nep-pub New Economics Papers
on Public Finance
Issue of 2023‒03‒13
eight papers chosen by

  1. The design of presumptive tax regimes By Mariona Mas-Montserrat; Céline Colin; Eugénie Ribault; Bert Brys
  2. Optimal Fiscal Reform with Many Taxes By Daniel R. Carroll; Andre Luduvice; Eric R. Young
  3. Dynamic Tax Evasion and Growth with Heterogeneous Agents By Francesco Menoncin; Andrea Modena
  4. The Economic Consequences of Effective Carbon Taxes By Felix Kapfhammer
  5. Analysis of the Transmission of Carbon Tax using a Multi-Sector Dynamic Stochastic General Equilibrium Model By Kohei Matsumura; Tomomi Naka; Nao Sudo
  6. Tax Avoidance and the Complexity of Multinational Enterprises By Manon Francois; Vincent Vicard
  7. An Overlooked Market: Loose Cigarettes, Informal Vendors, and Their Implications for Tobacco Taxation By Gallien, Max; Occhiali, Giovanni; Ross, Hana
  8. Assessing the impact of an intervention to withhold value-added tax in Zambia By Kwabena Adu-Ababio; Aliisa Koivisto; Andreya Kumwenda; Gregory Chileshe; John Mulenga; Mutemwa Mebelo; Ian Mufana; Yenda Shamabobo

  1. By: Mariona Mas-Montserrat; Céline Colin; Eugénie Ribault; Bert Brys
    Abstract: Presumptive tax regimes, also known as simplified tax regimes, simplify the tax compliance process for micro and small businesses. By reducing tax compliance costs and levying lower tax rates compared to the standard tax system, these regimes aim at encouraging business formalisation and compliance. They are particularly useful in situations where actual taxable income is difficult to quantify as a taxpayer’s tax base is determined using alternative indicators. Although these regimes exist in many tax systems, they vary greatly in their design. This OECD working paper provides an analytical framework for characterising and comparing these regimes. It also highlights key design aspects that deserve further consideration and lists a series of best practices on the design and administration of these regimes.
    Keywords: micro and small business taxation, presumptive tax regimes, simplified tax regimes, tax policy design
    JEL: H25
    Date: 2023–02–14
  2. By: Daniel R. Carroll; Andre Luduvice; Eric R. Young
    Abstract: We study the optimal one-shot tax reform in the standard incomplete markets model where households differ in their wealth, earnings, permanent labor skill, and age. The government can provide transfers by raising tax revenue and has several tax instruments at its disposal: a flat capital income tax, a flat consumption tax, and a non-linear labor income tax. The optimal fiscal policy funds a transfer that is nearly 50 percent of GDP through a combination of very high taxes on consumption and capital income. The labor tax schedule has a high average rate but is also moderately progressive. We find an identical outcome when policy is instead determined by majority voting. Finally, we offer suggestive empirical evidence that households’ preferences for tax and redistribution are more strongly associated with political identity than economic status.
    Keywords: Optimal Taxation; Inequality; Heterogeneous Agents; Incomplete Markets; Voting
    JEL: E62 E21 D72 H21
    Date: 2023–02–09
  3. By: Francesco Menoncin; Andrea Modena
    Abstract: We develop a tractable model of a production economy in which public capital improves aggregate productivity and the taxpayers have heterogeneous evasion opportunities. We show that, by issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. Moreover, we demonstrate that a higher share of tax evaders reduces the economy’s total factor productivity but has a hump-shaped relationship with the growth rate of aggregate capital.
    Keywords: Dynamic tax evasion; general equilibrium; growth; heterogeneous agents
    JEL: E20 G11 H26
    Date: 2023–02
  4. By: Felix Kapfhammer
    Abstract: This paper studies the economic consequences of carbon taxes at the macroeconomic and sectoral level. I propose a novel monthly measure of effective carbon tax rates, which, in contrast to the measures used by the existing literature, accounts for the time-varying emission coverage of taxes that are both explicitly and implicitly levied on greenhouse gas-emitting goods. Employing the new measure for four Nordic countries, I find that effective carbon taxes reduce emissions as expected but also decrease macroeconomic and sectoral activity - though there is some heterogeneity in the effects within and across the Nordic countries.
    Date: 2023–01
  5. By: Kohei Matsumura (Bank of Japan); Tomomi Naka (Bank of Japan); Nao Sudo (Bank of Japan)
    Abstract: Carbon tax has attracted increasing attention as a means of curbing greenhouse gas (GHG) emissions. While the implementation of carbon taxes necessarily involves consideration of the impact across different sectors and different periods, most existing studies use models which do not provide a detailed account of either sectoral interaction or the dynamic nature of the responses of households and firms. To fill this gap, we construct a New Keynesian multi-sector dynamic stochastic general equilibrium (DSGE) model with an input-output structure of intermediate inputs and an investment network calibrated to Japan's economy. We study the impact over time of carbon tax on different sectors, on aggregate GDP, and on GHG emissions. We then consider the long-term implications through a steady-state analysis, and the short- to medium-term implications by a simulation from 2020 to 2050, under various scenarios with different tax base compositions and announcement timings. We show that the impact on the trade-off between output and GHG emissions is importantly affected by inter-sectoral interactions among firms, and by the intertemporal decisions of households and firms.
    Keywords: carbon tax, climate change, transition risks, input-output linkages
    JEL: D57 E22 H23 Q54
    Date: 2023–02–17
  6. By: Manon Francois; Vincent Vicard
    Abstract: Does the complexity of the ownership structure of multinational enterprises' (MNEs) serve tax avoidance? We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to bunch around zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results show that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern.
    Keywords: Complexity;Firm organization;Multinational enterprises;Profit shifting;Tax avoidance
    JEL: F23 H2 L22
    Date: 2023–02
  7. By: Gallien, Max; Occhiali, Giovanni; Ross, Hana
    Abstract: Recent years have seen the development of a substantial literature on tobacco taxation that has both noted its effectiveness as a tobacco control tool, and provided modelling of its implications. However, studies of tobacco taxation and tobacco consumption have largely ignored a crucial aspect of the market for cigarettes in many low- and middle-income countries – the prevalence of loose (single) cigarettes being sold, rather than cigarette packs. We argue that ignoring this market leaves room for unexpected dynamics and unintended policy effects. We develop this argument by establishing four aspects of the market for loose cigarettes. First, we show that it is sizeable and widespread. Second, we note that it has a consumer base that is on average poorer and younger than the overall population of smokers. Third, we show that the price dynamics for loose cigarettes are different to those for packs, that the price for a loose cigarette is typically higher than the equivalent per-cigarette price of a cigarette bought in a pack, and that the price of loose cigarettes and cigarette packs do not always move in parallel. Fourth, based on these dynamics, we show how the features of the loose cigarette market can affect the effectiveness of tobacco control policy, and in particular tobacco taxation. For example, we highlight that insufficient attention to the market for loose cigarettes might lead to a lower than anticipated effect of tax increases on demand, or might result in tax increases not being passed on to the consumers of loose cigarettes at all. Consequently, in order to ensure that tobacco tax increases immediately feed through to all consumers, policymakers in countries with markets for loose cigarettes should prioritise large rather than incremental tax increases.
    Keywords: Governance,
    Date: 2023
  8. By: Kwabena Adu-Ababio; Aliisa Koivisto; Andreya Kumwenda; Gregory Chileshe; John Mulenga; Mutemwa Mebelo; Ian Mufana; Yenda Shamabobo
    Abstract: Improving tax collection is essential if developing economies are to avoid over-reliance on external donor funds and loans. Revenue authorities in the Global South have recently adopted new policy tools to improve domestic revenue mobilization through taxes. One such new policy is a withholding system for value-added tax (VAT). In this study, we investigate the impact of adopting a system for withholding value-added tax on VAT collection in Zambia. While similar systems are in place in many countries, empirical research into their impact is still limited and inconclusive.
    Keywords: Value-added tax, Tax compliance, Tax administration, Africa
    Date: 2023

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