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on Public Finance |
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Issue of 2023‒05‒22
sixteen papers chosen by |
| By: | Victoria Baudisch; Matthias Neuenkirch |
| Abstract: | We evaluate Germany’s temporary value-added tax (VAT) rate reduction as a tool to stimulate consumer spending during the Covid-19 pandemic using a comparative case study approach. We construct a credible counterfactual for Germany in a two-step procedure. First, we carry out a careful pre-selection of the donor pool countries to obtain a control group that is highly similar to Germany regarding important post-treatment characteristics. Second, we apply a reweighting scheme on the pre-selected donor countries. The synthetic control group only differs from Germany in the way that it did not implement the temporary VAT rate reduction. Our results indicate that the German VAT cut policy and partial VAT reductions in other countries were relatively ineffective in stimulating consumption with regards to their costs when compared to other measures such as (targeted) direct cash transfers. We attribute this to the fact that direct cash transfers are more comprehensible, salient, and actionable, in particular, in a dynamic environment with high uncertainty induced by unclear future economic prospects. |
| Keywords: | Consumption, Covid-19, Synthetic Control, Temporary VAT Cut, Unconventional Fiscal Policy |
| JEL: | E21 E62 E65 H31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:202304&r=pub |
| By: | Congressional Budget Office |
| Abstract: | Over recent decades, corporate economic profits—that is, profits from current production—have grown faster than the amounts that corporations pay in federal taxes. That pattern, which cannot be explained by changes in statutory tax rates, reflects a divergence between economic profits and the corporate tax base. Because such differences affect how CBO projects revenues from the corporate income tax, the agency has analyzed the relationship between the two measures. |
| JEL: | E01 H20 H25 H32 |
| Date: | 2023–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:58267&r=pub |
| By: | Link, Sebastian (Ifo Institute for Economic Research); Menkhoff, Manuel (Ifo Institute for Economic Research); Peichl, Andreas (Ludwig-Maximilians-Universität München); Schüle, Paul (Ifo Institute for Economic Research) |
| Abstract: | This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1, 400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by three percentage points after a tax hike. This effect is twice as large during recessions. |
| Keywords: | investment, corporate taxation, state dependence, business cycle |
| JEL: | G11 H25 H32 H71 O16 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16056&r=pub |
| By: | Brandon Enriquez; Damon Jones; Ernest V. Tedeschi |
| Abstract: | We estimate the extensive and intensive margin labor supply response to the monthly Child Tax Credit disbursed in 2021 as a part of the American Rescue Plan Act. Using Current Population Survey microdata, we compare labor supply outcomes among households who qualify for varying relative increases in household income, as a result of their income level and household size. We do not find strong evidence of a change in labor supply for families receiving the credit. The results are robust to alternative labor supply models, where households respond mainly to cash on hand or changes in the annual budget set. |
| JEL: | D63 H24 J22 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31110&r=pub |
| By: | James Alm (Tulane University); Jay A. Soled (Rutgers Business School); Kathleen DeLaney Thomas (University of North Carolina School of Law) |
| Abstract: | Tax compliance in the United States historically hovers in the 80 percent range, costing the nation approximately half a trillion dollars annually in uncollected tax revenue. To foster greater tax compliance, the Internal Revenue Service (IRS) should employ whatever tools are at its disposal. Standard deterrence theory argues that increasing the audit rate and imposing stiffer penalties would foster greater tax compliance. There are political headwinds, however, that strongly suggest that these approaches are not currently viable. Instead, there is a low-cost method that could yield greater tax compliance. Drawing on recent and compelling social science research, the IRS should ask more information-revealing questions on tax returns. By engaging in this important exercise of strategic inquiries, dual benefits are likely to emerge: taxpayers would be more likely to report honestly to avoid acts of commission (e.g., lying); and the IRS would be in a better strategic position because it would possess additional, relevant information on taxpayer activities. |
| Keywords: | Internal Revenue Service, tax compliance, behavioral economics, nudges, act of omission, act of commission |
| JEL: | H2 H26 D91 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2302&r=pub |
| By: | Jay A. Soled (Rutgers Business School); James Alm (Tulane University) |
| Abstract: | The Inflation Reduction Act of 2022 has the potential to encourage taxpayers to make automobile-related gifts. However, the genesis of such gift-giving likely will not be due to genuine generosity, but rather will be part of a strategy designed to achieve significant income tax savings. |
| Keywords: | Inflation Reduction Act of 2022, Internal Revenue Service, electric vehicles, gift tax, tax compliance |
| JEL: | H0 H2 H26 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2301&r=pub |
| By: | Christian Imboden; John Voorheis; Caroline Weber |
| Abstract: | We examine the relation between administrative income data and survey reports for self-employed and wage-earning respondents from 2000 - 2015. The self-employed report 40 percent more wages and self-employment income in the survey than in tax administrative records; this estimate nets out differences between these two sources that are also shared by wage-earners. We provide evidence that differential reporting incentives are an important explanation of the larger self-employed gap by exploiting a well-known artifact – self-employed respondents exhibit substantial bunching at the first EITC kink in their administrative records. We do not observe the same behavior in their survey responses even after accounting for survey measurement concerns. |
| Keywords: | Income Reporting, Survey Accuracy, Measurement Error, Tax Evasion, Tax Avoidance |
| JEL: | C83 H24 H26 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:23-19&r=pub |
| By: | Gilbert E. Metcalf |
| Abstract: | While carbon pricing, in general, and carbon taxes, in particular, are popular with economists, they are subject to considerable misunderstanding among policy makers and the public. In this paper I consider and refute five myths about carbon taxes: 1) that a carbon price will hurt economic growth; 2) that carbon pricing will kill jobs; 3) that a carbon tax and cap and trade program have the same economic impacts; 4) that we can’t achieve carbon reduction targets with a carbon tax; and 5) that carbon pricing is regressive. I then discuss implications for policy making. |
| JEL: | H23 Q43 Q48 Q54 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31104&r=pub |
| By: | Granda-Carvajal, Catalina; Kogler, Christoph |
| Abstract: | This JOIE Symposium features some of the most influential papers presented in the 7th version of the conference on The Shadow Economy, Tax Behaviour and Institutions. Accordingly, it brings together contributions from several disciplines and schools of thought in the social sciences and the humanities exploring such issues as the role of formal and informal institutions in understanding the shadow economy, the importance of social aversion in the motivations for tax compliance, and the dual nature of corruption. This introduction lays out the scope of the symposium, summarises the preceding literature on the topic, and provides a brief outline of each contributing article, noting that, although each paper focuses on a different economic and cultural context, they share several elements in common with alternative theories addressing the institutional, psychological, and sociological aspects of tax law compliance and other appropriate behaviours. |
| Keywords: | shadow economy; tax behaviour; informal institutions; regional and country studies |
| JEL: | D73 H30 K42 O17 O50 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:104&r=pub |
| By: | James Alm (Tulane University); Jay A. Soled (Rutgers Business School); Kathleen DeLaney Thomas (University of North Carolina) |
| Abstract: | Since the introduction of Form 1040 early in the last century, the form has largely remained unchanged. However, recent social science research demonstrates that the ways in which tax returns are structured and tax questions are asked can dramatically affect the responses of taxpayers. There is also strong evidence that most taxpayers now prepare their returns with computer software. In light of these developments, this Article argues that the contents of Form 1040 should be revised. In particular, new questions should be strategically and prominently placed on the form. This is not an exercise in mere aesthetics. If handled properly, the by-product of this revision could be greater taxpayer honesty and improved information for the Internal Revenue Service, both of which could yield billions of dollars of additional revenue without raising tax rates. |
| Keywords: | Internal Revenue Service, tax compliance, behavioral economics, nudges, act of omission, act of commission |
| JEL: | H2 H26 D91 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2305&r=pub |
| By: | Patricia Gil; Justin Holz; John List; Andrew Simon; Alejandro Zentner |
| Abstract: | In modern economies, when debt and trust issues arise, a partial forgiveness policy is often the solution to induce payment and increase disclosure. For their part, governments around the globe continue to use tax amnesties as a strategy to allow debtors to make amends for past misdeeds in exchange for partial debt forgiveness. While ubiquitous, much remains unknown about the basic facts of how well amnesties work, for whom, and why. We present a simple theoretical construct that provides both economic clarity into tax amnesties as well as insights into the necessary behavioral parameters that one must estimate to understand the consequences of tax amnesties. We partner with the Dominican Republic Tax Authorities to design a natural field experiment that is linked to the theory to estimate key causal mechanisms. Empirical results from our field experiment, which covers 125, 452 taxpayers who collectively owe $5.2 billion (5.5% of GDP) in known debt, highlight the import of deterrence laws, beliefs about future amnesties, and tax morale for debt payment and increased disclosure. Importantly, we find large short run effects: our most effective treatment (deterrence) increased payments of known debt by 25% and hidden debt by 48%. Further, we find no evidence of our intervention backfiring on subsequent tax payments. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:feb:natura:00772&r=pub |
| By: | James Alm (Tulane University); Sebastian Leguizamon (Western Kentucky University); Susane Leguizamon (Western Kentucky University) |
| Abstract: | Recent events have increased the focus on racial justice. One aspect of this attention is the realization that race interacts in important – but often not fully understood – ways with taxation, including taxation of the family. In this paper, we quantify the racial disparity in the magnitude of the “marriage penalty” or “marriage bonus”, using individual micro-level data from the Current Population Survey for the years 1992 to 2019. We find that Black married couples nearly always face a higher averaged marriage penalty (or a smaller averaged marriage bonus) compared to white married couples, even when we compare couples with similar family earnings. This occurs because the incomes of Black married couples tend to be more evenly split between spouses than the incomes of white married couples. The differences between white couples and Hispanic couples tend to be smaller, but nonetheless they are still present in many cases, with Hispanic couples also facing a marriage penalty. We conclude with suggestions for reform of the individual income tax that would reduce the disparate racial and ethnic treatments across families. |
| Keywords: | Marriage, individual income tax, taxable unit, marriage penalty and bonus, race, ethnicity. |
| JEL: | H24 J12 J16 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2304&r=pub |
| By: | Ana Gamarra (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); José Félix Sanz-Sanz (Facultad de Ciencias Económicas y Empresariales, Universidad Complutense de Madrid and ICAE); María Arrazola (Facultad de CC. de la Economía y de la Empresa, Universidad Rey Juan Carlos, Madrid) |
| Abstract: | This paper characterises the Laffer curve of each individual taxpayer in a schedular multirate income tax with income shifting. Analytical expressions for the revenue-maximising tax rate and the revenue-maximising elasticity are provided for the individual taxpayer and the aggregate population, as well as new estimates of the Elasticity of Taxable Income (ETI). Applying these to the Spanish income tax demonstrates that 49.46% (58.49%) of the taxpaying population in the non-savings tax base (savings tax base) is on the "prohibitive" side ("normal" side) of the Laffer curve. On average, these taxpayers are 6.59 points (24.73 points) above (below) the maximum of the Laffer curve. The fraction of total tax revenue lost through behavioural responses amounts to 53.77%. However, this fraction varies by population subgroup and decreases when we account for income-shifting responses, suggesting the presence of fiscal externalities in the Spanish PIT. |
| Keywords: | personal income tax, Laffer curve, tax revenue, elasticity of taxable income |
| JEL: | H24 H21 H26 H31 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2023n05&r=pub |
| By: | De, Supriyo (National Institute of Public Finance and Policy) |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:23/394&r=pub |
| By: | Niesten, Hannelore |
| Abstract: | Several African countries have introduced taxes on digital financial services (DFS) during the past decade. Given the size and rapid growth of the telecom and DFS sector, DFS taxation is considered an opportunity to broaden the government’s revenue base. These recent developments need to be considered alongside the framework for taxation of traditional financial services (TFS) delivered by banks and other formal financial institutions – such as credit unions, insurance companies and microfinance institutions. The working paper analyses key legislative, tax and regulatory policy instruments, comparing the tax framework in nine countries in Africa: Burundi, Côte d’Ivoire, Ghana, Kenya, Rwanda, South Sudan, Tanzania, Uganda and Zimbabwe. Summary of Working Paper 162 by Hannelore Niesten. |
| Keywords: | Finance, |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:17941&r=pub |
| By: | De, Supriyo (National Institute of Public Finance and Policy) |
| Abstract: | In a recent innovative policy reform, India's corporate income tax system was overhauled with optional lower rates in lieu of giving up complex deductions. However, official da ta re veals a puzzle wherein la rger co mpanies have op ted more fo r th e lower optional rates while smaller ones appear reticent in switching to the optional regime. This paper explores this issue using empirical methods. The evolution of tax rates is tracked through reforms simplifying the tax system in the 1990s, the subsequent conundrum of zero tax companies leading to introduction of minimum alternate tax, and the persistence of lower effective tax rates for larger c ompanies. This provides the rationale for a simpler tax regime with lower rates but fewer deductions. The user cost of capital approach is used to examine the economically relevant tax impact across various sectors and ownership types. The results indicate that in terms of user cost, the various lower tax options are not attractive, and under certain situat ions may be worse for younger and smaller companies. In light of the analysis, policy options are suggested to improve the scheme so as to achieve the laudable objective of implementing a simple tax regime with lower rates and minimal deductions. |
| Keywords: | Corporate income tax ; User cost of capital ; Minimum alternate tax |
| JEL: | D21 E22 H25 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:23/393&r=pub |