Indirect Revenue Research Articles

Using Microdata to Estimate Pakistan’s Tax Gap by Type of Tax

This study provides estimates of Pakistan’s tax gap by type of tax. We adopt a bottom-up approach that provides detailed estimates of the tax gap by type of tax of the sort that are useful for tax administration. For fiscal year 2004–05, we estimate Pakistan’s federal tax gap to be about 40 percent of potential tax revenue. We estimate the tax gap for direct taxes to be about 60 percent of potential direct tax revenue and for indirect taxes about 25 percent of potential indirect tax revenue. Direct and indirect taxes account for about 30 percent and 70 percent, respectively, of actual tax collections. When potential tax revenues are used to measure Pakistan’s tax structure, the proportions are 45 percent and 55 percent, respectively. If the indirect tax system is more regressive than the direct tax system, then Pakistan’s tax system is less progressive in practice than by design.

Fiscal Multipliers in Bulgaria: Low But Still Relevant

With fiscal adjustment proceeding quickly in Bulgaria and given the weak economic growth environment, there is keen interest in making the budget composition more growth friendly. This paper quantifies the short-term impact of fiscal policy on economic activity in Bulgaria using econometric and model-based approaches. While fiscal multipliers have been modest in the past, as can be expected in a small open emerging economy, the effect on output is not independent of the speed of adjustment and the specific consolidation measures used. The impact of fiscal policy on economic activity is larger in downturns than in expansions and capital spending and direct taxes are associated with the largest effects on output, while non-targeted government transfers and indirect taxes are associated with a smaller impact. The results suggest that increased capital spending financed by higher indirect tax revenue collections through base broadening has sizeable growth effects over the medium and long-term.

Fiscal Multipliers in Bulgaria: Low But Still Relevant

With fiscal adjustment proceeding quickly in Bulgaria and given the weak economic growth environment, there is keen interest in making the budget composition more growth friendly. This paper quantifies the short-term impact of fiscal policy on economic activity in Bulgaria using econometric and model-based approaches. While fiscal multipliers have been modest in the past, as can be expected in a small open emerging economy, the effect on output is not independent of the speed of adjustment and the specific consolidation measures used. The impact of fiscal policy on economic activity is larger in downturns than in expansions and capital spending and direct taxes are associated with the largest effects on output, while non-targeted government transfers and indirect taxes are associated with a smaller impact. The results suggest that increased capital spending financed by higher indirect tax revenue collections through base broadening has sizeable growth effects over the medium and long-term.

Attacking the Money Supply to Fight Against Online Illegal Content?

Although the Internet has provided economic growth, new forms of social exchanges and political revolutions, it has also been the field for new types of fraud and rights infringements. When the people who upload or exploit content in an illegal way do so for profit, if it were possible to cut off the financing they use, this might be an effective means of combating the spread of their activities.Original mechanisms have already been invented to combat online fraud; what they have in common is that they target the profits made by the fraudsters through their illegal activities. These mechanisms were the result of either self-regulation – as the example of the battle against the fraudulent practice of domain name tasting shows – or legislation – it is the way the United States fight against illegal online gambling.There are two main types of revenue made from online activities: money paid directly to service providers and money received indirectly through monetization. In studying the possibility of targeting the financial circuits that benefit those engaged in an illegal activity, direct and indirect revenue must be distinguished. It appears that the identification of a payment made through these intermediaries, a payment that profits a particular individual, whether known or unknown and who operates an illegal online activity, may lead to the suspension of the payment if it can be established that it encouraged this activity or brought profit to the person behind it.An individual who notices that an illegal activity is in partial or full infringement of his rights could notify the intermediary(ies) used by the illegal business to receive payments. Such intermediary(ies) would then take one measure or more. Intermediaries would be compelled to suspend payments to the operators of illegal sites in cases where it is clear that the beneficiary is engaged in the monetization of patently illegal content, with due process rules that would guarantee the rights of the person affected.This position paper aims at engaging a debate about mechanisms that would be preventive rather than curative, target the financial flows and not the information flows, involve a critical category of intermediaries which are not currently at the center of internet regulation though they are at the center of its economy.

Reconciling alternative views about the appropriate social discount rate

This paper shows that, in an economy with an exogenous rate of return and a given capital income tax distortion, and with lump sum taxes as the marginal tax instrument, the SOC and MCF criteria both correctly identify all worthwhile projects if the criteria are properly applied. The equivalence between the SOC and MCF criteria continues to hold i) if distortionary taxes are used to balance the budget, and ii) if the rate of return to capital is endogenous. Apparent differences between the SOC and MCF criteria arise from different definitions of a project's indirect revenue effect. Neither criterion has an implementation advantage because the information requirements for each are identical.

BEHAVIORAL RESPONSES TO TAXPAYER AUDITS: EVIDENCE FROM RANDOM TAXPAYER INQUIRIES

This paper argues that random audit programs provide income taxpayers with information that alters their perceptions of, and hence their behavioral responses to, audits. Comparing samples of randomly selected audited and non-audited UK taxpayers, the evidence confirms predictions that audited taxpayers found to be "compliant" reduce their subsequent compliance. The opposite response is observed for taxpayers found to be "noncompliant." The results highlight the importance of testing separately the responses of taxpayers facing different opportunities and incentives to evade tax in order to avoid conflating their different effects, and to reveal both positive and negative indirect revenue effects from random auditing.

Elections and the Structure of Taxation in Developing Countries

This article analyses the impact of the electoral calendar on the composition of tax revenue (direct versus indirect taxes). It thus represents an extension of traditional political budget-cycle analyses assessing the impact of elections on overall revenue. Panel data from 56 developing countries over the 1980-2006 period reveals a clear pattern of electorally-related policy interventions. Taking the potential endogeneity of election timing into account, we find robust evidence of lower indirect taxes being applied by incumbent governments in the period just prior to an election. Indirect tax revenue in election years is estimated to be 0.3 GDP percentage points lower than in other years, corresponding to a fall of about 3.4% of the average figure in the sample countries, while there is no such relationship with direct tax revenue.

Elections and the structure of taxation in developing countries

This article analyses the impact of the electoral calendar on the composition of tax revenue (direct versus indirect taxes). It thus represents an extension of traditional political budget-cycle analyses assessing the impact of elections on overall revenue. We appeal to the opportunistic political budget model of Drazen and Eslava (2010) to predict the relationship between taxation structure and elections. Panel data from 56 developing countries over the 1980–2006 period reveals a clear pattern of electorally-related policy interventions. Taking the potential endogeneity of election timing into account, we find robust evidence of lower indirect taxes being applied by incumbent governments in the period just prior to an election. Indirect tax revenue in election years is estimated to be 0.3 GDP percentage points lower than in other years, corresponding to a fall of about 3.4% of the average figure in the sample countries, while there is no such relationship with direct tax revenue.

Potential Regional Economic and Tax Impacts of Liberty Bell Motorsports Park and Campground

Liberty Bell Motorsports Park and Campground will be constructed on 653 scenic acres just off Route 422 near Douglassville, Pennsylvania, in Berks County. The facility will be a multi-functional, state-of-the-art motorsports track complex that will include a campground area and buildings.The potential total impacts of Liberty Bell Motorsports Park and Campground construction and first-year operation on jobs, economic output, employee compensation, and selected indirect business taxes were estimated for Berks County. Estimates were made using a macroeconomic model of Berks County assembled by Penn State’s Institute for Research in Training and Development.The construction phase of the development of Liberty Bell Motorsports Park and Campground could generate 633 jobs, almost $92 million of economic output, over $27 million of employee compensation, and $972,000 of indirect business tax revenue in Berks County. These construction impacts will result from three ripple effects on the Berks County economy. First, Liberty Bell itself will generate jobs, output, compensation, and tax revenue. Second, the Park and Campground will purchase some of the goods and services they use to run the facility from suppliers in the local Berks County economy. And, third, impacts will be created because Liberty Bell workers and workers in Berks County industries that supply the Park and Campground will spend some of their income on goods and services sold by Berks County firms.The total ripple effect on the Berks County economy of the first year of operation of Liberty Bell Motorsports Park and Campground could include 242 jobs, $12.5 million of economic output, $4.1 million of employee compensation, and approximately $369,000 of indirect business tax revenue. The average impacts of the Park and Campground over their working lives are likely to be higher due to steady annual growth in Liberty Bell business that is anticipated.The total, county-wide impact on state and local personal income taxes during the construction phase of Liberty Bell Motorsports Park and Campground development is estimated to be approximately $733,000. In addition, the total, county-wide impact on state and local personal income taxes during the first year of operation of Liberty Bell Motorsports Park and Campground is estimated to be approximately $99,000.Construction and operation of Liberty Bell could alter the market and assessed value of the 653-acre tract designated for the Park and Campground. Based upon potential assessment values for the developed land (not including buildings) reported to Liberty Bell, the real estate taxes to be paid to the school district are estimated to exceed $500,000 with an additional $125,000 to Berks County and $32,000 to Union Township. The amount of real estate taxes is expected to increase as further building development occurs.

Building biotechnology in Okinawa

Last fall I was invited to an international workshop with the aim of helping develop a research university in Okinawa, the Okinawa Institute of Science and Technology (OIST). It was an enlightening experience to observe the creation of a new knowledge infrastructure. Although I cannot comment on the workshop discussions, I will share some of my personal thoughts and observations. To understand the development of a research university in Okinawa, it is necessary to first understand Okinawa. Historically a separate nation, Okinawa became a prefecture of Japan in 1879. Following the Second World War, Okinawa was under United States administration until 1972, when it was transferred to Japanese administration. It comprises less than 1 % of Japan's landmass, but is home to more than 75 % of Japan's US military bases. While under US administration, Okinawa's economy was largely comprised of direct and indirect revenues from the US military bases. Since the transfer to Japanese control, concerted efforts have been underway to diversify and develop an independent economy. The main industries are currently tourism, functional foods and information and communication industries. Okinawa's dependence on revenues from the US military bases has decreased, but unemployment remains high – twice the rate of any other prefecture – and per capita income is the lowest in Japan. My first observation on arriving at OIST was its isolation. The institute was built into a dense forest at the top of a mountain, in wonderful harmony with nature. Yet, as I looked out at the rich forests, I wondered where all the supportive infrastructure was. Where were the office parks, incubator spaces and the cafes and restaurants where innovators could work and interact? It became immediately apparent that beyond building a state-of-the-art research institute, much effort would be needed to attract and retain complementary assets. If scientists seeking to develop innovations from OIST laboratories had to leave the area, or leave Okinawa, to develop them, then they might never return, or worse, not elect to initiate research in Okinawa. Beyond simply having the necessary resources for development and commercialization of innovations, Okinawa and OIST also need a compelling pitch if they are to attract interest; given the numerous global locations to engage in research and development, what are compelling reasons to select Okinawa? The founders of OIST established it as an English-speaking institute – a decision which potentially places it as a gateway for Japanese seeking to reach outwards, and a gateway for foreigners seeking access to Japan markets and minds. They have also been strongly involved in supporting local schools, helping build an innovative mindset among the next generation of Okinawans. I feel that more aggressive tactics should also be applied. Okinawa's unique situation – the relative abundance of foreign military bases and the weak economy – enable it to make special requests of the central government. I strongly encourage OIST and Okinawa to seek special status to bolster development. Just as Puerto Rico's strategic tax abatements led it to become the dominant location for pharmaceutical manufacturing for the US market, Okinawa can employ policy measures unavailable to other prefectures to drive development. Reducing the tax burden for eligible start-ups and reducing payroll taxes for start-up employees are good ideas which have been implemented elsewhere, but Okinawa can also become a test-ground for greater innovation policies. Article 35 of Japan's Patent Law, similar to the US Bayh-Dole Act, grants ownership of employee inventions to the employer (including research institutes and universities). Although this automatic grant of ownership to universities has been successful in the leading American universities, an alternative model has been working very well in other countries. Some universities, such as Canada's University of Waterloo (home to more high-tech and knowledge-based spin-offs than any other Canadian school) opt to grant intellectual property ownership to the inventor. Although the university might lose millions of dollars in potential patent royalties, it is able to attract and retain leading researchers at lower cost and also gains all the spillover benefits from development and commercialization. By granting OIST a waiver from Article 35, the institute could attract global research leaders who seek to own their inventions. Venture capitalists and service providers could follow these researchers, helping develop a local supportive infrastructure at no direct cost. The development of a new research university is a complex undertaking. Diverse inter-connected and mutually dependent elements must be laid down, often with external support to sustain them until they can be self-sufficient. The leadership at OIST realizes the need for long-term thinking and sustained support. I look forward to following their progress.

Recreational value, user heterogeneity and site characteristics in contingent valuation

We propose an adaptation of the Dichotomous Choice Contingent Valuation Method, applied to the recreational quality of a site and to heterogeneity between visitors (tourists and residents). This method is based on a set of repeated valuation questions and is used to study relations between the components of environmental goods. We propose its application to public coastal sites in south-western France. We show that programmes regarding the ocean, beaches and forests are generally independent of one another. In order to stress the heterogeneity of users, two separate models are assessed. The way time is taken into account then appears to be one of the most interesting sources of divergence between tourists and residents. Individual WTP per day also varies. This confirms that beaches used by residents provide high economic benefits although they generate little indirect revenue. Finally, contingent valuation appears to be a useful alternative for analyzing the multiple dimensions of a public policy.

Economic impact of oil price shocks on the Turkish economy in the coming decades: A dynamic CGE analysis

As a small open economy, Turkey depends on both imported oil and natural gas, importing almost two-thirds of its primary energy demand. This paper analyzes the economic effects of oil price shocks for Turkey as a small, open oil- and gas-importing country. To analyze the potential long-term effects of oil price shocks on macroeconomic variables of interest, including GDP, consumer price inflation, indirect tax revenues, trade balance, and carbon emissions, we developed TurGEM-D, a dynamic multisectoral general equilibrium model for the Turkish economy. Using TurGEM-D, we analyzed the impact of oil price shocks under three distinct scenarios: reference, high and low oil prices. The simulation results show that these oil prices have very significant effects on macro indicators and carbon emissions in the Turkish economy.

A Cost–Benefit Analysis of Bariatric Surgery on the South Plains Region of Texas

The regional economic burdens of obesity have not been fully quantified. This study incorporated bariatric surgery demographics collected from a large university hospital with regional economic and employment data to evaluate the cost of obesity for the South Plains region of Texas. Data were collected from patients who underwent laparoscopic gastric bypass and laparoscopic banding between September 2003 and September 2005 at Texas Tech University Health Sciences Center. A regional economic model estimated the economic impact of lost productivity due to obesity. Comparisons of lost work days in the year before and after surgery were used to estimate the potential benefit of bariatric surgery to the South Plains economy. Total output impacts of obesity, over $364 million, were 3.3% of total personal income; total labor income impacts neared $60 million: the losses corresponded to $2,389 lost output and $390 lost labor income per household. Obesity cost the South Plains over 1,977 jobs and decreased indirect business tax revenues by over $13 million. The net benefit of bariatric surgery was estimated at $9.9 billion for a discount rate of 3%, $5.0 billion for a discount rate of 5%, and $1.3 billion for a discount rate of 10%. Potential benefits to the South Plains economy of performing bariatric surgery more than outweigh its costs.

Tri-Value Organization as a Form of Social Enterprise

Many depictions of social enterprises underemphasize the role of government in supporting their mission and operation. This article provides a conceptual framework and analysis of government’s financial role in one form of nonprofit social enterprise that we identify as a tri-value social enterprise. The main argument is that some forms of social enterprises are better characterized as tri-value social enterprises because their revenue sources explicitly derive from the nonprofit, for-profit, and public sectors. This analysis extends Moore’s (2000) three-part framework that distinguishes values-based differences in sources of revenue among for-profit, nonprofit, and governmental organizations. The case of the Seattle nonprofit FareStart provides an illustrative example of a tri-value social enterprise because both direct and indirect government-based revenues support FareStart’s operation as a social enterprise. The article discusses the implications for researchers and practitioners of identifying tri-value social enterprises.

Economic Partnership Agreements: Tariff Cuts, Revenue Losses and Trade Diversion in Sub-Saharan Africa

In contrast to existing published literature that assumed the Economic Partnership Agreements (EPAs) tariff cuts, this paper uses the tariff cuts actually agreed by some African countries to quantify fiscal revenue losses from the EPAs and estimate potential trade diversion. It finds that the profile in the tariff cuts varies significantly across countries and that revenue losses are significant but spread over long transition periods. Using taxable imports instead of total imports (a standard method of the literature), in order to take into account tax breaks and preferences granted to other partners in regional groups, increases the estimated revenue losses. However, the potential trade diversion, a source of additional indirect revenue loss, could be significant.

Assembling Platforms: Strategy and Competition

Strategic behaviour in digital markets is difficult to interpret as these industries compete via alternative business models, rather than competing via an accepted business format. Digital market strategies are also more sophisticated and dynamic along product positioning and pricing, alliance, merger and acquisition, and innovation activity dimensions. This paper analyses key variables to be considered in the design of digital business models. First, the trade-offs specific to matching, assembling and knowledge management are presented. Then, the strategic interdependency among these dimensions is related to the main features characterising demand: heterogeneity in users preferences, willingness to pay for quality, and organised solidarity among users. Furthermore, the firm’s challenge is not only to establish a market niche or to obtain a gatekeeper position, since in an industry characterised by permanent innovation and a ‘winner-takes-all’ race firms must add new functions to their portfolios in an ongoing manner. Such ‘agility’ or adaptability is required to preserve competitive advantage. The inherent difficulty in managing innovative capability and commercial image, when the supply of services is continually being extended to new domains (that require new capabilities and the evolution of commercial practice) are also underlined. The framework attempts to identify the principal trade-offs among alternative digital strategies. The analysis also stresses the importance of uncertainty regarding digital market competition due to the threat of market invasion by rivals. Rivalry can spoil market positioning because of interdependency among business models due to direct network externalities and competitors’ indirect revenues.

Fiscal Revenue Losses and Trade Diversion from the Economic Partnership Agreements: Are the Concerns Justified?

In contrast to existing published literature that assumed the EPAs tariff cuts, this paper uses the tariff cuts actually agreed by some African countries to quantify fiscal revenue losses from the EPAs. It finds that the profile in the tariff cuts vary significantly across countries. Revenue losses are limited and spread over long transition periods. Using taxable imports instead of total imports (a standard method of the literature), in order to take into account tax breaks and preferences granted to other partners in regional groups, increases the estimated revenue losses but they remain limited. Trade diversion, a source of additional indirect revenue loss, could be significant.

Monetary and Fiscal Policy Aspects of Indirect Tax Changes in a Monetary Union

In recent years a number of European countries have shifted their tax structure more strongly towards indirect taxes, motivated, inter alia, by the intention to foster competitiveness. Against this background, this paper develops a tractable two- country model of a monetary union, characterised by national fiscal and supranational monetary policy, with price-setting firms and endogenously determined terms of trade. The paper discusses a number of monetary and fiscal policy questions which emerge if one of the countries shifts its tax structure more strongly towards indirect taxes. Qualitatively, it is shown that the long-run effects of such a unilateral policy shift on output and consumption within and between the two countries depend sensitively on whether indirect tax revenues are used to lower direct taxes or to finance additional government expenditures. Moreover, short-run dynamics are shown to depend significantly on the speed at which fiscal adjustments take place, on the choice of the inflation index stabilised by the central bank, and on whether the tax shift is anticipated or not. Quantitatively, the calibrated model version indicates that only if the additional indirect tax revenues are used to finance a cut in direct taxes there is some, though limited scope for non-negligible spillovers between countries.

São tomé and Príncipe: Domestic Tax System and Tax Revenue Potential

Sao Tome and Principe is very open and highly depends on imports resulting in high indirect tax revenue. At the same time, the production and export base are very narrow, leaving the authorities with a small domestic tax base. For these reasons, the country compares unfavorably with neighboring economies and other island countries, in terms of domestic revenue in percent of GDP. The paper describes the domestic tax system in Sao Tome and Principe and uses cross-country empirical analysis to reach a benchmark tax potential for the country. The paper reaches the conclusion that whether Sao Tome and Principe becomes an oil producer or not, it is more sustainable for it to rely on non-oil domestic revenue-a less volatile and less exhaustible resource-to finance current expenditures. To meet the country's increasing development and social objectives, the authorities need to mobilize sufficient domestic resources. The paper offers a number of fiscal reforms to reach this goal, including implementation of the new tax laws, reduction of exemptions, tax system reforms, and improvement of the tax administration.

TAX REVENUE, TAXATION MIX AND ECONOMIC GROWTH RELATIONSHIP IN TURKEY: 1968-2006

This paper examines the relationships between taxation mix and economic growth in the Turkish economy. Tax burden, gross fixed capital formation/GDP and gross domestic savings/GDP ratio were also taken into account in the study. Causality analysis and impulse-response functions were used in the analysis. According to results obtained through causality analysis, there is one-way casual relationship between economic growth and taxation mix which flows from economic growth to taxation mix. One-way casual relationship was found between direct tax revenues/GDP ratio (tax burden) to economic growth. Economic growth is Granger cause of both gross fixed capital formation/GDP and gross domestic savings/GDP ratio. Impulse-response functions indicate that economic growth responds to indirect tax revenues with positive direction whereas economic growth responds to direct tax revenues with negative direction in the first stage and then they move together after 3-4 periods on the average. Economic growth responds to tax burden with positive direction and they move together after 3-4 periods.