nep-pub New Economics Papers
on Public Finance
Issue of 2023‒07‒17
fourteen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Land, Wealth, and Taxation By Roberto Brunetti; Carl Gaigné; Fabien Moizeau
  2. Why we need a green land value tax and how to design it By John Muellbauer
  3. Perceived Relative Income and Preferences for Public Good Provision By Balietti, Anca; Budjan, Angelika; Eymess, Tillmann
  4. Corporate taxes, productivity, and business dynamism By Andrea Colciago; Vivien Lewis; Branka Matyska
  5. Taxing Multinationals: Exploring a New Approach By Michael J. Keen
  6. Profit-shifting Frictions and the Geography of Multinational Activity By Alessandro Ferrari; Sébastien Laffitte; Mathieu Parenti; Farid Toubal
  7. Why should the carbon tax be floating ? By Nicolas Piluso
  8. Carbon Pricing, Carbon Dividends and Cooperation: Experimental Evidence By Sebastian Bachler; Sarah Lynn Flecke; Jürgen Huber; Michael Kirchler; Rene Schwaiger
  9. The Impact of Taxation Structure on Growth: Empirical Evidence from EU27 Member States By Giuseppe Piroli; Joerg Peschner
  10. Identifying Tax-Setting Responses from Local Fiscal Policy Programs By Valeria Merlo; Andreas Schanbacher; Georg U. Thunecke; Georg Wamser
  11. Tax Design, Information, and Elasticities: Evidence From the French Wealth Tax By Bertrand Garbinti; Jonathan Goupille-Lebret; Mathilde Muñoz; Stefanie Stantcheva; Gabriel Zucman
  12. The 2021 Child Tax Credit, the Living Arrangements and Housing Affordability of Families with Low Incomes By Natasha V. Pilkauskas; Katherine Michelmore; Nicole Kovski
  13. Hypothetical tax-benefit reforms in Hungary: shifting from tax reliefs to cash transfers for family support By AGUNDEZ GARCIA Ana; CHRISTL Michael
  14. The Race between Tax Enforcement and Tax Planning: Evidence from a Natural Experiment in Chile By Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman

  1. By: Roberto Brunetti (Univ Rennes, CNRS, CREM-UMR6211, F-35000 Rennes, France); Carl Gaigné (INRAE, SMART, Rennes, France and Laval University, CREATE, Quebec, Canada); Fabien Moizeau (Univ Rennes, CNRS, CREM-UMR6211, F-35000 Rennes, France)
    Abstract: We examine the role of land in wealth dynamics and taxation policy by focusing on the interplay among agents’ bidding for location, mortgage market imperfections, and inheritance. We develop a model in which altruistic agents leave to their heir a financial bequest and their housing wealth. The borrowing constraint generates a housing return premium and spatial wealth sorting, which translate into persistent inequality. We derive an optimal tax schedule that combines a tax on the land share in the value of inherited housing assets and on lifetime wealth, allowing a more efficient allocation of resources and lower inequality.
    Keywords: Mortgage market imperfections; Spatial sorting; Wealth distribution; Wealth Taxation; Efficiency.
    JEL: D31 E21 H21 R14
    Date: 2023–06
  2. By: John Muellbauer
    Abstract: A green land value tax can resolve conflicts between meeting climate goals, and equity and housing affordability, reducing intergenerational injustice. Land prices, reflected in house prices, relative to incomes are near all-time records, pricing younger citizens out of home-ownership and affordable rents. The OECD confirms that annual property taxes linked to recent market values improve macroeconomic stability and long run rates of growth. The green LVT – effectively a split-rate property tax- would consist of a charge on the land plus a charge on the building minus a discount depending on its energy usage. Regular revaluations discourage speculation and avoid cliff-edge changes. To protect cash-poor but land-rich households, everyone would have the right to defer the tax. To avoid complex interest charges, the tax authority would register a proportionate claim at the Land Registry equal to the unpaid tax for each year deferred, settled on the property’s transfer or sale.
  3. By: Balietti, Anca; Budjan, Angelika; Eymess, Tillmann
    Abstract: Guided by a theoretical framework, we study how perceived relative income affects preferences for public goods. In a randomized survey experiment, we inform respondents from India of their official income rank and elicit preferences for air quality, including actual contributions to environmental initiatives. Right-wing supporters withdraw contributions when perceived relative income increases. The effect coincides with diminished health concerns and lower intentions to utilize private protection measures against air pollution. In contrast, center-left supporters do not reduce contributions. A second survey experiment demonstrates the causality of the relationship using a novel treatment that exogenously shifts relative income perceptions.
    Keywords: perceived relative income; voluntary contributions; public goods; air pollution
    Date: 2023–06–27
  4. By: Andrea Colciago; Vivien Lewis; Branka Matyska
    Abstract: We identify the effects of corporate income tax shocks on key US macroeconomic aggregates. In response to a corporate income tax cut, we find that: (i) labor productivity increases; (ii) entry increases with delay; (iii) exit increases; (iv) total labor increases by more than production labor. To rationalize these empirical findings, we build a New Keynesian model with idiosyncratic firm productivity, and entry and exit. Our model features productivity gains due to selection and cleansing along the entry and exit margins. Models with homogeneous firms fail to account for the selection and cleansing process and produce counterfactual results.
    Keywords: corporate taxation; productivity; firm entry and exit
    JEL: E62 E32 H25
    Date: 2023–06
  5. By: Michael J. Keen (International Monetary Fund (IMF), CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: The international tax treatment of multinationals has fallen into disrepute. Over the last few years, the 140 or so members of the G20/OECD-led Inclusive Framework have put considerable effort into finding ways to fix it. In a recent paper, my co-authors and I explore alternative arrangements — 'Residual Profit Allocation' — that have been proposed to bring the system back to some coherence. And (while we do not claim causality) those arrangements have strong similarities with those that have now secured wide political agreement.
    Abstract: Le traitement fiscal international des multinationales est tombé en discrédit. Au cours des dernières années, les quelque 140 membres du cadre inclusif dirigé par le G20 et l'OCDE ont déployé des efforts considérables pour trouver des moyens d'y remédier. Dans un article récent, mes coauteurs et moi-même explorons des arrangements alternatifs - "l'allocation des bénéfices résiduels" - qui ont été proposés pour ramener le système à une certaine cohérence. Et (bien que nous ne prétendions pas qu'il y ait un lien de cause à effet), ces arrangements présentent de grandes similitudes avec ceux qui ont aujourd'hui obtenu un large accord politique.
    Keywords: International taxation, Multinationals, Tax coordination, Taxation internationale, Multinationales, Coordination fiscale
    Date: 2023–03–27
  6. By: Alessandro Ferrari; Sébastien Laffitte; Mathieu Parenti; Farid Toubal
    Abstract: International tax rules are commonly viewed as obsolete as multinational corporations exploit loopholes to move their profits to tax havens. This paper uncovers how international tax reforms can curb profit shifting and impact real income and welfare across nations. We introduce profit shifting and corporate taxation in a quantitative model of multinational production. The model delivers "triangle identities" through which we recover bilateral profit-shifting flows. Our estimates of both tax-base and profit-shifting elasticities, together with profit-shifting frictions, govern how taxes shape the geography of production and profits. Our model accommodates a rich set of corporate taxation scenarios. A global minimum tax would be beneficial for welfare since it would increase the public good provision and encourage countries to raise their statutory corporate tax rates. Instead, a border-adjustment tax that eliminates profit shifting could result in welfare losses.
    Keywords: Profit Shifting;Tax Avoidance;Tax Havens;International Tax Reforms;Minimum taxation;DBCFT;Multinational firms
    JEL: F23 H25 H26 H32 H73
    Date: 2023–06
  7. By: Nicolas Piluso (CERTOP - Centre d'Etude et de Recherche Travail Organisation Pouvoir - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The carbon market reform is controversial because the modalities of carbon pricing foreseen risk reducing the performance of companies and negatively affecting the economy. The objective of this paper is to show that the carbon tax can be floating and adapt to the economic situation while maintaining its ecological efficiency. Herein, Tobin's Q model, which has become a standard in the literature for explaining the investment decision, is applied to the green investment decision. A carbon tax is introduced into the firm's maximization program to see how carbon pricing changes the outcome of the traditional model. The model shows that green investment depends on the sum of the stock price and the carbon price, which suggests the possibility of modulating this amount according to the upward or downward trend of the stock price to avoid permanently penalizing the competitiveness of firms. The study also demonstrates how the financial market is likely to value green investments and that such investments will likely generate shareholder value through several channels. Indeed, green investments impact the firm's turnover and the minimum income required by the shareholder. Such a modulation of the carbon tax according to the economic cycle would make reconciling ecological and economic efficiency possible.
    Keywords: stock market price, greenhouse gas emissions, green investment, Tobin’s Q, carbon tax
    Date: 2023–02–21
  8. By: Sebastian Bachler; Sarah Lynn Flecke; Jürgen Huber; Michael Kirchler; Rene Schwaiger
    Abstract: Anthropogenic climate change is one of the most pressing global issues today and finding means of mitigation is of utmost importance. To this end, we investigate whether carbon taxes on their own and coupled with revenue recycling schemes (symmetric or asymmetric carbon dividends) improve cooperative behavior in a modified threshold public goods game of loss avoidance. We implement a randomized controlled trial on a large sample of the U.S. population and measure the portion of groups who successfully remain below a critical consumption threshold. We find that a carbon tax with symmetric dividends reduces harmful consumption levels, but coupling the tax with asymmetric dividends not only enhances consumption reduction but also significantly improves group cooperation in avoiding simulated climate change. Our results show that the application of a carbon tax and asymmetric carbon dividends reduces the failure rate to about one-fourth (6%), compared to the 22% observed in a baseline condition. We find that environmental attitudes, conservatism, education, and gender are significantly associated with success rates in staying below the threshold.
    Keywords: climate change, carbon pricing, carbon tax, carbon dividend, revenue recycling, cooperation
    JEL: C92 H23 H30 H41 Q54
    Date: 2023–07
  9. By: Giuseppe Piroli; Joerg Peschner
    Abstract: What is the impact of taxation on growth? Is it supported by specific taxes and harmed by others? We use an error correction model to study the relationship between the tax composition and GDP growth in the EU27 Member States over the period 1995-2019. Under the constraint of revenue-neutrality, we find that, in the long-run, shifting tax away from labour (personal income tax) is growth-enhancing. In addition, growth is positively associated with a higher share of corporate income tax and consumption taxes in the total tax mix. However, evidence for property taxation is contrary to our expectation. We find a negative link between the share of property taxes and growth. Expectedly, increasing the overall tax burden has a negative impact on growth in the long-run. Results are robust to different model specifications. Supplementary evidence based on a computable general equilibrium model confirms that de-taxing wages for employees and lowering labour costs for employers would push output.
    Keywords: EU27, growth, tax mix, personal income tax, corporate income tax, consumption taxes, environmental taxes, property taxes, labour tax shift, Computable General Equilibrium model.
    JEL: H2 C23 C68
    Date: 2023–06–05
  10. By: Valeria Merlo; Andreas Schanbacher; Georg U. Thunecke; Georg Wamser
    Abstract: This paper studies tax policy interaction among local governments for both mobile and immobile tax bases. We exploit exogenous changes in the local tax setting of German municipalities due to participation in state debt reduction programs to learn about the size, scope and nature of strategic interaction among local governments. Our results suggest strong and significant tax policy responses both in corporate as well as in property tax rates. Our estimates imply response function gradients in the range of 0.3 to 0.7, depending on the type of tax and state. Policy spillovers from property tax rates remain very local, which is consistent with yardstick competition behavior.
    Keywords: local public finance, tax competition, yardstick competition, spatial interaction, tax setting, marginal cost of public funds
    JEL: C21 H71 H73 R59
    Date: 2023
  11. By: Bertrand Garbinti; Jonathan Goupille-Lebret; Mathilde Muñoz; Stefanie Stantcheva; Gabriel Zucman
    Abstract: We study a French wealth tax reform that starkly reduced the information some taxpayers must report to the tax authority. Using a new dynamic bunching approach we estimate the average response to the reform, the share of compliers, and the local average treatment effect. The annual wealth growth rate of treated taxpayers falls by 0.5 percentage points after the reform. This decline is likely due to increased evasion, as suggested by the sharp responses in self-reported wealth but not in third-party-reported incomes. The wealth tax base becomes more elastic post reform, illustrating the key role of information policy choices for tax base elasticities.
    JEL: H26 H31
    Date: 2023–06
  12. By: Natasha V. Pilkauskas; Katherine Michelmore; Nicole Kovski
    Abstract: Access to safe and stable housing is important for child and adult wellbeing. Yet many low-income households face severe challenges in maintaining stable housing. In this paper we examine the impact of the 2021 temporary expansion to the Child Tax Credit (CTC) on the living arrangements and housing affordability of families with low incomes. We employ a parameterized difference-in-differences method and use national data from a sample of parents who are receiving, or recently received, Supplemental Nutrition Assistance Program benefits (N~20, 500). We find that the monthly CTC is associated with a higher likelihood that parents reported a change in their living arrangements as well as reduced household size, an effect largely driven by fewer mothers living with a partner (and not a reduction in doubling up). We also find that the credit reduced parents’ likelihood of reporting potential moves due to difficulties affording rent/mortgages as well as the amount and incidence of back-owed rent/mortgages. We find some differences in effects by race and ethnicity and income. Our findings illustrate how the monthly credit allowed parents to gain residential independence from partners, reduce the number of people residing in their household, and reduce their past-due rent/mortgage.
    JEL: H20 J10 J12 J18
    Date: 2023–06
  13. By: AGUNDEZ GARCIA Ana (European Commission - JRC); CHRISTL Michael
    Abstract: This paper evaluates two hypothetical budget neutral reforms that shift resources from family tax expenditures to family cash transfers. We evaluate these reforms based on a structural labor supply model, EUROLAB, which in turn is based on the microsimulation model EUROMOD and EU-SILC data. We find that both reforms have an inequality decreasing impact. However, when looking at labour supply responses for different household types, we show that the reforms have a substantial impact, especially for females in couple households. Additionally, we show that especially females in the middle of the income distribution will reduce labour supply as a response to the reforms.
    Keywords: family benefits, tax reform, labour supply, discrete choice, microsimulation, EUROMOD, EUROLAB
    Date: 2023–06
  14. By: Sebastián Bustos; Dina Pomeranz; Juan Carlos Suárez Serrato; José Vila-Belda; Gabriel Zucman
    Abstract: Profit shifting by multinational corporations is thought to reduce tax revenue around the world. While transfer pricing regulations are meant to curtail profit shifting, there have been rising concerns that a sophisticated tax advisory industry can limit their effectiveness. This paper provides a comprehensive analysis of how firms and tax advisors respond to the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers.
    JEL: H25 H26 H32
    Date: 2023

This nep-pub issue is ©2023 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.