nep-pub New Economics Papers
on Public Finance
Issue of 2023‒03‒20
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Tax Distortions from Inflation: What are They? How to Deal with Them? By Mr. Alexander D Klemm; Sebastian Beer; Mr. Mark E Griffiths
  2. How Do Corporate Tax Hikes Affect Investment Allocation within Multinationals? By Antonio De Vito; Martin Jacob; Dirk Schindler; Guosong Xu
  3. Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates By Ben Lockwood; Martin Simmler; Eddy H.F. Tam; Benjamin Lockwood
  4. Can Tax Incentives Bring Brains Back? Returnees Tax Schemes and High-Skilled Migration in Italy By Jacopo Bassetto; Giuseppe Ippedico
  5. Corporate Taxes and Economic Inequality: A Credit Channel By Delis, Manthos; Galariotis, Emilios; Iosifidi, Maria
  6. Demand Price Elasticity and Taxes on the Consumption of Sugar Sweetened Beverages in Argentina By Daniel Maceira; Alfredo Palacios; Natalia Espinola; Raúl Mejía
  7. Effect of Tax Cut on Investment: Evidence from Indian Manufacturing firms. By Hussain, Adam
  8. The Debt-to-GDP Ratio as a Tool for Debt Management: Not Good for LICs By J. Atsu Amegashie

  1. By: Mr. Alexander D Klemm; Sebastian Beer; Mr. Mark E Griffiths
    Abstract: Expected inflation has few real effects in purely private economies, but this is not the case when the tax system is not neutral with respect to inflation. In practice, tax systems are not neutral—though some have attempted to be so in the past—and this paper provides a comprehensive overview of the most relevant non-neutralities drawing both on existing literature and showing new illustrations and evidence of the effects. The paper shows, for example, how taxing inflationary gains can have tremendous impact on effective tax rates—even at relatively low rates of inflation. It also shows how partial adjustment—for only some types of incomes—can create additional distortions. A new empirical analysis reveals how the erosion of the value of depreciation allowances through inflation affects investment. Finally the paper discusses policy options to address such non-neutralities.
    Keywords: Tax policy; inflation; bracket creep.; expected inflation; NPV of depreciation; impact of inflation; tax distortions from inflation; savings income; cost of capital; rate of return; Depreciation; Income tax systems; Non-wage benefits; Income; Africa; Global
    Date: 2023–01–27
  2. By: Antonio De Vito; Martin Jacob; Dirk Schindler; Guosong Xu
    Abstract: This paper studies how corporate tax hikes transmit across countries through multinationals’ internal networks of subsidiaries. We build a parsimonious multicountry model to underscore two opposing spillover effects: While tax competition between countries generates positive investment spillover, intra-firm production linkages predict negative spillover. Using subsidiary-level data and exogenous corporate tax hikes, we find that local business units cut investment by 0.4% for a 1% increase in foreign corporate tax. This result highlights the importance of production linkages in propagating foreign tax shocks, as the supply-chain-induced negative spillover dominates the positive spillover effect suggested by the conventional wisdom of tax competition.
    Keywords: tax hike, investment, internal networks, multinationals, spillover effects
    Date: 2023
  3. By: Ben Lockwood; Martin Simmler; Eddy H.F. Tam; Benjamin Lockwood
    Abstract: We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the “High St”) is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.
    Keywords: commercial property, vacancy, occupancy, property taxation
    JEL: H25 H32 R30 R38
    Date: 2023
  4. By: Jacopo Bassetto; Giuseppe Ippedico
    Abstract: Brain drain is a growing concern for many countries experiencing large emigration rates of their highly educated citizens. While several European countries have designed preferential tax schemes to attract high-skilled individuals, there is limited empirical evidence on the effectiveness of fiscal incentives in a context of brain drain, and on migration responses beyond top earners. In this paper we investigate the effects of the Italian 2010 tax scheme “Controesodo”, which granted a generous income tax exemption to young high-skilled expatriates who relocate to Italy. Eligibility requires a college degree as well as being born in 1969 or later, which creates suitable quasi-experimental conditions to identify the effect of tax incentives. Using a Triple Difference design and administrative data on return migration, we find that eligible individuals are 27% more likely to move back to Italy post-reform. Additionally, using social security data from the main origin country of Italian returnees (Germany), we uncover significant effects throughout the wage distribution, suggesting that mobility in response to tax incentives is a broad phenomenon not limited to top earners. A cost-benefit analysis reveals that the direct fiscal impact of the reform – a lower bound of the total effect in the presence of human capital externalities – is marginally positive, by virtue of the tax scheme targeting young high-skilled individuals.
    JEL: J60 H20 F22
    Date: 2023
  5. By: Delis, Manthos; Galariotis, Emilios; Iosifidi, Maria
    Abstract: Corporate taxation can have redistributive effects on income and wealth. We hypothesize and empirically establish such an effect working via bank credit. Using a unique sample of majority-owned firms that apply for credit, we show that after a decrease in corporate tax rates the relative-ly poor get easier access to credit. However, this policy also considerably increases loan amounts and decreases loan spreads for the relatively rich. Ultimately, reducing the corporate tax rate pre-dominantly increases the future income and wealth of relatively rich business owners.
    Keywords: Corporate taxes; Economic inequality; Bank credit; Credit score
    JEL: D63 G20 G21 H25
    Date: 2023–02–19
  6. By: Daniel Maceira (CEDES/CONICET/UBA); Alfredo Palacios (CEDES/UBA); Natalia Espinola (CEDES/National University of La Plata); Raúl Mejía (CEDES/Hospital de Clínicas)
    Abstract: Background: Currently there is an important debate in Argentina about the health and economic burden associated with chronic non-communicable diseases, and the potential impact associated with the high consumption of sugar-sweetened beverages (SSB) in children and adults. The objective of this study is to assess the consumption of SSB in Argentina, to estimate the own price, cross-price and income elasticity of the demand for each type of beverage, and to simulate the effect of a price increase via taxes on the quantities consumed. Methods: Household micro-data was used to determine expenditure, purchased quantities, and implicit prices of different types of beverages (sodas, flavored waters, juices, etc.). This information was taken from the National Household Expenditure Survey (ENGHo) 2004/2005 and 2012/2013. Own price, cross price and income elasticity were estimated using the Almost Ideal Demand System (AIDS).Results: The own price elasticity of SSB presented values ranged between -1.10 and -1.15 (depending on the household income quintile). Therefore, if price increases of 10% via taxes, the quantity consumed of these beverages would be reduced between 11.0 and 11.5%. The income elasticity of the demand for SSB was estimated between 0.95 and 0.99, which implies that with an increase of 10% of household income, the quantity demanded increases between 9.5 and 9.9% (depending on the household income quintile). Conclusions: The consumption of SSB is sensitive to the increase in prices in Argentina. From a public health perspective, this suggests that a tax policy for these beverages would have a positive and effective effect in reducing their consumption.
    Keywords: Price elasticity, Obesity, Soft drinks, Sugar sweetened beverages, Argentina
    Date: 2023–03
  7. By: Hussain, Adam (National Institute of Public Finance and Policy)
    Abstract: Does a reduction in the corporate income tax rate trigger investments in developing countries? This paper answers this question in a difference in differences framework. Using firm-level data on Indian manufacturing firms. I study the effect of the 2019 and 2020 Indian tax reform that reduced the corporate income tax rate for domestic firms by 5%. I find that the reduction in corporate income tax led to a significant increase in the investments of domestic firms. The magnitude of the effect is found to be stronger for large domestic firms than the smaller ones. These results imply that the corporate income tax cuts can increase investment in developing countries and large domestic firms benefit more than small firms from a tax cut.
    Keywords: Investment ; Corporate tax ; Indian manufacturing firms
    JEL: G31 H25 H71
    Date: 2023–02
  8. By: J. Atsu Amegashie
    Abstract: There have been criticisms of debt sustainability analysis in general, including the IMF’s own evaluation of the usefulness of its debt sustainability methodology (e.g., IMF, 2017). This paper’s focus is narrow. On the basis of theoretical arguments and empirical evidence, it argues that the debt-to-GDP ratio is a poor metric for debt management in low-income countries (LICs). It makes a case for explicit revenue-based metrics of debt management. In LICs or countries with weak institutions, the debt-to-GDP may be manipulated by understating the stock of debt, resorting to dubious accounting methods, and there is a weak correlation between GDP and revenue as result of inefficiencies in the tax administration and a large informal sector. It is also arelatively inefficient predictor of debt distress. Other reasons are given in the paper.
    Keywords: debt-to-GDP ratio. debt service-to-revenue ratio, debt sustainability, liquidity, solvency
    JEL: H63 E62
    Date: 2023

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