nep-pub New Economics Papers
on Public Finance
Issue of 2023‒09‒04
nine papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Politics and income taxes: progress and progressivity By Berliant, Marcus; Boyer, Pierre
  2. Corporate taxes, productivity, and business dynamism By Colciago, Andrea; Lewis, Vivien; Matyska, Branka
  3. Taxation of the rich and the cost of raising tax revenue By Geir H. M. Bjertnæs
  4. Fantastic tax cuts and where to find them By Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
  5. How to Combat Value-Added Tax Refund Fraud By Cedric Andrew; Ms. Katherine Baer
  6. Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from Corporate Tax Notches By Jaqueline Hansen; Valeria Merlo; Georg Wamser
  7. The spillover effect of managerial taxes on mutual fund risk-taking By Bührle, Anna Theresa; Yen, Chia-Yi
  8. From corporate tax competition to global cooperation? Trends, prospects and effects on German family businesses By Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
  9. Taxation of the rich and incentives for investments. The case of Norway By Geir H. M. Bjertnæs

  1. By: Berliant, Marcus; Boyer, Pierre
    Abstract: This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of non-linear taxes derived in the context of voting. Next, we present new results on the existence of majority voting equilibrium that unify work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit (EITC), and increased progressivity in the middle of the income distribution.
    Keywords: Non-linear income taxation; Tax reform; Political economy; Optimal taxation; EITC
    JEL: C72 D72 D82 H21
    Date: 2023–07–26
  2. By: Colciago, Andrea; Lewis, Vivien; Matyska, Branka
    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
  3. By: Geir H. M. Bjertnæs (Statistics Norway)
    Abstract: Taxation of capital income and wealth designed to redistribute from the rich may harm small open economies with a globalized capital market as investments are distorted. This study shows that raising tax revenue by taxing wealth is less costly than by taxing labor income within a simplified model framework designed for modest levels of taxes on capital income and wealth. The explanation is that a recidence based tax on wealth collects tax revenue from wealthy investors without distorting investments. The study also shows that raising tax revenue by increasing the tax rate on capital income marginally above the foreign tax level is less costly than by increasing the tax rate on labor income even though foreign investments is distorted. An assessment of these results together with other empirical and theoretical studies uncover that the cost of taxing capital income and wealth is likely to increase with the level of these taxes, however.
    Keywords: Taxation; capital income; wealth
    JEL: H2 H21 F21
    Date: 2023–05
  4. By: Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
    Abstract: An important question in public economics is whether, and under what conditions, it may be possible to design a self-financing tax cut. This column provides new theoretical insights on the requirements for a tax reform that makes everyone better off. Furthermore, it shows that if there is no self-financing tax cut with changes to one or two income brackets, then a more complicated reform will also not work. It applies these insights to the US Earned Income Tax Credit reform in 1975. Although this reform had the correct properties, the analysis concludes that it was not fully self-financing.
    Date: 2023–08
  5. By: Cedric Andrew; Ms. Katherine Baer
    Abstract: A previous IMF Working Paper on value-added tax (VAT) refunds (WP/07/31, by Keen and Smith) describes the main forms of VAT noncompliance and concludes that VAT is susceptible to evasion and fraud like any other tax. This paper shows the insidious nature and extent of VAT refund fraud in selected EU countries and argues that this type of noncompliance requires tax administrations to adopt a coordinated strategy and deploy a range of countermeasures to combat this threat. Because such fraud is primarily a criminal legal issue, tackling it successfully will require cooperation, both internationally between VAT administrations and nationally between tax authorities and the judiciary. The paper’s focus is primarily on advanced economies in the context of the EU, but many of the recommendations are applicable to emerging market and developing countries. A separate IMF How to Note discusses managing VAT refunds in developing countries.
    Keywords: value-added tax; refund; fraud; strategies; cooperation; refund fraud; acquisition fraud scheme; return fraud; MTIC VAT Contra carousel scheme; Customs and Excise tax office case study; Tax refunds; Tax administration core functions; Middle East
    Date: 2023–08–04
  6. By: Jaqueline Hansen; Valeria Merlo; Georg Wamser
    Abstract: We exploit exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinational enterprises (MNEs) and its consequences for real activity. Using new data on CFC rules and information on direct parent-affiliate ownership links, our identification approach allows us to estimate an unbiased profit-shifting semi-elasticity of about 0.22. Removing incentives to shift profits to particular low-tax locations leads to profit relocation to ‘next-best’ low-tax countries, allowing firms to circumvent domestic taxation. We do not find any significant effects on parent shareholders, neither in terms of repatriated profit nor in terms of their real economic activity. Other entities within the MNE, where profits get relocated to, see a significant increase in various measures of real activity.
    Keywords: corporate taxation, profit shifting anti-tax-avoidance rules, multinational enterprise, firm organization
    JEL: F23 H25
    Date: 2023
  7. By: Bührle, Anna Theresa; Yen, Chia-Yi
    Abstract: When faced with higher managerial taxes, mutual fund managers who personally invest in the funds they manage take on greater risk. By exploiting the enactment of the American Taxpayer Relief Act 2012 as an exogenous tax shock, we observe that co-investing fund managers increase risk-taking by 8%. Specifically, these managers adjust their portfolios by investing in stocks with higher beta. The observed effect appears to be driven by agency incentives, particularly for funds with a more convex flow-performance relationship and for managers who have underperformed compared to their peers in the past two years. Such tax-induced behavior is associated with negative fund performance. We highlight the role of co-investment in transmitting managerial tax shocks to mutual funds.
    Keywords: risk-taking, taxation, mutual funds, co-investment
    JEL: G11 G18 G23 H24
    Date: 2023
  8. By: Bührle, Anna Theresa; Nicolay, Katharina; Spengel, Christoph; Wickel, Sophia
    Abstract: This study provides an overview of current political developments in the tax competition debate, emphasizing the consequences for large German family businesses. We analyze new tax competition trends in Europe and selected industrialized countries in recent years. Subsequently, we discuss various international tax policy counter-reactions, namely the Anti-Tax Avoidance Directive and country-by-country reporting on the European level as well as the OECD's two-pillar project. We outline a potential shift in tax competition away from companies towards highly wealthy and highly qualified individuals. The implications of these developments on large German family businesses are emphasized, offering insights into the evolving landscape of tax competition.
    Keywords: tax competition, family businesses, international tax policy
    JEL: H25 H24 K34
    Date: 2023
  9. By: Geir H. M. Bjertnæs (Statistics Norway)
    Abstract: Taxation of capital income and wealth redistributes from the rich but may harm the Norwegian economy as business investments is distorted. This study shows how to redistribute from the richest without distorting investment decisions of foreign and domestic investors within a simplified model framework designed for modest levels of taxes on capital income and wealth. A wealth tax without a discount for working capital combined with a tax rate on ordinary income equal to the corporate tax rate abroad achieves these goals. This tax proposal is assessed based on previous results on taxation.Creation-Date: 2023-05
    Keywords: Taxation; capital income; wealth
    JEL: H2 H21 F21

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