nep-pub New Economics Papers
on Public Finance
Issue of 2022‒04‒25
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Nonlinear Savings Taxation By Brendon, C.
  2. Globalization and Factor Income Taxation By Pierre Bachas; Matthew H. Fisher-Post; Anders Jensen; Gabriel Zucman
  3. Where Do My Tax Dollars Go? Tax Morale Effects of Perceived Government Spending By Matias Giaccobasso; Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
  4. Progressing Towards Efficiency: The Role for Labor Tax Progression in Reforming Social Security By Makarski, Krzysztof; Tyrowicz, Joanna; Komada, Oliwia
  5. Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-Cum and Cum-Ex Transactions By Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
  6. Taxation, health system endowment and quality of institutions: a "social" perception across Europe By Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
  7. What motivates people to pay their taxes? Evidence from four experiments on tax compliance By Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
  8. Effects of the Expanded Child Tax Credit on Employment Outcomes: Evidence from Real-World Data from April to December 2021 By Elizabeth Ananat; Benjamin Glasner; Christal Hamilton; Zachary Parolin
  9. What is the effect of EU's fuel-tax cuts on Russia's oil income? By Johan Gars; Daniel Spiro; Henrik Wachtmeister
  10. The effect of a carbon tax rise on Iceland’s economy By Hansjörg Blöchliger; Sigurdur Johannesson; Marias Halldor Gestsson
  11. Tax incentives, Private Investment and Employment: Evidence from an Ecuadorian reform By Camino-Mogro, Segundo
  12. Peru: Technical Assistance Report—Proposals for the 2022 Tax Reform: Mining Sector Fiscal Regime, Capital Gains, and IGV on Digital Services By International Monetary Fund
  13. Peru: Technical Assistance Report-Tax Regime for Small Taxpayers and Special Economic Zones By International Monetary Fund

  1. By: Brendon, C.
    Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting ‘Mirrleesian’ and ‘sufficient statistics’ approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.
    Keywords: Nonlinear Taxation, Sufficient Statistics, Mirrleesian Taxation, New Dynamic Public Finance
    JEL: D82 E21 E61 H21 H24 H30
    Date: 2022–03–25
  2. By: Pierre Bachas; Matthew H. Fisher-Post; Anders Jensen; Gabriel Zucman
    Abstract: How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed.
    JEL: F14 F62 H20 O24
    Date: 2022–03
  3. By: Matias Giaccobasso; Brad C. Nathan; Ricardo Perez-Truglia; Alejandro Zentner
    Abstract: Do perceptions about how the government spends tax dollars affect the willingness to pay taxes? We designed a field experiment to test this hypothesis in a natural, high-stakes context and via revealed preferences. We measure perceptions about the share of property tax revenues that fund public schools and the share of property taxes that are redistributed to disadvantaged districts. We find that even though information on where tax dollars go is publicly available and easily accessible, taxpayers still have significant misperceptions. We use an information-provision experiment to induce exogenous shocks to these perceptions. Using administrative data on tax appeals, we measure the causal effect of perceived government spending on the willingness to pay taxes. We find that some perceptions about government spending have a significant effect on the probability of filing a tax appeal and in a manner that is consistent with the classical theory of benefit-based taxation. We discuss implications for researchers and policy makers.
    JEL: C93 H26 I22 Z13
    Date: 2022–02
  4. By: Makarski, Krzysztof (Warsaw School of Economics); Tyrowicz, Joanna (University of Warsaw); Komada, Oliwia (GRAPE)
    Abstract: We study interactions between progressive labor taxation and social security reform. Increasing longevity puts fiscal strain that necessitates the social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. We show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.
    Keywords: social security reform, labor income tax, redistribution, insurance, welfare effects
    JEL: C68 D72 E62 H55 J26
    Date: 2022–02
  5. By: Elisa Casi; Evelina Gavrilova; David Murphy; Floris Zoutman
    Abstract: We study the effect of reforms that close loopholes in the enforcement of the dividend-withholding tax (DWT). We focus on a Danish reform enacted in 2016, and compare Denmark to its Nordic neighbors. Our main outcome of interest is the quantity of stocks on loan. Before the reform all Nordic countries have a strong spike in stocks on loan centered around the ex-dividend day. The magnitude is large: on average excess stocks on loan peak at around 4 percent of the public float. The spike in lending is consistent with the most popular DWT arbitrage schemes. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. We consider the welfare effects of the reform. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We also consider DWT arbitrage among 15 European countries between 2010-2019. We find evidence of DWT arbitrage in all countries that levy DWT, though there is strong heterogeneity across countries. Importantly, similar to Denmark, Germany’s 2016 reform has eliminated the spikes in lending completely. We validate our identification strategy by showing that we find no evidence of DWT arbitrage in the UK, which does not levy a DWT.
    Keywords: dividend tax arbitrage, tax enforcement, financial innovation, welfare analysis
    JEL: H25 H26 O16 F38
    Date: 2022
  6. By: Cafferata, Alessia; Cerruti, Gianluca; Mazzone, Giulio
    Abstract: In this paper we analyze how the health system endowment and the quality of the institutions impact on a change of perception towards taxation. We conduct a sentiment analysis on French, Germans, Italians and Spanish users' tweets to understand if the impact of the current health emergency has modified the tax compliance of the citizens of the four biggest European Countries. We use a difference-in-differences estimation strategy, by comparing the average sentiment of individual tweets regarding taxation in different European NUTS-2 regions, before and after the spread of the Covid-19 pandemic. Our results highlight that in regions characterized by higher levels of health expenditure, people become more prone towards taxation with respect to the period before the widespread of covid-19. In addition, we show how a higher quality of institutions lead to a more positive perception of the same in relative and absolute terms and therefore a greater predisposition for a more progressive tax system.
    Keywords: Taxation; Sentiment Analysis; Tax compliance; Health System Endowment; Quality of institutions; Covid-19 crisis.
    JEL: C81 D04 H26 H51
    Date: 2022–02–28
  7. By: Eric Floyd; Michael Hallsworth; John List; Robert Metcalfe; Kristian Rotaru; Ivo Vlaev
    Abstract: In this study, we first present a large natural field experiment that tested messages aimed at increasing tax compliance. We find that the main drivers of changes in compliance are messages describing the monitoring and enforcement behavior of the tax collector. A second natural field experiment built on the results of the first experiment to further investigate what kinds of costs resulting from tax collector oversight are salient to taxpayers. Specific time and cognitive incentives did not significantly increase payment rates, whereas stating non-specific costs of inaction did. Additional analyses suggest the increase in compliance is likely due to a 'fill in the blank' effect in which taxpayers assume the consequence is a fine. Interestingly, specifically stating maximum fine or jailtime consequences have the largest effect in a laboratory setting but only if the consequences are interpreted as realistic. Overall, our study reinforces that tax authorities can use short messages to increase tax compliance; the estimated accelerated revenue from the two field studies amounts to 9.9m GBP.
    Date: 2022
  8. By: Elizabeth Ananat; Benjamin Glasner; Christal Hamilton; Zachary Parolin
    Abstract: Studies have established that the expanded Child Tax Credit (CTC), which provided monthly cash payments to most U.S. families with children from July to December 2021, substantially reduced poverty and food hardship. Other studies posit, however, that the CTC payments may generate negative employment effects that could offset its potential poverty-reduction effects. Scholars have simulated employment scenarios assuming various labor supply elasticities, but less work has empirically assessed how the monthly payments affected employment outcomes using real-world data. To evaluate employment effects, we apply a series of difference-in-differences analyses using data from the monthly Current Population Survey and the Census Pulse, both from April through December 2021. Across both samples and several model specifications, we find very small, inconsistently signed, and statistically insignificant impacts of the CTC both on employment in the prior week and on active participation in the labor force among adults living in households with children. Further, labor supply responses to the policy change do not differ for households for whom the CTC’s expansion eliminated a previous work incentive. Thus, our analyses of real-world data suggest that the expanded CTC did not have negative short-term employment effects that offset its documented reductions in poverty and hardship.
    JEL: H2 J18 J22
    Date: 2022–03
  9. By: Johan Gars; Daniel Spiro; Henrik Wachtmeister
    Abstract: Following the oil-price surge in the wake of Russia's invasion of Ukraine, many countries in the EU are proposing to cut taxes on petrol and diesel. Using standard theory and empirical estimates, we assess how such tax cuts will influence the oil income in Russia. We find that a tax cut of 20 euro cents per liter would increase Russia's oil profits by around 11-17 million Euros per day in the short run and long run. This is equivalent to 4100-6300 million Euros in a year, 0.3-0.5% of Russia's GDP or 7-11% of its military spending. We show that a cash transfer to EU citizens, with an equivalent fiscal burden as the tax cut, reduces these side effects to a fraction.
    Date: 2022–04
  10. By: Hansjörg Blöchliger; Sigurdur Johannesson; Marias Halldor Gestsson
    Abstract: This paper studies the potential impact of higher carbon taxation - to reach the government’s emission targets by 2030 - on Iceland’s economy. The paper is divided into two parts. First, a DSGE modelling exercise suggests that the equivalent of an oil price hike of between 30% and 55% is needed to reach the 2030 target, implying a GDP decline of between 0.3% and 0.6% by 2030. The impact on inflation would be very small. Second, a panel regression for the fishing industry reveals that a 40-50% oil price hike would be sufficient to reduce the entire fishing fleet’s emissions by 10%, raising total factor costs for the fishing companies by 4-5%. Such a cost hike would hardly threaten the competitiveness of the fishing industry. Both approaches assume that a carbon tax rise would have no effect on production technology.
    Keywords: carbon tax, DSGE modelling, environmental economics, fisheries, Iceland
    JEL: C68 H23 Q22
    Date: 2022–04–08
  11. By: Camino-Mogro, Segundo
    Abstract: Tax incentives are a common policy to attract investment and create formal employment in developing countries. However, scarce evidence is available that study the impact of such reforms. This paper estimates the effect of the Organic Law for Productive Development, Attraction of Investments, Generation of Employment and Stability and Fiscal Balance on new investment and employment applied in august 2018 in Ecuador. Using event study designs and difference-in-differences models, I find that the policy implementation does not have an effect on the attraction of new investments and creation of new employment for prioritized sectors compared to non-prioritized sectors over the last quarter of 2018 and the 2019. Also, I provide several robustness checks to support the results. This matters from a policy perspective in a country with a low private investments and high share of people out of formal employment.
    Keywords: Tax incentives; employment; investment; developing country; Ecuador
    JEL: H25 H32 H54
    Date: 2022–02–23
  12. By: International Monetary Fund
    Abstract: In October 2021, the MEF asked Congress for the delegation of powers to legislate on tax matters with the aim of increasing tax collections and doing so by adding progressivity to the Peruvian tax system. The initiative being developed by the MEF contains (tentatively, to date) around 40 specific measures—some administrative, others related to tax policy—that the MEF hopes will, as a whole, generate additional revenue for the treasury. The tax collection impact of quite a few of the measures (including those pertaining to the mining sector) has not been estimated, whereas the measures for which there is a calculation are estimated to bring in a little over 1 percent of GDP in revenues. Given Peru’s low level of tax collections, both relative to its own historical trends as well as those of other countries in the region, the amount expected to be collected with the proposed reform is modest. However, increasing tax collections by enhancing progressivity would appear to be the right approach.
    Date: 2022–03–25
  13. By: International Monetary Fund
    Abstract: The topics discussed in this report are tax regimes for small taxpayers (Chapter II) and the tax treatment of special economic zones (Chapter III). Although these aspects of the tax system have little direct effect on public finances, they affect many people and how those people make decisions or impact the positioning of certain regions relative to the rest of the country. Both are of social and political scope that is disproportionate to their magnitude of tax revenue collection, which is why their design must remain focused in its most strategic sense.
    Keywords: authorities of Peru; profit sharing; SME regime; E. SEZ; SEZ tax expenditure; Income tax systems; Income and capital gains taxes; Income; Tax collection; Real exchange rates; Caribbean; South America; Central America; Global
    Date: 2022–02–11

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