nep-pub New Economics Papers
on Public Finance
Issue of 2023‒01‒23
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare-enhancing taxation and price discrimination By Anna D’Annunzio; Antonio Russo
  2. Firms' tax rate misperception: Measurement, drivers, and distortionary effects By Fochmann, Martin; Heinemann-Heile, Vanessa; Huber, Hans-Peter; Maiterth, Ralf; Sureth, Caren
  3. Sufficient Statistics for Nonlinear Tax Systems with General Across-income Heterogeneity By Ferey, Antoine; Lockwood, Benjamin; Taubinsky, Dmitry
  4. Does IFRS information on tax loss carryforwards and negative performance improve predictions of earnings and cash flows? By Dreher, Sandra; Eichfelder, Sebastian; Noth, Felix
  5. A tax evasion experiment revisited By Andersson, Jonas
  6. Regulating Untaxable Externalities: Are Vehicle Air Pollution Standards Effective and Efficient? By Mark R. Jacobsen; James M. Sallee; Joseph S. Shapiro; Arthur A. van Benthem
  7. Homes Incorporated: Offshore Ownership of Real Estate in the U.K. By Niels Johannesen; Jakob Miethe; Daniel Weishaar
  8. Does Hometown Tax Donation System as Interjurisdictional Competition Affect Local Government Efficiency? Evidence from Japanese Municipality level Data By Ogawa, Akinobu; Kondoh, Haruo

  1. By: Anna D’Annunzio (: TBS Business School); Antonio Russo (Department of Economics, University of Sheffield and CESifo)
    Abstract: We study commodity taxation in markets where suppliers implement second-degree price discrimination, by offering different package sizes or quality-differentiated versions of a product. In these markets, suppliers distort the quantity (or quality) intended for all types of consumers, except for those with the highest marginal willingness to pay. We show that differentiated ad valorem taxes can alleviate this distortion, and thus increase government revenue as well as welfare, provided the tax rate increases with the size of the package (or quality of the version) of the good supplied.
    Keywords: Commodity taxation, tax incidence, price discrimination
    JEL: D4 H21 H22 L1
    Date: 2023–01
  2. By: Fochmann, Martin; Heinemann-Heile, Vanessa; Huber, Hans-Peter; Maiterth, Ralf; Sureth, Caren
    Abstract: Decisions-makers in firms are expected to use perceived rather than actual tax rates and hence their decisions can be substantially biased by misperception. We quantify firms' misperception of their average tax rate (ATR) and marginal tax rate (MTR) and identify drivers of this tax rate misperception. Using survey data on German firms, we find that the share of firms considerably misperceiving their ATR and MTR exceeds 65% and 57% respectively. Further, we illustrate firms' impaired comprehension of the tax schedule reflected by the relation between ATR and MTR. We find sole proprietorships and partnerships on average considerably overestimate their ATR anchoring at the top marginal tax rate. While corporations show no uniform tax misperception patterns for retained profits, they tend to strongly underestimate ATRs and MTRs on distributed profits. Irrespective of the legal form, we find misperception is mainly driven by tax regime complexity, lack of tax knowledge and dissatisfaction with the tax system. Surprisingly, even though many firms report using the ATR instead of the appropriate MTR in their investment and financing decisions, which suggests that they underestimate their tax burden, this bias is partially attenuated by their ATR misperception. Overall, our findings demonstrate that policymakers and researchers can benefit from incorporating firms' tax rate misperception when estimating firms' tax response and evaluating tax policies.
    Keywords: Tax Misperception, Business Taxation, Survey, Tax Policy
    JEL: H25 H32 D91 M41
    Date: 2022
  3. By: Ferey, Antoine (LMU Munich); Lockwood, Benjamin (Wharton); Taubinsky, Dmitry (UC Berkeley)
    Abstract: This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We study unrestricted tax systems on income and savings (or other commodities) that implement the optimal direct-revelation mechanism, as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for general across-income heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. The Atkinson-Stiglitz Theorem is a knife-edge case corresponding to zero difference, and a number of other key results in optimal tax theory are subsumed as special cases. We provide tractable extensions of these results that include multidimensional heterogeneity, additional efficiency rationales for taxing heterogeneous returns, and corrective motives to encourage more saving. Applying these formulas in a calibrated model of the U.S. economy, we find that the optimal savings tax is positive and progressive.
    JEL: D61 H21 H24
    Date: 2022–12–27
  4. By: Dreher, Sandra; Eichfelder, Sebastian; Noth, Felix
    Abstract: We analyze the usefulness of accounting information on tax loss carryforwards and negative performance to predict earnings and cash flows. We use hand-collected information on tax loss carryforwards and the corresponding deferred taxes from the International Financial Reporting Standards tax footnotes for listed firms from Germany. Our out-of-sample tests show that considering accounting information on tax loss carryforwards does not enhance the accuracy of performance predictions and even worsens predictions. Besides, common forecasting approaches that deal with negative performance are prone to prediction errors. We provide a simple empirical specification to reduce forecast errors. We find evidence that more elaborate machine learning models (least absolute shrinkage and selection operator method) typically do not perform better or even worse than our simple specification in out-of-sample tests.
    Keywords: performance forecast, out-of-sample tests, deferred tax assets, tax loss carryforwards
    JEL: M40 M41 C53
    Date: 2022
  5. By: Andersson, Jonas (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: In this paper the experimental data collected by Masclet, Montmarquette, and Viennot-Briot (2019a) is revisited in order to study some aspects of the drivers of the declaration rate, not studied in the authors’ article. By using a zero-one inflated beta regression model, a more detailed analysis of the special values, zero declaration and full declaration, is enabled. It turns out that some of the drivers of the declaration rate is affecting the three parts of the declaration rate distribution, the zero declarers, the full declarers and the intermediate declarers, differently. It is found that the effect of tax payers’ monitoring, i.e., their knowledge about other tax payers’ evasion, increases the probability to declare zero. Among the individuals declaring a part of their income, the effect is significantly positive; they declare more. Another result is that, for the average experiment participant, both the probability to fully declare or declare nothing of the income is increasing as the experiment progresses.
    Keywords: Tax evasion; Zero-one inflated beta regression; experimental data
    JEL: C46 C50 H26
    Date: 2022–12–30
  6. By: Mark R. Jacobsen; James M. Sallee; Joseph S. Shapiro; Arthur A. van Benthem
    Abstract: What is a feasible and efficient policy to regulate air pollution from vehicles? A Pigouvian tax is technologically infeasible. Most countries instead rely on exhaust standards that limit air pollution emissions per mile for new vehicles. We assess the effectiveness and efficiency of these standards, which are the centerpiece of US Clean Air Act regulation of transportation, and counterfactual policies. We show that the air pollution emissions per mile of new US vehicles has fallen spectacularly, by over 99 percent, since standards began in 1967. Several research designs with a half century of data suggest that exhaust standards have caused most of this decline. Yet exhaust standards are not cost-effective in part because they fail to encourage scrap of older vehicles, which account for the majority of emissions. To study counterfactual policies, we develop an analytical and a quantitative model of the vehicle fleet. Analysis of these models suggests that tighter exhaust standards increase social welfare and that increasing registration fees on dirty vehicles yields even larger gains by accelerating scrap, though both reforms have complex effects on inequality.
    JEL: H21 H23 H70 Q50 R40
    Date: 2022
  7. By: Niels Johannesen; Jakob Miethe; Daniel Weishaar
    Abstract: Ownership of real estate through corporations in offshore tax havens creates opportunities for tax evasion and money laundering and may have undesirable effects in housing markets. In this paper, we study offshore ownership of real estate in the United Kingdom by combining several data sources: administrative data from the land register, a comprehensive transaction database, a propriety database on corporate ownership links, and a handful of offshore data leaks. Our descriptive analysis shows that the market share of offshore corporations has increased over time and varies strongly across market segments: It currently stands at 1.25% in the overall residential market and around 15% for top-end properties. When data leaks allow us to trace ownership through offshore corporations to the beneficial owners, we find that around half have ties to Africa, Asia and the Middle East, but that the largest ’foreign’ investor is the United Kingdom itself. Turning to causal evidence, we show that changes in tax incentives and ownership transparency induce strong responses in patterns of offshore ownership, suggesting that both taxation and secrecy are important motives for the beneficial owners. Finally, we show that the Brexit referendum was followed by a sharp increase in property sales by offshore owners and a large differential decrease in property prices in local areas with more offshore ownership, conditional on area and property characteristics. This suggests that the reduction in demand from offshore investors triggered by Brexit had a negative causal effect on property prices and, more broadly, that offshore ownership can have significant real effects in housing markets.
    Keywords: tax havens, tax evasion, offshore financial centers, real estate, hidden wealth
    JEL: H26 F21 R31
    Date: 2022
  8. By: Ogawa, Akinobu; Kondoh, Haruo
    Abstract: This study analyzes the impact of Hometown Tax Donation (HTD), a unique local fiscal system in Japan, on local government efficiency. It allows residents to make donations to local governments of their choice, receiving deductions on payment of local and national taxes, equivalent to the amount donated, except for small self-paid amounts (JPY2, 000, US$15). Moreover, donors can receive gifts from the recipient government in return, depending on the amount donated. Therefore, tax revenue will outflow from the donor residents’ municipalities to other regions, whereas it will inflow to recipient municipalities from other regions. This makes local governments compete to receive donations under the HTD system by trying to enhance their efficiency. On the other hand, HTD may cause misperception of tax prices, thereby leading to inefficient provision of local public services. This study uses stochastic frontier analysis to quantitatively analyze the impact of HTD on the inefficiency of local governments. The findings reveal that municipalities whose revenues are more dependent on HTD tend to be more inefficient. Moreover, greater dependence on intergovernmental grants and local corporate taxation results in inefficiency, thus, providing implications for local public finance on the importance of decentralization. The results also highlight that competition for income through HTD is a zero-sum game, therefore, more fiscal autonomy is needed to ensure healthy competition, thereby, providing new evidence on the relationship between interjurisdictional competition and local government efficiency.
    Keywords: Hometown Tax Donation (HTD), Local public finance, Local government’s efficiency, Stochastic frontier analysis (SFA), Intergovernmental competition
    JEL: H27 H71
    Date: 2022–12–22

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