhat lower under leftwing than rightwing governments and in election years; especially in federal states. Effects of government ideology on the individual expenditure categories are larger at the central than general government level. Scholars need to re-examine results on ideology-induced effects that have been derived from general government data where central government data should have been used.
    Keywords: General and central government, panel data models, OECD countries, electoral cycles, government ideology, partisan politics, budget composition
    JEL: D72 D78 E60 H30 H50 C23 P16
    Date: 2020
  3. By: Alexander M. Gelber; Damon Jones; Daniel W. Sacks; Jae Song
    Abstract: We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points.
    JEL: H55 J22 J26
    Date: 2020–01
  4. By: Dominika Langenmayr; Li Liu
    Abstract: In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that profits of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries, by an average of 2.1 percentage points. The increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.
    Keywords: profit shifting, territorial tax system, multinational firms
    JEL: H25 H87 F23
    Date: 2020
  5. By: Bettina Klaus; Panos Protopapas
    Abstract: We consider the problem of choosing a set of locations of a public good on the real line R when agents have single-peaked preferences over points. We ordinally extend preferences over compact subsets of R, and extend the results of Ching and Thomson (1996), Vohra (1999), and Klaus (2001) to choice correspondences. We show that eciency and replacement-dominance characterize the class of target point functions (Corollary 2) while eciency and population-monotonicity characterize the class of target set correspondences (Theorem 1).
    Keywords: single-peaked preferences; population-monotonicity; replacement-dominance; target point functions, target set correspondences
    JEL: C71 D63 D78 H41
    Date: 2020–02
  6. By: Rafael Barbosa; Simon Skipka
    Abstract: Despite its theoretical merits, Land Value Taxation (LVT) is not a common policy instrument in most countries. One of the main reasons is uncertainty regarding its distributional impacts. This uncertainty has not been settled by the literature, due to a lack of appropriate data at the household level. We overcome this obstacle by the construction of a unique household level dataset for a sample of German homeowners in 2017. The data collected allows us to study the differences in distributions of land and property values and the resulting distributional effects of implementing a LVT compared to a standard property tax. Our results are as follows. First, we find revenue neutral LVT rates to be around 0.6% in our sample. Second, we find the share of land value in property value on average to be 33% with considerable household heterogeneity, both within and between regions. Third, we find a LVT to be equally progressive if implemented at the federal level, but less progressive if implemented at the regional level, since, although land values are more concentrated than property values, they are not as strongly correlated with income. Quantitatively a revenue-neutral reform from a standard property tax to a LVT at the regional level would increase the average tax burden of the lowest income quintile of homeowners by 25%.
    Keywords: land, housing, land value taxation, property taxation, distributional assessment
    JEL: H20 H71 R20
    Date: 2019
  7. By: Nerijus Cerniauskas (Bank of Lithuania, Vilnius University); Alain Jousten (University of Liège, IZA and NETSPAR)
    Abstract: We estimate effective and optimal net income tax schedules and compare them to estimated statutory rates for the case of Lithuania in the period 2014-2015. Values of effective net tax rates are estimated from the survey of EU Statistics on Income and Living Conditions, the statutory net tax rates are estimated with the European tax-benefit simulator Euromod, while optimal net taxes are calculated via Saez (2002) methodology. We find that the three net tax schedules are similar for employees in the middle of the income distribution. At the bottom of the income distribution, optimal net tax schedules suggest higher in-work benefits. The net tax schedules diverge substantially for the self-employed. At the top of the income distribution, where the majority of self-employed are concentrated, the self-employed are required to pay 15 cents less net taxes per euro than employees - and they effectively pay 29 cents less.
    Keywords: Optimal tax schedule, effective tax schedule, statutory tax schedule, taxes, transfers, employees, self-employed, Lithuania
    JEL: H2 H21
    Date: 2020–02–07

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