nep-pub New Economics Papers
on Public Finance
Issue of 2021‒10‒25
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Policy Design with Low Interest Rates By Alan J. Auerbach; William Gale
  2. The Effects of Taxes on Innovation: Theory and Empirical Evidence By Stefanie Stantcheva
  3. In search of a solution to tax digital economy. By Tandon, Suranjali
  4. Estimating the Net Fiscal Cost of a Child Tax Credit Expansion By Jacob Goldin; Elaine Maag; Katherine Michelmore
  5. The Anti-Poverty, Targeting, and Labor Supply Effects of the Proposed Child Tax Credit Expansion By Kevin Corinth; Bruce D. Meyer; Matthew Stadnicki; Derek Wu
  6. A Paradox of Coalition Building in Public Good Provision By Wolfgang Buchholz; Keisuke Hattori
  7. What are the drivers of tax capacity in sub-Saharan Africa? By Abrams M.E. Tagem; Oliver Morrissey
  8. The macroeconomic effect of fiscal policy in South Africa: A narrative analysis By Tumisang Loate; Romain Houssa; Nicola Viegi
  9. An Examination of Taxpayers Attitude towards Income Tax: A Case of Bangladesh By Md. Shahbub Alam

  1. By: Alan J. Auerbach; William Gale
    Abstract: Interest rates on government debt have fallen in many countries over the last several decades, with markets indicating that rates may stay low well into the future. It is by now well understood that sustained low interest rates can change the nature of long-run fiscal policy choices. In this paper, we examine a related issue: the implications of sustained low interest rates for the structure of tax policy. We show that low interest rates (a) reduce the differences between consumption and income taxes; (b) make wealth taxes less efficient relative to capital income taxes, at given rates of tax; (c) reduce the value of firm-level investment incentives, and (d) substantially raise the valuation of benefits of carbon abatement policies relative to their costs.
    JEL: E43 H20 H23
    Date: 2021–10
  2. By: Stefanie Stantcheva
    Abstract: Income taxes are typically set to raise revenues and redistribute income at the lowest possible efficiency costs, which result from the distortions in individual behaviors that taxes entail. Individuals can respond along many margins, such as labor supply, tax avoidance and evasion, and geographic mobility. But one margin that taxes may affect — innovation — is less frequently considered. Conceptually, taxes reduce the expected net returns to innovation inputs and can reduce innovation. Much like other margins of responses to taxes, this efficiency cost must be taken into account. Innovation is done by a relatively small number of people, but it is nevertheless likely to have widespread benefits. While inventors may have divergent motivations, such as social recognition or the love of discovery, they also face an economic reality. How strongly innovation responds to taxes is an empirical question that has been the subject of a growing body of recent work. In this paper, I study how to account for innovation when setting personal income and capital taxation. I distinguish between two cases: one in which the government can set a differentiated tax on inventors and one in which the government is constrained to set the same tax on all agents. I provide a model that flexibly accounts for the spillovers generated by innovation and the non-pecuniary benefits inventors receive from innovation and derive tax formulas expressed in terms of estimable sufficient statistics. The second part of the paper discusses the empirical evidence on the effects of taxes on the quantity, quality, and location of innovation, as well as tax avoidance and income shifting done through innovation.
    JEL: H2 H23 H24 O3 O4
    Date: 2021–10
  3. By: Tandon, Suranjali (National Institute of Public Finance and Policy)
    Abstract: At present the international tax system is in need of reform so as to ensure that digital corporation pay taxes in countries where they operate. The search for a global solution has resulted in divergence in approaches adopted by countries. This paper delineates the fundamental economic challenges that the tax reform seeks to address, the historical evolution of tax laws and the best possible solutions given the discord between source and residence countries. The paper finds that digital services tax, with foreign credits, can offer a final global solution amenable to developing countries.
    Keywords: permanent establishment ; digital tax ; user participation ; treaties, developing countries
    Date: 2021–10
  4. By: Jacob Goldin; Elaine Maag; Katherine Michelmore
    Abstract: Recent proposals to expand the Child Tax Credit (CTC) are at the center of current policy discussions in the United States. We study the fiscal cost of three such proposals that would expand refundability of the credit to low-income children, increase the maximum credit amount, and/or eliminate the income phase-out to make the credit universal. For each proposal, we use the Current Population Survey to estimate three components of the net fiscal cost: the direct cost (additional tax refunds or lower tax liability), revenue changes due to taxpayers’ labor supply responses, and long-term changes in tax revenue due to changes in children’s future earnings. We find that direct costs are by far the most important component but that long-term earning changes also play an important role, offsetting one-third or more of the direct costs, depending on the proposal and modeling assumptions. In contrast, labor supply responses only modestly contribute to the fiscal cost of CTC expansions.
    JEL: H2 H24
    Date: 2021–10
  5. By: Kevin Corinth; Bruce D. Meyer; Matthew Stadnicki; Derek Wu
    Abstract: The proposed change under the American Families Plan (AFP) to the Tax Cuts and Jobs Act (TCJA) Child Tax Credit (CTC) would increase maximum benefit amounts to $3,000 or $3,600 per child (up from $2,000 per child) and make the full credit available to all low and middle-income families regardless of earnings or income. We estimate the anti-poverty, targeting, and labor supply effects of the expansion by linking survey data with administrative tax and government program data which form part of the Comprehensive Income Dataset (CID). Initially ignoring any behavioral responses, we estimate that the expansion of the CTC would reduce child poverty by 34% and deep child poverty by 39%. The expansion of the CTC would have a larger anti-poverty effect on children than any existing government program, though at a higher cost per child raised above the poverty line than any other means-tested program. Relatedly, the CTC expansion would allocate a smaller share of its total dollars to families at the bottom of the income distribution—as well as families with the lowest levels of long-term income, education, or health—than any existing means-tested program with the exception of housing assistance. We then simulate anti-poverty effects accounting for labor supply responses. By replacing the TCJA CTC (which contained substantial work incentives akin to the Earned Income Tax Credit) with a universal basic income-type benefit, the CTC expansion reduces the return to working at all by at least $2,000 per child for most workers with children. Relying on elasticity estimates consistent with mainstream simulation models and the academic literature, we estimate that this change in policy would lead 1.5 million workers (constituting 2.6% of all working parents) to exit the labor force. The decline in employment and the consequent earnings loss would mean that child poverty would only fall by 22% and deep child poverty would not fall at all with the CTC expansion.
    JEL: C42 C81 H2 I32 I38 J2
    Date: 2021–10
  6. By: Wolfgang Buchholz; Keisuke Hattori
    Abstract: This paper considers endogenous coalition formations and endogenous technology choices in a model of private provision of global public goods. We show that the possibility of future interstate (partial) coordination may hinder the current adoption of better technology by a country outside the cooperation, which may exacerbate an existing underprovision problem. In particular, in the subgame perfect equilibrium of a three-stage game, we find two paradoxical results: prohibition of the formation of future partial coalitions encourages the country outside the cooperation to adopt better technology, which could lead to an increase in the total public good supply and an improvement of global welfare. The results have an important policy implication: in the context of the Paris Agreement, for example, a large country announces lower nationally determined contributions by a strategic incentive to adopt lower technology to motivate coalition building by other nations, which in the end may lead to lower aggregate public-good supply and global welfare.
    Keywords: coalition formation, public goods, endogenous technology, environmental agreements
    JEL: H41 F53 Q54 Q55
    Date: 2021
  7. By: Abrams M.E. Tagem; Oliver Morrissey
    Abstract: There is limited research on the underlying institutional framework of tax policy and capacity: how tax collection efficiency changes over time and the importance of institutional factors in this process. This paper fills this gap by devising a measure of tax capacity distinct from commonly used measures of tax effort based on residuals from a tax performance (tax/gross domestic product ratio) regression. The paper uses annual data on 44 sub-Saharan African countries covering the period from 1980 to 2018.
    Keywords: Fiscal capacity, General-to-specific, Tax policy, Institutional performance, Institutions
    Date: 2021
  8. By: Tumisang Loate; Romain Houssa; Nicola Viegi
    Abstract: This paper analyses the macroeconomic effect of legislated personal income tax changes in South Africa over the 1996-2019 period. We identify personal income tax shocks using a narrative approach and incorporate these shocks in a proxySVAR model. Our analysis shows that permanent changes in personal income taxes have a larger and significant effect on output through both the investment and consumption channels. We also find that personal tax cuts have a persistent effect on output through the investment channel in the 1996-2010 sub-sample.
    Keywords: Personal income tax, Structural VAR, Instrumental variable, Macroeconomics, South Africa, Fiscal policy, Output
    Date: 2021
  9. By: Md. Shahbub Alam (Dept. of Accounting and Information Systems, Islamic University, Bangladesh. Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: 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 - Taxation is the government's primary source of revenue, but it is unable to raise this revenue from the general public. The major goals of this article are to determine the taxpayers' attitudes toward income tax in Bangladesh, as well as the factors influencing taxpayers' behavioral intentions regarding tax evasion and avoidance. Both qualitative and quantitative research methods were used in this study. Methodology/Technique - The respondents' primary data was acquired by a standardized written questionnaire and a face-to-face viva. To complete the job, the study used purposeful random sampling, which resulted in the selection of 150 individuals from various occupations. After gathering data, it was examined using several statistical methods. Findings - The study's findings reveal a significant negative relationship between taxpayer attitudes regarding tax evasion and tax compliance behavior, as well as the fact that taxpayer attitudes and conduct differ by occupation, resulting in diverse tax evasion and avoidance trends. Novelty - This study will aid the government authority and the National Bureau of Revenue in monitoring taxpayer attitudes and improving tax collection by reducing taxpayers' negative attitudes toward taxes and getting more people to file tax returns. Type of Paper - Empirical."
    Keywords: Taxpayers; Attitude; Income tax; Bangladesh.
    JEL: H21 H24 H26
    Date: 2021–09–30

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