Tax Setting Research Articles

Optimal environmental policy and business cycles: An analysis using an E2-DSGE model

What are the effects of adopting a comprehensive environmental policy that considers, in addition to taxes on emissions, taxes and subsidies in the energy sector? This paper answers that question using a dynamic stochastic general equilibrium model augmented to include environmental issues and an energy sector featuring non-renewable and renewable energy production. The model is used to find the optimal trajectories of the environmental policy instruments and to analyze the dynamic behavior of the model variables in response to productivity shocks. First, we show that tax and subsidy rates are procyclical. Second, we show that having access to alternative sources of (renewable) energy allows households and firms to replace non-renewable (polluting) energy sources with renewable (cleaner) energy sources in response to productivity shocks. Finally, a welfare analysis of different policy alternatives shows that a broad environmental policy is welfare superior to policies that do not include a full set of taxes and subsidies in the energy sector.

Identifying Network Ties from Panel Data: Theory and an Application to Tax Competition

Abstract Social interactions determine many economic behaviours, but information on social ties does not exist in most publicly available and widely used datasets. We present results on the identification of social networks from observational panel data that contains no information on social ties between agents. In the context of a canonical social interactions model, we provide sufficient conditions under which the social interactions matrix, endogenous and exogenous social effect parameters are globally identified if networks are constant over time. We also provide an extension of the method for time-varying networks. We then describe how high-dimensional estimation techniques can be used to estimate the interactions model based on the adaptive elastic net Generalized Method of Moments. We employ the method to study tax competition across U.S. states. The identified social interactions matrix implies that tax competition differs markedly from the common assumption of competition between geographically neighbouring states, providing further insights into the long-standing debate on the relative roles of factor mobility and yardstick competition in driving tax setting behaviour across states. Most broadly, our identification and application show that the analysis of social interactions can be extended to economic realms where no network data exist.

Influence of resource compensation and complete information on green sustainability of semiconductor supply chains

The semiconductor industry provides technological support for a wide range of industries, including artificial intelligence, communications, consumer electronics, and medical instruments, but it also contributes to high resource consumption and pollution emissions, which are detrimental to global sustainable development. To promote the semiconductor industry's economic stability and sustainability in parallel with ecological and environmental protection, public awareness of sustainability is driving manufacturers to improve resource utilization and achieve green production of their products. To encourage manufacturers to contribute to global sustainability, governments are involved in supply chain decision-making based on resource and compensation policies. Using efficient resource utilization as an entry point, this study aims to explore whether manufacturers can effectively address the risk known as “strangle hold stuck neck” based on advanced resource utilization in their manufacturing processes, and the role of resource compensation versus full information in this context. The study shows that, in the presence of business competition or geopolitical factors, the disclosure of resource utilization levels to upstream technology suppliers by manufacturers with green production advantages increases their exposure to price increases. Whether or not upstream technology suppliers change their technology licensing decisions or have full information, resource efficiency policies can contribute to a stable product supply and more efficient resource utilization. Notably, there are limits to the setting of taxes and subsidies in resource compensation policies, and different scenarios exhibit different limiting functions for subsidies and taxes.

ОСОБЕННОСТИ НАЛОГОВОЙ СИСТЕМЫ РЕСПУБЛИКИ КОРЕЯ

The article examines the features of the current tax system of the Republic of Korea. The relationship between the tax system and the level of economic development of the state is obvious and undeniable: the more transparent, rational and efficient the tax system is, the more budget formation is based on tax revenues and the greater the ability of the state to finance the performance of its functions, including ensuring the socio-economic development of the country, which fully corresponds to the essence of the tax. The thesis was used as the basis for the research, according to which the tax system of the state is a set of taxes and fees levied in accordance with the procedure established by law, the system of tax authorities, as well as the methods and forms of taxation and tax administration used by them. Based on the analysis of the legislative base of the Republic of Korea, the current structure of taxes and fees, the system of tax authorities, forms and methods of taxation and administration of tax revenues to the country's budget system are considered. Based on the analytical resources of the exchange portal Take-profit.org It has been revealed that the current policy of the Government of the Republic of Korea to curb the increase in tax rates on a number of significant taxes, combined with traditional tax incentives to stimulate exports of products from companies in a number of key industries, leads to an expansion of debt financing of the economy and ultimately to an increase in the debt burden on the economy. In this regard, the dynamics of the country's debt burden was compared with the dynamics of a number of countries belonging to the G20 group. Based on statistical data from the Organization for Economic Cooperation and Development, the structure of tax revenues has been identified both by major groups (national and local) and by individual types.

Цифровізація та глобалізація системи адміністрування податків як драйвер інноваційного розвитку

The aim of the article is to identify the problems and prospects of digitization and globalization of services in the tax administration system as components of drivers of innovative development. It is substantiated that under the influence of military operations, internal and external factors, there has been a determination of awareness of the role of the digital economy as a tool for globalization, which defines the choice of such development priorities as investment and innovation cooperation and digitization of social relations at the macro and micro levels. The formation of the information society on the basis of digitization will ensure the subordination of economic growth to the qualitative parameters of social and economic development, because further progress will be determined not so much by the production of goods as by the expanded use of information in the context of digitization. The main problems of digitization and globalization of tax administration in Ukraine are identified and systematized. Among them, the main ones are: the ongoing war, unpredictable changes in government policy, and other risks of long-term digital technology projects; corruption; resistance to change on the part of government officials, employees of the State Tax Service and taxpayers; lack of information work on the benefits of digitization and globalization with taxpayers and the public, as well as specialized training among employees of the State Tax Service; shortage of qualified tax officers, as well as specialists in the field of digital technologies; concentration of taxation not on the identification of reserves for tax incentives, but on the collection of taxes; technological risks of malfunction or failure in new systems, especially in the early stages of their implementation; cybercrime risk; bureaucratic procedures and imperfection of legislation on digital technologies, personal data of citizens and the implementation of international legislation. It is proved that the vector of the strategy for solving the existing problems in tax administration should go through digitization, digitalization and computerization of relations between the State and citizens, taking into account the modern global experience of the developed countries of the world in this area. The strategic priorities that will ensure the development of digitization and globalization of tax administration are presented in a systematized form, which, in turn, will have a positive impact on the innovative development of the country as a whole. It is substantiated that the main ways to ensure the development of digitization and globalization of tax administration are: 1. Improvement of national legislation and implementation of international legislation on digitization and globalization of tax relations. 2. Integration of international standards of digital technologies and ensuring the safety and illegal non-distribution of personal data of citizens. 3. Fighting corruption at all levels of government while restarting the judiciary to protect rights and increase taxpayers’ confidence. 4. Formation of a comprehensible strategy and tactics for the development of digitization and globalization of tax administration, harmonious with systemic international trends. 5. Gradual reduction of the tax burden and creation of a system of computerized independent clear tax control. 6. Building public trust and support, as well as cooperation with international organizations and businesses. 7. Promoting the development of tax and digital culture among citizens, especially children. 8. Clear and balanced reform of the State Tax Service and other regulatory authorities to improve the tax system of Ukraine and ensure the stability of the country’s finances. 9. Formation and implementation of a set of tax incentives to expand business activity. 10. Anti-corruption measures and openness of the work of the State Tax Service. 11. Continuous training and development of the State Tax Service staff. 12. Providing conditions for digitization and digitalization of relations between the State and citizens. The presented problems and proposals of digitization and globalization of the tax administration system create the basis for further research in the direction of improving the methodology and organization of the tax system.

Taxation at a Distance

Wealthy Americans escape the income and estate taxes by holding assets at a legal remove. This general tax avoidance strategy—holding wealth “at a distance”—takes several forms, but the most powerful of all is the use of life insurance. Tax law has come to afford special treatment to life insurance due to some combination of reasoned policy, industry lobbying, and illogical application of existing tax rules and judicial anti-abuse doctrines. Courts have only recently begun to push back against taxpayers’ use of life insurance as a tax-free brokerage account, but the judicial crackdown is fatally flawed. This is because it rests on what I call “control doctrines,” or arguments that taxpayers should only become liable for paying taxes on their life insurance investments when they exercise direct, personal control over those investments. But I argue that taxpayers can benefit from such arrangements without exercising any control, and that economic benefit is a more appropriate basis for tax liability. I show that applying an economic benefit principle would produce simple, administrable rules superior to the control-based status quo in both the income tax and estate tax settings. My argument demonstrates that tax law must reject extreme legal formalism—such as the legal “distance” created through life insurance and trusts—in order to meet the challenge of high-wealth exceptionalism.

The Importance of Principles in an International Tax Setting

In this article, the author considers the general function that principles perform as source of law, guidance in the design of rules and an interpretation tool in evaluating the consequences and risks of not having an international tax system based on clear principles regarding the allocation of taxing rights.

Tax competition among local governments: Evidence from the spillovers of location-based tax incentives in China

This paper exploits the tax incentives in China's Great Western Development (GWD) Program to identify tax competition among local governments. The reform reduces the statutory corporate income tax rate in GWD regions. Using this exogenous tax reduction as a quasi-natural experiment and adopting a difference-in-differences approach, we find that the reform in GWD regions leads to a 1.6328 percentage point decline in the effective corporate income tax rate and a 0.658 percentage point decline in the macro tax burden in non-GWD counties adjacent to the policy boundary. The results suggest that there are strategic interactions as well as a race to the bottom among counties in their tax setting. The results are stable across a series of robustness tests such as excluding other mechanisms of tax rate interaction and excluding the impact of other incentive policies in the GWD Program. Combined with the tax reduction effect in border GWD counties, we find that the tax interaction coefficient for the effective corporate income tax rate and macro tax burden between GWD and non-GWD counties along the border are 0.8718 and 0.3553, respectively. This reflects the intense tax competition among local governments in China. In addition, we demonstrate that tax competition mainly exists between geographically adjacent counties, as no such spillover effects are observed in non-GWD counties far from the policy boundary.

The global minimum tax raises more revenues than you think, or much less

The OECD’s global minimum tax (GMT) of 15% on what is deemed excess profit of multinationals aims to reduce profit shifting to low-tax jurisdictions. . We study the revenue effects of the GMT by focusing on strategic tax setting effects. The direct effect from less profit shifting increases revenues in high-tax countries. A secondary effect, however, is that the value of attracting foreign investments increases, which intensifies tax competition. We show that when governments compete via lump sum subsidies, the revenue gains from less profit shifting are exactly offset by higher subsidies. When competition is by tax rates, revenues may increase, however.

Data Analytics for Undergraduate Tax Students: An Alteryx Case Study for MACRS Depreciation

ABSTRACT The increasing use of data analytics in the accounting profession necessitates development of instructional cases that teach students how to use data analytics tools to solve common accounting problems. While there has been an emphasis on data analytics cases for graduate education, we recognized a need for such cases at the undergraduate level to prepare students for internships, careers, and graduate education. This case meets this important need by introducing Alteryx in a typical tax setting—the calculation of Modified Accelerated Cost Recovery System (MACRS) depreciation. The learning objectives are to: (1) extend knowledge of data analytics; (2) develop skills using Alteryx to extract, transform, and load data; (3) demonstrate understanding of tax rules for computing depreciation; and (4) develop effective written communication skills.

Environmental taxation and profit-shifting activities

We analyse environmental taxation in an international setting, where a multinational company produces a good whose consumption causes a negative externality. We study the joint effects of imperfect competition, corporate tax and profit-shifting activities on the optimal level of environmental taxation. In a two-country framework, we show that in both countries the environmental tax that is set lower than the level allowing to fully internalise environmental costs. Profit shifting causes a further decrease in the low-business-tax country. Finally, we show that policies aimed at reducing profit shifting may have countervailing effects on environmental tax setting.

Closing the Gap: Achieving U.S. climate goals beyond the Inflation Reduction Act

The Inflation Reduction Act sets the stage for substantial greenhouse gas emissions reduction in the United States. However, analyses show that on its own, the IRA is insufficient to meet the nation's stated climate goals. We use an energy system optimization model to understand how the U.S. can build on the IRA to meet climate goals. We model two carbon taxes and a suite of efficiency, fuel, and technology standards, including a clean electricity standard (CES), electrification standards for commercial and residential buildings, a zero-emission vehicle (ZEV) standard, and a clean fuel standard for industry. We compare these three policy scenarios to the U.S.’s stated climate goals (Nationally Determined Contribution). The two carbon taxes and the suite of standards achieve the GHG emissions goals outlined in the Paris Agreement, but no scenario reaches net-zero GHG emissions by 2050. Notably, we find that the average GHG abatement cost under the modeled standards is comparable to a carbon tax set at ∼$200/ton, and both policies achieve similar emissions reductions. Temoa's cost-minimization structure results in the carbon tax always reducing emissions more cheaply than a set of standards; but the similarity in cost emphasizes the near-optimal second-best nature of well-designed standards.” The marginal cost of GHG emissions reduction in each scenario is less than 2% of total system costs. While the modeling results indicate that meeting climate targets may still be possible, they demonstrate that doing so will require rapid and sustained deployment of zero-emission technologies across the energy system.

Fiscal Policy, Economic Integration and Unemployment

In this paper fiscal policy is examined for an open economy characterised by unemployment due to efficiency wages. We allow for capital and firm mobility in a model where the government chooses the level of wage, source-based capital and profit taxation. The taxing choices of governments are analyzed in scenarios which differ with respect to the constraints imposed on the set of available taxes and on the mobility of firms. As a general result, the welfare loss from labour market imperfections increases when tax bases become internationally mobile, which suggests an increasing relevance of domestic labour-market reforms when tax bases become global.

Фіскальні інструменти розвитку цифрової економіки

Abstract. Introduction. Digitization processes are objective and today play an important role in the development of modern society and its individual spheres. Penetrating into social relations, digital technologies change them, contributing to their gradual development. The national economy as an integral component of the economic system today is significantly influenced by modern information and communication technologies. Such technologies have already penetrated all spheres of economic life, changing the economic behavior of economic entities. Accordingly, ensuring the development of the country's economy without using the potential of these technologies is no longer possible today, since digital technologies create all the conditions for increasing the level of the country's competitiveness in the global economic space. This determines the importance of finding mechanisms to activate the digitalization process within the national economy. Purpose. The main goal of this article is to study the possibilities of using fiscal instruments by state authorities and local self-governments for the formation of a digital economy. Results. It is possible to ensure the stimulation of the development of the digital economy in the country only on the basis of the use of the mechanism of state regulation of the economy, in which one of the most important roles is played by fiscal instruments. It is thanks to the use of these tools that state and local self-government bodies are able to influence the behavior of economic entities and thus create conditions for them in which they are able and interested in using digital technologies in their own activities. Fiscal instruments are a set of tax and budget instruments that are closely interconnected and are used in the process of accumulating state financial resources to perform the functions assigned to it by society. Thus, ensuring the development of the digital economy is also possible using these tools. Conclusions. The article examines the essence of budgetary and tax instruments in sufficient detail, analyzes the peculiarities of their use in the field of implementation of information and communication technologies for the development of the national economy.

The Fiscal State in Africa: Evidence from a Century of Growth

AbstractWhat is the level of state capacity in developing countries today, and what have been its drivers over the past century? We construct a comprehensive new data set of tax and revenue collection for forty-six African polities from 1900 to 2015. Our data show that polities in Africa have been characterized by strong growth in fiscal capacity on average, but that substantial heterogeneity exists. The empirical analysis reveals that canonical state-building factors such as democratic institutions and interstate warfare have limited power to explain these divergent growth paths. On the other hand, accounting for the relationship between African polities and the international environment—through the availability of external finance and the legacy of colonialism—is key to understanding their differing investments in fiscal capacity. These insights add important nuances to established theories of state building. Not only can the availability of external finance deter investment in fiscal capacity, but it also moderates the efficacy of canonical state-building factors.

Vicios privados, virtudes públicas: ingresos fiscales de la Real Hacienda de Chile a fines del periodo colonial

This article deals with the evolution and financing of the Royal Treasury of Chile in the last colonial decades, through reports prepared by accountants of the Contadurías Mayores of this Capitanía and Peru. The resultsshow that the growth of the Chilean treasury was explained both by the good economic performance and by the fiscal measures derived from the reforms undertaken, especially after the adoption of the Ordenanzas de Intendentes (1786-1787). As a consequence, the Chilean royal treasury increased through an ever-increasing collection of direct contributions, in contrast to other Hispanic American spaces where those indirect ones marked the course of the hacienda. Although without dispensing with the regressive fiscal component, as confirmed by the 40 % that the set of taxes that levied the entrenched consumption of «vices» among the chilean populatio

The Impact of State Fiscal Policy on States’ Resilience Exiting the Great Recession

This study employs a state-level model of recovery and a comprehensive set of tax- and expenditure-related variables to explore the effect that the states’ fiscal policy decisions had on their recoveries after the Great Recession in the United States. In addition, we combine those findings with our resistance results from two earlier studies to identify the structural and fiscal-policy factors that consistently strengthened or weakened the states’ economic resilience entering, during, and exiting that recession. Although our analysis indicates that resistance and recovery are distinctly different economic resilience phenomena, states that avoided sales and corporate income taxes, and that committed a greater share of their resources to public welfare expenditures, fared better than others throughout. This knowledge may aid state governments’ fiscal policy decision making as they prepare for future recessionary shocks.

FEATURES OF TAXATION OF INCOME OF NATURAL PERSONS

Tax revenues to the budget are the main source of filling its revenue part, which, in turn, is an important tool for the implementation of the country’s social and economic policy. Both regional development and the effectiveness of the country’s implementation of its functions depend on the ability to attract a sufficient amount of money to the budgets of different levels. Among the entire set of taxes and fees introduced in Ukraine, one of the leading places in filling the budget belongs to personal income tax. Among the entire set of taxes and fees established in Ukraine, one of the leading places in filling the budget belongs to the personal income tax. Its role in the economy is difficult to overestimate, because it is in the sphere of interests of the entire economically active population of the country. With the help of this tax, the state can have a direct influence on the level of received income and savings of citizens. The principles of personal income taxation should meet the requirements of reducing social contradictions in society, encourage taxpayers to behave honestly towards the obligation to pay taxes. In the conditions of the reform processes that have been actively taking place in the economy of our country in recent years, a number of changes were made to the mechanism of personal income taxation. Currently, there is a need to review the achieved results in order to determine the future course of action. The article is devoted to the issue of personal income taxation, its role in the formation of the revenue part of the state budget. Four key historical stages of reforming the tax system of Ukraine in the aspect of personal income taxation are identified on the basis of studying the regulatory legal acts that were in force in different periods of time. The current state of the transfers of personal income tax and the peculiarities of its administration are analyzed. The trends of personal income tax receipts to local budgets are familiarized. It was found that personal income taxation is one of the main fiscal levers, which determines the impact on ensuring the successful functioning of the economy of our country. Taking into account the experience of the EU countries, directions for further improvement of the mechanism of personal income taxation, which will contribute to the strengthening of the principle of social justice are outlined.

EXPERIENCE OF FORMING BUDGET EQUALIZATION SYSTEMS IN THE COUNTRIES OF THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT

Topicality. Reforming of the state regional policy and increasing of the socio-economic level of development of administrative-territorial units require comprehensive research and study of the experience of foreign countries regarding the methods of forming budget resources and finding an effective model of budget equalization, which is especially relevant in the context of the decentralization reform.Aim and tasks. To carry out the analysis of budget equalization systems in the countries of the Organization for economic cooperation and development, and to substantiate the possibility of using foreign experience of budget equalization in Ukraine.Research results. In foreign practice, several basic models of budget equalization are distinguished: horizontal and vertical equalization of income or expenses. A representative taxation system with a standard set of taxes is used to assess the possibility of revenue collection. The expenses equalization model compared to the income equalization model provides an answer to the question of whether the community has become capable, or how close it has come to it. A necessary condition for the application of this model is the availability of expenses standards for the provision of public services. The "gap-filling" fiscal equalization model combines expenditure and income equalization into a single transfer designed to fill the gap between financial needs and income. In practice, there are very few countries that use only one of the budget equalization models. Basically, there is a combination of different models and methods of horizontal and vertical equalization of income and expenses. The basis of the construction of budget equalization systems are the coefficients and formulas used to determine the size of equalization transfers. Systems that include elements of income equalization usually rely on a standard set of taxes and standard tax rates. At the same time, one of the solutions is to use a small set of taxes. Expenses equalization systems are more complex because cost estimation often involves a large number of factors. In some countries, regression-based standardized costing approaches have been used. Budget equalization systems are not static entities, the norm of the need for their periodic analysis and evaluation is often included in the legislation underlying them. Such an analysis can lead to reforms of budget equalization systems. Several key factors motivating the reform of equalization systems were identified: growing or high levels of inequality in the fiscal capabilities of communities, regional incomes or the provision of public services; insufficient fiscal autonomy; unstable and non-transparent budget alignment; inadequate incentives and lack of political neutrality in the budget equalization system. Reform of budget equalization systems in OECD countries is carried out in the following directions: transition to systems based on rules; increasing the fiscal autonomy of communities; simplification of alignment formulas; simplification of the representative tax system; periodic review of alignment formulas.Conclusion. In practice, there are very few countries that use only one of the budget equalization models. Basically, there is a combination of different models and methods of horizontal and vertical equalization of income and expenses. The basis of the construction of budget equalization systems are the coefficients and formulas used to determine the size of equalization transfers. The income equalization system relies on a standard set of taxes and standard tax rates. Cost equalization systems are more complex because cost estimation often involves a large number of factors. Budget equalization systems are not static entities, the norm of the need for their periodic analysis and evaluation is often included in the legislation underlying them.

Do People Smooth their After-Tax Income? Evidence from Japanese Local Tax

Abstract This study provides evidence that under the Japanese local individual income tax system, individuals smooth their after-tax income by choosing the timing of their tax payments. We construct a monthly data set of Japanese local taxes with sample periods for over 26 years. The results show that though the tax amounts are pre-determined in one-year units by the system, individuals pay more taxes during months when their incomes are high, such as in “bonus” periods, than other months in a year. The t-statistics for means indicates that there exist significant upward deviations during these months. JEL classification numbers: H31; H24; E62. Keywords: Consumption smoothing; Local income tax; Inter-temporal decision making; Mean test; Levene test.