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on Public Finance |
| By: | Chen, Xuyang |
| Abstract: | This paper investigates how the OECD's global minimum tax (GMT) affects multinational enterprises (MNEs) behavior and countries' corporate taxes. We consider both profit shifting and capital investment responses of the MNE in a formal model of tax competition between asymmetric countries. The GMT reduces the true tax rate differential and benefits the large country, while the revenue effect is generally ambiguous for the small country. In the short run where tax rates are fixed, due to tax deduction of the substance-based income exclusion (SBIE), a higher minimum rate exerts investment incentives but also incurs a larger revenue loss for the small country. We show that under high (low) profit shifting costs the former (latter) effect dominates so that the small country's revenue increases (decreases). In the long run where countries can adjust tax rates, the GMT reshapes the tax game and the competition pattern. In contrast to the existing literature, we reveal that the minimum rate binds the small country only if it is low. With the rise of the GMT rate, countries will undercut the minimum to boost real investments and collect top-up taxes. For small market-size asymmetry and intermediate profit shifting cost, the revenue loss from the elimination of profit shifting may dominate the revenue gain from taxing the true profits generated by substantive activities, so that even a marginal GMT reform may harm the small country. Otherwise, it can raise the small country's tax revenue. |
| Keywords: | Corporate taxes, Global minimum tax, Profit shifting, SBIE, Tax competition |
| JEL: | F21 F23 H25 H73 H87 |
| Date: | 2024–08–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121893 |
| By: | Tomas Boukal (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | Multinational enterprises are increasingly using offshore locations to pay lower taxes on their profits. This behavior has distortive effects on the global economy, as the concentration of multinational activities mirrors global tax patterns. In this paper, I exploit the OECD country-by-country reporting statistics to analyze the determinants behind the location of profits. I find that profit allocation is sensitive to both effective tax rates and geographical proximity, confirming the significance of these factors in MNEs´ tax planning strategies. Building on the work of Dharmapala and Hines (2009), this study also uncovers that MNEs are more likely to report profits to jurisdictions with superior governance quality, integrating both Global Governance Indicators and factors linked to financial secrecy. However, the findings indicate that tax haven jurisdictions exhibit a degree of reluctance when it comes to implementing recently introduced policies aimed at combating corruption and tax abuses. |
| Keywords: | international taxation, tax havens, country-by-country reporting, gravity models, governance quality |
| JEL: | F23 G15 G28 H26 H32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_31 |
| By: | Vladimir Smirnyagin (University of Virginia); Aleh Tsyvinski (Yale University); Xi Wu (University of California - Berkeley) |
| Abstract: | Analyzing the universe of federal environmental regulations in the U.S., we construct a measure of regulations—direct taxes on pollution. Analyzing the universe of firms’ investor disclosures, we construct a measure of material environmental concerns—indirect taxes on pollution. These two empirical measures are new to the environmental regulations literature. Thirdly, we document an important new fact that the cross-sectional distribution of pollution changes is lumpy. We build a dynamic heterogeneous firm model with non-convex adjustment costs that fits the cross-sectional pollution evidence. The model explains half of the pollution decline in U.S. manufacturing over the last two decades due to direct and indirect taxes. We show that the dynamics of direct taxes (environmental regulations) and indirect taxes (environmental concerns), non-convex adjustment costs, and idiosyncratic productivity shocks are key determinants of pollution dynamics in U.S. manufacturing |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2404 |
| By: | Yunho Cho; James Morley; Aarti Singh |
| Abstract: | Using household survey data for the U.S. and Australia, we quantify the role of taxes and transfers in providing consumption insurance against income risk. While the two countries differ substantially in their degree of tax and transfer progressivity and the extent to which it reduces the variability of disposable income, we find using a semi-structural model of income, net taxes, and consumption that the overall role of taxes and transfers in affecting the elasticity of consumption with respect to permanent income shocks is similar, with an estimated 5.4 percentage point reduction for the U.S. versus 4.8 for Australia. We interpret this result using a stylized life-cycle model with incomplete markets. Counterfactual analysis for a calibrated version of the structural model shows that, while higher progressivity increases the role of taxes in providing consumption insurance, these effects are partially mitigated by less self-insurance given higher marginal tax rates. The level of wealth relative to income also reduces the effects of progressivity on consumption insurance. Thus, higher wealth-to-income ratios in Australia can explain why, despite higher progressivity, the impact of taxes and transfers on consumption insurance is similar to the U.S. |
| Keywords: | Progressive taxes, Redistributive transfers, Consumption insurance, Incomplete markets. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2024-20 |
| By: | António Afonso; Ana Patricia Montes Caparrós; José M. Domínguez |
| Abstract: | In this paper, we estimate the potential tax burden in a panel data set comprising OECD countries over the period 2000-2021. To this end, we use non-parametric and parametric techniques: Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA). In this way, it will be possible for us to identify which countries are close to their potential tax capacity and which are far from it. Moreover, we can determine whether they may sustain an increase (decrease) in their actual tax burden depending on whether the tax effort ratio is lower or higher relatively to other similar countries in the sample. Non-parametric and parametric results coincide rather closely on the positioning of the countries vis-à-vis the production possibility frontier and on their relative distances to the frontier. Efficient countries most of the times are: Belgium, Colombia, Finland, France, Italy, Latvia, Slovak Republic, and Sweden. |
| Keywords: | OECD; tax burden; tax efficiency; Stochastic Frontier Analysis; Data Envelopment Analysis. |
| JEL: | C14 C23 H20 H21 H30 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03392024 |