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on Public Finance |
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Issue of 2024‒03‒11
thirteen papers chosen by |
| By: | Avi-Yonah, Reuven S. |
| Abstract: | This Perspective explores the implications for the home countries of large MNEs of the agreement reached by over 140 countries in 2021 to enact a corporate minimum tax of 15%. It argues that the corporate minimum tax complements the trend to reduce the negative impact of unfettered globalization on labor, and it protects the ability of home countries to finance a robust social safety net. Home countries should adopt the corporate minimum tax, and that includes the US, which last year failed to adapt its Global Intangible Low-Taxed Income approach to the corporate minimum tax. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:colfdi:283054&r=pub |
| By: | Miller, Helen; Pope, Thomas; Smith, Kate |
| Abstract: | We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder reflects systemic profit retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We find no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners. |
| JEL: | J1 C1 |
| Date: | 2024–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121654&r=pub |
| By: | Olivier Cardi; Fatma Hoke; Romain Restout |
| Abstract: | By exploiting the downward trend of profits' taxation observed in OECD countries which is rooted into international competition to attract capital, we identify exogenous variations in the corporate income tax rate. Estimating a SVAR model with long-run restrictions for a panel of eleven OECD countries over 1973-2017, we find that a permanent decline in profits' taxation leads to significant technology improvements which are concentrated in traded industries. The corporate tax cut has also an expansionary effect on hours concentrated in non-traded industries. The country-split shows that technology significantly improves in English-speaking and Scandinavian countries only while hours persistently increase only in continental European countries. To account for the dynamic effects of a corporate tax cut, we consider a two-sector open economy model with tradables and non-tradables and endogenous technology decisions where both capital and technology can be used more intensively. The model can account for the magnitude of technology improvements we estimate empirically as long as the traded sector is intensive in R&D, experiences low costs in the use of the stock of knowledge and also highly benefits from international R&D spillover. While large elasticities of utilization-adjusted-TFP w.r.t. the domestic and international stock of knowledge must be assumed in English-speaking and Scandinavian countries, in accordance with our estimates, we have to allow for sticky wages in continental European countries to account for our evidence. |
| Keywords: | Corporate taxation, SVAR, Open economy, Endogenous technological change, R&D, Hours worked, Tradables and non-tradables, Labor reallocation, Wage stickiness |
| JEL: | E23 E62 F11 F41 H25 O33 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:408700700&r=pub |
| By: | Odran Bonnet; Étienne Fize; Tristan Loisel; Lionel Wilner |
| Abstract: | This article exploits both the crude oil price surge consecutive to the invasion of Ukraine and 2022 fuel excise tax rebates in France as quasi-natural experiments to infer the price sensitivity of fuel demand. Based on granular individual bank account data at the transaction level, we properly disentangle anticipation effects from price effects, and estimate an average price elasticity of -0.31. It varies little with respect to income and location but substantially decreases, in absolute, with respect to fuel spending and is higher for retirees. We evaluate financial and distributional effects of the actual tax policy as well as its impact on CO2 emissions based on counterfactual simulations. We empirically demonstrate that resorting to transfers, be they targeted or not, achieves only imperfect compensation against fuel inflation. However, we show that a policy maker subject to a tight budget constraint and seeking to alleviate excessive losses, relative to income, prefers means-tested transfers to rebates. |
| Keywords: | commodity taxation, excise tax, tax-and-transfer schemes, fuel price elasticity, anticipatory behaviour, transaction-level data |
| JEL: | C18 C51 D12 H23 H31 L71 Q31 Q35 Q41 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10917&r=pub |
| By: | Daniel H. Karney; Khyati Malik |
| Abstract: | Public good provision by governments incurs significant costs but the willingness to pay for public goods is not directly observable. This study finds an exact closed-form compensating variation (CV) expression for a change in public good provision as a function of income and two preference parameters given homothetic utility. We prove that our CV expression arises if and only if the underlying function is homogeneous in the private goods and separately homogeneous in the public good(s). Then, we find a single sufficient statistic for the preference parameters and show how this sufficient statistic can be recovered in empirical applications. All results hold for marginal and non-marginal changes in public goods. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.15493&r=pub |
| By: | OKOSHI Hirofumi; MUKUNOKI Hiroshi |
| Abstract: | This study investigates the effects of network externality on the policy competition between two countries regarding their attempts to attract a multinational enterprise (MNE). The two countries have different numbers of consumers and endogenously set a tax/subsidy on the MNE. The larger country has a local firm with a large market. Network externality makes the larger country with the local firm more attractive to the MNE because the resulting larger supply amplifies the network size. The MNE's location in the larger country can also benefit the local firm despite fiercer competition with the MNE while also benefiting consumers in all countries. Fiscal competition increases the likelihood of a larger country hosting the MNE when the network externality is large, but it promotes the MNE's location in a small country when the network externality is small. A location change from a smaller to a larger country, induced by fiscal competition, improves both countries' welfare or their joint welfare when the network externality is significant. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24024&r=pub |
| By: | OKOSHI Hirofumi |
| Abstract: | Determining whether MNEs are engaged in tax avoidance by analyzing their transfer pricing practices is difficult due to the presence of firm-specific products or technologies; additionally, disputes about MNE transfer pricing activities sometimes arise. Because resolving such disputes formally is time consuming, an MNE and a tax authority may agree on a transfer price level in an informal negotiation. This study investigates how MNE transfer price is determined in informal negotiations processes by interlinking MNE investment in product quality and negotiation power, and how a longer period for resolving a dispute in a formal process affects the equilibrium transfer price. We find that a longer time for a formal process induces firm investment, but its effect on the equilibrium transfer price depends on each MNE's negotiation power against its tax authority. In addition, our analysis shows that tax revenues in a high-tax country may increase due to MNE tax avoidance activity, because increases in firms' investments boost their operating profits. Furthermore, a fixed subsidy for investments in quality may be more likely to reduce welfare during a prolonged dispute resolution when a high-tax country places extra weight on tax revenue. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24026&r=pub |
| By: | KOIZUMI Hideto |
| Abstract: | The effectiveness of tax policies targeting firms has been evaluated conventionally based on the effects on the firms that are directly affected by the tax policies. However, the indirect effects through the supply chains of the directly affected firms can also be of first-order importance. This paper estimates the indirect effects on firm performance of tax incentives for investment through production networks, exploiting the quasi-experimental event of an investment stimulus policy targeting small and medium enterprises and unique proprietary data of supply chains in Japan. After confirming the direct effects, I find evidence suggesting that the indirect effects on direct suppliers are even larger than the direct effects, while no discernible effects are found on downstream firms. The absence of downstream effects appears to stem from the fact that treated firms crowd out the market share of untreated large firms, leading to an insufficient change in market prices. In total, while the tax policy successfully stimulates the targeted small firms, its spillover effects are primarily confined to the upstream customers which tend to be large. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24025&r=pub |
| By: | Eirik S. Amundsen |
| Abstract: | For a long time, Norway has had resource rent taxes on oil- and natural gas extraction as well as on hydropower generation. Recently, resource rent taxes have also been levied on aquaculture, and wind power generation. This paper, gives a short overview of the rent theory, the basis for rent generation in Norway, the size of rent generated, the Norwegian tax system for resource rent for each of the resources considered, and the rent taxes collected. |
| Keywords: | natural resources, rent taxes, oil and gas, hydropower, wind power, aquaculture |
| JEL: | H20 H25 Q22 Q25 Q38 Q48 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10911&r=pub |
| By: | Banga, Karishma; Beyleveld, Alexander |
| Abstract: | African countries are currently considering provisions in the AfCFTA and at the WTO to liberalise digital trade. As they face mounting fiscal pressures, it is imperative that they beware the implications of digital trade provisions for their ability to tax their digital economy. In this paper, we develop a comprehensive framework for analysing the impact of trade rules on tax regimes in the digital economy, with a focus on Kenya, Rwanda, and South Africa. We explore how trade rules ostensibly shape tax policies and their implications for revenue generation. By examining rules regulating trade in services and the imposition of customs duties on electronic transmissions, we identify how these rules may directly impact tax policies and limit revenue generation possibilities. Moreover, digital trade rules, such as those related to data flows, localisation, and source code sharing, have the capacity to produce both indirect and administrative effects on tax measures. These rules can alter tax structures, taxation rights, data collection, and the capacity to monitor and implement tax measures. Our findings shed light on the complex interplay between trade rules and tax measures, highlighting potential challenges and opportunities for revenue generation from the digital economy in African countries. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18223&r=pub |
| By: | Yimam, Seid; Lidetu, Kebede; Belete, Tihtina |
| Abstract: | In the last decade, tax administrations in developing countries have been introducing technological innovations such as e-filing and e-payment platforms. The main aim of introducing these technologies is to improve tax compliance and boost revenue collection by increasing convenience and flexibility for taxpayers and reducing their compliance costs. E-filing and e-payment could save taxpayers time preparing and returning taxes and reduce errors and opportunities for corruption. However, the adoption of these technologies and their effectiveness in improving tax compliance could be undermined by several factors. Using tax administrative records, we examined the adoption rate trend of the e-filing system and the correlation between e-filing adoption and tax compliance of large and medium taxpayers in Ethiopia. The timeliness of value-added tax (VAT) and corporate income tax (CIT) return filing and the amount of tax declared are the two main compliance indicators used in this study. Furthermore, we explored the existing challenges and the way forward to improve the adoption of the e-tax system using focus group discussions (FGDs). |
| Keywords: | Economic Development, |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18216&r=pub |
| By: | Canavire Bacarreza, Gustavo J. (World Bank); Aliaga, Guillermo Gómez (World Bank); Britton, Chevanne (Grenada’s Ministry of Finance); Rios-Avila, Fernando (Levy Economics Institute); Pozo, Wilson Jimenez (Fundacion Aru); Ibarra, Silvia Granados (World Bank); Li, Ran (World Bank) |
| Abstract: | This paper examines the distributional effects of fiscal policy in Grenada. Using data from the 2017–2018 Living Conditions and Household Budgets Survey and following the Commitment to Equity (CEQ) analysis framework, we estimate the effects of fiscal policy interventions on inequality and poverty. Specifically, we analyze the distributional incidence of direct and indirect taxes, direct transfers provided by the social transfers and the school feeding programs, and in-kind transfers generated by public services in health and education. The results show that Grenada has a tax system that is neutral on the VAT side and progressive on the personal income tax side. Furthermore, direct transfers make a modest contribution to poverty reduction and are almost neutral in their distributive impact. The results contribute to the understanding of who bears the burden of taxation and benefits from transfers and of how Grenada's fiscal system can improve its redistributive effect. |
| Keywords: | fiscal incidence, poverty, inequality, taxes, social transfers, public expenditure, public revenue |
| JEL: | D31 H11 H22 H5 I14 I24 I3 O54 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16795&r=pub |
| By: | Juliana Londoño-Vélez; Javier Avila-Mahecha |
| Abstract: | We study behavioral responses to personal wealth taxes in Colombia. We utilize tax microdata from 1993 to 2016 linked with the leaked Panama Papers to investigate offshoring to the country’s key tax havens. We leverage variation from discrete jumps in tax liability and four major reforms to the wealth tax system, including changes in tax rates and duration, using bunching and difference-in-difference techniques. We find compelling evidence that taxpayers instantly reduce the wealth they declare in response to a wealth tax. Moreover, these effects can persist for years even after the wealth tax is no longer in place, providing the first evidence of a hysteresis effect for a temporary tax policy. The response is driven by misreporting items that authorities cannot cross-verify, such as overstating debt and understating non-third-party-reported business assets. Additionally, the wealthiest taxpayers respond to wealth tax increases by hiding assets in hard-to-track entities in tax havens. |
| JEL: | H24 H26 O23 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32134&r=pub |