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on Public Finance |
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Issue of 2024‒05‒20
eight papers chosen by |
| By: | Kristoffer Berg; Morten Håvarstein; Magnus E. Stubhaug |
| Abstract: | Surveys and experiments suggest that people hold workers more responsible for income gains stemming from merit, such as education, than circumstances, such as parental education. This paper shows how to design income taxes that account for merits. First, we introduce social welfare functions that accommodate individual preferences and hold workers responsible for their merits. Second, we show how to map social welfare function primitives into empirically measurable statistics and exploit long-run Norwegian income and family relations register data to examine the relationship between merit and income. Third, we simulate optimal income tax implications of our meritocratic social welfare functions. The result is that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends, but the difference is smaller when workers are not held responsible for merits that are explained by circumstances. |
| Keywords: | equality of opportunity, meritocracy, optimal income taxation, welfare criteria |
| JEL: | D31 D63 H21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11058&r=pub |
| By: | Andreas Hauer (Seminar for Economic Policy, LMU); Hayato Kato (Graduate School of Economics, Osaka University) |
| Abstract: | The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold. We set up a simple model of tax competition and profit shifting by heterogeneous multinational firms to evaluate the e ects of this partial coverage of the GMT. A non-haven and a haven country are bound by the GMT rate for large multinationals, but can set tax rates for firms below the threshold non-cooperatively. We show that the introduction of the GMT with a moderate tax rate increases tax revenues in both the non-haven and the haven countries. Gradual increases in the GMT rate, however, trigger a sudden change in the tax competition equilibrium from a uniform to a split corporate tax rate, at which tax revenues in the non-haven country decline. In contrast, gradual increases in the coverage of the GMT never harm the non-haven country. We also discuss the quantitative e ects of introducing a 15% GMT rate in a calibrated version of our model. |
| Keywords: | multinational firms; tax avoidance; profit shifting; tax competitionInput-output |
| JEL: | F23 H25 H87 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2406&r=pub |
| By: | Antonella Nocco; Gianmarco I. P. Ottaviano; Matteo Salto; Atsushi Tadokoro |
| Abstract: | Due to markup distortions, in international trade models with monopolistic competition and heterogeneous firms the market equilibrium is inefficient unless demand exhibits constant elasticity of substitution. When it does not, global welfare maximization generally requires policy intervention that is firm specific, and consequently of limited practical relevance due to its information requirements, discriminatory nature and susceptibility to rent seeking. We assess whether there are particular conditions under which countries can coordinate on the common use of policy tools that are not firm-specific but still maximize global welfare. We show that a demand system implying constant absolute pass-through from marginal cost to price is both necessary and sufficient for the existence of welfare-maximizing non-discriminatory policies that can level the global playing field with a one-size-fits-all approach for all firms selling in a given market, eventually complemented by a global tax rate on corporate profits. |
| Keywords: | international trade policy, firm heterogeneity, monopolistic competition, multilateralism level playing field |
| Date: | 2024–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1992&r=pub |
| By: | Valeria Merlo; Georg Wamser |
| Abstract: | This chapter reviews the literature providing empirical estimates on the tax elasticity of multinational profits and discusses the challenges faced when attempting to quantify tax-motivated profit shifting. We first use micro-level data to show that multinational corporations hold a disproportionately large share of profits and financial assets in tax havens, relative to real activities in these countries. We then argue that tax notches associated with anti-tax avoidance legislation may be exploited to better understand tax-motivated profit shifting. This approach suggests a semi-tax elasticity of pre-tax profits of about 0.22, which is substantially smaller than estimates provided in earlier studies. |
| Keywords: | corporate income taxes, profit shifting, tax havens, multinational corporations |
| JEL: | H25 H26 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11045&r=pub |
| By: | Jan Behringer (Macroeconomic Policy Institute (IMK)); Lena Draeger (Leibniz University Hannover (LUH)); Sebastian Dullien (Macroeconomic Policy Institute (IMK)); Sebastian Gechert (Chemnitz University of Technology (TUC)) |
| Abstract: | We use novel German survey data to investigate how perceptions and information about public finances influence attitudes towards public debt and fiscal rules. On average, people strongly underestimate the debt-to-GDP ratio, overestimate the interest-to-tax-revenue ratio and favor a tighter German debt brake. In an information treatment experiment, people consider public debt to be a more (less) severe problem once they learn the actual debt-to-GDP or interest-to-tax-revenue ratio is higher (lower) than their estimate. However, the treatment effects partly vanish when anchoring respondents' beliefs with historical public debt figures. We find no treatment effects on attitudes towards the debt brake. |
| Keywords: | public debt, fiscal rules, information treatment, expectations |
| JEL: | D83 E60 H31 H60 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:223-2024&r=pub |
| By: | Heckemeyer, Jost H.; Schulz, Inga; Spengel, Christoph; Winter, Sarah |
| Abstract: | This paper evaluates the Multilateral Convention to implement Pillar I Amount A, released by the OECD in October 2023, and the alternative proposal of Art. 12B for tax treaties suggested by the UN, with a particular emphasis on the perspective of developing countries. We conduct a comparative analysis of the proposals using an integrated economic and legal approach. Our assessment is based on the two proposals' ability to generate tax revenue and their implications for net-importing countries. Our legal analysis demonstrates significant differences between the two proposals in the implied reallocation of taxing rights, depending on the considered (digital) business model. Interestingly, we find that overall and despite its complexity, Pillar I Amount A addresses the specific interests of developing countries better than Art. 12B UN Model. In particular, Pillar I Amount A will likely outperform the UN's proposal in terms of its tax revenue potential. |
| Keywords: | Digital Economy, Corporate Tax, Global Tax Reform, OECD Pillar 1, Developing Countries |
| JEL: | F23 H25 H32 K34 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:290402&r=pub |
| By: | Jacob Goldin; Tatiana Homonoff; Neel A. Lal; Ithai Lurie; Katherine Michelmore |
| Abstract: | The largest tax-based social welfare programs in the US limit their benefits to taxpayers with labor market income. Eliminating these work requirements would better target transfers to the neediest families but risks attenuating tax-based incentives to work. We study changes in labor force participation from the elimination of a work requirement in a tax credit for parents of young children, drawing on quasi-random variation in birth timing and administrative tax records. To do so, we develop and implement a novel approach for selecting an empirical specification to maximize the precision of our estimate. The unique design of the policy along with its subsequent reform allow us to isolate taxpayers' sensitivity to conditioning child tax benefits on work -- the parameter at the center of recent debates about the labor supply consequences of reforming federal tax policy for children. We estimate that eliminating the work requirement causes very few mothers to exit the labor force, with a 95% confidence interval excluding labor supply reductions of one-third of a percentage point or greater. Our results suggest expanding tax benefits for low-income children need not meaningfully reduce labor force participation. |
| JEL: | H24 I38 J22 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32343&r=pub |
| By: | Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Mikhail Miklyaev (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.); Owotomiwa Christiana Olubamiro (Cambridge Resources International Inc.); Siamand Hesami (Department of Banking and Finance Eastern Mediterarrean University and Cambridge Resources International Inc.) |
| Abstract: | In Finland, over 98% of the compliance costs incurred by VAT-registered entities are borne on micro, small and medium taxpayers. The Finnish Tax Administration (FTA) project "Design and Implementation of a New VAT Reporting Model" is an analysis of three interventions to enhance the current tax administration system. The three interventions are to expand the information collected on the VAT return (stage 1), to introduce electronic reporting of VAT invoices by all taxpayers to the FTA (stage 2), and finally, for the FTA to pre-fill the VAT returns for small, medium and micro taxpayers (stage 3). A Cost-Benefit Analysis approach is used to evaluate these proposals for potential implementation by measuring the potential costs and benefits of each stage of the reforms. The project's main aim is to increase tax revenues (reduce the tax gap) and reduce the economic costs associated with administration and compliance with the value-added tax (VAT) legislated obligations. Of the three interventions evaluated, the largest net economic benefits are created by the administrative pre-filling of the Value Added Tax returns. |
| Keywords: | Cost-Benefit Analysis, VAT, Compliance Cost, Micro & SME enterprises, Electronic Invoicing, Pre-Filled VAT Returns, Finland. |
| JEL: | D61 H21 H24 H26 |
| Date: | 2024–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4617&r=pub |