Tax Increase Research Articles

Inattention and the Taxation Bias

Abstract This paper shows that inattention to taxes generates a time-inconsistency problem in the choice of tax policy, leading to higher taxes in equilibrium. These discretionary tax increases are inefficient as they are deviations from the socially optimal commitment policy. We call these deviations a taxation bias. Combining sufficient statistics and structural approaches, we quantify the magnitude of this policy distortion for the U.S. redistributive tax-transfer system. We find that the taxation bias ranges between 3 and 8 percentage points, alters tax-transfer progressivity, and has significant welfare effects. Overall, our findings shed new light on the implications of inattention and misperceptions.

Popular Votes on Tobacco Tax Increases, 2012–2022

Context: Researchers have examined the campaign strategies, messaging, and outcomes of popular votes on tobacco tax increases from 1998 to 2008, but no study has investigated measures that have appeared since 2008. Methods: The author uses state newspaper archives, voter pamphlets, academic reports, advocacy websites, and personal interviews to obtain information about the 11 tobacco tax increase ballot measures that appeared from 2012 to 2022. Findings: The three measures that succeeded during 2012–2022 featured sufficient financial resources, collaboration with influential stakeholders, and early public support. Two of the three successful measures offered significant concessions to the tobacco industry, and both were designed as legislatively referred statutes. Elsewhere, proponents sought unsuccessfully to enact citizen-led initiatives that would allocate revenue to progressive policy priorities. In contrast to previous eras, tobacco industry arguments often centered around antitax and antigovernment rhetoric, which was viewed as especially compelling in conservative states. The industry's success rate was higher than in the past, and it continued to outspend its opponents, sometimes by staggering margins. Conclusions: Campaign spending and early support remain critical to the success of tobacco tax ballot measures. Big Tobacco can extract significant concessions even in defeat, and direct democracy is an effective but imperfect ally to tobacco control advocates.

ANALISIS SENGKETA PAJAK ATAS PEMBATASAN PERBANDINGAN UTANG DAN MODAL PERUSAHAAN

This study aims to analyze the causes of thin capitalization disputes after the implementation of related rules (PMK Number 169/PMK.010/2015 (PMK-169)) based on the Tax Court's decision from 2019 to 2022. The research method is qualitative using a triangulation approach by conducting content analysis and documents, interviews and data triangulation using more than one data source over several time periods. The results of the research show that there has been an increase in the number and causes of disputes related to thin capitalization after the implementation of regulations. This is due to the use of a fixed ratio of debt and equity of 4:1 which is seen as not in accordance with the characteristics of the business and does not reflect fairness in business. The cause of the dispute also comes from the weakness of the examiner's correction basis in proving fairness and the existence of tax evasion efforts. This research has implications for efforts to minimize the occurrence of tax disputes in the future, accelerate tax dispute resolution and increase literacy, especially related to thin capitalization in Indonesia.

A fiscal theory of money and bank liquidity provision

Fiscal-backed money can provide additional liquidity to consumers and mitigate the liquidity shortage problem in an economy with banks where agents face idiosyncratic liquidity shocks without being fully insured. The government issues fiat money and creates real value for money by levying a tax and accepting money for tax payments. Tax reallocates the distribution of liquidity in the economy. An increase in tax, by increasing fiscal surplus and the real value of money, reduces the equilibrium investment. Additionally, imposing taxes influences the incentive of private information production, which may impose a constraint on optimal fiscal policy.

The Impact of Value-Added of Wholesale and Retail Trade and Hotels on Economic Activity: An Econometric Study in the Economy of Iraq between 2006-2021

This research paper aims to measure the impact of value-added tax on wholesale and retail trade and hotels on economic activity in Iraq from 2006-2021. The study applied the Autoregressive Distributed Lag (ARDL) model to clarify the effect and demonstrate the relationship between the variables. Results showed an integrative relationship between the value-added tax on wholesale and retail trade and hotels (independent variable, X), and economic growth (the dependent variable Y). The short-term parameters showed a statistically significant relationship at a significance level of less than (1%), as the value-added tax on wholesale and retail trade and hotels significantly positively affects economic growth in the short term. Furthermore, the long-term relationship results showed a statistically significant negative relationship between the variables at a probability level of less than (1%). The value-added tax on wholesale and retail trade and hotels has a major impact on national economic expansion, as an increase in the value-added tax by one dinar leads to an increase in GDP by 10.52684 dinars. This result is consistent with economic theory and verifies the study's hypothesis. The quality and validity of the model were confirmed through standard tests, including a heteroscedasticity test, serial correlation test, diagnostic tests for functional form, and stability tests for estimated model parameters.

The Challenges of Tobacco Fiscal Policy Implementation in Mexico From the Perspective of Key Actors.

Raising tobacco taxes is considered the most effective strategy to avoid smoking initiation and discourage its use, especially among vulnerable groups. However, few low- and middle-income countries have adopted high tobacco taxes. Raising taxes is, therefore, an opportunity to strengthen and accelerate tobacco control. The objective of this study is to analyze the barriers and facilitators to the tobacco tax increase in Mexico. Based on the Governance Analytical Framework, data were generated through 17 in-depth interviews with key intersectoral actors for fiscal policy. The interviews were transcribed and coded according to Hufty's theory of governance. Robust scientific evidence, intersectoral coordination, and the presence of "champions" boosted progress in tobacco control (facilitators). The main barriers were the incomplete implementation of the World Health Organization-Framework Convention on Tobacco Control (WHO-FCTC) and MPOWER package and lack of commitment ("political will") by government decision makers and legislators, misinformation about the effects of tobacco taxes, and strong tobacco industry interference. Robust evidence is necessary but not sufficient to advance the implementation of the MPOWER (WHO-FCTC) actions. To achieve tobacco tax increases and public policies that protect people from unhealthy products in general, the implementation of policies or legal frameworks against industry interference in the development of public policies is imperative. By analyzing the barriers and facilitators to increasing the tobacco tax in Mexico, this study identifies two key messages: (1) The need to sensitize legislators and the general population to the problem of smoking not only through epidemiological data but also through testimonies that highlight the life experiences and adversities faced by people who smoke. (2) The need for a regulatory framework to prevent industry interference in public affairs and conflicts of interest. The same framework could be very useful for public health policies to control the consumption of ultra-processed food products or alcohol.

Trade Policies and Fiscal Devaluations

Fiscal devaluations—an increase in import tariffs and export subsidies (IX) or an increase in value-added taxes and payroll subsidies (VP)—have been shown to provide as much stimulus under fixed exchange rates as a currency devaluation. We find that if agents expect policies to be reversed and the tax pass-through is large, VP is contractionary and IX provides a modest boost. In our medium-scale DSGE model, both features are crucial in accounting for Germany’s underperformance in response to VP in 2007. These findings cast doubt on fiscal devaluations as a cyclical stabilization tool when monetary policy is constrained. (JEL E32, E52, E62, F13, F33, H20)

Maliye Politikalarının İşsizlik Üzerine Etkisi: Türkiye İçin Ampirik Bir Kanıt

The economic policies implemented in a country can directly or indirectly affect many macroeconomic indicators. One of these macroeconomic indicators is the unemployment rate. The government's aim to reduce unemployment with the economic policies they implement. Especially in times of crisis, fiscal policies come to the fore, find a wider application area and support employment. The effects of fiscal policies may differ between expansionary and contractionary policies. The aim of this study is to investigate the effect of fiscal policies implemented in Türkiye on unemployment. For this purpose, monthly data for the period 2014:1-2022:12 were used in the study. In the study, public expenditures, direct and indirect tax revenues are used to represent fiscal policy. The ARDL bounds test was used in the analysis. In addition, the frequency domain causality test developed by Breitung and Candelon (2006) was used to the robustness check of the findings. The findings show that increases in government expenditures increase unemployment in the long run. On the other hand, while increases in indirect taxes reduce unemployment, increases in direct taxes have no effect on unemployment. The findings obtained from the causality test also support this situation.

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

The article reviews the large body of evidence on how taxation affects the consumption of tobacco, alcohol, and sugar-sweetened beverages (SSB). There is abundant evidence that demand for tobacco, alcohol,...

United Kingdom’s budget deficit in 2010s and Government’s financial policies: analysis and implications

This article delves into the intricate nature of the United Kingdom's (UK) budget deficits throughout the 2010s and explores the government's responses to address this fiscal challenge. The article also sheds light on the fiscal policies adopted by the coalition government, formed due to the need for a collective approach to tackle the deficit. These policies encompassed tax increases, reductions in public benefits and investments, and aimed to balance the structural current account deficit by 2015–16. The government's approach aligns with Keynesian macroeconomic doctrine, advocating for government intervention in the economic landscape. However, the article raises questions about the efficacy of these policies in entirely mitigating the deficit. The article claims that while the deficit persisted as a concern, the government achieved a significant reduction during this period, showcasing both challenges and accomplishments in addressing the UK's budget deficit.

Tax wedges, financial frictions and misallocation

We revisit the classical result that in a closed economy the incidence of corporate taxes on labor is approximately zero. We consider a rich general equilibrium framework, where agents differ in the level of their wealth as well as in their managerial and working ability. Potential entrepreneurs go through all the key decisions affected by corporate tax changes: the choice of (i) occupation, (ii) organizational form, (iii) investment, and (iv) financing structure. We allow both for the presence of financial frictions and the traditional tax advantage of debt over corporate equity, which jointly generate misallocation of capital and talent. In this environment we characterize the effects of increasing corporate taxes both analytically and for a calibrated version of the model. We show that this tax increase reallocates production from C corporations to pass-through businesses. Since, due to distorted prices, the latter have higher capital-labor ratios, this reallocation generates a reduction in labor productivity and wages. Furthermore, the corporate tax increase induces some C corporations to reorganize as pass-throughs, which implies more restricted access to external funds and thus a socially inefficient downsizing of production in these firms. Finally, the tax increase causes further misallocation of talent by inducing agents with low wealth relative to their managerial talent to switch from entrepreneurship to being workers, while the reverse happens for agents with higher wealth and lower managerial skills. Overall, we find that both labor and capital bear a large share of the corporate tax incidence, while entrepreneurs are net beneficiaries of the tax change.

The impact of bequest taxation on savings and transfers

Research background: The paper investigates the impact of bequest taxation on saving and transfers when parents and children make decisions consistently. It complements the predictions of Gale and Perozek's life-cycle modeling (2001) when decisions of parents and children are set independently and can be time-inconsistent. Purpose of the article: The paper strives to answer the question of whether taxation of bequest harms savings and inter vivos transfers. The previous results indicated that this is possible for some bequest motives. Our results show that this is not likely for the most typical values of parameters. Methods: The analysis involves economic modeling of four bequest motives: altruistic, paternalistic, accidental, and exchange. The method is based on the overlapping generation approach and life-cycle approach in the case of a paternalistic bequest. The results are supplemented with numerical simulations. Findings & value added: For the altruistic motive, savings are smaller if interest rates are low relative to the tax rate and the utility of one's consumption is more valuable than the utility of the next generations. For the accidental motive, savings decrease with small interest rates, high taxation and long-life expectancy. For the paternalistic motive, savings decrease when the interest rate and the value of future utility are low. For the exchange motive, savings are higher after a tax increase, but it depends on the value of attention and life expectancy. The general conclusion is that higher bequest taxation hamper saving behavior and may disturb the intergenerational exchange process. The bequest tax should, therefore, be set low, especially for aging populations, in order to induce higher savings and force the young to provide the elderly with higher attention.

Socioeconomic differences in the impact of prices and taxes on tobacco use in low- and middle-income countries-A systematic review.

There is indisputable evidence that increases in taxes that raise tobacco prices reduce tobacco use. Consumption taxes on manufactured tobacco products, however, can be regressive in socioeconomic status (e.g., when the ratio of tax paid to income is lower for higher-income groups than for lower-income groups). Nevertheless, if the poor or less educated are more price responsive, a change in tobacco tax may be progressive in socioeconomic status. Existing reviews clearly indicate that populations with lower income or education are more responsive to tobacco tax and price changes than higher-income and more educated populations in high-income countries. Research pertaining to low- and middle-income countries was, however, limited and inconclusive. We conducted a review of quantitative studies that examined if socioeconomic status modified the association between prices and taxes and tobacco use in low- and middle-income countries. We searched two electronic databases, two search engines, and two working paper repositories. At least two reviewers independently screened articles for inclusion, extracted detailed characteristics, and assessed the risk of bias of each included study. Thirty-two studies met our inclusion criteria. Overall, we found that the evidence in low- and middle-income countries was too limited and methodologically weak to make any conclusive statements. Our review highlights a number of data and methodological limitations in existing studies. The most important limitation was the lack of formal assessment of socioeconomic differences in price responsiveness. Only seven of 32 studies assessed statistically whether own-price effects were modified by socioeconomic status. Many modelling studies have examined the distributional effect of a tax increase on tobacco use, while assuming a strong own-price elasticity gradient in income. The poor were generally assumed to be more responsive to price by a factor of two to five, relative to the wealthy. Although there are theoretical reasons to expect poorer individuals to be more responsive to monetary prices than wealthy ones in low- and middle-income countries, our review provides little empirical support.

Impact of carbon footprint of bank loans and fossil fuel subsidies on ecological footprint in Tunisia: A contingency and asymmetric analysis

This study examines the impact of the carbon footprint of bank loans (CFBL) and fossil fuel subsidies (TFFS) on the ecological footprint of Tunisia using a linear and nonlinear ARDL framework. The study found that a 1% increase in CFBL is associated with a 0.15% increase in ecological footprint, whereas a 1% increase in TFFS is correlated with a 0.80% increase in ecological footprint. This suggests that fossil fuel subsidies have a larger detrimental impact on the ecological footprint compared to CFBL. The results provide evidence of an asymmetric relationship between CFBL, TFFS, and ecological footprints. Specifically, CFBL has a significant positive association with ecological footprint, with a 1% increase in CFBL associated with a 0.01% increase in ecological footprint, while a 1% decrease in CFBL results in a 0.002% increase in ecological footprint. TFFS has a more pronounced impact on ecological footprint, with a 1% increase associated with a 0.14% decrease and a 1% decrease associated with a 0.30% decrease, which is twice as large. The findings suggest that positive shocks in environmental taxation lead to a 0.54% decrease in ecological footprints, while negative shocks have a profoundly detrimental effect with a 1.33% increase in ecological footprints. Additionally, the interaction effect indicates that the effectiveness of CFBL and TFFS on ecological footprints is contingent on the level of environmental tax. The result shows that with a 1% increase in environmental tax, the negative impact of CFBL and TFFS on ecological footprints decreases by 0.02% and 0.09%, respectively. These findings underscore the importance of reducing carbon emissions and fossil fuel subsidies and implementing effective environmental taxation policies to promote sustainability and mitigate environmental damage.

The Financial Impact of State Tax Regimes on Local Economies in the U.S.

We examine the complex relationship between taxes and local economies at the county level. Specifically, we explore the impacts of different types of state-level taxes, including income and payroll taxes, property and other taxes, as well as sales tax, on key economic performance indicators. Our study aims to comprehensively analyze how state-level taxation influences entrepreneurship, innovation, labor markets, and overall economic growth in local communities. The findings consistently demonstrate that taxes harm local economies, although the magnitude of the impact varies depending on the specific type of tax. Notably, a 10 percent increase in income and payroll taxes leads to a 3 percent drop in the nonfarm proprietors employment rate, 0.3 fewer patents per 1000 people, and a USD 3000 decrease in GDP per capita. A similar tax hike in sales taxes results in a 4.5 percent decline in the nonfarm employment rate and a 0.2 patent reduction per 1000 people. Property and other taxes also harm the economy: a 10 percent increase is linked to a 5.3 percent fall in the nonfarm proprietors employment rate, a 7.5 percent rise in local unemployment, and a USD 55,000 drop in regional GDP per capita.

To What Extent Would Raising Low Birth in Developed Countries Affect the Economy

The focus of this article is on falling birthrates in developed nations, and it examines the underlying causes, consequences, and initiatives taken to address it. It covers a variety of topics, including political science, international relations, and other subjects in addition to economics and demographics. The effects of low fertility are discussed, along with how they affect household income, capital growth, and automation. Gender variations are also evaluated. The essay also discusses the U.S.-centered national policy and its effects on things like taxes and aging.Since the detriments outweigh the benefits, the policy needs to be implemented. The three policies (immigration, automation, and baby care) directly or implicitly increase fertility and thus social productivity, while generating a set of issues that need to be refined. In general, the aging situation and the population density of cities may be compromised by the implementation of the policies and produce multiplier effects. In general, rising fertility adds varied amounts of stress to each family. And somehow, by implementing childcare programs, strain on women will be substantially less and their productivity will rise to some level. In the long run, the government will also generate more fiscal revenue due to the increase in personal income tax, which boosts social welfare and raises government input. The effects are favorable for social productivity and employment rates. The senior population has improved security, and the pension shortfall is partially closed.

Estimating fiscal multipliers for North Macedonia: a structural vector error correction model

The aim of this research is to evaluate the effectiveness of fiscal policy as a means of influencing output in North Macedonia. We apply a VEC model, and use quarterly data for the period 2000q1-2019q4. Our findings suggest that the possibility of fiscal policy to be used as a short-term stabilization tool was limited by the turbulent early phase of transition and several IMF arrangements; the exchange rate peg; and the scarcity of financial resources. The results of the baseline model suggest that a government spending shock is more effective as a stabilization fiscal tool in Macedonia, compared to a tax shock, although fiscal multipliers smaller than one suggest that the effectiveness of fiscal policy in boosting output is limited. The findings confirm the importance of structural characteristics, suggesing that not accounting for monetary policy reaction and debt dynamics will result in an overstatement of fiscal multipliers. In
 particular, the results suggest that the “crowding out” effect of fiscal policy due to interest rate pressure is absent and that monetary policy is accommodating an expansionary fiscal policy. The results of our investigation suggest that an increase in government expenditures will induce a significant increase in taxes. Moreover, although an increase in spending/taxes will result in a short-lived increase/decrease in public debt, as a priori expected, we find a long-equilibrium relationship between government spending and taxation suggesting that debt sustainability is not an issue in the case of Macedonia.

The Impact of High-Tech Industries on China-US Business Negotiations - Taking the ChipIndustry as an Example

Since 2018, China and the US have held several rounds of high-level economic and trade consultations, which largely stopped in 2020. Subsequently, the US started a massive tax increase on China. However, faced with global inflation, the call was high to restart trade talks with China and eliminate tariffs on China. In June, US President Joe Biden said in a speech to the nation from Washington that the White House was reviewing the penalties imposed on China under former Donald Trump and could opt to remove them altogether. However, the US has issued a series of containment policies in the chip industry, which further casts a shadow over the resumption of bilateral talks. The high-tech industry, with chips as the representative, has been playing an essential role in the China-US business negotiations. Compared to previous studies with more focus on the one-way research about how China-US gaming influences high-tech industries, this article attempts to analyze it from a new perspective: the China-US gaming in the chip industry. Through observational studies, the article intends to make an in-depth analysis of the significant role high-tech industries have played in the China-US business negotiations and explore where the crux lies. Through a series of observational studies, this article argues that America will not loosen controls on Chinese high-tech industries, especially on the chip industry. For the US and China - the worlds first and second largest economies, the failure of business negotiations would mean no winners for either side.

Cigarette tax pass-through in Vietnam: evidence from retailers’ data

PurposeThis study aims to estimate the pass-through rate of the increases in the excise tax and TCF tax on tobacco in Vietnam. This study seeks to shed light on how the tax burden is split between consumers and producers and inform policy discussions in the country. Using panel micro-level data collected from three waves of a nationwide retailer's survey, this study provides an evidence-based pass-through estimation for tobacco tax in Vietnam and contributes to the understanding of tax policy on smoking and smoking-related issues.Design/methodology/approachFollowing increases in the excise tax and TCF tax on tobacco in 2019, the differential effect of the tax hike on the “treatment group” (domestic cigarettes) versus the “control group” (illicit cigarettes) using a difference-in-difference (DID) analysis has been studied. The study utilized unique longitudinal retailers’ data on cigarettes prices in Vietnam from 2018 to 2019 to estimate the tax pass-through rate for some of the most popular factory-made cigarette brands.FindingsThis study found evidence of an over-shifting of cigarette taxes on smokers. Specifically, it discovered that the tax increase is absorbed more by low-priced brand smokers compared to premium brand users due to (1) the limited increase in prices under a pure ad valorem system and (2) the way the Vietnamese currency is denominated. Additionally, there is evidence of cushioning to mitigate price shock on consumers as the real prices increase gradually over the period of one year after the tax change.Originality/valueTo the best of the authors’ knowledge, this study is the first to collect and analyze a unique panel micro-level data from three waves of a nationwide retailers’ survey, which captures the changes in marketing and pricing strategies of the tobacco industry in Vietnam before and after an increase in excise tax in 2019. The results of this study could be used as a reference for future policymakers in considering increasing taxes on tobacco.

Illicit cigarette market in Georgia: potential impacts on smoking prevalence and tax revenues

ObjectivesThis study aims to examine the impact of taxation measures implemented between 2017 and 2019 on the illicit cigarette market in Georgia and to assess the potential effects of its full elimination on smoking rates and tax revenues. Study designThis was a cross-sectional and observational study. MethodsThe study uses the gap analysis method to estimate the size of the illicit market by comparing self-reported cigarette consumption with tax-paid cigarette sales. Potential changes in cigarette consumption are calculated using estimates of price demand elasticity and the price difference between licit and illicit cigarettes. The applicable excise tax is then applied to the estimated change in licit cigarette consumption to determine the potential change in tax revenues. ResultsIn 2020, illicit cigarettes accounted for 6.4% of the market, which decreased to 0.6% in 2021. Eliminating the illicit cigarette market could potentially reduce the number of smokers by 0.5% in 2020 and 0.1% in 2021. It could also lead to a 2.8% increase in excise tax revenues in 2020 and a 0.2% increase in 2021. The study highlights a notable shift in consumer behavior since 2019 toward smoking roll-your-own (RYO) cigarettes. ConclusionsTax increases did not have a significant impact on the size of the illicit market in Georgia. The shift in consumer preference toward RYO cigarettes may explain why the illicit cigarette market did not expand after the tax hikes. However, this shift diminishes the effectiveness of taxation policies in reducing smoking rates and leads to a decline in excise tax collection.