nep-pub New Economics Papers
on Public Finance
Issue of 2020‒10‒05
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Income Tax Evasion: Tax Elasticity, Welfare, and Revenue By Max Gillman
  2. Capital Income Taxation with Portfolio Choice By Ivo Bakota
  3. My Taxes are Too Darn High: Tax Protests as Revealed Preferences for Redistribution By Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
  4. Optimal Financial Transaction Taxes By Eduardo Dávila
  5. Bilateral Tax Competition and Regional Spillovers in Tax Treaty Formation By Kunka Petkova; Andrzej Leszek Stasio; Martin Zagler
  6. The 2020 Long-Term Budget Outlook By Congressional Budget Office
  7. The Impacts of Soda Taxes in U.S. Localities By Cengiz, Ezgi; Cengiz, Doruk
  8. Effects of Tax-Benefit Policy Changes across the Income Distributions of the EU-28 countries: 2018-2019 By EUROMOD, EUROMOD

  1. By: Max Gillman (1 University Blvd; University of Missouri – St. Louis; St. Louis, MO 63121)
    Abstract: This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such fiscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government fiscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output.
    Keywords: Optimal Evasion; Tax Law; Welfare; Tax Elasticity; Revenue; Productivity; Development.
    JEL: E13 H21 H26 H30 H68 K34 K42 O11
    Date: 2020–09
  2. By: Ivo Bakota
    Abstract: This paper analyzes redistributional and macroeconomic effects of differential taxation of financial assets with a different risk levels. The redistributive effect stems from the fact that various households hold portfolios with a starkly different risk levels. In particular, poor households primarily save in safe assets, while rich households often invest a substantially higher share of their wealth in (risky) equity. At the same time, equity and safe assets are often taxed at different rates in many tax codes. This is primarily because investments in equity (which are relatively riskier) are taxed both as corporate and personal income, unlike debt, which is tax deductible for corporations. This paper firstly builds a simple theoretical two-period model which shows that the optimal tax wedge between risky and safe assets is increasing in the underlying wealth inequality. Furthermore, I build a quantitative model with a continuum of heterogeneous agents, parsimonious life-cycle, borrowing constraint, aggregate shocks and uninsurable idiosyncratic shocks, in which the government raises revenue by using linear taxes on risky and safe assets. Simulations of quantitative models shows that elimination of differential asset taxation leads to a welfare loss equivalent to a 0.3% permanent reduction in consumption. I find that the optimal tax wedge between taxes on equity and debt is higher than the one in the U.S. tax code.
    Keywords: portfolio choice; optimal taxation; redistribution;
    JEL: E62 G11 G32 H21 H23
    Date: 2020–09
  3. By: Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
    Abstract: In all U.S. states, individuals can file a protest with the goal of legally reducing their property taxes. This choice provides a unique opportunity to study preferences for redistribution via revealed preference. We study the motives driving tax protests through two sources of causal identification: a quasi-experiment and a pre-registered large-scale natural field experiment. We show that, consistent with selfish motives, households are highly elastic to their private benefits and private costs from protesting. We also find that social preferences are a significant motive: consistent with conditional cooperation, households are willing to pay higher tax rates if they perceive that others pay high tax rates too. Lastly, we document significant differences between the motivations of Democrats and Republicans.
    JEL: C93 H2 H26 Z13
    Date: 2020–09
  4. By: Eduardo Dávila
    Abstract: This paper characterizes the optimal transaction tax in an equilibrium model of competitive financial markets. As long as investors hold heterogeneous beliefs that are not related to their fundamental trading motives and the planner calculates welfare using any single belief, a strictly positive tax is optimal, regardless of the magnitude of fundamental trading. Under some conditions, the optimal tax is independent of the belief used by the planner to calculate welfare. The optimal tax can be implemented by adjusting its value until observed total volume equals fundamental volume. Knowledge of i) the share of non-fundamental trading volume and ii) the semi-elasticity of trading volume to tax changes is sufficient to quantify the optimal tax. A calibration of the model consistent with empirically estimated volume semi-elasticities to tax changes and that features a 30% share of non-fundamental trading volume is associated with a 37bps optimal tax.
    JEL: D61 G18 H21
    Date: 2020–09
  5. By: Kunka Petkova (Vienna University of Economics and Business); Andrzej Leszek Stasio (European Commission - JRC); Martin Zagler (Vienna University of Economics and Business)
    Abstract: Tax treaties are often seen as a means to mitigate fierce tax competition. We challenge this view by arguing that taxes on passive income reduce effective average tax rates, and induce neighbouring countries to react by reducing bilateral tax rates. As opposed to traditional tax competition, where every foreign investor would benefit from lower tax rates, we show that countries also engage in cutting tax rates for investors from a particular country, leaving taxes for everyone else unaffected. We call this bilateral tax competition, and we test these predictions empirically. We focus on the four treaty withholding tax rates on passive income - portfolio dividends, participation dividends, interest, and royalties - and collect these rates for 3,000 tax treaties and amending protocols signed between 1930 and 2012. We find a positive relationship in the negotiated withholding tax rates of a destination country's tax treaty and destination country competitors' past tax treaties with the same source country. This relationship is strongest for the tax rates on interest and royalties, and varies from an average elasticity between 0.19 and 0.36 with both source and destination country being an OECD member, and an average elasticity up to 0.64 when both countries are tax havens.
    Keywords: tax competition, international taxation, double taxation treaties, withholding taxes, tax treaty formation
    JEL: F50 F53 F68 H29 H39
    Date: 2020–09
  6. By: Congressional Budget Office
    Abstract: By the end of 2020, federal debt held by the public is projected to equal 98 percent of gross domestic product (GDP)—its highest level since shortly after World War II. If current laws governing taxes and spending generally remained unchanged, debt would first exceed 100 percent of GDP in 2021 and would reach 107 percent of GDP, its highest level in the nation’s history, by 2023, CBO projects. Debt would continue to increase in most years thereafter, reaching 195 percent of GDP by 2050.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2020–09–21
  7. By: Cengiz, Ezgi; Cengiz, Doruk
    Keywords: Agricultural and Food Policy, Demand and Price Analysis, Research Methods/Statistical Methods
    Date: 2020–07
    Date: 2020–09–24

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