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111. Corporate tax avoidance and industry concentration

Author:
Farid Toubal, Mathieu Parenti, and Julien Martin
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
Topic:
Economics, International Political Economy, Markets, Tax Systems, Corporations, Tax Evasion, and Corporate Tax
Political Geography:
United States and Global Focus

112. Estonian corporate tax: Lessons for Poland

Author:
Aleksandr Łożykowski, Anna Leszczyłowska, and Dmitri Jegorov
Publication Date:
04-2020
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
Topic:
Governance, Tax Systems, Investment, Fiscal Policy, and Corporate Tax
Political Geography:
Eurasia, Poland, and Estonia

113. Starving the Beast: Ronald Reagan and the Tax Cut Revolution, Monica Prasad

Author:
Christopher Faricy
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
Political Science Quarterly
Institution:
Academy of Political Science
Abstract:
Why has the Republican Party centered its domestic agenda around tax cuts for three decades? Monica Prasad presents a thorough, complicated, and convincing story of the political motivations and impact of Ronald Reagan’s Economic Recovery Tax Act (ERTA) of 1981. Starving the Beast argues that the ERTA marked the transformation of the Republican Party from a party of fiscal responsibility to one of tax cuts. Reagan showed his fellow Republicans that running on tax cuts was not only electorally popular but came with no economic or political costs. Republicans could now distribute government benefits through the tax code as a counter to Democratic expansions of the welfare state. This strategy united disparate factions within the party and is still one of the GOP’s only popular policy positions.
Topic:
History, Political Science, Tax Systems, and Ronald Reagan
Political Geography:
North America and United States of America

114. It takes two to tango: Labour responses to an income tax holiday in Argentina

Author:
Dario Tortarolo, Guillermo Cruces, and Victoria Castillo
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:
We exploit a large, quasi-randomized, 2.5-year-long income tax holiday to identify intertemporal labor responses of high-wage earners to net wage changes. In August 2013, the Argentine government exempted a group of wage earners from the income tax for 2.5 years while leaving in place the tax on other high-wage earners. Eligibility was based on whether past wage earnings were below a fixed threshold, thus levying sharply different marginal and average tax rates—effectively 0% for workers below the threshold. Using rich population-wide administrative data and a regression discontinuity design, we estimate a precise and very small wage earnings elasticity of 0.017 for this large, salient, and temporary income tax change. Responses are larger for more flexible outcomes (overtime hours) and for more elastic groups (job switchers and managers). We also find avoidance responses from new entrants who faced no tax if their first monthly wage was below the fixed threshold. This strategic entry below the threshold to dodge taxes required coordination with employers. Our findings indicate rigidities in the labor market that require employer-employee cooperation to be overcome for wage earners to be able to respond to tax changes.
Topic:
Economics, Labor Issues, Income Inequality, and Tax Systems
Political Geography:
Argentina and Latin America

115. Capital, Inequality, and Compulsory Savings: Australia’s Superannuation System in the Context of Piketty

Author:
Brody Viney
Publication Date:
05-2020
Content Type:
Journal Article
Journal:
Journal of Public and International Affairs (JPIA)
Institution:
School of Public and International Affairs (SPIA), Princeton University
Abstract:
A fundamental aspect of economic inequality, highlighted by Thomas Piketty’s Capital in the Twenty-first Century, is the unequal distribution of capital ownership (wealth). This not only undermines the welfare of individuals with low wealth, but exacerbates the distributional consequences of a declining labor share of income. However, policy responses to wealth inequality remain underdeveloped. This paper considers how policies that increase the private savings of low- and middle-income individuals can complement more traditional taxation and redistribution approaches. As a case study, it explores the distributional effects of Australia’s superannuation system, a private retirement savings scheme that sets a compulsory minimum savings rate for all employees. Superannuation has contributed to a more equal distribution of wealth in Australia, particularly by offsetting declines in other kinds of wealth among those at the low end of the distribution. However, loopholes have also allowed high-income individuals to use the system to save in a low-tax environment. Further work is needed to investigate the effects of compulsory savings rates on those with very low incomes.
Topic:
Labor Issues, Capitalism, Tax Systems, and Economic Inequality
Political Geography:
Australia and Asia-Pacific

116. Revenue Collection and Social Policies: Their Underestimated Contribution to Social Cohesion

Author:
Francesco Burchi, Christoph Strupat, and Armin von Schiller
Publication Date:
01-2020
Content Type:
Policy Brief
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
Social cohesion is an important precondition for peaceful and economically successful societies. The question of how societies hold together and which policies enhance social cohesion has become a relevant topic on both national and international agendas. This Briefing Paper stresses the contribution of revenue collection and social policies, and in particular the interlinkages between the two. It is evident that revenue mobilisation and social policies are intrinsically intertwined. It is impossible to think carefully about either independently of the other. In particular, revenue is needed to finance more ambitious social policies and allow countries to reach goals, such as those included in the 2030 Agenda for Sustainable Development. Similarly, better social policies can increase the acceptance of higher taxes and fees. Furthermore, and often underestimated, a better understanding of the interlinkages between revenue generation and social policies can provide a significant contribution to strengthening social cohesion – in particular, concerning state–citizen relationships. In order to shed light on these interlinkages, it is useful to have a closer look at the concept of the “fiscal contract”, which is based on the core idea that governments exchange public services for revenue. Fiscal contracts can be characterised along two dimensions: (i) level of endorsement, that is, the number of actors and groups that at least accept, and ideally proactively support, the fiscal contract, and (ii) level of involvement, that is, the share of the population that is involved as taxpayer, as beneficiary of social policies or both. In many developing countries, either because of incapacity or biased state action towards elite groups, the level of involvement is rather low. Given the common perception that policies are unjust and inefficient, in many developing countries the level of endorsement is also low. It is precisely in these contexts that interventions on either side of the public budget are crucial and can have a significant societal effect beyond the fiscal realm. We argue that development programmes need to be especially aware of the potential impacts (negative and positive) that work on revenue collection and social policies can have on the fiscal contract and beyond, and we call on donors and policy-makers alike to recognise these areas as relevant for social cohesion. We specifically identify three key mechanisms connecting social policies and revenue collection through which policy-makers could strengthen the fiscal contract and, thereby, enhance social cohesion: 1. Increasing the effectiveness and/or coverage of public social policies. These interventions could improve the perceptions that people – and not only the direct beneficiaries – have of the state, raising their willingness to pay taxes and, with that, improving revenues. 2. Broadening the tax base. This is likely to generate new revenue that can finance new policies, but more importantly it will increase the level of involvement, which will have other effects, such as increasing government responsiveness and accountability in the use of public resources. 3. Enhancing transparency. This can stimulate public debate and affect people’s perceptions of the fiscal system. In order to obtain this result, government campaigns aimed at diffusing information about the main features of policies realised are particularly useful, as are interventions to improve the monitoring and evaluation system.
Topic:
Development, Finance, Economic Growth, Tax Systems, Transparency, and Social Cohesion
Political Geography:
Germany and Global Focus

117. Designing inclusive public finance policies in developing countries: Five key issues and solutions

Author:
Jukka Pirttilä and Finn Tarp
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
United Nations University
Abstract:
Taxation, and public sector matters more generally, are high on the agenda for the international development community. This is clearly reflected in the Sustainable Development Goals (SDGs). SDG17 stipulates the need for improving domestic resource mobilization directly, and most of the other SDGs cannot be achieved without adequate tax and spending policies.
Topic:
Developing World, Sustainable Development Goals, Tax Systems, Public Spending, and Inclusion
Political Geography:
Global Focus

118. What Tax Policy In Cameroon After 2020?

Author:
William Hermann ARREY
Publication Date:
12-2020
Content Type:
Policy Brief
Institution:
The Nkafu Policy Institute
Abstract:
The COVID-19 pandemic has imposed unprecedented negative consequences on the Cameroonian economy. To reduce the spread of the virus, the government imposed a range of measures such as social distancing and border closures to protect its citizens. While the social costs leave little to be desired, the pandemic equally took a toll on a majority of sectors across the economy, impacting wages, consumer spending, and profitability for businesses. This fiscal policy letter analyzes the amended budget, delving into aspects related to the Covid-19 pandemic, as well as the structural factors that could determine the viability and sustainability of public finances in the coming decades. The first article looks at the implications of the pandemic for domestic revenue tax mobilization with the aim of improving the personal income and non-oil tax in the business sector. It recommends that the government consolidates public sector spending, reduces taxes on businesses in the non-oil sector, and suspend tax payments on businesses as the pandemic abates.
Topic:
Economics, Tax Systems, Fiscal Policy, Consumerism, and Wage Growth
Political Geography:
Cameroon

119. Measuring the Progress in Realizing the Strategy “Europe 2020” in 2010-2016 in 28 European Union Member States

Author:
Piotr Siemiatkowski
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
Polish Political Science Yearbook
Institution:
Polish Political Science Association (PPSA)
Abstract:
The paper presents the results of the research over the measurement of the progress in the realization of the objectives specified in “Europe 2020 - a strategy for smart, sustainable and inclusive growth” in 2016 in comparison with 2010. The analysis availed itself of the statistical data of Eurostat which describes the main indicators of the strategy for all member states of the European Union. The available empirical data allowed for constructing a synthetic measure reflecting the progress in realizing the objectives specified in the Strategy. The analysis of the values that the said measure assumed became a basis for creating a rating of EU member states for two distinct years that were subject to scrutiny. Also, there was specified the variation in the value of the said measure and the changes in the positions occupied by particular states in the mentioned rating. What was also conducted was a cluster analysis, which allowed for dividing the scrutinized countries into groups in case they are described by more than one property. Except for this and as compared to all the previous works on the subject, the method of the construction of the synthetic measure was considerably sharpened.
Topic:
International Cooperation, European Union, Economic Growth, and Tax Systems
Political Geography:
Europe