nep-pub New Economics Papers
on Public Finance
Issue of 2023‒11‒27
four papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Value Added Tax in the Extractive Industries By Artur Swistak; Nate Vernon
  2. Welfare Effects of Indirect Tax Policies in West Africa By Bart Capéau; Alain Babatoundé; Romain Houssa
  3. Wealth Survey Calibration Using Income Tax Data By Daniel Kolar
  4. Identifying Network Ties from Panel Data: Theory and an application to tax competition By Imran Rasul; Pedro Souza; Aureo de Paula

  1. By: Artur Swistak; Nate Vernon
    Abstract: Lower capacity countries often struggle to administer the Value Added Tax (VAT) in the extractive industries, partly due to the large VAT refunds needs of this capital and export-intensive sector. Assuming that the first-best policy (apply the standard VAT to the extractive industry) is not possible in the medium-term, what should countries do? This paper systemically analyzes second-best VAT policy designs considering the impact of the VAT on three key stakeholders: the investor, domestic suppliers, and the tax administration. The analysis concludes that the generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies, although country characteristics (and, specifically the relative weighting of stakeholders) matter. Moreover, governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.
    Keywords: value added tax; tax policy; extractive industries; fiscal regime design; mining; hydrocarbons
    Date: 2023–10–27
  2. By: Bart Capéau; Alain Babatoundé; Romain Houssa
    Abstract: In West Africa, the Value Added Tax (VAT) policy consists of a standard tax rate, but several items are exempted. We provide an optimal tax framework to reflect on the welfare effects of such a tariff structure, in the context of current debates on domestic resource mobilisation in low-income countries (LICs). Our analysis includes the distinguishing feature that a significant part of the consumption goods in LICs stems from own production, and can therefore not be taxed. We also account for preference heterogeneity over market goods and auto-consumption. A preference consistent individual welfare measure is used. Individual welfare levels are aggregated by social welfare functions with different degrees of inequality aversion. In this setting, we show that a uniform tax rate on all market goods is not optimal, even in the absence of inequality aversion. An application with household data from Benin supports reforms for alternative welfare improving VAT rate structures. In comparison to the current VAT policy, our reforms yield higher average relative welfare gains for the lower deciles. Due to preferences heterogeneity, however, we find winners and losers in all welfare deciles. We develop a bootstrap procedure to construct confidence intervals on welfare indicators.
    Keywords: Africa, Value Added Tax (VAT), Optimal taxation, Taste heterogeneity, Domestic
    Date: 2023–11
  3. By: Daniel Kolar (Charles University in Prague)
    Abstract: Wealth surveys tend to underestimate wealth concentration at the top due to the missing rich problem. I propose a new way of improving the credibility of wealth surveys by making them consistent with tabulated income tax data. This is possible with the harmonized triannual Household Finance and Consumption Survey (HFCS), which collects data on both income and wealth. I achieve consis- tency by calibrating survey weights using the income part of HFCS. I apply the calibration method of Blanchet, Flores, and Morgan (J Econ Inequal 20(1):119- 150, 2022) in a new context and propose a new, intuitive way to determine the merging point where the calibration starts. I then use the calibrated weights with HFCS wealth values. Tested on Austria, calibration aligns the survey totals closer to the National Accounts, with wealth inequality increasing in the second and third survey waves. I also find a strong downward bias in the Austrian HFCS income distribution. Following the calibration, I test other top tail adjustments: replacing the survey top tail with a Pareto distribution and combining the data with a magazine rich list.
    Keywords: inequality, wealth surveys, calibration, Household Finance and Consumption Survey
    JEL: D31 C83
    Date: 2023–11
  4. By: Imran Rasul; Pedro Souza; Aureo de Paula
    Abstract: Social interactions determine many economic behaviors, but information on social ties does not exist in most publicly available and widely used datasets. We present results on the identification of social networks from observational panel data that contains no information on social ties between agents. In the context of a canonical social interactions model, we provide sufficient conditions under which the social interactions matrix, endogenous and exogenous social effect parameters are all globally identified. While this result is relevant across different estimation strategies, we then describe how high-dimensional estimation techniques can be used to estimate the interactions model based on the Adaptive Elastic Net Generalized Method of Moments. We employ the method to study tax competition across US states. We find that the identified social interactions matrix implies tax competition differs markedly from the common assumption of competition between geographically neighboring states, providing further insights for the long-standing debate on the relative roles of factor mobility and yardstick competition in driving tax setting behavior across states. Most broadly, our identification and application show that the analysis of social interactions can be extended to economic realms where no network data exists. JEL Codes: C31, D85, H71.
    Date: 2023–10–18

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