nep-pub New Economics Papers
on Public Finance
Issue of 2021‒11‒29
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Public support for tax policies in COVID-19 times: Evidence from Luxembourg By Javier Olivera; Philippe Van Kerm
  2. Estimating Tax Progressivity in Developing Countries: The Plato Index By Alex Cobham; Edmund FitzGerald; Petr Jansky
  3. Corporate Tax Cuts for Small Firms: What Do Firms Do? By Wei Cui; Mengying Wei; Weisi Xie; Jing Xing
  4. Corporate Income Tax, IP Boxes and the Location of R&D By Pranvera Shehaj; Alfons Weichenrieder
  5. Efficiency versus Insurance: Capital Income Taxation and Privatizing Social Security By Makarski, Krzysztof; Tyrowicz, Joanna; Komada, Oliwia
  6. Profit taxation, R&D spending, and innovation By Lichter, Andreas; Löffler, Max; Isphording, Ingo Eduard; Nguyen, Thu-Van; Poege, Felix; Siegloch, Sebastian
  7. Tax Incidence and Fiscal Sustainability in DSGE Model By Junko Doi; Kota Yamada; Masaya Yasuoka
  8. The costs of administering a wealth tax By Burgherr, David
  9. A European Wealth Tax for a Fair and Green Recovery By Jakob Kapeller; Stuart Leitch; Rafael Wildauer

  1. By: Javier Olivera; Philippe Van Kerm
    Abstract: We study attitudes towards the introduction of hypothetical new taxes to finance the cost of the COVID-19 pandemic. We rely on survey data collected in Luxembourg in 2020. The survey asks for the agreement of respondents over: a one-time net wealth tax, an inheritance tax, a temporary solidarity income tax, and a temporary increase in VAT. All questions include different and randomly assigned tax attributes (tax rates and exemption amounts). We find a clear divide with relatively high support for new wealth and inheritance taxes on the one hand and a low support for increases in VAT and income taxes on the other hand. While 58% of respondents agree or strongly agree with a one-time tax levied on net worth, only 24% are in favor of a small increase in VAT. Support for any tax is however negatively associated with the size of the tax as measured by the predicted revenues. Our results indicate that a one-time wealth tax could raise substantial revenues and still garner public support.
    Keywords: COVID-19; wealth tax; inheritance tax; income tax; VAT; preference for redistribution
    JEL: D31 E62 H20 I38
    Date: 2021–11
  2. By: Alex Cobham (Tax Justice Network); Edmund FitzGerald (Oxford University); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Progressive direct taxation is necessary to complement social protection, in order to reduce income inequality as well as poverty. A new metric of personal income tax incidence progressivity (the "Plato Index") is presented, using WIDER databases for income inequality (WIID) and tax revenues (GDR). Taxation is shown to be far less progressive in developing countries, than in developed ones (particularly Europe) although there are large variations within regional and income groups. There is significant correlation of direct tax progressivity not only with the level of economic development, but also with health and education provision. Both findings imply potential policy space for higher personal income tax pressure.
    Keywords: direct taxation, tax progressivity, developing countries, fiscal incidence, social protection
    JEL: D12 H23 I32 O15
    Date: 2021
  3. By: Wei Cui; Mengying Wei; Weisi Xie; Jing Xing
    Abstract: What do small firms do when given an income tax cut? We address this question by examining the consequences of a sharp reduction in the corporate income tax rate for small- and micro-profit enterprises (SMPE) in China based on confidential tax returns. Utilizing the gradual increases in the qualifying threshold for SMPEs during 2010-2016, we find that newly qualified SMPEs with positive taxable income increased investment, interest expense and productivity. SMPEs in taxable losses did not respond to the tax cut. The tax cut induced more SMPEs to register, especially those in financially constrained sectors. Despite these positive effects, firms’ fixed asset growth slows down when they get closer to the SMPE threshold. Our study contributes to understanding the effect of tax preferences for small businesses.
    Keywords: tax incentives, small firms, productivity, investment, firm entry
    Date: 2021
  4. By: Pranvera Shehaj; Alfons Weichenrieder
    Abstract: The paper discusses the effects of the corporate tax on local R&D expenditures by multinational enterprises (MNEs) when income from intellectual property (IP) may or may not benefit from a special IP regime. Our model shows that an increase of the standard corporate tax may have positive effects on the R&D expenditures in the country that carries out the corporate tax increase. The possible positive R&D effect results from a tax asymmetry: not all R&D returns are subject to the higher tax. First, since R&D creates a public good within the MNE, some of the R&D benefit is taxed at other countries’ tax rates that are not subject to the tax increase. Second, some of the R&D benefits are taxed at a lower IP regime tax rate. Therefore, a higher corporate tax, which increases value of the cost deductibility of R&D, may actually foster R&D. This expectation is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime.
    Keywords: corporate income tax, R&D, intellectual property regimes, patent box, international profit shifting
    JEL: H25 H26 O30
    Date: 2021
  5. By: Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw); Komada, Oliwia (GRAPE)
    Abstract: We study the interactions between capital income tax and social security privatization in the context of rising longevity. In an economy with idiosyncratic income shocks, redistributive defined benefit social security provides some insurance against income uncertainty. This insurance comes at the expense of efficiency loss due to labor supply distortions. The existing view in the literature states that reducing this distortion by introducing (partially funded) defined contribution social security would reduce welfare because the loss of insurance and the transitory fiscal gap dominate the efficiency gains. However, prior research financed the transitory costs of the reform by taxing consumption. We show that in the context of longevity, capital income taxation provides a superior alternative: welfare gains are sufficient to outweigh the loss of insurance and transitory fiscal gap. We provide explanations for a mechanism behind this result and we reconcile our results with the earlier literature.
    Keywords: longevity, capital income taxation, social security reform, fiscal policy, welfare effects
    JEL: C68 D72 E62 H55 J26
    Date: 2021–10
  6. By: Lichter, Andreas; Löffler, Max; Isphording, Ingo Eduard; Nguyen, Thu-Van; Poege, Felix; Siegloch, Sebastian
    Abstract: We study how profit taxation affects plants' R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987-2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants' R&D spending with an implied long-run elasticity of 􀀀1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.
    Keywords: corporate taxation,firms,R&D,innovation,patents
    JEL: H25 H32 O31 O32
    Date: 2021
  7. By: Junko Doi (Kansai University); Kota Yamada (kansai University); Masaya Yasuoka (Kwansei Gakuin University)
    Abstract: The aims of our study are to set a Dynamic Stochastic General Equilibrium (DSGE) model and to examine how increased income or consumption tax rates affect the ratio of public debt to GDP and other macroeconomic parameters. We consider taxation of three types, on labor income, capital income, and consumption. Results derived from our simulation show that an increase in income tax rates of these forms of taxation raises the ratio of public debt to GDP because GDP and tax revenues decrease. An increase in consumption tax rate can reduce the ratio of public debt to GDP because of an increase in the aggregate demand that is pulled up by the investment. Our study shows that a decrease in the income tax rate reduces the ratio of public debt to GDP.
    Keywords: DSGE Model, Fiscal Sustainability, Taxation.
    JEL: E60
    Date: 2021–11
  8. By: Burgherr, David
    Abstract: I assess the costs of administering a wealth tax for taxpayers and the tax authority in the UK context, based on evidence from existing UK taxes on wealth and comprehensive wealth taxes that have been imposed in other countries. My central estimate is that a well-designed wealth tax generates costs to taxpayers of 0.1 per cent of taxable wealth and costs to the tax authority of 0.05 per cent of taxable wealth. I discuss how these costs depend on design choices. My findings can inform revenue modelling and help to evaluate the desirability of wealth taxes.
    Keywords: administrative costs; tax administration; tax compliance; tax enforcement; wealth tax; ES/L011719/1; ES/V012657/1; Wiley deal
    JEL: D31 H24 H83
    Date: 2021–09–01
  9. By: Jakob Kapeller; Stuart Leitch; Rafael Wildauer (University of Greenwich)
    Abstract: This paper investigates the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed. To address the problem of under-reporting of wealth at the top of the distribution in survey data, a Pareto distribution is fitted to the right tail of the data and used to create an amended data set which also represents these missing rich, whose wealth goes unreported. The Pareto-amended data show that household wealth is highly concentrated among the wealthiest households: the richest 1% hold 32% of total net wealth in the EU22 while the poorest half of all households only hold about 4.5% of total net wealth. These data are then used to estimate revenues for four different tax models. The results show that annual revenues between €192 billion (1.6% of GDP) and €1,281 billion (10.8% of GDP) across the EU22 are possible.
    Keywords: None
    Date: 2021–11

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