nep-pub New Economics Papers
on Public Finance
Issue of 2020‒07‒13
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Factor Taxation in A Scale Free Model of Vertical Innovation By Barbara Annicchiarico; Valentina Antonaroli; Alessandra Pelloni
  2. Tax Competition in Presence of Profit Shifting. By Steeve Mongrain; David Oh; Tanguy van Ypersele
  3. The incidence of VAT evasion By Asatryan, Zareh; Gomtsyan, David
  4. Taxation in Matching Markets By Dupuy, Arnaud; Galichon, Alfred; Jaffe, Sonia; Kominers, Scott Duke
  5. Taxes and the Revaluation of Household Wealth By Edward N. Wolff
  6. Aggressive Tax Policy versus Aggressive Tax Planning By Akın, Emre
  7. A Theory of Social Impact Bonds By Daniel L Tortorice; David E. Bloom; Paige Kirby; John Regan
  8. Modernizing the European VAT By Sijbren Cnossen
  9. Cigarette Taxes and Smoking in the Long Run By Andrew I. Friedson; Daniel I. Rees

  1. By: Barbara Annicchiarico (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Valentina Antonaroli (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Alessandra Pelloni (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy; Rimini Centre for Economic Analysis)
    Abstract: The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed.
    Keywords: Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect
    JEL: O41 E62 H21
    Date: 2020–06
  2. By: Steeve Mongrain (Simon Fraser University); David Oh (Canada Mortgage and Housing Corporation); Tanguy van Ypersele (Aix-Marseille Univ., CNRS, EHESS, Central Marseille, AMSE, Marseille)
    Abstract: The popular view is that governments should crack down on tax avoidance by multinational firms. In this paper, we analyze how anti-profit-shifting policies influence fiscal competition. Governments commit to profit shifting control effort and then set taxes on capital. Equilibrium tax rates are determined by the elasticities of the two components: profit shifting and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first but increase the elasticity of the second, so that the impact of these policies on the equilibrium of the tax game is ambiguous. We show that there are cases in which laxer policies increase all equilibrium tax rates and that the country announcing laxer profit shifting policies may gain. It appears that there is not always a pure strategy equilibrium in such a fiscal competition game. We construct a mixed strategy equilibrium when the pure strategy equilibrium does not exist.
    Keywords: Tax competition; Profit shifting; International taxation; Capital mobility
    JEL: H87 H25 H26 F38 F23
    Date: 2020–06
  3. By: Asatryan, Zareh; Gomtsyan, David
    Abstract: Who benefits from the evasion of value added taxes (VAT)? Using a reform that enforced VAT on previously non-compliant large retailers in Armenia, we estimate a onethird passthrough of the tax burden on prices. This suggests that pre-enforcement evasion rents were broadly shared with consumers through lower prices. Our theoretical and empirical results explain this low passthrough rate by the supply-chain effects and second-order compliance responses of firms to VAT enforcement. Our distributional analysis shows that households at the bottom of the income distribution benefit more from the rents of evasion.
    Keywords: Value added tax,Incidence,Evasion,Enforcement,Distributional Effects
    JEL: D11 H22 H26
    Date: 2020
  4. By: Dupuy, Arnaud (University of Luxembourg); Galichon, Alfred (New York University); Jaffe, Sonia (University of Chicago); Kominers, Scott Duke (Harvard University)
    Abstract: We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss.
    Keywords: matching, taxation
    JEL: C78 D3 H2 J3
    Date: 2020–06
  5. By: Edward N. Wolff
    Abstract: Tax deferred assets (TDAs) such as 401(k)s cannot be directly valued with other assets such as homes and stocks because TDAs carry a substantial deferred tax liability on withdrawal. I also net out implicit taxes on accrued capital gains and compare pre-tax and post-tax wealth. The empirical analysis covers 1983-2016 based on the Survey of Consumer Finances for conventional net worth, NW, and augmented wealth, AW, the sum of NW, pension wealth PW, and Social Security wealth SSW. Like TDAs, defined benefit pension and Social Security benefits are taxed on receipt. Netting out implicit taxes lowered PW by 24% in 2016. It also devalued SSW by 14%, NW by 5%, and AW by 8% but the reduction was lower in the 1980s. Subtracting implicit taxes lowered PW and SSW inequality but had no appreciable impact on NW or AW inequality. I also consider the bequest value BV of wealth, including death benefits. While TDAs are still subject to income tax at withdrawal, other assets are valued on a step-up in basis. BV was considerably greater than NW but BV inequality notably lower. When estimated estate taxes due on death are subtracted, BV was substantially lowered and its inequality sharply reduced.
    JEL: D31 H31 J1
    Date: 2020–06
  6. By: Akın, Emre
    Abstract: While the world taxpayers focus on aggressive tax planning, the world jurisdictions try to deal with that especially under the leadership OECD. Until now, it is hard to say that jurisdictions are successful to solve this problem. And some other countries have started to take unilateral measures to combat aggressive tax planning, which the author describes this as "aggressive tax policy"(ATPol).
    Keywords: aggressive tax policy, aggressive tax planning, international tax, unilateral measures
    JEL: F38 H26 K33 K34
    Date: 2020–06–01
  7. By: Daniel L Tortorice (College of the Holy Cross); David E. Bloom (Harvard TH Chan School of Public Health); Paige Kirby (Data for Decisions, LLC); John Regan (Data for Decisions, LLC)
    Abstract: Social impact bonds (SIBs) are an innovative financing mechanism for public goods. In a SIB, an investor provides capital to a service provider for a social intervention. The investor receives a return based on the outcome of the intervention relative to a predetermined benchmark. We describe the basic structure of a SIB and provide some descriptive statistics for these financial instruments. We then consider a formal model of SIBs and examine their ability to finance positive net present value projects that traditional debt finance cannot. We find that SIBs expand the set of implementable projects if governments are pessimistic (relative to the private sector) about the probability an intervention would succeed or if the government is particularly averse to paying costs associated with a project that does not generate offsetting benefits. As both these features are present in various public programs, we conclude that SIBs are a real innovation in public finance and should be considered for projects when traditional debt finance has been rejected.
    Keywords: Fixed Income Securities, Public Services, Impact Investing, Social Impact Bonds
    JEL: G12 H41
    Date: 2020–06
  8. By: Sijbren Cnossen
    Abstract: The harmonized European value-added tax (VAT) is anything but a modern consumption tax that taxes all goods and services at a uniform rate. As exemplified by an analysis of the Dutch version, some 60% of the base is exempted, that is, not taxed on output but on inputs. This has serious consequences. The VAT exemptions distort input choices, stimulate uneconomical self-supply, and complicate administration and compliance. The welfare costs of the exemptions can be estimated at one half of one percent of gross domestic product (GDP). Research shows that under an equal yield assumption, the elimination of the exemptions and the introduction of a single rate in conjunction with a reduction in the standard rate should foster economic growth. The Member States of the European Union (EU) should be allowed to replace their defective VATs with a modern version. This would strengthen competitive conditions.
    Keywords: VAT, European Union, exemptions, tax reform, C-efficiency
    JEL: H25 H70
    Date: 2020
  9. By: Andrew I. Friedson; Daniel I. Rees
    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.
    JEL: H2 I10 I12
    Date: 2020–05

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