nep-pub New Economics Papers
on Public Finance
Issue of 2023‒04‒10
thirteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Effects of Fiscal Rules and Political Framework: Evidence from COVID-19 Crisis By Kilic, Erdem; Sonmezer, Sitki; Ozaydin, Orhan
  2. Taxing Financial Transactions: A Mirrleesian Approach By Rochet, Jean-Charles; Biais, Bruno
  3. Getting into the Nitty-Gritty of Fiscal Multipliers: Small Details, Big Impacts By José Federico Geli; Afonso S. Moura
  4. The Economics of the Global Minimum Tax By Schjelderup, Guttorm; Stähler, Frank
  5. Coming Clean on Your Taxes By Sebastian Beer; Ruud de Mooij; Ruud A. De Mooij
  6. The Effects of the Tax Cuts and Jobs Act on the Tax-Competitiveness of Multinational Corporations By Michael Overesch; Leon G. A. Reichert; Georg Wamser
  7. Simple Analytics of the Government Investment Multiplier By Chunbing Cai; Jordan Roulleau-Pasdeloup
  8. Efficient Public Good Provision in a Multipolar World By Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali Sen Gupta
  9. Income inequality and campaign contributions: evidence from the Reagan tax cut By Larcinese, Valentino; Parmigiani, Alberto
  10. Taxing Uber By David R. Agrawal; Weihua Zhao
  11. The changes to the Italian tax and welfare system implemented in 2022: fairness and efficiency profiles By Emanuele Dicarlo; Pasquale Recchia; Antonella Tomasi
  12. Does capital bear the burden of local corporate taxes? Evidence from Germany By Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
  13. The South African personal income tax base, 2011-2018: Income and taxable income, adjusted for retirement fund and medical expense reporting changes By Andrew R. Donaldson

  1. By: Kilic, Erdem; Sonmezer, Sitki; Ozaydin, Orhan
    Abstract: The COVID-19-Crisis impacted economic growth globally, opening up the need for public spending. These conditions put national fiscal authorities under pressure, challenging them primarily to remedy the economic downturn, and secondly to balance fiscal resources. We analyze whether alternative institutional frameworks, fiscal rules and political regimes across numerous countries can explain different economic outcomes following the COVID-19-Crisis. The empirical results show that growth in GDP affects gross debt negatively, government revenue positively, and national savings positively for all subsets, except for the federal subset. The effect on government revenue for fiscal subset is higher than for no fiscal rule. In almost all the subgroup models, it can be observed that the COVID-19 period has a positive effect on gross government debt and a negative on government revenue, except for federal countries and countries with a fiscal rule and a majority government. For all subsets the effect of the COVID-19 variable is not significant in the national savings regression models. For the countries in the federal subset the explanatory variables are unable to reduce the government debt. Conclusively, we could propose adaptive fiscal rules, which motivate fiscal authorities to maintain fiscal balance in long debt and in the annual budget.
    Keywords: Fiscal Rules, Fiscal Policy, COVID-19
    JEL: F40 H5
    Date: 2023
  2. By: Rochet, Jean-Charles; Biais, Bruno
    Abstract: Taxing financial transactions is often advocated for Pigouvian reasons, when financial speculation is supposed to generate inefficiencies. We adopt instead a Mirrleesian approach, and study the optimal taxation of financial transactions when financial markets are efficient, but the tax system is imperfect, due to asymmetric information. In our model, financial transactions are used by entrepreneurs to hedge shocks on their skills, in line with the New Dynamic Public Finance literature. Entrepreneurs privately observe their skills, but trades in financial markets are publicly observable. The optimal mechanism maximizes a convex combination of utilitarian welfare and Rawlsian criterion, subject to feasibility and incentive constraints. Entrepreneurial projects are subject to liquidity shocks, which can be smoothed by conducting financial transactions. Better skilled entrepreneurs’ projects have larger expected profits, but also larger shocks. Trades therefore signal skills, implying it is optimal to tax financial transactions, in addition to capital income and wealth.
    Date: 2023–03–03
  3. By: José Federico Geli; Afonso S. Moura
    Abstract: Despite the remarkable progress the literature has made throughout the past years in studying fiscal multipliers, estimates still vary considerably across studies. Partly, estimates differ because of context-specific variables that affect multipliers, but also because of the lack of a standardized framework to calculate and report them, making comparisons among studies hard to make. In this paper, we use a large panel of countries to study how some important methodological details affect the empirical estimates. Focusing on emerging economies, we show how slight changes in the filtering approach of fiscal forecast errors or the accumulation procedure of responses can significantly impact estimates. We emphasize that one of the most important features of estimating multipliers is the endogenous dynamic responses of fiscal variables to fiscal shocks, and therefore we argue against reporting multipliers as simply the output response to exogenous fiscal innovations. Although our baseline results are in line with the previous studies, our standardized framework allow us to make fairer comparisons of multiplier estimates across budgetary items and country income groups.
    Keywords: Fiscal policy; Fiscal multipliers.; multiplier estimate; estimating multiplier; government investment multiplier; empirical estimate; multiplier definition; fiscal shock; Public investment spending; Fiscal multipliers; Personal income tax; Consumption
    Date: 2023–02–10
  4. By: Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics); Stähler, Frank (Faculty of Economics and Social Sciences, University of Tübingen)
    Abstract: This paper shows that the OECD inclusive framework of Pillar Two fails to implement the claimed 15% minimum corporate tax for all subsidiaries of multinational corporations that are not shell companies. The reason is that the Substance-based Income Exclusion of Pillar Two allows to tax-deduct payroll costs and user costs of intangible assets twice from the tax base of the top-up tax. Employing a standard multinational firm model, we show that Pillar Two changes the employment, investment and import incentives. For a sufficiently large cost share of labor and/or capital, the Substance-based Income Exclusion is equivalent to a production subsidy.
    Keywords: Corporate taxation; BEPS; Pillar Two; minimum tax
    JEL: F23 F55 H25 H73
    Date: 2023–03–14
  5. By: Sebastian Beer; Ruud de Mooij; Ruud A. De Mooij
    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
    JEL: H26
    Date: 2023
  6. By: Michael Overesch; Leon G. A. Reichert; Georg Wamser
    Abstract: We exploit the 2017 US tax reform to learn about the tax-competitiveness of US multinational corporations (MNCs) relative to their international peers. Matching on the propensity score, we compare pairs of similar US and European firms listed on the S&P500 or StoxxEurope600 in a difference-in-differences setting. Our results suggest significantly lower effective tax rates of US MNCs compared to their European competitors after the US tax reform. Additional tests show (i) that US MNCs have gained substantially in what we call tax-competitiveness, (ii) that the reform effect is more pronounced for MNCs with a high share of domestic activity, and (iii) that the tax reform did not change the international tax-planning behavior of US MNCs. We provide evidence that US MNCs already successfully engaged in international tax planning prior to the reform, and this behavior is unchanged after the tax reform.
    Keywords: effective tax rate, tax reform, tax-competitiveness, tax avoidance, pair matching, difference-in-differences analysis, profit shifting
    JEL: H25 H26 K34
    Date: 2023
  7. By: Chunbing Cai; Jordan Roulleau-Pasdeloup
    Abstract: What are the effects of investing in public infrastructure? We answer this question with a New Keynesian model. We recast the model as a Markov chain and develop a general solution method that nests existing ones inside and outside the lower bound as special cases. Our framework delivers a simple expression for the contribution of public infrastructure. We show that it provides a unified framework to study the effects of public investment in three scenarios: $(i)$ normal times $(ii)$ a short-lived liquidity trap $(iii)$ a long-lived liquidity trap. We also provide closed-form results for intermediate cases with a liquidity trap of arbitrary duration.
    Date: 2023–02
  8. By: Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali Sen Gupta
    Abstract: We model a public goods game with groups, position uncertainty, and observational learning. Contributions are simultaneous within groups, but groups play sequentially based on their observation of an incomplete sample of past contributions. We show that full cooperation between and within groups is possible with self-interested players on a fixed horizon. Position uncertainty implies the existence of an equilibrium where groups of players conditionally cooperate in the hope of influencing further groups. Conditional cooperation implies that each group member is pivotal, so that efficient simultaneous provision within groups is an equilibrium.
    Keywords: Public Goods, Groups, Position Uncertainty, Voluntary Contributions
    JEL: C72 D82 H41
    Date: 2023
  9. By: Larcinese, Valentino; Parmigiani, Alberto
    Abstract: What is the relationship between economic and political inequality? Campaign contributions are often mentioned among the possible channels creating opportunities for richer people to exert disproportionate influence on policymakers. At the same time, by exacerbating economic disparities, public policies that favour the wealthy might also give them a greater relative weight in the donor pool, hence creating a self-reinforcing spiral between material wealth and political influence. We study the effect of the 1986 Tax Reform Act, a remarkable tax cut that, following the prevailing doctrine about optimal income taxation at the time, decreased the marginal tax rates disproportionately at the top of the income distribution. Using data at the census tract level, we show that this policy decision caused a spike in contributions from the groups of citizens that benefited the most from it, namely the top ten percent of the income distribution. The increase in individual donations regards both parties with similar magnitudes and it does not display any heterogenous effect with respect to other observable characteristics of recipients of contributions. This finding is entirely driven by the extensive margin, namely new donors who started to donate after the tax reform, and it holds for donations for House, Senate and Presidential races. Our conclusion is that the erosion of tax progressivity has contributed to rise the political clout of wealthy individuals, via campaign donations, and that the Tax Reform Act, a landmark policy of the second Reagan administration, has been a crucial step in the spiral between economic inequality and uneven political influence of the last four decades.
    JEL: N0 J1
    Date: 2023–03–01
  10. By: David R. Agrawal; Weihua Zhao
    Abstract: Ride-hailing applications create new challenges for governments providing transit services, but also create new opportunities to raise tax revenue. To shed light on the effect of taxing or subsidizing ride-hailing applications, we extend a pseudo-monocentric city model to include multiple endogenously chosen transportation modes, including ride-hailing applications and endogenous car ownership. We show that most tax and spending programs that cities have currently adopted mildly increase public transit usage. However, the model predicts more significant increases in public transit ridership when ride-hailing applications are subsidized as a “last-mile” provider. Our model indicates that whether ride-hailing services and public transit are substitutes or complements is a policy choice.
    Keywords: ride-hailing, taxation, public transit, traffic congestion, optimal tolls
    JEL: C60 H25 H71 L88 L98 R41 R51
    Date: 2023
  11. By: Emanuele Dicarlo (Bank of Italy); Pasquale Recchia (Bank of Italy); Antonella Tomasi (Bank of Italy)
    Abstract: The paper presents the effects of two revision interventions of the Italian tax and benefits system implemented in 2022: (i) the introduction of the single and universal allowance for children (AUU); (ii) changes to the structure of personal income tax (IRPEF). Using BIMic, the static microsimulation model of the Bank of Italy, the analysis shows how the combined effect of the two interventions increases the progressivity of the system and reduces inequality (these effects are mainly attributable to the introduction of the AUU). The two changes - and in particular the intervention on personal income tax - also contribute to reducing the monetary disincentives to the supply of labour both at the extensive margin and at the intensive margin and contribute to mitigating the irregular trend of the effective marginal rates.
    Keywords: family policies, personal income tax, redistribution, efficiency, microsimulation
    JEL: H22 H23 H24 H31 C15 C63 H2 D31
    Date: 2023–03
  12. By: Aria Ardalan; Sebastian G. Kessing; Salmai Qari; Malte Zoubek
    Keywords: Otax incidence, corporate tax, event study
    JEL: H22 H25
    Date: 2023
  13. By: Andrew R. Donaldson
    Abstract: Tax administration statistics now provide considerably more complete and reliable measures of South African personal income and its distribution than the available household or other survey sources. However, there are difficulties in using tax data across time, as both policy and reporting changes influence the administrative statistics of income.
    Keywords: Income distribution, Personal income tax, Statistics
    Date: 2023

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