Income Shifting Research Articles

A microsimulation study of COVID-19‘s impact on household welfare in Ethiopia

ABSTRACT Our study aims to analyze and learn from the unanticipated economic shocks caused by the COVID-19 pandemic. We examine the ramifications of the pandemic on household well-being in Ethiopia, uncovering the layers of socio-economic impact through a rigorous microsimulation exercise. Drawing on robust data from the 2018/19 Living Standards Measurement Study – Integrated Surveys on Agriculture, we assess the significant disruptions caused by the pandemic. Our findings reveal a 2 to 4 percentage point increase in the poverty rate within the first three months, driven largely by shifts in direct incomes and food prices. The analysis highlights differential impacts across rural and urban areas, as well as between male- and female-headed households. Moreover, the study underscores the vital role of social protection programs in mitigating the effects of such shocks.

Demand Uncertainty and Tax-Motivated Outbound Income Shifting

ABSTRACT We examine how uncertainty affects U.S. multinational firms’ outbound income shifting. Based on the Joint Committee on Taxation (2010) Report, we contend that tax savings from income shifting are closely tied to sales and therefore expect that demand uncertainty is a relevant factor driving the association between uncertainty and income shifting. We find that both worldwide and regional demand uncertainties constrain outbound income shifting, and the impact of demand uncertainty is greater when the cost of modifying income-shifting structures is likely to be higher. We split common proxies for uncertainty into demand and profit margin components and find that only demand uncertainty is reliably negatively associated with outbound income shifting. Our study extends prior work linking uncertainty to investment in tax planning by linking the nature of an important set of tax minimization strategies—income shifting—to the relevant uncertainty construct and sheds light on the “undersheltering puzzle.” Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: D81; E22; H26; M40.

Intertemporal Income Shifting for Investment Reasons: Evidence from Private Firms

ABSTRACT This paper examines the intertemporal income-shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters’ investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M48; H21; H32.

TAX BUOYANCY IN MAJOR STATES IN INDIA

In the world of fiscal policy, tax elasticity and buoyancy are crucial factors shaping a country's financial health. Tax elasticity measures how much tax revenue changes when national income shifts, showing how flexible the tax system is naturally, without deliberate policy changes. This flexibility helps stabilize revenue, reducing the need for constant tweaking of tax policies. On the other hand, tax buoyancy reflects how tax revenue responds to economic shifts and intentional changes in tax policies. It acts like a gauge, indicating how effectively taxes adjust to economic ups and downs and how well policy decisions influence revenue. Low buoyancy suggests that there might be flaws in the tax system, prompting policymakers to rethink and improve tax strategies to better fit economic realities. For a country like India, where tax revenues are essential for financing public spending, understanding these metrics is critical. The buoyancy coefficient compares the growth of actual tax revenue to national income growth, providing insights into how successful fiscal policies are in boosting tax revenues. Meanwhile, the elasticity coefficient shows how responsive the tax system is to changes in national income, revealing its potential to generate more revenue as the economy grows. Analyzing these metrics gives policymakers a detailed view of fiscal sustainability and economic stability. It helps them make informed decisions when designing tax policies, ensuring that the government can maximize revenue while allowing the tax system to adapt smoothly to economic changes. A balanced approach that considers both elasticity and buoyancy is key for India's fiscal strategy, ensuring a well-coordinated financial performance that aligns with national economic goals. KEYWORDS :- Tax Buoyancy, Tax Elasticity, Fiscal Policy, Tax Revenue, NITI Aayog, RBI (Reserve Bank of India), VAT (Value Added Tax), GST (Goods and Services Tax).

Market Risk Analysis - Microeconomic Aspect of Vegetable Farms in Guri i Zi Administrative Unit, Shkodër in Albania

The risk of entrepreneurship in agriculture is complex. The purpose of this study is to identify and analyze the primary market risks that farmers face, which will help them better understand these risks and make informed decisions to mitigate them. The research uses a mixed methodology involving descriptive statistical analysis and multifactorial regression analysis to examine four critical risk factors: changes in consumer preferences, price fluctuations, high competition, and shifts in consumer incomes. The findings show that only high market competition is statistically significant and has a substantial impact of 79%. Farmers can use this information to adjust their production focus towards areas of comparative advantage in a single crop to improve their financial stability. In summary, market risk analysis is an essential tool that empowers farmers to understand and manage risks effectively to safeguard their income streams.

Asymmetric Effect of Income on the Healthcare Expenditure in Türkiye

This paper examines the dynamics between income and health spending in Türkiye from 1988 to 2020, employing autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) methodologies. One of the key findings of this study is the presence of an asymmetric relationship between variations in income and overall healthcare expenditure. This means that changes in income levels do not have uniform effects on health expenditure, and the direction of these effects depends on whether income is rising or falling. Interestingly, the research reveals that both increases and decreases in income lead to a rise in total health expenditure. However, the impact of income declines on health expenditure is more pronounced. In other words, when people experience a decrease in income, they tend to allocate a larger portion of their reduced resources to health-related expenses. This highlights the significant financial strain that income reductions can place on individuals and households when it comes to healthcare costs. This pattern of asymmetric effects also extends to government or compulsory health expenditures. When income falls, the government's role in funding health expenses becomes more prominent, as individuals rely more on public healthcare services during economic downturns. Furthermore, the study sheds light on the intriguing relationship between income shifts and voluntary or out-of-pocket health expenses. Positive income shifts are found to be associated with a reduction in voluntary health expenditure. This suggests that as people experience an improvement in their financial situation, they may opt for less costly or more efficient healthcare services, leading to a decrease in out-of-pocket expenses. Conversely, when income levels decrease, individuals may find themselves with limited options, potentially resorting to more expensive private healthcare services or bearing a greater burden of out-of-pocket expenses. This finding underscores the financial vulnerability that can accompany negative income shifts.

Tax-Motivated Income Shifting in Audit-Firm Networks: Comparing Big 4 and Non-Big 4 Firms

Recent research provides evidence consistent with tax-motivated income shifting taking place in Big 4 networks. Non-Big 4 networks have global footprints and audit a significant proportion of private-firm clients. Thus, we cannot make sense of audit-firm networks’ tax avoidance proclivities and the impacts their tax advice may have on aggregate client-firm income-shifting figures without examining non-Big 4 affiliates’ tax planning strategies. This study uses a private-firm dataset of Big 4 and non-Big 4 associated firms from 26 European countries finding evidence consistent with non-Big 4 affiliates being more aggressive income shifters than their Big 4 counterparts. Using a battery of supplemental analyses we demonstrate that the negative association between Big 4 membership and tax-motivated income shifting is weaker when network exposure to the political costs of aggressive tax planning is lower. We also show that political cost considerations are more likely to moderate debt allocation policies in Big 4 than non-Big 4 networks. Our findings suggest that political cost considerations are an important driver of the relation between Big 4 affiliation and tax-motivated income shifting even in our setting where firm size is strongly positively associated with tax expertise, political power, and global footprint and have important implications for anti-avoidance legislation.

Products, Services, and Tax-Motivated Income Shifting

Products, Services, and Tax-Motivated Income Shifting

Farming to Fighting: How Shifting Agricultural Incomes Only Impact the Most Powerful Rebel Group

ABSTRACT Recent research into the relationship between agricultural income and conflict has revealed sub-national geographic variation in the relationship. But many governments fighting rebellion are involved in more than one conflict simultaneously. This paper engages in a sub-national analysis of Colombia, utilising data on coffee income and violence across two individual rebel groups, to argue that the relationship between shifts in agricultural income and conflict holds only for the strongest group in a conflict region. This is explained by considerations of opportunity cost, a proposition tested in an analysis of competing mechanisms. Results show strong support for the propositions.

Intertemporal Income Shifting and the Taxation of Business Owner-Managers

Abstract We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder reflects systemic profit retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We find no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners.

Influence of COVID-19 on female sex workers in Dar es Salaam, Tanzania: A mixed-methods analysis.

This study investigates how the landscape of sex work in Dar es Salaam, Tanzania, evolved in the context of the COVID-19 epidemic. Using a mixed-methods approach, the analysis triangulates data from quantitative and qualitative sources to quantify shifts in income, demand, and client frequency and describe female sex workers' perspectives on their work environment. The COVID-19 restrictions introduced in early 2020 resulted in dramatic decreases in sex work income, leading to extreme financial vulnerability, food insecurity, and challenges in meeting other basic needs such as paying rent. However, in a 2021 follow-up survey, sex workers reported the summer of 2021 as a key turning point, with the demand for sex work rebounding to closer to pre-pandemic levels. Notably, despite the average number of unique weekly clients not yet having fully rebounded, by 2021 the price per client and the total monthly sex work income had returned to pre-pandemic levels. This may potentially be explained by an increased number of repeat clients, which represented a larger proportion of all clients during the COVID-19 pandemic.

Tax Treaties and Income Shifting

Tax Treaties and Income Shifting

Did Private Country-by-Country Reporting Really Not Affect Tax-Motivated International Income Shifting?

Did Private Country-by-Country Reporting Really Not Affect Tax-Motivated International Income Shifting?

Navigating Fiscal Policy: The Dynamics of Income Shifting in the Oil and Gas Industry

Navigating Fiscal Policy: The Dynamics of Income Shifting in the Oil and Gas Industry

The Effect of Non-U.S. Tax Authority Monitoring on U.S. Multinationals’ Affiliates Income Shifting: Evidence from EDGAR Search Activity

The Effect of Non-U.S. Tax Authority Monitoring on U.S. Multinationals’ Affiliates Income Shifting: Evidence from EDGAR Search Activity

Tax-related Key Audit Matters and Changes in Corporate Income Shifting

Tax-related Key Audit Matters and Changes in Corporate Income Shifting

The Valuation of Economic Earnings and Income Shifting of U.S. Multinationals in Domestic and Foreign Jurisdictions

The Valuation of Economic Earnings and Income Shifting of U.S. Multinationals in Domestic and Foreign Jurisdictions

Subsidies and the income inequality in the Hungarian wine sector

The paper investigates the impact of different sources of income on wine farm total income inequality in Hungary using Farm Accountancy Data Network data for the period 2013-2019. The decomposition of the Gini coefficient is applied to focus on the impact of the Common Agricultural Policy (CAP) shift from market to government budgetary support on wine farm total income inequality. Off-farm income has a rather stable impact on wine farm total income inequality. CAP Pillar 1 subsidies have remained more important than CAP Pillar 2 subsidies, both in the structure of wine farm total income and in the reduction of wine farm total income inequality. The most striking finding is regarding a shift in wine farm market income from a negative (losses) to a positive (profit) value and its increasing role in wine farm total income inequalities. The 20% of the largest wine farms created from almost 90% to less than 80% of wine farm total incomes between 2013 and 2019, but during the same period their participation in CAP subsidy payments was reduced much more from more than 80% to around 60%. Subsidies from Pillars 1 and 2 were reduced, and wine market income increased wine farm total income inequality, while it remained constant for off-farm income. The wine farm market income has driven wine farm total income inequalities. This might strengthen because of the ongoing market selection process with the exit of less efficient and loss-making wine farms and the increasing role of surviving profitable wine farms. This market selection process can be related to managerial, entrepreneurial, and innovation activities based on the differentiation and segmentation of wine farm products and their market incomes.

Cost Structure and Tax-Motivated Income Shifting

ABSTRACT We examine whether cost structure influences tax-motivated income shifting. We predict and find that U.S. multinational corporations (MNCs) with a less rigid cost structure engage in greater levels of tax-motivated income shifting relative to MNCs with a more rigid cost structure. This result is consistent with a less rigid cost structure providing greater flexibility to enable MNCs to take advantage of income-shifting opportunities. Further, we find that this relation is more pronounced when firms face greater costs in adjusting their operations, have less transfer pricing flexibility, and operate in a more uncertain environment. These results suggest that firms with less rigid cost structures possess the strategic operating and accounting flexibility necessary to take advantage of income-shifting opportunities. We provide evidence suggesting that a firm’s cost structure, a fundamental attribute of a firm’s business model, is a distinct and incrementally important determinant of tax-motivated income shifting. Data Availability: All data used in this study are publicly available. JEL Classifications: G32; H26; M41.

VALUE CHAINS AND ILLICIT FINANCIAL FLOWS FROM TRADE MISINVOICING: INDONESIA-SINGAPORE

This study aimed to analyze the potential for illicit financial flows with the practice of misinvoicing the impact of differences in recording the value of exports and imports of Indonesia and Singapore, as well as calculating the potential loss of state revenue from the tax sector of the trade balance disparity in Indonesia and Singapore. This research is a type of quantitative research. The data source is secondary data collected from the Indonesia-Singapore trade balance in 2016-2020 with a sample of 20 leading Indonesian export commodities to Singapore. Data analysis focuses on estimating the size of illicit financial flows and the potential loss of state revenue. The trade misinvoicing scenario is under-invoicing exports and over-invoicing exports. Meanwhile, the focus is on under-invoicing exports for calculating the potential lost state revenue. This study has found that from the 20 commodities traded between Indonesia and Singapore, there was a difference between over-invoicing and under-invoicing of US$.830 million, which means that illicit financial flows from Indonesia to Singapore have reached US$830 million from trade misinvoicing practices from Indonesia—2016 to 2020. Meanwhile, the potential loss of state revenue from the tax sector due to under-invoicing exports in the 5 (year) 2016-2020 period is around US$563 million. This potential loss results from Income Shifting by exporting companies to Singapore.