nep-pub New Economics Papers
on Public Finance
Issue of 2021‒11‒22
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The taxation of capital gains : principles, practice, and directions for reform By Advani, Arun
  2. Budget-neutral capital tax cuts By Frédéric Dufourt; Lisa Kerdelhué; Océane Piétri
  3. Ways of taxing wealth: alternatives and interactions By Summers, Andrew
  4. Who should pay a wealth tax? Some design issues By Chamberlain, Emma
  5. Taxes, corporate takeovers, and step transactions By Kazuki Onji; Roger H. Gordon
  6. Tax evasion, behavioral microsimulation models and flat-rate tax reforms. Analysis for Italy By Andrea Albarea; Michele Bernasconi; Anna Marenzi; Dino Rizzi
  7. Brazil: Tax Expenditure Rationalization Within Broader Tax Reform By Maria Delgado Coelho
  8. An assessment of presumptive tax in Uganda: Evaluating the 2020 reform and four alternative reform scenarios using UGAMOD, a tax-benefit microsimulation model for Uganda By Ronald Waiswa; Jesse Lastunen; Gemma Wright; Michael Noble; Joseph Okello Ayo; Milly Isingoma Nalukwago; Tina Kaidu Barugahara; Susan Kavuma; Isaac Arinaitwe; Martin Mwesigye; Wilson Asiimwe; Pia Rattenhuber

  1. By: Advani, Arun (University of Warwick, CAGE Research Centre, the Institute for Fiscal Studies, and the LSE International Inequalities Institute)
    Abstract: Capital gains are particularly complex to tax given their infrequency, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of everything from zero rates to high rates of tax on capital. In this paper, I first discuss the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. I then set out the principles that determine how gains should be taxed, in particular how the tax rate should relate to income tax rates. I propose that capital gains tax rates be equalized with income tax rates, subject to provisions to allow gains to be ‘smoothed’ over time and to remove inflation from the tax base. I highlight key transitional issues in moving to such a tax structure. Finally, I discuss the specific lessons for Canada.
    Date: 2021
  2. By: Frédéric Dufourt (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Lisa Kerdelhué; Océane Piétri
    Abstract: We revisit the canonical policy of eliminating capital taxation by increasing labor taxation in a endogenous-labor, heterogeneous-agent model with income and wealth heterogeneity, when the government is subject to a strict (per-period) balancedbudget constraint. By contrast with its non-budget neutral equivalent-associated with a constant tax rate over time and a permanent increase in the level of public debt-we show that the obtained endogenous path for the labor tax rate is sharply increasing in the initial period and decreasing over time. The policy then generates a deeper recession in the short-run and a greater expansion in the long-run, as well as a smaller decline in wealth inequality associated with a reduced incentive to save for precautionary motives. Overall, the policy still generates significant losses in average welfare.
    Keywords: fiscal policy, capital tax cut, tax composition, heterogeneous agents, wealth redistribution
    JEL: E21 E6 D31 H23
    Date: 2021–11
  3. By: Summers, Andrew
    Abstract: In this paper, I examine the role of a wealth tax in the context of the UK's existing taxes on wealth. First, I discuss several ways in which the UK could be said to tax wealth already, and I set out two possible directions for reforming these taxes, highlighting policies that are merited under either approach. Second, I consider whether and under what circumstances a broad-based tax on the ownership of wealth – a ‘wealth tax’ – could be justified instead of or in addition to these reforms. Third, I address how a wealth tax should interact with other taxes, focusing on concerns regarding ‘double taxation’ and (conversely) proposals for an alternative minimum tax based on wealth. I conclude that there is a large degree of consensus amongst existing proposals to reform our current taxes on wealth, and that most of these reforms would be required whether or not a wealth tax is introduced as well.
    Keywords: capital gains tax; comprehensive income tax; income tax; inheritance tax; Mirrlees review; wealth tax; ES/L011719/1; International Inequalities Institute AFSEE COVID‐19 fund; Wiley deal
    JEL: H20 H24 H26 K34
    Date: 2021–10–25
  4. By: Chamberlain, Emma
    Abstract: Any wealth tax design needs to resolve the question of who should pay it it How wide should the net be cast? Setting high or low exempt thresholds affects avoidance behaviour and may influence whether one should tax by reference to the household (and if so how that should be defined) or simply on each individual who owns wealth over a certain threshold. Typically, wealth taxes in other countries have not been imposed on non-residents except in relation to real property but questions remain over whether any exempt period should be given to new arrivals, not least for administrative convenience. A one-off wealth tax would require a different design in a number of respects from an annual wealth tax. For example, a one off tax t would need to be designed to catch those who have recently left the UK and contain modifications for recent arrivals. Trusts, foundations and similar vehicles pose particular problems in the design of a wealth tax and the author suggests some possible solutions and connecting factors that could be considered.
    Keywords: avoidance; one-off tax; tax design; wealth tax; household; trusts; ES/LO11719/1; Wiley deal
    JEL: D31 H24
    Date: 2021–10–25
  5. By: Kazuki Onji (Graduate School of Economics, Osaka University); Roger H. Gordon
    Abstract: Taxes affect the size of a corporate takeover market in theory; the extant empirical studies from the US data offer limited such evidence. We consider Japan after 2001, which offers an alternative setting in which a tax system implicitly subsidizes mergers that follow a particular sequence of steps ("step transactions"). We construct a novel dataset on step transactions from a list of takeover deals from 1996 through 2013 and examine their utilization rates before and after Japan's tax reform of 2001. We find a statistically and economically significant discontinuity across the two regimes. We also examine tax payments using a panel dataset of firms from 1997 through 2013 and find a strong association between unexplained falls in tax payments and step transactions. The Japanese tax system provided subsidies to marginal as well as infra-marginal mergers among domestic corporations: we estimate tax expenditure to be \172.3 billion.
    Keywords: Tax Avoidance, M&A, Corporate Restructuring
    JEL: H25 H26 G34 H32
    Date: 2021–11
  6. By: Andrea Albarea (Department of Economics, University Of Venice CÃ Foscari); Michele Bernasconi (Department of Economics, University Of Venice CÃ Foscari); Anna Marenzi (Department of Economics, University Of Venice CÃ Foscari); Dino Rizzi (Department of Economics, University Of Venice CÃ Foscari)
    Abstract: It is sometimes argued that a flat-rate tax reform can reduce tax noncompliance. The argument is, however, inconsistent with the so-called Yitzhaki’ s puzzle of the classical expected utility (EU) model. The latter predicts an increase, rather than a reduction, in tax evasion following a cut in the tax rates resulting from a flat-rate reform. We study the impact of a flat-rate tax in a microsimulation tax-benefit model of Italy which allows us to analyse various hypotheses of tax evasion behavior. In addition to the EU model, we analyse expected utility with rank dependent probabilities (EURDP) and the model of reference dependent (RD) preference, the most favourable to overturn Yitzhaki’ s puzzle. Our simulations show that a flat-rate tax would barely reduce overall evasion in Italy in all models considered. Redistributive effects are in all cases large.
    Keywords: Fiscal reforms, tax evasion, reference dependent preferences
    JEL: H20 H26 H30
    Date: 2021
  7. By: Maria Delgado Coelho
    Abstract: The excessive complexity and burden of the Brazilian tax system, riddled by cumulative indirect taxes and heavy payroll contributions, have led to an accumulation of fiscal incentives aimed at reducing its burden on taxpayers and productive activities. Federal and subnational tax expenditures currently stand at over 5 percent of GDP. Rationalizing them can only be comprehensively feasible in the context of a broader sequenced tax reform, and could reduce resource misallocation and income inequality, as well as provide new revenues.
    Date: 2021–09–24
  8. By: Ronald Waiswa; Jesse Lastunen; Gemma Wright; Michael Noble; Joseph Okello Ayo; Milly Isingoma Nalukwago; Tina Kaidu Barugahara; Susan Kavuma; Isaac Arinaitwe; Martin Mwesigye; Wilson Asiimwe; Pia Rattenhuber
    Abstract: Presumptive tax, a final tax on business income, was introduced in Uganda in 1997. The latest reform to the regime in July 2020 sought to make the system more progressive, simpler, and fairer to small firms. In this work, we evaluate the reform, focusing on its revenue implications based on simulations using UGAMOD, a tax-benefit microsimulation model for Uganda. Our findings suggest that, assuming full compliance, the reform reduces tax revenue potential by between 48-72 per cent from the previous rules.
    Keywords: presumptive tax, Tax administration, Small business, Tax compliance, Impact evaluation, Microsimulation modelling
    Date: 2021

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