nep-pub New Economics Papers
on Public Finance
Issue of 2023‒10‒30
eight papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. The Optimal Taxation of Network Goods By Hargaden, Enda; Hanson, Andrew; Harris, Matthew
  2. Tax planning and investment responses to dividend taxation By Aliisa Koivisto
  3. Multinational firms in tax havens: Corporate motives, regulatory countermeasures, and recent statistics By Olbert, Marcel; Spengel, Christoph; Weck, Stefan
  4. The Impact of R&D tax incentives: Results from the OECD microBeRD+ project By OECD
  5. Disentangling business- and tax-motivated bilateral royalty flows By Arjan Lejour; Maarten van 't Riet
  6. Distributional Impact of Indian GST. By Mukherjee, Sacchidananda
  7. Tax-Price Elasticities of Charitable Giving and Selection of Declaration : Panel Study of South Korea By KATO, Hiroki; GOTO, Tsuyoshi; KIM, Youngrok
  8. Federal Tax Revenue Forecasting of Pakistan: Alternative Approaches By Syeda Um Ul Baneen

  1. By: Hargaden, Enda; Hanson, Andrew; Harris, Matthew
    Abstract: We derive optimal tax formulas for network goods. The solution trades-off contemporaneous revenue collection against the discounted future flows of reduced network growth. We provide conditions under which the optimal tax sequence is time-invariant, and show that the rates should in general change over time. A quantitative model with consumer heterogeneity highlights patterns in these optimal sequences, and underscores the equity trade-offs
    Keywords: Public Finance, Optimal taxation, network goods, consumption externalities, atmospheric externalities.
    JEL: H20 H21 H23
    Date: 2023–08–01
  2. By: Aliisa Koivisto (Finnish Centre of Excellence in Tax Systems Research, VATT Institute for Economic Research)
    Abstract: This study explores empirically how business owners respond to dividend taxes in a range of diferent margins including tax planning and investment. Using administrative tax data on all privately held Finnish corporations, I fnd exceptionally clear dividend payment responses to tax rate discontinuities and changes. Heterogeneity analysis suggests that more experienced owners and owners with lower income have higher tax base elasticities. Studying the income composition of owners around tax changes reveals clear income shifting between wage and dividends with negligible efect on gross income received from the frm. Evidence on the asset composition of frms indicates that a notable part of the payment response is due to inter-temporal income-smoothing, while changes in the tax schedule did not cause signifcant real responses in output or investment.
    Keywords: Dividend taxation, investment, income shifting, bunching
    JEL: G38 H21 H24 H25
    Date: 2023–09
  3. By: Olbert, Marcel; Spengel, Christoph; Weck, Stefan
    Abstract: We investigate multinational firms' activities in tax havens and regulatory efforts to curb these activities in three steps. First, we discuss the evolution of information exchange and disclosure regimes among tax authorities, with a focus on the recent Countryby-Country (CbC) reporting regimes, designed to uncover and address tax haven usage by multinational firms. Second, we review existing empirical literature on multinational firms' tax haven utilization, specifically examining the impact of information exchange regulations and Country-by-Country Reporting. Third, we augment the current empirical evidence by presenting tax haven entity statistics from 2007 to 2021 for a representative multinational firm sample, sourced from Bureau van Dijk (BvD) Orbis and the aggregated CbC data provided by the Organisation for Economic Co-operation and Development (OECD). Our analysis suggests that, if exploited systematically, the recent Orbis database provides granular coverage of multinational firms' subsidiaries worldwide, including tax haven entities in jurisdictions without disclosure mandates and information sharing agreements. Our findings reveal that multinational firms' ownership of tax haven entities peaked in 2015, with over 50, 000 legal entities incorporated in tax havens (30, 000 in Big8 tax haven jurisdictions). Although the growth of tax haven entities slowed after 2015, the overall number remains substantial as of 2021. Furthermore, European multinationals experienced a modest decline in tax haven entities following the implementation of mandatory private CbCR. We conclude by discussing policy implications and suggesting avenues for future research.
    Keywords: Tax havens, multinational firms, tax avoidance, Country-by-Country Reporting, transparency, information exchange
    JEL: H20 H25 H26 F23 P45
    Date: 2023
  4. By: OECD
    Abstract: This document reports on the final output of the OECD microBeRD+ project. Drawing on the outcomes of previous work, this study presents new evidence on the impact of business R&D support policies – tax incentives and direct forms of support – on business R&D investment (R&D input additionality) and the innovation and economic performance of firms (R&D output additionality). The report also provides an exploratory analysis of R&D spillovers.
    JEL: H25 O38 L25
    Date: 2023–10–09
  5. By: Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Multinational firms pay for the use of intellectual property (IP). The IP-rights may be located in another country where the royalty income is taxable. This taxation may differ between countries which offers opportunities for tax avoidance. This implies that bilateral royalty payments may not only be business motivated but may also be tax driven. We determine the shares of tax and business motivated flows. We estimate that at least 18% of the size of the flows is tax driven. The associated worldwide loss of tax revenue is between 6.5 and 16 billion US dollar.
    JEL: H25 H26 H32
    Date: 2023–10
  6. By: Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: We estimate GST rate-wise distributional impact of GST across different consumer groups in India for 2021-22. Multiple rate structure and fixation of GST rates based on product specification make it difficult to assign a specific GST rate (or estimation effective GST rate) across items (or group of items) of consumption. In absence of recent consumer expenditure survey of the National Sample Survey Organisation (NSSO), we use CMIE's Consumer Pyramids Household Survey (CPHS) for 2021-22. We distribute all India average monthly per capita consumption expenditure (MPCE) on 123 items (or group of items) across 9 tax categories [viz., exempted, very low (exempt to 5%), low (5%), lower middle (5 to 12%), middle (12 to 18%), upper middle (18%), upper (28%), high (>28%) and ‘Out of GST’] by regions (i.e., rural and urban) and estimate the share of each tax category in aggregate average MPCE across fractile classes of MPCE. Given the tax category, as the share of consumption expenditure increases (or decreases) with increasing size of the consumption basket (or as represented by fractile class of MPCE), tax burden will increase (or decrease). We find that on average 24.5 per cent of average MPCE is exempted from GST. When we add the shares of very low tax and low tax categories with exempt category for all regions, we find that 57.6 per cent of average MPCE (or average size of the consumption basket) is either exempted or face lower tax rate (upto 5%) in the GST regime. On average 14.5 per cent of average MPCE constitutes consumption of ‘Out-of-GST’ items. Therefore, only 28 per cent of average MPCE of consumers face GST rates above 5 per cent. Out of 28 per cent of average MPCE, on average 14 percent attracts GST rate 18 per cent and the rest is distributed across lower middle, middle and high GST rate categories. Consumer groups with higher average MPCE benefits the most from the tax (GST) exemptions –both in rural and urban areas. Very low and low tax rate benefit the consumers with lower average MPCE. Except for fractile class greater than P95 in urban areas, consumption of items under lower middle tax category shows proportionate tax burden across all fractile classes of MPCE. It is lower strata of consumer groups (having relatively lower average MPCE) who bear the burden of tax on items falling under middle tax category the most. Both in rural and urban areas, lower strata of consumers (upto fractile class P30) face progressive tax burden on consumption of items falling under middle GST rate. Items falling under high tax rate category are intoxicants (cigarettes, bidi and other tobacco products) and in addition to the highest GST rate these items attract GST compensation cess. Distributional effects of tax burden of intoxicants differ across consumer groups and across regions. Consumption of alcoholic beverages, liquor at restaurants, petrol & CNG (compressed natural gas), diesel, and electricity attract taxes other than GST. There is progressivity of tax burden for this category across fractile classes in all regions.
    Keywords: distributional impacts ; tax incidence ; progressive ; regressive ; Goods and Services Tax (GST) ; Value Added Tax (VAT) ; rate restructuring ; India
    JEL: H22 D30 E21 Z18
    Date: 2023–10
  7. By: KATO, Hiroki; GOTO, Tsuyoshi; KIM, Youngrok
    Abstract: In this study, we estimate the tax-price elasticity of charitable giving and address the bias caused by the existence of unreported donations and self-selection to the declaration of giving. To eliminate this bias, we propose a simple estimation method based on intentionto- treat analysis. Using our proposed method and the exogenous variation in tax incentives in the 2014 South Korean tax reform, we estimate the price elasticity of donations to be −1.6 for the intensive margin and −2.6 for the extensive margin, which are more elastic than the standard results that do not account for unreported donations and self-selection. The result implies that the 2014 tax reform reduced the total amount of giving and that tax incentives should be expanded.
    Keywords: Charitable giving, Tax incentives, Price elasticity, Selection, Declaration
    JEL: D64 H24 H31
    Date: 2023–09
  8. By: Syeda Um Ul Baneen (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Every year, there are forecasting errors in Pakistan’s federal tax revenues. From 1970 to 2020, the federal government has significant forecast errors for all types of tax revenues. Using 1970-2014 data, two-thirds of the time, total federal taxes were overestimated by more than five percent (Qasim & Khalid, 2016). Errors in tax revenue forecasts directly affect budget formulation. The consequences of such errors are misleading tax revenue targets leading to wrong allocation of resources resulting in arbitrary cuts at the end of fiscal year such as a cut in development expenditures and/or an increase in the unanticipated debt burden. This, from policy perspectives, have long-run monetary and fiscal effects.
    Keywords: Buoyancy Approach, LASSO, Marginal Tax Rate, Tax Revenue Forecasting
    JEL: B26 B41 C13 H20
    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.