nep-pub New Economics Papers
on Public Finance
Issue of 2023‒08‒21
fourteen papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Corporate Tax Disclosure By Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
  2. Tax Losses and Ex-Ante Offshore Transfer of Intellectual Property By Rishi Sharma; Joel Slemrod; Michael Stimmelmayr
  3. Effective tax rates for R&D intangibles By Ana Cinta González Cabral; Tibor Hanappi; Silvia Appelt; Fernando Galindo-Rueda; Pierce O’Reilly
  4. Tax and Investment by Multinational Enterprises By Tibor Hanappi; David Whyman
  5. Digital Service Taxes By Kane Borders; Sofía Balladares; Mona Barake; Enea Baselgia
  6. Distributional Weights in Economic Analysis. By Robert W. Hahn; Nicholas Z. Muller
  7. The marginal cost of public funds: A brief guide By Bastani, Spencer
  8. Health Externalities to Productivity and Efficient Health Subsidies By Siew Ling Yew; Jie Zhang
  9. A time series perspective on income-based tax support for R&D and innovation By Ana Cinta González Cabral; Silvia Appelt; Tibor Hanappi; Fernando Galindo-Rueda; Pierce O’Reilly; Massimo Bucci
  10. To Own or to Rent? The Effects of Transaction Taxes on Housing Markets By Lu Han; L. Rachel Ngai; Kevin D. Sheedy
  11. The Intergenerational Transmission of Poverty and Public Assistance: Evidence from the Earned Income Tax Credit By Nicardo S. McInnis; Katherine Michelmore; Natasha Pilkauskas
  12. Taxation and labour supply decisions: an evaluation of the earned income tax credit in Italy By Luca Villamaina; Paolo Acciari
  13. The Economic Effects of COVID-19 in Sweden: A Report on Income, Taxes, Distribution, and Government Support Policies By Angelov, Nikolay; Waldenström, Daniel
  14. Economic Effects of Changes in the Excise Tax on Tobacco Products in Poland By Hryszko, Krzysztof; Szajner, Piotr

  1. By: Jeffrey L. Hoopes; Leslie Robinson; Joel Slemrod
    Abstract: Policies that require, or recommend, disclosure of corporate tax information are becoming more common throughout the world, as are examples of tax-related information increasingly influencing public policy and perceptions. In addition, companies are increasing the voluntary provision of tax-related information. We describe those trends and place them within a taxonomy of public and private tax disclosure. We then review the academic literature on corporate tax disclosures and discuss what is known about their effects. One key takeaway is the paucity of evidence that many tax disclosures mandated with the aim of increasing tax revenue have produced additional revenue. We highlight many crucial unanswered questions, answers to which would inform future tax legislation and financial accounting rule making.
    JEL: H25
    Date: 2023–07
  2. By: Rishi Sharma; Joel Slemrod; Michael Stimmelmayr
    Abstract: We develop a positive model of multinational firm behavior and analyze a firm’s incentive to transfer an intellectual property (IP) right of uncertain value offshore ex ante, i.e. before its success or failure is realized. Our analysis highlights two major aspects of this decision. First, an asymmetric treatment of project gains and losses in the home country creates an incentive to transfer IP to a foreign lowtax country to avoid potentially negative profits at home. These incentives exist even when IP is priced at a fair arms-length price and are further strengthened in the presence of R&D tax incentives. Second, when multinationals have private information about the probability of project success, they have an incentive to transfer their most promising IP ex ante.
    JEL: H25
    Date: 2023–07
  3. By: Ana Cinta González Cabral; Tibor Hanappi; Silvia Appelt; Fernando Galindo-Rueda; Pierce O’Reilly
    Abstract: Tax incentives such as intellectual property regimes provide for reduced taxation of the income derived from research, development, and innovation related activities. By doing so, they lower the overall tax burden from investing in certain qualified intangible assets. This paper proposes a methodology to build indicators comparing the effect of income-based tax incentives for R&D and innovation on firms’ incentives to make R&D intangible investments. It provides insights into how such incentives affect firms’ decisions on whether, where and how much to invest in R&D intangibles. These indicators are used to illustrate the extent to which these tax incentives may create potential distortions to firms’ investment, protection and commercialisation decisions. The model is further developed to account for the design changes to such tax incentives introduced by the OECD/G20 Base Erosion and Profit Shifting minimum standard.
    JEL: H25 O34 O38 E22
    Date: 2023–07–27
  4. By: Tibor Hanappi; David Whyman
    Abstract: This paper investigates two closely related questions concerning the responses of Multi-National Enterprise (MNE) investment to corporate income taxation using a panel of unconsolidated subsidiary-level and consolidated group-level data from the ORBIS database. First, the paper provides new evidence on the heterogeneity of investment responses to taxation across multinational firms. This paper finds that profit shifting opportunities, access to credit, and market power at the group level are associated with decreased investment sensitivity to taxation among MNE subsidiaries. Second, a new empirical approach is used to investigate how tax changes at the host jurisdiction level affect investment at the MNE group level and whether there are propagation effects to foreign subsidiaries within the same MNE group. This paper finds that taxation in one jurisdiction in which an MNE is active is positively associated with investment in its subsidiaries in other jurisdictions. This finding suggests that the well-document negative relationship between taxation and MNE investment within a host jurisdiction masks the MNE rebalancing the location of its investment to other host jurisdictions in response to changes in cross-jurisdictional tax rate differentials rather than purely decreasing its investment globally.
    Keywords: investment, Multinational Enterprises, Taxation
    JEL: F21 H32 H25
    Date: 2023–07–27
  5. By: Kane Borders (EU Tax - EU Tax Observatory); Sofía Balladares (EU Tax - EU Tax Observatory); Mona Barake (EU Tax - EU Tax Observatory); Enea Baselgia (HSG - University of St.Gallen)
    Abstract: Digital Service Taxes (DSTs) are a recently introduced fiscal tool designed to tax digital companies. This note collects all publicly available data to take stock of the first few years of DST implementation. Currently, twelve countries – both OECD and non-OECD – have an active DST in place. Current tax revenues from these DSTs are mostly in line with expected revenues, comparable in magnitude to estimated Pillar 1 revenues, and rising rapidly. First experiences (e.g., from the UK) suggest that DSTs can be effective at taxing digital companies that have tended to pay low corporate income tax rates in destination countries in a targeted way. However, the available data remains limited and more research needs to be done to progress towards a full cost-benefit analysis of DSTs.
    Date: 2023–06–15
  6. By: Robert W. Hahn; Nicholas Z. Muller
    Abstract: The use of distributional weights in economic analysis is receiving increasing attention in both research and policy circles. This paper examines the extent to which distributional weights affect economic analysis of public good provision. We make two contributions. First, we present a model with distributional weights that allows for marginal benefits and costs of the public good to differ across regions and individual characteristics, such as income or race. Samuelson’s analysis of pure public goods is a special case, as are other cases in which marginal benefits and costs may differ by region when the distributional weights are unity. We show how the provision of a pure public good varies with distributional weights different from unity. Second, we analyze distributional weights in conjunction with the value of a statistical life (VSL). We compare the use of an average VSL with differentiated VSLs. We show when using an average VSL will increase or decrease optimal public goods provision relative to differentiated VSLs for given distributional weights. We also identify conditions under which a low-income group prefers using an average VSL to true VSLs. This depends on the fraction of the costs that the low-income group bears in the provision of the public good.
    JEL: H41 Q51 Q52 Q58
    Date: 2023–07
  7. By: Bastani, Spencer (Research Institute of Industrial Economics (IFN); Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS), CESIfo, Germany)
    Abstract: When deciding on the social desirability of public investment, the cost of a project is sometimes adjusted by a factor known as the Marginal Cost of Public Funds (MCP F ), which captures the cost of raising public funds through distortionary taxation. However, there is no scholarly consensus on its definition or quantification. The purpose of this paper is to provide a brief up-to-date guide to the theoretical background, practical application, and empirical quantification of the MCP F, taking into account some recent developments in the public finance literature, and highlighting the broad applicability of the MCP F beyond taxation.
    Keywords: benefit-cost analysis; marginal value of public funds; excess burden; distortions; public goods; taxes
    JEL: D61 H21 H41 H53
    Date: 2023–05–23
  8. By: Siew Ling Yew; Jie Zhang
    Abstract: We explore optimal health subsidies in a dynastic model with health externalities to productivity that cause low health spending, productivity, longevity, savings and labor but high fertility. Public or firms’ health subsidies increase health spending, longevity and productivity and decrease fertility. Labor income taxes reduce the marginal benefit of health spending and the time cost of raising a child, while consumption taxes reduce the relative cost of raising a child. Appropriate public or firms’ health subsidies can internalize the externalities through age-specific labor income taxes and consumption taxes. Calibrating the model to the Australia economy, numerical results suggest policy improvements.
    Keywords: Health Externality, Longevity, Productivity, Fertility, Savings
    JEL: H21 I13 I15 J13 O41
    Date: 2023–07
  9. By: Ana Cinta González Cabral; Silvia Appelt; Tibor Hanappi; Fernando Galindo-Rueda; Pierce O’Reilly; Massimo Bucci
    Abstract: The use of tax incentives that provide preferential tax treatment to the incomes arising from research and development (R&D) and innovation activities, such as intellectual property regimes, has accelerated over the last two decades. The globalisation of R&D together with the greater mobility of intangible income may have contributed to the rise in such incentives to attract and retain R&D and innovation activity while preventing the transfer of taxable base to other countries. This paper documents the changes to the availability and design of income-based tax incentives from 2000 onwards for 48 countries, including all OECD countries and EU countries. Building on this, the paper analyses trends in the generosity of income-based tax support over time by building indicators of effective tax rates that can provide insights into the impact of Action 5 of the OECD/G20 Base Erosion and Profit Shifting project.
    JEL: E22 H25 O34 O38
    Date: 2023–07–27
  10. By: Lu Han (University of Wisconsin-Madison); L. Rachel Ngai (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Kevin D. Sheedy (London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: Using sales and leasing data, this paper finds three novel effects of a higher property transaction tax: higher buy-to-rent transactions alongside lower buy-to-own transactions, despite both being taxed; lower sales-to-leases and price-to-rent ratios; and longer time-on-the-market. This paper explains these facts by developing a search model with entry of investors and households choosing to own or rent in the presence of credit frictions. A higher transaction tax reduces homeowners’ mobility and increases demand for rental properties, which reduces the homeownership rate. The deadweight loss is large at 113% of tax revenue, with more than half of this due to distorting decisions to own or rent.
    Keywords: rental market, buy-to-rent investors, homeownership rate, transaction taxes
    JEL: D83 E22 R21 R28 R31
    Date: 2023–06
  11. By: Nicardo S. McInnis; Katherine Michelmore; Natasha Pilkauskas
    Abstract: This paper examines the intergenerational effects of the Earned Income Tax Credit (EITC) on poverty and public assistance use. Using data from the PSID, we find that increased exposure to the EITC in childhood reduces the use of public assistance in adulthood (WIC and other public assistance) and reduces the likelihood of being in poverty (
    JEL: H20 I38
    Date: 2023–07
  12. By: Luca Villamaina (Ministry of Economy and Finance); Paolo Acciari (Ministry of Economy and Finance)
    Abstract: The earned income tax credit - so-called ’monthly e80 bonus’ - introduced in Italy in 2014, has been characterized by a rapid phase-out area for budget-constraints reasons, leading to very high effective marginal tax rates. The aim of our analysis is to empirically investigate whether this policy design has effectively determined a reduction of the intensive margin of the labour supply of employees. The empirical analysis is based on the longitudinal electronic database of Personal Income Tax returns from 2011 to 2017 assembled by the Department of Finance of the Italian Ministry of Economy and Finance. The timing and the structure of the reform allow us to exploit the difference-in-discontinuities design using the before/after with the discontinuous policy change. Despite a close to 100% effective average tax rate for a substantial income range, a unique feature among EU and OECD countries, we found that the tax credit design had no negative effect on changes of the labour effort in Italy, challenging the economic theory but confirming previous empirical evidence.
    Keywords: EITC, Public Economics, Labor Market, Labor supply, Personal Income Tax
    JEL: H21 H24 H30 J22 J38
    Date: 2023–08
  13. By: Angelov, Nikolay (Uppsala Center for Fiscal Studies); Waldenström, Daniel (Research Institute of Industrial Economics, Stockholm)
    Abstract: This report analyses the economic consequences of the coronavirus pandemic and support policies using underutilized data sources from the Swedish Tax Agency's tax register, which provides real-time information on firm sales and employees' wage income. Firms' sales, particularly in areas heavily impacted by COVID-19, declined by 6.1% on average, inducing a drastic economic recession. Excise tax revenue analysis reveals a decline in industrial electricity and air travel tax revenues, but a rise in alcohol tax revenue. The hospitality industry experienced significant negative effects, with drops in sales, employment, and wage income. Payroll tax revenues decreased due to government intervention, whereas sick pay drastically increased. Average pre-tax labor income decreased by 5%, largely due to increased unemployment among part-time workers, escalating income inequality. Policy simulations indicate government support measures mitigated wage income reduction and unemployment rise, yet they contributed to income inequality under certain conditions. These results provide insight into the diverse, yet significant, economic impacts of the pandemic. A number of policy recommendations are presented based on the empirical findings.
    Keywords: COVID-19, taxes, inequality, policy effects
    JEL: D31 H12 H24 J22 J24
    Date: 2023–07
  14. By: Hryszko, Krzysztof; Szajner, Piotr
    Abstract: The aim of the article is to assess the impact of changes in excise duty rates on prices, consumption, and tax revenue to the state budget on the development of the domestic tobacco industry. The study was conducted, among other things, using methods of statistical comparative analysis, dynamics of the main elements of the market, exponential regression analysis, and analysis of selected financial ratios. The research shows that between 2010 and 2021 the tobacco industry in Poland developed very dynamically due to foreign direct investments and competitiveness on the EU market. Fiscal policy determined prices of tobacco products, as indirect taxes dominated the structure of retail prices. The increasing rates of excise duty resulted in a decrease in cigarette consumption, which was compensated by an increase in the consumption of innovative products. The effectiveness of fiscal policy is also confirmed by the growing budget revenues and reducing the shadow economy in the internal market. In recent years, however, consumer income has been growing faster than the prices of tobacco products, which has resulted in their better affordability. In conclusion, between 2022 and 2027, excise tax rates will gradually increase due to the harmonization of the national tax law with the regulations in force in the European Union. The increase in excise duty rates will determine the production and sale of tobacco products, which will adapt to demand conditions. Higher rates of excise tax will result in an increase in the prices of tobacco products and state budget revenues from indirect taxes.
    Keywords: Agricultural Finance, Demand and Price Analysis
    Date: 2023–06–28

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