nep-pub New Economics Papers
on Public Finance
Issue of 2022‒10‒10
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. "Property Tax Competition: A Quantitative Assessment" By Rainald Borck; Jun Oshiro; Yasuhiro Sato
  2. Fiscal consequences of corporate tax avoidance By Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský
  3. Tax Elasticity of Border Sales: A Meta-Analysis By Huynh, Dat; Sokolova, Anna; Tosun, Mehmet S.
  4. Incentives, Globalization, and Redistribution By Ferey, Antoine; Haufler, Andreas; Perroni, Carlo
  5. The Social Tax: Redistributive Pressure and Labor Supply By Eliana Carranza; Aletheia Donald; Florian Grosset; Supreet Kaur
  6. Universal Basic Income, Taxes, and the Poor By Nora Lustig; Valentina Martinez Pabon
  7. New gig work or changes in reporting?: Understanding self-employment trends in tax data By Andrew Garin; Emilie Jackson; Dmitri Koustas
  8. Attracting Profit Shifting or Fostering Innovation? On Patent Boxes and RD Subsidies By Haufler, Andreas; Schindler, Dirk
  9. Using Administrative Data to Impute Income Non-Response in Household Surveys By V. Kerry Smith; Michael P. Welsh; Richard Carson; Stanley Presser
  10. Assessing tax relief from targeted investment tax incentives through corporate effective tax rates: Methodology and initial findings for seven Sub-Saharan African countries By Alessandra Celani; Luisa Dressler; Tibor Hanappi

  1. By: Rainald Borck (The Faculty of Economic and Social Sciences, University of Potsdam); Jun Oshiro (Grobal and Regional Studies, University of the Ryukyus); Yasuhiro Sato (Faculty of Economics, The University of Tokyo)
    Abstract: We develop a model of property taxation and characterize equilibria under three alternative taxation regimes often used in the public finance literature: decentralized taxation, centralized taxation, and "rent seeking" regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
    Date: 2022–09
  2. By: Katarzyna Bilicka; Evgeniya Dubinina; Petr Janský
    Abstract: Multinational corporations shift a large share of their foreign profits to tax havens and, due to this corporate tax avoidance, governments worldwide lose a portion of their tax revenues. In this paper we study the consequences of multinational tax avoidance for the structure of government tax revenues. First, we show that, at the country level, countries with large revenue losses due to profit shifting have lower corporate tax revenues and rates. At the same time, they raise a larger share of tax revenues from personal and indirect taxes and have higher indirect tax rates.
    Keywords: Corporate tax, Tax avoidance, Profit shifting, Multinational firms, Tax revenue, Government tax revenue
    Date: 2022
  3. By: Huynh, Dat (University of Nevada, Reno); Sokolova, Anna (University of Nevada, Reno); Tosun, Mehmet S. (University of Nevada, Reno)
    Abstract: When regions in close proximity have different tax rates, residents may engage in cross-border shopping and take advantage of tax differentials. The extent of this activity can be captured by the tax elasticity of border sales (TEBS). We collect 749 estimates of TEBS reported in 60 studies, and conduct the first meta-analysis of this literature. We show that the literature is prone to selective reporting: positive estimates of TEBS are systematically discarded—this biases the mean reported estimate away from the 'true' underlying effect. Reported estimates also vary widely; we construct 29 control variables that capture empirical strategies used to obtain them, and employ Bayesian Model Averaging to pin down the sources of this variation. We find that sales of food, retail and fuel are more elastic compared to sales of tobacco and other individual 'sin' products; that while the cross-border shopping is prominent in the US, it is much less prevalent in Europe and other countries.
    Keywords: cross-border shopping, taxation, tax elasticity, meta-analysis, Bayesian Model Averaging
    JEL: H71 H73 H26 H22 R12 H31
    Date: 2022–08
  4. By: Ferey, Antoine (LMU Munich and CESifo); Haufler, Andreas (LMU Munich and CESifo); Perroni, Carlo (University of Warwick and CESifo)
    Abstract: We offer a new explanation for why taxes have become less redistributive in many countries in parallel with an increase in income concentration. When performance-based contracts are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines performance-based contracts, lowering effort and raising pre-tax income differentials. Product market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimal income tax rate even when individuals are not inter-jurisdictionally mobile.
    Keywords: performance contracts; market integration; redistributive taxation;
    JEL: D63 F15 H21
    Date: 2022–09–09
  5. By: Eliana Carranza; Aletheia Donald; Florian Grosset; Supreet Kaur
    Abstract: In low-income communities, pressure to share income with others may disincentivize work, distorting labor supply. We document that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, we enable piece-rate factory workers in Côte d’Ivoire to shield income using blocked savings accounts over 3-9 months. Workers may only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. We vary whether the offered account is private or known to the worker’s network, altering the likelihood of transfer requests against saved income. When accounts are private, take-up is substantively higher (60% vs. 14%). Offering private accounts sharply increases labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers do not decline, indicating no loss in redistribution. Our estimates imply a 9-14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
    JEL: H0 J0 O1 O4 O55
    Date: 2022–09
  6. By: Nora Lustig (Tulane University); Valentina Martinez Pabon (Yale University)
    Abstract: A Universal Basic Income (UBI) is often seen as an attractive policy option to replace existing targeted transfer and subsidy programs. However, in a budget-neutral switch to a UBI there is a trade-off between the generosity of the universal transfer, and hence its poverty impact, and the implied increase in tax burden. We summarize our results for fourteen low- and middle-income countries. We find that, with the exception of Russia, a poverty reducing, budget-neutral UBI would entail a significant increase in the net tax burden of top deciles. The efficiency cost and political resistance for such a policy would likely be too high.
    Keywords: universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: D31 D63 H22 I32 I38
    Date: 2022–09
  7. By: Andrew Garin; Emilie Jackson; Dmitri Koustas
    Abstract: Rising self-employment rates in U.S. tax data that are absent in survey data have led to speculation that tax records capture a rise in new “gig” work that surveys miss. Drawing on the universe of Internal Revenue Service (IRS) tax returns, we show that trends in firm-reported payments to “gig” and other contract workers do not explain the rise in self-employment reported to the IRS; rather, that increase is driven by self-reported earnings of individuals in the EITC phase-in range. We isolate pure reporting responses from real labor supply responses by examining births of workers’ first children around an end-of-year cutoff for credit eligibility that creates exogenous variation in tax rates at the end of the tax year after labor supply decisions are already sunk. We find that exposing workers with sunk labor supply to negative marginal tax rates results in large increases in their propensity to self-report self-employment—only a small minority of which leads to bunching at kink-points. Consistent with pure strategic reporting behavior, we find no impact on reporting among taxpayers with no incentive to report additional income and no effects on firm-reported payments of any kind. Moreover, we find these reporting responses have grown over time as knowledge of tax incentives has become widespread. Quantitatively, our results suggest that as much as 59 percent of the growth in self-employment rates, and all counter-cyclicality, can be attributed to changes in reporting behavior that are independent of changes in the nature of work. Our findings suggest caution is warranted before deferring to administrative data over survey data when measuring labor market trends.
    JEL: H31 J21 H26
    Date: 2022–09–23
  8. By: Haufler, Andreas (LMU Munich and CESifo); Schindler, Dirk (Erasmus University Rotterdam)
    Abstract: Many countries have introduced patent box regimes in recent years, offering a reduced tax rate to businesses for their IP-related income. In this paper, we analyze the effects of patent box regimes when countries can simultaneously use patent boxes and R&D subsidies to promote innovation. We show that when countries set their tax policies non-cooperatively, innovation is fostered, at the margin, only by the R&D subsidy, whereas the patent box tax rate is targeted at attracting international profit shifting. In equilibrium, patent box regimes emerge endogenously under policy competition, but never under policy coordination. We also compare the competition for mobile patents with the competition for mobile R&D units and show that enforcing a nexus principle is likely to reduce the aggressiveness of patent box regimes.
    Keywords: corporate taxation; profit shifting; patent boxes; R&D tax credits; tax competition;
    JEL: H25 H87 F23
    Date: 2022–09–09
  9. By: V. Kerry Smith; Michael P. Welsh; Richard Carson; Stanley Presser
    Abstract: Income is simultaneously one of the most important variables used by economists and the variable most likely to be missing due to item non-response. While observations that are missing income responses are often dropped from analyses, such treatment is usually inappropriate. More appropriate solutions rely on imputation based on either covariates (e.g., age and education) measured in the survey or on spatial estimates (most often for zip codes) from the American Community Survey. We describe a new spatially-based alternative using publicly available Internal Revenue Service tax data that allows estimates of zip code’s income distribution.
    JEL: C0 C8
    Date: 2022–09
  10. By: Alessandra Celani; Luisa Dressler; Tibor Hanappi
    Abstract: Corporate tax incentives reduce investment costs for businesses, which may affect investment and location decisions. They apply through different designs and interact with countries’ standard tax systems, often making it difficult for tax policy makers and researchers to compare their generosity and assess their impacts across countries. This paper develops a methodology to calculate forward-looking corporate effective tax rates (ETRs) summarising tax relief from investment tax incentives into comparable indicators. It presents ETR indicators for seven Sub-Saharan African countries. Empirical results show that tax incentives substantially lower corporate taxation across these countries. On average, tax incentives reduce ETRs by 30% in the food and automotive industries compared to the standard tax treatment. ETRs often differ among taxpayers in a same sector and country - by up to 55%. The most generous tax treatment is typically offered within Special Economic Zones, where tax incentives can reduce ETRs to near zero.
    Keywords: Corporate taxation, Effective tax rates, FDI, Sub-Saharan Africa, Tax incentives
    JEL: H25 H32 O14 F21
    Date: 2022–09–22

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