nep-pub New Economics Papers
on Public Finance
Issue of 2020‒11‒02
eight papers chosen by

  1. Why Is Corporate Tax Revenue Stable While Tax Rates Fall? Evidence from Firm-Level Data By Clemens Fuest; Felix Hugger; Susanne Wildgruber
  2. Redistributive Capital Taxation Revisited By Ozlem Kina; Ctirad Slavik; Hakki Yazici
  3. How do taxes affect the trading behavior of private investors? Evidence from individual portfolio data By Buhlmann, Florian; Doerrenberg, Philipp; Voget, Johannes; Loos, Benjamin
  4. Tax-Benefit Systems and the Gender Gap in Income By Doorley, Karina; Keane, Claire
  5. Trade and the equivalence between environmental tax and quota By Li, Gang
  6. Economic growth and income distribution implications of public spending and tax decisions By Darvas, Zsolt
  7. The Life-Cycle Effects of Pension Reforms: A Structural Approach By Claudio Daminato; Mario Padula
  8. Behavioral Responses to Inheritance and Gift Taxation: Evidence from Germany By Ulrich Glogowsky

  1. By: Clemens Fuest; Felix Hugger; Susanne Wildgruber
    Abstract: While corporate tax rates in OECD countries declined over the last decades, revenues from corporate taxation relative to GDP remained remarkably stable. This paper uses a comprehensive firm-level dataset to provide an explanation for this rate-revenue puzzle in corporate taxation. Focusing on the period 1995-2016, we show that the reduction in corporate tax rates was counterbalanced by a pronounced increase in corporate profits before taxes. We decompose the rise in profits into changes in EBITDA, depreciation, and financial profits. On average, these three factors contributed almost equally to the tax base expansion, albeit differently across sectors, countries, and firm sizes.
    Keywords: corporate income taxation, corporate tax revenues, corporate profitability
    JEL: H25
    Date: 2020
  2. By: Ozlem Kina; Ctirad Slavik; Hakki Yazici
    Abstract: This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is significantly higher than the optimal rate of 48% in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.67 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a government that cares about redistribution should take into account capital-skill complementarity in production when setting the tax rate on capital income.
    Keywords: capital taxation; capital-skill complementarity; inequality; redistribution;
    JEL: E25 J31
    Date: 2020–10
  3. By: Buhlmann, Florian; Doerrenberg, Philipp; Voget, Johannes; Loos, Benjamin
    Abstract: We exploit a large reform of capital-gains taxation in Germany combined with portfolio-level daily panel data to study the causal effect of taxes on individual stock-trading behavior and the disposition effect. We find substantial spikes in selling probabilities around an intertemporal tax discontinuity, and no such spikes after the abolishment of the discontinuity. Using difference-in-bunching methods, non-parametric regressions and effective tax rates, we quantify the tax effect and identify interesting patterns of heterogeneity. We further find evidence that the well-established disposition effect is strongly affected by the tax discontinuity through tax motivated selling of both gains and losses.
    Keywords: Taxation,Capital-gains,Private investors,Trading Behavior,Disposition Effect
    JEL: H20 C41 D14 G11
    Date: 2020
  4. By: Doorley, Karina (Economic and Social Research Institute, Dublin); Keane, Claire (ESRI, Dublin)
    Abstract: The gender wage gap and the gender work gap are sizable, persistent and well documented for many countries. The result of the gender wage and gender work gap combined is an income gap between men and women. A small literature has begun to examine how the tax-benefit system contributes to closing gender income gaps by redistributing between men and women. In this paper, we study the effect of tax-benefit policy on gender differences in income. We use microsimulation models linked to survey data to estimate gender gaps in market income (before taxes and transfers) and disposable income (after taxes and transfers) for each country. We develop a method to isolate the relative contributions of the gender wage gap and the gender work gap to the overall gap in income between men and women. We then decompose the difference between the gender gap in market income and the gender gap in disposable income into (i) the relative contribution of taxes and benefits in each country and (ii) the relative cushioning of the gender wage gap and gender work gap. Policy conclusions are drawn about redistribution between men and women.
    Keywords: gender inequality, decomposition, tax-benefit system
    JEL: J16 J31
    Date: 2020–10
  5. By: Li, Gang
    Abstract: In a two-sector general equilibrium model with pollution (arising from production) affecting the productivity, I examine in both autarky and trade equilibria the equivalence between tax and quota, that is, whether they can replace each other to achieve the same environmental goals. I show that (i) sometimes tax cannot achieve what quota can; (ii) the equivalence/non-equivalence between tax and quota may change due to trade liberalization; (iii) the choice of numeraire matters under tax regulation.
    Keywords: Pollution tax; emission quota; production externalities; numeraire
    JEL: F18 H23 Q58
    Date: 2020–09
  6. By: Darvas, Zsolt
    Abstract: The level and composition of public expenditures and revenues both have implications for economic development, as shown by the ‘fiscal multiplier’ and the ‘quality of public finance’ literature. Public finance decisions also influence the distribution of income. Based on a review of the literature, I argue for a fair distribution of income as reflected in low-income inequality, not particularly because of the impact of income inequality on long-term growth (which is a controversial issue), but primarily because income inequality typically implies inequality of opportunity. European Union countries have very diverse public finance structures and different levels of effectiveness and there is room for improvement in the growth and equality impacts in all countries. A general guideline would be that the most effective approach comprises progressive taxes and inheritance taxes, spending on education, health and public infrastructure, and better government effectiveness. At the height of the 2008 global crisis and the subsequent European financial and economic crises, the fiscal consolidation strategies of EU countries largely relied on cutting public investment and social spending (except pensions), which is the opposite of what is suggested in the literature. Better fiscal rules and good fiscal institutions are needed to safeguard growth- and distribution-friendly expenditures in a crisis.
    Keywords: taxation, public pending, economic growth, income inequality
    JEL: D63 H20 H50 O40
    Date: 2020
  7. By: Claudio Daminato (Department of Management, Technology and Economics, ETH Zurich); Mario Padula (Università "Ca' Foscari" Venezia and CSEF)
    Abstract: To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. Our results also shed further light on the mechanisms behind the offset between social security and private wealth and show the importance of labor supply at retirement as an insurance mechanism against shocks to pension wealth.
    Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement.
    JEL: E21 H31 H55 J26
    Date: 2020–10–23
  8. By: Ulrich Glogowsky
    Abstract: The desirability of inheritance and gift taxes depends on individuals’ tax responsiveness. This paper demonstrates how strongly, and in what way, the German inheritance and gift tax influences taxpayer behavior. To that end, it combines administrative data with cross-bracket tax variation: a convex kink in the tax liability precedes a concave kink. Extending the bunching approach to such double-kinked tax schedules, I document that individuals tailor their taxable wealth transfers to the schedules. One type of response dominates for inheritances: testators engage in testament planning. The magnitude of the testament-planning response is comparable to that of inter vivos gifts. However, neither the overall responses of gifts nor those of inheritances heavily interfere with tax revenue collection: the associated short-run net-of-tax elasticities of taxable wealth transfers lie below 0.1.
    Keywords: wealth-transfer tax, inheritance tax, gift tax, estate tax, real responses, tax avoidance, tax evasion, behavioral responses, bunching at kinks
    JEL: H20 H20 H21 H24 H26 H31
    Date: 2020

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