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on Public Economics |
| By: | Chen, Xuyang |
| Abstract: | This paper investigates how the OECD's global minimum tax (GMT) affects multinational enterprises (MNEs) behavior and countries' corporate taxes. We consider both profit shifting and capital investment responses of the MNE in a formal model of tax competition between asymmetric countries. The GMT reduces the true tax rate differential and benefits the large country, while the revenue effect is generally ambiguous for the small country. In the short run where tax rates are fixed, due to tax deduction of the substance-based income exclusion (SBIE), a higher minimum rate exerts investment incentives but also incurs a larger revenue loss for the small country. We show that under high (low) profit shifting costs the former (latter) effect dominates so that the small country's revenue increases (decreases). In the long run where countries can adjust tax rates, the GMT reshapes the tax game and the competition pattern. In contrast to the existing literature, we reveal that the minimum rate binds the small country only if it is low. With the rise of the GMT rate, countries will undercut the minimum to boost real investments and collect top-up taxes. For small market-size asymmetry and intermediate profit shifting cost, the revenue loss from the elimination of profit shifting may dominate the revenue gain from taxing the true profits generated by substantive activities, so that even a marginal GMT reform may harm the small country. Otherwise, it can raise the small country's tax revenue. |
| Keywords: | Corporate taxes, Global minimum tax, Profit shifting, SBIE, Tax competition |
| JEL: | F21 F23 H25 H73 H87 |
| Date: | 2024–08–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121893 |
| By: | Alexis Spire (IRIS - Institut de Recherche Interdisciplinaire sur les enjeux Sociaux - sciences sociales, politique, santé - EHESS - École des hautes études en sciences sociales - INSERM - Institut National de la Santé et de la Recherche Médicale - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord) |
| Keywords: | Taxation, Civic actors, Revolt |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04671574 |
| By: | Tomas Boukal (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | Multinational enterprises are increasingly using offshore locations to pay lower taxes on their profits. This behavior has distortive effects on the global economy, as the concentration of multinational activities mirrors global tax patterns. In this paper, I exploit the OECD country-by-country reporting statistics to analyze the determinants behind the location of profits. I find that profit allocation is sensitive to both effective tax rates and geographical proximity, confirming the significance of these factors in MNEs´ tax planning strategies. Building on the work of Dharmapala and Hines (2009), this study also uncovers that MNEs are more likely to report profits to jurisdictions with superior governance quality, integrating both Global Governance Indicators and factors linked to financial secrecy. However, the findings indicate that tax haven jurisdictions exhibit a degree of reluctance when it comes to implementing recently introduced policies aimed at combating corruption and tax abuses. |
| Keywords: | international taxation, tax havens, country-by-country reporting, gravity models, governance quality |
| JEL: | F23 G15 G28 H26 H32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_31 |
| By: | António Afonso; Ana Patricia Montes Caparrós; José M. Domínguez |
| Abstract: | In this paper, we estimate the potential tax burden in a panel data set comprising OECD countries over the period 2000-2021. To this end, we use non-parametric and parametric techniques: Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA). In this way, it will be possible for us to identify which countries are close to their potential tax capacity and which are far from it. Moreover, we can determine whether they may sustain an increase (decrease) in their actual tax burden depending on whether the tax effort ratio is lower or higher relatively to other similar countries in the sample. Non-parametric and parametric results coincide rather closely on the positioning of the countries vis-à-vis the production possibility frontier and on their relative distances to the frontier. Efficient countries most of the times are: Belgium, Colombia, Finland, France, Italy, Latvia, Slovak Republic, and Sweden. |
| Keywords: | OECD; tax burden; tax efficiency; Stochastic Frontier Analysis; Data Envelopment Analysis. |
| JEL: | C14 C23 H20 H21 H30 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03392024 |
| By: | Yunho Cho; James Morley; Aarti Singh |
| Abstract: | Using household survey data for the U.S. and Australia, we quantify the role of taxes and transfers in providing consumption insurance against income risk. While the two countries differ substantially in their degree of tax and transfer progressivity and the extent to which it reduces the variability of disposable income, we find using a semi-structural model of income, net taxes, and consumption that the overall role of taxes and transfers in affecting the elasticity of consumption with respect to permanent income shocks is similar, with an estimated 5.4 percentage point reduction for the U.S. versus 4.8 for Australia. We interpret this result using a stylized life-cycle model with incomplete markets. Counterfactual analysis for a calibrated version of the structural model shows that, while higher progressivity increases the role of taxes in providing consumption insurance, these effects are partially mitigated by less self-insurance given higher marginal tax rates. The level of wealth relative to income also reduces the effects of progressivity on consumption insurance. Thus, higher wealth-to-income ratios in Australia can explain why, despite higher progressivity, the impact of taxes and transfers on consumption insurance is similar to the U.S. |
| Keywords: | Progressive taxes, Redistributive transfers, Consumption insurance, Incomplete markets. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2024-20 |
| By: | Piergallini, Alessandro |
| Abstract: | I develop flexible- and sticky-price general equilibrium models that embody corporate financing decisions affecting firm value because of distortionary taxes. Nominal interest-rate variations impact costs of debt and equity capital asymmetrically and induce firms to modify the financial structure, altering the gap between the (optimization-based) weighted average cost of capital and the real interest rate. Under these circumstances, I demonstrate that passive or mildly active monetary policies ensure aggregate stability. Overly aggressive inflation-fighting actions are destabilizing under sticky prices. Macroeconomic dynamics following either interest-rate normalization or temporary monetary tightening critically depend upon the tax structure and the steady-state debt-equity ratio. |
| Keywords: | Corporate Finance; Firm Financial Structure; Corporate and Personal Taxation; Interest Rate Policy; Equilibrium Dynamics; Monetary Policy Shocks. |
| JEL: | E31 E52 G32 H24 H25 |
| Date: | 2024–09–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122021 |
| By: | Lawrence H. Goulder; Marc A.C. Hafstead; Roberton C. Williams III |
| Abstract: | Economists often regard broad-based carbon pricing (whether in the form of a carbon tax or cap and trade) as the most efficient policy to reduce carbon dioxide emissions. Relative to a narrower policy that exempts some emissions sources, a broader policy is often favored because it can exploit more low-cost emissions reduction opportunities and cause less emissions leakage to uncovered sources. Yet narrower approaches have gained considerable political support, partly because they avoid price increases for outputs (such as gasoline) regarded as especially critical to household budgets. Some analysts might lament any departure from broad carbon pricing, citing efficiency costs. This paper offers theory and numerical simulations revealing that such a shift need not sacrifice efficiency. This result reflects differences across sectors in distortions from preexisting taxes and in the elasticity of emissions with respect to the carbon price. Our analytical model reveals that a narrower policy that exploits these differences can be more cost-effective than a policy with a broad, economy-wide tax base. Our numerical model of the US economy compares quantitatively the effects of an economy-wide carbon price with those of several narrower policies, including one that applies only to the power sector, one that exempts gasoline, and one that exempts energy-intensive trade-exposed industries. We compare policies under alternative specifications for policy stringency and find that the broader policy always becomes more cost-effective at sufficiently high stringency. |
| JEL: | D58 D62 H21 H23 Q58 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32915 |
| By: | Christoph Paetz (Macroeconomic Policy Institute (IMK)); Sebastian Watzka (Macroeconomic Policy Institute (IMK)) |
| Abstract: | This policy brief presents the new EU fiscal rules with a focus on its core element, the so-called debt-sustainability-analysis (DSA). Our results suggest first that the new rules will lead to substantial fiscal consolidation in the next years albeit less severe than the austerity measures during the euro crisis, second that the new rules are far less beneficial for public investment than previously thought, and third that relatively minor changes to the DSA assumptions on ageing costs and interest rates can have important consequences for fiscal adjustment needs. However, even if some of the assumptions underlying the DSA methodology were to be changed, the additional fiscal space would still fall drastically short of the massive public investment needs of the EU's green transition. We conclude by making the case for an EU-wide debt-financed investment fund. |
| Keywords: | EU Fiscal rules, fiscal rules, debt-sustainability analysis, DSA, ageing costs |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:imk:pbrief:176-2024 |
| By: | Sebastian Becker; Annica Gehlen; Johannes Geyer; Peter Haan |
| Abstract: | We provide novel evidence about the incentive and welfare effects of an increase in the generosity of disability benefits. Importantly, a unique policy variation in Germany allows us to isolate the income effect of a change in benefit generosity. We leverage this quasi-experimental policy variation using an RD design to estimate the effect of increasing disability benefits on employment, earnings, labor market transitions, and mortality outcomes using administrative data on the universe of new disability benefit recipients. Contrary to previous literature, our analysis reveals no significant impact on the employment and earnings of DI recipients due to the increased benefits. However, we find a sizable effect of the probability of returning to the labor market. We find no effects on recipient mortality six years after benefit award, but estimates imply a notable reduction in poverty risk, highlighting meaningful welfare implications of increased generosity. |
| Keywords: | disability insurance, pension reform, wealth effect, labor supply, mortality, RDD |
| JEL: | H55 I12 J22 J26 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2098 |
| By: | Massimo Florio (DEMM, Universita' di Milano); Giuseppe Remuzzi (Istituto di Ricerche Farmacologiche Mario Negri IRCCS) |
| Abstract: | The paper highlights the need for continued public support for R&D for Covid-19 vaccines. It is structured as a conversation between Professor Giuseppe Remuzzi, scientific director of the 'Mario Negri' Institute for Pharmacological Research, and Professor Massimo Florio, economist principal investigator of the study "Mapping of long-term public and private investment in the development of COVID-19 vaccines", for the European Parliament. Questions dealt with include a) virus mutations and vaccine adaptation, b) Efficacy and duration, c) Clinical effectiveness, d) Safety, and e) target population. The paper is concuded by some social cost-benefit analysis remarks about the creation in the EU of a public infrastructure for R&D and delivery of drugs and vaccines in the public interest |
| Keywords: | Covid-19 Vaccines; Pandemics; R&D and public investment |
| JEL: | I18 H43 H51 |
| Date: | 2024–09–11 |
| URL: | https://d.repec.org/n?u=RePEc:mst:wpaper:202401 |