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on Public Finance |
| By: | Barış Kaymak; Immo Schott |
| Abstract: | There is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies. Using US firm-level balance sheet data alongside measures of effective marginal tax rates, we find a positive correlation between tax rates and factor productivity, suggesting that tax asymmetry exacerbates the distortions from other economic frictions. Eliminating tax rate asymmetries would raise aggregate productivity by 3 to 4 percent if taxes distort capital costs alone. Models where taxes also distort the marginal cost of labor predict potential gains as high as 9 percent. |
| Keywords: | Business Taxation; Aggregate Productivity; TFP; Misallocation |
| JEL: | E23 H25 O47 |
| Date: | 2024–07–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1393 |
| By: | Max Löffler (Maastricht University & University of Cologne); Sebastian Siegloch (University of Cologne) |
| Abstract: | We investigate the welfare implications of property taxation. We apply a sufficient statistics approach that accounts for the distributional effects of tax changes at the household level within a spatial equilibrium framework. We show that equity effects are driven by price adjustments in the housing and labor markets, while efficiency is determined by changes in public goods. Using microdata and exploiting 5, 500 municipal property tax changes in Germany, where assessed housing values remain constant, we find that 83 percent of the tax burden is passed through to rental prices, with modest labor market effects. Simulations of the welfare effects of property taxes reveal that the price effects of property tax hikes are regressive. Despite the low efficiency costs of the tax, it becomes distributionally neutral only if public good preferences are very high. |
| Keywords: | property taxation, welfare, tax incidence, local labormarkets, rental housing |
| JEL: | H22 H41 H71 R13 R31 R38 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:331 |
| By: | Pawel Doligalski; Luis Rojas |
| Abstract: | We characterize the welfare effects of the informal sector by proposing a decomposition into efficiency and redistribution components. We focus on an economy where a planner wants to redistribute income with taxation and sets the optimal tax scheme. Since the informal sector can limit the taxation possibilities for the government but at the same time provide a shelter against tax distortions for individuals we show that the net welfare effect can be positive or negative. We show that the relative advantage between informal and formal employment across different income levels is the key dimension that shapes the welfare costs of the informal sector. Using the model estimated with Colombian microdata, we show that, conditional on the optimal tax policy, the Colombian shadow economy benefits efficiency at the expense of redistribution. Consequently, the presence of the informal sector reduces welfare only when preferences for redistribution are strong. |
| Keywords: | shadow economy, informal labor market, income taxation, redistribution |
| JEL: | H21 H26 J46 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1452 |
| By: | Julio López-Laborda |
| Abstract: | The paper determines the conditions for inheritances or gifts, first, and the Inheritance and Gift Tax (IGT), next, to reduce wealth inequality in the short run. The results show that it may not be sufficient for IGT to be progressive to reduce inequality in the distribution of wealth, but that it must be progressive enough to reinforce or reverse, as appropriate, the effect of inheritances on wealth inequality. The paper shows the conditions for this requirement to be met. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:fda:fdaddt:2024-06 |
| By: | Frederick van der Ploeg; Armon Rezai; Miguel Tovar |
| Abstract: | We analyse carbon taxes, lump-sum climate dividends, and changes to the level and progressivity of the income tax system that optimally trade off carbon emissions, equity, and efficient raising of public revenue while preserving budgetary neutrality and not using individualized lump-sum transfers. Such “third-best” policies include a carbon tax that exceeds the Pigouvian level and recycling of all carbon tax revenue via climate dividends for high (and our preferred) degrees of inequality aversion, even if this implies higher income taxes to meet existing revenue requirements. The carbon tax, climate dividends, and the progressivity of the income tax rise with the degree of inequality aversion. Our results are derived from a micro simulation model estimated from German data, which includes heterogenous households, an Exact Affine Stone Index demand system, and endogenous labour supply. We decompose the welfare effects of policy into emissions, equity, and efficiency components for different degrees of inequality aversion and climate damages. |
| Date: | 2024–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1050 |
| By: | Audrey Guo |
| Abstract: | Economic models assume that payroll tax burdens fall fully on workers, but where does tax incidence fall when taxes are firm-specific and time-varying? Unemployment insurance in the United States has the key feature of varying both across employers and over time, creating the potential for labor demand responses if tax costs cannot be fully passed through to worker wages. Using state policy changes and administrative data of matched employer-employee job spells, I study how employment and earnings respond to unexpected payroll tax increases for highly exposed employers. I find significant drops in employment growth driven by lower hiring, and minimal evidence of passthrough to earnings. The negative employment effects are strongest for young workers and single-establishment firms. |
| Keywords: | unemployment insurance, labor demand, payroll taxation |
| JEL: | H25 H71 J23 J65 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-35 |
| By: | Christos Kotsogiannis; Luca Salvadori; John Karangwa; Innocente Murasi |
| Abstract: | Difficult to find another policy shift that has promised as much for tax compliance in developing countries as digitalization. Yet the evidence on its impact is scant. Using the universe of tax filings in Rwanda over the period 2012-2019, this paper investigates the extent to which digitalization (in the form of e-invoicing) has impacted on VAT compliance and, in particular, the effectiveness of tax audits. The evidence suggests that while e-invoicing adoption per se has increased firms’ net VAT payments, this impact is quantitatively limited, as firms seem to re-adjust their expenses so to keep VAT payments low. Interestingly, e-invoicing had a sizable compliance impact on net VAT liabilities re- ported by audited firms, with this impact being attributed to tax audits becoming more efficient, rather than to VAT registered firms becoming more cautious following their participation in the e-invoicing mechanism. |
| Keywords: | tax audit evaluation, technological change, digitalisation initiatives, tax administration, Tax evasion, tax compliance |
| JEL: | H25 H26 H32 O17 O33 D02 D22 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1454 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy); Badola, Shivani (National Institute of Public Finance and Policy) |
| Abstract: | State excise, the third largest source of the state's own tax revenue (OTR), is a crucial aspect of state finances in India. This study is important as it delves into the factors influencing state excise collection from alcoholic beverages. The tax base of state excise is the consumption of alcoholic beverages (viz., IMFL, country liquor, beer) and other narcotics (opium, Indian hemp, and other narcotic drugs and narcotics) in the state. Some states also collect sales tax on alcoholic beverages in addition to state excise. Combined revenue from the state excise and sales tax on alcoholic beverages constitutes a major share of the OTR. The tax administration of state excise is subject to complex processes and procedures. In this study, we provide a comprehensive summary of the regulatory structure of states related to State excise duties. |
| Keywords: | Revenue mobilisation ; State Finances ; Taxation of alcoholic beverages ; State Excise ; State Sales Tax ; India |
| JEL: | H20 H71 H23 H26 I18 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:24/415 |
| By: | Morgan Maneely; Mr. Lev Ratnovski |
| Abstract: | Since 2022, EU banks have been enjoying historically high profits. The profits are mostly driven by the delayed pass-through of the rapid monetary policy tightening to deposit rates and as such are likely transitory. Against this background, almost half of EU countries have introduced new taxes on banks. This paper documents the significant diversity in the design of the new bank taxes—in terms of their tax base, rate, duration, and burden. The paper discusses several trade-offs in the design of bank taxes and argues that an alternative or complementary policy response to temporarily high bank profits is to lock them in as usable bank capital, for example through an increase in countercyclical capital buffer rates. |
| Keywords: | European banks; bank profits; bank taxation; credit supply; bank capital; CCyB; European Union; the ECB |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/143 |
| By: | Alessandro Chiari (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | This study examines whether the use of tax haven subsidiaries by U.S. multinational corporations (MNCs) is associated with more intense use of share buybacks and with improvement in management's ability to generating revenues. I find that MNCs' more intensive tax haven subsidiary use is positively associated with a higher management score, a higher buyback ratio, and a higher level of free cash flow. I also find a higher increase in the buyback ratio of U.S. companies following the sales of U.S. stocks from entities located in tax havens. In cross-sectional analyses, I identify channels through which the positive association between tax haven intensity and share buybacks is more pronounced. I also test the share buyback execution of U.S. MNCs affected by recent legislation promulgated in the U.S. (2017 corporate tax cut, 2017 repatriation tax). Our findings reveal a higher sensitivity to this legislation by MNCs with more presence in tax havens. |
| Keywords: | Tax Havens, Subsidiaries, U.S. Multinational Corporations, Share Buybacks |
| JEL: | G23 G28 G32 G35 H26 K34 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_25 |
| By: | Nathalie Etchart-vincent (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Marisa Ratto (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique); Emmanuelle Taugourdeau (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Our experimental study investigates the impact of information about others' tax behaviour on the subjects' subsequent tax decisions. A novel framework allows us to test the taste for social conformity and behavioural convergence hypothesis. Two kinds of individual information are introduced, namely information about the income reported on average, within the whole subject's group and within a subgroup, made of either peers or non peers and chosen by the subject. Our main results are fourfold. First, we replicate usual results as regards the influence of tax morale, probability of audit and redistribution on tax compliance. Second, our data show that many subjects are more interested in non-peers' than peers' tax behaviour. Third, with regard to our main point, our data display a huge variety of behavioural responses at the individual level. Roughly 50% of the subjects, most of whom are full tax compliers, are insensitive to others' tax behaviour, thereby exhibiting strong intrinsic preferences towards taxes. At the same time, our data provide strong evidence of behavioural convergence towards others' average behaviour, and a taste for social anti-conformity is also found for a minority of subjects. Finally, the kind of information appears to matter, and we find some asymmetry in upward and downward behavioural variations. |
| Keywords: | Tax compliance, Information, Tax morale, Peer effects, Social norms, Behavioral contagion, Social conformity, Artefactual field experiment |
| Date: | 2024–07–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-04635966 |
| By: | Bruno Bosco (Department of Economics, Management and Statistics, University of Milano-Bicocca); Carlo Federico Bosco (University of Pavia); Paolo Maranzano (Department of Economics, Management and Statistics, University of Milano-Bicocca and Fondazione Eni Enrico Mattei) |
| Abstract: | This paper uses the Italian income tax treatment of 2006/7 as a quasi-natural tax experiment to offer some fresh empirical evidence on how labour supply responds to exogenous income tax hikes. We adopt the identification strategy based on TWFE panel data Difference-in-Differences (DID) model to define the correct statistical framework of the study, and to benefit from the specific features of the above tax experiment, namely homogeneity and contemporaneity of the treatment. Results show that the extensive negative adjustments of various response variables measuring the supply of labour services offered by treated taxpayers are statistically significant, rapid, and strong but not long-time lasting. Not surprisingly, we also find that that treated families reduce in a similar manner their consumption with respect to families in the control groups. Analogous adjustment responses to tax hikes characterise the growth of per-capita regional GDP. The estimated aggregate effects of tax hikes are further compared with the spatial-temporal patterns observed for every response variable in treated and untreated regions. |
| Keywords: | Income Taxation, extensive labour supply change, TWFE Panel Data DID, convergence tests, taxation and regional growth |
| JEL: | C10 C18 C21 H2 E2 E32 E62 C23 C26 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2024.16 |
| By: | Bontems, Philippe; Cheikbossian, Guillaume; Hafidi, Houda |
| Abstract: | This paper focuses on the welfare effects of domestic and international lobbying in the context of two countries linked by both trade and pollution. We consider a reciprocal-markets model where, in each country, a domestic firm produces a polluting good, that can result in a cross-national environmental externality, and competes in quantities in each market with a foreign firm. Each government independently sets a pollution tax under political pressure from green and industrial lobbies `a la Grossman and Helpman (1994). Our results mainly show that political pressure from domestic and/or international lobbies can help mitigate tax competition between the two countries, resulting in an improvement in social welfare. In fact, lobbying acts much like a strategic delegation device by changing the social welfare weights in the objective function of each government. The (potential) welfare-improving effect of political pressure depends on the relative strengths of the lobbies and on the nature of the strategic interactions in taxes. |
| Keywords: | Lobbying; transboundary pollution; international trade; international politics; environmental tax |
| JEL: | D72 F12 F18 Q58 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129516 |
| By: | Breyer, Friedrich; Sterba, Maj-Britt |
| Abstract: | How shall publicly provided excludable goods be financed - by general taxation or user fees? Prominent applications are in education, notably universities and early childcare. The general conclusion of the existing literature is that exclusive tax financing is neither efficient nor desirable under widely shared distributive goals. A striking example is childcare because here fees are often made dependent on parents' income. Given the rather clear arguments in favor of user fees for formal childcare, it is surprising to notice that some German states with leftist governments have abolished user fees and replaced them with pure tax financing. It is the purpose of this research to investigate the attitudes of politicians towards user fees for publicly funded childcare and to explore the justifications given for these attitudes. This was done within face-to-face online interviews with an embedded survey with members of eight federal state legislatures. The survey results confirm the experience of real political decisions in that left-leaning politicians tend to oppose parental fees. They do so mainly with the justification that "education must be free for all". Right-leaning politicians tend to support fees and consider an abolition as helping mainly the rich and a problem for the quality of childcare. We discuss how these results can be reconciled with the redistributive goals of leftist parties. |
| Keywords: | Childcare fees, legislators, Germany, survey |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cexwps:300231 |
| By: | Bellani, Luna (Ulm University); Berriochoa, Kattalina (University of Konstanz); Kapteina, Mark (University of Konstanz); Schwerdt, Guido (University of Konstanz) |
| Abstract: | We study the effects of information on attitudes towards inheritance taxation using survey experiments fielded in Germany. We show that information about tax allowances increases demand for higher taxes and shifts public opinion from favoring abolition to supporting the tax. Effects are primarily due to a prevalent underestimation of tax allowances and the alteration of people's expectations of being affected by such taxes. In contrast, information highlighting the increasing proportion of inherited wealth only negligibly affects policy demand. Our results suggest that pocketbook motives and misinformation may contribute to explaining the paradox of limited demand for inheritance taxation despite growing inequality concerns. |
| Keywords: | capital taxation, equality of opportunity, inheritance tax, information, randomized experiment |
| JEL: | H20 D72 D83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17099 |
| By: | Yang, Yongwen; Lee, Juhee |
| Keywords: | Environmental Economics And Policy, Public Economics, Political Economy |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:344021 |
| By: | Nomonde Tshabalala (Nelson Mandela University); Syden Mishi (Nelson Mandela University) |
| Abstract: | Background: Unfavorable macroeconomic and socioeconomic conditions have placed South Africa's economy in a di |
| Date: | 2024–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:boc:fsug24:21 |