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on Public Finance |
| By: | Rishi R. Sharma; Joel Slemrod; Michael Stimmelmayr; John D. Wilson; Peter Choi |
| Abstract: | Dual-regime business tax systems typically subject smaller firms to an output (turnover) tax and larger firms to a profit (corporate) tax. Despite their prevalence, there is little formal analysis of their optimal design. This paper addresses this gap by developing a theoretical framework to analyze the optimal tax parameters and the relative performance of two types of dual-regime systems: threshold and minimum tax systems. We show that either type of dual regime system can yield lower social costs than a single regime system. Using parameter values from recent empirical studies, we also show that a generalized minimum tax system we propose would outperform other dual regime systems under most parameter values. These findings carry important policy implications, particularly as many countries currently employ either threshold or minimum tax systems, but none have yet implemented a generalized minimum tax. |
| Keywords: | dual-regime tax system, output tax, profit tax, bunching |
| JEL: | H25 H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11962 |
| By: | Delis, Manthos D.; Laeven, Luc; Ongena, Steven; Delis, Fotis |
| Abstract: | We provide estimates of profit shifting for over 2 million firm-year observations in 100 countries over the period 2009–2020. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine how the profits of both parent and subsidiary firms within a multinational group respond to marginal changes in the composite tax indicator. The key advantage of this approach is that it yields firm-year estimates of profit shifting. Multinational firms engage in extensive profit shifting by maintaining affiliates in low-tax countries and zero-tax havens. Multinational groups with an ultimate tax-haven owner exhibit the largest profit response to tax incentives. Our new database opens important avenues for analyzing the sources and effects of profit shifting. JEL Classification: F23, H25, H26, H32, M41 |
| Keywords: | global sample, multinational enterprises, nonparametric estimation, profit shifting, tax arbitrage |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253071 |
| By: | Sarah Clifford; Jakob Miethe; Camille Semelet |
| Abstract: | This paper characterizes profit shifting behavior across the size distribution of multinational enterprises (MNEs) to evaluate the targeting of the recently introduced Global Minimum Tax (GMT). Using German microeconomic administrative data with no reporting gaps for tax havens, we first document reductions in tax payments after tax haven subsidiaries are added to a group and confirm their outsized productivity. As group size increases, so does the likelihood of including tax haven subsidiaries. Second, we introduce a new methodology to estimate shifted profits at the group level and find an exponential group size gradient in profits shifted to tax havens. A total of EUR 19 billion was shifted to tax havens by German MNEs in 2022. Large groups targeted by the GMT account for 95% of this amount. While this is mainly a function of their size, we also document a positive gradient in profit shifting aggressiveness relative to employment. Third, we relate revenue potential from taxing excess profits in low-tax jurisdictions to compliance costs of the GMT, using a 15% benchmark rate. For groups currently covered by the GMT, revenue gains significantly dominate costs, while extending coverage to additional groups yields only modest net gains. Our results support policy consistency of the GMT in the face of recent unilateral challenges. |
| Keywords: | global minimum tax, multinational enterprises, profit shifting |
| JEL: | H26 G38 F34 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11975 |
| By: | Kang, Jong Woo (Asian Development Bank); Tolin, Lovely (Asian Development Bank) |
| Abstract: | How well raising tax rates can succeed for an economy intent on increasing tax revenue and narrowing the tax-to-GDP-ratio gap with other economies depends on its ability to meet certain conditions. This paper investigates these conditions and demonstrates that expanding the tax base as a proportion of GDP, either through a tax rate increase or rationalizing loopholes and tax expenditure, is crucial if efforts to increase tax revenues are to be effective. We test this theoretical finding through empirical analysis, including the Instrumental Variables—Two-Stage Least Squares (IV-2SLS) approach, and show how broadening the tax base is critical not only for increasing tax revenues but also for ensuring that an increase in the tax rate expands fiscal revenue. The findings highlight the importance of a balanced approach in tax policy design to achieve revenue goals while maintaining economic efficiency. |
| Keywords: | tax rate; tax revenue; tax base ratio; direct tax |
| JEL: | H20 H24 H26 |
| Date: | 2025–07–11 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0790 |
| By: | Vidar Christiansen |
| Abstract: | The paper analyses commodity taxation in an economy where a good can be recycled. Consumers deliver units of a used good to a reuse operator, who sells the good in a second-hand market after some processing. Two regimes are considered. One is a pure market setting where the reuse operator pays consumers for the used good. The alternative is a regime where the supply of used goods to the reuse operator is based solely on charitable donations. Taxes are set to achieve social efficiency. In the market regime the recycled good should be taxed at a reduced rate, which is increasing in the marginal processing cost of the operator. In the charity regime there is no case for deviating from uniform taxation. |
| Keywords: | commodity taxation, recycling, charitable donations |
| JEL: | H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11969 |
| By: | José Luis Peydró; Hernán Rincón-Castro; Miguel Sarmiento-Paipilla; Alejandro Granados |
| Abstract: | We study the financial and real effects of a wealth tax reform in Colombia that included a large share of small and medium-sized enterprises (SMEs) as new taxpayers. The tax was introduced in response to a severe weather shock that affected several regions of the country. We use a unique administrative dataset consisting of business loans from the credit registry, matched with balance sheet data and tax reports from both banks and non-financial firms. We identify a concentration of firms around the new tax threshold confirming anticipation of the tax by some affected firms. The new taxpayer firms exhibit tighter credit conditions compared to non-taxpayers firms. Those firms that anticipated the tax and those with ex-ante higher leverage show even tighter credit conditions. The reallocation of credit is higher among banks with high tax contributions. The tax reform also affected the allocation of trade credit among new taxpayers. Affected firms exhibit substantial negative real effects on investment, productivity, and employment. Our results indicate that taxing the wealth of SMEs affects their capital structure and real activity. *****RESUMEN: Estudiamos los efectos financieros y reales de una reforma del impuesto al patrimonio en Colombia que incluyó a una gran proporción de pequeñas y medianas empresas (PYME) como nuevos contribuyentes. El impuesto se introdujo en respuesta a un grave fenómeno climático que afectó a varias regiones del país. Utilizamos un conjunto único de datos administrativos que consiste en préstamos, emparejados con información de sus estados financieros y tributaria, tanto de los bancos como de las empresas. Identificamos una concentración de empresas en torno al nuevo umbral impositivo, lo que confirma la anticipación del impuesto por parte de algunas de las empresas afectadas por el impuesto. Las nuevas empresas contribuyentes presentan condiciones crediticias más restrictivas en comparación con las empresas no contribuyentes. Las empresas que anticiparon el impuesto y aquellas con un mayor apalancamiento ex ante muestran condiciones crediticias aún más restrictivas. La reasignación del crédito es mayor entre los bancos con altas contribuciones fiscales. La reforma tributaria también afectó la asignación del crédito comercial entre las nuevas empresas contribuyentes. Las empresas afectadas por el nuevo impuesto revelan efectos reales negativos sustanciales sobre la inversión, la productividad y el empleo. Nuestros resultados indican que gravar el patrimonio de las PYME afecta su estructura de capital y su actividad real. |
| Keywords: | Wealth taxes, firms’ capital structure, bank credit, trade credit, real effects, impuesto al patrimonio, estructura de capital de las empresas, crédito bancario, crédito comercial, efectos reales |
| JEL: | G21 G28 F34 E32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1316 |
| By: | Rabah Arezki; Frederick van der Ploeg; Gregoire Rota-Graziosi; Văn Đạo Lê; Rick van der Ploeg |
| Abstract: | The introduction of the Value Added Tax (VAT) has been widely perceived as a successful instrument, boosting government revenue and stimulating industrialization. However, in countries that are heavily dependent on exports of natural resources the introduction of the VAT has led on average to lower tax revenues and did not stimulate industrialization. The VAT thus did not help these countries to diversify away from the natural resource sector contrary to its promise. The results indicate a novel channel for the resource curse hinging on the interaction between economic structure and the design of tax systems. |
| Keywords: | natural resource, tax, industrialization, value added tax |
| JEL: | H25 O13 O14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11967 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy) |
| Abstract: | The distributional impact of Value Added Tax (VAT) or Goods and Services Tax (GST) has long been a topic of research in public finance. A progressive tax system helps the government mobilise revenue without impacting inequality. Based on the National Sample Survey Office's Household Consumption Expenditure Survey of 2022-23, we assess the distributional impact of Indian GST separately for rural and urban areas across fractile classes of average monthly per capita consumption expenditure. The results indicate that the Indian GST is progressive, as measured by various indices of progressivity, including the Progressive Vertical Index, the Kakwani Index of Progressivity, the Reynolds-Smolensky Index, and the Musgrave-Thin Index. The bottom 50% and the middle 30% of consumers bear 31% each, while the top 20% bear 37% of the tax burden in rural areas. In urban areas, the bottom 50% of consumers bear 29%, the middle 30% bear 30%, and the top 20% bear 41% of the tax burden. Any change in the GST rate structure may have distributional implications depending on the consumption patterns of consumers across different GST rate categories. The redistributive effect of Indian GST is positive, as post-tax consumption inequality decreases. |
| Keywords: | Distributional Impacts ; Tax Incidence ; Tax Progressivity ; Consumption Inequality ; Goods and Services Tax (GST) ; Effective Tax Rate ; India |
| JEL: | H22 D30 E21 D63 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/430 |
| By: | Winter, Richard (University of Mannheim); Doerrenberg, Philipp (University of Mannheim); Eble, Fabian (University of Mannheim); Rostam-Afschar, Davud (University of Mannheim); Voget, Johannes (University of Mannheim) |
| Abstract: | We provide novel evidence on the incidence of business taxes using comprehensive survey and experimental data from German firms. Leveraging randomized variation in hypothetical tax changes, we find that the incidence of profit taxes is highly asymmetric. Tax decreases are more likely to benefit workers and stimulate investment, whereas tax increases tend to be passed on to consumers through higher prices and absorbed by firm owners through reduced profit distributions. Moreover, by varying the magnitude of the tax changes, we demonstrate that worker incidence increases with the absolute size of the tax change, partially offsetting the burden on firm owners. |
| Keywords: | investment, firm behavior, tax incidence, corporate tax, payout, wages |
| JEL: | D22 H00 H22 H25 J23 J30 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17983 |
| By: | Welde, Andualem Assefa |
| Abstract: | What triggered the widespread public backlash against tax reforms in Sub-Saharan Africa, echoing the scale and intensity of the Arab Spring? Economic factors, such as income and inequality, appear to be weak predictors of public attitudes toward redistribution. This study empirically examines corruption as a key factor shaping perceptions of tax burden and redistributive preferences. The analysis draws on newly available data from the 8th round of the Afrobarometer survey (2019–2021), which includes relevant questions for the first time. This period coincided with a wave of anti-tax protests across several African countries. The findings suggest that corruption is strongly associated with higher perceived tax burdens. The results also indicate that corruption diminishes the demand for and willingness to support redistributive taxation. The policy implications include tax compliance, inequality and governance issues on the continent. |
| Keywords: | Corruption, Preference for Redistribution, Tax Burden, Sub-Saharan Africa |
| JEL: | D73 H26 O12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:320555 |