nep-pub New Economics Papers
on Public Finance
Issue of 2020‒06‒22
four papers chosen by

  1. Informality, Consumption Taxes and Redistribution By Bachas,Pierre Jean; Gadenne,Lucie; Jensen,Anders
  2. Macroeconometric Approach: Optimal Taxation Policies for Economic Growth in Emerging Asia By Jayasooriya, Sujith
  3. The problem of gross receipts taxes in Indonesia: Economic distortions and policy options By Iswahyudi, Heru
  4. Turkey-Indonesia Tax Treaty Post-MLI By Muttaqin, Rahmat; Akın, Emre

  1. By: Bachas,Pierre Jean; Gadenne,Lucie; Jensen,Anders
    Abstract: Can consumption taxes reduce inequality in developing countries? This paper combines household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. It uses the place of purchase of each expenditure to proxy for informal (untaxed) consumption which enables characterizing the informality Engel curve. The analysis finds that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. The paper extends the standard optimal commodity tax model to allow for informal consumption and calibrates it to the data to study the effects of different tax policies on inequality. Contrary to consensus, the findings show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. These effects are primarily driven by the shape of the informality Engel curve. Taking informality into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.
    Keywords: Labor Markets,Tax Administration,Tax Law,Economic Adjustment and Lending,Macro-Fiscal Policy,Taxation&Subsidies,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Tax Policy,Rural Labor Markets,Gender and Development
    Date: 2020–06–01
  2. By: Jayasooriya, Sujith
    Abstract: Innovative and evidence-based public economic policies are vital for the provision of efficient public services in emerging economies. Many developing countries require privation of optimal taxation system to promote economic growth. The research question intends to identify the optimal taxation policies and impact of taxation on economic growth in emerging Asia. Rationale for the research is to provide pragmatic evidences to build up tax systems that generate optimal tax revenues in an equitable manner and facilitation of taxation for economic growth. Macroeconometric approach is used to (i) estimate the Laffer curve for Asia with Generalized Method of Moments (GMM) in factors affecting optimal taxation. (ii) Fully Modified OLS (FMOLS), Dynamic OLS (DOLS) and Conical Cointegration Regression (CCR) are used to estimate the cointegration equation for the impact of taxation on economic growth using the World Bank data from 1990 to 2015. The empirical results indicate, across estimation methods and specifications, that the determinants of optimal taxation over estimation of Laffer curve are tax-rate, tax-rate2 and debt negatively significant, while tax-rate*debt, unemployment rate, foreign direct investment, and openness are positively significant. Further, comparative empirical evidences show that the positive economic growth promoting factors is tax revenue, trade openness and foreign direct investment, whereas negatively significant factors are tax-rate, unemployment rate and debt. The implications of the study are to deliberate on the macroeconomic determinants of the optimal taxation for reform the tax systems in emerging Asia. Finally, the paper guides policymakers to reform tax systems with empirical evidences on impacts of public economic policies to improve optimal taxation for the economic growth in Asia.
    Keywords: Optimal taxation, Economic Growth, Generalized Methods of Moments estimation
    JEL: B23 C51 E60 F43 H2 H21 O47
    Date: 2020–05–29
  3. By: Iswahyudi, Heru
    Abstract: This article examines the experience of Indonesia in adopting gross receipts taxes as one of the elements in the architecture of its tax system. Although Indonesian income tax law and value-added tax law do not explicitly impose gross receipts taxes, however, these laws authorize the use of presumptive taxation methods, which in practice are essentially gross receipts taxes. In the past three decades there have been expansions in the use of these presumptive methods in the tax system. As gross receipts tax is considered to be one of the most distortive tax systems, its expansions may also mean that its distortive effects may have expanded throughout the economy. Nevertheless, if well-designed and properly managed, gross receipts taxes might serve as an effective instrument to broadening the tax base particularly in countries with a significant presence of the informal sector, while still minimizing its adverse impacts on the economy.
    Keywords: Gross Receipts Taxes, Economic Distortion, Hard-to-Tax, Administrative Capacity, Informal Sector
    JEL: E62 H21 H30 O17
    Date: 2020–05–23
  4. By: Muttaqin, Rahmat; Akın, Emre
    Abstract: As part of the G20 countries, Indonesia and Turkey have shown their commitments to the OECD/G20 BEPS Project since the very beginning, including the MLI Project. Along with the other 66 jurisdictions, Indonesia and Turkey signed the MLI on 7 June 2017. Indonesia and Turkey already have a tax treaty in force. In its MLI’s position as of 7 June 2017, Indonesia included its tax treaty with Turkey as one of CTAs and vice versa. Therefore, once both countries have completed all the procedural requirements of the MLI, the MLI provisions will have effect on the existing tax treaty. This article is intended to give a picture for the readers on how the MLI impacts the existing tax treaty between Indonesia and Turkey. This article may also serve as a projection on what a synthesised text might look like even though it has not been published yet by the competent authority of either country. For the MLI changes to apply effectively to the Indonesia-Turkey tax treaty, both countries must adopt the same provisions (unless an asymmetrical adoption is allowed in particular cases). The Authors concluded that considering both countries’ positions at this moment, some of the MLI provisions will affect the existing Indonesia-Turkey tax treaty, i.e. Article 6, 7, 9, 12, 13, 15, and 16 of the MLI. New provisions to be adapted will contribute to preventing BEPS concerns, e.g. through treaty shopping. The authors then recommend that both countries should also need to revise their domestic laws in order to accommodate new features in treaty post-MLI, for instance, the introduction of PPT rule as GAAR in tax treaty should also be accompanied by a comprehensive set of guidelines for tax authorities and must be administered transparently. Following the intention of both countries to increase the trading volume, the Indonesia-Turkey tax treaty post-MLI will play an important role in the future.
    Keywords: MLI, OECD, G20, BEPS, Tax Treaty, Tax Law, Indonesia, Turkey, International Tax, PPT, GAAR
    JEL: H26 K33 K34
    Date: 2020–05–07

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