Raising Tax Rates Research Articles

The Tax Elasticity of Formal Work in Sub-Saharan African Countries

When seeking to increase their tax revenues, policy makers face a likely tradeoff between decreasing personal income tax rates (making formalizing more attractive and potentially contributing to revenue) and alternatively raising tax rates (potentially slowing down the formalization of the economy if people prefer informal employment). Evidence on formal versus informal earnings and job characteristics in different sectors is limited in African countries, and in particular very little is known about the impact of tax changes on the extent of informality. This paper therefore estimates the personal income tax responsiveness of the extensive margin of formality, i.e. the propensity to be a formal as opposed to an informal worker, for Ghana, Rwanda, Tanzania, and Uganda, using repeated cross-sections of household data and applying grouping estimator techniques. Perhaps because of labour demand constraints and other frictions, the paper finds non-significant relations between the formal employment share and the formal-informal earnings differences.

Nexus between poverty gap and macroeconomic performance in the MENA region during the period 1990-2021

The study aims to explore the impact of some macroeconomic performance indicators on the poverty gap in the countries of the Middle East and North Africa during the period 1990-2021. The study used the econometric approach, where a correlation matrix was built between the variables under study, which is the poverty gap as a dependent variable, and several independent variables, which are the rate of inflation, the rate of population growth, the rate of economic growth, and the ratio of reserves to external debt. Applying Unit Root test, then ARDL model to investigate the effect of independent variables on the poverty gap and using E-Views 12. The study found that In the short and long term, the rate of inflation is associated with an inverse relationship with poverty rates in the countries of the Middle East and North Africa during the period 1990-2021, the increasing ratio of reserves to external debt has a negative impact on the poverty rates in the MENA countries, the increasing exports had a positive impact to decreasing poverty in MENA region, while the population growth rate is associated with a direct negative impact on the poverty gap in those countries, it has the highest influence compared to the other macroeconomic variables. And the relationship between them goes in the same direction, The study confirmed that after (1) lag period GDP growth negatively affects the poverty gap, thus with an increase in the GDP the poverty also increases, but after (2) lag periods the study confirmed the positive impact of GDP growth on the poverty gap. So the study recommends applying economic policies that reduce inflation rates by using fiscal policy tools through reducing government spending or raising tax rates. Raising export rates through an industrial policy and agriculture that supports the quality and competition of local products in global markets, as well as raising the reserve ratio to the total external debt, which may occur in the event of an improvement in export rates accordingly. It also requires population policies that reduce population growth rates. And finally, economic growth couldn’t reduce poverty without economic policies raising equality degree between individuals

Can raising environmental tax reduce industrial water pollution? Firm-level evidence from China

This paper examines the effect of raising tax rates on reducing industrial water pollution, exploiting China's environmental tax reform in 2018 as a quasi-natural experiment. Based on micro-level data covering >19 thousand firms nationwide, we estimate that for every unit of tax rate increase, the emissions of water pollutants, Chemical Oxygen Demand (COD) and Ammonia Nitrogen (NH3−N) have fallen by 8.63% and 3.79%. High emission intensity firms reduce their emissions more than low emission intensity firms. We also document that state-owned enterprises are less responsive to the tax increase than non-state-owned enterprises. Our findings provide evidence that the increased environmental tax has contributed to significant reductions in industrial emissions in China.

Is environmental tax legislation effective for pollution abatement in emerging economies? Evidence from China

This study estimates the effect of environmental tax legislation on air pollution, using the implementation of China’s Environmental Protection Tax Law (EPTL) as a quasi-natural experiment. For cities which have been authorized to raise tax rates by the EPTL, the air quality index (AQI) is 2.36 lower after the reform. The effect is reinforced in cities with stricter tax enforcement, lower fiscal stress, as well as higher initial pollution levels. Heterogeneity analyses show that the reform is more effective in cities with lower levels of marketization and legalization, as well as in developed cities. In addition, the impact of the reform is more significant in cities with higher levels of public participation in environmental governance, higher tax competition levels, and higher share of secondary industry. A series of robustness tests corroborates the results. This paper provides evidence that environmental tax legislation is efficacious in pollution abatement for developing economies.

Government Revenues and Government Expenditures, or Fiscal Synchronization: Empirical Evidence from South and Eastern Asia

To understand and solve budget deficit problems, some academics propose budgets cuts while some suggest increase in taxes. The purpose of this study is to check the causal relationship among ten countries from two regions, south and eastern Asia, where all countries are developing except, Japan. The relationship is tested among three fiscal variables for the period of twenty-seven years from 1980 to 2017. For analysis purposes, Augmented Dickey Fuller test, Toda and Yamamoto Granger Causality Test and Johnson co-integration tests has been used. The results reveal three co-integrating effects for, Bangladesh and Mongolia, two for India and Japan, one for Sri Lanka, Nepal, China, South Korea, North Korea, while non for Pakistan. The Toda and Yamamoto Granger causality tests reveal evidence of tax-and-spend hypothesis for China, Pakistan, and Nepal. For Nepal, we found support for spend-and-tax hypothesis. There is evidence of neutrality for Japan, South Korea, North Korea, Mongolia, India, Sri Lanka, and Bangladesh. The results validate that south and eastern Asian countries tax policies have lessor impact to reduce budget deficits and do not offer permanent solution for fiscal problems. Our findings support increase in taxes may be a good solution to budget deficit problem, but it can be reduced if revenues and expenditures are controlled simultaneously. Major policy implications include, raising tax rates in nations like China, Pakistan, and Nepal, to increase revenue and strengthen fiscal sustainability, the significance of government spending reduction as a key tactic for managing budget imbalances, the importance of balancing both revenue generation and expenditure and flexibility in approach and continual monitoring of fiscal indicators.

United States Tax Rates and Economic Growth

American politicians aim to create economic activity that will expand the economy and provide opportunities for citizens. Today (in 2022), President Joseph Biden presents an ambitious tax plan to grow the economy and provide for more equal opportunities. With Biden’s aim for a tax increase, this research examines the impacts of tax and other economic variables on economic wellbeing. In turn, this research provides a timely update on contributing factors to economic growth. Previous academic research shows the impacts of tax rates and common economic variables related to U.S. economic growth. We gather data from 1960 to 2020 to explore U.S. real gross domestic product (GDP) per capita. Through a series of multiple regression models, we find that increases in the highest statutory corporate and personal income tax rates reduce real GDP per capita. Growth in net exports of goods and services, M2 money supply, multifactor productivity and cost, collectively increase real GDP per capita, while, the personal savings rate, and the market value of gross federal debt decrease real GDP per capita. We recommend that if Congress elects to raise tax rates, it should start with the personal income tax rate.

Fiscal Policy and Redistribution in a Small Open Economy with Aging Population

This paper sets up a two agent small open economy with monopolistically competitive firms and catching up with the Joneses to investigate the labor and capital Laffer curve, taking into account aging population along the line of Auray et al. (2016), Gali and Monacelli (2005), and Trabandt and Uhlig (2011). The paper finds that the higher the market power of firms is, the larger the consumption inequality between asset holders and non-asset holders is in the economy with aging population. It also finds that there is room for government to increase the tax revenue by raising tax rates under the economy with higher markup, as households will work more hours to compensate for their loss of labor income to tax hikes. The expected maximum tax revenue is likely to shrink with progressive taxations, since non-asset holders with additional dividend income work less and consume more. The paper finds that the fiscal multiplier decreases with the degree of progressive redistribution.

Designing tax levy scenarios for environmental taxes in China

The "Environmental Protection Tax Law of the People's Republic of China" came into effect on January 1, 2018. However, it's unclear whether the current tax rates, taxpayers, and levy scenarios are scientific and effective. Thus, determining how to improve the environmental tax can better protect and improve China's environment by reducing pollutant emissions. First, we developed a tax rate adjustment (TRA) model based on a directional distance function. Next, we used a multi-regional input-output analysis to construct a production- and consumption-based tax (PCT) model. Then, based on the current tax levy, we proposed three new levy scenarios by combining the TRA and PCT models, and on this basis, identified two gradual environmental tax reform paths. To demonstrate our approach, we selected China's 30 provinces or provincial-scale administrations for an empirical analysis of sulfur dioxide (SO2) and nitrogen oxides (NOx). We found that China should prioritize raising tax rates in the short term, especially for NOx. In the long term, China should consider incorporating consumption-based environmental responsibility into the framework of the tax model. Our results provide theoretical support for gradual reform of environmental taxes and a scientific basis for promoting more sustainable development and rational planning of emission reduction plans.

Governance Quality and Tax Revenue Mobilization in Nigeria

Abstract An evaluation of the quality of governance as a major determinant of tax revenue generation is important to both the government and the Nigerian public. It has become required as a result of many rising economies’ reliance on several taxes to raise income. Tax income generation is crucial to the fulfillment of the Sustainable Development Goals (SDGs) and rising economies’ economic progress. This study addresses the influence of both political (political stability), institutional (corruption) and bad governance on the mobilization of tax revenue in Nigeria. To serve this purpose, the study employed a time series data set from 2000 to 2020. After subjecting the data to the unit root test, the study further employs Ordinary Least Square (OLS). The findings revealed that corruption and political instability have a positive and significant impact on Nigeria’s tax revenue mobilization. Bad governance, on the other hand, has a positive and insignificant influence on Nigeria’s tax revenue mobilization. The study focuses on improving governance quality by lowering corruption rates and increasing transparency in tax administration. To accomplish so, countries must execute policy reforms such as establishing an effective and strict judicial system, offering monetary incentives for tax officers to lower the risk of corruption, and, most crucially, broadening the revenue base rather than raising tax rates. As a result, the tax administration will improve, and the economy’s overall tax revenue collection will improve.

Impact of raising tax rates in GDP growth: The case of Nepal

This study is an effort to examine whether there is a potential of variations in tax efforts of different types in making a positive impact on economic growth in a typical developing economy. We take the case of Nepal and analyse 44 years (1975–2018) of time series data of growth and fiscal variables. We conclude that Nepal has already reached its optimal tax GDP ratio. Additional efforts to collect more tax revenue are counter-productive; rather, it should take some other structural measures for higher GDP growth. Implementation of several scenarios of revenue replacement does not have a significant positive impact on GDP; however, minimising the contribution by excise duties but replacing its contribution by income tax has minimal positive impact on GDP. It refers to the need to protect Nepalese infant industries at this juncture of the fiscal-growth discourse of this small developing economy.

Напрями перегляду системи пільг з ПДВ в Україні

In the conditions of searching for ways to fill the state budget, reforming the system of VAT reliefs, losses from which make up more than 70% of total losses from tax benefits in Ukraine, can be an effective alternative to raising tax rates. The purpose of the article is to determine the directions of revision of the system of VAT reliefs in Ukraine in the context of the implementation of the Association Agreement with the European Union and its Member States. The subject of the study are two forms of reliefs – exemptions from tax and the use of its reduced rates. In addition, validity of qualification of the operations specified in Art. 196 of the Tax Code of Ukraine, as those that are not subject to VAT taxation, is considered, and it is established how one or another transaction should be qualified in accordance with Council Directive 2006/112/EC. A comparative analysis of VAT reliefs in Ukraine and the EU countries has shown that in addition to exemptions similar to those provided in the Council Directive 2006/112/EC, the Tax Code of Ukraine includes exemptions from transactions that are allowed to be taxed with the Directive at reduced rates, as well as exemptions which are not provided by the Directive. On the other hand, some mandatory exemptions under Council Directive 2006/112/EC do not apply in Ukraine. There are certain inconsistencies in the definition of transactions, the taxation of which at reduced rates is provided in the Tax Code of Ukraine and in Council Directive 2006/112/EC. The established differences determine the possible directions of revision of the system of VAT reliefs in Ukraine. However, its real scale may be different. Ukraine can go both by minimizing the system of tax preferences by refusing not only the exemptions which are not provided by the Council Directive 2006/112/EC, but also by transforming certain exemptions into taxation at a reduced rate, and by maximizing the opportunities for preferential taxation provided by the Directive. It is concluded that the choice of a certain kind of path will be influenced by the following factors: uncertainty of Ukraine’s accession to the EU, which puts our country not in such a rigid framework in the context of compliance with EU legislation as candidate countries; the state of public finances in our country: the need to expand the fiscal space and the possibility (their absence) of its expansion at the expense of sources not related to tax benefits; the presence of political will at the leadership of the state to optimize tax preferences.

The Internet as a Tax Haven?

If online transactions are tax free, increased online shopping may lower tax rates as jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales may put upward pressure on tax rates because internet sales help enforce destination-based taxes. I find that higher internet penetration generally results in lower municipal tax rates but raises tax rates in some jurisdictions. The latter effect emerges in states where many online vendors remit taxes. A 1 standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.15 percentage points, or 16 percent of the average rate. (JEL H25, H26, H71, L81, R51)

Taxing multinationals: The scope for enforcement cooperation

AbstractPolicymakers seeking to raise more tax revenues from multinational enterprises have two alternatives: to raise tax rates or to devote more resources to improve tax compliance. Tougher tax enforcement increases the cost of profit shifting, and thus mitigates tax competition. We present a tax‐competition model with two policy instruments (the corporate tax rate and the tightness of tax enforcement). In line with the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting project, we analyze the scope for enforcement cooperation among asymmetric countries, considering that taxes are set noncooperatively. We show that the low‐tax country may fail to cooperate if asymmetry is large enough and that tax havens would never agree to cooperate. Then we identify two drivers for enforcement cooperation. The first driver of cooperation is the complementarity of enforcement actions across countries. This is because the efficiency loss from enforcement dispersion is greater under complementarity. The second driver of cooperation is tax leadership by the high‐tax country, which acts as a level‐playing field in the tax competition and reduces the extent of disagreement on enforcement.

Taxing Property in Developing Countries: Theory and Evidence from Mexico

Property taxes in developing countries are plagued by noncompliance and can exacerbate liquidity constraints. We characterize optimal enforcement and taxation policies as functions of revenue elasticities and measures of taxpayer hardship. We estimate these parameters using multiple sources of variation and administrative data from Mexico City. Both rate increases and enhanced enforcement raise revenue, but liquidity constraints also shape taxpayer behavior. Despite the presence of liquidity constraints, we find that raising tax rates increases welfare. In contrast, enforcement generates higher private costs than welfare benefits. On the margin, welfare-maximizing governments would prefer to increase tax rates rather than enhance enforcement.

Sovereign Default and Labor Market Dynamics

This paper investigates the interaction between labor market dynamics and sovereign debt risk. Countercyclical default risk and the limited ability to borrow during recessions renders the government a procyclical fiscal policy. The anticipation of higher tax rates in downturns discourages agents' participation in the labor market and creates prolonged unemployment. The slack labor market, in turn, aggravates the default risk and strengthens the fiscal procyclicality. Moreover, under the discretionary policy, a government does not internalize the dynamic-scratching effect of raising tax rates on employment, so it suffers a low level of job creation and high default incentives. In this environment, imposing commitment measures on tax rates such as fiscal covenant can stimulate job creation, improve debt sustainability, and lead to a significant welfare gain.

Thinking inside the box: Optimal policy towards a footloose R&D‐intensive firm

AbstractWe derive the optimal policy mix of Research and Development (R&D)‐subsidies and corporate tax rates towards a footloose R&D‐intensive firm. Increasing R&D‐subsidies strengthens the firm's incentive to offshore production. The firm's home government can offset this by offering an appropriate corporate tax concession. The optimal policy package exhibits a “Matthew principle”: higher R&D‐subsidies should typically be accompanied by lower tax rates. However, if the R&D‐subsidy exceeds a crucial threshold, a tax concession can no longer prevent offshoring. We find that it is never optimal to raise tax rates as R&D‐subsidies increase.

Fiscal equalization as a driver of tax increases: empirical evidence from Germany

This paper exploits the devolution of taxing powers in the German federation to study the effects of fiscal equalization on subnational governments’ tax policy. Based on an analysis of the system of fiscal equalization transfers, we argue that the redistribution of revenues provides incentives for states to raise rather than to lower their tax rates. The empirical analysis exploits differences in fiscal redistribution among the states and over time. Using a comprehensive simulation model, the paper computes the tax-policy incentives faced by each state over the years and explores their empirical effects on tax policy. The results support a robust and strong incentive effect that works through the tax-base. When facing full equalization, a state is predicted to set the rate of the real estate transfer tax at about 1.3 percentage points higher than without. Our analysis also shows that the incentive to raise tax rates has proliferated because individual states’ decisions to raise their tax rates have intensified fiscal redistribution over time.

A critical commentary on the proposals to reform India's financial system in its 2019–20 union budget

The 2019–20 Union budget aims to signal that the economic gains from cleaning of the financial system are likely to be recognizable in the future. The non‐performing assets in commercial banks have dropped substantively in last year subsequent to unprecedented recoveries over the past 4 years due to Insolvency and Bankruptcy Code and other legal measures, provision coverage ratio is now at its highest in 7 years, and domestic credit growth has risen to 13.8%. The government has smoothly carried out the consolidation of public sector banks. However, the drop in banks' NPAs appears to be reflected by a liquidity squeeze and mirrored by mounting NPAs confronting the non‐banking finance company (NBFC). In addition, the problems are acute for the analyzed sub‐group of Housing Finance Corporations. While the government has announced its decision to streamline the regulatory processes within this sub‐sector, it has mandated the banks, the chief source of funds to mobilize capital for the NBFCs that appear vital to revive India's economic growth. The government has raised tax rates for the uber‐rich and import duties on a few articles such as Gold while offering tax credits on affordable housing and electric vehicles. It has attempted to improve the microstructure of the capital markets, mitigate inefficiencies in the pension space and enhance market penetration of insurance and incentivize foreign investment through budgetary proposals. This article offers a critical commentary on the proposed policy actions.

The Mediating Effect of Ethical Perception on the Relationship between Tax Service and Tax Compliance Behavior Using Baron and Kenny and Bootstrapping Method

The main purpose of this study is to examine the mediating and indirect effects ofethical perception in tax service on tax compliance behaviour. The study used crosssectionalsurvey design to collect primary data from individual taxpayers in thesouthern region of Peninsular Malaysia. Data was analysed with Statistical Packagefor the Social Science (SPSS). Results indicate that partial mediation was supported byadopting Baron and Kenny method. However, there is almost no mediation by usingbootstrapping method. It showed that ethical perception of individual taxpayers differacross individuals and these differences matter in significant ways particularly in theirtax compliance decisions. Therefore, IRB should provide better tax service to individualtaxpayers in order to enhance their tax ethics and compliance. This may increase taxrevenue and reduce the budget deficit without raising tax rates. This research resultsprovide valuable information for the IRB and it is useful for tax policy development.

1910년대 조선총독부의 조세징수제도와 납세자의 체납 - 국세징수위임제도를 중심으로 -

After its forceful annexation of Korea in 1910, the Japanese Government-General initiated its colonial administration of the territory. To establish colonial capitalism in Korea and obtain the necessary financing for colonial administration through “local procurement,” the Japanese Government-General implemented the “National Tax Collection Ordinance,” related to tax legislations and tax collection methods according to tax items. The “National Tax Collection Ordinance” was a legislation intended to stabilize Korea’s tax collection system by implanting the modern coerciveness of the “Japanese homeland” with regard to tax collection. However, the tax collection policy of colonial Korea was dependent on the administrative “support” of the police due to the weak administrative power of the myeon (unit of Korean township), and was designed such that the modern coerciveness would operate with a higher degree of violence, owing to its opportunistic administrative enforcement regulations.BR By implementing the Financial Independence Plan in 1914, the Japanese Government-General sought to increase the tax items and raise tax rates to increase its tax revenue. Taxpayers responded to the tax increase with arrears. With the number of delinquent taxpayers rising after 1914, front-line regional administrative organizations gradually increased the intensity of response measures, starting with encouraging tax payment and seizing properties, and ending with enforcing dispositions. As such, the number of delinquent taxpayers declined rapidly after 1917, giving the impression that the modern coerciveness of tax collection had been accomplished; in fact, it reflected the conflict between regional administrative organizations and taxpayers.BR The reasons for late payment were broadly categorized as “poverty,” “negligence,” and “unfavorable financial circumstances.” The rapid tax increase by the Japanese Government-General during the 1910s and the coercive attitudes of administrative officials created the class of “negligent delinquent taxpayers,” who did not pay taxes in a timely manner despite possessing the means. On the other hand, the establishment and imposition of additional taxes under the Mass Consumption Tax System—as represented by the tobacco tax and liquor tax—put the burden of the increased tax on the lower class, leading to the creation of “poor delinquent taxpayers,” who had neither the money nor any properties for seizing. Lastly, “financially unfavorable delinquent taxpayers” denoted those in unfavorable financial circumstances who owned properties but did not have cash at their disposal for immediate tax payment, leading them to delay tax payment as long as possible.