Recent Tax Research Articles

Earnings Responses to Even Higher Taxes

Abstract We exploit a recent Swedish tax reform, implying higher marginal tax rates for the top 5% of the earnings distribution, to learn about earnings responses to higher taxes. Using a simple and graphical cross sectional method, we estimate an earnings elasticity of 0.16, evaluated four years after the reform. Our analysis indicates that the response is driven by adjustments in wage rates, and not by changes to hours, job switches, or income shifting. We interpret the magnitude and preciseness of the response using a realistically calibrated simulation model in which people face uncertain marginal tax rates due to earnings dynamics.

Tax Policy Expectations and Investment

ABSTRACTThis paper examines how firms’ tax policy expectations (TPE) evolve around and relate to their investment responses to changes in tax policy. Using a text‐based approach to measuring TPE, we find that two recent tax policy–changing events—namely, the 2016 U.S. presidential election and the enactment of the Tax Cuts and Jobs Act (TCJA)—spawned considerable between‐ and within‐firm variation in TPE, with aggregate time‐series patterns in TPE occasionally challenging prevailing assumptions in previous research. Further, we observe that event‐induced TPE relate to investment both before and in response to the TCJA's passage in 2017, with offsetting associations between its first and second moments, and that these TPE moderate the TCJA's intended investment‐stimulating effect. Furthermore, we document a difference between domestic and multinational firms in their TPE‐investment response, with the former (latter) more likely to adjust the level (shift the country location) of their investment. Overall, our findings support the idea that TPE can impact investment behavior in the face of a tax policy change and suggest that our methodology can be used by future research to incorporate TPE into analyses of tax policy effects.

Tobacco industry pricing strategies during recent tax adjustments in Mexico: evidence from sales data

IntroductionPrevious studies have identified pricing strategies that the tobacco industry employs to try to minimise the impact of tobacco taxation, but these studies are mostly about high-income countries. This research...

The Tax Attractiveness of EU Locations for Corporate Investments: A Stocktaking of Past Developments and Recent Reforms

Abstract In this paper, we illustrate the tax attractiveness of EU countries as investment locations over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives significantly reduce the effective average tax rate. When government budgets are constrained, however, tax incentives with a direct link to investment activities, such as accelerated depreciation and R&D incentives, are most suitable to stimulate private investment. Even after the introduction of the global minimum tax, these measures remain a viable tool to stimulate investments.

Impact of Goods and Service Tax on MSME Sector: A Study Using Artificial Neural Network and Multivariate Analysis of Variance

Micro, small and medium enterprises (MSME) is one the vital sector of the developing economy. Changes in fiscal policy directly impact this sector the most. The present article aims to examine the impact of the recent Indian indirect system tax overhaul, that is, Goods and Service Tax (GST), on the MSME sector. We have employed multivariate analysis of variance and multi-layer perceptron neural network on the extensive data set for 60 months from April 2015 to March 2020. The empirical findings state that a significant increase has been observed in the MSMEs’ export, revenue generation and gross domestic product in the post-GST era. The findings may aid the emerging economies that are planning to alter tax systems to boost the MSME sector at the international level. JEL Codes: H20, L00, B22, C01, C45

Tax havens reexamined: The impact of global digital tax reforms on international taxation

This review delves into the evolving landscape of tax havens in the wake of comprehensive digital tax reforms. This study scrutinizes the implications of global efforts to address tax evasion and profit shifting, particularly in the context of the digital economy. With the proliferation of digital services and cross-border transactions, traditional tax frameworks have struggled to capture the economic activities of multinational corporations operating in cyberspace. Consequently, tax havens have emerged as facilitators of aggressive tax planning strategies, exacerbating global tax inequalities and eroding fiscal sovereignty. Against this backdrop, the study analyzes the efficacy and repercussions of recent digital tax reforms spearheaded by international organizations and individual nations. It examines the implementation challenges, compliance burdens, and potential loopholes associated with these reforms. Moreover, the research evaluates the impact of digital tax measures on the behavior of multinational enterprises, exploring their responses in terms of tax planning strategies and business models. Furthermore, the study investigates the broader implications of digital tax reforms on international taxation dynamics, including their influence on tax competition, investment flows, and economic development. Special attention is paid to the implications for developing countries, which often bear the brunt of revenue losses resulting from profit shifting to tax havens. By synthesizing empirical evidence, policy analysis, and theoretical insights, this study offers a comprehensive reevaluation of tax havens in the digital age. It sheds light on the complex interplay between technological advancements, regulatory frameworks, and global economic dynamics shaping contemporary tax landscapes.

Taxpayer Compliance Through Internet Understanding as a Moderating Variable: Implementation of E-Filing, E-Billing and E-Registration Administration Systems

The level of taxpayer compliance that is still not optimal can be seen from the recent few years ofalow state tax revenues. The purpose of this study was to determine the effect ofaimplementing e-filing, e-billing andae- registration administrative systems on individua taxpayer compliance with internet understanding as a moderating variable. The research data were obtained from questionnaires (primary data) which were distributed to individual taxpayers at the Padang Satu Pratama Tax Service Office. Sampling using simple random sampling technique as many as 100 respondents. The data is processed using SPSS 23. The results of this study state that the application ofaE-filing, E-billing and the E-registration Administration System have an effect on Taxpayer Compliance. Understanding the Internet is able to moderate the effect ofaimplementing E-filing, E-billing and the E-registration Administration System on Taxpayer Compliance.

Tax Administration in Nigeria: A Systematic Literature Review

Tax administration is vital for national development, acting as the principal vehicle through which governments generate revenue for economic growth and public service delivery. In Nigeria, tax collection is administered by the Federal Inland Revenue Service (FIRS), State Internal Revenue Service (SIRS), and Local Government Revenue authorities. These entities gather funds to support crucial infrastructure, healthcare, education, and other critical services. However, Nigeria faces significant challenges in tax administration, including rampant tax evasion, a substantial untaxed informal sector, corruption, and complex tax legislation. These issues hinder the government's capacity to generate sufficient revenue for national development. This systematic review analyzes the existing literature on tax administration in Nigeria from 2018 to 2024, addressing three key questions: (i) What are the primary obstacles in tax administration? (ii) How does tax administration influence government performance and revenue generation? (iii) What measures have been suggested or implemented to improve tax administration efficiency? Through a comprehensive search of databases such as Research gate, PubMed, JSTOR, Google Scholar, and others, this study finds noteworthy discoveries linked to recent tax reforms, such as the implementation of the Tax Identification Number (TIN) system and the Voluntary Assets and Income Declaration Scheme (VAIDS), have had a mixed impact on revenue generation. The use of technology, including e-tax systems, has enhanced tax compliance but faces challenges related to internet connectivity and cyber security. Additionally, the informal sector remains largely untaxed, posing a significant challenge to expanding the tax base. The implications of these findings highlight the need for further reforms in tax administration. Streamlining tax regulations, enhancing technological infrastructure, combating corruption, and improving taxpayer education are essential steps for increasing revenue collection. Addressing these challenges will not only boost revenue generation but also promote sustainable economic growth in Nigeria. Policymakers and stakeholders can leverage these insights to build a more efficient and transparent tax system, thereby contributing to overall economic and social stability.

Recent Tax Amendments

This note describes the most significant amendments introduced by the recently enacted tax reform in Romania, most of which are effective 1 January 2024.

Role of ICT, Governance Quality in Indirect Tax Revenue Productivity: A Comparative Analysis of Two Recent Indirect Tax Regimes in Indian States

The study explores the determinants of indirect tax mobilization across various groups of Indian states based on their major, minor categories and more and less industrialized attributes. It observes a strongly positive but differential impact of per capita RGSDP on own tax revenue efforts of various state groups. Information and Communication Technology use is only helping major less and minor more producer states in augmenting their tax revenues, whereas it results in decreased revenues for major more and minor less producing state groups including all the states in a group. This implies use of Information and Communication Technology has been less effective for most Indian states in augmenting their tax revenues. The governance quality results in loss of tax revenues in major and minor less producer states, while it has no effect on major more producer including all minor and all states together. This implies a weak role of governance in taxation. We observe differential impact of tax regimes for different state panels, which has significant policy relevance. JEL Classification: H11, H21, H27, H77

Speaking for and against the Imperial Portrait Statue in Late Antiquity: Libanius's Orations 19–22 and John Chrysostom's Homilies on the Statues (387 C.E.)

Abstract: In the city of Antioch-on-the-Orontes in 387 c.e., statues of the emperor Theodosius I and his family were destroyed by a crowd angered by a recent tax increase, resulting in a series of imperial punishments enacted upon the city. In the months after the event, two prominent residents, the pagan author Libanius and the Christian priest John Chrysostom, wrote (in the case of Libanius) and preached (in the case of Chrysostom) in response to the destruction of the statues and the ensuing punishments. This article focuses on the varied understandings of the power and presence of imperial portraits written into Libanius's and Chrysostom's texts. In contrast with Libanius's traditional understanding of the statue as a surrogate for the venerable subject it represented, Chrysostom instead argues that the living human is superior to the lifeless statue, as we are created "in the image of God" by the supreme artist himself. By marshaling Neoplatonic ideas and pagan critiques of statuary, as well as Christian doctrine, Chrysostom seeks to convince his congregants and later readers still attached to the imperial statue cult that the faithful, rather than graven images, are what matter. Writing in a period in which Christianity was ascendant, and in which some cult statues of the pagan gods were targeted for destruction, Chrysostom's homilies provide a unique window into late fourth-century conceptions of portrait statues, which though different from statues of divine subjects were potentially problematic sites of animation and veneration. Read closely against each other, Libanius's and Chrysostom's texts supplement our understanding of the factors behind the subsequent decline in the production and display of portrait statues, as well as changing ideas about three-dimensional representation in a Christian empire.

The dynamics of price discovery between the U.S. and Chinese soybean market: a wavelet approach to understanding the effects of Sino-US trade conflict and COVID-19 pandemic

During geopolitical crises, the price stability of agricultural commodities is critical for national security. Understanding the dynamics of pricing power between the U.S. and China and how it varies over time can help smaller nations navigate unpredictable moments. This study uses a unified framework and wavelet approach to examine soybean price discovery in the U.S. and China from the standpoints of price interdependence and information flows. We begin by illustrating the integrated link between the soybean futures markets in the U.S. and China, which includes multiple structural breaks. The pricing difference between the two nations acts as the primary information spillover route for their integrated relationship. Furthermore, we show that the direction and degree of information spillover change dramatically in proportion to the strength of the U.S.–Chinese soybean interaction. Finally, we find that China’s recent retaliatory tax on the U.S. soybeans gave the Chinese market a more powerful position in soybean futures price discovery. After the first-stage trade deal was reached, and during the epidemic phase of the coronavirus pandemic, the pricing power of the U.S. soybean market showed no signs of full recovery.

Debt and Taxes? The Effect of Tax Cuts & Jobs Act of 2017 Interest Limitations on Capital Structure

ABSTRACT The Tax Cuts & Jobs Act of 2017 (TCJA) limited interest deductibility. Using a difference-in-differences design, we show that following the enactment of the new limitations, affected firms significantly decrease their leverage. Specifically, we find that relative to unaffected U.S. firms, affected firms decrease leverage by 7.6 percent of assets, corresponding to $330 million per firm and $84.8 billion for the treatment sample. These results are driven by decreases in long-term domestic debt and by declines in new issuances rather than debt repayment. Additional tests indicate other tax reform elements do not explain the results. We also find that firms not currently subject to limitations on interest but subject to future limitations decrease leverage by about half as much as firms currently subject to the limits. Overall, our findings document an economically significant effect of recent tax reform on firm behavior and advance understanding of how taxes affect capital structure. JEL Classifications: H26; H71; H72.

TAX HEAVENS: THEORETICAL GUIDELINES

The main purpose of this paper is to study the concept and aspects of tax havens and the attempt of companies with significant revenues to avoid taxation, their causes, trends and effects in the European Union (EU) resulting from tax avoidance or tax evasion behavior. These phenomena were triggered by several factors. The purpose of this study is to identify the major determinants of tax havens in the current economic context. In recent years, the international and European tax policy debate has focused on tax avoidance strategies. Attempts and cases of tax evasion have become more frequent. The development of tax havens has been favored by some macroeconomic factors, but also by the tax non-compliance behavior of companies and individuals looking for different ways to avoid taxation. We examine the theoretical implications of tax haven operations on the actual tax burdens of companies based in Europe. One of the factors that has a major contribution to the development of the orientation trend of multinational and national companies with significant revenues made on the territory of the EU is the degree of taxation. Although this level of taxation differs from one country to another, it is a significant one and is the main pillar on which tax havens are based. This expansion of the phenomenon of avoiding taxation by transferring income to tax havens generates negative effects in the European economy, which leave their imprint on the economy more and more. Since the phenomenon of tax avoidance by directing companies to tax havens cannot be eradicated, it is very important to find measures to limit it. In this context, at the level of the European Union, concerns have arisen for the development of a conceptual, institutional and legislative framework to mitigate these phenomena as much as possible. This phenomenon occurs both within the European Union and globally. The European Union together with the Member States must work more and collaborate internationally to limit the orientation of companies towards tax avoidance by transferring profits to tax havens. In the general context of the globalization of the world economy, the governments of countries that want to increase their tax revenues hit a significant obstacle called “tax havens”. The main finding of this approach is that the EU together with other OECD member states are making diplomatic and legislative efforts to limit as much as possible the tendency to avoid taxation.

Riders on the Storm – Recent Tax Developments in Brazil and their Impact on the Financial Sector

In 2022, Brazil's economic environment faced significant turmoil, driven by political polarization, controversial policy proposals and the election of Luíz Inácio Lula da Silva as president. These factors led to a series of measures and decisions that affected the Brazilian tax system and the financial services industry. Among the changes were presidential decrees, provisional measures and court rulings that impacted tax deductibility for corporate income tax purposes, transfer pricing rules, withholding income tax rates, social contributions (PIS/COFINS) regulations, and the tax amortization of goodwill. By providing an in-depth examination of these developments, this article will shed light on the potential opportunities and challenges for companies operating in Brazil's financial services industry in the wake of these changes.

Tax reforms and elasticity of taxable income: estimation using the current population survey

ABSTRACT Changes in taxable income can capture many of the behavioural responses to changes in tax policies. In this paper, using the publicly available Current Population Survey (CPS) data and analysing two of the most recent tax reforms (Tax Cuts and Jobs Act of 2017 and the American Taxpayer Relief Act of 2012), we provide a new estimate for the elasticity of taxable income with respect to marginal tax rates. As is common in the literature, the paper conducts a panel data analysis and compares taxable income from before and after tax reforms to estimate the elasticity. Using an instrumental variable approach, we find an elasticity of 0.81, a value that is within the range of estimates found in previous studies.

Pass-through effects of a temporary tax rebate on German fuel prices

This paper studies the impact of a recent tax rebate by the German government. In an attempt of reducing the economic burden of soaring energy prices, Germany lowered the tax on fuel by up to 35.9 cents for a limited period of time. Based on a diff-in-diff approach, we find a pass-through on consumer prices of up to 105 percent.

FACTORS INFLUENCING TAX COMPLIANCE IN INDONESIA

This study aims to look at several factors like awareness, knowledge, obstacles, and sanctions, as well as tax regulations impacting taxpayer compliance. There is an assumption that tax compliance in Indonesia is still in the low category, which causes state revenues in the tax sector not to meet expectations. This study uses the literature review method, where the results concluded that awareness, knowledge, obstacles, sanctions, and the existence of tax regulation have an indication or influence to increase tax compliance in Indonesia. The study provides knowledge about the current conditions regarding tax compliance in Indonesia based on existing factors, and new information related to the recent tax regulation in the pandemic 2022.

Examining Tax Strategy Choice

ABSTRACTMost recent tax research examines the level of firms’ effective tax rates (ETRs), focusing on tax avoidance. However, theoretical work and research on book-tax tradeoffs and reputational costs indicate that some firms have other tax planning goals. Moreover, anecdotal evidence suggests that consistent tax outcomes are important; therefore, the volatility of ETRs may be an alternative aspect of firms’ tax planning. In this study, I find that some firms utilize a second, distinct approach to tax strategy—maintaining low ETR volatility—by documenting systematic differences in firm characteristics associated with each tax strategy approach and a predictable shift in characteristics when firms change tax strategies. In combination, these results identify at least two distinct approaches to tax strategy. I also find that firms exhibiting low ETR volatility earn significantly higher median buy-and-hold returns than firms exhibiting low ETR levels, consistent with benefits to alternative tax strategies.Data Availability: Data used in this study are available from public sources identified in the paper.JEL Classifications: M40; M41; M49.

Distortional effects of separate accounting and formula apportionment on factor allocation

We examine distortions caused by tax base allocation systems–separate accounting (SA) or formula apportionment (FA)–with respect to the allocation of assets and workforce within multinational entities (MNEs). The effects of both systems are intensively debated by EU Member States as they are striving to implement a European tax system. Its introduction would lead to a switch from SA to FA. Moreover, Pillar One of the recent global tax reform includes a mix of both tax base allocation systems. We find that, against the claims of the EU, FA does not necessarily create lower distortions of the factor allocation. Decisive for that assessment is the level of profit shifting under SA. Our results indicate that, in tendency, the factor allocation is more severely distorted by FA when the profit shifting possibilities were rather low under SA. In contrast to former studies, we highlight the importance of analyzing the status quo under the recently applied system (SA) in order to be able to assess the consequences of a switch from SA to FA. Our results are interesting for policy-makers as they help anticipating reactions of MNEs to a change in the applied tax base allocation system and for companies as a basis for future tax planning.