nep-pub New Economics Papers
on Public Finance
Issue of 2020‒07‒27
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Policy and Abnormal Investment Behavior By Qiping Xu; Eric Zwick
  2. Temptation in Consumption and Optimal Redistributive Taxation By Maria Arvaniti; Tomas Sjögren
  3. Sin Taxes and Self-Control By Renke Schmacker; Sinne Smed
  4. Welfare improving tax evasion By Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
  5. Public Good Provision By Chowdhury Mohammad Sakib Anwar; Alexander Matros; Sonali Sen Gupta
  6. Expected Effects of the US Tax Reform on Other Countries: Global and Local Survey Evidence By Dorine Boumans; Clemens Fuest; Carla Krolage; Klaus Wohlrabe
  7. Multinational Corporations’ Effective Tax Rates: Evidence from Orbis By Javier Garcia-Bernardo; Petr Jansky; Thomas Torslov
  8. The Distributional Impact of Recurrent Immovable Property Taxation in Greece By Eirini Andriopoulou; Eleni Kanavitsa; Chrysa Leventi; Panos Tsakloglou
  9. Tax Reforms and Inter-temporal Shifting of Corporate Income: Evidence from Tax Records in Slovakia By Jaroslav Bukovina; Tomas Lichard; Jan Palguta; Branislav Zudel

  1. By: Qiping Xu; Eric Zwick
    Abstract: This paper documents tax-minimizing investment, in which firms tilt capital purchases toward fiscal year-end to reduce taxes. Between 1984 and 2013, average investment in fiscal Q4 exceeds the average of fiscal Q1 through Q3 by 37%. Q4 spikes occur in the U.S. and internationally. Research designs using variation in firm tax positions and the 1986 Tax Reform Act show that tax minimization causes spikes. Spikes increase when firms face financial constraints or higher option values of waiting until fiscal year-end. We develop an investment model with tax asymmetries to rationalize these patterns. Models without purchase-year, tax-minimization motives are unlikely to fit the data.
    JEL: D21 D22 D92 G31 H25 H32
    Date: 2020–06
  2. By: Maria Arvaniti (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland); Tomas Sjögren (Department of Economics, USBE, Umeå University, Sweden)
    Abstract: The purpose of this article is to integrate the class of preferences developed by Gul and Pesendorfer into the theory of optimal redistributive taxation with heterogenous consumers and asymmetric information. The consumers are inclined to over-spend on a commodity for which they experience temptation (TP good). Resisting that temptation gives rise to a utility cost. This cost provides two novel motives for influencing the consumption and labor supply choices; improving the welfare (by reducing the utility cost of exercising self-control) and providing the government with a novel channel via which tax policy can be used to relax a binding self-selection constraint. The welfare motive implies a positive tax on the TP good, as well as a positive (negative) marginal labor income tax rate if the consumer´s marginal valuation of leisure exceeds (falls short of) the marginal valuation of leisure that arises if the consumer would succumb to the temptation. We use iso-elastic and logarithmic utility functional form specifications to exemplify when the self-selection channel may lead to higher/lower commodity and marginal labor income taxes.
    Keywords: Temptation, self-control, optimal taxation, redistribution, commodity taxation, income taxation
    JEL: D03 H21 H24 H31
    Date: 2020–07
  3. By: Renke Schmacker; Sinne Smed
    Abstract: “Sin taxes” are high on the political agenda in the global fight against obesity. Ac- cording to theory, they are welfare improving if consumers with low self-control are at least as price responsive as consumers with high self-control, even in the absence of ex- ternalities. In this paper, we investigate if consumers with low and high self-control react differently to sin tax variation. For identification, we exploit two sets of sin tax reforms in Denmark: first, the increase of the soft drink tax in 2012 and its repeal in 2014 and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the purchase response empirically using a detailed homescan household panel. Our unique dataset com- prises a survey measure of self-control linked to the panelists, which we use to divide the sample into consumers with low and high levels of self-control. We find that consumers with low self-control reduce purchases less strongly than consumers with high self-control when taxes go up, but increase purchases to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We find empirical and theoretical support that habit formation shapes the differential response by self-control. The results suggest that price instruments are not an effective tool for targeting self-control problems.
    Keywords: self-control, soft drink tax, fat tax, sin tax, internality
    JEL: H20 D12 I18
    Date: 2020
  4. By: Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
    Abstract: We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring them, even if audits can be performed costlessly. When there is no cheating, redistribution takes place on first- and second-best frontiers and can never make low-ability types more well-off than high-ability types. Letting low-ability types cheat allows first-best redistribution up to a limit at which low-ability types are better off than high-ability types.
    Keywords: Optimal taxation, tax evasion, audits, welfare-improving.
    JEL: H20 H21 H26
    Date: 2020–07
  5. By: Chowdhury Mohammad Sakib Anwar; Alexander Matros; Sonali Sen Gupta
    Abstract: We develop a model that links tax evasion, corruption, and public good provision. In our model, citizens pay or evade taxes into the public fund, which a corrupt governor redistributes. Each citizen forms expectations about the amount of public goods the governor should provide. After observing the actual level of public goods, a citizen punishes the governor if this level is below his expectations. We describe three types of equilibria: tax evasion, efficient public good provision, and symmetric mixed-strategy. We show that the highest expectations can lead to no free riding (tax evasion) and the efficient level of public good provision even with the corrupt governor and without punishment for tax evasion.
    Keywords: Tax evasion, Audits, Embezzlement, Corruption, Sanctions, Public goods
    JEL: H40 D83 D73
    Date: 2020
  6. By: Dorine Boumans; Clemens Fuest; Carla Krolage; Klaus Wohlrabe
    Abstract: The Tax Cuts and Jobs Act constitutes the largest change to the US tax system since the 1980s and thoroughly alters the way in which multinational companies are taxed. Current assessments on the reform’s international impact vary widely. This article sheds light on the tax reform’s expected effects on other countries. We first use representative German business survey data to analyze the impact of the reform on German firms. Many firms with substantial US revenues or capacities in the US intend to expand US investment in response to the reform, in particular large firms and manufacturing companies. The effects on investment in Germany are ambiguous: While some firms substitute between investment locations, others expand in both countries. We subsequently extend our analysis to a global level using worldwide survey data. The results suggest a negative impact on tax revenues and investment in countries with close economic ties to the US.
    Keywords: US tax reform, Tax Cuts and Jobs Act, corporate tax, firm responses, survey, Germany
    JEL: H25 H32 D22 F23 E62
    Date: 2020
  7. By: Javier Garcia-Bernardo (University of Amsterdam, Faculty of Social and Behavioural Sciences, Spui 21, 1012 WX Amsterdam, The Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Thomas Torslov (Faculty of Social Sciences, Oster Farimagsgade 5, DK-1353 Copenhagen K, Denmark)
    Abstract: Effective tax rates (ETRs) estimated from the balance sheet data of multinational corporations (MNCs) are useful for comparing MNCs’ corporate income taxation across countries. In this paper we propose a new methodological approach to estimate ETRs as reliably and as for as many countries as possible using Orbis’ unconsolidated data for the 2011–2015 period. We focus on countries with at least 50 available companies, which results in a sample of 50, mostly European, countries. We estimate the ETR of a country as the ratio of corporate income tax to gross income for all affiliates of MNCs in that country, weighted by gross income. We propose four ETR estimations, including lower and upper bounds, which differ by gross income calculation. We find that ETRs substantially differ from statutory rates for some countries. For example, we show that despite similar statutory rates of 28% and 29%, MNCs in Luxembourg paid as little as 1–8% of gross income in taxes while those in Norway paid as much as 45–66%. Despite being the best available, existing data is still imperfect, and we therefore call for better data in the form of MNCs’ unconsolidated, public country-by-country reporting data.
    Keywords: Effective tax rate, multinational corporation, foreign direct investment, profit shifting, tax haven, tax competition
    JEL: C81 F21 F23 H25 H26
    Date: 2020–06
  8. By: Eirini Andriopoulou (Hellenic Competition Commission); Eleni Kanavitsa (Athens University of Economics and Business); Chrysa Leventi (Athens University of Economics & Business); Panos Tsakloglou (Athens University of Economics and Business)
    Abstract: During the last decade, Greece faced one of the most severe debt crises among developed countries, leading to Economic Adjustment Programs in order to avoid a disorderly default. Public expenditure was cut, tax rates were increased and new taxes were introduced aiming at restoring public finances. Prominent among the latter were recurrent property taxes that were playing a very minor role before the crisis. These taxes helped boosting public revenues but were hugely unpopular. The paper examines in detail their distributional impact and finds that they led to increases in inequality and (relative) poverty. The result is stronger in the case of inequality indices that are relatively more sensitive to changes close to the bottom of the distribution and poverty indices that are sensitive to the distribution of income among the poor.
    Keywords: Property taxation, inequality, poverty, progressivity, Greece
    JEL: D31 H22
    Date: 2020–07–16
  9. By: Jaroslav Bukovina; Tomas Lichard; Jan Palguta; Branislav Zudel
    Abstract: We use administrative tax return data for all corporations in Slovakia to demonstrate how policies facilitating inter-temporal income shifting result in elevated corporate income tax (CIT) elasticity estimates. Our strategy exploits kinks in the statutory tax schedules and policy reforms of tax carry-forwards. If inter-temporal shifting is neglected, our bunching estimates imply CIT elasticity of up to 0.65, suggesting a highly sensitive tax base with respect to the marginal tax rate. However, we show that CIT elasticity drops at least 21.2-49.1% when we remove the inter-temporal shifting component. This correction significantly reduces the estimated marginal excess burden of corporate taxation.
    Keywords: corporate income tax; elasticity; inter-temporal profit shifting; bunching; tax carry-forwards;
    JEL: G32 H25 H26 L25
    Date: 2020–07

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