nep-pub New Economics Papers
on Public Finance
Issue of 2020‒05‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Taxation and Innovation: What Do We Know? By Ufuk Akcigit; Stefanie Stantcheva
  2. The relationship of the territoriality of corporate taxation and the economy By Jean-Marie Monnier
  3. Ghosts in the Income Tax Machinery By Erard, Brian; Langetieg, Patrick; Payne, Mark; Plumley, Alan
  4. Cigarette Taxes and Smoking in the Long Run By Friedson, Andrew I.; Rees, Daniel I.
  5. An Alternative Rationale for the Necessity of an Inheritance Tax By Harashima, Taiji
  6. The elasticity of taxable income: New data and estimates for South Africa By Johannes Hermanus Kemp
  7. The corporate income tax gap in South Africa: A top-down approach By Ada Jansen; Winile Ngobeni; Alexius Sithole; Wynnona Steyn
  8. Estonian corporate tax: Lessons for Poland By Dmitri Jegorov; Anna Leszczyłowska; Aleksander Łożykowski
  9. Optimal age-dependent taxation in emerging markets: A quantitative assessment By Uribe-Tera\x{0301}n, Carlos; Gachet, Iva\x{0301}n; Grijalva, Diego F.

  1. By: Ufuk Akcigit; Stefanie Stantcheva
    Abstract: Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.
    JEL: H21 H23 H25 O31 O33 O34 O38
    Date: 2020–05
  2. By: Jean-Marie Monnier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The consequence of the revolution of internet and digital is the erosion of taxe bases. The creation of value has shift from the production of tangibles to intangibles. This resulted in the disparition of tax bases. But the recognition of this phenomenon does not imply to radically question the relevance of tax instruments inherited from the fordist period. It may simply lead to the proposition of new rules or new taxes aiming to compensate revenue losses. The first part of the paper is devoted to a review of the economic approaches of the taxation of digital for which the mobility of activities and the erosion of tax bases are essential issues. This immediately puts the tax issue on an international level and raises the question of the taxation of rents massively captured by digital companies. In the second part, and after a brief presentation of the main characteristics of the tax system inherited from the Fordist period, we study the main developments that took place during this period. Finally, we emphasize the main lines of the changes affecting capitalism. They cause the present lack of adjustment between the economic bases of capitalism and the tax system. This new capitalism works by deterritorializing the tax bases.
    Abstract: La révolution de l'internet et du numérique provoque l'érosion des bases taxables. Le déplacement de la création de valeur des biens tangibles vers des productions intangibles ou immatérielles aboutit à la disparition de l'assiette de l'impôt. Mais l'identification de ce phénomène ne débouche pas nécessairement sur une mise en cause radicale de la pertinence des instruments fiscaux hérités de la période fordiste. Elle peut aussi conduire simplement à la proposition de règles nouvelles ou de prélèvements nouveaux compensant les pertes de recettes. La première partie de l'article est consacrée à une revue des approches économiques de la fiscalité du numérique pour lesquelles la mobilité des activités et l'érosion des bases taxables sont un enjeu essentiel. Cela place immédiatement la question fiscale à un niveau international et interpelle sur la taxation des rentes massivement captées par les entreprises du numérique. Dans une seconde partie et après une rapide présentation des caractéristiques de l'architecture des prélèvements obligatoires héritées de la période fordiste, on étudie les principales évolutions intervenues au cours de cette période. Enfin on distingue les caractéristiques majeures de la mutation du capitalisme en cours qui contribuent à l'actuel défaut d'ajustement entre les nouvelles bases économiques du capitalisme et le système fiscal. Ce nouveau capitalisme fonctionne par déterritorialisation des bases taxables.
    Keywords: Digital economy,Corporate taxation,Global taxes,Taxable bases,New capitalism,Economie numérique,Impôt sur les sociétés,Taxes globales,Assiette taxable,Nouveau capitalisme
    Date: 2019–05–01
  3. By: Erard, Brian; Langetieg, Patrick; Payne, Mark; Plumley, Alan
    Abstract: Much of the tax compliance literature focuses on taxpayers who choose to underreport their income when they file their tax returns. In this paper, we instead concentrate on those individuals who take the ultimate compliance shortcut of not filing a return at all – a group commonly referred to as “ghosts” by academics, tax administrators, and policy-makers. To learn more about this relatively understudied population, we undertake a detailed analysis of administrative data and Census survey data spanning the period from 2001 through 2013. Our results indicate that 10-12 percent of taxpayers with a US federal filing requirement fail to submit a timely income tax return in any given year, and 6.5-8 percent never file at all. The federal tax gap associated with these ghosts is substantial, amounting to an estimated $37 billion per year. We employ a novel pooled time-series cross-sectional econometric methodology to examine the drivers of late filing and nonfiling behavior. The results establish that filing compliance is influenced by income visibility as well as financial incentives, such as refundable credits, tax rebates, and the monetized filing burden. In addition, we find strong evidence of socio-economic and demographic influences. Our results also reveal substantial persistence in filing behavior. The estimated likelihood of filing a timely return for the current tax year is estimated to be 45 percentage points higher if the taxpayer filed a return for the preceding year. At the same time, we find that one-time financial incentives have only a temporary impact on filing compliance, overturning the prevailing view that, once an individual is brought into the tax system, that individual will continue to file in subsequent years.
    Keywords: Tax Compliance, Tax Evasion, Nonfilers, Ghosts, Income Tax, Qualitative Response Models, Discrete Choice Analysis
    JEL: C35 H24 H26 H31
    Date: 2020–05–02
  4. By: Friedson, Andrew I. (University of Colorado Denver); Rees, Daniel I. (University of Colorado Denver)
    Abstract: Researchers have focused on the contemporaneous relationship between cigarette taxes and smoking, while the longer-run effects of cigarette taxes have received little attention. Using individual-level panel data from 1970-2017, we estimate the effects of cigarette taxes experienced as a teenager on smoking later in life. We find that a one-dollar increase in the cigarette tax experienced between the ages of 12 and 17 is associated with substantial reductions in smoking participation and intensity among adults in their 20s through mid-60s. Among first-time mothers, it is associated with a reduction in the likelihood of smoking the year of giving birth.
    Keywords: smoking, cigarette taxes, long run
    JEL: H2 I10 I12
    Date: 2020–05
  5. By: Harashima, Taiji
    Abstract: In this paper, I present a rationale for an inheritance tax from the point of view of economic rents derived from ranking value and preference in the state of simultaneous optimality of all heterogeneous households. Because there are family lines that have different probabilities of persistently obtaining rents, these rents should be sufficiently taxed to achieve optimality of all heterogeneous households. Income taxes alone cannot completely remove the negative effects of these rents on optimality because it is difficult to distinguish between types of income. Therefore, an inheritance tax is necessary to complement income taxes. An important point is that the inheritance tax is not a tax on capital income—it is a tax on rents. Because sustainable heterogeneity indicates optimality in a heterogeneous population, this type of inheritance tax does not distort the economy. Rather, unless the negative effects of these rents are sufficiently removed by an inheritance tax, the economy is distorted and most households cannot achieve optimality.
    Keywords: Economic rent; Income tax; Inheritance tax; Inequality; Ranking value and preference; Sustainable heterogeneity
    JEL: D63 H21 H24
    Date: 2020–05–02
  6. By: Johannes Hermanus Kemp
    Abstract: The elasticity of taxable income is a key tax policy parameter that plays an important role in the formulation of tax and transfer policy. This paper extends work by Kemp (2019) by using a new panel of individual tax returns and the phenomenon of 'bracket creep' to produce updated estimates of the elasticity of taxable income for South Africa. Whereas the previous work focused on assessed taxpayers (i.e.
    Keywords: Fiscal policy, Elasticity, taxable income, optimal tax
    Date: 2020
  7. By: Ada Jansen; Winile Ngobeni; Alexius Sithole; Wynnona Steyn
    Abstract: A key objective of many governments is to improve tax revenue mobilization. One way to achieve this is by improving tax compliance. This requires accurate knowledge of the tax gap, i.e. the difference between what should be paid and what is actually paid. Until now, tax gaps have been primarily estimated in developed countries, and very little is known about tax gaps in developing countries. Information about these gaps can help policy makers make appropriate revenue mobilization strategies. This paper uses a top-down approach to estimate the tax gap in corporate income tax in South Africa.
    Keywords: corporate income tax, Tax compliance, tax gap, top-down approach
    Date: 2020
  8. By: Dmitri Jegorov; Anna Leszczyłowska; Aleksander Łożykowski
    Abstract: Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax?
    Keywords: corporate income tax, distributed profit tax, dividend tax, cash flow tax, Estonia
    JEL: H25 H32 M48
    Date: 2020–04–09
  9. By: Uribe-Tera\x{0301}n, Carlos; Gachet, Iva\x{0301}n; Grijalva, Diego F.
    Abstract: This paper studies the design and welfare implications of an optimal age-dependent taxation scheme for an emerging economy. The setting is an overlapping generations economy with uninsured productivity risk, partially insured occupational risk (unemployment and informality by exclusion), stochastic retirement, and stochastic access to the pension fund. We calibrate this model for Ecuador and find that the optimal tax scheme provides a payroll tax exemption up to age 35, thereafter becoming hump-shaped with a maximum tax rate of 50% at age 50. The progressive tax levied on labor income implies an initial marginal tax rate of 5% that increases linearly to a top marginal tax rate of 35%. This tax scheme produces a welfare gain of 2.9% measured in compensated equivalent units and reduces wealth inequality by 5.8%. For comparison, in a model built and calibrated for the US economy (no informality, higher productivity and longevity risk, and full coverage of the social security system), the optimal payroll tax implies a zero tax rate up to age 27, becoming hump-shaped thereafter with a maximum tax rate of 56.2% at age 46.
    Keywords: Economía, Finanzas, Impuestos,
    Date: 2019

This nep-pub issue is ©2020 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.