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on Public Economics |
| By: | Shafik Hebous; Andualem Mengistu |
| Abstract: | The international agreement on a corporate minimum tax is a milestone in global corporate tax arrangements. The minimum tax disturbs the equivalence between otherwise equivalent forms of efficient economic rent taxation: cash-flow tax and allowance for corporate equity. The marginal effective tax rate initially declines as the statutory tax rate rises, reaching zero where the minimum tax is inapplicable, and increases thereafter. This kink occurs at a lower statutory rate under cash-flow taxation. We relax the assumption of full loss offset; provide a routine for computing effective rates under different designs; and discuss policy implications of the minimum tax. |
| Keywords: | investment, minimum taxation, corporate tax reform, international taxation, rent tax |
| JEL: | H21 H25 F23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11147 |
| By: | Giese, Henning; Koch, Reinald; Sureth, Caren |
| Abstract: | This study analyzes the impact of tax complexity on the location of tax employees and tax risk. Using a hand-collected dataset of more than 7, 500 tax employees from 348 European-listed multinationals, we identify two types of firm-level costs associated with tax complexity-tax employees, and tax risk. We find that firms locate more tax employees in countries with greater tax complexity. This association is particularly pronounced for complexity in tax procedures. We also find that multinationals operating in countries with high tax complexity are associated with higher tax risk. The incremental tax risk vanishes for firms that locate more tax employees in countries with highly complex tax procedures, while we find no risk reduction from additional tax employees in countries with complex tax rules. Our results reveal that multinationals eliminate 25 percent of overall tax complexity-related tax risk through targeted location of tax employees. |
| Keywords: | tax complexity, tax complexity cost, tax department, tax employees, tax risk |
| JEL: | H25 H26 M12 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:300270 |
| By: | BARRIOS Salvador (European Commission - JRC); DELIS Fotis (European Commission - JRC); LANDABASO ALVAREZ Mikel (European Commission - JRC) |
| Abstract: | We provide evidence on the differences in the effective tax rate by firm size, highlighting that effective tax rates tend to follow a bump-shaped curve, increasing from micro to small firms and then decreasing for medium to large firms. Our analysis, based on microdata from several EU countries, shows that both corporate and labour taxation follow this pattern. Econometric analysis reveals that a 1% increase in effective corporate taxation results in a 2.6% decrease in firm turnover growth, with new firms and micro firms being particularly affected. The negative impact of corporate taxation on firm growth is much larger for new firms compared to older firms, and this is especially pronounced in Spain, where a 1% tax hike leads to a turnover growth decrease of 8%. Examining the 2015 Spanish corporate tax reduction for new firms, we find that the reform's overall positive impact was insignificant for micro firms, suggesting the need for more targeted policies considering firm size, age, and ownership. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:taxref:202407 |
| By: | Salla Kalin; Ilpo Kauppinen; Kaisa Kotakorpi; Jukka Pirttilä |
| Abstract: | We contribute to the literature on taxation and international mobility by estimating the impact of labour income taxation on the migration decisions of the entire working population in a high-tax source country, Finland. We find that the average domestic elasticity of migration with respect to the domestic tax rate is very small (around 0.0005). We also examine the income gradient of the semi-elasticity of migration, shown to be the key sufficient statistic in Lehmann et al. (2014). Our estimates indicate that the migration semi-elasticities are increasing for top earners, but remain small at least up to top permille of income earners. |
| Keywords: | taxation, migration |
| JEL: | J61 H31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11165 |
| By: | İrem Güçeri; Xipei Hou; Jing Xing; Irem Guceri |
| Abstract: | We examine how investor-level tax incentives affect financing for start-ups using the introduction of a generous tax deduction for qualified angel and VC investment in China as a quasi-natural experiment. We find that the tax incentive increases funding for eligible start-ups, with stronger responses from larger and more experienced investors. The tax incentive leads to substitution between eligible and non-eligible investments. There is no evidence that the tax incentive lowers investment quality. We further show that the investor-level tax incentive encourages firm entry into affected industries, especially in cities more exposed to venture capital funds. |
| Keywords: | venture capital, angel investment, tax incentives, entrepreneurship |
| JEL: | G24 G32 H25 L26 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11180 |
| By: | James R. Hines Jr.; Emily Horton |
| Abstract: | Interest paid by U.S. state and local bonds is tax-exempt, making these bonds attractive to investors – though a tax rule limits arbitrage opportunities by restricting associated interest expense deductions. Prior to 1986, U.S. banks were not subject to the interest deduction limitation, making banks preferred holders of tax-exempt debt. U.S. banks used tax-exempt debt to reduce their tax liabilities by roughly 20% in the 1950s and 45% in the 1960s, rising to as much as 80% by the early 1980s. Despite their special exemption, and in part because of their widespread holdings, banks did not benefit from investing in tax-exempt bonds, as competition between banks reduced bond yields to the point of investor indifference. The absence of a tax benefit from arbitrage appears not only in observed bond yields, but also in banks’ considerable unused potential for further tax reductions. After the Tax Reform Act of 1986 removed their special tax exemption, banks significantly reduced their holdings of tax-exempt debt, particularly among banks most severely impacted by the rule change. |
| JEL: | G21 H25 H74 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32647 |
| By: | Lejour, Arjan (Tilburg University, School of Economics and Management) |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:fe0b39a6-1216-4449-862f-b46bb0016d01 |
| By: | Camacho, Samuel E.; Penn, Jerrod |
| Keywords: | Resource/Energy Economics And Policy, Environmental Economics And Policy, Research Methods/Statistical Methods |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343837 |
| By: | Axelle Ferriere; Philipp Grübener; Dominik Sachs |
| Abstract: | Over the last decades, the United States has experienced a large increase in, both, income inequality and living standards. The workhorse models of optimal income taxation call for more redistribution as inequality rises. By contrast, living standards play no role for taxes and transfers in these homothetic environments. This paper incorporates living standards into the optimal income tax problem by means of non-homothetic preferences. In a Mirrlees setup, we show that rising living standards alter both sides of the equity-efficiency trade-off. As an economy becomes richer, non-homotheticities imply a fall in the dispersion of marginal utilities, which weakens distributional concerns but has ambiguous effects on efficiency concerns. In a dynamic incomplete-market setup calibrated to the United States in 1950 and 2010, we quantify this new channel. Rising living standards dampen by at least 25% the desired increase in redistribution due to rising inequality. |
| Keywords: | taxation, growth, non-homothetic preferences, redistribution |
| JEL: | E62 H21 H31 O23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11141 |
| By: | Francis Wong |
| Abstract: | Using high-frequency administrative data covering millions of US homeowners, I document three novel facts about homeowner responses to property tax increases driven by rising home values. First, non-migrating homeowners cut consumption, exhibit financial distress, and do not borrow against their higher home values. These responses run contrary to the predictions of frictionless models, in which homeowners should borrow to avoid costly adjustments. Second, heterogeneity analysis shows that consumption responses do not vary by liquidity, consistent with savings target behavior. In contrast, distress responses are concentrated among liquidity-constrained homeowners. Many homeowners report being debt averse and therefore unwilling to borrow in order to avoid illiquidity and distress. Third, tax hikes induce migration—partly by displacing illiquid homeowners—but do not accelerate neighborhood change. A simple welfare framework reveals that the largest costs of property taxes arise from financial distress among liquidity-constrained homeowners. |
| Keywords: | property taxes, housing, household finance |
| JEL: | H20 G51 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11185 |
| By: | Gunther Capelle-Blancard (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | Debates on the taxation of financial transactions (FTT) are longstanding and primarily focus on its effects on markets and the economy. In practice, however, the FTT is less of a regulatory tool and more of a fiscal instrument. This article examines the FTT from this perspective. Our contribution specifically aims to address two questions generally overlooked in previous studies: who pays the FTT and how? Our analysis focuses mainly on the FTT in force in France (FTT-F). In practice, the FTT-F is not a tax on transactions, but only on transfers OF SHARES that are recorded on a daily basis. A large portion of transactions is excluded from the scheme, which significantly reduces the tax base. It is estimated that the transactions actually taxed represent, in the end, only 15% of the total. The incidence of the FTT primarily impacts financial intermediaries, for whom the reduction in trades represents a loss of income, while individuals bear a minimal cost. Additionally, approximately half of the tax is collected from abroard, and the FTT-F has a strong redistributive aspect. The collection of the FTT-F is not carried out by the public administration but is delegated to Euroclear France, a private company subsidiary of an international group. We propose that the collection should instead be directly handled by the General Directorate of Public Finances (DGFiP), with the support of the Fiancial Markets Authority (AMF), which has the necessary data; there are real synergies between its activity of monitoring stock market transactions and the collection of the FTT-F. This, of course, implies that the human and financial resources of the AMF are increased accordingly. Changing the collection system would improve controls, broaden the tax base, and significantly increase tax revenues, while enhancing transparency and equity. |
| Abstract: | Les débats sur la taxation des transactions financières (TTF) sont anciens et portent surtout sur ses effets sur les marchés et l'économie. En pratique, toutefois, la TTF est moins un outil réglementaire qu'un instrument fiscal. C'est sous cet angle que la TTF est étudiée dans cet article. Notre contribution vise en particulier à examiner deux questions généralement ignorées dans les travaux antérieurs : qui paie la TTF et comment ? Notre analyse porte principalement sur la TTF en vigueur en France (TTF-F). En pratique, la TTF-F n'est pas une taxe sur les transactions, mais uniquement sur les transferts de propriété qui sont enregistrés à une fréquence quotidienne. Une très large part des transactions est exclue du dispositif, ce qui réduit considérablement l'assiette de la taxe. On estime que les transactions effectivement taxées ne représentent que 15% du total des transactions. L'incidence de la TTF pèse essentiellement sur les intermédiaires financiers, pour qui la baisse des échanges représente un manque à gagner, tandis que les particuliers supportent un faible coût. Par ailleurs, la moitié environ de la taxe est collectée auprès de contribuables étrangers. La TTF-F présente ainsi un fort caractère redistributif. Le recouvrement de la TTF-F n'est pas opéré par l'administration publique, mais délégué à Euroclear France, société privée filiale d'un groupe international. Ceci a potentiellement des conséquences importantes sur la collecte et les contrôles. Nous proposons que le recouvrement soit plutôt confié directement à la direction générale des Finances publiques (DGFiP), avec l'appui de l'Autorité des marchés financiers (AMF) qui dispose des données nécessaires ; il y a de réelles synergies entre son activité de surveillance des transactions boursières et la collecte de la TTF-F. Cela suppose bien sûr que les moyens humains et financiers de l'AMF soient augmentés en conséquence. Changer le dispositif de collecte permettrait d'améliorer les contrôles, d'élargir l'assiette et d'augmenter significativement les recettes fiscales, tout en renforçant la transparence et l'équité. |
| Keywords: | Financial transaction tax, Securities Transaction Tax, Tobin tax, Innovative financing, Taxe sur les transactions financières, Taxe Tobin, Financements innovants |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:halshs-04650041 |
| By: | Sisha, Teshager A.; Zhao, Shuoli; Zheng, Yuqing |
| Keywords: | Health Economics And Policy, Food Security And Poverty |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea22:343975 |
| By: | Erhard, Ainslee; Banerjee, Sanchayan; Morren, Meike |
| Abstract: | Taxing meat optimally is a first-best policy outcome to internalize environmental harms. However, meat taxes often lack public and governmental support. Recent research indicates that support for meat taxes can be improved by combining behavioral nudges with fiscal measures. In this study, we test this claim in a preregistered between-within-subjects experiment using a representative sample of the Dutch (N=2, 032) population. The Netherlands is currently considering a meat tax legislation, thereby making our study timely and policy relevant. Participants were randomly assigned to a treatment condition in a 2x2 experimental setup, varying across a framing nudge (“tax” versus “levy”) and a reflection (“yes” versus “no”) dimension. Subsequently, all participants engaged in a discrete choice experiment where they selected their preferred meat pricing policy from six sets of choice cards. Each card included random variations in levels of four attributes: meat pricing (costs), revenue recycling, policy coverage, and pricing rationale. We find that policy support increases with greater revenue recycling and broader policy coverage but decreases as costs rise. The rationale behind pricing does not alter public support substantially. Importantly, we find no significant difference in public support across the different behavioral nudge or reflection treatments. Our experimental findings underscore the importance of policy design in enhancing support for meat taxes. The effective design of a meat tax is crucial, as superficial changes, such as behavioral nudges, may not be sufficient to sway public opinion. |
| Keywords: | Agricultural and Food Policy, Institutional and Behavioral Economics, Public Economics, Sustainability |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ags:gausfs:344114 |
| By: | Lassi Ahlvik; Matti Liski; Mikael Mäkimattila |
| Abstract: | This paper develops a mechanism design approach to study externalities and re-distribution. The mechanism screens individuals’ social weights to strike a balance among broad distributional objectives, incentives to work, and incentives to reduce externalities. The welfare-optimal allocation can be decentralized through income taxation, defining income-dependent externality payments. Two applications use individual-level administrative data on incomes, pollution measures, and financial burdens to demonstrate how population characteristics shape the optimal policy on carbon emissions. |
| Keywords: | Pigouvian taxation, optimal income taxation, inequality, climate change |
| JEL: | D82 H21 H23 Q54 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11174 |
| By: | Katherine Klemperer (Center for Global Development); Pete Baker (Center for Global Development) |
| Abstract: | In 2019, the Task Force on Fiscal Policy for Health concluded that taxes on tobacco, alcohol, and sugar-sweetened beverages were a highly effective but greatly underused policy tool to reduce consumption, save lives, and raise domestic resources. The Task Force estimated that if all countries increased their excise taxes to raise prices by 50 percent, over 50 million premature deaths could be averted worldwide over the next 50 years while raising over USD 20 trillion of additional revenue. Since the Task Force first convened, the world has faced a “polycrisis, ” including a global pandemic, an economic recession, and the outbreak of wars in Europe and the Middle East. Against this backdrop, the world has also experienced prolonged health and fiscal crises. Health systems, weakened by the COVID-19 pandemic, lack sufficient financing to rebuild and respond to the surging non-communicable diseases epidemic caused by uncontrolled risk factors such as tobacco, alcohol, and sugar consumption. Opportunities to raise domestic resources are limited and debt burdens have squeezed budgets. The period from 2019 to 2027 risks becoming a “lost decade” for health and social policies, with 110 countries facing little prospect of any ability to raise government revenues beyond current levels. In this paper, we describe the current health and fiscal crises and review the contribution that health taxes could make in turning around this dire situation. We conclude that taxes on tobacco, alcohol, and sugar-sweetened beverages are an ideal policy solution—good for the budget and good for health. These taxes are relatively quick to implement, and, unlike other taxes, do not put economic growth at risk—a vital benefit in the current era. |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:331 |
| By: | Zhiyang Jia; Thor O. Thoresen; Trine E. Vattø; Thor Olav Thoresen |
| Abstract: | While the consensus in the literature is that the labor supply of married women is more responsive than that of married men, there are indications that this gap is narrowing. Our estimations of a structural discrete choice labor supply model using repeated cross-sectional data confirms this trend for Norway – the gross wage elasticity for married women decreased from approximately 0.7 in 1997 to under 0.3 in 2019. We further demonstrate how a simulation procedure based on the labor supply model offers insights into the factors driving this decline. We identify four categories of explanations: changes in the sociodemographic composition of the population, changes in preferences and labor market options, wage changes, and tax scheme changes. Our analysis suggests that general wage growth over the period is the primary reason for the decline in responsiveness among married women. |
| Keywords: | female labor supply responsiveness, discrete choice labor supply model, microsimulation |
| JEL: | C35 C51 H24 H31 J22 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11176 |
| By: | Jara, H. Xavier; Rodríguez, David; Collado, Diego; Torres, Javier; Mideros, Andrés; Montesdeoca, Lourdes; Avellaneda, Andrés; Chang, Rodrigo; Vanegas, Omar |
| Abstract: | This paper aims to assess the role of tax-benefit policies in mitigating the effects of COVID-19 on the distribution of household disposable income in Colombia, Ecuador, and Peru. We exploit data from phone surveys collected during the pandemic combined with tax-benefit microsimulation techniques to nowcast the distribution of household disposable income. Our results show a sharp drop in household disposable income and a dramatic increase in poverty and inequality during the second quarter of 2020. By the end of 2020, the economy recovers but poverty and inequality remain above the pre-pandemic levels. COVID-related policies cushion the effect of the crisis at the bottom of the distribution, and their effect on poverty and inequality largely depends on the generosity of the benefits implemented. By contrast, automatic stabilizers mitigate the impact of the income shock at the top of the distribution due to the effect of social insurance contributions and personal income tax, whereas social assistance programs in place before the pandemic fail to act as automatic stabilizers due to their design as proxy means-tested benefits. We validate our nowcasting estimates with actual survey data from the end of 2020 and show that our results match closely poverty and inequality indicators in all three countries. |
| Keywords: | Covid-19; nowcasting; tax-benefit policies; income distribution; Andean Region; coronavirus; Wiley deal |
| JEL: | D31 H22 J38 |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123701 |
| By: | Simone Maxand; Hend Sallam |
| Abstract: | We investigate the impact of immigration on public budgets using administrative data from German districts (Kreise). While previous literature suggests that the fiscal benefits of migration depend on government spending responses to immigration, the local-level effects in Germany remain relatively unexplored. Our study analyzes how immigration influences public spending, the provision of public goods, and public revenues from 2010 to 2019. Employing the post-double selection LASSO method for model identification and instrument generation, our results suggest that an increase in the foreign population proportion at the district level does not significantly affect public investment spending or collected tax revenues. Overall, along with 2011 results at the community level (Gemeinde), this research discusses the importance of distinguishing between different local levels, migration groups, and expenditure categories, when studying the gains and burdens of immigration in Germany. |
| Keywords: | immigration, size of the government, welfare state, local budgets, spatial economy, public revenues, public spending |
| JEL: | H53 I38 H70 H72 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11162 |
| By: | Lorenzo Codogno |
| Abstract: | Since the Global Financial Crisis in 2008-2009, there has been flourishing literature on the role of fiscal policy in stimulating demand when the economy is in a deep recession. Past studies suggest the stimulus may make sense if it is temporary, targeted, and withdrawn quickly. However, since the pandemic, there has been a case for going big, when necessary, to prop up expectation, confidence and demand. This was exemplified by Italy's Superbonus 110%, a generous subsidy scheme to allow the energy-efficient renovation of residential buildings, which emerged as a significant policy response to the economic challenges posed by the pandemic. I argue that the Superbonus, while having a respectable economic aim, ended up impinging on the same sectors supported by the EU-funded investment plan, resulting in significant capacity constraints and misallocation of resources. Its excessive generosity brought a massive deterioration in public finances, while its returns in terms of economic growth were short of expectations. I conclude by drawing some policy lessons from Italy's experience, on what should be preserved and avoided, and on a possible reinvented role for fiscal policy in deep economic crisis. |
| Keywords: | Policy Designs and Consistency; National Budget, Deficit and Debt; Crisis management |
| JEL: | E61 H60 H12 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:studie:93-2024 |