Search

Begin New Search Topic Tax Systems Publication Year within 5 Years

51. Improving tax policy in Latin America and the Caribbean: A balancing act

Author:
Felipe Larraín B. and Pepe Zhang
Publication Date:
12-2022
Content Type:
Special Report
Institution:
Atlantic Council
Abstract:
Latin America and the Caribbean is in the midst of a delicate economic transition, with five of the LAC6 countries attempting a tax reform before their GDPs recovered to pre-pandemic levels.1 As the region confronts rising inflation, the economic spillovers of the war in Ukraine, and budgetary pressures left behind by the pandemic, governments should improve their taxation systems to rebuild fiscal stability, stimulate growth, and enhance equity – a delicate balancing act among overlapping policy priorities. Regional taxes are a heavy administrative burden, requiring nearly twice the time to complete in LAC as in the OECD.2 At the same time, the region struggles with average tax evasion of 5.6 percent of GDP3 and a continued overreliance on corporate income taxes.4 With still-high public debts and fiscal deficits, governments must respond by implementing policies to streamline and modernize revenue collection and management. What are the pros and cons and trade-offs involved in increasing or decreasing the region’s three main taxes (VAT, PIT, and CIT)? How can governments optimize enforcement and collection without resorting to rate changes? What policies outside the tax authority are needed to support tax reforms? How can policymakers better navigate the thorny politics of tax reforms? The following pages provide new analysis and concrete recommendations to address these questions. Drawing on the powerful expertise of its authors in addition to valuable commentary and insight from private, nonpartisan strategy sessions, legal experts, and regional governments, this report is a strong addition to the Adrienne Arsht Latin America Center’s #ProactiveLAC Series, which aims to provide insight and foresight to LAC countries on how to advance economic reactivation and long-term prosperity.
Topic:
Markets, Reform, Economic Growth, Tax Systems, Macroeconomics, Fiscal Policy, Financial Institutions, and Inclusion
Political Geography:
Latin America and Caribbean

52. Impacts of New International Tax System on Multinational Firms’ FDI

Author:
Sangjun Yea
Publication Date:
04-2022
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
In this study, I present a theoretical model to quantitatively assess the economics impact of Pillar 1 and Pillar 2, especially focusing on the changes in the FDI patterns of multinational enterprises (MNEs). Pillar 1 offsets the incentives of MNEs' profits-shifting for tax-planning purposes, thereby reducing the inbound FDI into the countries with low corporate income tax rates. Pillar 2 burdens MNEs with 'top-up' taxes attributed from the subsidiaries in low tax countries. As the profits after tax (PAT) of MNEs shrink at the global level, innovation and R&D investment for new products will decrease, and as a result, global FDI flows will hamper.
Topic:
Economics, Foreign Direct Investment, Multinational Corporations, and Tax Systems
Political Geography:
Global Focus

53. Female labour supply and informal employment in Ecuador

Author:
H. Xavier Jara and Pia Rattenhuber
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Low- and middle-income countries face a trade-off between raising tax revenue to strengthen social protection and creating incentives for the population to enter formal employment. However, empirical evidence on labour supply elasticities in the presence of informal employment remains scarce. This paper analyses female labour supply behaviour and the choice between formal and informal employment in Ecuador, a middle-income country characterized by persistent levels of informal employment particularly among women. We use two methods to estimate and compare formal employment elasticities: (i) a discrete choice model of labour supply with informality and (ii) grouped-data estimation techniques. For identification, we exploit variation in tax–benefit policies covering the period 2011–19, using microsimulation techniques applied to household survey data. Our results show that, on average, formal employment elasticities for single women are low regardless of the approach chosen. However, for women in couples, formal employment elasticities are larger under the discrete choice approach whereas they are low and non-significant under the grouped-data estimations.
Topic:
Labor Issues, Women, Employment, and Tax Systems
Political Geography:
Central America and Ecuador

54. Does the adoption of peer-to-government mobile payments improve tax revenue mobilization in developing countries?

Author:
Abdoul-Akim Wandaogo, Fayçal Sawadogo, and Jesse Lastunen
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Developing countries need to raise sufficient tax revenue to finance development. Revenue mobilization is often hampered by limited tax compliance, weak institutions, and technical problems with tax collection. One solution to these challenges is person-to-government (P2G) mobile phone payments, adopted in a number of developing countries since the early 2000s. This study assesses the causal effect of P2G adoption on tax revenue using propensity score matching. According to the matching estimates, countries that adopt P2G services experience a 1.2–1.3 percentage point boost in direct tax revenue as a share of GDP. P2G adoption increases revenue from both corporate and personal income taxes, with larger effects on the latter. The results remain robust to matching quality tests and alternative estimation methods, including function control, two-stage least squares, and system generalized method of moments. The average treatment effects are largest among lower-middle-income countries and countries characterized by limited tax compliance and corruption control, and by low levels of urbanization and domestic credit to the private sector. The findings suggest that developing countries, particularly those with poor institutions and low levels of financial inclusion, should promote the adoption and use of mobile money services for tax transactions.
Topic:
Development, Government, Finance, Economy, and Tax Systems
Political Geography:
Global Focus

55. Taxless fiscal states: Lessons from 19th-century America and 21st-century China

Author:
Yuen Yuen Ang
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How do modern fiscal states arise? Perhaps the most dominant explanation, based on the European experience, is that democratic institutions that limited the extractive power of states—exemplified by the 1688 Glorious Revolution in England—paved the way for the rise of fiscal capacity and subsequent prosperity. Revisionist accounts, however, reveal that this dominant narrative is flawed. In fact, numerous factors converged to enable the rise of European fiscal states, and in England, debt and land were particularly salient factors. Building off this literature, I bring attention to the role of ‘taxless public financing’ (i.e. financing public infrastructure through means other than taxation) in the making of fiscal states in two seldom compared cases: 19th-century America and 21st-century China. Both countries relied heavily on taxless financing to launch an infrastructure boom that spurred rapid growth along with massive corruption and financial risks.
Topic:
History, Finance, Tax Systems, and Land
Political Geography:
China, Asia, North America, and United States of America

56. The indirect costs of corporate tax avoidance exacerbate cross-country inequality

Author:
Javier Garcia-Bernardo, Daniel Haberly, Petr Janský, Miroslav Palanský, and Valeria Secchini
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Corporate tax avoidance hampers domestic revenue mobilization and, with it, the development of lower- and middle-income countries. While a wide range of studies has shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. These indirect costs are likely to be skewed based on a country’s level of income. We hypothesize that developed countries tend to recover a larger part of corporate tax revenue losses (primary effects or direct costs) via capital gains and dividend taxes on corporate investors (secondary effects). Furthermore, developed countries can offset tax losses by borrowing in financial markets at very low interest rates (tertiary effect or, together with secondary effects, indirect costs). In this paper, we introduce a dynamical model that includes not only corporate tax revenue losses but also tax revenue collected from capital gains and dividend taxes, as well as government borrowing costs. We use country-by-country reporting data on the operations of multinational corporations to estimate profit shifting, alternative operationalizations of the location of investors to proxy the tax revenues from capital gains and dividend taxes, and yields on government bonds to measure the cost of borrowing. Our results show that when these indirect costs are included, the total cost of profit shifting for developing countries increases significantly, while some developed countries can often offset or recover the majority of the direct costs of profit shifting. The ability of the latter to do this is, however, uneven with, for example, most European countries losing revenues from profit shifting even after indirect effects are taken into account. Only a handful of other countries actually appear to profit from profit shifting—and by an amount that is far smaller, in relation to gross domestic product, than the losses suffered by others.
Topic:
Inequality, Multinational Corporations, Tax Systems, and Tax Havens
Political Geography:
Global Focus

57. Profit shifting by multinational corporations in Kenya: The role of internal debt

Author:
Roseline Misati, Kethi Ngoka, Anne Kamau, and Maureen Odongo
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Illicit financial flows directly impact a country’s ability to raise, retain, and mobilize its own resources to finance sustainable development. Against a backdrop of a weak public financial position attributed to capital flight, tax avoidance, and dependence on corporate income taxes, governments in Africa face impediments to their efforts to widen the tax base. Using firm-level annual data from 2015–19 from multinational corporations’ audited financial statements, we assess the scale of profit shifting by those corporations with a presence in Kenya. Using a panel analysis, the study delves into the incentives for profit shifting, focusing on internal debt. It finds that a 10 per cent increase in the difference between Kenya’s corporate tax rate and that of the lending corporation’s home country increases the internal debt ratio by between 1 and 2 per cent. The results provide a basis for the design of targeted tax and revenue administration reforms against the backdrop of rising revenue needs.
Topic:
Multinational Corporations, Tax Systems, Profit, and Corporate Tax
Political Geography:
Kenya and Africa

58. Who Pays Sin Taxes? Understanding the Overlapping Burdens of Corrective Taxes

Author:
Christopher Conlon, Nirupama Rao, and Yinan Wang
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
“Sin taxes”—or excise taxes on particular goods that society deems harmful—are popular in the United States. Federal, state, and local governments levy taxes on alcohol and tobacco with the dual and sometimes conflicting goals of curbing consumption and raising revenue. For many of these products, taxes represent a large share of the overall price. In New York City, a 1.75L bottle of vodka might sell for as little as $11.99 of which $7.97 is tax; and a $13.00 pack of cigarettes includes $6.86 in taxes.
Topic:
Tax Systems, Economic Policy, and Consumer Behavior
Political Geography:
North America and United States of America

59. The Value-Added Tax (VAT) Improvement Program: Raising the operational efficacy of the VAT administration in Bangladesh

Author:
Oxfam Publishing
Publication Date:
05-2022
Content Type:
Research Paper
Institution:
Oxfam Publishing
Abstract:
Bangladesh has a weak and inequitable tax system. Over the past 15 years, the government of Bangladesh (GoB) has relied on the regressive value-added tax (VAT) for more than a third of all revenues, with little progress towards strengthening direct taxation of high net-worth individuals and large corporations. From 2015–2021, the World Bank’s VAT Improvement Program (VIP) assisted the Bangladesh National Board of Revenue in improving VAT administration. VIP helped speed up automation and increase revenues. But the program did not include any objectives to improve VAT equity and fairness, and it also fell short on improving transparency and taxpayer satisfaction. To address VAT’s regressive nature and its impact on low income households, the GoB needs to improve coverage of social protection programmes. Bangladesh and its external partners should focus on strengthening progressive direct taxation. Meanwhile, the government must end gender-blind VAT administration and recognize that VAT negatively affects low income female entrepreneurs and consumers.
Topic:
Inequality, Tax Systems, Social Order, and Gender
Political Geography:
Bangladesh and Asia

60. Taxation, infrastructure investment, growth, and poverty reduction: A case study of Zimbabwe

Author:
Hans Lofgren and Martin Cicowiez
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:
In recent decades, Zimbabwe’s development record has been disappointing. In the last few years, a severe drought and the Covid-19 pandemic have added to the country’s development challenges. This paper is concerned with the long-run need to find a path toward faster growth in GDP, employment, and incomes, accompanied by more rapid progress on poverty reduction and other parts of the global sustainable development agenda. As part of this search, the country will need to address structural constraints including a large infrastructure gap, an inefficient government, and unhospitable business climate. Among these, this paper is focused on infrastructure and alternative means of financing scaled-up investments – what are the consequences of relying on domestic taxes compared to foreign financing? To address these questions, the paper draws on simulations with SDGSIM, a computable general equilibrium (CGE) model, designed for SDG analysis but applicable to analysis of policies in a wide range of areas, including growth, fiscal space, and external shocks. The model was adapted to the Zimbabwean context and calibrated to a database for 2016. The simulations cover the period 2016-2030 and analyzes the effects of alternative levels and priorities for government spending and resource mobilization (domestic and foreign). The simulation results cover a wide range of economic indicators, including some related to the global Sustainable Development Goal (SDG) agenda. The differences between the scenario results for GDP growth, household consumption, and poverty point to the importance of strong public investment management and, other things being equal, of targeting TFP gains to tradable sectors. The advantages of reliance on domestic taxation for the funding of expanded investment include slower debt accumulation and less reliance on the decisions of external actors. Tax reliance may also give the funders, the citizens, a stronger sense of ownership and right to monitor how the money is used, with a positive impact on investment productivity. On the other hand, before the investment have yielded sufficient returns, reliance on taxes reduces private purchasing power, leading to some combination of lower private consumption and investment. Raising the tax burden by 2-3 percent of GDP may also be administratively difficult. It would of course be possible to consider scenarios that split the funding burden between domestic taxes and foreign financing.
Topic:
Poverty, Infrastructure, Economic Growth, Tax Systems, and Investment
Political Geography:
Africa and Zimbabwe