nep-pub New Economics Papers
on Public Finance
Issue of 2023‒04‒17
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Negative Tax Incidence with Multiproduct Firms By Anna D’Annunzio; Antonio Russo
  2. Optimal Tax Administration Responses to Fake Mobility and Underreporting By Alejandro Esteller-Moré; Umberto Galmarini
  3. Efficient Public Good Provision in a Multipolar World By Sakib Anwar, Chowdhury Mohammad; Bruno, Jorge; Foucart, Renaud; SenGupta, Sonali
  4. Donations to increase productivity in public good production: experimental evidence By Natalie Struwe; Esther Blanco; James M. Walker
  5. The Offshore World According to FATCA: New Evidence on the Foreign Wealth of U.S. Households By Niels Johannesen; Daniel Reck; Max Risch; Joel Slemrod; John Guyton; Patrick Langetieg
  6. Asymmetric Double Tax Treaties and FDI in Developing Countries: The Role of the Relief Method and Tax Sparing By Shehaj, Pranvera; Zagler, Martin
  7. Tax-Price Elasticities of Charitable Giving and Selection of Declaration: Panel Study of South Korea By Hiroki Kato; Tsuyoshi Goto; Youngrok Kim
  8. Towards an Effective Taxpayer Complaint Handling Mechanism: The Case for a Tax Ombudsman in Uganda By Rukundo, Solomon

  1. By: Anna D’Annunzio (TBS Business School, CSEF (University Federico II) and Toulouse School of Economics); Antonio Russo (University of Sheffield and CESifo)
    Abstract: A fundamental result in the theory of commodity taxation is that taxes increase consumer prices and reduce supply, aggravating the distortions caused by market power. This result hinges on the assumption that each firm provides a single product. We study the effects of commodity taxes in presence of multiproduct firms that have market power. We consider a monopolist providing two goods and obtain simple conditions such that differentiated ad valorem tax reduce the prices and increases the supply of both goods, thereby increasing total surplus. We show that these conditions can hold in a variety of settings, including add-on pricing, multiproduct retailing with price advertising, intertemporal models with switching costs and two-sided markets. Differentiated unit taxes can induce prices to decrease (as the Edgeworth’s paradox states), but the quantity of the taxed good always decreases.
    Keywords: Commodity taxation; tax incidence; multi-product firms
    JEL: D42 H21 H22
    Date: 2023–03
  2. By: Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Umberto Galmarini (Università dell’Insubria & IEB)
    Abstract: In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment.
    Keywords: Personal taxation; Residence principle; Tax avoidance; Tax competition; Tax administration; Tax havens; Taxation of the rich; Leviathan governments
    JEL: H21 H24 H26 H73
    Date: 2023
  3. By: Sakib Anwar, Chowdhury Mohammad (BLDT, University of Winchester); Bruno, Jorge (BLDT, University of Winchester); Foucart, Renaud (Department of Economics, Lancaster University.); SenGupta, Sonali (Queens Management School, Queen’s University Belfast.)
    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 codes: C72 ; D82 ; H41
    Date: 2023
  4. By: Natalie Struwe; Esther Blanco; James M. Walker
    Abstract: This research is inspired by in-kind donations that have the capacity to increase the marginal benefit (productivity) in provision of public goods, for example by providing critical infrastructure that increases the productivity of resources utilized by local public good providers. We provide experimental evidence from a two-stage decision environment where donors (outsiders), who benefit from a public good, send transfer donations to providers (insiders) of the public good, who also receive benefits. We find that that donors are willing to offer transfers at a sufficiently high level to increase the productivity (MPCR) of the public good. Public good provision by insiders, however, is neither increased significantly above levels observed in treatments with the same MPCR where outsiders’ donations are used as compensation rewards to insiders, nor in treatments without donations. Thus, whether a given MPCR is reached endogenously through donations by outsiders or exogenously does not significantly affect insiders’ public good provision. In addition, when comparing continuous to threshold endogenous changes in the MPCR, we cannot find significant differences in public good provision, despite transfer donations by outsiders are higher for threshold increases in the MPCR.
    Keywords: public goods, privately provided public goods, institution, externality, donation, reciprocity
    JEL: D70 D62 D64 H41
    Date: 2023–02
  5. By: Niels Johannesen; Daniel Reck; Max Risch; Joel Slemrod; John Guyton; Patrick Langetieg
    Abstract: This paper uses account-level information, reported to the IRS by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA), to produce new evidence on the foreign financial wealth of U.S. households. We find that U.S. taxpayers hold around $4 trillion in foreign accounts, almost half in jurisdictions usually considered tax havens. Combining the FATCA reports with other administrative tax data and tracing account ownership through partnerships, we document a steep income gradient in the propensity to hold assets in foreign financial institutions. Specifically, more than 60% of the individuals in the top 0.01% of the income distribution own foreign accounts, the vast majority in tax havens and more than half through a partnership. We discuss the likely implications of these findings for the overall impact of FATCA on tax compliance and government revenue.
    JEL: H24 H26
    Date: 2023–03
  6. By: Shehaj, Pranvera; Zagler, Martin
    Abstract: This study focuses on asymmetric tax treaties and investigates the impact of OECD member states’ double tax relief method and of treaty tax sparing provisions on investments in developing countries, while considering network effects. In addition, it analyses the impact of a residence country’s tax relief method on the source country’s tax policy. Our results suggest that having a treaty between the OECD member state and the developing country, which improves the investor’s conditions in terms of tax burden by changing the unilateral tax relief method, increases FDI to the developing country. The positive effect prevails when investigated within investments made through the direct route from home to host. Furthermore, results suggest that OECD member states offer tax sparing provisions mostly to less-developed economies, which already receive very low, if any, foreign direct investment. Finally, we find that developing countries set higher CIT when the OECD member state relieves double taxation through the exemption method, as compared to when it offers a foreign tax credit, while the inclusion of tax sparing agreements has a positive effect on the CIT.
    Keywords: Finance,
    Date: 2023
  7. By: Hiroki Kato (Graduate School of Economics, Osaka University, Osaka, Japan); Tsuyoshi Goto (Graduate School of Social Sciences, Chiba University, Chiba, Japan); Youngrok Kim (Research Institute for Socionetwork Strategies, Kansai University, Osaka, Japan)
    Abstract: This study estimates the tax-price elasticity of donations, considering the bias caused by the fact that the claim of tax incentives for charitable giving depends on the taxpayer’s decision. We first present a way to eliminate this bias by supporting the intention-to-treat analysis. We then estimate the price elasticity by our method, using exogenous variation in tax incentives due to the 2014 tax reform in South Korea. We find that a 1% increase in donation prices reduces donor contributions by 1.6% and the donor ratio by 2.6%. Next, we use the control function approach, one of the instrumental variable methods, to examine how endogeneity from the decision to use tax incentives biases the estimation of price elasticity. We find that those with large amounts of charitable giving without tax incentives do not declare their giving, leading to an underestimation (in absolute value) of the price elasticity of donors’ contribution amount.
    Keywords: Charitable giving, Tax incentives, Price elasticities, Selection, Declaration.
    JEL: D64 H24 H31
    Date: 2023–03
  8. By: Rukundo, Solomon
    Abstract: It is increasingly common in many jurisdictions around the world to find an independent government office where complaints against the tax administration can be submitted. Traditional mechanisms, such as tribunals and courts, may not be effective, as these are usually very slow and costly. Many governments have developed the institution of a tax ombudsman to safeguard taxpayers’ rights and improve the overall tax system. This paper makes the case for the establishment of a tax ombudsman in Uganda. It begins with examining the concept of an ombudsman in general, and a tax ombudsman in particular. The paper proceeds to highlight the limitations of the Uganda Revenue Authority, the country’s tax administrator, and its existing oversight bodies, which justify the need for a tax ombudsman. The paper further elaborates on other justifications for the establishment of this office. The paper then briefly examines five country case studies of a tax ombudsman in operation – the United Kingdom, United States, Australia, South Africa and Tanzania. Drawing from these case studies and other literature, the paper sets out the ideal powers and roles for a tax ombudsman in the Ugandan context.
    Keywords: Finance,
    Date: 2023

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