nep-pub New Economics Papers
on Public Finance
Issue of 2021‒05‒31
six papers chosen by

  1. A Welfare Analysis of Tax Structures with Love-of-Variety Preferences By Kory Kroft; Jean-William P. Laliberté; René Leal Vizcaíno; Matthew J. Notowidigdo
  2. Profit Shifting of Multinational Corporations Worldwide By Javier Garcia-Bernardo; Petr Jansky
  3. Corporate taxes, investment and the self-financing rate. The effect of location decisions and exports By Thomas von Brasch; Ivan Frankovic; Eero Tölö
  4. Tax Progressivity and Wealth Inequality: Evidence from Forbes 400 By Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
  5. Public Debt and state-dependent Effects of Fiscal Policy in the Euro Area By Snezana Eminidou; Martin Geiger; Marios Zachariadis
  6. Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa By Ali Enami; Ugo Gentilini; Patricio Larroulet; Nora Lustig; Emma Monsalve; Siyu Quan; Jamele Rigolini

  1. By: Kory Kroft; Jean-William P. Laliberté; René Leal Vizcaíno; Matthew J. Notowidigdo
    Abstract: This paper reassesses the general trade-off between ad valorem and specific taxation using an economic model that features love-of-variety preferences and encompasses a wide range of market conduct – including both quantity and price competition – while allowing for firm entry and exit. We derive formulas for efficiency and incidence of both types of taxes that depend on the responsiveness of product variety to taxes and the effect of a change in product variety on consumer surplus. We use our formulas to derive a desirability condition for when ad valorem taxes are more efficient than specific taxes and a condition for when ad valorem taxes lead to greater pass-through than specific taxes. We identify and estimate the model parameters using a quasi-experimental ``county border pair'' research design that uses state-level and county-level variation in sales taxes combined with detailed scanner data covering grocery stores in the U.S. Our empirical results indicate that sales taxes are slightly overshifted onto consumer prices, have a large effect on quantity demanded, and have a more modest effect on the variety of products available to consumers. Using the estimated parameters, we recover consumers' love-of-variety, infer whether or not product variety is socially optimal (at current tax rates), and implement our desirability condition. We find that specific taxes are more efficient at the margin than ad valorem taxes given the estimated love-of-variety. This suggests that policymakers should consider using specific taxes and tariffs in markets with substantial product differentiation.
    JEL: H20 H22 H71
    Date: 2021–05
  2. By: Javier Garcia-Bernardo (Tax Justice Network, CORPTAX, Charles University in Prague); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We exploit the new multinational corporations´ country-by-country reporting data with unparalleled country coverage to study profit shifting to tax havens. We show that a logarithmic function is preferable to linear and quadratic ones for modelling the extremely non-linear relationship between profits and tax rates. Using this methodology, we reveal that multinational corporations shifted US$1 trillion of profits in 2016 and that those headquartered in the United States and China did so most aggressively. We establish that the Cayman Islands is the largest tax haven, whereas countries with lower incomes tend to lose more tax revenue relative to total tax revenues.
    Keywords: multinational corporation, corporate taxation, profit shifting, effective tax rate, country-by-country reporting, global development
    JEL: F23 H25 H26 H32
    Date: 2021–05
  3. By: Thomas von Brasch (Statistics Norway); Ivan Frankovic; Eero Tölö
    Abstract: In this paper, we study how lower corporate tax rates impact investment by including two novel channels into a DSGE model used for fiscal policy analysis in Norway. We capture both how foreign firms relocate and invest in the country when corporate taxes are reduced and how the inflow of FDI increase exports which spills over to domestic firms who then increase their investment further. We find that a one percentage point reduction in the corporate tax rate increases investment by 0.6%, most of which can be attributed to the FDI-export link. The corporate tax cut becomes self-financed when the FDI-export link is included, but only if other countries do not follow suit and also lower their corporate tax rates. When using the model to analyze the tax reform in Norway from 2014 to 2019, we find overall positive effects on investment and employment.
    Keywords: Corporate profit tax; Foreign direct investment; Exports; Imports; User cost of capital; Depreciation; Tax reform
    JEL: E62 H21 H25 H32
    Date: 2021–05
  4. By: Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
    Abstract: Using Forbes 400 data together with historical data on tax rates and macroeconomic indicators, we study the relationship between the maximum marginal income tax rate and wealth inequality. We find through a novel tail regression model that a higher maximum tax rate is associated with a higher wealth Pareto exponent. Setting the maximum rate to 0.30-0.40 (as in U.S. currently) leads to an exponent of 1.5-1.8, while counterfactually setting it to 0.8 (as suggested by Piketty, 2014) would lead to an exponent of 2.6. We present a simple economic model that explains these findings and discuss the welfare implications of taxation.
    Date: 2021–05
  5. By: Snezana Eminidou; Martin Geiger; Marios Zachariadis
    Abstract: We investigate public debt related state dependencies in the impact of fiscal policy shocks on the macroeconomy for a panel of fifteen euro area economies during the period from 2000:Q1 to 2019:Q4. Our estimated impulse response functions suggest that the impact of fiscal policy shocks varies depending on the level of public debt characterizing an economy. We observe that differences in the time-serial as well as in the cross-sectional dimension play an important role driving the impact of fiscal policy. In the high-debt cross sectional state, output, consumption and inflation, as well as consumption intentions and inflation expectations, go up in response to a positive government spending shock, and these responses are distinctly different from those in the low-debt state. Using an extended model that considers simultaneously time-serial and cross-sectional high- and low-debt states, our results suggest that cross-sectional debt variation is more important in driving cross-country differences in the responses to expenditure shocks across the euro area.
    Keywords: government spending, shock, debt-to-gdp, output, consumption, inflation, credit constraints, expectations
    JEL: E62 E3 H63 H3
    Date: 2021–05
  6. By: Ali Enami (The University of Akron); Ugo Gentilini (World Bank); Patricio Larroulet (CEQ Institute and CEDES); Nora Lustig (Tulane University); Emma Monsalve (World Bank); Siyu Quan (Tulane University); Jamele Rigolini (World Bank and IZA)
    Abstract: Using microsimulations this paper analyzes the poverty and tax implications of replacing current transfers and subsidies by a budget-neutral (no change in the fiscal deficit) universal basic income program (UBI) in Brazil, Chile, India, Russia, and South Africa. We consider three UBI transfers with increasing levels of generosity and identify scenarios in which the poor are no worse off than in the baseline scenario of existing social transfers. We find that for poverty levels not to increase under a UBI reform, the level of spending must increase substantially with respect to the baseline. Accordingly, the required increase in tax burdens is high throughout. In our five countries and scenarios, the least increase in taxes required to avoid poverty to be higher than in the baseline is around 25% (Brazil and Chile). Even at this lower rate, political resistance and efficiency costs could limit the feasibility of a UBI reform.
    Keywords: Universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: H22 H31 H55 I32 D63
    Date: 2021–05

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