nep-pub New Economics Papers
on Public Finance
Issue of 2020‒10‒12
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Should Capital Be Taxed? By Yunmin Chen; YiLi Chien; Yi Wen; C.C. Yang
  2. Taxing Mobile and Overconfident Top Earners By Andreas Haufler; Yukihiro Nishimura
  3. Progressive Consumption Taxes By Costa, Carlos Eugênio da; Santos, Marcelo Rodrigues dos
  4. A Minimal Role for Minimum Taxes By Steven M. Sheffrin
  5. The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals By Dhammika Dharmapala
  6. Explaining the Decline in the US Labor Share: Taxation and Automation By Burkhard Heer; Andreas Irmen; Bernd Süssmuth
  7. Audits, Audit Effectiveness, and Post-audit Tax Compliance By Matthias Kasper; James Alm
  8. 40 Years of Tax Evasion Games: A Meta-Analysis By James Alm; Antoine Malézieux
  9. New Technologies and the Evolution of Tax Compliance By James Alm; Joyce Beebe; Michael S. Kirsch; Omri Marian; Jay A. Soled
  10. Tax Evasion, Market Adjustments, and Income Distribution By James Alm; Matthias Kasper

  1. By: Yunmin Chen; YiLi Chien; Yi Wen; C.C. Yang
    Abstract: We design an infinite-horizon heterogeneous-agents and incomplete-markets model to demonstrate analytically that in the absence of any redistributional effects of government policies, optimal capital tax is zero despite capital overaccumulation under precautionary savings and borrowing constraints. Our result indicates that public debt is a better tool than capital taxation to restore aggregate productive efficiency.
    Keywords: Capital Taxation; Government Bonds; Heterogeneous Agents; Incomplete Markets; Modified Golden Rule; Ramsey Problem; Wealth Distribution.
    JEL: C61 E22 E62 H21 H30
    Date: 2020–09–26
  2. By: Andreas Haufler; Yukihiro Nishimura
    Abstract: We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. In this setting we show that overconfidence (i) unambiguously increases the bonus component in the managers’ compensation package and (ii) it reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium. Hence overconfidence can contribute to explaining both the increasing role of bonus contracts and the fall in marginal tax rates for high-income earners.
    Keywords: overconfidence, bonus taxes, tax competition, migration
    JEL: H20 H87 G28
    Date: 2020
  3. By: Costa, Carlos Eugênio da; Santos, Marcelo Rodrigues dos
    Abstract: In a static setting, whether consumption or labor income is progressively taxed is irrelevant for household choices and welfare. In a dynamic setting, however, these two forms of progressivity have markedly di erent implications for how earnings vary along the life-cycle: in a stylized life-cycle model, progressive income tax act reducing Frisch elasticities of labor supply whereas progressive consumption taxes act reducing the elasticity of intertemporal substitution. After showing that the latter leads to less ine ciencies in the stylized model than the former, we explore the consequences of replacing the current U.S. tax system by one in which labor income are linear and consumption taxes are progressive. We nd welfare gains that exceed 10% in consumption equivalent variation terms for all possible speci cations in steady state comparisons. Welfare gains are attained in all our speci cations with either very small increases in the capital stock or even large declines.
    Date: 2020–09–29
  4. By: Steven M. Sheffrin (Tulane Economics and Murphy Institute)
    Keywords: Minimum taxes, Alternative minimum taxes, Franchise tax.
    JEL: H2 H23
    Date: 2020–06
  5. By: Dhammika Dharmapala
    Abstract: Current reform proposals in international and corporate tax (most notably the OECD’s GloBE proposal) envisage taxing financial statement income. This paper develops a conceptual framework – based on the literature on the elasticity of taxable income – for the welfare analysis of such proposals, and discusses the available evidence on the tax elasticity of financial statement income. The central conclusion is that the most relevant evidence suggests a large responsiveness of financial statement income to taxes (and hence, albeit with significant limitations and caveats, arguably a large deadweight loss). The paper also highlights the need for more evidence on this question.
    Keywords: international taxation, multinational firms, financial statement income, book-tax conformity
    JEL: H25 M41
    Date: 2020
  6. By: Burkhard Heer (University of Augsburg, D); Andreas Irmen (Department of Economics and Management, Université du Luxembourg); Bernd Süssmuth (University of Leipzig, D)
    Abstract: This study provides evidence for the US that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital, and population growth. First, we empirically find indications of co-integration for the 1974-2008 period. Permanent effects on factor shares emanate from relative factor taxation. The latter also have a lasting effect on the use of robots. Variance decompositions reveal that taxing contributes to changes in the two income shares and in automation capital. Second, we analyse and calibrate a neoclassical growth model extended to include factor taxation, automation capital, and capital adjustment costs. The model is able to replicate the dynamics of the observed functional income distribution in the US during the 1965-2015 period. Counterfactual experiments suggest that the fall in the labor share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s.
    Keywords: Functional income distribution, labor income share, income taxes, automation capital, demography, growth
    JEL: D33 E62 O41 J11 J20
    Date: 2020
  7. By: Matthias Kasper (Tulane Economics and University of Vienna); James Alm (Tulane Economics)
    Abstract: This study uses a laboratory experiment to investigate the effect of tax audits on post-audit tax compliance. An important feature of our experimental design is the addition of audit ”effectiveness” to our audit mechanism, where effectiveness is defined as the share of undeclared income that the tax agency detects in an audit. This addition allows us to examine the effects of audit effectiveness on post-audit compliance. We also study whether tax audits have differential effects on different types of taxpayers, as distinguished by their prior reporting behavior. Contrary to theoretical predictions, we find that tax audits have differential effects on post-audit compliance and that the effectiveness of audits determines these responses; that is, while effective audits increase post-audit tax compliance, ineffective audits have the opposite effect. We also find that tax audits (whether effective or not) increase subsequent compliance of noncompliant taxpayers while they reduce compliance among individuals who have been found to report their income correctly. Finally, we find no evidence that tax audits crowd out the intrinsic motivation to comply of honest individuals. Our findings suggest that the specific deterrent effect of tax audits is more ambiguous than much previous analysis suggests, with these effects dependent on the effectiveness of the audit process and on the taxpayer’s prior reporting behavior.
    Keywords: Tax compliance; Audit effectiveness; Specific deterrence; General deterrence; Laboratory experiments.
    JEL: C9 H26 H83
    Date: 2020–09
  8. By: James Alm (Tulane Economics); Antoine Malézieux (Burgundy School of Business)
    Abstract: We collect individual participant data from 70 papers that use laboratory experiments to examine individual tax evasion behavior (or "Tax Evasion Games"), in order to use meta-analysis to estimate the impacts of different public policy, experimental design and individual level variables on tax evasion choices. Our results show that standard enforcement variables like audits (including audit rules) and fines perform differently on the extensive and intensive margins. We find that other fiscal variables like a flat tax system, tax rates, and tax amnesties have unambiguous negative impacts on tax compliance, and that specific features of the experimental setting, such as how subjects are directed to report income, or whether taxes are redistributed to the participants or to a real life public good, have significant impacts on tax compliance. Our results also indicate that the demographic characteristics of the subjects (e.g., gender, experimental income, occupation, risk attitude) affect compliance.
    Keywords: Tax evasion, Tax compliance, Meta-Analysis.
    JEL: C9 H0 H3
    Date: 2020–08
  9. By: James Alm (Tulane Economics); Joyce Beebe (Rice University); Michael S. Kirsch (Notre Dame Law School); Omri Marian (University of California, Irvine); Jay A. Soled (Rutgers University)
    Abstract: Improving tax compliance is a common goal of governments worldwide. The United States is no exception. The size of the nation’s “tax gap” — or the difference between what taxpayers pay in taxes in a timely manner and what they should pay if they fully complied with the tax laws — is hundreds of billions of dollars annually, significantly depriving the nation of much-needed revenue. This paper explores the mixed effects of technological advancements on tax compliance — and, thus, its counterpart, tax noncompliance. On the one hand, technological advances have largely eradicated many of the commonplace tax-noncompliance techniques that once reigned during the twentieth century. On the other hand, many of these very same technological advances threaten to usher in new modes of tax evasion. Which of these emergent trends will dominate is unclear. The outcome will largely depend upon whether Congress updates the tax laws to address technological advances and grants sufficient funding to the Internal Revenue Service to maintain robust enforcement efforts in an ever-changing technological landscape. Failure to take these steps will destine the size of the tax gap to expand. Many prior studies have addressed discreet effects of specific technologies on tax compliance. This paper contributes to this developing literature by offering a cohesive framework to address technological advancement and tax compliance.
    Keywords: Technology, Tax compliance, Tax gap.
    JEL: H24 H26
    Date: 2020–09
  10. By: James Alm (Tulane Economics); Matthias Kasper (Tulane University and University of Vienna)
    Abstract: Market adjustments to tax evasion alter factor and product prices, which determine the true impacts and beneficiaries of tax evasion.
    Keywords: Tax evasion, Tax incidence, General equilibrium.
    JEL: H26 H30
    Date: 2020–08

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