Tax Changes Research Articles

Wage response to corporate income taxes: A meta‐regression analysis

AbstractThe wage elasticity to corporate income tax (CIT) is an essential parameter for assessing tax policy reforms. This paper applies meta‐regression analysis to quantitatively review the growing empirical tax incidence literature that indicates a substantial shift of the tax burden onto employees. While most studies report a large wage‐reducing effect of the CIT, our findings suggest that estimates with positive values are published less often than they should. After accounting for the bias, we find no significant average association between wage rates and corporate taxation. We document that the tax variable, econometric method, type of tax variation, and underlying time and country coverage of studies drive the heterogeneity among reported effects. The implied best‐practice estimates suggest that the tax elasticity of wages is systematically larger for emerging countries and smaller when tax changes at the subnational level are exploited.

The evolution of corporate payout in Canada

We document changes in the aggregate percentage and number of dividend-paying Canadian firms from 1989 to 2021 and observe a disappearing and partially reappearing dividend phenomenon similar to that in the United States. Unlike the US experience, in Canada, the number and percentage of dividend-paying firms are consistently higher than those of repurchasing firms throughout the sample period. Further, in Canada, the changes are driven by changes in the number of listed firms before and after the bursting of the internet bubble and the effects of the global financial crisis, which we call the new listing effect. The numbers are also affected by a tax change directed at income trusts and the change in the number of firms in the oil, gas, and mining sectors. In predicting a firm's dividend status based on firm-level characteristics, unlike recent US research, we find that the life-cycle theory, as measured by cumulative retained earnings and earnings volatility, plays an important role in explaining dividend status.

Do Tax Increases Tame Inflation?

The answer is “yes” for personal income taxes but “no” for corporate income taxes. Using narrative-identified US federal tax changes post-World War II and disaggregated sectoral data on consumer and producer prices, we show that higher average personal income tax rates lower prices across a broad range of sectors, but higher average corporate tax rates do not. There is also significant sectoral heterogeneity in the size of the effects. Finally, only personal tax increases lower inflation expectations, while corporate tax increases lead to persistent declines in stock prices. Our results are consistent with personal taxes affecting aggregate demand and corporate taxes persistently affecting supply conditions.

How has the tobacco industry passed tax changes through to consumers in 12 Sub-Saharan African countries?

1. Sheikh ZD, Branston JR, Gilmore AB. Tobacco industry pricing strategies in response to excise tax policies: a systematic review. Tobacco Control 2021. Google Scholar

Labour Taxes, Market Size and Productivity Growth

Abstract How do changes in labour taxes affect innovation and aggregate productivity growth? To answer this question, we propose a quantitative, general equilibrium growth model featuring product and quality innovation with endogenous market structure, estimate its parameters and provide empirical validation for the propagation mechanism of labour tax changes. We find that a temporary cut in flat-rate labour taxes produces a growth acceleration in aggregate productivity, permanently increasing the path of real GDP per capita. Moreover, such permanent gains are sizeable even without long-run growth effects.

Is There any Obvious Relationship Between Taxation and Economic Growth?

Abstract In an economy facing multiple crises (economic, pandemic, energy crisis, political and security crises) becomes necessary to determine the implications of fiscal changes on the economy’s evolution. This paper aimed to assess the link between taxation and economic growth in the European Union Member States, considering panel data for the period 2000-2021 to identify taxation’s specific implications on economic growth. The methodological endeavour encompassed both qualitative and quantitative research approaches. The qualitative analysis of the study involved a bibliometric analysis of the existing literature and visual mapping of the bibliographic data employed to highlight the differences between the values of the variables recorded in the EU countries. The quantitative research methodology assumed the empirical analysis through a panel data regression with fixed and random effects to identify the reaction of the growth rate of the gross domestic product to changes in direct and indirect taxes. Our results indicate a relationship between taxation and economic growth, depending on the tax type. We have identified a direct relationship in the case of taxes on the income or profits of corporations, including holding gains and value-added taxes and an indirect relationship in the case of taxes on individual or household income including holding gains and other taxes on production. In addition, the impact of indirect taxes is more significant. These specific relationships influence the change in fiscal policies in response to economic shocks.

When Do Elites Support Increasing Taxation? Evidence from the American South

When do elites support the expansion of the state’s ability to tax? Despite the disproportionate influence that elites are theorized to exert on politics, answers to this question remain elusive. We argue that elites will support increased taxation, including on themselves, when they believe greater fiscal capacity will yield collective goods that further their interests, they have political control, and they expect this control to persist into the future. We test our argument by measuring changes in state taxation using an annual panel of Southern slave states between 1840 and 1860. Our strategy exploits both institutional differences across these states in the de jure political control of the slave-owning elite and rising international demand for Southern cash crops. We find that states with greater slave owner control responded to increased demand for their crops by raising taxes on slaves and land, their primary assets, to fund railroad construction.

Household indebtedness and the macroeconomic effects of tax changes

This study investigates whether household indebtedness influences the macroeconomic effects of U.S. tax changes. By applying a state-dependent local projection method to the exogenous tax shock series, we find that a tax cut is more effective in stimulating output when the economy is characterized by higher household indebtedness. The household debt-dependent tax policy is primarily driven by (i) the response of private consumption, not private investment; (ii) changes in personal income tax, not corporate income tax, suggesting the relevance of a higher MPC of constrained households in understanding the documented state dependence. In response to a tax cut, labor supply also increases more during a high-debt state, which is consistent with the micro-level evidence on the labor supply of constrained households, thereby contributing to higher tax multipliers. Our findings are robust to a battery of sensitivity checks, especially controlling for the additional states of the economy considered in the literature.

Towards a Framework Law on Sustainable Food Systems

SummaryThe European Commission has proposed a Framework Law on Sustainable Food Systems. To stimulate debate, this Point de Vue summarises the key messages of a policy brief by the European Environment and Sustainable Development Advisory Councils Network (EEAC). The European food system does not deliver sustainable diets with low environmental impacts which contribute to food and nutrition security and to a healthy life for present and future generations. An EU Framework should foster human and planetary health in a coherent and balanced approach between an agricultural supply policy, environmental policy and food (consumption) policy. It should direct the strong innovation capacity of actors away from ever lower food prices towards more sustainable farming, food processing and food consumption. However, a just transition is key: to the extent that healthy diets are not affordable for consumers, compensation should be given by changes in minimum wages, social security or income taxes. Different policy instruments are needed. Food system actors should not be exempted from economy‐wide measures like carbon pricing. Certification of all commercial farms, as an extension of methods in organic farming and private label certifications is needed. Labelling, sustainable procurement and a blending obligation would reward more sustainable producers and raise the average price of the product towards its true cost.

The macroeconomic influence of the government's reduction of taxation in a closed economy

As the world's economies develop, governments always use economic policies to achieve specific economic objectives like decreasing the unemployment rate, improving economic growth, maintaining price stability, and deteriorating the current deficit. Also, tax changes could be one of the standard government policies. Moreover, with the changing taxation in a closed economy, some variables must be influenced. For example, the output and the rate of employment might change. This essay synthesizes several pieces of literature to discover the impacts on output and employment if the state cuts taxes. Based on these works, employment could rise when the government reduces the tax, the short-run output might increase, and the long-run output will be stable. Furthermore, economists may utilize these findings to make better national financial plans.

Summaries of Articles

Summaries of Articles

DOES LOWER CORPORATE INCOME TAX PROMOTE PRIVATE INVESTMENT?

ABSTRACT The general argument offered by the supporters of trickledown economics is that any cut in corporate income tax will raise per-unit profit to investors encouraging them to increase investment leading to the increase in real output. The increase in real output then will subsequently raise the demand for labor resulting in the rise in wage rate and the standard of living for workers. This study tests the validity of the theory on US data from 1990 to 2020. We apply the vector autoregressive model on our model variables INV (gross private domestic investment) and HCIT (highest rate of corporate income tax). In the equation with INV as the dependent variable and the lagged values of INV and HCIT as independent variables, the coefficients associated with the independent variables, and were found to be statistically insignificant which implied that any change in highest corporate income tax would have no effect on gross private domestic investment thereby invalidating the so-called trickledown economics. Keywords Trickledown economics, corporate income tax, investment, VAR, etc.

Investigating the Impact of E-Cigarette Price and Tax on E-Cigarette Use Behavior

Although the relationship between tax and price and youth cigarette use is well established, little is known about these associations and youth e-cigarette use. This research examines U.S. youth sensitivity to changes in e-cigarette prices and tax using standardized measures of e-cigarette taxes and prices. This analysis uses national data on past 30-day use and the number of days using e-cigarettes (i.e., the intensity of use) from the repeat cross-sectional 2015-2019 Youth Risk Behavior Survey, in combination with inflation-adjusted standardized e-cigarette price and tax data to understand whether changes in e-cigarette price and tax were associated with changes in e-cigarette use. Two-part demand regression models controlling for demographics and e-cigarette restriction policies were conducted to calculate price and tax elasticities of demand, in addition to $0.50 and $1.00 price and tax increase simulations. Increased e-cigarette prices and taxes were associated with significant reductions in past 30-day use. Prices were also significantly associated with decreases in the intensity of use. A $0.50 and $1.00 tax increase leads to a 6.3% and 12.2% decrease in past 30-day use and a 4.7% and 9.3% decrease in intensity, respectively. A $0.50 and $1.00 price increase leads to a 4.1% and 8.2% decrease in past 30-day use and a 4.2% and 8.3% decrease in intensity, respectively. Higher prices and taxes reduce youth current e-cigarette use and days using e-cigarettes. Policies increasing e-cigarette prices, such as excise taxes, can reduce youth current e-cigarette use and days using e-cigarettes.

Tightening tax policy and changes to tax efficiency on the example of companies listed on the Warsaw Stock Exchange

The article presents an analysis of changes in the tax efficiency of companies listed on the Warsaw Stock Exchange. After 2017, some changes to the tax law aimed at tightening the regulations on an unprecedented scale were introduced. The research conducted showed that since 2018 there has been a decrease in tax efficiency measured with effective tax rate (ETR) and current effective tax rate (CETR). On average, in 2018–2019, the efficiency measured with CETR dropped by 17.7%, the median by 14.8% compared to the previous years. In 2018 and 2019, the value of the CETR was the highest in the entire analyzed period, i.e. from 2012 to 2019. At the same time, the propensity of companies to create deferred tax assets is declining, and the effective tax rate is also growing. The changes mainly concern companies with average tax efficiency, large entities forming capital groups, and companies implementing capital investments. The article presents a discussion on the observed trends and formulates directions for further research.

Preface

Preface

Macroeconomic effects of tax rate and base changes: Evidence from fiscal consolidations

This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected yield, motivation, and announcement and implementation dates of more than 2000 tax measures across 10 OECD countries. Using this data, we then analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further differentiating between changes in personal income, corporate income, and value added taxes. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Ex-post evaluation of the Danish pesticide tax: A novel and effective tax design

Externality taxes are considered a key tool in the climate and environmental policy toolkit. However, externality taxes do not always deliver on their promise due to design flaws and low tax rates. The Danish pesticide tax, which was redesigned in 2013, addresses these flaws by differentiating tax rates according to the harmfulness of products and significantly increasing prices on the most harmful pesticides. This article evaluates the redesigned tax, using a panel data set with pesticide use on 1900 medium-size and large farms two years before and four years after the tax change. We find that the tax has been effective, prompting substitution from more harmful products to less harmful ones, resulting in a 16 pct. reduction in pesticide load. Response to the pesticide tax varies among farms, depending on the crop types grown. The study is highly policy relevant for countries aiming to lower pesticide load, providing empirical evidence that a proper tax design can overcome the low price sensitivity found with previous pesticide taxes in Denmark and elsewhere. Moreover, this study offers a rare example of an ex-post evaluation that builds on detailed farm-level data, following registered pesticide use before and after the tax redesign, which allows for a more precise estimation of the impact of the tax.

Dynamics of changes in the gambling business tax in modern Russia

Dynamics of changes in the gambling business tax in modern Russia

IMPACT OF CHANGES IN PERSONAL INCOME TAX ON TAXPAYERS WORK INCOME

Compared to other countries, following the World Bank analyses, Latvia compared to other countries of the European Union before 2018 tax reforms had relatively high labour taxes but very low capital taxes. It is important that tax reform from 2018 has given some impact on tax burden for all tax payers, including employers. Reducing tax burden can make impact on consumption of goods and services, employer’s competitiveness. The aim of the research is to study the changes in personal income tax since 2018 and their impact on earned income. The author studied the impact of changes in personal income tax on labor income in different categories and developed proposals on how to improve personal income tax in order to increase the net labor income of employees.

Перераспределение ресурсов между частным и общественным сектором пространственной экономики: агент-ориентированный подход

Redistribution of resources between the private and public sectors is a key issue of state policy analysis, including at the regional level. The article examines how changes in tax rates and social transfers affect the redistribution of financial resources, fixed capital and labour. The study utilised a spatial agent-based model focused on microeconomic decisions of households and enterprises. Fixed capital depends on investment policies of private and public companies; demand and supply are balanced in the labour market for a given total labour force. Tax rates and distribution of social transfers are seen as the institutional framework for making microeconomic decisions. At the meso- and macro-levels, state policy changes affect the economic structure of regions, industries, public and private sectors. The use of capital, labour and financial resources was assessed to calculate the relative size of the public sector. Simulations of changes in transfers and taxes show opposite trends in the proportion of the sectors. At given tax rates, the expansion of social transfers reduces social inequality and causes profound structural changes in the economy due to decreased provision of public goods and increased income of recipient households. The size of the public sector in terms of the use of financial resources remains practically unchanged: its share in gross domestic product decreased from 32.2 % to 30.4 %. However, the shares of capital (by 9.9 %) and labour (by 14.7 %) noticeably declined in this sector, indicating a redistribution of capital and labour from the public to the private sector. On the contrary, tax hike leads to an increase in the main indicators characterising the share of the public sector, while most of the private sector indicators fall sharply and social inequality rises significantly.