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on Public Finance |
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Issue of 2024‒05‒06
six papers chosen by |
| By: | Robert J. Barro; Varadarajan V. Chari |
| Abstract: | Chamley and Judd argued that optimal taxation dictates zero long-run tax rates on capital income, but Straub and Werning found that tax rates may be positive even in the steady state. These models feature a “period-zero problem” in the underlying Ramsey formulation, which omits past commitments but includes future ones. The period-zero policymaker then imposes capital levies on initial assets—directly or indirectly through positive tax rates on future asset income and non-constant tax rates on consumption. Chari, Nicolini, and Teles add commitment by the period-zero policymaker to households’ initial wealth in utility units. In this case, a nonzero capital levy may apply in period zero, future tax rates on asset income equal zero, and tax rates on consumption are constant. Time-consistency fails if future policymakers are unconstrained but holds if commitments to initial wealth in utility units are strict enough each period to motivate each policymaker to choose zero direct capital levies. In that case, a timeless perspective applies where period zero is not special, tax rates on asset income are always zero, and tax rates on consumption are constant. Introduction of uncertainty generates state-contingent levies on assets and random-walk-like variations in consumption tax rates. |
| JEL: | E6 H21 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32306&r=pub |
| By: | Gschossmann, Emilia; Heckemeyer, Jost H.; Müller, Jessica; Spengel, Christoph; Spix, Julia; Wickel, Sophia |
| Abstract: | The European Commission recently implemented the minimum tax directive (Pillar Two) to ensure that corporate profits are at least taxed at 15%. At the same time, it proposed a legislative initiative aimed at reducing the tax-induced distortions between debt and equity financing (debt-equity bias reduction allowance directive, DEBRA). In our simulation analysis, we evaluate how the two measures and their interplay influence the EU Member States' effective tax levels and thus their location attractiveness. We find that DEBRA, on average, leads to a substantial reduction of the effective tax levels for equity-financed companies. In countries with a combined profit tax rate below 15%, Pillar Two increases the effective average tax burden. The simulation of the interaction of both regulations shows that the effect of Pillar Two dominates that of DEBRA. In addition, the results hold under a common tax base in accordance with the recently proposed "Business in Europe: Framework for Income Taxation" directive (BEFIT). |
| Keywords: | Business in Europe, Framework for Income Taxation, BEFIT, Effective tax rates, Debt-Equity Bias Reduction Allowance, DEBRA, Debt-equity bias, Devereux/Griffith Methodology, Global minimum tax, Pillar Two |
| JEL: | F23 H25 K34 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:289449&r=pub |
| By: | Gundert, Hannah; Spengel, Christoph; Weck, Stefan |
| Abstract: | The recent enactment of Directive 2021/2101 by the EU introduces a public Country-by-Country Reporting (CbCR) regime, with the aim of promoting a level playing field for businesses operating within the EU Single Market. The directive seeks to bolster tax transparency requirements for multinational enterprises (MNEs), with the objective of reducing disparities in international tax planning potential when compared to smaller, domestic firms. However, the efficacy of public CbCR in achieving this objective hinges on equitable treatment of MNEs, irrespective of their geographical location. In this study, we examine whether the public CbCR Directive introduces unintended disparities between (1) MNEs domiciled in different EU member states and (2) MNEs domiciled within and outside of the EU. Employing an expert survey, we assess the national implementation of the directive across member states, revealing significant variations, particularly concerning the deferment of sensitive information disclosure and permitted data sources. Subsequently, conducting a descriptive analysis of firm-level financial and ownership data, we analyze the differential impact on MNEs domiciled within versus outside the EU. Our findings indicate that the directive predominantly affects MNEs headquartered in the EU, with these entities disclosing, on average, a significantly higher proportion of their global operations on a disaggregated, country-by-country basis. We conclude that the current form and implementation of the directive likely introduces unintended disparities, contrary to the intended goal of establishing a level playing field, and suggest stronger guidance and fewer transposition options. |
| Keywords: | tax transparency, tax disclosure, country-by-country reporting, European Union |
| JEL: | F23 G38 H26 M41 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:289453&r=pub |
| By: | José Mª Durán-Cabré (Universitat de Barcelona & IEB); Alejandro Esteller-Moré (Universitat de Barcelona & IEB); Daniel Montolio (Universitat de Barcelona & IEB); Javier Vázquez-Grenno (Universitat de Barcelona & IEB) |
| Abstract: | In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment. |
| Keywords: | Tax perceptions/preferences, experimental design, student/teacher gender bias |
| JEL: | A23 H20 I2 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2024-02&r=pub |
| By: | Dhaval M. Dave; Yang Liang; Johanna Catherine Maclean; Caterina Muratori; Joseph J. Sabia |
| Abstract: | Public health advocates warn that the rapid growth of legal markets for electronic nicotine delivery systems (ENDS) may generate a “gateway” to marijuana and harder drug consumption, particularly among teenagers. This study is the first to explore the effects of ENDS taxes on substance use. We find that a one-dollar increase in ENDS taxes (2019$) is associated with a 1-to-2 percentage point decline in teen marijuana use and a 0.8 percentage point reduction in adult marijuana use. This result is consistent with e-cigarettes and marijuana being economic complements. We find no evidence that ENDS taxes affect drug treatment admissions or consumption of illicit drugs other than marijuana such as cocaine, methamphetamine, or opioids over this sample period. |
| JEL: | H2 I12 I18 J13 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32302&r=pub |
| By: | David L. Sjoquist (Center for State and Local Finance, Andrew Young School of Policy Studies, Georgia State University) |
| Abstract: | Sales taxes have become an important source of revenue for local governments in Georgia. However, local sales tax revenues per capita vary widely across the state’s 159 counties. One reason is that residents of some counties do much of their shopping in other counties that are retail centers. Some think this is inequitable. This inequity could be addressed by providing grants to counties with small sales tax revenue per capita, funded either by the state or by transfers from counties with large sales tax revenue per capita. In this policy brief, we explore the variation across Georgia counties in sales tax revenue per capita and explore a grant program to address the inequities. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ays:cslfwp:cslf2401&r=pub |