Capital Tax Research Articles

Can wealth taxation fund public investment in a caring and sustainable economy? The case of the UK

Abstract This article develops a theoretical model integrating wealth concentration and taxation to the feminist post-Kaleckian models. We estimate the model econometrically using an instrumental variable-generalized method of moments approach for the UK. We find that an increase in the tax rate on wealth decreases wealth concentration, and has a strong positive impact on output, employment and the budget. An increase in the progressivity of income taxation by increasing the tax rate on profits and decreasing the tax rate on labour income also leads to similar results, but the effects are more modest compared to wealth taxation. Public social infrastructure investment has a high positive effect on output and productivity as well as employment and gender equality in wages and employment. Public physical infrastructure investment has also a substantial effect on output and employment, albeit creating fewer jobs for women compared to the case of social infrastructure, while productivity effects are more modest.

Financial development threshold effect on wealth inequality-economic growth nexus: Evidence from MENA economies

This paper investigates the impact of the threshold effect of financial development on the relationship between wealth inequality and economic growth of 13 Middle East-North African (MENA) countries between 1995 and 2019. Applying the fixed-effect threshold panel model introduced by Hansen (1999), we test for a non-linear association between wealth disparity and economic output below and above a threshold value of financial development. The results show that wealth inequality inhibits economic expansion regardless of the level of financial development. Besides, this destructive impact intensifies with increased financial development. Our findings highlight that the rise in the wealth gap especially accompanied by accelerating financial reforms hurts economic growth. The findings of our research provide useful implications for the MENA region. Policymakers should reduce inequality of patrimony by adopting wealth tax to achieve a more equitable capital distribution. Furthermore, governments must adjust the financial development process to make it consistent with wealth equalizing policies and sustainable growth.

A government policy with time-inconsistent consumers

This paper examines monetary and fiscal policies to prevent consumers' present bias by implementing a benchmark exponential discounting allocation in a hyperbolic discounting economy. We analyze classical money-in-the-utility-function models and establish that a monetary policy alone cannot curb behavioral mistakes. Instead, it needs to be combined with either a consumption tax or capital tax. If the government uses consumption (capital) tax, the monetary policy should be more expansionary (contractionary) compared to the benchmark exponential discounting economy. In the calibration, we confirm that a paternalistic policy intervention generates significant welfare gains based on both true (long-run) and choice (short-run) utility.

Generational Distribution of Fiscal Burdens: A Positive Analysis

AbstractThis study presents an overlapping generations model to analyze the impact of population aging on fiscal policy and intergenerational fiscal burden. Aging populations incentivize governments to increase capital and labor income tax rates and the public debt‐to‐GDP ratio, consistent with OECD evidence. Our model‐based simulation for Japan and the United States (2000–2070) reveals that Japan will experience higher labor income tax rates, a greater public debt‐to‐GDP ratio, and a lower government expenditure‐to‐GDP ratio compared to the United States. From 2040 onward, Japan is predicted to surpass the United States in terms of the capital tax rate.

The effect of deferred tax burden, tax planning and deferred tax assets on profit management (Empirical Study On Manufacturing Companies In The Consumer Goods Industry Sector Listed On The Indonesia Stock Exchange In 2015-2019)

The development of companies in Indonesia is now starting to increase and develop. Managers present financial statements containing information about profits that will be used by internal and external parties in making decisions. These internal and external parties include investors, creditors, government, management itself, and other interested parties. Management performance can be judged from these profit figures. Situation This is what usually encourages managers to carry out deviant behavior in presenting and reporting profit information known as profit management. The research method used is quantitative research using descriptive analysis and verification analysis. The object of this research is a manufacturing company in the consumer goods industry sector listed on the Indonesia Stock Exchange in 2015-2019. Determination of samples in this study using techniques of Purposive Sampling. So that the total number of samples in this study is 90 sample data. The test results state that deferred tax expense and tax planning no significant effect on profit management. While, deferred tax assets have a significant effect on profit management in manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange in 2015-2019.

Conceptual conformity of deferred tax accruals: evidence from Germany and the United Kingdom

ABSTRACT This article argues that it is more appropriate to model the relation between deferred tax accruals and subsequent tax payments using a first-difference model rather than the levels model employed in the extant literature. We then use the difference model to assess the conceptual conformity of deferred tax accruals by testing if changes therein predict changes in tax payments. Using a combined sample of British and German firms we report conceptual conformity for deferred tax liabilities but not for deferred tax assets. By allowing UK and German firms to have different relations between deferred tax accruals and tax payments, we investigate the impact of country-specific factors, including the taxation system, on this predictive ability. We find conceptual conformity for deferred tax liabilities in both countries but report conceptual conformity for deferred tax assets only for German firms. Finally, we find that the introduction of the Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz (BilMoG)) in Germany in 2010 has brought the relation between changes in deferred tax accruals and changes in future tax payments of German and UK firms much closer together. Currently, the only notable difference between UK and German firms related to deferred tax liabilities pertains to the lag between changes in deferred tax liabilities and changes in tax payments that we attribute to differences in the tax depreciation rates of each country.

Comments on Wealth Taxation: Comparing the Systems in Algeria and France

Wealth taxation is a controversial issue in the countries in which it is applied. In Algeria and in France, wealth taxation is being transformed in terms of its base and rates. These changes indicate political interference. It, therefore, is necessary to examine the effectiveness of wealth taxation in achieving equilibrium.

Kebijakan Penerapan Standar Akuntansi Keuangan Nomor 8 Dan 71 dalam Laporan Keuangan CV.SKU Masa dan Pasca Pandemi Covid-19

This study aims to analyze and evaluate PSAK number 55 to switch to follow the policy of implementing PSAK number 8 and 71. Financial instruments required by the IAI Accounting Standards Board are effective as of January 1, 2020 which have not been practiced in the preparation of 2021 CV. SKU’s Financial Statements. Descriptive comparative qualitative study. Trading companies must leave and return from Umrah and Hajj. Data collecting via observing, interviewing, and documenting informants. According to conversations with CV.SKU's accounting and receivables administration department, its financial statements have not implemented the new policy and are still in compliance with PSAK number 55 taxable. Recalculating fair value data for financial statements is offered as a unit of study from literature books and journals of earlier researchers, paying attention to PSAK standards number 8 and 71 financial instruments. The results showed that applying PSAK number 8 and 71 to the statement of financial position account resulted in a reserve account for receivables losses, deferred tax asset accounts, decreased retained profit, and decreased CV. SKU assets. The impairment loss reserve appears as an accounts receivable loss expenditure account in the income statement, creating a deferred tax advantage account. Financial statements prepared according to IAI Financial Accounting Standards Board requirements are presented properly.

Geographic distance and tax fundamentals: An empirical analysis of location choice of Japanese firms’ outbound mergers and acquisitions

AbstractThe deterrent effect of geographic distance on international expansion has been extensively examined in extant literature; however, little is known about whether tax‐related firm‐level characteristics could moderate the deterrent effect although both merger and acquisition (M&A) location decisions and tax‐related decisions involve considerable managerial judgments. Results using data on Japanese firms’ outbound M&A from 2010 to 2020 after Japan shifted from a worldwide tax system to a territorial tax system show that the deterrent effect of geographic distance is moderated by high tax avoidance, use of a tax consolidation regime, and a high level of deferred tax asset (DTA) balance. Additionally, we find that the 2017 Tax Reform on Japanese controlled foreign company (CFC) rules reduced the moderating effect of use of a consolidation regime, whereas it enhanced the moderating effect of a high level of DTA balance. These results call for a radical change in further research on various distances to incorporate insight from a tax perspective.

ANALYSIS OF REGIONAL REVENUE AND EXPENDITURE BUDGET FOR KEDIRI REGENCY DURING THE COVID-19 PANDEMIC

The existence of the Covid-19 pandemic has had an impact on all economic sectors including the financial performance of local governments. Regional financial analysis is a tool that can be used as a benchmark to assess the extent to which local government performance is managing its finances. Regional ability to manage finances is described in the form of APBD which directly or indirectly reflects the ability of local governments to finance the implementation of governmental tasks, development and community social services. The purpose of this study was to determine the financial management performance of the Regional Government of Kediri Regency based on the analysis of financial ratios in the Kediri Regency APBD. This research is a data series research, namely the Realization of APBD data for 2020 to 2022 in Kediri Regency. The analysis used is normative juristic with a descriptive approach case study method. The analysis tools used are tax ratio, per capita tax, regional fiscal space, regional dependency ratio, ratio of personnel expenditure to total regional expenditure, ratio of capital expenditure to total regional expenditure, ratio of capital expenditure to population, ratio of financial aids expenditure to total regional expenditure, idle funds, growth ratio, effectiveness ratio, and efficiency ratio. From the results of the analysis it is known that the majority of APBD performance during the Covid-19 pandemic had fluctuations.

Wealth Taxes on Individuals: An International Comparative Study

Citizens contribute to the economy by creating wealth for themselves and in the way they use their assets. How assets, especially capital assets, are employed attracts tax and this influences how assets are used. In South Africa, tax policy is one of the drivers in the decisions that individuals make regarding the use or disposal of their assets. Wealth taxes are levied to address income disparities and mostly affect capital assets when they change ownership. This study compares developed and developing countries’ tax policies that impact capital assets when they are transferred or disposed of. The financial impact from using one’s assets drives economic participation. Previous studies found that tax policy is influential in economic participation. A literature study was performed analysing wealth taxes, academic literature and legislation and incorporated a case study to illustrate the tax consequences of capital assets changing ownership in Namibia, South Africa, India and Australia. The study found that, compared to the other countries, South Africa taxes capital transfer both upon change of ownership by way of sale, donation and death of the owner. This study makes a novel contribution to the understanding of and development of improved and internationally comparable wealth tax legislation to address the wealth tax consequences of asset transactions in South Africa.

Pareto-Improving Optimal Capital and Labor Taxes

We study optimal fiscal policy in a model with agents who are heterogeneous in their labor productivity and wealth, and there is an upper bound on the capital tax rate each period. We focus on Pareto-improving plans. We show that the optimal tax reform is to cut labor taxes and leave capital taxes high in the short and medium run. Only in the very long run would capital taxes be zero. For our calibration labor taxes should be low for the first eleven to twenty-six years, while capital taxes should be at their maximum. This policy ensures that all agents benefit from the tax reform and that capital grows quickly after the reform. Therefore, the long-run optimal tax mix is the opposite of the short- and medium-run one. The initial labor tax cut is financed by deficits, which lead to a positive level of government debt in the long run, reversing the standard prediction that the government accumulates savings in models with optimal capital taxes. The welfare benefits from the tax reform are high and can be shifted entirely to capitalists or workers by varying the length of the transition.

Property rights enforcement and wage inequality

AbstractThis paper establishes a general equilibrium model to investigate how property rights enforcement impacts wage inequality when unproductive and productive activities coexist. We consider enforcement funded by a gross income tax, a labor tax, or a capital tax, and find that in all of the three schemes, when property rights enforcement is relatively efficient and the skilled sector is more capital intensive than the unskilled sector, an increase in enforcement will decrease wage inequality. However, the critical values of property rights enforcement efficiency under the three funding sources are different. In particular, the critical value in the scheme of a capital tax is always smaller than that in the scheme of a gross income tax, which suggests that if the skilled sector is more capital intensive than the unskilled sector, switching the funding sources of enforcement from a gross income tax to a capital tax can help mitigate wage inequality.

How stereotypes of ‘the taxpayer’ obscure the need for greater taxation of wealth

How stereotypes of ‘the taxpayer’ obscure the need for greater taxation of wealth

Can landlords siphon housing allowances? New theory and evidence on housing allowance algorithms from a natural experiment

This paper provides new evidence on the incidence and theoretical predictions of housing allowances. It offers a comprehensive reexamination of allowance algorithms, to shed light on their objectives and impacts, while also addressing empirical modelling considerations and identifying limitations in literature. Notably, it offers readers a comparative analysis by investigating US vouchers as a reference point. Theoretically, I find housing allowances are typically neither a price nor income equivalent. Housing allowance schemes,mostly being universal in functional form across countries, manifest as personal subsidies inverse to resources i.e., some benefit amount minus income deduction. I discover that New Zealand's Accommodation Supplement (AS) manifests as a negative income and wealth tax benefit which, over time, is regressive to rents and incomes. Empirically, I estimate the effects of an increase in costs and demand for the AS on rents exploiting a panel of housing markets geocoded using census tracts at Area Unit (AU) level. The rent model extends, using Geographically Weighted Panel Regression (GWR) to control for any time-variant neighborhood spillover effects on rents. Costing NZ$ 5.225 billion over 2006–2013, AS for renters was not demand deterministic and had no significant direct impact on the revenues of low-income landlords. An increase in subsidy demand coincides with possible overcrowding whereas has no impact on increasing rental supply or a move into renting.

When do property taxes matter? Tax salience and heterogeneous policy effects

Taxes create incentives; yet, the potency of these incentives may depend on the salience and household perception of the tax itself. We investigate this issue in the context of property taxes, exploring how accurately households perceive their property tax liabilities and what factors determine misperception. Leveraging a unique national dataset, created by linking Zillow's ZTRAX data to internal data from the American Community Survey, we first compare survey responses for how much households think they pay in property taxes to how much they actually pay based on municipal administrative records from ZTRAX. While homeowner tax perceptions are not substantially biased on average, we observe significant inaccuracy and systematic bias across different household(er) characteristics, institutional settings, and across states. Given that the vast majority of studies in the property tax capitalization literature use data concentrated in one state or locality, we also explore whether variation in tax misperceptions across states can help explain the heterogeneity in property tax effects on home prices. Results from a meta-analysis show that studies conducted in states with higher property tax misperceptions are significantly less likely to find property tax policy changes are fully capitalized into home prices.

Should We Tax Capital Income or Wealth?

We study optimal capital income and wealth taxation in an economy that reproduces the importance of private businesses for output and inequality. If entrepreneurs are subject to collateral constraints, they face heterogeneous rates of return, which generate a meaningful distinction between capital income and wealth taxation. We find that taxing capital income is preferable to taxing wealth because the efficiency gains from wealth taxation are swamped by the redistributional benefits of taxing the profits of richer entrepreneurs. Consequently, the gains from taxing wealth are modest. This conclusion is robust to the planner’s preference for redistribution and allowing for nonlinear taxes. (JEL D31, H21, H23, H24, H25, K34, L26)

Pengaruh Profitabilitas, Aset Pajak Tangguhan, Perencanaan Pajak, dan Leverage Terhadap Manajemen Laba

The purpose of this study was to determine and analyze the theory that explains the effect of profitability, deferred tax assets, tax planning and leverage on earnings management. This research uses the literature review method. This study presents a theoretical basis, other explanatory variables and the results of previous studies. The theory underlying this research is agency theory. The mapping of other explanatory variables that affect earnings management consists of profitability, deferred tax assets, tax planning and leverage. These results show different relationships between profitability, deferred tax assets, tax planning and leverage on earnings management so that no agreement is reached. This study provides more insight to explain the phenomenon that occurs.

Analysis of the Implementation of PSAK 46 on Report Quality Improvement Finance

Application of PSAK 46 regarding the accounting treatment of income tax at PT. Rizki Cemerlang Transportaco is a good step to improve the quality of presentation of financial reports in order to make the right decisions. its financial statements refer to Financial Accounting Standards (SAK), so that the income reported in the income report is not necessarily the same as the profit value in accordance with tax regulations. Therefore, companies need to keep records of deferred tax in anticipation of the consequences of income tax (deferred tax assets and liabilities) both in the present and in the future. Deferred tax occurs when the current tax burden according to accounting is different from the current tax payable (tax payable in the current year according to tax regulations).

Reconciling Competing Reporting Objectives Through Deferred Tax Accounts: Evidence on Private Italian Firms

This paper contributes to the growing literature on earnings management in private firms by focusing on deferred taxes. This accounting treatment requires sophisticated use of accruals that provides the chance to manage earnings and net assets without affecting the tax payable. We argue that in a setting with high book-tax conformity, the small room that allegedly exists to recognise deferred taxes remains a comfortable avenue to reach reporting objectives that a tax-minimisation strategy may preclude. We use a sample of private firms operating in a credit- and tax-driven environment such as Italy to test this expectation. Our results show that private firms use deferred taxes to extract multiple financial reporting benefits that may facilitate debt contracting: smoothing earnings over time, meeting/beating historical earnings, avoiding reporting accounting losses, and managing leverage. Tax loss carryforwards are the source of deferred tax assets where the exercise of discretion becomes more critical.