In this paper, we analyze whether the textual complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer (Am Econ Rev 100(3):763–801, 2010)in the period 1962–2003, we assess the relationship between tax bills’ textual complexity and financial markets in various windows around the signing of a bill. Our...
This paper shows that OECD’s Pillar Two may increase employment and investment in low-tax countries due to the Substance-based Income Exclusion (SBIE). The SBIE allows to tax-deduct payroll costs and user costs of tangible assets twice from the tax base of the top-up tax owed by subsidiaries in low-tax countries. Consequently, it implies that a 15% minimum corporate tax for low...
Public debt and its development are key questions of public sector economics and fiscal policy. This paper uses the Synthetic Control Method to study how different large-scale steps of European integration and the establishment of the EU fiscal framework have affected government debt in EU Member States. The results point to a notable debt-restricting effect of EU membership and...
We provide novel and comprehensive evidence on the net fiscal contributions of natives and migrants to the governmental budgets of EU countries. We account for income taxes and cash benefits, along with indirect taxes and in-kind benefits, which are often missing in standard datasets. We find that on average, migrants were net contributors to public finances over the period of...
Given the growing pressure on donors to curtail foreign aid budgets, analyzing the effectiveness of bilateral official development assistance (ODA) in realizing national interests has become more significant than ever. From the viewpoint of economic interests, prior research has revealed that ODA can help expand donor exports and outward foreign direct investments. This study is...
We analyse a model in which families may either be ‘traditional’ single-earner that care for the child at home or be ‘ modern’ double-earner households that use market child care. Family policies may favour one or the other group, like market care subsidies vs. cash-for-care. Policies are determined by probabilistic voting, where distributional impacts matter, both within and...
Married couples can face a higher or lower tax burden than cohabitating couples with the same income when the former are taxed as one unit. I study the effect of such joint income taxation on the marriage rate in Switzerland, where tax differentials between married and cohabitating couples vary considerably across cantons. For this purpose, I construct a dataset containing...
We provide a new and unexplored explanation of the relationship between the functional and personal distribution of income. By proposing a simple theoretical framework, we show that, in the noncomprehensive personal income tax (PIT) hypothesis (i.e., when some or all capital income items are excluded from the PIT base), the correlation between disposable and market income...
Policymakers were surprised to find increases in sales tax revenues in 2020 due to expectations that they would drop 8–20%. We investigate this puzzle and provide novel insights into consumption taxes based on this experience. Using a case study from the State of Utah, we document that shifts in the structure of consumption played a significant role in the robustness of sales tax...
The typical method of solving for the optimal nonlinear tax schedule relies on deriving optimal incentive-compatible allocations. While this “primal approach” is mathematically rigorous, it lacks intuitive appeal. This paper considers a different method that relies on directly solving for the optimal tax system. This “dual approach” is much closer to actual tax policy as it...
In order to stop Value-Added Tax (VAT) fraud, EU member states use the so-called reverse-charge (RC) mechanism, which effectively removes VAT withholding and refunding in business-to-business transactions. Using the German VAT return data, we examine the effects of the introduction of RC and find that requests of input tax refunding decline sharply in the affected industries...
This paper aims to understand whether a shift towards a more balanced cash transfer and service-based welfare system is valuable in terms of reducing income inequality and what factors mostly contribute to the income inequality evolution. To examine this, I first impute the monetary values of in-kind benefits and then reassess Gini coefficients across countries and welfare...
Multinational enterprises (MNEs) have incentive to reduce tax payment through transfer pricing. The incentive is stronger when MNEs own intangibles, because it is easy to transfer them across countries. To mitigate such strategic tax planning, the OECD proposes the arm’s length principle (ALP). This paper deals with technology patents as an example of intangibles and investigates...
This paper examines the impact of foreign aid and taxes on government spending for 67 developing countries during 1980–2013 using dynamic heterogeneous (panel) time-series techniques. We find that spending, aid and tax ratios comprise an equilibrium (cointegrated) relation. On average, the aid coefficients (and marginal impacts) are positive but smaller than the tax coefficients...
The COVID-19 crisis poses new policy challenges and has spurred new research agendas in public economics. In this article, we selectively reflect on how the field of public economics has been shaped by the COVID-19 pandemic and discuss several areas where more research is necessary. We highlight major changes and inequalities in the labor market and K-12 education, in addition to...
In the U.S., means-tested cash, in-kind assistance, and social insurance are part of a patchwork safety net, often run with substantial involvement of state and local governments. Take-up–participation among eligible persons in this system is incomplete. A large literature points to both neo-classical and behavioral science explanations for low take-up. In this paper, we explore...
This paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC). SBTC affects optimal taxes and subsidies by changing (1) direct distributional benefits of each policy instrument, (2) indirect, general-equilibrium effects on wages, and (3) education distortions. Analytically, the effect of SBTC on these three components is...
This study provides evidence for the USA that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital (robots), and population growth. First, we empirically find indications of co-integration for the period from the last quarter of the 20th to the first decade of the twenty...
Recent papers hypothesise that estimates of the elasticity of taxable income (ETI) for individuals may be underestimated where those individuals are taxed separately but are part of a couple. This paper investigates that issue by applying the ‘bunching at tax kinks’ approach to estimate separate ETIs for partnered and single individuals. It shows that there are opportunities for...
Drawing on the original survey of Japanese firms during the COVID-19 pandemic, we estimate the impact of the crisis on firms’ sales, employment and hours worked per employee and roles of work-from-home (WfH) arrangements in mitigating negative effects. We find that the lowered mobility, induced by the state of emergency declared by the government and fear of infection...
We analyze the relationship between the party affiliation of politicians at different levels of government and the spatial distribution of funding for research, development and innovation projects. In particular, we are investigating whether more federal grants are being granted in Germany for projects in federal states whose government is led by the same political party as the...
Previous work has shown that nonlinear taxation can affect the willingness to undertake risky investments. We show that similar results can arise if agents are uncertain regarding future tax rates. Uncertain taxes distort investment decisions when tax rates are correlated with marginal productivity. We demonstrate this result in a simple theoretical framework, which can also...
The value-added tax (VAT) is meant to be an efficient and self-enforcing tax on consumption. Yet, being a rather sophisticated tax, the VAT can also be complex and costly to administer. By examining the case of Rwanda, this paper assesses the extent to which the VAT’s potential materialises in the context of a lower-income countries. Using a mixed-methods approach, which combines...
We quantify the fiscal impacts of earthquakes in Japan. In contrast with earlier research which examined national level aggregate spending in several countries, we are able to provide a detailed examination of separate budget categories within the local governments’ fiscal accounts. We do this using detailed line-budget expenditure data, and by comparing regions and towns...