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on Public Economics |
| By: | James R. Hines Jr. |
| Abstract: | Minimum tax rules constrain only the lowest-tax jurisdictions. Because higher minimum tax rates expand the circle of affected countries and therefore the impact of any further changes, there can be dominated regions over which no parameter values would make a minimum tax efficient. Applying a Taylor approximation to the distribution of statutory corporate tax rates in 2020, the range 4%-27% is a dominated region: there may be an efficient minimum rate below 4%, or higher than 27%, but there is no efficient world minimum tax rate between 4% and 27%. Minimum taxes set at popular rates are particularly inefficient – a minimum tax rate of 15% yields value that, when positive, is equivalent to offsetting less than one percent of the effect of tax competition. |
| JEL: | H21 H25 H87 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33140 |
| By: | Alessandro Turrini; Julien Guigue; Áron Kiss; Alexander Leodolter; Kristine Van Herck; Frank Neher; Chrysa Leventi; Andrea Papini; Fidel Picos; Mattia Ricci; Federica Lanterna |
| Abstract: | Tax expenditures are tax relief measures targeted at some socially desirable activities or specific groups of taxpayers. This paper reviews issues related to tax expenditures in the EU and presents some stylised facts related to tax expenditures in personal income taxation (PIT), value-added taxation (VAT), and corporate taxation. Like spending programmes, tax expenditures can be used for allocative or redistributive purposes. At the same time, tax expenditures can make the tax system more complex, less transparent, may have adverse distributional impacts, and they can result in substantial revenue loss. They may also, in some cases, result in harmful tax competition among Member States. The tax-benefit microsimulation model EUROMOD is employed to simulate the fiscal and distributional impacts of two specific sets of tax expenditures. Tax expenditures in PIT that are covered by this study are estimated to represent about 16% of tax revenues from PIT in the EU27 (corresponding to about 1.2% of GDP on average). Reduced VAT rates represent a similar magnitude at about 16% of VAT paid by households in the EU27 (corresponding to about 1.1% of GDP on average). Regular reporting, monitoring and assessment of tax expenditures is crucial as it allows Member States to review and revise their tax policies. Eliminating or reducing (ineffective or cost-ineffective) tax expenditures can, in some cases, create crucial fiscal space that allows for stronger fiscal consolidation, a revenue-neutral reduction in statutory tax rates, or growth-friendly tax shifts. |
| JEL: | H23 H24 H25 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:212 |
| By: | Felix J. Bierbrauer (University of Cologne); Pierre C. Boyer (École Polytechnique, Palaiseau); Andreas Peichl (Ludwig-Maximilians-Universität München); Daniel Weishaar (Ludwig-Maximilians-Universität München) |
| Abstract: | We develop a theory of tax reforms for a setting with multi-dimensional heterogeneity amongst taxpayers and multiple economic decisions that are all subject to fixed and variable costs. The theorems in this paper provide a complete characterization of the conditions under which Pareto- or welfare-improving tax reforms exist. We focus on one application, the taxation of couples, and present a detailed analysis of the behavioral responses to taxation in this setting. Squaring the theorems with this analysis yields sufficient statistics for the existence of Pareto- or welfare-improving tax reforms. In the empirical part, we apply them to US data. Our findings include the following: Tax rates on secondary earnings are inefficiently high when secondary earnings are close to primary earnings. Also, reducing the tax system's degree of jointness is not Pareto-improving. Whether it raises welfare depends on a trade-off between poverty alleviation and gender balance. |
| Keywords: | Taxation of couples, Pareto efficiency, tax reforms, optimal taxation, non-linear income taxation |
| JEL: | C72 D72 D82 H21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:349 |
| By: | Isabel Micó-Millán (BANCO DE ESPAÑA) |
| Abstract: | This paper demonstrates that family firms act as vehicles for inheritance tax avoidance among wealthy individuals. By leveraging a major tax reform in Catalonia, which widened the tax rate differential between tax-favored and non-tax-favored assets, I study asset-shifting responses to the change in inheritance taxation. To identify causal effects, I use the universe of inheritance tax returns and a difference-in-difference design comparing wealthy descendants to other wealthy heirs who were minimally affected by the policy change. After the tax reform, wealthy descendants inherit substantially more wealth through tax-favored assets. This effect is driven entirely by the top 0.5% of descendants, whose inheritances strongly shift towards equity in family firms. This change in the composition of inheritances is consistent with wealthy testators transferring assets to their firms as capital contributions before their passing. My estimates suggest that Catalonia forgoes 27% of current inheritance and gift tax revenues due to the reclassification of private wealth as business wealth via family firms. |
| Keywords: | inheritance tax, tax avoidance, tax reform, top wealth |
| JEL: | H24 H26 O23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2446 |
| By: | Luisito Bertinelli (DEM, Université du Luxembourg, LU); Arnaud Bourgain (DEM, Université du Luxembourg, LU); Seydi Ababacar Dieng (University Cheikh Anta Diop, Dakar, SN); (University Cheikh Anta Diop, Dakar, SN) |
| Abstract: | Based on a very large number of Senegalese companies representing the quasi-universe of the formal sector, this study identifies the main drivers of the effective tax rates (ETR) at the firm level, which is a standard way to assess the extent of tax avoidance. We mainly find that ETR tends to decline with firm size and that the 2013 reform generated a general increase of ETR but a ETR reduction for large firms. This result is robust even after accounting for a few unobservable time, industry and firm characteristics. |
| Keywords: | Effective Tax Rate; Tax avoidance; Corporate income Tax; Taxation in Sub-Saharan Africa; Tax exemption. |
| JEL: | H25 O17 O55 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:24-10 |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg) |
| Abstract: | A substantial body of empirical and theoretical research suggests that individuals care about, and derive instrumental benefits from, their rank in society. This paper extends the Mirrleesian model of optimal income taxation to a framework where individuals derive utility from their perceived ability rank. Such concerns generate externalities that tend to increase the optimal marginal tax rates for both corrective and redistributive reasons. While empirical evidence on the magnitude of these concerns is limited, their potential impact on optimal income taxation could be substantial, with top marginal income tax rates potentially exceeding 90%. |
| Keywords: | Redistributive taxation; ability; ordinal comparisons; externalities |
| JEL: | D62 D82 D90 H21 H23 |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1031 |
| By: | Junttila, Juho; Koivisto, Aliisa; Nivala, Annika |
| Abstract: | Many countries use a reverse charge mechanism (RC) in value added tax (VAT) to combat tax evasion in specific high-risk sectors. The RC shifts the liability to remit VAT from the seller to the buyer. We study the adoption of RC in 2011 in the construction sector in Finland using tax return data on the universe of Finnish firms. Using a difference-in-differences design, we find that reported net VAT liabilities in the construction sector increased by 5% compared to unaffected firms. The results show that the remittance policy can be effective in decreasing VAT evasion by subcontractors that provide services for large firms. |
| Keywords: | tax compliance, value added tax, reverse charge mechanism, firm behavior, Business taxation and regulation, H25, H26, L74, O17, Z18, fi=Verotus|sv=Beskattning|en=Taxation|, |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:fer:wpaper:170 |
| By: | James Alm (Tulane University); Jay A. Soled (Rutgers University); Kathleen DeLaney Thomas (University of North Carolina School of Law) |
| Abstract: | While attaining perfect tax compliance is unachievable, more can and must be done. In the past, the country has relied primarily on a traditional system of sticks (e.g., audits and penalties) and carrots (e.g., refunds and whistleblower awards) to help narrow the âtax gap, â or the difference between what taxpayers owe in taxes and what they actually pay. Now, in the social media era, Congress and the Internal Revenue Service (IRS) should look beyond these traditional enforcement mechanisms. To achieve an even higher voluntary compliance rate, this article advocates for policymakers to invest greater resources to enhance the social norm related to tax compliance. While scholars have long suggested that social norms play a role in tax compliance, this article suggests a revolutionary approach, one that attempts to foster a social norm of compliance by employing the use of social media influencers. The internet and other electronic media have revolutionized and amplified the stunning impact that influencers can have. Virtually everyone, particularly the younger generation, is keenly aware of the dramatic impact that influencers can have in shaping social norms. Now is thus the time for Congress and the IRS to capitalize on this power by strategically employing social media influencers. A well-crafted influencer campaign could educate taxpayers on how to fulfill their tax obligations, remind taxpayers of the laudatory impact of the tax system, and foster a positive social norm of compliance. Such a change in compliance orientation could help policymakers narrow the tax gap, yielding billions of dollars of additional tax revenue without the need to raise tax rates. |
| Keywords: | Tax compliance, tax gap, social norms, social media, influencers, nudges |
| JEL: | H2 H26 D91 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:tul:wpaper:2413 |
| By: | Miguel Pecho; Stoyan E Markov; Philip R Wood; Ms. Rachel Auclair; Fernando Velayos |
| Abstract: | This technical note sets out the essential elements to effectively manage tax incentives in developing countries, emphasizing the important role that revenue authorities must play in preventing abuses and revenue leakages. The note presents considerations for a risk-based compliance program on tax incentives that combines various supportive, preventative, and corrective practices and approaches. It also delineates key enablers, such as a whole-of-government approach, robust transparency and accountability practices, and a modern compliance risk management framework. |
| Keywords: | Tax incentive risks; revenue authorities; whole-of-government approach; governance; transparency and accountability; policy design and legislation; compliance risk management; risk differentiation framework; managing tax incentives; due diligence; Policy design; views ofthe IMF; reporting obligation; Customs authorities; Tax incentives; Semi-autonomous revenue bodies; Special economic zones; Global |
| Date: | 2024–11–21 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imftnm:2024/007 |
| By: | Koeniger, Winfried; Kress, Peter |
| Abstract: | We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semi-durables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds. |
| Keywords: | Consumption expenditure, Transactional data, Temporary VAT cut, Unconventional fiscal policy |
| JEL: | D12 E21 E62 E65 H31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:306861 |
| By: | Kind, Hans Jarle (Dept. of Business and Management Science, Norwegian School of Economics); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Many of the largest and most influential industries in the global economy operate digitally as multi-sided platforms, catering to different groups who are connected through intergroup network effects. This paper provides a survey of the theoretical literature on the effects of taxing these firms via indirect and corporate taxes. It seeks to establish an understanding of why traditional insights from taxation in one-sided markets may not apply to firms in multi-sided markets. Indeed, governments risk implementing counterproductive tax policies in multi-sided markets if they base their strategies on what constitutes efficient taxation in traditional markets. |
| Keywords: | Multisided platforms; taxation; imperfect competition |
| JEL: | D40 D43 H21 H22 L13 |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:nhhfms:2024_012 |
| By: | Darapheak Tin; Chung Tran |
| Abstract: | Should government transfers to families with children be means-tested? We revisit this question from the unique Australian policy context, where all child-related transfers are strictly means-tested. Using household survey data, we first demonstrate that means testing effectively directs child benefits to low-income Australian families with children, comprising up to 40% of their gross total income during the childbearing period. Notably, this coincides with the distinct M-shaped labor supply pattern of Australian mothers over the life cycle. Combining these empirical facts with a dynamic general equilibrium overlapping generations model of single and married households with children, we quantify the aggregate and distributional impacts of child-related transfers. Our simulation results demonstrate the significant adverse effects of means testing on work incentives and human capital development among mothers. A structural reform that replaces the status quo means-tested system with a universal system improves female labor supply, output, and overall welfare while also garnering majority support. However, the universal system increases tax burden by 4 percentage points and negatively impacts single mothers-the intended beneficiaries-by reducing their net lifetime income and welfare. In our model, inclusion of means testing is essential for controlling fiscal costs and mitigating the adverse effects of higher taxes. Preserving the existing means-tested system and opting for incremental reforms could potentially result in modest improvements in output and welfare while ensuring a more equitable distribution of welfare gains. Hence, our findings highlight the complex trade-offs between efficiency and equity in designing child benefit programs. |
| Keywords: | Child Benefits; Means Testing; Female Labor Supply; Efficiency; Equity; Dynamic General Equilibrium |
| JEL: | E62 H24 H31 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:acb:cbeeco:2024-701 |
| By: | Anastasios G. Karantounias (University of Surrey) |
| Abstract: | This paper extends the dynamic theory of optimal fiscal policy with a representative agent in several environments by using a generalized version of recursive preferences. I allow markets to be complete or incomplete and study optimal policy under commitment or discretion. The resulting theories are interpreted through the excess burden of taxation, a multiplier, whose evolution gives rise to different notions of “tax-smoothing.†Variants of a law of motion in terms of the inverse excess burden emerge when we allow for richer asset pricing implications through recursive preferences. I highlight a common unifying principle of taxation and debt issuance in all environments that revolves around interest rate manipulation: issue new debt and tax more in the future if this can lead to lower interest rates today. |
| JEL: | D80 E62 H21 H63 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0524 |
| By: | Nadine Levratto; Philippe Poinsot; Luc Tessier |
| Abstract: | This paper examines two recent industrial policies that are representative of the actions taken to support industry. The first is the abolition of the Contribution sur la Valeur Ajoutée des Entreprises (CVAE) as part of the reform of local taxation, and the second is the Territoires d'industrie initiative. Using individual company data covering 2019-2020, we show that while industry, SMEs and ETIs have benefited from the abolition of the CVAE, large companies and non-industrial sectors have benefited more. The territorial analysis shows that companies based in metropolitan areas have seen their tax burden reduced more than others. This weak effect on areas with a strong productive component is confirmed by the study of the overlap between the two measures, which shows that IT is only slightly affected by the reduction in local economic taxation. We conclude by stressing the importance of coherent public policies. |
| Keywords: | Local economic taxation, industry, distributional effects, reindustrialisation, windfall effects |
| JEL: | H25 H32 K34 L52 L53 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-33 |
| By: | Gustafsson, Johan (Department of Economics, Umeå University); Lanot, Gauthier (Department of Economics, Umeå University) |
| Abstract: | We analyze the impact of improved automation on the size and distribution of pension benefits, and on the optimal size of public pension systems. To this end, we build an overlapping generations model with heterogeneous agents. Automation is either conceptualized in a capital-skill complementarity (CSC) or task-based (TB) fashion. We find that any productivity gains of automation realized as increased returns to savings disproportionately benefit high-skilled workers who are less dependent on illiquid public pensions. A redistributive pension system can reduce public pension inequality but increase inequality in private retirement savings. The optimal size of the pension system is larger in the TB specification where displacement effects of automation are accounted for. We do not find that automation-driven growth warrants any change to the optimal size of the public pension system. |
| Keywords: | Automation; General Equilibrium; Overlapping Generations; Public Pensions |
| JEL: | H55 J22 J26 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1030 |
| By: | Doron Sayag; Avichai Snir; Daniel Levy |
| Abstract: | We study the price rounding regulation in Israel, which outlawed non-0-ending prices, forcing retailers to round 9 ending prices, which in many stores, comprised more than 60 percent of all prices. The goal of the regulation was to eliminate the rounding tax, the extra amount consumers paid because of price rounding, which was necessitated by the abolition of low denomination coins, and the inattention tax, the extra amount consumers paid the retailers because of their inattention to the prices rightmost digits. Using 4 different datasets, we assess the success of the government in achieving these goals, focusing on fast moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, the warning of Milton Friedman that policies should be judged by their results, not by their intentions. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.13427 |
| By: | Stefan Bach; Charlotte Bartels; Theresa Neef |
| Abstract: | This paper analyzes the distribution and composition of pre-tax national income in Germany since 1992, combining personal income tax returns, household survey data, and national accounts. Inequality rose from the 1990s to the late 2000s due to falling labor incomes among the bottom 50% and rising incomes in the top 10%. This trend reversed after 2007 as labor incomes across the bottom 90% increased. The top 1% income share, dominated by business income, remained relatively stable between 1992 and 2019. A large share of Germany’s top 1% earners are non-corporate business owners in laborintensive professions. At least half of the business owners in P99-99.9 and a quarter in the top 0.1% operate firms in professional services – a pattern mirroring the United States. From 1992 to 2019, Germany’s top 0.1% income concentration exceeded France’s and matched U.S. levels until the late 2000s. |
| Keywords: | Income distribution, labor income, capital income, top Incomes |
| JEL: | D31 E01 H2 H5 J3 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2102 |
| By: | Cristiana Belu Manescu |
| Abstract: | Leveraging insights from the academic literature, this paper discusses the challenges and practical solutions in the planning of public investment projects and illustrates them with survey evidence from the EU Member States. The paper starts with strategic planning, which covers a 10-to-20-year planning horizon and can help to identify shared rather than competing goals across sectors and regions. It then moves to the appraisal and selection of large investment projects and discusses the benefits of multiple decision gates and external quality assurances. Finally, it outlines budgeting tools such as multi-annual commitment appropriations and multi-annual budgeting of capital and maintenance costs that bring clarity on the available resources and protect availability of capital during and beyond implementation. Each of these three stages is supported with available evidence from the EU Member States, which helps to identify good practices but also hints at areas for improvement. Overall, the analysis suggests there is much room for improvement across the EU in the early stages of planning as well as in terms of the use of long-term budgeting tools. |
| JEL: | H54 H82 H41 H3 E2 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:213 |