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on Public Finance |
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Issue of 2023‒10‒02
six papers chosen by |
| By: | Wladislaw Mill; Cornelius Schneider |
| Abstract: | This paper investigates whether tax evasion can be beneficial for an optimal income tax schedule. Past theoretical discussions have presented mixed outcomes as to whether allowing taxpayers to opt into uncertainty could indeed enhance overall tax revenues. In this study, we conducted an original real effort experiment in an online labor market with almost 1, 000 participants to test this hypothesis empirically. Our findings show significant positive labor supply responses to the opportunity to evade (increased labor supply by 37%). More importantly, the expected tax revenue significantly and substantially increased by up to more than 50%. As an example, our data suggests that a 40% tax rate with complete enforcement could be replaced with a 28% tax rate with the option of tax evasion, without any loss in tax revenue. Strikingly, this effect persists when comparing effective tax rates: Lowering effective tax rates through probabilistic enforcement (the opportunity to evade) is more efficient than simply lowering statutory tax rates. Our findings suggest that the opportunity for tax evasion can increase tax revenues beyond what a corresponding decrease in nominal rates would achieve. For welfare analyses, this highlights the importance of not only considering the elasticity of taxable income (ETI) but total earned income elasticities. |
| Keywords: | tax evasion, tax revenues, labor supply, optimal taxation, experiment |
| JEL: | H21 H24 H26 J22 C91 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10615&r=pub |
| By: | Joana Andrade Vicente |
| Abstract: | In this paper we conduct an empirical analysis to assess the redistributional impact of implementing a Formulary Apportionment approach in the European Union, compared to the current system based on the separate entity approach, aiming to contribute with databased evidence to the ongoing sensitive political debate about the much-needed change in the international (and, specifically, European) corporate tax regime. We update and extend prior research to estimate which Member States will likely gain and lose in terms of corporate tax base and revenues from the implementation of the ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative, planned to be soon launched by the European Commission. Using recently published Country-by-Country Reporting data released by the Internal Revenue Service, our findings show that the redistributional impact among Member States would be significant. Results are in line with international tax literature: larger economies with higher tax rates (such as Germany and France) would experience a considerable tax base increase, transferred from smaller countries with lower tax rates (like the Netherlands and Ireland), as multinational enterprises would have more restricted opportunities to engage in artificial profit shifting activities. |
| Keywords: | Country-by-Country Reporting; European Union; Formulary Apportionment; profit shifting; United States multinational enterprises. |
| JEL: | F23 H25 H26 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02862023&r=pub |
| By: | Sean Mc Auliffe; Georg U. Thunecke; Georg Wamser |
| Abstract: | This paper develops a new approach to calculate country-industry-year-specific forward-looking effective tax rates (FLETRs) based on a panel of 19 industries, 221 countries, and the years 2001 to 2020. Besides statutory corporate tax rate and tax base determinants, the FLETRs account for typical country-industry-specific financing structures as well as asset compositions. We show that FLETRs suffer from significant measurement error when the latter information is neglected, owing primarily to inappropriately assigned asset weights to statutory depreciation allowances. Our empirical analysis exploits the substantial variation in FLETRs over time to provide estimates of the tax semi-elasticity of corporate investment in tangible fixed assets. Based on more than 24 million firm-entity observations, our results suggest a statistically significant tax semi-elasticity of -0.41, which is at the lower end of previous findings. We further show that different subgroups of firms respond very heterogeneously to tax incentives. |
| Keywords: | corporate taxation, depreciation allowances, effective marginal tax rates, investment responses, predictive mean matching |
| JEL: | H25 H32 F23 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10628&r=pub |
| By: | Barış Kaymak; Immo Schott |
| Abstract: | We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment. |
| Keywords: | Labor share of income; Corporate taxation; Industry dynamics; Firm size distribution |
| JEL: | E25 H32 L11 L60 |
| Date: | 2023–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1379&r=pub |
| By: | Fotis Delis (European Commission Joint Research Centre); Manthos D. Delis (Audencia Business School); Sotirios Kokas (University of Essex); Luc Laeven (European Central Bank (ECB); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich; KU Leuven; Swiss Finance Institute; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information. |
| Keywords: | Corporate taxes; Profit shifting; Bank credit; Loan Spreads; Taxation policy |
| JEL: | G21 H25 H26 F23 F42 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2370&r=pub |
| By: | Khondaker Golam Moazzem; Shah Md Ahsan Habib; Chowdhury Fariha; Moumita |
| Abstract: | The study primarily reviewed existing literature and analysed data from reports and research articles on selected developing countries, while the objective was to understand the tax structure and issues related to tax avoidance and evasion. This document is a brief version of the study that examines the tax framework in developing nations, the connection between the informal economy and tax income, and an examination of the tax-to-GDP ratio and corporate tax rate in Bangladesh throughout the years. It also examines secrecy scores across various indicators and the occurrence of tax abuse at varying desired levels of the tax-to-GDP ratio. Furthermore, it presents a set of suggestions derived from primary and secondary data to promote corporate tax transparency in Bangladesh. |
| Keywords: | Corporate Tax, Transparency, tax avoidance, tax evasion, tax-to-GDP ratio, tax abuse |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:pdb:pbrief:43&r=pub |