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on Public Economics |
| By: | Seungjin Han; Josip Lesica |
| Abstract: | This paper studies excise tax policy that applies different tax rates to differentiated products. We propose a general method, from the revealed preferences perspective, that allows the identification of the policy maker’s unobserved preferences when setting excise tax rates. We use it to evaluate excise beer tax policy in the Canadian province of Ontario, which differentially taxes local craft beer and large manufacturers’ beer. We identify the government’s preferences over the total surplus and net externalities associated with the production and consumption of different types of beer products. The results show that the government believes the positive externality associated with the production of local craft beer, outweighs the negative externality associated with its consumption, whereas it goes the other way around for large manufacturers’ beer. This means that the government’s subjective per-litre cost of reducing the equilibrium consumption through local craft beer is significantly higher than through the large manufacturers’ beer. The observed gap in excise taxes is aligned with the discrepancy in the percentage decreases in equilibrium quantities of two types of beer with respect to a dollar increase in own excise tax, respectively, given different beer market sizes. We also identify the increasing share of local craft beer consumption with respect to household income as a unique source of the regressiveness of the differentiated excise taxes. The regressiveness does not seem large in terms of the extra tax payment imposed on lower-income households even though the regressiveness of the effective tax rate itself is not insignificant. |
| Keywords: | beer; differentiated excise taxation; net externalities; optimal taxation; revealed preferences; regressiveness of taxation |
| JEL: | D12 D62 H21 H23 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2021-10&r= |
| By: | Mr. Alexander D Klemm; Mr. Christophe J Waerzeggers; Mr. Shafik Hebous |
| Abstract: | This paper looks at capital income taxation in the Netherlands from an international and domestic perpective. The Netherlands is a major conduit country for FDI. Recent reforms taken by the Dutch authorities as well as public statements represent a strong move to address international tax avoidance, but it is too early to be able to detect the impact in the data, and measuring tax avoidance even in the past is fraught with difficulties. Domestically, the unique system, which for many financial assets effectively taxes wealth rather than capital income, leads to inequities and distortions. Owner-occupied housing is strongly tax-favored and in many cases effectively subsidized. Various reforms, not necessarily of a fundamental nature, would improve efficiency and equity. |
| Keywords: | Netherlands, International Tax, Schedular Tax, Debt Bias. |
| Date: | 2021–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/145&r= |
| By: | Joana Andrade Vicente |
| Abstract: | In this paper we theoretically analyse the European Union’s ongoing political impasse regarding the choice of a single method to allocate multinational enterprises’ profits across countries and we find that this strategic situation resembles a coordination game with distributional consequences. The two Nash equilibria involve no efficiency trade-off (only a movement along the Pareto frontier), but the conflictual distribution of welfare gains and the presence of heterogeneous preferences have been preventing the implementation of a new long-term comprehensive tax policy reform. A unitary taxation approach with formulary apportionment in the European Union is better suited to tackle artificial profit shifting via transfer pricing and would mean an evolutionary change without disrupting the current international tax policy environment. It would restore faith in fairness in the European tax system and allow for further coordination of the transfer pricing policies of the two main international political forces – the United States and the European Union. |
| Keywords: | base erosion and profit shifting; Common Consolidated Corporate Tax Base; coordination games; European Union; transfer pricing. |
| JEL: | C7 F23 H25 H26 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp02062021&r= |
| By: | Aqib Aslam; Maria Delgado Coelho |
| Abstract: | This paper examines the role of minimum taxes and attempts to quantify their impact on economic activity. Minimum taxes can be effective at shoring up the corporate tax base and enhancing the perceived equity of the tax system, potentially motivating broader taxpayer compliance. Where political and administrative constraints prevent reforms to the standard corporate income tax, a minimum tax can help mitigate base erosion from excessive tax incentives and avoidance. Using a new panel dataset that catalogues changes in minimum tax regimes over time around the world, firm-level analysis suggests that the introduction or reform of a minimum tax is associated with an increase in the average effective tax rate of just over 1.5 percentage points with respect to turnover and of around 10 percent with respect to operating income. Minimum taxes based on modified corporate income lead to the largest increases in effective tax rates, followed by those based on assets and turnover. |
| Keywords: | firm Lower Bound; MT reform; minimum tax; level data; profit margins; Corporate income tax; Income; Effective tax rate; Income tax systems; Average effective tax rate; Global |
| Date: | 2021–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/161&r= |
| By: | Clemens Fuest; Klaus Gründler; Niklas Potrafke; Fabian Ruthardt; Fabian Ruthardt |
| Abstract: | We introduce a new dataset that includes quantitative harmonized indices of tax reforms based on qualitative information of about 900 Economic Surveys from the OECD and 37,000 tax-related news from the IBFD archives. The data set provides indicators on tax reforms for tax rates and tax bases, along with detailed sub-indices for six types of taxes (23 countries, 1960–2014). Relating tax reforms to the timing of elections, we examine electoral cycles in tax reforms. Our results show that politicians postpone tax rate increases to after elections. A key innovation of our data set is the coverage of harmonized indices for six tax types. Examining heterogeneity across tax types, we find that electoral cycles are particularly pronounced for value added tax rates and personal income tax rates. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econwp:_71&r= |
| By: | Lichter, Andreas (Heinrich Heine University Düsseldorf); Löffler, Max (Maastricht University); Isphording, Ingo E. (IZA); Nguyen, Thu-Van (Stifterverband Essen); Pöge, Felix (Boston University); Siegloch, Sebastian (University of Mannheim) |
| Abstract: | We study how profit taxation affects plants' R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987–2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants' R&D spending with an implied long-run elasticity of −1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents. |
| Keywords: | corporate taxation, firms, R&D, innovation, patents |
| JEL: | H25 H32 O31 O32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14830&r= |
| By: | Milos FiÅ¡ar; Tommaso Reggiani; Fabio Sabatini; JiÅ™í Å palek |
| 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 signicant 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 |
| JEL: | C91 D70 H26 H31 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp211&r= |
| By: | Steve BILLON (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | The traditional approach of public choice suggests that decentralization in the form of a fiercer competition may play an efficient constraint on the growth of self-interested governments. This paper analyzes the effect of decentralization on Leviathan state governments in the presence of intergovernmental grants provided by a federal layer. Under decentralized leadership, state governments strategically set their tax policy and wasteful consumption of public expenditures by anticipating the reaction of the federal government in terms of grants. The transfer scheme eliminates any incentive to engage in tax competition. However, it also creates an opportunity for state policy-makers to pass the financing of a part of their inefficient expenditures onto other members of the federation. In contrast to the conventional wisdom of public choice that focuses on simultaneous central and local decisions, increased competition in the decentralized leadership equilibrium might reduce citizens' welfare. Decentralization enhances the sharing of wasteful expenditures and the incentives to extract rents from tax revenues. The conditions under which more competition leads to higher wasteful expenditures and welfare worsening are derived. |
| Keywords: | Federalism, Tax Competition, Decentralization, Government waste. |
| JEL: | H1 H3 H7 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2021-07&r= |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Bastani, Spencer (Institute for Evaluation of Labour Market and Education Policy (IFAU), Uppsala and Research Institute for Industrial Economics (IFN), Stockholm, Sweden; Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS), CESIfo, Germany.); Tayibov, Khayyam (Department of Economics and Statistics, School of Business and Economics, Linnaeus University, Växjö) |
| Abstract: | We integrate social exclusion, operationalized in terms of long-term unemployment, into the theory of optimal redistributive taxation. Our results show how an optimal mix of education policy, public employment, and support to the unemployed, in conjunction with optimal income taxation, contributes to redistribution and reduced long-term unemployment. The second-best optimum most likely implies overprovision of education relative to a policy rule that balances the direct marginal benefit and marginal cost, whereas public employment and unemployment benefits are underprovided. Our calibration shows how the policy mix varies with the government’s preferences for redistribution and the characteristics of those risking long-term unemployment. |
| Keywords: | long-term unemployment; education; optimal income taxation; public sector employment |
| JEL: | D82 H21 J31 J83 |
| Date: | 2021–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1004&r= |
| By: | Chen, Hung-Ju; Miyazaki, Koichi |
| Abstract: | This study analytically investigates the effects of pay-as-you-go social security and educational subsidies on the fertility rate, retirement age, and GDP per capita growth rate in an overlapping generations model, where parents invest resources toward their children's human capital. We find that an old agent retires fully when his or her labor productivity is low and retires later when the labor productivity is high. Under the unique balanced-growth-path (BGP) equilibrium, when an old agent is still engaged in work, tax rates are neutral to the fertility rate, higher tax rates encourage him or her to retire earlier, a higher social security tax rate depresses the GDP per capita growth rate, and a higher tax rate for educational subsidies can accelerate growth. However, when an old agent fully retires, higher tax rates increase the fertility rate, a higher social security tax rate lowers the GDP per capita growth rate, and a higher tax rate for educational subsidies boosts growth. Additionally, if an old agent's labor productivity increases, the fertility rate also increases. We also conduct numerical simulations and analyze how an old agent's labor productivity affects the retirement age, fertility rate, and GDP per capita growth rate under the BGP equilibrium. |
| Keywords: | Pay-as-you-go social security; educational subsidy; fertility; endogenous retirement; GDP per capita growth rate |
| JEL: | H55 I25 J13 J26 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110626&r= |
| By: | Richard M. Bird; Enid Slack (University of Toronto) |
| Abstract: | This paper makes the case for provincial-municipal equalization transfers, to ensure that all local governments can provide reasonably comparable levels of service at reasonably comparable tax rates. A municipality’s inability to provide a comparable level of service may arise because the costs of services in the municipality are higher, the need for services is greater, the tax base is smaller, or some combination of these factors. Although six provinces in Canada provide some form of equalization to municipalities, arguably none provides sufficient funding to achieve the underlying objective of equalization. To design a proper equalization system, this paper sets out a number of issues that need to be resolved. These include the overall amount of equalization and how it is determined from year to year, which municipalities are entitled to equalization, whether the variables determining the grant allocation can be influenced by municipalities, how fiscal capacity is measured, how needs are measured, and whether transitional funding is required to ensure that no municipality is worse off even if fiscal capacity and needs change. The paper concludes that every province in Canada would do well to establish a sound equalization transfer approach, which is an essential element of a fair and efficient system of local public finance. |
| Keywords: | Canada, fiscal federalism, provincial-municipal equalization, municipal finance |
| JEL: | H73 H71 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:mfg:wpaper:57&r= |
| By: | Bernhard Hammer (TU Wien); Michael Christl (JRC Seville); Silvia De Poli (JRC Seville) |
| Abstract: | Governments face a potential trade-off between provision for the growing population in retirement and the support of working-age households with low income. Using EUROMOD-based microdata from 28 countries, we (a) quantify the redistribution to the pensioner and non-pensioner populations, (b) study the position of net beneficiaries in the overall income distribution and (c) analyse how taxes and benefits affect the working-age population with low income. Our results provide novel insights into the distributive role of tax-benefit systems across Europe. Interestingly, a strong overall redistribution between households is associated with generous pensions for a portion of the retirees but negatively related to support for low-income households. |
| Keywords: | Redistribution, Welfare state, Inequality, Microsimulation, EUROMOD |
| JEL: | H11 H23 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2021-593&r= |
| By: | Florian Misch; Youssouf Camara; Bjart Holtsmark |
| Abstract: | This paper empirically estimates the effects of electric vehicles (EVs) on passenger car emissions to inform the design of policies that encourage EV purchases in Norway. We use exceptionally rich data on the universe of cars and households from Norway, which has a very high share of EVs, thanks to generous tax incentives and other policies. Our estimates suggest that household-level emission savings from the purchase of additional EVs are limited, resulting in high implicit abatement costs of Norway’s tax incentives relative to emission savings. However, the estimated emission savings are much larger if EVs replace the dirtiest cars. Norway’s experience may also help inform similar policies in other countries as they ramp up their own national climate mitigation strategies. |
| Keywords: | emission savings; passenger car emission; savings from the purchase; car usage preference; purchased EVs; Tax incentives; Income; VAT exemptions; Greenhouse gas emissions |
| Date: | 2021–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/162&r= |