nep-pub New Economics Papers
on Public Finance
Issue of 2020‒09‒14
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates By Ole Agersnap; Owen M. Zidar
  2. Can Payroll Tax Cuts Help Firms During Recessions? By Youssef Benzarti; Jarkko Harju
  3. The Tax Cuts and Jobs Act: Which Firms Won? Which Lost? By Alexander F. Wagner; Richard J. Zeckhauser; Alexandre Ziegler
  4. Understanding the Revenue Potential of Tax Compliance Investment By Natasha Sarin; Lawrence H. Summers
  5. Pricing group membership By Bandyopadhyay, Siddhartha; Cabrales, Antonio
  6. The Macroeconomic Impact of Europe’s Carbon Taxes By Gilbert E. Metcalf; James H. Stock
  7. Making the switch from joint to individual taxation in Luxembourg. Cost, behavioural response and welfare effects By ISLAM Nizamul; DOORLEY Karina; FLOOD Lennart
  8. Do Audits Improve Future Tax Compliance in the Absence of Penalties? Evidence from Random Audits in Norway By Shafik Hebous; Zhiyang Jia; Knut Løyland; Thor Olav Thoresen; Arnstein Øvrum
  9. The Distributional Impact of Recurrent Immovable Property Taxation in Greece By Eirini Andriopoulou; Eleni Kanavitsa; Chrysa Leventi; Panos Tsakloglou

  1. By: Ole Agersnap; Owen M. Zidar
    Abstract: This paper uses an event study approach to estimate the effect of capital gains taxation on realizations at the state level, and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
    JEL: H0 H2 H21 H24 H71 R5
    Date: 2020–08
  2. By: Youssef Benzarti; Jarkko Harju
    Abstract: This paper estimates the effect of payroll tax cuts on firm activity during economic downturns. We use two regional payroll tax cuts in Finland as well as the onset of the Great Recession to estimate the effect of the recession on firms treated by the payroll tax cuts compared to a similar control group. When implemented, prior to the Great Recession, we estimate that the payroll tax cuts had limited effects on firms located in the treated regions. However, when the recession starts, some of its negative effects were substantially hampered by the previously enacted payroll tax cuts in treated firms. These effects are exacerbated for men and low-skilled employees. We also find that sales and profits in treated firms respond differently in treated firms during the recession. This shows that payroll tax cuts can make firms more resilient during downturns.
    JEL: H20 H22 H23
    Date: 2020–07
  3. By: Alexander F. Wagner; Richard J. Zeckhauser; Alexandre Ziegler
    Abstract: The Tax Cut and Jobs Act (TCJA) slashed corporations’ median effective tax rates from 31.7% to 20.8%. Nevertheless, 15% of firms experienced an increase. One fifth of firms recorded nonrecurring tax costs or benefits exceeding 3% of total assets. Proxies that existing studies employ to assess the TCJA’s impacts account for just half of actual impacts. Stock prices impounded those proxies during the legislative process. Total impacts were impounded the following year, once firms published their financials. These results indicate that investors find it hard to predict even large and immediate changes to company cash flows due to unfamiliar events.
    JEL: G12 G14 H25 O24
    Date: 2020–07
  4. By: Natasha Sarin; Lawrence H. Summers
    Abstract: In a July 2020 report, the Congressional Budget Office estimated that modest investments in the IRS would generate somewhere between $60 and $100 billion in additional revenue over a decade. This is qualitatively correct. But quantitatively, the revenue potential is much more significant than the CBO report suggests. We highlight five reasons for the CBO’s underestimation: 1) the scale of the investment in the IRS contemplated is modest and far short of sufficient even to return the IRS budget to 2011 levels; 2) the CBO contemplates a limited range of interventions, excluding entirely progress on information reporting and technological advancements; 3) the estimates assume rapidly diminishing returns to marginal increases in investment; 4) the estimates leave out the effect of increased enforcement on taxpayer decision-making; and 5) the use of the 10-year window means that the long-run benefits of increased enforcement are excluded. We discuss these issues, present an alternative calculation, and conclude that a commitment to restoring tax compliance efforts to historical levels could generate over $1 trillion in the next decade.
    JEL: H0 H2 H22
    Date: 2020–07
  5. By: Bandyopadhyay, Siddhartha; Cabrales, Antonio
    Abstract: We consider a model where agents differ in their `types' which determines their voluntary contribution towards a public good. We analyze what the equilibrium composition of groups are under centralized and centralized choice. We show that there exists a top-down sorting equilibrium i.e. an equilibrium where there exists a set of prices which leads to groups that can be ordered by level of types, with the first k types in the group with the highest price and so on. This exists both under decentralized and centralized choosing. We also analyze the model with endogenous group size and examine under what conditions is top-down sorting socially efficient. We illustrate when integration (i.e. mixing types so that each group's average type if the same) is socially better than top-down sorting. Finally, we show that top down sorting is efficient even when groups compete among themselves
    Keywords: D02, D64, D71, H41
    JEL: D02 D64 D71 H41
    Date: 2020–08–05
  6. By: Gilbert E. Metcalf; James H. Stock
    Abstract: Policy makers often express concern about the impact of carbon taxes on employment and GDP. Focusing on European countries that have implemented carbon taxes over the past 30 years, we estimate the macroeconomic impacts of these taxes on GDP and employment growth rates for various specifications and samples. Our point estimates suggest a zero to modest positive impact on GDP and total employment growth rates. More importantly, we find no robust evidence of a negative effect of the tax on employment or GDP growth. We examine evidence on whether the positive effects might stem from countries that used the carbon tax revenues to reduce other taxes; while the evidence is consistent with this view, it is inconclusive. We also consider the impact of the taxes on emission reductions and find a cumulative reduction on the order of 4 to 6 percent for a $40/ton CO2 tax covering 30% of emissions. We argue that reductions would likely be greater for a broad-based U.S. carbon tax since European carbon taxes do not include in the tax base those sectors with the lowest marginal costs of carbon pollution abatement.
    JEL: E62 H23 Q43 Q54
    Date: 2020–07
  7. By: ISLAM Nizamul; DOORLEY Karina; FLOOD Lennart
    Abstract: We study the effect of a move from joint to individual taxation system using 2,276 couple household living in Luxembourg. We estimate simultaneously labour supply and social assistance (RMG) participation, exploiting a discrete choice model. We focus on the distributional, work (extensive and intensive margin) incentive, and the social welfare effect of introducing a mandatory individual taxation system in Luxembourg. The work incentive of married women increases by 2.27% in intensive margin and 2.58% in extensive margin after the reform. The incentive of married men is almost zero. Equivalised disposable income, after the behavioural adjustment, decreases on average 2.1 per cent. After adjustments to direct and indirect taxes, the net revenue-neutral result is a budget surplus for the central government of around €10 million.
    Keywords: Joint taxation; Microsimulation; Labour supply; Welfare
    JEL: B21 B31 D31 H24 H31
    Date: 2020–05
  8. By: Shafik Hebous; Zhiyang Jia; Knut Løyland; Thor Olav Thoresen; Arnstein Øvrum
    Abstract: The Norwegian Tax Administration operated multi-year random audits of personal income tax returns. We exploit this exceptional randomized setup to estimate the effects of tax audits on future compliance explicitly distinguishing between dynamic responses of compliant and noncompliant audited taxpayers. A priori, the literature has suggested two competing effects: A post-audit deterrence effect—whereby audits prompt taxpayers to comply in subsequent years—or an “approval effect”—whereby audits lower taxpayers’ subjective probability of detecting future evasion and hence weaken compliance. Our results suggest improved future compliance for five post-audit years by those that were found noncompliant in the audits. Those that were found compliant, however, show no signs of behavioral adjustments. Although the findings are consistent with the deterrence effect, we argue that there is also a “learning” effect with the important implication that better information for taxpayers critically complements tax audits.
    Keywords: tax administration, tax evasion, tax compliance, tax audits, administrative data
    JEL: H26 C23
    Date: 2020
  9. By: Eirini Andriopoulou; Eleni Kanavitsa; Chrysa Leventi; Panos Tsakloglou
    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
    Date: 2020–07

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