nep-pub New Economics Papers
on Public Finance
Issue of 2022‒09‒05
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Short-Term Tax Cuts, Long-Term Stimulus By James Cloyne; Joseba Martinez; Haroon Mumtaz; Paolo Surico
  2. Macroeconomic Effects of Dividend Taxation with Investment Credit Limits By Matteo Ghilardi; Roy Zilberman
  3. Ghosting the Tax Authority: Fake Firms and Tax Fraud By Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
  4. The lock-in effect of marriage: Work incentives after saying “Yes, I do.” By Michael Christl; Silvia De Poli; Viginta Ivaskaite-Tamosiune
  5. Income Taxes, Gross Hourly Wages, and the Anatomy of Behavioral Responses: Evidence from a Danish Tax Reform By Kazuhiko Sumiya; Jesper Bagger
  6. Romania: Technical Assistance Report on Reforming Personal Income Taxation By International Monetary Fund
  7. Romania: Technical Assistance Report on Improving Revenues from the Recurrent Property Tax By International Monetary Fund

  1. By: James Cloyne; Joseba Martinez; Haroon Mumtaz; Paolo Surico
    Abstract: We study the persistent effects of temporary changes in U.S. federal corporate and personal income tax rates using a narrative identification approach. A corporate income tax cut leads to a sustained increase in GDP and productivity, with peak effects between five and eight years. R&D spending and capital investment display hump-shaped responses while hours worked and employment are much less affected. In contrast, personal income tax cuts trigger a short-lived boost to GDP, productivity and hours worked but have no long-term effects. We develop and estimate an endogenous growth model with variable factor utilization and show that these features generate a pro-cyclical response of productivity which is key to account for our empirical findings.
    JEL: E23 E62 H24 H25 H31 H32 O32
    Date: 2022–07
  2. By: Matteo Ghilardi; Roy Zilberman
    Abstract: We analyze the effects of dividend taxation in a general equilibrium business cycle model with an occasionally-binding investment credit limit. Permanent dividend tax reforms distort capital investment decisions in the binding long-run equilibrium, but are neutral otherwise. Temporary unexpected tax cuts stimulate shortterm real activity in the credit-constrained economy, yet produce contractionary macroeconomic outcomes in the slack regime. The occasionally-binding constraint reconciles the `traditional' and `new' views of dividend taxation, and highlights the importance of measuring the firm's initial borrowing position before enacting tax reforms. Finally, permanently lower dividend taxes dampen financial business cycles, and help to explain macroeconomic asymmetries.
    Keywords: Dividend Taxation; Occasionally-Binding Borrowing Constraints; Investment; Business Cycles.; borrowing position; tax relief; dividend distribution; dividend tax rate; dividend tax adjustment; tax environment; benchmark system; dividend tax shock; dividend tax cut; tax adjustment; dividend tax system; Dividend tax; Credit; Corporate income tax; Collateral; Stocks
    Date: 2022–07–01
  3. By: Paul Carrillo; Dave Donaldson; Dina Pomeranz; Monica Singhal
    Abstract: An important but poorly understood form of firm tax evasion arises from the use of "ghost firms"—fake firms that issue fraudulent receipts so that their clients can claim false deductions. We provide a unique window into this global phenomenon using transaction-level tax data from Ecuador. Ghost transactions are widespread, prevalent among large firms and firms with high-income owners, and exhibit suspicious patterns in comparison to ordinary transactions: bunching at round numbers, at the end of the fiscal year, and just below financial system thresholds. We go on to study an innovative enforcement intervention that targeted ghost clients rather than ghosts themselves, which led to substantial tax recovery.
    JEL: H25 H26 H32
    Date: 2022–07
  4. By: Michael Christl (European Commission - JRC); Silvia De Poli (European Commission – JRC); Viginta Ivaskaite-Tamosiune (European Commission – JRC)
    Abstract: In this paper, we use EUROMOD, the tax-benefit microsimulation model of the European Union, to investigate the impact of marriage-related tax-benefit instruments on the labour supply of married couples. For each married partner, we estimate their individual marginal effective tax rate and net replacement rate before and after marriage. We show that the marriage bonus, which is economically significant in eight European countries, decreases the work incentives for women and, particularly, on the intensive margin. In contrast, the incentives on the intensive margin increase for men once they are married, pointing to the marriage-biased and gender-biased tax-benefit structures in the analysed countries. Our results suggest that marriage bonuses contribute to a lock-in effect, where second earners, typically women, are incentivised to work less, with negative economic consequences.
    Keywords: marriage, cohabitation, marriage bonus, work incentives, gender, tax-benefit system, labour supply, Europe
    JEL: H31 J12 J22
    Date: 2022–07
  5. By: Kazuhiko Sumiya (Research Institute of Economy, Trade and Industry, RIETI); Jesper Bagger (Royal Holloway London)
    Abstract: This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find heterogeneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model.
    Keywords: income taxation, administrative data, tax reforms, difference-in-differences, gross hourly wages, labor supply, human capital accumulation, job changes
    JEL: H22 H24 J22 J24 J30 J62
    Date: 2022–08–18
  6. By: International Monetary Fund
    Abstract: With one of the lowest revenues in the EU and a projected budget deficit exceeding 7 percent of GDP, Romania should rely on an array of tax (policy and administration) instruments to mobilize revenues. A fundamental question facing Romania’s reform efforts is how to spread the burden of the tax in an equitable manner, especially given the already relatively high income inequality. The fiscal system as a whole currently provides little income support at the bottom of the income distribution.
    Date: 2022–06–29
  7. By: International Monetary Fund
    Abstract: The current area-based property tax system in Romania is inefficient, producing revenue below its potential, while the taxable value determination is inequitable and complex. Indeed, the property tax only generated 0.6 percent of GDP in 2021 vs. the average of 1.8 percent of GDP in the OECD economies, or 0.9 percent of GDP in EU-27. Meanwhile, significant scope for improving both buoyancy and efficiency of the property tax system exists, not least through the elimination of multiple exemptions, addressing the current inadequate and fragmented self-declaration system of residential buildings that translates into incomplete fiscal cadasters.
    Keywords: property tax reform; real property; VALUE-BASED property tax; tax rate; property tax exemption; property tax system; property tax basis; Property tax; Land tax; Real estate prices; Asset valuation; Africa; Eastern Europe
    Date: 2022–06–29

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