Implications For Tax Policy Research Articles

CORPORATE TAX POLICY FOR THE 21 ST CENTURY

This paper discusses three issues relating to corporate tax policy in the United States for the 21st century. First, the paper compares U.S. corporate tax policy with that of other Organisation for Economic Co-operation and Development (OECD) economies, concluding that there is a large and growing gap between U.S. policy and international norms. Second, the paper notes a few aspects of the 21st century global economy that have profound implications for tax policy. Finally, the paper concludes with some observations about new directions for corporate tax policy in view of American tax exceptional ism and global economic trends.

The dynamic effects of tax policies in a small open economy

We develop an intertemporal optimizing model of a small open economy with both durable and nondurable consumption to address the implications of alternative tax policies. An increase in lump sum taxes reduces the steady state level of consumption and improves the stock of foreign bonds. Consistent with empirical evidence, durable consumption exhibits initial excess volatility. Though an increase in the tax on durables increases the demand for nondurables and improves the bond holdings in the steady state, an increase in the tax on nondurables has insignificant effects on the stock of foreign bonds and the consumption of durables. Using quarterly data from the UK and estimating generalized impulse response functions we find empirical support. We also calibrate the welfare implications of different tax policies.

The emergence of the tax official into a T-shaped knowledge expert

Public sector officials have had to engage in new ways of working to reflect the changing practices of the public sector. This paper uses the specific case of professional tax officials in the UK tax administration to examine this broader context, by a longitudinal study. Tax officials are being disciplined by the changing working practices of the tax administration. The tax official becomes a T-shaped tax official who has emerged from a bureaucratic inward facing technical civil servant to become an outward facing new style tax official who still has to engage with the detailed technical tax knowledge as a knowledge expert (the vertical part of the T) but also has to relate to the new way of operating in a strategic and marketing organisation (the horizontal part of the T). This changing role of the tax official has tax policy implications and impacts on the social and organizational aspects of the tax compliance process.

The Federal Tax Consequences of Surrogacy

ABSTRACT: Over the past 20 years, assisted reproductive technology (ATR) has developed at a rapid pace, forcing courts and legal scholars to tackle increasingly complex social issues, as well as ethical dilemmas. Legal aspects of surrogacy, such as parental rights and custody matters, have been addressed in some state statutes and have been extensively discussed by attorneys, judges, and judicial scholars. Yet, it appears that the tax treatement of payments to surrogates has not been part of this discussion. This exploratory paper discusses the following aspects related to federal taxes and surrogacy: (1) potential exclusion from gross income under Section 104, Section 71(c), or Section 102; (2) taxability of “extras,” like an allowance for clothing and food, reimbursements for pregnancy-related absence from work, and fees for certain procedures such as an amniocentesis or a cesarean section; (3) type of income and the surrogate's employment status; (4) deductibility of surrogacy-related expenses for the intended parents; and (5) tax policy implications.

The Capital Structure Choice and the Consumption Tax

The consumption tax is imposed on the consumer, but it also affects the wealth of the producer because of the tax incidence effect: depending on supply and demand elasticity, the consumption tax reduces the market clearing price. Therefore it affects cash flows from corporate investment and becomes a significant factor for capital budgeting choices on investment timing and financing and the respective conflicts of interest between shareholders and creditors. This paper employs a real option model to explore the impact of the consumption tax and tax incidence on corporate valuation: the consumption tax delays investment and precipitates default, because the tax incidence on the producer makes the investment less attractive. Furthermore, we find that the consumption tax has a negative effect on the agency costs of debt, the yield spreads and the optimal leverage ratio. Finally, the model also produces implications for governmental tax policy, suggesting the magnitude of the consumption tax that maximizes expected government tax revenue.

Social norms and conditional cooperative taxpayers

This paper incorporates tax morale into the Allingham and Sandmo (1972) model of income tax evasion. Tax morale is modeled as a social norm for tax compliance. The strength of the norm is shaped endogenously, depending on the share of evaders in the society. Taxpayers act conditionally cooperative as their evasion depends on the others' compliance. We characterize the equilibrium which accounts for this interdependence and study the implications for tax and enforcement policies. The analysis is extended to the case of a society consisting of heterogenous communities. Individual evasion decisions are then embedded in a complex social structure and behavior is influenced by the norm compliance among morale reference groups. Within this framework, we highlight the role of belief management as an alternative policy tool.

Alcohol, No Ordinary Commodity: Tax Policy Implications for Thailand

Alcohol is no ordinary commodity. Millions of people enjoy it safely if drinking in moderation. Alcoholic beverages are big business that creates substantial jobs, pay huge tax and contribute to our economy. But if consume excessively and regularly, alcohol is addictive substance that can cause brain disease beyond a reasonable doubt. Despite a chronic, potentially relapsing disorder and dependence bio-behavior, alcohol is widely distributed and consumed until Thailand has become the world’s fifth largest alcohol consumption per capita behind Russia and UK. Brewery, distilled and winery beverage industry or alike is in the business of delivering alcohol. Because alcohol is a practically drug-like chemical goods and its industry is natural oligopolistic, simple business concept and free market approach are not applicable for national policy making consideration. When this market fails to correct negative externality generating from alcohol, the government is justified to intervene, regulate and tax to redistribute for welfare enhancement. We examine how tax structure based on obsolete assumptions has de-merit incentive for Thai people to drink cheap beverage with high alcohol content that is addictive and chronically harmful to public health. Potential tax leakages with estimated over THB 30bn per annum were also discussed. To improve social welfare, we recommend on how to narrow fiscal gap - with little or no tax rate hike. To amend specific or alcoholic tax rate ceiling is the first best solution, while synthetic volume tax rate is presented as second best with only ministerial directive. A more equitable and more simplified tax regime is needed. Public health concern, social cost, fiscal budget rational and political economic perspectives are among fine issues that need to be addressed comprehensively. Other administrative tax based measures using information technology should be utilized for differential measures - to effectively increase social welfare as well.

Analysis of export demand for Ghana's timber products: A multivariate co-integration approach

This study analyzed the factors that affect the export demand for Ghana's timber products. Export demand functions and error correction models for sawnwood, plywood, and veneer using data from 1961 to 2006 were estimated. Six categories of explanatory variables were hypothesized to determine export demand: world price of wood products, income of importing countries, Ghana's external debt, exchange rates, time-related variables, and policy changes (log export ban, reduction in annual allowable cut and the imposition of export levy on air-dried sawnwood). All variables except external debt were determined from augmented Dickey–Fuller unit root tests to be integrated of order one. The Johansen multivariate cointegration test showed that there was only one cointegration relationship in each timber product data. Exchange rates and income were significant determinants of exported timber products and had the theoretically expected positive signs. The three policy initiatives significantly reduced the exports of sawnwood, but increased the exports of plywood and veneer. Price was moderately elastic for sawnwood and plywood and had the expected negative signs in both cases, while it was positive and inelastic for veneer. The error-correction coefficients show that 68% of shocks to veneer exported is corrected in the following year, while only approximately 20% and 19% of this are corrected for sawnwood and plywood, respectively. Sawnwood and plywood face stiff competition in the international market and this has revenue and tax policy implications for Ghana's forestry sector. Policies that encourage domestic processing and restrictions on both legal and illegal harvesting would work to ensure greater value-added benefits to, and sustainable forest management in, Ghana.

Taxing State-Owned Enterprises: Theory, Evidence and Implications for U.S. Policy

State-owned enterprises (SOEs) from emerging economies and resource-rich countries have been increasingly active investors in global markets in the last decade, challenging policymakers in Canada and other OECD countries to confront the logic of “state capitalism”. This article develops a novel theory of the income taxation of SOEs and explores its implications for international tax policy. Many countries subject their SOEs to income taxes, but traditional public finance theorists tend to dismiss SOE taxation as superfluous. A popular, contrary belief holds that SOE taxation is necessary to ensure fair competition. This Article shows that both views are mistaken, and suggests an explanation of SOE taxation in terms of the divergent interests between SOE managers and shareholders and the problem these create for dividend policy. The usual solutions for mitigating the agency problem in dividend policy for private firms may not be available for SOEs, and taxing SOEs becomes an alternative mechanism for forcing distributions. The “forced distribution” view of SOE taxation importantly implies that SOEs may be highly tax sensitive. I discuss the factors affecting SOE tax sensitivity using a simple analytic model, and demonstrate its consequences for international tax policies in both countries with strong SOE presence and those facing SOE investments.

Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy

This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate an Almost Ideal Demand System defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary however, given a number of data and other limitations of the analysis.

Fiscal Responsibility and Economic Efficiency: A Functional Approach

In both developed and developing countries, there are basically two main sources of economic instability: exogenous shocks and inappropriate policies. Exogenous shock (terms-of-trade shocks, natural disasters and capital flow reversals) can throw an economy into disequilibrium and therefore require compensatory action. On the other hand, a disequilibrium can be self-induced by poor economic macroeconomic management such as an excessively loose fiscal stance. Therefore, economic crisis are often the result of external shocks and poor management. While the worlds of agriculture are vast, varied and rapidly changing, with the right policies and supportive investments at local, national and global levels, today’s agriculture offers new opportunities to hundreds of millions of rural poor to move out of poverty. Similarly, the construction industry is an essential contributor to the process of development. Roads, dams, irrigation works, schools, houses, hospitals, factories and other construction works are the physical foundations on which development efforts and improved living standards are established. This paper there argued that an efficient and functional fiscal policy can have a direct impact on the poor through the distributional implications of tax policy as well as public spending. However, the genuine reformer is distinguished by courage which is that signal that separates the genuine reformer (undertaking transition) from the weak government (hoping to disguise itself).

Alcohol-Leisure Complementarity: Empirical Estimates and Implications for Tax Policy

This paper provides a first attempt to estimate the cross-price elasticity between alcoholic beverages and leisure, which is critical for assessing how much alcohol taxation might be warranted on fiscal grounds. We estimate a demand system defined over alcohol, leisure, and other goods, using data from the Consumer Expenditure Survey and other sources. Our results suggest that alcohol is a relative complement for leisure over a range of specifications. This implies that the optimal alcohol tax may substantially exceed the Pigouvian tax, reinforcing the efficiency case for higher taxation. These findings should be viewed as preliminary, however, given data and other limitations.

Ausmaß der Gewinnverlagerung multinationaler Unternehmen - empirische Evidenz und Implikationen für die deutsche Steuerpolitik

Abstract: While the existence of outward profit shifting within multinationals at the expense of Germanys national tax revenue is a well-established fact, the exact volume of such activities is at the heart of an ongoing political and academic debate. This article thoroughly analyses the most prominent and most daring of all circulating estimates, a study recently published by the German Institute for Economic Research (DIW). We reveal its shortcomings and in return present new estimates. Corresponding tax policy implications will also be pointed out.

Labour taxation, job creation and job destruction—Focusing on the role of wage setting

We study the effects of labour taxation in a search equilibrium model with endogenous job destruction, embedding three alternative models of wage setting: Nash bargain, monopoly union and efficiency wages. Tax policy implications vary considerably depending on the wage setting model and indexation of unemployment benefits. If wage setting is based on bargaining, a pure increase in the tax progression reduces unemployment, improves the relative position of low-income workers and facilitates the emergence of low-productivity jobs. However, this comes at the cost of reduced efficiency partly owing to lower average productivity.

The relation between national cultural dimensions and tax evasion

Although penalties and audits exist, tax evasion is a widespread phenomenon and continues to be a problem for many countries. National culture may contribute to a further understanding of intentional noncompliance across countries. In this study, we investigate the influence of national culture on tax compliance levels across 50 countries. Using Hofstede's (1980) cultural framework as a basis for our hypotheses, we find that a noncompliant country's profile is characterized by high uncertainty avoidance, low individualism, low masculinity, and high power distance. Our results have implications for both research and practice. This is the first study to employ Hofstede's cultural framework as an explanator of international tax compliance diversity and serves as the starting point for the development of an international tax compliance framework. Tax policy implications also are addressed.

Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Evaluating Effects of Tax Preferences on Health Care Spending and Federal Revenues

In this paper, we calculate the consequences for health spending and the federal budget of an above-the-line deduction for out-of-pocket health spending. We show how the response of spending to this expansion in the tax preference can be specified as a function of a small number of behavioral parameters that have been estimated in the existing literature. We compare our estimates to those from other researchers. And, we use our analysis to derive some implications for tax policy toward HSAs.

Culture and Economics

The question of how far it is necessary to include cultural factors in the analysis of economic processes has become topical again in recent years. The first contribution to this Forum introduces a cultural approach to economics. This is followed by an article that examines the transition processes in central and eastern Europe from an econocultural perspective. The next article deals with the concept of a country-specific national tax culture and its implications for tax policy, especially in the context of transformation processes. The final paper discusses Turkey’s economic culture and its possible impact on the country’s integration into the European Union.

The framing of financial windfalls and implications for public policy

Governments, employers, and companies provide financial windfalls to individuals with some regularity. Recent evidence suggests that the framing (or description) of these windfalls can dramatically influence their consumption. In particular, income described as a positive departure from the status quo (e.g., as a bonus) is more readily spent than objectively identical income described as a return to the status quo (e.g., as a rebate). Such findings are consistent with psychological accounts of decision making and should supplement existing economic models. These results have important implications for the marketing of such windfalls, and discussion focuses particularly on implications for government tax policies.

Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications

Our econometric research allows for a possible response of a person's hours worked to hours typically worked by members of a multidimensional labor market reference group that considers demographics and geographic location. Instrumental variables estimates of the canonical labor supply model expanded to permit social interactions pass a battery of specification checks and indicate positive and economically important spillovers for adult men. Ignoring or incorrectly considering social interactions in male labor supply can misestimate the response to tax reform by as much as 60%.