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on Public Finance |
| By: | David W. Berger; Kyle F. Herkenhoff; Simon Mongey; Negin Mousavi |
| Abstract: | In this short paper we show that progressive income taxes distort hiring and wages when firms have labor market power. From a firm’s perspective, raising pre-tax wages increases employment by less when taxes are progressive as less of the pre-tax wage is paid to workers. Understanding this when setting wages leads to lower wages and employment at all firms. When firms differ in productivity, progressive taxes also distort the allocation of labor across firms. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits. |
| JEL: | E0 H0 J0 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31972&r=pub |
| By: | Kroft Kory; Laliberté Jean-William; Leal Vizcaíno René; Notowidigdo Matthew J. |
| Abstract: | We develop a theory of commodity taxation featuring imperfect competition along with love-of-variety preferences and endogenous firm entry and exit, and we derive new formulas for the efficiency and pass-through of specific and ad valorem taxes. These formulas unify existing canonical ones and feature a new term capturing the effect of variety on consumer surplus. Intuitively, if taxes reduce product varieties in the market, then the impact on social welfare depends on how much consumers value variety. As a proof-of-concept, we use the theoretical formulas to identify love-of-variety preferences in an empirical application. Our welfare analysis shows that the marginal excess burden of taxation is very sensitive to the estimated love-of-variety, which can overturn classical results on the desirability of ad valorem versus specific taxation. |
| Keywords: | Public economics;Taxation;Tax incidence;Sales tax |
| JEL: | H20 H22 H71 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-20&r=pub |
| By: | Bradley, Sebastien (Drexel University); Carril-Caccia, Federico (University of Granada); Yotov, Yoto (Drexel University) |
| Abstract: | We study the relationship between corporate income taxes and mergers and acquisitions (M&As). To this end, we compile and deploy a dataset consisting of all cross-border and domestic M&A deals for 118 source (acquirer) and 122 destination (target) countries and 84 sectors over the period 1995-2019. From a methodological perspective, we implement leading methods from the empirical gravity literature on trade, foreign direct investment, and migration, and we demonstrate their importance for estimating the impact of corporate income taxes on cross-border versus domestic M&A activity. Our main finding is that a one percentage point increase in target country corporate income tax rates decreases the number of cross-border acquisitions by about 0.8 percent relative to domestic M&As. This result is robust to various sensitivity checks and is comparable to previously published estimates. Nevertheless, our stepwise estimation strategy exemplifies the importance of individual empirical refinements. These should serve as the basis for future work investigating the effects of taxation on bilateral flows. |
| Keywords: | Corporate income taxes; Mergers and acquisitions; Gravity method |
| JEL: | F10 F14 F21 F23 H25 H87 |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:drxlwp:2023_008&r=pub |
| By: | Monti Maria Giovanna (University of Milan, Italy;); Pellegrino Simone (Department of Economics, Social Studies, Applied Mathematics and Statistics, University of Turin, Italy;); Vernizzi Achille (Department of Economics, Management and Quantitative Methods, University of Milan, Italy;) |
| Abstract: | In this paper we discuss the characteristics of the Zenga index and describe how it interprets both income inequality and social welfare. The Zenga index is quite different from those commonly used today. The difference is mainly due to the role played by income weights: they depend not only on income ranks but also on income distribution. To achieve our goals, we compare the Zenga index behaviour with that of other two indexes: the Gini and the Bonferroni index. The first issue we address concerns the effect of distributional changes in terms of inequality indexes. This analysis highlights how the Zenga index interprets income inequality differently with respect to the other two indexes. The second issue we consider is to determine the social welfare function associated to the Zenga index. We derive it by employing the method proposed by Dagum in 1990. By employing the Zenga social welfare function, we show that one can go beyond Dagum's remarks: when the income increase takes place in the top part of the income distribution, the social welfare can decrease when mean income increases. We can thus conclude that the Zenga inequality index reveals more than the Gini and Bonferroni indexes; in particular, it is more sensitive for evaluating income changes taking place in different parts of the income distribution. |
| Keywords: | Peronal Income Tax, Gini Index, Bonferroni Index, Zenga Index, Social Welfare |
| JEL: | H23 H24 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:084&r=pub |
| By: | Yuri Biondi (IRISSO - Institut de Recherche Interdisciplinaire en Sciences Sociales - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The European Commission is currently seeking to implement the OECD/G20 agreement on minimum corporate taxation, in view to ensuring a minimum effective tax rate on large multinational corporate groups and protecting the level playing field for business and society. In fact, the proposed ruling introduces scope exceptions for groups directly or indirectly controlled by governmental entities, non-profit organisations, and investment and pension funds. These scope exceptions may provide incentives for controlling parties to restructure the corporate group in view to avoid taxation, if the minimum effective tax threshold is constraining and material. Furthermore, it may provide a tax competitive advantage for groups controlled by those parties. |
| Keywords: | tax avoidance global wealth chains multinational companies, tax avoidance, global wealth chains, multinational companies |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03902527&r=pub |
| By: | Sebastian G. Kessing |
| Abstract: | A global monopoly supplier country of necessary inputs for the provision of global public goods has an incentive to subsidize these exports. The strategic interdependence in the global public good context reverses the ”large country” incentives to manipulate the terms-of-trade. It is optimal for a monopoly supplier country to deliberately worsen its terms of trade. The existence of a global monopoly supplier increases global public good supply relative to a competitive setting. Import-dependent countries may also benefit from a monopoly supplier. While they are strategically exploited to increase their contributions to the global public good, they do so at lower costs, and they benefit from increased contributions by the other importer countries. |
| Keywords: | global public goods, market power, climate policy, terms-of-trade, Inflation Reduction Act, Net Zero Industry Act |
| JEL: | H41 D60 Q54 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10834&r=pub |
| By: | Siedschlag, Iulia; McLoughlin, Robert; Daire De Hora |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp761&r=pub |
| By: | Eko Arief Yogama; Daniel J. Gray; Matthew D. Rablen |
| Abstract: | We conducted a randomised controlled trial in Indonesia to evaluate the effect of three intervention letters on tax penalty compliance behaviour. Over 10, 000 individual taxpayers are randomly assigned to receive either a deterrence, information, or simplification letter, or no letter. Our results indicate that simplification, which makes paying a penalty less burdensome administratively by providing billing codes to pay the penalties, yields the highest probability of timely settlement, increasing compliance by 32 per cent compared to the control group. Deterrence also positively impacts penalty compliance, increasing timely settlement rates by 27 per cent. The least effective intervention is the information letter. Although associated with a 12 per cent increase in tax compliance, this effect is only statistically significant at the 10 per cent confidence level. Our results suggest that strategic messaging by tax authorities in developing countries can be a cost-effective tool for improving tax penalty payment compliance. |
| Keywords: | tax penalties, tax compliance, RCT, simplification, deterrence, information, Indonesia |
| JEL: | C93 D91 H26 Z18 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10836&r=pub |