nep-pub New Economics Papers
on Public Finance
Issue of 2021‒01‒18
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The economic consequences of major tax cuts for the rich By Hope, David; Limberg, Julian
  2. Who Benefits from State Corporate Tax Cuts? A Local Labor Markets Approach with Heterogeneous Firms: Comment By Clément Malgouyres; Thierry Mayer; Clément Mazet-Sonilhac
  3. Tax Policy and Foreign Direct Investment: A Regime Change Analysis. By Onome Christopher Edo
  4. Tax haven, pollution haven or both? By Thierry Madiès; Ornella Tarola; Emmanuelle Taugourdeau
  5. Kantians Defy the Economists' Mantra of Uniform Pigovian Emissions Taxes By Thomas Eichner; Rüdiger Pethig
  6. Postponing Retirement and Social Security in a Two Sector Model By Partha Sen
  7. Joint Taxation in Spain and its Effects on Social Welfare: a Microsimulation Analysis By Badenes-Plá, Nuria; Blanco Palmero, Patricia; Gambau-Suelves, Borja; Navas Román, María; Villazán Pellejero, Noemí
  8. International Taxation and Luxembourg’s Economy By Ruud A. de Mooij; Dinar Prihardini; Antje Pflugbeil; Emil Stavrev
  9. Spillovers and Long-Run Effects of Messages on Tax Compliance: Experimental Evidence from Peru By Castro, Juan Francisco; Velásquez, Daniel; Beltrán, Arlette; Yamada, Gustavo

  1. By: Hope, David; Limberg, Julian
    Abstract: This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducings taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.
    Keywords: tax cuts for the rich; income inequality; growth; unemployment; difference-in-differences; Mahalanobis matching
    JEL: N0 E6
    Date: 2020–12
  2. By: Clément Malgouyres (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IPP - Institut des politiques publiques); Thierry Mayer (Institut d'Études Politiques [IEP] - Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR); Clément Mazet-Sonilhac (Institut d'Études Politiques [IEP] - Paris, Banque de France - Banque de France - Banque de France)
    Abstract: Suárez Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location's attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from reduced-form estimates. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than the 40% initially reported. The null associated with the "conventional view" that the share on workers is 1 and that on firm owners is 0 is still rejected.
    Keywords: Incidence,Corporate income tax,Discrete/continuous choice
    Date: 2020–12
  3. By: Onome Christopher Edo (Department of Accounting, University of Benin, Nigeria. Author-2-Name: Anthony Okafor, PhD Author-2-Workplace-Name: Department of Finance, University of Louisville, Kentucky Author-3-Name: Akhigbodemhe Emmanuel Justice Author-3-Workplace-Name: Department of Economics, University of Benin, Nigeria Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Tax policies play significant role in the direction of foreign direct investments. We investigate the proposition that tax policies enacted by military and democratic regimes differ on the influence the foreign direct investments. Methodology – Our hypotheses are tested using the error correction model as we compare the impact of tax policies on flow foreign direct investments in Nigeria between two dispensations: military rule from 1983 to 1999 and democratic rule from 1999 to 2017. Panel data between 1983 and 2017 were obtained from the databases of the World Bank, Central Bank of Nigeria and the Federal Inland Revenue Services. The explanatory variables include company income tax, value added tax, tertiary education tax and customs and exercise duties. Findings – The study reveals that tax variables during the military regime exerted more explanatory power of 79% compared to the civilian administration of 66% with respect to the impact of corporate taxes on FDI. The effect of company income tax on FDI was more pronounced during the military regime than in the civilian regime. FDI had a higher degree of convergence during the military regime compared to civilian rule, and this is vital for policy assessments and comparison. Novelty – We bring to light new evidences on the effects of taxes polices on FDI. Type of Paper - Empirical
    Keywords: Corporate taxes; Tax Policies; Foreign Direct Investments; Error Correction Model; Military regime; Civilian regime.
    JEL: E22 F21 H2 P33
    Date: 2020–12–31
  4. By: Thierry Madiès (Université de Fribourg); Ornella Tarola (DISSE, University of Rome La Sapienza); Emmanuelle Taugourdeau (CNRS, CREST, ENS Paris-Saclay)
    Abstract: This paper studies the interplay between a poor and a rich country when they sequentially compete over corporate taxes and environmental regulations to attract imperfectly mobile firms. Countries have also different environmental awareness. We show that the poor country generally undercuts the corporate tax set by the rich country. The poor country chooses to be both a tax and pollution haven when it is less environmentally concerned than the rich country and capital integration is low. The rich country has never an incentive to be both a tax haven a pollution haven. Interestingly, at equilibrium, the poor country rarely does better in terms of welfare than the rich country. Finally we find that higher capital mobility narrows the tax gap between the rich and the poor country but does not affect the optimal environmental policy: tax competition immunizes countries against the detrimental effect of globalization on environmental standards.
    Keywords: Tax Competition, Capital Integration, Cross-border Pollution, Environmental Standards
    JEL: H2 R3 R5 Q5
    Date: 2021–01–08
  5. By: Thomas Eichner; Rüdiger Pethig
    Abstract: This paper analyzes the efficient emissions taxation in economies with individuals who are morally motivated to reduce their emissions footprint. They are heterogenous with respect to their morality and their consumption preferences. We distinguish between the concepts of moral and conventional utilitarian (= material) welfare. The materially efficient tax rates turn out to be consumer-type specific; they are smaller than the Pigovian tax rate; and the smaller, the higher the individuals’ propensity to act morally. Finally, we briefly characterize the second-best uniform emissions tax.
    Keywords: Pigovian tax, material, moral, Kantian, consumer-type tax
    JEL: H21 Q58
    Date: 2020
  6. By: Partha Sen
    Abstract: Pay-as-you-go (PAYG) social security schemes in the OECD countries are facing solvency problems, as people are living longer and birth rates have declined. Postponing the full retirement age (FRA), when retirees are entitled to full pension, has been proposed as a solution. This effectively lowers the payroll tax rate since pension is paid only in the post-FRA period. In a two-period two-sector overlapping generations model, I show that this shift lowers savings (because a part of the expected old age income is consumed in the first period), as employment increases. In the transition to the new steady state, capital is decumulated and the wage rate falls. Contrast this with a reduction of the payroll tax rate where the initial old suffer reduced consumption, but the young have higher post-tax income and this spurs capital accumulation.
    Keywords: overlapping generations, social security reform, postponing retirement
    JEL: H55
    Date: 2020
  7. By: Badenes-Plá, Nuria; Blanco Palmero, Patricia; Gambau-Suelves, Borja; Navas Román, María; Villazán Pellejero, Noemí
    Abstract: This paper focuses on the study of the effects on social welfare generated by the scheme of joint taxation of the Spanish Personal Income Tax (PIT), whose peculiarity linked to its condition of optionality, allows the minimization of households´ tax bill. Different scenarios are simulated using the tax-benefit microsimulator of the European Commission – EUROMOD – with data from the Survey on Income and Living Conditions corresponding to 2016. In order to measure the welfare, the current PIT scheme is taken as reference and then it is compared with two alternatives, one, in which the families that currently can opt for this system are forced to pay jointly, and another, in which the only taxation scheme was individual. The results show that the Spanish system is revealed as a generator of additional welfare linked both to the circumstance of allowing an option to families, as well as to the fact of designing a specific system of joint taxation. In addition, it is shown that the policy recommendations would be different if only the study of inequality had been considered, since the net income gains of the current system offset the possible improvements in inequality of the simulated alternatives. Our results, therefore, also reinforce the convenience of adopting an approach that simultaneously considers efficiency and equity.
    Date: 2020–12–23
  8. By: Ruud A. de Mooij; Dinar Prihardini; Antje Pflugbeil; Emil Stavrev
    Abstract: Luxembourg receives ample investment from multinational corporations, in part due to some attractive features in its international tax rules. Around 95 percent of these foreign investments pass through Luxembourg via companies performing holding and/or intra-group financing activities. While their contribution to Luxembourg’s economy is modest relative to their large overall balance sheets, they still generate around 3 percent of GDP in tax revenue, create almost 4500 direct jobs, and spend almost 3 percent of GDP on salaries and purchases of business services. Ongoing changes in the international corporate tax framework pose risks to these economic contributions, which this paper attempts to quantify. It also discusses options for reforms in Luxembourg’s tax system that could help offset adverse revenue and economic effects.
    Date: 2020–11–25
  9. By: Castro, Juan Francisco (Universidad del Pacifico); Velásquez, Daniel (Universidad del Pacifico); Beltrán, Arlette (Universidad del Pacifico); Yamada, Gustavo (Universidad del Pacifico)
    Abstract: We carry out a randomized controlled trial to evaluate the effect of three different types of messages sent to taxpayers on their compliance with the rental income tax (direct effect) and the spillovers produced on payments related to the capital gains and the self-employment income taxes. One message highlights detection, another appeals to social norms, and the third type appeals to altruism. This is the first study to evaluate if these messages can produce spillovers across taxes and to perform a long-term follow-up. This is important to determine if the treatment increases tax revenues. We find that the message addressing detection produces a positive and permanent direct effect and a negative but transitory spillover on the other two taxes. Overall, it increases tax revenues by US$3.92 per dollar spent in the long run. The message appealing to social norms has no direct effect but produces a permanent negative spillover on the capital gains tax. Ignoring this spillover would have lead one to conclude that this message is innocuous when in fact produces a loss of US$ 5.20 per dollar spent in the long run. The message appealing to altruism produces a transitory negative effect and no spillovers, and has no effect on tax revenues in the long run.
    Keywords: social norms, altruism, tax evasion, randomized controlled trial, Latin America
    JEL: D91 K42 H24 H26 H41
    Date: 2020–12

This nep-pub issue is ©2021 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.