nep-pub New Economics Papers
on Public Finance
Issue of 2022‒07‒18
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Knowledge and Tax Manipulation: A Unifying Model By Ashley C. Craig; Joel Slemrod
  2. Rethinking How We Score Capital Gains Tax Reform By Natasha Sarin; Lawrence Summers; Owen Zidar; Eric Zwick
  3. Tax Evasion by Firms By Laszlo Goerke
  4. Tax avoidance and vertical interlocks within multinational enterprises By Giese, Henning; Koch, Reinald; Gamm, Markus
  5. Dividend Taxes and the Allocation of Capital By Charles Boissel; Adrien Matray
  6. Did the Tax Cuts and Jobs Act Reduce Profit Shifting by US Multinational Companies? By Javier Garcia-Bernardo; Petr Janský; Gabriel Zucman
  7. The Distributional Impacts of a VMT-Gas Tax Swap By Gilbert E. Metcalf
  8. Saving Effects of a Real-Life Imperfectly Implemented Net Wealth Tax: Evidence from Norwegian Micro Data By Annette Alstadsæter; Marie Bjørneby; Wojciech Kopczuk; Simen Markussen; Knut Røed
  9. The Distributional Impacts of Fiscal Policy: The Case of the Philippines By Son, Hyun
  10. The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile By Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman
  11. Cost-Benefit Analysis of Tax Incentives in Serbia By Glenn P. Jenkins; Owotomiwa C. Olubamiro; Mikhail Miklyaev

  1. By: Ashley C. Craig; Joel Slemrod
    Abstract: We provide a unified analysis of taxation and taxpayer education when individuals have an incomplete understanding of a complex tax system. The analysis is independent of whether income is earned legitimately, or by avoiding or evading taxes. In this sense, learning about tax minimization strategies (tax manipulation) is isomorphic to learning about tax rates. The government in our model balances a trade-off: A better understanding of the tax system potentially allows taxpayers to optimize more effectively, but also affects government revenue. Optimal taxpayer education and the optimal amount of redistribution can both be characterized by aggregate sufficient statistics, which do not require information about how biases or behavioral responses vary across the decision margins. We provide similarly simple rules for how tax rates on different income-generating activities should be set relative to each other.
    JEL: H2 H21 H26
    Date: 2022–06
  2. By: Natasha Sarin (US Treasury Department); Lawrence Summers (Harvard University, NBER); Owen Zidar (Princeton University, NBER); Eric Zwick (University of Chicago Booth, NBER)
    Abstract: We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the rise of pass-throughs and index funds has shifted the composition of capital gains in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. If some components are less elastic, then their elasticity should get more weight when scoring big changes because they will comprise more of the remaining tax base. Third, closer parity to income rates would provide a backstop to rest of tax system. Fourth, additional base-broadening reforms, like eliminating stepped-up basis, making charitable giving a realization event, reforming donor advised funds, and limiting opportunity zones to places with the highest poverty rates, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise hundreds of billions more revenue over a decade than other leading estimates suggest.
    Keywords: Capital gains, taxes, tax reform, tax rates
    JEL: H00 H20 H30
    Date: 2022–06
  3. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues.
    Keywords: Firm, Tax Avoidance, Tax Evasion
    JEL: H25 H26 K34
    Date: 2022–05
  4. By: Giese, Henning; Koch, Reinald; Gamm, Markus
    Abstract: This study investigates to what extent multinational enterprises appoint managers jointly at the headquarter and a foreign subsidiary (vertical manager interlocks, VMIs) in order to facilitate tax planning. We use a cross-section data set taken from the AMADEUS database to show that VMIs are observed more frequently in MNEs with a higher potential for tax-induced profit shifting. We also provide evidence indicating that the implementation of VMIs is motivated by an internal principal-agent conflict arising from conflicting interests between the MNE and high-tax subsidiary managers. Finally, we show that the use of VMI structures is associated, ceteris paribus, with a lower effective tax rate.
    Keywords: management structure,profit shifting,principal-agent-theory
    JEL: H25 H26 M12
    Date: 2022
  5. By: Charles Boissel; Adrien Matray
    Abstract: This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation.
    JEL: G32 H2 H25 H32 O16
    Date: 2022–06
  6. By: Javier Garcia-Bernardo; Petr Janský; Gabriel Zucman
    Abstract: The 2017 Tax Cut and Jobs Act reduced the US corporate tax rate and introduced provisions to curb profit shifting. We combine survey data, tax data, and firm financial statements to study the evolution of the geographical allocation of US firms’ profits after the reform. The share of profits booked abroad by US multinationals fell 3–5 percentage points, driven by repatriations of intellectual property to the US. The share of foreign profits booked in tax havens remained stable around 50% between 2015 and 2020. Changes in the global allocation of profits are small overall, but some firms responded strongly.
    JEL: F23 H25 H26 H32
    Date: 2022–05
  7. By: Gilbert E. Metcalf
    Abstract: More stringent fuel economy standards and increased market penetration of electric vehicles (EVs) present challenges to federal policy makers who historically have relied on motor vehicle fuel excise taxes to fund highway projects. This paper considers the distributional implications of a federal tax swap where a new vehicle miles travelled (VMT) tax is used to finance a reduction in the federal excise tax on gasoline. Whether the tax shift is progressive (relative to the pivot point) or not depends on the sign of the income elasticity of demand for fuel intensity. If it is negative (higher-income households demand more fuel efficient cars), then the tax shift is progressive around the pivot point. Conversely, if it is positive, then the tax shift is regressive around the pivot point. Where the pivot point occurs and how progressive a shift occurs is an empirical matter. Using data from the 2017 National Household Travel Survey (NHTS), I find that the income elasticity of fuel intensity is negative and that this revenue-neutral tax swap to be mildly progressive for all household incomes below $200,000. This is driven, in part, by the fact that higher income households are more likely to drive hybrid and electric vehicles and to own newer vehicles which, due to increasingly stringent fuel economy standards, tend to be more fuel efficient. How the progressivity of a tax swap changes as fuel economy standards are raised and EV market penetration increases depends on who purchases EVs and more efficient vehicles. Federal policy will likely play a role in influencing the future distribution of EV ownership. In addition, I find the tax swap benefits rural drivers and has no appreciable differential impacts on Black and Hispanic households.
    JEL: H22 H23 Q48 R48
    Date: 2022–06
  8. By: Annette Alstadsæter; Marie Bjørneby; Wojciech Kopczuk; Simen Markussen; Knut Røed
    Abstract: Countries that implement wealth taxes make many practical compromises regarding relative treatment and approach to valuation of different categories of assets in order to ease assessment and liquidity difficulties with this form of taxation. Relying on Norwegian variation in tax and base rules, we illustrate the resulting complexity and evaluate the effect of taxation on saving and portfolio composition. Our results highlight sensitivity of the strength of response to the base definition.
    JEL: D31 H24
    Date: 2022–05
  9. By: Son, Hyun (Asian Development Bank)
    Abstract: The distributional impacts of fiscal policies are instrumental in reducing inequality in countries like the Philippines, where inequality has been persistently high. This paper assesses how equitable various taxes and transfers in the Philippines are by deriving the elasticities of Atkinson and Sen’s social welfare functions and introducing a welfare reform index. Among various income sources, the paper finds that rentals from properties, dividends from investment, incomes from construction entrepreneurial activities, and remittances from abroad are regressive. In contrast, family sustenance activities, entrepreneurial activities in farming and fishing, and remittances from domestic sources are found to be progressive. The paper also finds that while direct taxes like personal income tax are overall progressive in the Philippines, they only generate little revenues, indicating their limited impact on inequality reduction. Furthermore, this paper shows that the poor bear much of indirect tax burden on individual commodities such as food items largely consumed at home since they spend a greater proportion of their expenditure on such basic commodities relative to their nonpoor counterparts.
    Keywords: social welfare function; tax progressivity; redistribution; normative analysis; horizontal inequity; fiscal policy
    JEL: H23 H24 H31 H53 I38
    Date: 2022–06–02
  10. By: Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman
    Abstract: Profit shifting by multinational corporations is thought to reduce tax revenue around the world. We analyze the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers.
    JEL: H25 H26 H32
    Date: 2022–06
  11. By: Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Owotomiwa C. Olubamiro (Cambridge Resources International Inc.); Mikhail Miklyaev (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.)
    Abstract: Serbia has introduced several tax incentives into its corporate income tax system to promote research and development, employment, and the provision of equity financing of innovative enterprises. This report contains an analysis of five of these tax incentives. This study will serve as an input to the tax policy discussions toward improving Serbia's tax system and an analytical framework for evaluating alternative tax policy proposals. It employs a cost-benefit analysis (CBA) to evaluate these tax incentives. The justification of the tax incentive depends on the impact they are expected to have on the return to the investment in the R&D firm.
    Keywords: Cost-Benefit Analysis, Personal Income Tax, Tax Compliance, Tax Policy, Tax Intensive, Serbia
    JEL: D61 H21 H24 H26
    Date: 2022–04–26

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