nep-pub New Economics Papers
on Public Finance
Issue of 2023‒06‒19
twelve papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. How do corporate tax rates alter conforming tax avoidance? By Eichfelder, Sebastian; Jacob, Martin; Kalbitz, Nadine; Wentland, Kelly
  2. Estimating the Laffer Tax Rate on Capital Income: Cross-Base Responses Matter! By Lefebvre, Marie-Noëlle; Lehmann, Etienne; Sicsic, Michaël
  3. Judging Nudging: Understanding the Welfare Effects of Nudges Versus Taxes By John A. List; Matthias Rodemeier; Sutanuka Roy; Gregory K. Sun
  4. The politics of redistribution and sovereign default By Scholl, Almuth
  5. Tax Uncertainty and Welfare-Improving Tax Disputes By Nigar Hashimzade
  6. Progressive consumption tax reforms By David Leung; Markus Poschke
  7. What Drives Tax Policy? Political, Institutional and Economic Determinants of State Tax Policy By Sarah Robinson; Alisa Tazhitdinova
  8. Minimum Global Tax: Winners and Losers in the Race for Mergers and Acquisitions By Amendolagine, Vito; Bruno, Randolph Luca; Cipollina, Maria; De Pascale, Gianluigi
  9. Norderfriedrichskoog! Tax Havens, Tax Competition and the Introduction of a Minimum Tax Rate By William C. Boning; Drahomir Klimsa; Joel Slemrod; Robert Ullmann
  10. An Update to the Budget Outlook: 2023 to 2033 By Congressional Budget Office
  11. Estimating the Elasticity of Turnover from Bunching: Preferential Tax Regimes for Solo Self-employed in Italy By Francesco Alosa
  12. Hypothetical tax-benefit reforms in Hungary: Shifting from tax relief to cash transfers for family support By Michael Christl; Ana Agúndez García

  1. By: Eichfelder, Sebastian; Jacob, Martin; Kalbitz, Nadine; Wentland, Kelly
    Abstract: We examine an international panel of domestic firms to quantify the degree to which conforming tax avoidance changes with statutory tax rates. We derive an alternative estimation method that identifies conforming tax avoidance from the variation of tax rates over time and across countries. We incorporate a series of validation tests by considering an alternative measure of conforming tax avoidance, investigating alternative channels for this type of tax avoidance, and showing a more pronounced response to tax rates when a country observes a significant increase in conformity between its book and tax reporting. Overall, we find a 1-percentage point decrease in the corporate tax rate corresponds with a 1.5 percent increase in pre-tax book income in domestic firms, which we interpret as a substantial conforming tax avoidance response by these firms. We also provide preliminary evidence that this type of activity plays a role in multinational firms.
    Keywords: conforming tax avoidance, tax avoidance, international tax, book-tax conformity
    JEL: H25 H26
    Date: 2023
  2. By: Lefebvre, Marie-Noëlle (CRED, Université Panthéon Assas Paris 2); Lehmann, Etienne (CRED, Université Panthéon Assas Paris 2); Sicsic, Michaël (CRED, Université Panthéon Assas Paris 2)
    Abstract: We theoretically express the Laffer tax rate on capital income as a function of the elasticities of capital income (the "direct" elasticity) and of labor income (the "cross" elasticity) with respect to the net-of-tax rate on capital income. We estimate these elasticities using salient capital tax reforms that took place in France between 2008 and 2017. Graphical evidence and Instrumental variables (IV) estimates confirm the existence of significant responses of both capital and labor income to capital tax reforms. Both approaches lead to positive cross responses, in contrast to the prediction of income-shifting models but in line with the two-period "working and saving" model. We obtain a direct elasticity around 0.76 which is robust across specifications. Ignoring the cross elasticity leads to a Laffer rate around 56%. However, since labor incomes are much larger than capital incomes, the Laffer tax rate is especially sensitive to the cross elasticity. Using our estimated positive cross elasticity dramatically reduces the Laffer tax rate on capital income to around 44%, taking income tax on labor income into account.
    Keywords: capital income taxation, optimal tax, Laffer tax rate, instrumental variables
    JEL: H21 H24 H31 C23 C26
    Date: 2023–05
  3. By: John A. List; Matthias Rodemeier; Sutanuka Roy; Gregory K. Sun
    Abstract: While behavioral non-price interventions (“nudges”) have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behavior in all three markets, they are not necessarily the most efficient policy. We find that nudges are more efficient in the market for cigarettes, while taxes are more efficient in the energy market. For influenza vaccinations, optimal subsidies likely outperform nudges. Importantly, two key factors govern the difference in results across markets: i) an elasticity-weighted standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii). Combining nudges and taxes does not always provide quantitatively significant improvements to implementing one policy tool alone.
    JEL: C93 D61 D83
    Date: 2023–04
  4. By: Scholl, Almuth
    Abstract: This paper studies how distributional and electoral concerns shape sovereign default incentives within a quantitative model of sovereign debt with heterogeneous agents and non-linear income taxation. The small open economy is characterized by a two-party system in which the left-wing party has a larger preference for redistribution than the right-wing party. Political turnover is the endogenous outcome of the electoral process. Fiscal policy faces a tradeoff: On the one hand, the government has incentives to fi- nance redistribution via external debt to avoid distortionary income taxation. On the other hand, the accumulation of external debt raises the cost of borrowing. Quanti- tative findings suggest that the left-wing party implements a more progressive income tax, is more prone to default, and has a lower electoral support than the right-wing party due to worse borrowing conditions and the distortionary effects of income taxa- tion. In equilibrium, electoral uncertainty raises sovereign default risk.
    Keywords: sovereign debt and default, inequality, redistribution, political economy
    JEL: F34 H63 E62 F41 D72
    Date: 2023
  5. By: Nigar Hashimzade
    Abstract: Tax law is often uncertain. In particular, the use of tax shelters tends to be in the “grey area” between illegal tax evasion and legal tax avoidance. In this paper I show that uncertainty in tax law can help achieve higher efficiency than allowing or disallowing a tax shelter with certainty. Furthermore, a tax dispute can lead to a net welfare gain despite the litigation costs. Thus, tax uncertainty and tax disputes can be socially desirable.
    Keywords: tax uncertainty, tax shelter, tax avoidance, rent-seeking
    JEL: K34 H26 D72
    Date: 2023
  6. By: David Leung; Markus Poschke
    Abstract: We study the effects of tax reforms in a heterogeneous agent overlapping generations life cycle model with idiosyncratic risk in capital and labour income and a rich tax system. The model replicates empirical joint distributions of income, wealth and tax payments well. In an economy with highly progressive income taxes, a revenue-neutral shift of the tax burden from income to consumption taxes increases saving and output, while also reducing inequality. It particularly benefits those with low wealth relative to income. It tends to harm retirees, who have high wealth relative to income. In contrast, an increase in the progressivity of income taxes also reduces inequality, but implies lower saving and output. Nous étudions les effets de plusieurs réformes fiscales à l’aide d’un modèle de cycle de vie avec générations chevauchantes. Le modèle décrit des agents hétérogènes qui confrontent des risques idiosyncratiques pour leurs revenus du travail et du capital, dans un environnement avec un système fiscal progressif complexe. Le modèle réplique fidèlement les distributions empiriques conjointes du revenu, de la richesse et des paiements de taxes et d’impôts. Dans ce contexte, un déplacement du fardeau fiscal à effet neutre sur les revenus publics vers les taxes à la consommation augmente l’épargne et la production tout en réduisant les inégalités. Cette politique est avantageuse particulièrement pour les individus disposant d’un faible niveau de richesse par rapport à leur revenu, mais tend à nuire aux personnes retraitées en raison du niveau élevé de leur richesse par rapport à leurs revenus. En revanche, une hausse de la progressivité de l’impôt sur le revenu des particuliers réduit aussi les inégalités, mais génère une épargne et une production plus faible.
    Keywords: Tax reforms, labor income, capital income, progressive tax system, consumption tax, Réformes fiscales, revenus du travail, revenus du capital, système fiscal progressif, taxe à la consommation
    Date: 2023–04–12
  7. By: Sarah Robinson; Alisa Tazhitdinova
    Abstract: We collect detailed data on U.S. state personal income, corporate, sales, cigarette, gasoline, and alcohol taxes over the past 70 years to shed light on the determinants of state tax policies. We provide a comprehensive summary of how tax policy has changed over time, within and across states. We then use permutation analysis, variance decomposition, and machine learning techniques to show that the timing and magnitude of tax changes are not driven by economic needs, state politics, institutional rules, neighbor competition, or demographics. Altogether, these factors explain less than 20% of observed tax variation.
    JEL: D7 H2 H7
    Date: 2023–05
  8. By: Amendolagine, Vito (University of Foggia); Bruno, Randolph Luca (University College London); Cipollina, Maria (University of Molise); De Pascale, Gianluigi (University of Foggia)
    Abstract: This study aims to quantify the impact of the global minimum corporate tax rate – a pillar of the OECD's reform of international taxation – on cross-border mergers and acquisitions (M&A) involving large multinational enterprises (MNEs). First, the influence of differences in capital taxation on bilateral cross-border M&A is assessed using a structural gravity model. The resulting estimated coefficients are then applied to evaluate the impact of a 15% global minimum tax rate on cross-border investments by firms whose revenue exceeds €750 million, whenever the target country's corporate tax rate is lower. The study exploits a large, disaggregated dataset of 13, 562 investor-firm M&A data points from 2001 to 2020 relating to 516 industries, defined at the 4-digit level of the NACE Rev. 2 classification, in 109 'source' countries, and 559 industries (defined at the same of detail) in 161 'target' countries. The empirical results suggest that M&A flows are higher when the source and target countries have similar tax rates, while the overall effect of the global minimum corporate tax on M&A flows would be negative (as expected), but small.
    Keywords: global tax rate, bilateral foreign direct investment, profit shifting, Structural Gravity model
    JEL: H2 H87 F23
    Date: 2023–05
  9. By: William C. Boning; Drahomir Klimsa; Joel Slemrod; Robert Ullmann
    Abstract: German municipalities levy local business taxes by choosing a tax rate to apply to local business income, where the tax base is defined uniformly at the national level. Before the federal government’s imposition of a minimum tax rate in 2004, some municipalities such as the tiny North Sea town of Norderfriedrichskoog chose to act as tax havens by setting a zero tax rate. We combine administrative microdata from firm tax returns with municipality-level information to study the choice to become a tax haven; the (reported and real) income tax havens attracted from other municipalities before and after the introduction of the minimum tax rate; and how the introduction of the minimum tax rate affected tax competition between municipalities. We find that income was shifted to tax haven municipalities both before and after the introduction of the minimum tax rate. The mandated increase in tax havens’ tax rates did not lead to rate increases (or decreases) among municipalities in general, or among tax haven municipalities’ geographical neighbors. Our results suggest that tax havens largely did not affect the business tax rates set by non-havens.
    JEL: H25 H26 H71
    Date: 2023–05
  10. By: Congressional Budget Office
    Abstract: CBO’s updated projections show a federal budget deficit of $1.5 trillion for 2023. That estimate is subject to considerable uncertainty, in part because of a recent shortfall in tax revenues. In the agency’s projections, annual deficits nearly double from 2024 to 2033. As a result, debt held by the public grows significantly, from 98 percent of gross domestic product at the end of this fiscal year to 119 percent at the end of 2033—which would be the highest level of U.S debt ever recorded.
    JEL: E62 E66 H20 H60 H61 H62 H63 H68
    Date: 2023–05–12
  11. By: Francesco Alosa
    Abstract: Turnover is a key indicator of economic activity, but we know little about how much entrepreneurs adjust it as a response to taxation. This is because business taxation is usually based on profits, rather than turnover. This paper exploits the notch created by the eligibility cut-off of the preferential (turnover) tax regime for solo self-employed in Italy to study turnover responses to taxation. I find that solo self-employed bunch below the turnover threshold to be eligible for the preferential scheme. Effects are different in different sectors, with professionals and business intermediaries showing the largest responses. Then, I estimate the turnover tax elasticity by focusing on the (last) marginal buncher. To do so, I adapt the models of Kleven and Waseem (2013) and Harju et al. (2019) to derive a modified indifference condition that fits the institutional set-up. The baseline estimate for the turnover tax elasticity is 0.072.
    JEL: H24 H25 H26
    Date: 2023–03
  12. By: Michael Christl (JRC Sevilla); Ana Agúndez García (JRC Sevilla)
    Abstract: This paper evaluates two hypothetical budget-neutral reforms that shift resources from family tax expenditures to family cash transfers. We evaluate these reforms using a structural labor supply model based on the microsimulation EUROMOD model and EU-SILC data. We find that both reforms have an inequality-decreasing impact. However, when looking at labor supply responses for different household types, we show that the reforms have a non-negligible impact, especially for females in couple households. Additionally, we show that females in the middle of the income distribution in particular will reduce labor supply in response to the reforms.
    Keywords: family benefits, reform, labor supply, discrete choice, microsimulation, EUROMOD
    JEL: J20 J08 H31
    Date: 2023–05

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