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on Public Finance |
| By: | Katarzyna Bilicka; Michael Devereux; İrem Güçeri; Katarzyna Anna Bilicka; Michael P. Devereux; Irem Guceri |
| Abstract: | Many multinational firms (MNEs) pay low or no corporation tax in high-tax countries because they shift taxable income to tax havens. We incorporate nonconvex costs of profit shifting and unobserved heterogeneity in profit-shifting ability in the MNEs’ value maximization problem to study responses of firms to tax policies. We estimate our model using UK corporate tax returns data and quantify: (i) the elasticities of tax base and capital stock with respect to tax rates, (ii) the fixed and variable components of profit-shifting costs for different firm types, and (iii) the government’s trade-off between raising tax revenue by reducing profit shifting and attracting investment. Accounting for extensive margin profit-reporting decisions, we reconcile most of the discrepancies between previous micro- and macro-level estimates of tax base elasticities. We test the predictions of the model using a quasi-natural experiment that restricted profit-shifting by Italian MNEs that operated in the UK and evaluate two types of tax policies that can be analyzed using our approach. |
| Keywords: | taxation, profit shifting, multinational firms, investment |
| JEL: | H25 H26 H32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11458 |
| By: | Ruby Doeleman; Dominika Langenmayr; Dirk Schindler |
| Abstract: | Since 2016, Country-by-Country reporting has provided tax authorities with detailed information about multinationals’ worldwide activities. It has been hailed as a game-changer for corporate taxation, enabling tax authorities to target multinational firms with high profits in tax havens. We model Country-by-Country reporting as increasing both tax planning and audit costs for profit-shifting multinationals, where the latter costs depend on the share of profits held in tax havens. Then, Country-by-Country reporting makes shifting profits from a high-tax country to a tax haven relatively more attractive than shifting from a low-tax country to a tax haven—a substitution effect. Thus, while the total amount of profits shifted to the tax haven decreases, profit shifting from high-tax affiliates may increase relative to the situation without Country-by-Country reporting. We confirm these changes in profit-shifting patterns using a staggered difference-in-differences design. The opposing effects for low-tax and high-tax countries also help explaining the mixed findings of previous empirical studies on Country-by-Country reporting. |
| Keywords: | country-by-country-reporting, profit shifting, anti-tax-avoidance rules |
| JEL: | H25 H26 F23 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11464 |
| By: | O'Connell, Martin; Smith, Kate |
| Abstract: | We study how market power impacts the efficiency and redistributive properties of sin taxation, with an empirical application to sugar-sweetened beverage taxation. We estimate an equilibrium model of the UK drinks market, which we embed in a tax design framework to solve for optimal sugar-sweetened beverage tax policy. Positive price-cost margins for drinks create inefficiencies that lower the optimal rate compared with a perfectly competitive setting. Since profits mainly accrue to the rich, this is partially mitigated under social preferences for equity. Overall, ignoring market power when setting tax policy leads to welfare gains 40% below those at the optimum. |
| Keywords: | externality; corrective tax; market power; profits; redistribution |
| JEL: | D12 D43 D61 D62 H21 H23 L13 |
| Date: | 2024–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:122263 |
| By: | Stylianos Asimakopoulos; James Malley; Apostolis Philippopoulos; Jim Malley |
| Abstract: | This paper presents a novel study on the significance of corporate payout policy in shaping firms' financial decision-making and, in turn, the macroeconomy. To this end, we add to the literature by allowing households and firms to choose share buybacks optimally. We then explore the implications of various shocks commonly facing them, such as dividend income, investment, and tax shocks. The latter include corporate income, capital gains, and dividend income taxes. We find that the model predictions cohere well with the data when applying the non-policy shocks. We also find that tax reform's aggregate and welfare effects are overstated when share buybacks are not optimally chosen as assumed in the relevant literature. |
| Keywords: | dividends, share repurchases, tax reforms, payout flexibility |
| JEL: | C68 E62 G30 G35 H25 H30 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11460 |
| By: | Pierre Coster; Julian di Giovanni; Isabelle Mejean |
| Abstract: | This paper investigates how firms adapt their sourcing of clean and dirty inputs in response to changes in climate policy. We use information from the European Union’s Emissions Trading System (EU ETS) and the Carbon Border Adjustment Mechanism (CBAM) to create a new classification of clean and dirty products based on whether they are subject to a domestic or a border carbon tax. We then combine this dataset with French firms’ product-level import data over 2000–2019 and estimate that firms’ propensity to import dirty inputs from non-EU countries increased in the 2010s, reflecting carbon leakage. A heterogeneous firm model is then used to quantify the impact of changes in firms’ sourcing of clean and dirty inputs given the implementation of a carbon tax and a carbon tariff. The simulated ETS carbon tax scenario is able to match leakage observed in the data and leads to a higher price level and a modest decline in emissions. The scenario that further includes the CBAM carbon tariff reverses carbon leakage at the cost of an additional rise in prices. Overall, household welfare declines because the higher costs associated with the carbon policies outweigh the benefits of reduced emissions. |
| Keywords: | firm sourcing; supply chain adaptation; carbon tax; carbon tariffs; carbon leakage; environment |
| JEL: | F14 F18 F64 H23 Q56 |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99085 |
| By: | Guy Lacroix; Pierre-Carl Michaud |
| Abstract: | We provide empirical evidence on the effectiveness of a tax measure aimed at increasing the employment rates of older workers in Quebec, Canada. We use several data sources and various identification strategies. First, we use a Quebec-Ontario difference-in-differences design and do not detect robust effects on employment for most age groups except for those aged 60 to 64, but the common trend assumption is found not to hold. For this last group, we use an alternative identification strategy that exploits the variation in treatment intensity over time using longitudinal administrative tax data for Quebec only. Doing so, we do not find any effect on transitions in or out of the labour force. We do find a small positive effect on earnings (intensive margin) but a negative one on the affected workers’ net tax liability. Finally, addressing the invalid comparison with Ontario, we investigate the impact of the credit using a staggered adoption design exploiting differences across cohorts within Quebec. The results are consistent with the alternative approach. We conclude that the tax measure does not appear to be a cost-effective way of raising public revenues nor of increasing the employment rates of older workers. Nous fournissons des preuves empiriques sur l'efficacité d'une mesure fiscale visant à augmenter les taux d'emploi des travailleurs plus âgés au Québec, Canada. Nous utilisons plusieurs sources de données et différentes stratégies d'identification. Tout d'abord, en appliquant la méthode des différences-en-différences entre le Québec et l'Ontario nous ne trouvons pas d'effets robustes sur l'emploi pour la plupart des groupes d'âge, à l'exception de ceux âgés de 60 à 64 ans, mais l'hypothèse de tendance commune ne semble pas être vérifiée. Pour ce dernier groupe, nous utilisons une stratégie d'identification alternative qui exploite la variation de l'intensité du traitement au fil du temps en utilisant les données administratives longitudinales sur les impôts pour le Québec seulement. Ce faisant, nous ne trouvons aucun effet sur les transitions ni d'entrée dans la population active ni de sortie de la population active. Nous constatons néanmoins un léger effet positif sur les revenus (marge intensive) mais un effet négatif sur la charge fiscale nette des travailleurs affectés. Enfin, pour remédier à la comparaison invalide avec l'Ontario, nous étudions l'impact du crédit en utilisant une modélisation «d'adoption échelonnée» (staggered adoption design), exploitant les différences entre les cohortes au sein du Québec. Les résultats sont cohérents avec l'approche alternative. Nous concluons que la mesure fiscale ne semble pas être approche efficiente d'augmenter les revenus de l'État ni d'augmenter les taux d'emploi des travailleurs plus âgés. |
| Keywords: | older workers, labour market participation, tax incentives, travailleurs plus âgés, participation au marché du travail, incitations fiscales |
| JEL: | J14 J16 H31 |
| Date: | 2024–11–15 |
| URL: | https://d.repec.org/n?u=RePEc:cir:cirwor:2024s-06 |