nep-pub New Economics Papers
on Public Finance
Issue of 2023‒02‒13
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Reforms and Network Effects By Delalibera, Bruno Ricardo; Ferreira, Pedro Cavalcanti; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
  2. Fiscal Progressivity and the Time Consistency of Monetary Policy By Antoine Camous
  3. Estimating Income in a Tax Compliance Game. A Bayesian Persuasion Approach By Raphaela Hennigs
  4. Global Evidence on Profit Shifting Within Firms and Across Time By Fotis Delis; Manthos D. Delis; Luc Laeven; Steven Ongena
  5. Equity and Efficiency Effects of Land Value Taxation By Gregor Schwerhoff; Ottmar Edenhofer; Marc Fleurbaey
  6. Green taxation and renewable energy technologies adoption: A global evidence By Tii N. Nchofoung; Hervé Kaffo Fotio; Clovis Wendji Miamo
  7. Energy Tax Exemptions and Industrial Production By Andreas Gerster; Stefan Lamp
  8. Coming Clean on Your Taxes By Ruud A. de Mooij; Sebastian Beer
  9. Network and general equilibrium effects of carbon taxes and deforestation By Fernandes, Bernardo de Barros; Ferreira, Pedro Cavalcanti
  10. Labor Taxation in the Western Balkan: Looking Back and Forward By Mr. Alain Jousten; Mario Mansour; Irena Jankulov Suljagic; Charles Vellutini
  11. Who pays for higher carbon prices?: Illustration for Lithuania and a research agenda By Cathal O’Donoghue; Jules Linden; Denisa Sologon
  12. The Tax Response to COVID-19 in Ethiopia: Lessons for the Future By Akalu, Mulugeta; Gashaw, Misganaw; Asegid, Zerihun

  1. By: Delalibera, Bruno Ricardo; Ferreira, Pedro Cavalcanti; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
    Abstract: This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model that includes multiple sectors with market power. Industries are connected through input-output linkages, and changes in tax costs are not confined within industries. The tax reform shocks propagate through the production network, which may amplify or mitigate their results. We calibrate the model to Brazil, a country with a highly distorted tax system. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating Value-Added Tax (VAT) rate dispersion leads to a 5.9% increase in GDP. As expected, sectors that were heavily taxed prior to the reform, as well as their suppliers, benefit the most. Yet, due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall. The reason is that their costs were reduced as a result of lower taxes on their suppliers and/or increased demand. Moreover, tax distortions were leading to a shorter and inefficient production chain as the reform significantly changed the linkage structure of the economy.
    Date: 2023–01
  2. By: Antoine Camous
    Abstract: This paper studies how progressive fiscal policy influences the conduct of monetary policy in a tractable heterogeneous agent economies. A priori, progressive labor taxation is undesirable because it generates costly distortions. Nonetheless, it is an effective instrument to mitigate the inflation bias of monetary policy because it achieves a redistributive purpose. I analyze this commitment channel of progressive labor taxes through the lens of political conflicts. When agents vote on monetary and fiscal instruments, progressivity is decisive in curbing the inflation bias because it generates distributional conflicts, lower-productivity agents support higher labor taxes to preserve the consumption value of money holding and shift the burden of policy distortions to higher-productivity agents. Anticipating the reduction in inflation, agents unanimously desire to adopt a progressive fiscal system.
    Keywords: Monetary-Fiscal Policy, Progressive Labor Income Taxes, Inflation Bias, Time Consistency, Political Economy, Heterogeneous Agents
    JEL: E02 E42 E52 E61 E62
    Date: 2023–01
  3. By: Raphaela Hennigs
    Abstract: This paper studies the tax authority’s problem of how to estimate a tax payer’s income in a tax compliance game. The tax authority’s choice of how to estimate income is modelled using the Bayesian persuasion framework and assuming that income can be estimated arbitrarily precisely. I show that the tax authority can use income estimates as a commitment device: ex-post, the tax authority has an incentive to audit a tax payer if his income is estimated to be high. This allows the tax authority to increase tax compliance by strategically overestimating low income. If the probability with which low income is falsely estimated to be high is strictly positive, the tax authority audits a low income tax payer with a strictly positive probability. Anticipating to be audited with a sufficiently high probability, the tax payer prefers to report low and high income to avoid being audited and fined.
    Keywords: tax audits, tax compliance, information design, Bayesian persuasion
    JEL: D82 D83 H26
    Date: 2022–11
  4. By: Fotis Delis (European Commission, Joint Research Centre); Manthos D. Delis (Audencia Business School); Luc Laeven (European Central Bank (ECB); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))
    Abstract: We provide the first global estimates of profit shifting at the subsidiary-year level. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine the subsidiary-year responses of earnings to the composite tax indicator faced by all subsidiaries of a multinational firm. Our panel includes 26, 593 subsidiaries across 95 countries for the period 2009 2017. We extensively validate our results against aggregate estimates of previous studies and evidence from specific cases. We find that profit shifting decreased over this period in advanced economies but increased in other parts of the world where taxation policies are less stringent on average, consistent with tax arbitrage strategies. We also examine correlates of profit shifting, identifying that a key determinant is the subsidiaries’ ratio of intangible assets, and this channel is stronger in countries with weaker institutions. Both our new database and correlates open important avenues to analyze the sources and effects of profit shifting.
    Keywords: Profit shifting, multinational enterprises, nonparametric estimation, intangible assets, institutional quality, global sample
    JEL: F23 H25 H26 H32 M41
    Date: 2022–12
  5. By: Gregor Schwerhoff; Ottmar Edenhofer; Marc Fleurbaey
    Abstract: It is a well-known result in economics that land value taxation is efficient since it does not distort the supply of the tax base. Considering only efficiency, land value should thus be fully taxed. Using optimal taxation theory with heterogeneous households, we show that it may be optimal not to tax land value fully for distributional reasons. The decisive variable is the covariance of land value held by households and their social welfare weight. Empirical data from the US and France, however, indicates that ownership of land value (in absolute terms) is negatively correlated to the social welfare weight. Middle income households would pay relatively more land value taxes than high income households, but less in absolute terms. With reasonable revenue recycling, land value taxation would thus reduce the net tax burden of low and middle income earners, because they would benefit more from the recycling than they pay in additional taxes.
    Keywords: land value taxation; inequality; optimal taxation; net tax burden; tax land value; income earner; land rent tax; Land tax; Income; Labor taxes; Housing; Labor supply
    Date: 2022–12–16
  6. By: Tii N. Nchofoung (Ministry of Trade, Cameroon); Hervé Kaffo Fotio (University of Maroua, Cameroon); Clovis Wendji Miamo (University of Dschang, Cameroon)
    Abstract: There is substantial literature on the determinants of renewable energy consumption. This growing interest is related to the fact that renewable energy is not only one of the main drivers of greenhouse gas mitigation but also its contribution to the achievement of other sustainable goals. Despite this strategic role, the adoption level of renewable energy remains quite low. In this article, we address one of the determinants so far ignored by the literature, namely the environmental tax. This study, therefore, examines the effect of environmental taxes on the adoption of renewable technologies for 49 global samples between the 1996-2017 periods. The results through the FE Driscoll and Kraay, the Newey-West, the system GMM, and the quantile regression methodologies show that environmental tax increase the consumption of renewable energy. However, taking into account disparities in the level of development, the results suggest that the environmental tax spurs renewable energy technologies adoption in developed countries while it decreases renewable energy technologies adoption in developing countries. As policy implications, policymakers within this sample should consider the optimization of environmental taxation as a policy toward environmental protection. This would cause energy consumers to opt for renewable energy sources of energy to escape these taxes.
    Keywords: Green taxation; renewable energy; panel data; SDG7; environmental protection
    Date: 2023–01
  7. By: Andreas Gerster; Stefan Lamp
    Abstract: Environmental policies are often accompanied by exemptions for energy-intensive and trade-exposed industrial firms to avoid leakage from regulated to unregulated jurisdictions. This paper investigates the impact of a large electricity tax exemption on production levels, employment, and input choices in the German manufacturing industry. For two different policy designs, we show that exempted plants significantly increase their electricity use. This effect is considerably larger under a notched exemption policy, where passing an eligibility threshold yields infra-marginal benefits, compared to a revised policy where these benefits have been largely removed. We detect no significant impact of the exemptions on production levels, export shares, and employment. Using counterfactual simulations, we document substantial distortive effects of notched exemption policies when financial stakes are high and compliance cost for firms are low.
    Keywords: Environmental Policy, Leakage, Energy Taxes, Manufacturing Industry
    JEL: D22 H23 L60 Q41
    Date: 2023–01
  8. By: Ruud A. de Mooij; Sebastian Beer
    Abstract: This paper develops a simple model to explore whether a higher detection probability for offshore tax evaders—e.g. because of improved exchange of information between countries and/or due to digitalization of tax administrations—renders it optimal for governments to introduce a voluntary disclosure program (VDP) and, if so, under what terms. We find that if the VDP is unanticipated, it is likely to be optimal for a revenue-maximizing government to introduce a VDP with relatively generous terms, i.e. a low or even negative penalty. When anticipated, however, the VDP is neither incentive compatible nor optimal, as it induces otherwise compliant taxpayers to evade tax. A VDP can then only be beneficial if tax evasion induces an external social cost beyond the direct revenue foregone, e.g., due to adverse effects on overall tax morale. In contrast to the common view that VDPs should come along with additional enforcement effort, we find that governments should relax enforcement if the VDP itself provides more powerful incentives to come clean.
    Keywords: Tax evasion; Voluntary disclosure program; Tax amnesty
    Date: 2023–01–13
  9. By: Fernandes, Bernardo de Barros; Ferreira, Pedro Cavalcanti
    Abstract: We develop a multi-sector general equilibrium model, with intersectorial input–output linkages and CO2 emissions, to investigate the economic impacts of the implementation of a carbon taxation policy in an economy permeated by preexisting distorting taxes. The model is calibrated to Brazil and the carbon price is set so that the economy meets its annual global greenhouse gases emissions pledge for 2030 based on the Paris Agreement. In the presence of production networks, the initially concentrated tax shocks propagate throughout the economy, provoking widespread relative input price variations. Depending on the deforestation scenario, GDP losses range between 5.71% and 0.25%, the latter corresponding to the record low deforestation levels of 2012. Sectors are heterogeneously affected. As expected, those sectors more reliant on taxed pollutant resources (e.g., Energy and Transport) suffer sizable decreases in production. But a significant part of the impacts on sectorial production comes indirectly through network effects, even in the absence of new taxes levied on the sector’s product or its direct inputs. When Agriculture & Livestock are also taxed, GDP losses are considerably smaller.
    Date: 2023–01
  10. By: Mr. Alain Jousten; Mario Mansour; Irena Jankulov Suljagic; Charles Vellutini
    Abstract: This paper examines how labor taxation (personal income taxes and social security contributions) in the Western Balkan contributes to labor market outcomes such as high informality and a significant gender gap in participation rates. We find that limited progressivity combined with high tax wedge on low incomes poses a major twin equity-efficiency challenge in the region, resulting in low redistributive capacity and inadequate incentives to enter the job market. Policy implications are discussed with a view to alleviating the excessively high tax wedges on low incomes, while improving progressivity of income taxation.
    Keywords: Western Balkan; labor taxation; labor tax wedge; personal income tax; corporate income tax; social security contributions; income taxation; SSC reduction; employer SSCs; Labor taxes; Tax wedge; Wages; Labor markets; Europe
    Date: 2022–12–02
  11. By: Cathal O’Donoghue; Jules Linden; Denisa Sologon
    Abstract: This paper lays out an approach, and a research agenda, for assessing the impact of carbon pricing on household budgets. It relies on a rich set of available data and policy models and combines them in a way that is informative for mapping the gains and losses at the household level in the short term as countries transition to a low-carbon economy. After accounting for direct burdens from higher fuel prices, indirect effects from higher prices of goods other than fuel, and households’ behavioural responses, overall burdens are only mildly regressive. Recycling carbon-tax revenues back to households allows considerable scope for avoiding or cushioning losses for large parts of the population, and existing policy models can be used to design compensation measures that facilitate majority support for carbon tax packages.
    Keywords: Carbon tax, Carbon tax, climate change, inequality, revenue recycling
    JEL: C8 D12 D31 H23 Q52
    Date: 2023–01–30
  12. By: Akalu, Mulugeta; Gashaw, Misganaw; Asegid, Zerihun
    Abstract: The government of Ethiopia, like other governments, has provided tax response measures in order to mitigate the socio-economic impacts of COVID-19. These measures, among others, include a waiver of outstanding tax liabilities that taxpayers owe to the government; a tax amnesty or relief on interest and penalties for tax debt; and an extension of filing and tax payment deadlines. These tax measures were adopted with the purposes of helping affected businesses, to keep employees at work, to stimulate the economy and to reduce COVID-19 infections. To be effective, tax relief measures should have been targeted, temporary, speedy, abuse resistant, cost recoverable, predictable, reversible, scalable, easy to administer, resilient to health measures, and adapted to the specific needs of Ethiopia. The strong sides of the Ethiopian tax responses are their speedy nature and the fact that they consider the revenue space and address the status of the poor. The challenges observed on the design and enforcement of the tax measures include lack of adequate targeting, lack of prior assessment, administrative uneasiness, lack of records on the revenue loss, absence of monitoring and evaluation, and that they unfairly benefitted those who failed to comply with their tax duties. Prior assessment, targeted support, convenient response administration, coordination among the government organs, the need for the tax responses to be free from discrimination, the need for appropriate data recording, fair dispute settlement procedures and the need for a permanent disaster response department are suggested for similar incidents in the future.
    Keywords: Globalisation,
    Date: 2023

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