The Impact of Social Security Into Tax Authorities on Intra-Firm Income Disparity

An Analysis of the Spatial Distribution of expense and Income of Rural Households in Iran

This paper aims to study the impact of correcting the factor misallocation among China's three major industries on China's income gap and income distribution pattern. By using the industry Panel data at the provincial level in China, we measure the degree of factor misallocation among the three major industries in China's provinces from 2002 to 2019 by building a factor misallocation measurement model, and then uses reverse thinking to compare the income gap under the condition of no factor misallocation with the actual income gap, and then obtains the impact of factor misallocation on the income gap, And use this method to focus on analyzing the impact of factor allocation efficiency changes among the three industries on income distribution pattern. The research finds that: (1) There is a serious factor misallocation among the three major industries in each province. From the perspective of subdivided factors, the factor misallocation among the three major industries in China's provinces is mainly caused by labor misallocation. Factor misallocation shows a trend of convergence first and then divergence among regions. (2) There is a strong heterogeneity in the explanatory power of different dimensions of the income gap of factor misallocation among the three major industries in China's provinces. Among them, correcting the misallocation of total factors among the three major industries in China's provinces can only narrow the internal income gap of the tertiary sector of the economy, and expand the internal income gap between the primary and secondary industries. (3) The impact of correcting the total misallocation, capital misallocation and labor misallocation among the three industries on the income gap among industries or provinces is narrowing first and then expanding. (4) Further research shows that although the level of factor misallocation among provinces in China is significantly lower than the average level of factor misallocation among the three major industries within each province, it has a stronger explanatory power for the inter-provincial income gap. Correcting the total factor misallocation and labor misallocation among provinces can significantly reduce the inter-provincial income gap in China. Correcting the total factor misallocation and labor misallocation among provinces in 2019 can reduce the inter-provincial income gap by 51.48% and 81.68% respectively. Only correcting the capital misallocation among provinces will expand the inter-provincial income gap, and only correcting the capital misallocation among provinces in 2019 will expand the inter-provincial income gap by 112.21%.

This paper uses actuarial models to analyze the impact of tax authority's full responsibility collection of social security fee on the scope for reducing the pension insurance contribution rate. The study finds that: (1) The tax authority's full responsibility for collecting social security fees can increase the pension insurance collection rate by 20.3%-25.2%; (2) If the balance of fund income and expenditure and pension treatment remain unchanged, the contribution rate can be reduced by 1.34–2.22% in 2021–2030; (3) If the state-owned shares are transferred to enrich the social security fund, the contribution rate can be reduced by 3.58–4.22% in 2021–2030, and the payment burden of enterprises can be significantly reduced. In short, if the tax authority is fully responsible for collecting social security fees, it can provide conditions for lowering the contribution rate of pension insurance, but it needs to cooperate with other policies, such as the transfer of state-owned shares to enrich the social security fund. Chinese government should gradually clarify the tax authority's responsibility for collection to reduce the contribution rate of pension insurance and stimulate the market vitality.

The exponential growth of China's digital economy has exerted a profound influence on economic advancement and income distribution. To effectively tackle income inequality, it is essential to incorporate the analysis of digital economy development within the framework of fiscal expenditure. This study utilizes a comprehensive panel dataset encompassing 276 cities in China during the period from 2011 to 2020. Employing the fixed-effect model and instrumental variable method, the research investigates the influence of fiscal expenditure on the income gap while investigating the moderating effect of the digital economy. The key findings of the study can be summarized as follows: (1) In general, fiscal expenditure demonstrates a propensity to reduce the income gap. (2) Different categories of fiscal expenditure exhibit distinct effects on the income gap. Social security and employment expenditures do not significantly alleviate the income gap. Conversely, education expenditures and health expenditures tend to exacerbate the income gap. On the other hand, expenditures in agriculture, forestry, and water resources, as well as urban and rural affairs, effectively narrow the income gap. (3) The development of the digital economy enhances the capacity of fiscal expenditure to adjust income distribution, showcasing non-linear effects. From a fiscal expenditure classification perspective, the digital economy primarily enhances the effectiveness of income distribution adjustment for expenditures in sectors such as agriculture, forestry, water resources, and others. Based on these findings, this study proposes a set of future measures aimed at facilitating China's efforts to reduce the income gap within the framework of the digital economy. These measures encompass expediting the integration of the digital economy with government governance and advocating for the widespread adoption of digital government affairs platforms. By implementing these measures, China can gain valuable insights into effectively addressing income inequality and promoting more equitable economic outcomes within the context of the digital economy.

The federal government is actively involved in encouraging the formation and growth of private pensions and in regulating their behavior. The primary form of encouragement is the government's tax subsidization of pensions. A primary attribute of pension plan provisions is an implicit tax on employment after certain ages. The primary form of pension regulation is through ERISA, the Employee Retirement Income Security Act. The government's involvement in encouraging and regulating private pensions appears to reflect its desire that workers have a secure source of old-age income that will lessen their reliance on Social Security. In recent years the government has reacted to demographic changes, their effects on Social Security funding, and the increase in early retirement by also using its pension and Social Security tax and regulatory policies to encourage workers to delay their retirement decision. This chapter examines the structure of pension plans with two questions in mind. First, have government pension backloading regulations aimed at ensuring future pension benefits been effective? Second, has the structure of old-age pension accrual at the end of the workspan, an implicit tax, greatly limited the effectiveness of government policy in reversing the trend to early retirement? The answers to these questions are important for assessing the benefits of the government's tax subsidization of pensions as they are currently structured. Our principal findings are as follows: 1. ERISA regulations notwithstanding, a significant proportion of defined benefit plans exhibit severe backloading. Indeed, backloading is an inherent property of defined benefit pension plans. 2. A large fraction of defined benefit plans embed very substantial old-age work disincentives through an implicit tax on wage earnings. 3. These pension retirement incentives are often much greater than Social Security's retirement incentives. 4. Evidence from one large Fortune 500 firm indicates that pension retirement incentives can greatly increase the extent of early retirement.

PurposeThe present work aimed to present the perception of Tunisian professionals towards companies engaged in social responsibility practices and describe the tax evasion strategies of socially responsible Tunisian companies following the coronavirus disease 2019 (COVID-19) pandemic (COVID-19) shock.Design/methodology/approachA survey was sent to 119 Tunisian tax administration auditors. Data analysis methods principal component analysis (PCA) and regression analysis were used. The data were collected through a questionnaire after the general containment of Tunisia from September 2020 to February 2021. These quantitative data were analysed using processing software (STATA).FindingsProfessionals of the tax authorities, particularly those in charge of the audit mission, aim for corporate profitability from the perspective of stakeholders that seek to integrate ethics and social responsibility into companies and consider employee morale a top priority. The results show that highly ethical and socially responsible professionals are far from practising aggressive strategies. Thus, an auditor from the tax administration is far from engaging in social responsibility to justify fraudulent acts. During the COVID-19 period, the role of these professionals was to prevent and detect fraud in the tax sector to fight corruption and investigate taxes based on sound regulations.Research limitations/implicationsThe results are consistent with optimal taxation theory, which postulates that a tax system should be chosen to maximise a social welfare function subject to a set of constraints. Professionals seek to make taxation much simpler for taxpayers by providing advice and consultation to manage tax obligations. The minimisation of tax or the play of tax values requires expertise in the field to respect legal constraints. Therefore, these professionals play a crucial role in tax collection, as the professionals' advice and suggestions can influence taxpayers' decision-making.Practical implicationsIn recent years, academic researchers, policy makers and the public have become increasingly interested in corporate tax evasion behaviour. At the same time, companies are under increasing pressure to integrate CSR into the companies' decision-making processes, which has led to increased academic interest in CSR. Opportunistic tax minimisation reduces state resources and funds needed for government programmes to improve the social welfare of the entire community. This study represents an overriding concern not only for legal and tax authorities and companies, but also for shareholders and stakeholders.Originality/valueThe authors' study contributes to the existing literature by determining the state of play on corporate social responsibility (CSR) practices amongst Tunisian tax authorities' professionals. In Tunisia, an executive of the tax authorities in charge of the verification mission is required to verify the proper application of the accounting and tax legislation in force, follow up on tax control operations on declared taxes and validate the sincerity of the accounts. This study focussed on the tax evasion of companies engaged in social responsibility practices according to the judgements of Tunisian tax authorities' auditors during the global COVID-19 pandemic.

The paper argues that the appropriate approach to determine public good provision financed by distortionary taxes should depend on the available tax regime. If a sufficiently rich tax regime exists, one could rely on the Pareto criterion, which would be less information—demanding than a social welfare approach requiring access to social welfare weights assigned to various groups. The discussion is related to a number of representative tax regimes and cost—benefit approaches in the literature. It is also argued that, whatever the available tax regime, cost-benefit analysis runs into problems unless one can assume that taxes are set optimally.

This paper has adopted an OLG Model to study the regulatory mechanism of public education and social security on income distribution. According to the research, public education can effectively narrow the gap in educational investment among families, and thereby reduce income disparity. Social security can bring down income disparity by reducing the labor supply and increasing effective family instructional time of low-income families. According to numerical simulation, at the same expenditure level, the capability of public education in regulating income disparity is much stronger than social security. When budget scale is relatively small, the priority shall be given to public education expenditure to reduce income disparity; when the budget scale is relatively large, the balance shall be established between expenditure on public education and social security.

I comment on this paper as a political philosopher and not as a political economist. My principal goal is not to criticise the paper’s theoretical results — which, insofar as I possess any competence of judgement, seem to me unexceptionable — but instead to clarify, and thus to expose to criticism, its methodological and evaluative presuppositions. At the methodological level, I will argue, it is hardly surprising that most of the conceptions of equitability discussed in the paper are unrealisable in any actually existing economy. For the formal model which the authors deploy in a neoclassical intellectual tradition encompasses drastic abstractions from realistic contexts in which utilities and productivities are not only widely divergent, but typically also only partially knowable. At the level of substantive value-judgement, I will maintain that the quest for equity or fairness in income distribution is the search for a mirage. Fundamental questions of equity, fairness and justice arise most saliently in respect of market processes, not with regard to income flows, but instead with reference to the underlying structure of entitlements from which these flows are generated. If the notion of equity or fairness in income distribution is a mirage, akin to the mediaeval idea of the just price or wage, it follows that progressive taxation policies which aim to approximate such equity in income distribution are radically flawed. It does not follow from this, however, that considerations of justice are altogether irrelevant to policy for income taxation, since (I shall contend) important injustices may well be incurred under any regime of progressive income taxation.

Summary The present paper investigates potential fiscal and distributional effects which emerge due to four reform scenarios on the German income tax rate. The analysis is based on a static simulation model for the German tax system using income tax micro-data. The data shows that changing the present progressive tax system to a flat-tax, which was proposed by the FDP in 2010, could reduce the tax revenue by 15 billion Euro. Such a tax regime would increase the unequal distribution and polarisation of net incomes. The IW Köln suggested an alternative tax rate in 2008. This regime would increase unequal distribution and polarisation of disposable incomes to a greater extent than the FDP-tax rate. An implementation of this income tax scale would go along with losses in tax revenue of 18.8 billion Euro. Likewise, the implementation of a 2009 SPD tax rate proposal would reduce tax revenue by 14.8 billion Euro. Although this regime would reduce unequal distribution, the effect on the polarization of disposable incomes is not definitely predictable. In contrast to all the other scenarios, the realisation of the recent SPD tax rate proposal from 2011 could enlarge tax revenue by 4.7 billion Euro. This tax regime would reduce unequal distribution and polarisation of disposable incomes even more than the present tax system.

This model explores how the optimal tax policy changes by the government on traditional internet economy and the blockchain economy when political regime changed. Also, our model compares how social welfare varies before and after the blockchain economy or the government involves. After analyzing, we get several interesting findings, first, without government, blockchain economy makes no influences on the monopoly ability of traditional internet economy and social welfare maximized in Nash equilibrium. Second, when government implements tax policy on economies, a loss in social welfare exists if the government is more self-interest (less democratic). Third, pure blockchain economy only exists when the democratic level of a government is very low and the technical cost of running a traditional internet platform is very high. This is because, in the mixed economy, the independence of more-dictatorial government with traditional internet economy leads to non-subsidy tax policy for traditional internet platform with high technology costs, thus the participation constraint for traditional internet platform cannot be satisfied. And without traditional internet economy, more self-interested government prefers to implement exploitative tax policy on citizens in pure blockchain economy, thus leads to a loss in social welfare. Finally, we find that even though maximization of social welfare cannot be realized in pure blockchain economy, with government's tax policy, social welfare is generally higher after blockchain economy was introduced.

This paper investigates the effect of capital gains taxes on stock return volatility, a topic that has been largely ignored by scholars and policymakers. The modest attention in the tax literature is surprising, because stock return volatility plays an important role in investment decisions for both investors and firms and is closely monitored by financial market regulators.We predict that capital gains taxes should reduce stock return volatility because they allow the government to share in the gains and losses incurred by the investors. When the capital gains tax rate is high (low), investors' exposure to stocks' cash flow risk is low (high), leading to lower (higher) stock return volatility. We base this prediction on our extension of the theoretical framework of Sikes and Verrecchia (2012). We demonstrate that increased exposure to firms' cash flow risks increases the stock return volatility, leading to an inverse relation between capital gains tax rates and return volatility. Intuitively, when the government shares in the gains and losses in the firms' cash flow, the variability of the cash flows received by the investors is reduced. This sharing reduces the volatility of the stock prices of these firms because (from the investors' perspective) the value of these firms is their after-tax discounted cash flow.For the empirical tests, we adopt a difference-in-differences approach and control for factors known to affect return volatility. To isolate the tax impact on volatility, we identify two cross-sectional variations in the relation between changes in capital gains taxes and changes in return volatility: unrealized capital gains and dividend distributions. We predict that the more stock returns are subject to capital gains taxation (such as stocks with larger unrealized capital gains and/or non-dividend-paying stocks), the greater the increase in return volatility following a capital gains tax rate cut due to reduced risk-sharing in firms' cash flows between shareholders and the government.Consistent with this prediction, we find that return volatility of firms with more stock returns subject to capital gains taxes increased more following the Revenue Act of 1978 (hereinafter, RA) and the Taxpayer Relief Act of 1997 (hereinafter, TRA). We choose these two legislations because they are the two most recent tax acts that substantially reduced capital gains tax rates while affecting few other elements of the tax code. Finding consistent cross-sectional changes in return volatility following capital gains tax rate cuts from two distinct economic environments occurring nearly two decades apart provides added assurance that stock return volatility moves inversely with capital gains taxes.Our specific findings are as follows: In our RA tests, we find that the monthly return volatility for portfolios with price appreciation in the upper quartile rose 56 basis points more than that for portfolios with price appreciation in the lower quartile. Further, the non-dividend-paying portfolios experienced a 29 basis points higher return volatility increase than did dividend-paying portfolios. These estimates are substantial, as they represent 17 percent and 9 percent of the average monthly return volatility of gain portfolios and dividend-paying portfolios, respectively. Similarly, in our TRA tests, we find that the monthly return volatility for portfolios with price appreciation in the upper quartile rose 96 basis points more than that for portfolios with price appreciation in the lower quartile. Non-dividend-paying portfolios show a 68 basis points higher return volatility increase than that for dividend-paying portfolios after the capital gains tax rate cut under TRA. As with the RA results, the estimated return volatility increases are non-trivial. They account for 18 percent and 17 percent of the average monthly return volatility of gain portfolios and dividend-paying portfolios, respectively.This study investigates the role of shareholder-level taxes on corporate investment. We use the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (hereafter, 2003 Tax Act) as a quasi-natural experiment to answer our research questions. The 2003 Tax Act reduced shareholder-level taxes on dividends and capital gains. Relative to legislative changes in 1993 and 1997 that also impacted shareholder-level taxes, the 2003 Tax Act changed tax rates on both capital gains and dividends and led to a dramatic decrease in the average marginal shareholder-level tax rate. Furthermore, prior research suggests that the 2003 Tax Act increased firms' share prices (Auerbach and Hassett 2006) and reduced firms' cost of equity capital (Dhaliwal et al. 2007). We predict that firms increased investment in response to the Act.Our study focuses on corporate investment for two reasons. First, a stated goal of the 2003 Tax Act was to encourage capital investment by corporations. Second, capital investment is a fundamental component of firm value (Hanlon and Heitzman 2010). Thus, our study is of interest to policymakers and academics. Whether changes in shareholder-level taxes will impact corporate investment is an open empirical question. Prior research suggests that firms could increase dividends in response to reductions in shareholder-level taxes instead of increasing investment (Chetty and Saez 2005). In addition, some firms may fund investment with internal funds and not equity, in which case, any reduction in the cost of equity capital derived from the 2003 Tax Act is unlikely to impact investment.We regress capital expenditures on an indicator variable equal to one for time periods after the Act, and controls for cross-sectional differences in capital expenditures. We first document that capital expenditures increase after the 2003 Tax Act. Because the economy was coming out of a recession around the 2003 Tax Act, it is possible that macroeconomic conditions unrelated to taxes caused investment to increase. To better link our findings to the 2003 Tax Act, we use a difference-in-differences research design to show that this increase in capital expenditures varies predictably with two shareholder-level tax-motivated hypotheses. First, we find that the increase in investment is smaller for firms largely held by investors that are less sensitive to shareholder-level taxes. Second, we find that the increase in investment is larger for firms most likely to fund investment from new equity issuances, rather than internal funds.In additional analysis, we examine how firms' dividend payout policy impacts our results. We find that while the majority of firms increase investment after the tax cut, a small subset of larger, older, and cash-rich firms increased dividend payout instead. Overall, our results suggest that, consistent with the intent of policymakers, the shareholder-level tax rate reductions set forth in the 2003 Tax Act increased corporate investment. Our findings add further evidence to the question of whether taxes impact firms' value and investment.In this paper, the phrase tax rate transparency describes the ease with which decision-makers can determine the rate at which their income is taxed. Prior experimental research has demonstrated that increased tax rate transparency results in better decisions (Rupert and Wright 1998; Rupert et al. 2003; Boylan and Frischmann 2006). This study contributes to our understanding of the effects of tax rate transparency by providing evidence on its distributional consequences. More specifically, this study provides evidence on who benefits from tax rate transparency, particularly when some individuals have access to better information about tax rates than others. Of particular interest is how those with limited access to information about tax rates fare in comparison to those who may have better information about relevant tax rates, and whether the private information that informed parties possess leaks out to the uninformed over time.Understanding the effects of tax rate transparency is important because a lack of transparency can cause decision-makers to miscalculate the potential tax effects of planned transactions. This can lead to strategic and tactical errors, and potentially reduce profits. It also creates incentives for decision-makers to use scarce resources to attempt to overcome the lack of transparency, which, in turn, can create distributional consequences in an economy. In addition, a lack of transparency often creates calls for tax reform as a means of promoting increased fairness and reducing the burden associated with measuring one's tax liability.This paper reports on a set of experimental markets in which participants were required to generate after-tax trading profits sufficiently large to generate a specific return on investment. Each market lasted eight periods, and the degree to which the relevant tax rate was transparent to participants varied across markets. Consistent with prior research, the results indicate that a lack of tax rate transparency had a negative effect on profits earned in the markets. Greater transparency led to higher profits for those who had access to the information about the relevant tax rate. However, the results from the experiment add to the existing literature by documenting that the effect of greater transparency spilled over to those who did not have access to the information about the relevant tax rate. It was those participants who benefitted the most over the course of the experiment—simply by participating in markets in which the tax rate was transparent to others.More specifically, data from the experiment show that when the tax rate was transparent to at least some of the participants, those participants earned anywhere from 14 percent to 45.4 percent more profit than they would have in markets in which the rate was not transparent to anyone, with specific amounts depending on whether the rate was transparent to everyone or only to some participants, as well as on the stage of the markets (early periods, middle periods, or late periods). In markets in which there was a mix of informed and uninformed participants, the increased profits earned by participants for whom tax rates were made transparent spilled over to the uninformed participants. It was these uninformed individuals who gained the most over time. Initially, their profits were about 20–25 percent lower than the profits of those who were informed (but still about 9 percent higher than profits earned in markets in which tax rates were opaque for everybody), but by the late periods of the markets, their profits were virtually indistinguishable from the profits of those for whom tax rates were made transparent.This research may be of interest to policymakers, who must wrestle with tradeoffs associated with adopting new tax rules. Some rules might influence behavior in ways that policymakers desire, but at the same time make tax rates less transparent and, hence, generate undesirable side effects. Alternatively, the effects of tax simplification will depend, at least in part, on the degree to which individuals are able to deal with complexity on their own. Policymakers should be aware of these tradeoffs when considering altering tax rules.We examine whether proprietary costs affect disclosure quality and how investors react to disclosure quality in a new proprietary cost setting. Leuz (2004) notes, “there is little empirical evidence on the existence of proprietary costs and their importance in explaining firms' disclosure choices.” We test for evidence of Verrecchia's (1983) proprietary cost hypotheses in a new setting, the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), where proprietary costs result from beliefs that the new required FIN 48 disclosures could weaken a firm's competitive position with tax authorities. Our approach overcomes two important measurement issues that researchers face in the empirical proprietary cost literature. First, the FIN 48 disclosures are proprietary with respect to tax authorities and should increase in the firm's level of tax avoidance, a construct with numerous established proxies in the tax avoidance literature (see Hanlon and Heitzman 2010; Lisowsky et al. 2013). This overcomes the elusive nature of identifying and measuring competitively sensitive information (see Beyer et al. 2010). Second, the mandatory nature of the FIN 48 disclosures provides a benchmark for measuring disclosure choices—deviations from the requirements of FIN 48 imply that firm managers withhold information. Finally, and more generally, we improve the external validity of the proprietary cost hypothesis by offering empirical evidence in a new setting with different types of firms (Shadish et al. 2002). Much of the empirical proprietary cost literature is limited to proprietary costs related to product market competition (i.e., Botosan and Stanford 2005; Berger and Hahn 2003, 2007).We first investigate whether we observe lower-quality FIN 48 adoption disclosures from firms that face higher proprietary costs. Adoption disclosures provide the most powerful setting for our study; ex ante perceived proprietary costs were significant—anecdotally, this perception declined ex post. We measure disclosure quality using a two-part disclosure score: (1) disclosure compliance (completeness), and (2) disclosure precision (clarity). We measure proprietary costs using a parsimonious measure constructed from multiple proxies for tax avoidance. Controlling for other determinants of disclosure quality, we find a negative association between proprietary costs and disclosure quality, consistent with the proprietary cost hypothesis. Moreover, we also predict and find that the relative significance of proprietary costs may differ across certain components of FIN 48 disclosures—in particular, the proprietary costs of disclosing forward-looking unrecognized tax benefit (UTB) changes are greater than the proprietary costs of disclosing current UTB changes.Next, we examine whether the market reaction to firms' disclosed UTB amounts varies with disclosure quality. Verrecchia (1983) suggests that managerial concerns of revealing proprietary information rationally limit full disclosure, despite its apparent benefit, because investors no longer treat withheld information as unequivocally less favorable. Hence, in the presence of proprietary costs, investors' demand for full disclosure is unclear. If investors favor full disclosure (i.e., they are primarily concerned with transparency), they will reward high-quality FIN 48 disclosures. If investors do not favor full disclosure (i.e., they are primarily concerned about avoiding scrutiny from taxing authorities), they will penalize high-quality FIN 48 disclosures. We find evidence consistent with investors penalizing firms that make high-quality FIN 48 disclosures; our results are concentrated in small firms and firms with higher proprietary costs, consistent with Verrecchia (1983). This analysis complements a small, but growing, literature that documents a positive association between firm value and tax avoidance (e.g., Frischmann et al. 2008; Desai and Dharmapala 2009; Hanlon and Slemrod 2009; Koester 2011) by providing new evidence that investors appear willing to accept less transparent disclosure in order to “facilitate” firms' tax avoidance activities. This finding is particularly interesting because a primary motivation for the FIN 48 disclosure requirements was to encourage firms to provide investors with transparent and comparable disclosures about firm-specific tax uncertainties.In the U.S. court system, estate tax cases often involve a dispute between the taxpayer and taxing authority over the value of various assets of the estate. Valuation can be a complex process based on many assumptions, especially when the asset being valued is a closely held business. Because the tax levied is a percentage of the value of the assets in the estate, the taxpayer and taxing authority have obvious incentives for a lower or higher valuation. However, it is not clear how the court arrives at its valuation decision.In this study, we look for evidence of an association between the valuation decision of the court and various judge- and case-related factors. Englebrecht and Davison (1977) find that the court's valuation is related to the taxpayer/taxing authority mean. Other research, as well as comments in the popular press and even comments by Tax Court justices, have suggested that the court simply picks the arithmetic mean of the taxpayer and taxing authority positions. However, Greenaway (2010) suggests that various attributes of the case and the judge are related to court decisions. We empirically examine these claims.We review 134 estate tax cases heard in the U.S. Tax Court and District Court from 1986–2010, involving the valuation of 181 different assets. We predict and find that the taxpayer's use of more appraisers is related to lower court valuations (favoring the taxpayer), but do not find a corresponding advantage for the taxing authority's use of appraisers. We also predict and find that assets subject to more possible discounts (such as businesses) tend to be decided in the taxpayer's favor. We find limited evidence that conservative judges rule in the taxpayer's favor.Overall, our results are consistent with court valuation decisions being related to various attributes of the case and judge. Whereas prior literature suggests the court simply picks the mean between the contesting parties, our results suggest that the type of asset, choices by the contesting parties (such as number of appraisers), and ideological leanings of the judge all influence the final court valuation.

This paper derives an appropriate standard price that can be used by the tax authorities of a country for auditing transfer prices in multinational firms (MNFs) for the purpose of social welfare maximization of the country. We assume that the corporate tax rate in the host country, where MNFs undertake foreign direct investment to locate their manufacturing divisions, is lower than that in the home country. Our conclusion is that the tax authorities of the home country should not always force MNFs to hold down the transfer price through a too strict audit standard if it aims to maximize social welfare of the country in the long-run equilibrium. This result implies that tax authorities face a trade-off between consumer welfare and tax revenue when determining the standard price used for auditing. One notable implication is that the tax authorities should raise the upper-limit price allowed for internal transfers as the elasticity of substitution between brands for consumers decreases.

The Value Added Tax (VAT) is widely used throughout Europe and is analogous to state and local sales taxes in the United States of America (U.S.) in that both are taxes on consumption. However, Europe's VAT rates are much higher than U.S. sales tax rates. The standard VAT rate ranges from 20% in Austria to 27% in Hungary. In contrast, U.S. state and local sales tax rates range from 0% in three states to 9.45% in Tennessee. Additionally, U.S. taxpayers can take a federal income tax deduction for sales taxes paid; thereby reducing their overall federal income tax bills. In part, the relatively low U.S. sales tax contributes to the difference in recent economic performance between the U.S. and Europe. Over the last year, Real Gross Domestic Product (RGDP) has increased by 2.4% in the United States compared with 1.4% in the Euro Area. The U.S. civilian unemployment rate is 5.0% compared with 10.2% in the Euro area.This paper examines whether European countries have been harmed by their high VAT rates. I collect revenue and expenditure data for 19 European countries, 17 of which are members of the European Union. For each country, I determine the effect of the VAT on GDP, on the unemployment rate, and on social welfare.The paper refers to the optimal tax theory, which defines an optimal tax regime as one in which social welfare is maximized. I introduce two additional criteria: GDP maximization and unemployment rate minimization. I compare the existing European tax regime to the current U.S. tax regime, and estimate the optimal VAT tax rate for 19 European countries.

The OECD Base Erosion Profit Shifting (BEPS) Initiative as well as the current fairness oriented public discussion regarding the taxation of digital business models highlight the importance and complexity of the arm's length principle. In a theoretical model of an internationally fragmented digital good's production process, we show that fairness considerations of tax authorities (namely inequity aversion) can result in a falling apart between a perceived fair and arm's length distribution of profits across tax jurisdictions. Our model predicts that a multinational firm follows the fundamental paradigm of international taxation, i.e. the arm's length principle, to properly incentivize internal agents involved in the production of a digital good. However, with inequity averse tax authorities, we find that tax authorities prefer a more equal distribution of profits compared to the arm's length allocation. From a multinational firm's perspective, inequity aversion among tax authorities dampens the strategic effect to - in accordance with arm's length principle - shift profits to low tax countries.