nep-pub New Economics Papers
on Public Finance
Issue of 2021‒06‒28
eight papers chosen by

  1. Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence By Felix Montag; Alina Sagimuldina; Monika Schnitzer
  2. Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches By Aronsson, Thomas; Johansson-Stenman, Olof; Wendner, Ronald
  3. Recycling Carbon Tax Revenue to Maximize Welfare By Stephie Fried; Kevin Novan; William B. Peterman
  4. Explainer: Taxing rezoning windfalls (betterment) By Murray, Cameron
  5. Culture, Immigration and Tax Compliance By Antoine Malézieux; Benno Torgler
  6. How Does Social Security Reform Indecision Affect Younger Cohorts? By John B. Shoven; Sita Slavov; John G. Watson
  7. Corporate taxation and firm-level investment in South Africa By Mashekwa Maboshe
  8. Social Network and Tax Evasion: Theoretical Model and Empirical Evidence in Bangladesh By Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury

  1. By: Felix Montag; Alina Sagimuldina; Monika Schnitzer
    Abstract: We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions: First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.
    Keywords: pass-through, carbon tax, VAT, consumer search, competition
    Date: 2021
  2. By: Aronsson, Thomas; Johansson-Stenman, Olof; Wendner, Ronald
    Abstract: This paper analyzes optimal taxation of charitable giving to a public good in a Mirrleesian framework with social comparisons. Leisure separability together with zero transaction costs of giving imply that charitable giving should be subsidized to such an extent that governmental contributions are completely crowded out, regardless of whether the government acknowledges warm glows of giving. Stronger concerns for relative charitable giving and larger transaction costs support lower marginal subsidies, whereas relative consumption concerns work in the other direction. A dual screening approach, where charitable giving constitutes an indicator of wealth, is also presents. Numerical simulations supplement the theoretical results.
    Keywords: Conspicuous consumption, conspicuous charitable giving, optimal taxation, public good provision, warm glow, multiple screening
    JEL: D03 D62 H21 H23
    Date: 2021–06
  3. By: Stephie Fried; Kevin Novan; William B. Peterman
    Abstract: This paper explores how to recycle carbon tax revenue back to households to maximize welfare. Using a general equilibrium lifecycle model calibrated to reflect the heterogeneity in the U.S. economy, we find the optimal policy uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while the remaining one third is used to increase the progressivity of the labor-income tax. The optimal policy attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists -- which called exclusively for reductions in distortionary taxes.
    Keywords: Carbon tax; Overlapping generations; Revenue recycling
    JEL: E62 H21 H23
    Date: 2021–04–02
  4. By: Murray, Cameron (The University of Sydney)
    Abstract: In its 2021 budget, the Victorian government announced a new tax on windfall land value gains from rezoning (also known as a betterment tax) This note explains the economic principles behind such a tax, the benefits of applying such a tax, implementation issues that need to be considered, and lessons from the operation of similar taxes elsewhere. Property is, conceptually, a finite bundle of rights. Rezoning grants additional property rights to owners of an existing set of property rights. Those new rights could instead be sold at a market price. A tax on the value gain from rezoning at anything less than 100% is equivalent to selling the new property rights from the community to the current property owner at a discount. Just like selling other property rights from the public to the private sector does not add to market prices in property markets, nor does selling rezoning rights. A tax on rezoning windfalls is uncommon not because it is a bad tax but because it is a good tax.
    Date: 2021–05–31
  5. By: Antoine Malézieux; Benno Torgler
    Abstract: Although understanding how multiculturalism shapes society is imperative in today's globalized world, insights on certain behavior domains remain limited, including those on tax compliance among domestic versus foreign taxpayers. Our meta-study of laboratory tax experiments analyzes over 50,000 tax declaration decisions by almost 5,000 subjects entailing 95 nationalities. Not only do immigrant participants exhibit signicantly less tax compliance than natives even with controls for numerous covariates, but tax compliance correlates positively with tax morale, which in turn also interacts signicantly with immigration status. Few variablesmainly linked to politicsinuenced the gap of compliance between natives and immigrants.
    Keywords: Tax evasion; Immigration; Meta-analysis
    JEL: C9 H0 H3
    Date: 2021–06
  6. By: John B. Shoven; Sita Slavov; John G. Watson
    Abstract: The Social Security trust fund will be exhausted in the early 2030s. The U.S. government will need to make a choice about how to address the impending trust fund exhaustion, but it is unclear what it will choose to do. This indecision leaves young and middle-aged workers not knowing whether they will face Social Security benefit cuts, payroll tax increases, or an increase in the full retirement age. This uncertainty about what will happen in the future causes young and middle-aged cohorts who are saving for retirement to make mistakes that could be avoided if the government decided earlier what will happen when the trust fund runs dry. This paper examines the cost of government indecision on Social Security reform. We calculate the value that people in different income classes and different birth cohorts would receive if the government decided now what it will do when the trust funds are exhausted. We find that the cost of indecision can be large. In some cases, the value of knowing today what the policy change will be in 2035 is worth more than two months of labor market earnings.
    JEL: G5 G51 H55 J26
    Date: 2021–05
  7. By: Mashekwa Maboshe
    Abstract: This paper investigates the responsiveness of firm-level investment to corporate tax changes in South Africa over the period 1999 to 2012. The study exploits rare changes in corporate tax policy to assess the responsiveness of firm-level investment among Johannesburg Stock Exchange listed non-financial firms. Our estimation of a neoclassical investment model using GMM techniques shows that although changes in corporate tax policy reduced the tax-adjusted marginal cost of capital over time, the reductions did not translate into significant investments in fixed assets. We speculate that the well-documented financial frictions in the capital markets could explain the failure of neoclassical investment theory in South Africa. Our findings are similar to those in other developing countries and crucially suggest that investment policies should look beyond the use of corporate tax incentives.
    Keywords: corporate taxation, capital investment, user cost of capital
    JEL: E22 H32 C23
    Date: 2021–06
  8. By: Kazi Abdul, Mannan; Khandaker Mursheda, Farhana; G M Omar Faruque, Chowdhury
    Abstract: This paper examines ethical and behavioral aspects of taxpayers, the financial condition of citizens, tax fairness, taxpayer services, complexities in the tax regime, tax rates, penalties and enforcement, and tax amnesties and the black economy. Primary data were collected by conducting a survey utilizing structured printed questionnaires. Secondary data were collected from project reports, government publications and documents, books, journals, reports, newspapers and electronic media. Empirical findings suggest that all these issues are associated with tax evasion in Bangladesh. We also find that eligibility in a social network increases the likelihood that others will take-up. This suggests that taxpayers affect each other’s decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of optimization frictions in the context of behavioral responses to taxation. The involvement and nexus of the three actors in tax policy formulation, implementation and compliance processes were examined. The empirical findings indicate the presence of this nexus which facilitates tax evasion. The high magnitude of tax evasion in Bangladesh is significantly acknowledged by respondents in the study. The empirical findings suggest that the absence of a participatory policy making process, lack of research into, and reform of, the tax system, short-term oriented and politically motivated tax policies, loopholes, anomalies and complexities of tax laws and policies are responsible for creating scope for tax evasion.
    Keywords: Taxation, Social Network, Tax Evasion, Tax Avoidance, Network Centrality, Optimal Auditing, Network Model
    JEL: H2 H20 H21 H22 H24 H26 H7 H75
    Date: 2021

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