nep-pub New Economics Papers
on Public Finance
Issue of 2021‒03‒08
fifteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Tax Problems with Multidimensional Heterogeneity: A Mechanism Design Approach By Laurence Jacquet; Etienne Lehmann
  2. How does the evolution of R&D tax incentives schemes impact their effectiveness? Evidence from a meta-analysis By Blandinieres, Florence; Steinbrenner, Daniela
  3. Structural Tax Reforms and Public Spending Efficiency By António Afonso; João Tovar Jalles; Ana Venâncio
  4. Economic Integration and Agglomeration of Multinational Production with Transfer Pricing By Hayato Kato; Hirofumi Okoshi
  5. Vertical Integration and Production Inefficiency in the Presence of a Gross Receipts Tax By Benjamin Hansen; Keaton S. Miller; Caroline Weber
  6. How Much Taxes Will Retirees Owe on Their Retirement Income? By Anqi Chen; Alicia H. Munnell
  8. Politicians Avoid Tax Increases Around Elections By Andrew C. Chang; Linda R. Cohen; Amihai Glazer; Urbashee Paul
  9. Re-allocating taxing rights and minimum tax rates in international profit taxation By Kempkes, Gerhard; Stähler, Nikolai
  10. The 2021 Long-Term Budget Outlook By Congressional Budget Office
  11. The long-run investment effect of taxation in OECD countries By Jakob B. Madsen; Antonio Minniti; Francesco Venturini
  12. Offshore Tax Evasion and Wealth Inequality: Evidence from a Tax Amnesty in the Netherlands By Wouter Leenders; Arjan Lejour; Simon Rabaté; Maarten van’t Riet
  13. The political economy of India's transition to Goods and Services Tax By Sharma, Chanchal Kumar
  14. Taxpayer responsiveness to taxation Evidence from bunching at kink points of the South African income tax schedule By Neryvia Pillay
  15. Assessing the distributional impact of lowering the value-added tax rate for standard-rated items in Tanzania and options for recouping revenue losses By Elineema Kisanga; Vincent Leyaro; Wahabi Matengo; Michael Noble; Helen Barnes; Gemma Wright

  1. By: Laurence Jacquet; Etienne Lehmann
    Abstract: We propose a new method, that we call an allocation perturbation, to derive the optimal nonlinear income tax schedules with multidimensional individual characteristics on which taxes cannot be conditioned. It is well established that, when individuals differ in terms of preferences on top of their skills, optimal marginal tax rates can be negative. In contrast, we show that with heterogeneous behavioral responses and skills, one has optimal positive marginal tax rates, under utilitarian preferences and maximin.
    Keywords: optimal taxation, mechanism design, multidimensional screening problems, allocation perturbation
    Date: 2021
  2. By: Blandinieres, Florence; Steinbrenner, Daniela
    Abstract: A growing interest in R&D tax incentive policies has given rise to a large number of evaluations, which provide contrasting results about their effectiveness. Our meta- analysis aims to explain the heterogeneity found in the R&D tax incentive evaluations by the features of tax incentives. We document that on average R&D tax incentives stimulate R&D expenditures across two streams of empirical studies. However, this averaged effect is moderated by the underpinning features of tax incentives. Our samples evidence that the estimations linked to incremental bases and related to targeted rules towards SMEs drive the positive results found in the literature. Introducing a cap or a pre-approval process does not decrease the effectiveness of R&D tax incentives, allowing governments to monitor the indirect support needed to stimulate private R&D expenditures. Our results highlight the importance of setting up a clear and stable tax incentives framework. Sources of uncertainty regarding the timespan, the amount of the financial returns from tax claims but also the main criteria to apply are likely to decrease their effectiveness in the short run.
    Keywords: Meta-analysis,R&D tax incentives incentives
    JEL: O32 H25 O38
    Date: 2021
  3. By: António Afonso; João Tovar Jalles; Ana Venâncio
    Abstract: We evaluate the effects of structural tax reforms on government spending efficiency in a sample of OECD economies over the period 2007-2016. After calculating input spending efficiency scores, we assess the relevance for efficiency of narrative tax changes in a panel setup. We find that: i) input efficiency scores average around 0.6-07; ii) increases in the tax rates are reflected in falling public sector efficiency; iii) such negative effect is significant for PIT and VAT; iv) controlling for endogeneity, increases in tax rates are still associated with lower public sector efficiency, mainly in PIT; v) increasing tax bases for PIT and VAT improve public sector efficiency; vi) in economic expansion periods, increasing CIT base and reducing PIT rates, positively affect public sector efficiency; ix) in recessions, efficiency improves when PIT and VAT bases increase and CIT rate increases.
    Date: 2020
  4. By: Hayato Kato (Corresponding author. Graduate School of Economics Osaka); Hirofumi Okoshi (Munich Graduate School of Economics, University of Munich, Seminar for Economic Policy, Akademiestr. 1/II, D-80799 Munich, Germany; Faculty of Economics, Okayama University, 3-1-1 Tsushima, Kita-ku, Okayama,)
    Abstract: Do low corporate taxes always favor multinational production in the course of economic integration? We propose a two-country model in which multinationals choose the locations of production plants and foreign distribution affiliates and shift profits between home plants and foreign affiliates by manipulating transfer prices in intra-firm trade. We show that when trade costs are high, plants are concentrated in the low-tax country, but surprisingly this location pattern reverses when they are low. Unlike existing models with single-plant firms, the impact of economic integration is non-monotonic, which we empirically confirm: a fall in trade costs first decreases and then increases the share of plants in the high-tax country. We also analyze tax competition and find that allowing for transfer pricing makes competition tougher, indicating a possibility of international coordination on transfer-pricing regulation making the world better off.
    Keywords: Profit shifting; Multinational firms; Intra-firm trade; Trade costs; Foreign direct investment (FDI)
    JEL: F12 F23 H25 H26
    Date: 2021–01
  5. By: Benjamin Hansen; Keaton S. Miller; Caroline Weber
    Abstract: We quantify the effects of a gross receipts tax (GRT) on vertical integration for the first time. We use data from the Washington state recreational cannabis industry, which has numerous advantages including a clean natural experiment: a 25% GRT imposed on cannabis firms was subsequently replaced by an excise tax at retail. We find the short-run elasticity of vertical integration with respect to the intermediate good net- of-tax rate is -0.15 and the long-run elasticity is more than twice as large. We find these incentives lead to large output losses – production increases by 23 percent when the GRT is eliminated.
    JEL: H21 H25 H26 H30 H71 I28 L51 L6
    Date: 2021–02
  6. By: Anqi Chen; Alicia H. Munnell
    Abstract: To evaluate their retirement resources, households approaching retirement will examine their Social Security statements, defined benefit pensions, defined contribution balances, and other financial assets. However, many households may forget that not all of these resources belong to them; they will need to pay some portion to federal and state government in taxes. It is unclear, however, just how large the tax burden is for the typical retired household and for households with different income levels. This project aims to shed light on the tax burdens that retirees face by estimating lifetime taxes for a group of recently retired households. The project uses data from the Health and Retirement Study (HRS) linked to administrative earnings to determine Social Security benefits and administrative records on state of residence to estimate state tax liabilities. Income is then projected over the expected retirement of each household. Federal and state taxes, are estimated with TAXSIM, for each household on its reported and projected income. The paper found that: ¥ These estimates show that households in the aggregate will have to pay about 6 percent of their income in federal and state income taxes. ¥ But this liability rests primarily with the top quintile of the income distribution. ¥ For the lowest four quintiles, taxes are negligible Ð ranging from 0 percent to 1.9 percent. ¥ In contrast, the average liability is 11.3 percent for the top quintile, 16.4 percent for the top 5 percent, and 22.7 percent for the top 1 percent. The policy implications of the findings are: ¥ Taxes are meaningful for the top quintile, who are mostly married couples with average combined Social Security benefits of $50,900, 401(k)/IRA balances of $325,400 and financial wealth of $441,400. ¥ If these retirement and financial assets were fully annuitized, the amount a household would receive is equivalent to about $3,000 a month, and these households face tax liabilities of about 11 percent. ¥ Thus, for many households reliant on 401(k)/IRA or financial assets for security in retirement, taxes are an important consideration.
    Date: 2020–11
  7. By: Raffaella Santolini (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: The decision to end a marriage may depend on economic reasons such as more advantageous tax breaks obtained through a divorce. The paper examines the role played by property tax in influencing decisions of marital separation and divorce in Italian municipalities over the years 2001-2007. Empirical analysis shows that there is a significant increase in divorces and marital separations as the difference between the municipal secondary and primary home tax rate increases. Women are more inclined than men to separate and divorce when the municipal property tax rates differences become larger.
    Keywords: property tax; divorce; marital separation; Italian municipalities
    JEL: H30 H31 J12
    Date: 2021–02
  8. By: Andrew C. Chang; Linda R. Cohen; Amihai Glazer; Urbashee Paul
    Abstract: We use new annual data on gasoline taxes and corporate income taxes from U.S. states to analyze whether politicians avoid tax increases in election years. These data contain 3 useful attributes: (1) when state politicians enact tax laws, (2) when state politicians implement tax laws on consumers and firms, and (3) the size of tax changes. Using a pre-analysis research plan that includes regressions of tax rate changes and tax enactment years on time-to-gubernatorial election year indicators, we find that elections decrease the probability of politicians enacting increases in taxes and reduce the size of implemented tax changes relative to non-election years. We find some evidence that politicians are most likely to enact tax increases right after an election. These election effects are stronger for gasoline taxes than for corporate income taxes and depend on no other political, demographic, or macroeconomic conditions. Supplemental analysis supports political salience over legislative e ort in generating this difference in electoral effects.
    Keywords: Corporate Income Taxes; Electoral Cycle; Gasoline Taxes; Pre-analysis Plan; Tax Salience
    JEL: D72 D78 H24 H71 K34 P16
    Date: 2021–01–29
  9. By: Kempkes, Gerhard; Stähler, Nikolai
    Abstract: What are the macroeconomic implications of re-allocating taxing rights away from source countries (where goods are produced) to market countries (where goods are consumed) and introducing minimum rates in international profit taxation? We assess this question in a dynamic macroeconomic model that gives a meaningful role to profit taxation. We find that, in low tax economies, the average profit tax rate will rise. On the one hand, this reduces price competitiveness of firms located in these regions and, thereby, output. On the other hand, higher profit tax revenues help to reduce other taxes. Moreover, lower expected future output requires less capital in production in the long run. Firms hence invest less and (temporarily) augment dividend payments. This raises disposable income of households, who (at least temporarily) increase consumption. The opposite holds for high tax economies. When taxing rights are re-allocated, wealth transfers between regions mitigate these effects. In terms of welfare, low tax economies can benefit from an increase in profit taxation.
    Keywords: Re-Allocating Profit Taxing Rights,Minimum Taxation,InternationalMacro
    JEL: H25 L52 E20 E62 L10
    Date: 2021
  10. By: Congressional Budget Office
    Abstract: By the end of fiscal year 2021, federal debt held by the public is projected to equal 102 percent of gross domestic product (GDP). If current laws governing taxes and spending generally remained unchanged, debt would equal 107 percent of GDP in 2031, its highest level in the nation’s history, CBO projects. Growth in outlays would outpace growth in revenues in subsequent decades, leading to growing budget deficits over the long term. As a result, federal debt would continue to increase, exceeding 200 percent of GDP by 2051.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2021–03–04
  11. By: Jakob B. Madsen; Antonio Minniti; Francesco Venturini
    Abstract: The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long-run implications of the model using annual data for 21 OECD countries over the period 1890-2015. We find that corporate taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance the investment in R&D. Thus, a revenue-neutral switch from corporate to personal income taxes is growth enhancing.
    Keywords: taxation, innovation, Tangible and Intangible Capital, economic growth
    JEL: E10 E62 O38 O40
    Date: 2021–02
  12. By: Wouter Leenders; Arjan Lejour; Simon Rabaté; Maarten van’t Riet
    Abstract: Exploiting unique datasets covering over 28,000 tax evaders in the Netherlands, we investigate the distribution of tax evasion and its implications for the measurement of wealth inequality. In contrast to Alstadsæter, Johannesen and Zucman (2019), the correction for offshore wealth has only a modest effect on top wealth shares. We show that the distributional pattern of tax evasion depends on the type of tax evasion, e.g. it depends on the offshore country of choice. We explore a number of explanations to account for the differences in results and caution against projecting distributional patterns of detected tax evasion onto still undetected evasion. We also study the dynamic compliance behaviour of tax amnesty participants and document large and sustained increases in reported wealth of around 60% following amnesty participation.Combined with evidence of only a modest increase in the adoption of tax avoidance strategies, this suggests that amnesty participation can lead to substantial public revenue gains.
    Date: 2020
  13. By: Sharma, Chanchal Kumar
    Abstract: What kept the Goods and Services Tax (GST) from becoming a reality in India for a quarter of a century after the adoption of the structural adjustment programme in 1991? What made it possible in 2016? To what extent the Indian model of GST reflects a compromise between the need to keep fiscal federalism intact and to respond to a more global economic impera-tive? To what extent India's transition to a concurrent dual GST has brought about a change in the principles, rules, frameworks, and institutions guiding intergovernmental fiscal interactions? This paper investigates these issues and shows that the shifts in the indirect tax regime in India since independence have taken place within the structural context of constitutional rules, the economic policy paradigm and political dynamics. Party congruence after 2014 helped to facilitate the introduction of the GST, but the shape thereof was strongly marked by path-dependent logics and the role of state governments as institutional veto players. In addition, the paper examines the ways in which India's transition to a concurrent dual GST has brought about a fundamental change in the principles, rules, frameworks, and institutions guiding intergovernmental fiscal interactions.
    Keywords: India,fiscal federalism,indirect tax reforms,GST,intergovernmental relations,fiscal autonomy
    Date: 2021
  14. By: Neryvia Pillay
    Abstract: Taxpayer responsiveness to taxation: Evidence from bunching at kink points of the South African income tax schedule
    Date: 2021–02–05
  15. By: Elineema Kisanga; Vincent Leyaro; Wahabi Matengo; Michael Noble; Helen Barnes; Gemma Wright
    Abstract: This paper explores the distributional impact of lowering the value-added tax rate for standard-rated items in Tanzania Mainland. Using a static tax-benefit microsimulation model?TAZMOD?which is underpinned by data derived from the Household Budget Survey 2017/18, reductions in value-added taxes from 18 per cent to 17 per cent and 16 per cent are simulated. The revenue losses and impact on poverty are estimated.
    Keywords: Value-added tax, Microsimulation, Redistribution, Revenue, Tanzania
    Date: 2021

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