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on Public Economics |
| By: | Gilbert Mbaraa (Faculty of Economic Sciences, University of Warsaw); Ryszard Kokoszczyński (Faculty of Economic Sciences, University of Warsaw, Narodowy Bank Polski) |
| Abstract: | We develop an agency model of corporate tax evasion and auditing by a residual claimant government and embed it to a macroeconomic environment characterised by credit constraints. In our economy, tax auditing by the government reduces the information asymmetry between lenders and entrepreneurs with an investment opportunity. Corporate governance quality consequently affects macroeconomic variables; with changes in tax rates, auditing and quality of corporate governance having aggregate effects. We show that changes in the revenue system; tax and audit rates, can directly affect asset prices and inflate the effects of exogenous shocks to the economy. |
| Keywords: | corporate governance, credit constraints, taxation, asset pricing, tax evasion, agency problem |
| JEL: | H2 H26 H3 E13 E26 J81 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2018-10&r=pbe |
| By: | Sarolta Laczo (Queen Mary University of London); Raffaele Rossi (University of Manchester, Department of Economics) |
| Abstract: | We characterise optimal tax policies when the government has access to consumption taxation and cannot credibly commit to future policies. We consider a neoclassical economy where factor income taxation is distortionary within the period, due to endogenous labour and capital utilisation and non-tax-deductibility of depreciation. Contrary to the case where only labour and capital income are taxed, the optimal time-consistent policies with consumption taxation are remarkably similar to their Ramsey counterparts. The welfare gains from commitment are negligible, while they are substantial without consumption taxation. Further, the welfare gains from taxing consumption are much higher without commitment. |
| Keywords: | fiscal policy, Markov-perfect policies, consumption taxation, variable capital utilisation |
| JEL: | E62 H21 |
| Date: | 2018–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:857&r=pbe |
| By: | Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management) |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Tax morale, Information, Tax evasion, Experiment, Peer Effects |
| JEL: | H26 D63 C24 C92 Z13 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:00101&r=pbe |
| By: | Orsetta Causa; Mikkel Hermansen |
| Abstract: | This paper produces a comprehensive assessment of income redistribution to the working-age population, covering OECD countries over the last two decades. Redistribution is quantified as the relative reduction in market income inequality achieved by personal income taxes, employees’ social security contributions and cash transfers, based on household-level micro data. A detailed decomposition analysis uncovers the respective roles of size, tax progressivity and transfer targeting for overall redistribution, the respective role of various categories of transfers for transfer redistribution; as well as redistribution for various income groups. The paper shows a widespread decline in redistribution across the OECD, both on average and in the majority of countries for which data going back to the mid-1990s are available. This was primarily associated with a decline in cash transfer redistribution while personal income taxes played a less important and more heterogeneous role across countries. In turn, the decline in the redistributive effect of cash transfers reflected a decline in their size and in particular by less redistributive insurance transfers. In some countries, this was mitigated by more redistributive assistance transfers but the resulting increase in the targeting of total transfers was not sufficient to prevent transfer redistribution from declining. |
| Keywords: | income inequality, redistribution, taxes, transfers, progressivity |
| JEL: | D31 H23 H53 I38 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:lis:liswps:729&r=pbe |
| By: | Stefan Groot (CPB Netherlands Bureau for Economic Policy Analysis); Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | This paper exploits a unique set of Dutch micro data to analyze the response in prepayment behavior to changes in incentives for prepaying. The paper shows that the effect of mortgage interest rates on the value of prepaying a mortgage (also taking taxes and returns on savings into account) is equivalent to a change in the tax rate on financial wealth. This feature is used to estimate tax elasticities (i.e. the elasticity of changes in wealth tax revenues resulting from changes in prepayment with respect to the wealth tax rate). Using a linear probability model with the Arellano-Bond estimator, the paper finds that the prepayment probability increases by 0.5% point if the prepayment value as a fraction of the mortgage increases by 1% point. The effect is about six times as high for households owning more than 200,000 euro and it is not statistically significant for households with little financial wealth. |
| JEL: | D14 G21 H26 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:350&r=pbe |
| By: | Filomena Garcia (Indiana University, and UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, and UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management) |
| Abstract: | The administration of tax policy has shifted its focus from enforcement to complementary instru-ments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of ran-domly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compli-ant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects. |
| Keywords: | Tax morale, Information, Tax evasion, Experiment, Peer Effects |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2018004&r=pbe |
| By: | Alexander Krenek; Margit Schratzenstaller (WIFO) |
| Abstract: | The increase of wealth inequality in many EU countries has spurred interest in wealth taxation. While taxes on wealth for a long time have played only a marginal role in the public finance and taxation literature, more recently a variety of arguments are brought forward in favour of (higher) wealth taxation. At the same time, tax competition has led to an almost complete disappearance of recurrent net wealth taxes in Europe. By dealing with non- and under-reporting in the Household and Consumption Survey (HFCS) data set provided by the European Central Bank, we are able to estimate the wealth distribution within 20 EU countries and the revenue potential of a progressive EU-wide net wealth tax. |
| Keywords: | F55, H24, H87 |
| Date: | 2018–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2018:i:561&r=pbe |
| By: | Fiorenza Venturini (Università di Roma - La Sapienza) |
| Abstract: | Although numerical fiscal rules may be introduced to achieve several objectives, to date the maintenance of fiscal sustainability is their predominant goal. This is particularly true at subnational level; maintaining fiscal discipline in a decentralized setting is challenging and subnational government fiscal rules are considered one of the most valid solutions to the problem. While theoretical and empirical literature has mainly focused on their effectiveness in containing subnational deficit and/or debt, little attention has been paid to the possible trade–offs and side effects of the rules on the composition of subnational expenditure. The aim of this paper is to fill this gap by exploiting the case of Italian municipalities, which have been subject for fifteen years (1999–2015) to a set of rules called Domestic Stability Pact. The Italian DSP framework – imposing rules only on municipalities above a population threshold (5,000 inhabitants) – allows us to implement a quasi– experimental technique to investigate the unintended composition effects of the rules. A difference–in–discontinuities design permits to find rigorous empirical evidence that the switching in 2007 to rules which are more binding in terms of fiscal discipline leads to a recomposition of municipal expenditure against investment spending. The analysis is then integrated by evaluating the impact of the rules on six categories of investment expenditure. Investment in human capital and infrastructure seems to be the most affected. |
| Keywords: | fiscal rules, local expenditure, local spending composition, investment spending |
| JEL: | E62 H72 H77 R53 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:70&r=pbe |
| By: | Gallice, Andrea |
| Abstract: | The author reviews recent studies of how social status concerns influence individual preferences for redistribution and impact the design of optimal tax policies. He focuses on two aspects: the relevant dimension over which relative concerns are defined and the different formalizations of the notion of social status that the authors provide. |
| Keywords: | social status,redistribution,externalities,optimal taxation |
| JEL: | D31 D62 H21 H23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201831&r=pbe |
| By: | Mertens, Karel (Federal Reserve Bank of Dallas) |
| Abstract: | This note uses existing empirical estimates of the macroeconomic effects of tax changes to project the near term impact of the Tax Cuts and Jobs Act on US GDP growth. Applying recent reduced form estimates of tax multipliers with the projected revenue impact of the Act yields a level of GDP that is predicted to be 1.3% higher by 2020, with most of the growth front-loaded in 2018. Accounting for the composition of the Act in terms of its individual and corporate provisions leads to a similar GDP increase by 2020, but with stronger growth in 2018 and a partial reversal in the following years. Accounting for the impact of TCJA on marginal individual tax rates raises the projected growth impact considerably, while accounting for the distribution of the tax changes across income groups suggests a more delayed positive impact on GDP. These projections are conditional on mean-reverting dynamics of future taxes that are estimated from postwar US data. |
| Keywords: | Fiscal policy; Taxation; Tax Cuts and Jobs Act |
| JEL: | E62 H2 |
| Date: | 2018–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1803&r=pbe |
| By: | Danziger, Eliav (Simon Fraser University); Danziger, Leif (Ben Gurion University) |
| Abstract: | This paper analyzes the effects of introducing a graduated minimum wage in a model with optimal in-come taxation in which a government seeks to maximize social welfare. It shows that the optimal graduated minimum wage increases social welfare by increasing the lowproductivity workers' consumption and bringing it closer to the first-best. The paper also describes how the graduated minimum wage in a social welfare optimum depends on important economy characteristics such as the government's revenue needs, the social-welfare weight of low-productivity workers, and the numbers and productivities of the different types of workers. |
| Keywords: | graduated minimum wage, optimal income taxation, social welfare |
| JEL: | D60 H21 J30 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11386&r=pbe |
| By: | Garcia Mandico, Silvia (Erasmus University Rotterdam); Garcia-Gomez, Pilar (Erasmus University Rotterdam); Gielen, Anne C. (Erasmus University Rotterdam); O'Donnell, Owen (Erasmus University Rotterdam) |
| Abstract: | Using Dutch administrative data, we assess the work and earnings capacity of disability insurance (DI) recipients by estimating employment and earnings responses to benefit cuts. Reassessment of DI entitlement under more stringent criteria removed 14.4 percent of recipients from the program and reduced benefits by 20 percent, on average. In response, employment increased by 6.7 points and earnings rose by 18 percent. Recipients were able to increase earnings by €0.64 for each €1 of DI income lost. Female and younger recipients, as well as those with more subjectively defined disabilities, were able to increase earnings most. The earnings response declined as claim duration lengthened, suggesting that earnings capacity deteriorates while on DI. The deterioration was steepest for male, younger and fully disabled recipients. Working while claiming partial disability benefits appears to slow the deterioration of earnings capacity. |
| Keywords: | disability insurance, health, employment, earnings |
| JEL: | H53 H55 J14 J22 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11410&r=pbe |