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on Public Economics |
| By: | Laurence JACQUET; Etienne LEHMANN (CY Cergy Paris Université, THEMA) |
| Abstract: | We study the optimal tax system when taxpayers earn different kinds of income by supplying different inputs. Imperfect substitution between inputs allows for general equilibrium effects. We consider any type of cross-base responses to tax changes such as income-shifting. Formalizing the tax schedule as the sum of many one-dimensional schedules, we express optimal marginal tax rate on any kind of income in terms of sufficient statistics, including new ones for cross-base responses and general equilibrium effects. We also identify the conditions under which making the personal income tax marginally more schedular is socially desirable. The comprehensive and schedular (dual, in particular) income taxes being recurring proposals in the public debate, we derive sufficient conditions under which each form of tax is optimal. We stress how empirically restrictive these conditions are. Using a new algorithm on French tax return data, we characterize the optimal combination of a nonlinear tax schedule on personal income and a linear tax rate on capital income. We find that one should include, without any deduction, all income sources in the personal income base and subsidize the source of income which is more elastic. We find that crossbase responses have little effects on the personal nonlinear income tax schedule but increases by 5.9 to 6.9 percentage points the capital tax rate. General equilibrium effects also increases this tax rate by around 4.5 percentage points. |
| Keywords: | nonlinear income taxation, several income sources, cross-base responses, endogenous prices, dual income tax, comprehensive income tax |
| JEL: | H21 H22 H24 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2021-19&r= |
| By: | Johannes Becker |
| Abstract: | I consider a continuum of multinational enterprises (MNEs), which differ in profitability. MNEs employ capital, shift profit to tax havens and may relocate their production facilities to other countries. Source countries provide public inputs and levy taxes. I derive optimal policy choices for different government objectives (to maximize tax revenue, national income or the representative household’s utility) allowing for an unrestricted set of tax policy instruments — in contrast to most existing work on corporate taxation. With observable productivity types, source governments set type-dependent lump-sum taxes and attain the first-best allocation. With unobservable productivity types, the optimum source-based tax system consists of a small lump-sum tax (driving low-profit types out of the market) and positive marginal taxes on reported profit. Optimal marginal tax rates on capital inputs are positive if more profitable firms employ more capital. Optimal public inputs are lower than in the first best if they are of higher value to more profitable firm types. I use a sufficient statistics approach (following Saez 2001) to express optimal tax and input choices as functions of elasticities of observable choice variables. Finally, I use the model to evaluate tax policy measures, e.g. the introduction of an effective minimum tax on profits in tax havens, and to derive the welfare properties of tax competition with an unrestricted set of tax instruments. |
| Keywords: | corporate taxation, multinational firms, optimum taxation, tax competition |
| JEL: | H25 H71 F23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9329&r= |
| By: | Marek Kapicka; Ctirad Slavik |
| Abstract: | This paper studies how labor income taxation interacts with the organization of knowledge and production, and ultimately the distribution of wages in the economy. A more progressive tax system reduces the time that managers allocate to work. This makes the organization of production less efficient and reduces wages at both tails of the distribution, which increases lower tail wage inequality and decreases upper tail wage inequality. The optimal tax system is substantially less progressive than the current one in the United States. However, if wages were exogenous, the optimal tax progressivity would be much higher. |
| Keywords: | inequality; wages; knowledge based hierarchies; income taxation; |
| JEL: | E6 H2 D8 L23 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp705&r= |
| By: | Panayiota Lyssiotou; Elena Savva |
| Abstract: | This paper contributes to the labor supply literature by focusing on how middle earners respond to financial incentives and whether the responses are different between men and women. We exploit substantial expansions in the level of individual income exempt from taxation and taxed at a lower marginal tax rate while the schedule of marginal tax rates remained the same. These tax revisions improved the financial incentives to work, in particular for individuals in the middle of the income distribution. We find robust evidence that the tax reforms increased significantly the wages of medium and high educated married males and females. They also had a positive impact on work participation that was more substantial for married women, especially the medium educated. We estimate significant positive own wage labor supply elasticities that are about the same for men and women when we condition on the labor outcome effects of inflows of EU and non-EU foreign workers, which changed the skill distribution of the economy and had a more significant impact on female labor outcomes. |
| Keywords: | labor supply of men and women, income taxation, foreign workers, gender equality; labor market integration |
| JEL: | H24 H31 J16 J22 J38 J61 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:05-2021&r= |
| By: | Felix Bierbrauer (Université de Cologne); Pierre Boyer (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, IPP - Institut des politiques publiques); Andrew Lonsdale (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); Andreas Peichl (LMU - Ludwig-Maximilians-Universität München) |
| Abstract: | Questions linked to the design and implementation of redistributive tax policies have occupied a growing position on the public agenda over recent years. Moreover, the fiscal pressures brought upon by the current coronavirus crisis will ensure that these issues maintain considerable political significance for years to come. In light of this importance, we present novel research on reforms of income tax systems. Our approach shows that tax reforms wherein the changes in individual tax burdens are larger for taxpayers with higher incomes are of particular interest. We denote such reforms as "monotonic" and show that, under this condition, it is possible to determine the "winners" and "losers" of a given tax reform. One can then conclude whether the monotonic reform is politically feasible, depending on whether a majority of individuals will benefit financially from the policy. An empirical analysis of tax reforms with a focus on the United States and France reveals that past reforms have, by and large, been monotonic. Our approach therefore enables us to test whether a given tax system admits a politically feasible reform and has direct policy relevance for the common types of taxation reforms undertaken by government authorities. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:ipppap:halshs-03364050&r= |
| By: | Fisar, Milos; Reggiani, Tommaso (Cardiff Business School); Sabatini, Fabio; Spalek, Jirí |
| Abstract: | We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are signicantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in taxpayers' compliance decisions. |
| Keywords: | tax compliance, media bias, taxation game, laboratory experiment.; tax compliance, media bias, taxation game, laboratory experiment. |
| JEL: | C91 D70 H26 H31 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/26&r= |
| By: | Sébastien Laffitte (CEPS - Centre d'Economie de l'ENS Paris-Saclay - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay - Université Paris-Saclay); Julien Martin (CEPR - Center for Economic Policy Research - CEPR); Mathieu Parenti (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles); Baptiste Souillard (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles); Farid Toubal (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CEPR - Center for Economic Policy Research - CEPR, 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) |
| Abstract: | Minimum corporate taxation is the second Pillar of the reforms of international corporate taxation. It is a simple and powerful tool that could curb profit shifting towards low or no tax jurisdictions. Its implementation would allow France to tax the profits that French headquarters have shifted to tax havens, but also to reduce the erosion of its tax base. We estimate the French corporate income tax (CIT) revenues would increase by almost 6 billion euros in the short run after the implementation of an effective minimum tax rate of 15% and by 8 billion euros at a rate of 21%. CIT gains may vary substantially depending on the scope of the tax base, the possibility of headquarters' inversion, and whether it includes domestic corporations or not. CIT gains are relatively higher in France than in Germany or the United States. The expected gains are substantially larger than those to be expected from the implementation of the first Pillar of the reform in its version proposed by the US in April 2021, which opens up rights to tax the 100 largest corporations in the world according to their sales' destination. According to our estimates, Pillar One would bring in about 900 million euros for France. |
| Keywords: | Tax rate,multinational corporation,reform |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-03361513&r= |
| By: | Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University) |
| Abstract: | This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues. |
| Keywords: | Firm, Tax Avoidance, Tax Evasion |
| JEL: | H25 H26 K34 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:202104&r= |
| By: | Yizhaq Minchuk (Department of Industrial Engineering and Management, Shamoon College of Engineering, Beer-Sheva 84100, Israel.); Aner Sela (BGU) |
| Keywords: | All-pay auctions, subsidy, taxation |
| JEL: | C72 D44 H25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bgu:wpaper:2104&r= |
| By: | Mutava, Catherine Ngina |
| Abstract: | Tax treaties are agreements through which two countries agree to assign and restrict taxing rights on economic activities that span both countries. They were traditionally concluded mainly to avoid double taxation and create a favourable investment climate. However, in recent years, tax treaties concluded by sub-Saharan African countries – with OECD countries in particular – have often resulted in them slowly ceding their taxing rights over income earned within their jurisdiction. This revenue loss is not comparable to the expected benefits from foreign investment. Increased awareness of the impact of unfavourable tax treaties on state revenue has seen some sub-Saharan African countries cancel, suspend and or renegotiate some treaties. This paper proposes that sub-Saharan African countries develop and implement a tax treaty policy framework to ensure that they safeguard their interests when concluding tax treaties. It considers the role of tax treaty policy, what factors should inform such a policy, and how to develop an effective negotiating strategy. The study reviewed literature on the history of tax treaties and their impact on developing countries in Africa and interviewed key stakeholders in seven countries. |
| Keywords: | Economic Development, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15446&r= |
| By: | Rebecca Christie |
| Abstract: | Robot taxes embody the more futuristic challenges of managing automation and legacy workers. As machines and artificial intelligence take on more roles that used to be performed by humans, policymakers and technologists are assessing the costs this transition imposes and what parts of society will pay them. A robot tax on companies that replace employees with automated systems is easy to dismiss in its most simplistic forms but should be... |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:45076&r= |
| By: | Occhiali, Giovanni; Kalyango, Fredrick |
| Abstract: | Since the late 1970s, many countries have based their tax systems on self-assessment – taxpayers are expected to evaluate their liabilities autonomously, and voluntarily remit their tax due. If the tax system is perceived as fair and easy to navigate, with credible threat of penalisation for non-compliance, self-assessment reduces the cost of tax administration without significant revenue losses (Barr et al. 1977; Teviotdale and Thompson 1999; James and Alley 2004). On the other hand, self-assessment entails an increase in compliance costs for taxpayers, at the very least in terms of time spent complying with their obligations. However, none of the conditions mentioned above – fairness, simplicity and credibility – is easy to meet. Hence, initial moves towards self-assessment were met in many countries with an increased focus on what type of deterrence measures would increase taxpayer compliance (Forest and Sheffrin 2002), following the prevalent theoretical approach of the time (Allingham and Sandmo 1972). By the late 1990s, the focus was shifting to the perceived fairness and complexity of the tax system, increasingly seen as both a direct and indirect obstacle to compliance (Slemrod and Venkatesh 2002; Forest and Sheffrin 2002; Eichfelder and Schorn 2012). Intuitively, a taxpayer who does not understand their tax obligations has a hard time complying with them, and might well decide not to try at all – especially if penalisation is seen as unlikely. |
| Keywords: | Finance, |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:16871&r= |
| By: | Rukundo, Solomon |
| Abstract: | The rapid growth of the digital economy in many African countries has led to concerns about whether their tax regimes are equipped to deal with this new phenomenon. The shift from a traditional bricks and mortar commercial environment to one that is electronic and information-based poses serious and substantial challenges to traditional tax regimes. African revenue authorities face the daunting task of protecting their revenue base without hindering either the development and use of new technologies or the involvement of the business community in the emerging e-market place. This paper examines legislative and policy approaches to taxing the digital economy adopted by different jurisdictions around the world and the lessons that African countries can draw from these experiences. The paper argues that African countries should participate in the multilateral discussions on the reform of international taxation needed to deal with the challenges of the digital economy. However, they must also acknowledge that their challenges are different from those of developed countries and therefore their final solutions will have to be uniquely African. |
| Keywords: | Economic Development, Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:14990&r= |
| By: | Yimam, Seid; Asmare, Fissha |
| Abstract: | Developing countries often lack tax information and enforcement capacity necessary to effectively implement instruments of a modern tax system, such as VAT, income taxes and others. An alternative strategy to increase tax compliance, and thus revenue, in these countries may depend on the capacity of policymakers to harness individual’s civicmindedness, social norms, reciprocity and cultural values of trust (Prichard, Custers, Dom, Davenport and Roscitt 2019). To do so in an effective and targeted way, policymakers need clear evidence on how tax compliance correlates with key taxpayer characteristics, such as gender. However, such evidence remains limited in the Global South, particularly in Africa, and our study aims to fill this gap. In this study, we investigate the correlation between business owner’s gender and tax compliance in Ethiopian enterprises. We measure the tax compliance of businesses from tax audit registry data and combine it with survey data collected from 408 enterprises. Our results suggest that enterprises’ tax compliance behaviour is significantly affected by their owners’ gender: female owned enterprises are more likely to be tax compliant than those owned by men. The correlation between the owner’s gender and tax compliance also becomes stronger as enterprises get larger in size. The results of our study imply that development-related polices, especially in the area of tax administration and compliance, should consider the behavioural variation among male and female business owners. Moreover, improving the participation of women in business in the country may also enhance equity and tax revenue collection for better resource mobilisation and development. |
| Keywords: | Economic Development, Finance, Gender, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15724&r= |
| By: | Santoro, Fabrizio; Groening, Edward; Mdluli, Winnie; Shongwe, Mbongeni |
| Abstract: | Tax collection in sub-Saharan Africa (SSA) performs poorly, with a tax/GDP ratio of about 15% –this has severe repercussions for service delivery, growth and state-building. The ratio in high-income countries is 35%. Resource-constrained tax authorities in SSA are transitioning towards a new tax era, and implementing innovative compliance strategies such as ‘tax nudges’ – communication campaigns aiming to influence the behaviour of taxpayers. Very little quantitative evidence has been produced as to why taxpayers in SSA comply with or evade taxes. While tax nudge literature has boomed in OECD countries and Latin America, only a handful of tax nudge studies have been produced in SSA. Understanding what motivates compliance is crucial, particularly for income taxes – for which the incentive to evade is higher. SSA countries need to improve collection of income taxes, which are preferable to indirect taxes in terms of fairness and equity. This is a summary of ICTD Working Paper 112. |
| Keywords: | Economic Development, Finance, Governance, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:15741&r= |