nep-pub New Economics Papers
on Public Finance
Issue of 2022‒03‒07
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates By Ole Agersnap; Owen Zidar
  2. When do Minimum Wages Increase Social Welfare? A Sufficient Statistics Analysis with Taxes and Transfers By Dami\'an Vergara
  3. Taxing mobile and overconfident top earners By Andreas HAUFLER; Yukihiro NISHIMURA
  4. How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with VAT By Jing Xing; Katarzyna A. Bilicka; Xipei Hou
  5. Tax induced transfer pricing under universal adoption of the destination-based cash-flow tax By Thomas A., Gresik; Schjelderup, Guttorm
  6. Building an Investment Tax Incentives database: Methodology and initial findings for 36 developing countries By Alessandra Celani; Luisa Dressler; Martin Wermelinger

  1. By: Ole Agersnap (Princeton University); Owen Zidar (Princeton University)
    Abstract: This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is −0.5 to −0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
    Keywords: U.S., Northern America, Revenue, Tax, Taxation
    JEL: E62 H25 H71
    Date: 2021–12
  2. By: Dami\'an Vergara
    Abstract: This paper characterizes optimal redistribution for a social planner with three instruments: labor income taxes and transfers, corporate income taxes, and a minimum wage. The modeled economy features search-and-matching frictions, generates positive firm profits in equilibrium, and accommodates empirically relevant effects of the minimum wage such as wage spillovers and reallocation effects. I find that minimum wages are more likely to be desirable when corporate taxes are low because minimum wages generate corporate revenue losses and redistribute from capitalists to low-skill workers. Minimum wages can improve welfare even under optimal income taxes by shifting tax incidence when wages bunch at the minimum. I estimate the sufficient statistics that guide the welfare analysis using state-level variation in minimum wages. I find that minimum wages have increased low-skill workers' welfare with null effects on high-skill workers and negative effects on capitalists. Results suggest that, under current corporate tax rates, weak social preferences for redistribution toward low-skill workers would justify small state-level minimum wages increases.
    Date: 2022–02
  3. By: Andreas HAUFLER; Yukihiro NISHIMURA (Graduate School of Economics, Osaka University)
    Abstract: We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased.
    Keywords: Overconfidence, bonus taxes, tax competition, migration
    JEL: H20 H87 G28
  4. By: Jing Xing; Katarzyna A. Bilicka; Xipei Hou
    Abstract: In this paper, we investigate distortions created by turnover taxes. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for some service industries in China, while the taxation of manufacturing industries remained unchanged. The reform increased sales, R&D investment, and employment for affected service firms, which is primarily driven by outsourcing from downstream manufacturing firms. We document that smaller and less innovative manufacturing firms outsource more, and reallocation increases the quality of innovation for affected service firms. Our study provides new evidence on the negative impact of turnover taxes imposed on business inputs.
    JEL: D25 H25 H32 O32
    Date: 2022–01
  5. By: Thomas A., Gresik (Dept. of Economics, University of Notre Dame); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: The view that the transfer pricing problem vanishes under universal destination-based cash flow taxation (DBCFT) is based on how firms behave in perfectly competitive markets. We show that the neutralizing effect DBCFT has on transfer price incentives fails once multinational firms are multi-market oligopolists. Under imperfect competition, a multinational will delegate output decisions to its affiliates. The transfer price then takes on a strategic role because it influences competitors’ actions. Even if all countries adopt DBCFT, transfer prices will not equal arm’s length prices, and the global efficiency implications attributed to DBCFT are lost.
    Keywords: Destination-based cash-flow tax; transfer pricing; managerial delegation
    JEL: F23 G32 H21 H25 H26
    Date: 2022–02–22
  6. By: Alessandra Celani (OECD); Luisa Dressler (OECD); Martin Wermelinger (OECD)
    Abstract: The OECD has constructed an Investment Tax Incentives database which compiles granular details on corporate income tax (CIT) incentives for investment. This paper presents the methodology used to develop the database and insights from an initial data collection in 36 developing countries. The paper describes a classification to structure quantitative and qualitative information on investment tax incentives across three dimensions: design features, eligibility conditions and their legal basis. The data reveal that tax exemptions are the most widely used CIT instrument across the 36 countries and identifies notable differences between the incentives used within and outside of Special Economic Zones (SEZs). In 80% of countries covered, at least one tax incentive supports an area related to the Sustainable Development Goals.
    JEL: H25 F21 C80
    Date: 2022–02–24

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