nep-pub New Economics Papers
on Public Finance
Issue of 2023‒06‒26
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Taxation of Couples By Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer
  2. Government Spending and Tax Revenue Decentralization and Public Sector Efficiency: Do Natural Disasters Matter? By António Afonso; João Tovar Jalles; Ana Venâncio
  3. Technological Change, Task Complexity, and Preferences for Redistribution By David Hope; Julian Limberg; Nina Weber
  4. Multinational Taxation under Pressure: The Role of Tax Deductibility By Chen, Xuyang; Hindriks, Jean
  5. Macroeconomic Effects of Dividend Taxation with Investment Credit Limits By Matteo Ghilardi; Roy Zilberman
  6. Tax expenditures in OECD countries: Findings from the Global Tax Expenditures Database By Beznoska, Martin; von Haldenwang, Christian; Schüler, Ruth M.
  7. Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction during the Covid-19 Pandemic By Victoria Baudisch; Matthias Neuenkirch
  8. Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda By Maria Jouste; Tina Kaidu Barugahara; Joseph Okello Ayo; Jukka Pirttilä; Pia Rattenhuber

  1. By: Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer
    Abstract: This paper studies the tax treatment of couples. We develop two different approaches. One is tailored to the analysis of tax systems that stick to the principle that the tax base for couples is the sum of their incomes. One is tailored to the analysis of reforms toward individual taxation. We study the US federal income tax since the 1960s through the lens of this framework. We find that, in the recent past, realizing efficiency gains requires lowering marginal tax rates for secondary earners. We also find that revenue-neutral reforms towards individual taxation are in the interest of couples with high secondary earnings while couples with low secondary earnings are worse off. The support for such a reform recently passed the majority threshold. It is rejected, however, by a Rawlsian social welfare function. Thus, there is a tension between Rawlsian and Feminist notions of social welfare.
    Keywords: taxation of couples, tax reforms, optimal taxation, political economy, non-linear income taxation
    JEL: C72 D72 D82 H21
    Date: 2023
  2. By: António Afonso; João Tovar Jalles; Ana Venâncio
    Abstract: We assess notably how do extreme events affect the public sector efficiency of decentralized governance. Hence, we empirically link the public sector efficiency scores, to tax revenue and spending decentralization. First, we compute government spending efficiency scores via data envelopment analysis. Second, relying on panel data and impulse response approaches, we estimate the effect of decentralization on public sector efficiency and how extreme natural disasters mediate this relationship. The sample covers 36 OECD countries between 2006 and 2019. Our results show that tax revenue decentralization decreases public sector efficiency, while spending decentralization and a regional authority index are positively related to public sector efficiency, both for local projections and panel analysis. For instance, efficiency rises by 10 percent following a spending decentralization shock (reaching over 20 percent after 4 years). Nevertheless, in cases of natural disasters, spending decentralization reduces public sector efficiency. Specifically, in the presence of most extreme natural disasters, the improvement in public sector efficiency after a spending decentralization shock is smaller than in their absence. Moreover, extreme natural disasters also deteriorate the negative effect of tax revenue decentralization on public sector efficiency. These results suggest that sub-national discretionary spending and tax revenue responses might be less fruitful when such extreme events occur.
    Keywords: public sector efficiency, data envelopment analysis, local projections, revenue decentralization, spending decentralization, natural disasters, OECD
    JEL: C14 C23 E62 H11 H50
    Date: 2023
  3. By: David Hope; Julian Limberg; Nina Weber
    Abstract: Technological change has fundamentally transformed the US labour market in recent decades, with high-earning jobs becoming increasingly focused on nonroutine, complex tasks. We provide a first experimental test of whether fairness perceptions and preferences for redistribution differ when top earners gain their incomes through luck, routine work, or complex work. We find that the desired tax rate on top earners is up to 5.3 percentage points lower for the complex work treatment compared to the routine work treatment. Interestingly, performance on complex tasks is also more likely to be seen as the result of inherited intelligence.
    Keywords: Top income tax, technological change, redistribution, distributive preferences, fairness
    JEL: D31 D63 D91 H24
    Date: 2023
  4. By: Chen, Xuyang (Université catholique de Louvain, LIDAM/CORE, Belgium); Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: To address international profit shifting by multinational enterprises, a number of countries are broadening their tax bases and using turnover tax to secure corporate tax revenues. This paper investigates the impact of tax deductibility on multinationals’ behavior and corporate taxes by considering a model of corporate tax competition with two countries and a tax haven. A pure profit tax (with either separate accounting or formula apportionment) giving deductions for all costs can preserve production efficiency at the expense of tax base erosion. In contrast, a turnover tax with no deductibility of costs can eliminate profit shifting incentives at the expense of production distortion. We show that profit tax with formula apportionment dominates the other two tax regimes when the output elasticity is high and tax capacity is intermediate. In other cases, turnover tax (profit tax with separate accounting) can dominate under low (high) tax capacity. We then analyze the general case to allow for partial tax deductibility and revisit the Diamond-Mirrlees production efficiency theorem in the profit shifting context. We show that less deductibility can yield more revenue when tax capacity is low, but that revenue increases with deductibility when tax capacity is sufficiently high. Simulations further suggest that the optimal deductibility rate increases with the tax capacity and the output elasticity.
    Keywords: Corporate taxes ; Profit shifting ; Tax haven ; Tax deductibility ; Tax competition ; Digital economy ; Extractive sector
    JEL: H25 H71 H73 F23 D24
    Date: 2023–04–28
  5. By: Matteo Ghilardi; Roy Zilberman
    Abstract: A dynamic general equilibrium model augmented for an occasionally-binding investment borrowing limit reconciles competing views on the macroeconomic effects of dividend taxation. Permanent tax reforms are distortionary in the credit-constrained long-run equilibrium but are neutral otherwise. Temporary tax cuts may be expansionary or contractionary in the short-term depending on their scale and on the firm's initial and interim credit position. Interactions between payout tax shocks and the financial constraint tightness produce state-contingent, non-linear, and asymmetrical macroeconomic dynamics. These findings are consistent with the varied responses in investment rates and asset prices observed in the data following historical dividend tax changes.
    Keywords: Dividend Taxation, Occasionally-Binding Borrowing Constraints, Investment, Tobin's q, Business Activity
    JEL: E22 E32 E44 E62 H25 H30 H32
    Date: 2023
  6. By: Beznoska, Martin; von Haldenwang, Christian; Schüler, Ruth M.
    Abstract: The Global Tax Expenditures Database ( collects national reports on tax expenditures for 101 countries for the period from 1990 to the present. Based on these data, the development of tax expenditures in the 38 OECD countries between 1999 and today is examined. A look at the data shows that even in countries with high GDP and comprehensive tax coverage, reporting is often incomplete. For a subset of 16 OECD countries for which (relatively) continuous reporting over the period is available, we look at the development of tax benefits for households and firms. We can show that data availability improves over time. For the development of business tax expenditures, a weakly significant positive trend can be identified in terms of tax revenues foregone, driven mainly by the Netherlands and Ireland. Both countries are known for wanting to strengthen their business location through generous tax expenditures for businesses. Tax expenditures for private households, which are on average higher than the level of tax expenditures for businesses in the countries under review, do not show any significant time trend, even though they were increasingly used to relieve the burden on private households and businesses during the financial crisis of 2008/09. In order to compare tax expenditures between countries and to better assess their effectiveness, regular reporting at the national level, transparent definitions and ideally uniform standards would be helpful. Regular monitoring by a commission of experts could contribute to the consistency and comparability.
    Keywords: OECD, Tax Expenditures, Tax Incentives
    JEL: C82 H24 H25
    Date: 2023
  7. By: Victoria Baudisch; Matthias Neuenkirch
    Abstract: We evaluate Germany’s temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects.
    Keywords: consumption, Covid-19, synthetic control, temporary VAT cut, unconventional fiscal policy
    JEL: E21 E62 E65 H31
    Date: 2023
  8. By: Maria Jouste (UNU-WIDER, Helsinki, Finland); Tina Kaidu Barugahara (Uganda Revenue Authority, Kampala, Uganda); Joseph Okello Ayo (University of Helsinki, Finland); Jukka Pirttilä (University of Helsinki, Finland; and VATT Institute for Economic Research, Helsinki, Finland); Pia Rattenhuber (UNU-WIDER, Helsinki, Finland)
    Abstract: We evaluate a major personal income tax reform in Uganda that came into effect in 2012–13, contributing to the scarce literature on the effects of personal income tax reform on employees’ income in a low-income country in Africa. The reform increased the tax-free lower threshold, increased tax rates for higher incomes, and introduced an additional highest tax band for top 1% of income earners. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.
    Keywords: personal income tax, Uganda, administrative data, tax reform
    JEL: C31 H24 O23
    Date: 2023–06

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