Tax Price Research Articles

Property Value Assessment Growth Limits, Tax Base Erosion, and Regional In-Migration

In 1994, a limit on the growth of property values for tax purposes was imposed in Michigan. One consequence of the newly imposed assessment growth cap was an emerging differential in tax prices between potential new property owners and long-time property owners. The purpose this article is to examine the impact of this growing tax price differential on migration patterns. Using county level data on migration activity over the 1994-2006 period, the authors present evidence that differential tax prices resulting from the assessment growth cap have reduced in-migration.

Tax Policy and House Price Dynamics

In this paper I examine the determinants of the user cost of housing, including house price inflation expectations and tax policy. I derive estimates of the user cost of housing for several U.S. metropolitan areas over the period 1995-2008 and I decompose those estimates into user cost component elasticities. In general, I find that the user cost tax elasticities are relatively small while the expected house price inflation elasticity is substantially larger and therefore plays a greater role in affecting housing market demand.

Tax Prices in a Democratic Polity: The Contemporary Relevance of Antonio De Viti de Marco

While Antonio De Viti de Marco was a significant figure within the Italian School of Public Finance that flourished between 1880 and 1940, his theory of public finance also has great significance for contemporary theorizing. Where contemporary theory largely treats states as acting to modify previously established market equilibria, De Viti theorized that societal equilibrium was established simultaneously in states and markets. De Viti treated the state as a essential productive factor within society, rendering it fictional to conceptualize an economic equilibrium independent of state activity. In contrast to much contemporary literature, De Viti did not treat the state as just a particular instance of market equilibrium. While he extended the logic of market exchange to state activity, he recognized the need to theorize in light of significant differences in institutional arrangements between markets and states. Collective action was guided by tax prices and not market prices. De Viti’s formulation of tax prices demonstrates in turn the important place of constitutional arrangements in his theory of public finance.

An empirical investigation of public choices for green spaces

While the social demand for green spaces is growing, the understanding of local public policies remains scant. The provision of green spaces is subject to market failures, hence they are publicly provided. Yet, the optimal level may not be reached due to government failures. This article highlights potential government failures incurred by the public provision of green spaces. We investigate the median voter hypothesis in a sample of 161 French municipalities. We shall assess various specifications for the provision of green spaces by differentiating operating expenditures and their surfaces. Finally, in order to compare alternative specifications of income and tax price used in the median voter model, we implement tests for non-nested models. The median voter model is weak to explain expenditure levels but is appropriate to explain the ratio of green spaces in the municipalities of the sample.

Charitable Giving by Married Couples Revisited

Abstract This paper investigates the effect of gender differences and household bargaining on charitable giving. I replicate the study of Andreoni, Brown, and Rischall (2003) using a different data set—the recently available Panel Study of Income Dynamics (PSID) supplement on charitable giving—and test the sensitivity of their results to inclusion of additional control variables and the endogeneity of the tax price of giving. First, focusing on singles, I find that males and females have significantly different tendencies toward giving to different areas of charitable activity. Next, comparing households in which husband and wife make a joint decision on donations with those in which couples separately decide or assign a sole decision-maker, I show that bargaining over giving increases the amount of charitable contributions by almost 7 percent.

Household Sector in the Czech Republic in Transition

Marked changes have taken place in the volume and structure of incomes, expenditures and savings of the Czech household sector during the four year course of the economic transformation. The most significant influencing factor has been the process of inflation as a consequence of price liberalization and tax reform. Incomes declined significantly in real terms owing to this factor, but within a very short period this decline stopped. Real incomes have begun to grow since 1992. One significant feature of this period is the positive trend in savings. The savings rate grew in both the Czech crown and foreign currency deposits. The macroeconomic results of development in this field are positive. The household sector is a stable factor in the economic transformation. In individual households, the process of differentiation has taken place. Incomes and expenditures in families with children and pensioners' households dropped more than in other families. On the other hand, some groups of households grew rich. This process is observed in some households of employees, farmers and pensioners. Some discrepancies were found between the development of the macro values and household values. This means that there is a lack of statistical data regarding the incomes and expenditures of rich households which are not included in family accounts. The linear regression model was used to examine consumption patterns and elasticities.

A Comparison of Spatial Statistical Methods in a School Finance Policy Context

A shortcoming of the conventional ordinary least squares (OLS) approaches for estimating median voter models of education demand is the inability to more fully explain the spatial relationships between neighboring school districts. Consequently, two school districts that appear to be descriptively similar in terms of conventional measures of taste, tax price, and income—but which are located in different geographical contexts—actually may spend at very different levels. In this article, the issue is addressed by employing a relatively recent spatial analytical method called Geographically Weighted Regression (GWR), and a more common spatial modeling approach, spatial autoregression (SAR). This study uses 2000 and 2004 data from the Missouri Department of Elementary and Secondary Education (DESE) along with the United States Census 2000 School District Special Tabulation, and analyzes each school district's educational spending and underlying wealth, income, and demographic data. Evidence from this study suggests that both GWR and SAR provide useful and different insights. Virtually all of the error related to spatial autocorrelation is eliminated in both SAR and GWR approaches. Further, key parameter estimates vary between the OLS and SAR specifications, and vary regionally in the GWR specification. The article concludes that there may be a place for the use of spatial statistics in education finance policy research.

Overhead cost allocation changes in a transfer pricing tax compliant multinational enterprise

This paper addresses how overhead cost allocation system design in multinational enterprises (MNEs) is affected by transfer pricing tax regulation. Using a case study research strategy we find that the implementation of a transfer pricing tax compliance strategy gives rise to a number of changes to the overhead cost allocation system design. Findings suggests that a contingent relationship exists between overhead cost allocation and transfer pricing tax compliance. We argue that when seeking to understand and explain MNEs’ overhead cost allocation system design for intra-company services, the MNEs’ response to its tax regulatory environment is a significant explanatory variable.

Property Value Assessment Growth Limits, Tax Base Erosion and Regional In-Migration

In 1994 a limit on the growth of property values for tax purposes was imposed in Michigan. One consequence of the newly imposed assessment growth cap was an emerging differential in tax prices between potential new property owners and long-time property owners. The purpose of this paper is to examine the impact of this growing tax price differential on migration patterns. Using county level data on migration activity over the 1994-2006 period, we present evidence that differential tax prices resulting from the assessment growth cap have reduced in-migration.

Charitable Giving by Married Couples Revisited

Abstract:This paper investigates the effect of gender differences and household bargaining on charitable giving. I replicate the study of Andreoni, Brown, and Rischall (2003) using a different data set—the recently available Panel Study of Income Dynamics (PSID) supplement on charitable giving—and test the sensitivity of their results to inclusion of additional control variables and the endogeneity of the tax price of giving. First, focusing on singles, I find that males and females have significantly different tendencies toward giving to different areas of charitable activity. Next, comparing households in which husband and wife make a joint decision on donations with those in which couples separately decide or assign a sole decisionmaker, I show that bargaining over giving increases the amount of charitable contributions by almost 7 percent.

Marginal Tax Rates and Tax-Favoured Pension Savings of the Self-Employed - Evidence from Sweden

In recent years, the study of how individuals respond to policies that aim at promoting pension savings has emerged as a vital area of economic research. This paper adds to this literature by estimating the tax price elasticity of contributions to tax-favoured pension savings accounts on a population of self-employed individuals. I exploit a unique total data base over the Swedish population that covers the years 1999 to 2005. When using instrumental variables I obtain a tax price elasticity estimate of -0.53 and a virtual income elasticity estimate of 0.11, whereas OLS produces estimates that conflict with consumer theory.

The Evaluation of Royalty Payments in Transfer Pricing: An Approach from a Turkish Perspective

This article considers royalty payments in Turkey from a tax and transfer pricing perspective. The focus is on both domestic and international implementations. The article evaluates taxation regime of royalties in Turkey, and royalty payments are discussed by taking into consideration certain Double Taxation Agreements executed among Turkey and its treaty partners. It is also pointed out in the article how royalty payments to non-resident taxpayers are considered within the context of intangible rights in Turkish tax legislation and Double Taxation Agreements. A considerable part of the article is reserved to explain details of current transfer pricing rules applicable for royalties paid in Turkey or to abroad, and it analyses the application of transfer pricing legislation for royalty payments by practical examples.

How Does the Incentive Effect of the Charitable Deduction Vary Across Charities?

We examine how taxes affect donations given to nonprofit organizations and how this varies across nonprofit types. Most prior studies constrained tax price elasticities to be constant across nonprofits, primarily because the data do not provide donations by nonprofit type. Using nonprofit-level data and average marginal tax rates that vary across years and states, we estimate tax price elasticities by nonprofit type. We find an aggregate public charity elasticity of approximately -1.0 and a private foundation elasticity of approximately -2.0. These results suggest that the cost of the charitable contribution deduction is roughly proportional to its benefit for public charities, but that the deduction stimulates significant giving for private foundations. When we partition our elasticities across 24 public charity types, we find significant elasticities of -1.0 or larger for six types. This result suggests that the effect of the charitable contribution deduction varies significantly across nonprofit types.

What is the After‐Tax Price of R&D? An Interstate Comparison*

AbstractAs of 2005, 31 US states offered corporate income tax credits on research and development (R&D) expenses in order to encourage more in‐state innovation activities. Empirical questions about the efficacy of such tax breaks at the state level persist, in part because the complexity of the tax laws means that simple credit‐rate comparisons across states do not fully capture the differential variation in effective after‐tax price incentives firms face in choosing where to locate R&D activities. We are unaware of any research analysing and comparing the effective prices of R&D faced by firms, across all US states and utilising micro‐level data. Using data extracted from detailed reading of individual firms' 10‐K and S‐1 filings and of state‐level tax credit rules, we estimate the effective after‐tax price of basic and qualified research expenditure each firm would have faced in each of the 50 states had they been located there. Our methodology simulates the effective tax price of each firm's marginal dollar of research expenditure, assuming the firm chose to move all of its R&D operations to each of the 49 other states. Through Monte Carlo techniques, we consider the sensitivity of our interstate comparative results to several modelling assumptions. We find significant variation in after‐tax R&D prices across states with quite different R&D tax laws. Prices range from $0.176 to $0.520 on a marginal dollar of R&D in Virginia and Washington State, respectively. We also find that the interstate variability is generally more important – indeed, much wider than we had anticipated before investigating state‐by‐state regulations – than the inter‐firm variability within states.

Transfer Pricing Taxation for Business Restructuring

Transfer Pricing Taxation for Business Restructuring

Transfer Pricing in VAT/GST vs. Direct Taxation: A Paper on the Topic of Relations between Associated Companies

This paper considers transfer pricing in VAT/GST and direct taxes, one of a range of tax relationships that flow between associated companies. The topic necessarily proposes an inquiry into vertical harmonization of transfer pricing norms alongside an assessment of present efforts to horizontally harmonize transaction values. Stated differently, the vertical inquiry is: should the same transaction between the same associated enterprises be valued in the same manner by a single country in VAT/GST and direct taxes? The horizontal effort is: should two jurisdictions treat transactions between associated enterprises within their respective jurisdictions in the same manner in VAT/GST and direct taxes? This is a complex undertaking for several reasons. First, there is another significant transfer pricing regime that exercises significant influence in this area - customs. In fact, the customs transfer pricing regime is more uniform globally. It is in active operation in many more countries than the OECD's guidelines. Customs law, in part because it is concerned with another transaction tax, has a great influence over VAT/GST rules. In many countries transfer pricing is non-existent in direct taxes, but vertically harmonized between customs and VAT/GST. Among jurisdictions with this tax profile there is full horizontal harmonization. These are not (for the most part) developed countries, but they are the overwhelming majority. Secondly, the harmonization of transfer pricing norms is necessarily a two part inquiry: (1) are the parties related, or are the enterprises associated; and (2) if so, what methods should be applied to verify an acceptable price. Considered globally, and considered from the three-way perspective of VAT/GST, direct taxes and customs, there are at least five ways of defining related parties or associated entities, as well as five operative methodologies for determining prices. There are further differences in details [jurisdictions may agree on the theory behind a definition or a method, but disagree on application or relative importance]. Rather than propose a wholesale revision of global transfer pricing regimes, something that would be unlikely and impractical, this paper suggests that a workable solution can be found in the APA process. Unilateral, but multi-tax [VAT/GST, direct tax and customs] APAs are proposed. As has happened in some instances already, these multi-tax unilateral APAs can be linked to tax-specific bilateral APAs. [For example, if a business relationship between associated enterprises is simple, with one entity only importing and re-selling products of a related manufacturer it is not important to have full horizontal harmony in valuation among direct tax, VAT/GST and customs. Only horizontal harmonization of direct tax valuation would be important. Vertical harmonization of valuation (VAT/GST-direct tax-customs) is nevertheless very important for the importer/reseller.] Multi-tax APAs (alone) will not solve the whole problem. There are still significant timing and audit adjustment issues. If there is to be true vertical harmony in transfer pricing results, then it is necessary to assure that annualized direct tax pricing decisions are granularized in an agreed manner and that they are integrated into VAT/GST and customs results. In this area certification of automated systems [along the line of the US Streamlined Sales Tax] is proposed as part of a comprehensive IT-APA. Both aspects of this solution are workable and in operation in one or more jurisdictions today. [This paper is prepared for the International Network for Tax Research (INTR) Conference, March 26-28, 2009, Organized by the Institute for Austrian and International Tax Law, Vienna University of Economics and Business and the Institute for VAT Research at Stockholm University]

Annual conference on European Water Management Law in Brussels on 23rd and 24th April 2009

AbstractOn 23rd and 24th April 2009 a second conference on European Water Management Law took place in Brussels with participation of representatives of the European Commission as well as universities, authorities, enterprises and associations of the individual Member States of the European Community. The conference focused on current water management law at the EC level, future perspectives and the special importance of close cooperation in river basin districts and shared marine regions. Furthermore, it dealt with the relation between nature protection and water management law, the challenges arising from climate change and the adaptation measures which have to be taken. Finally, the conference also addressed economic issues related to the definition of water pricing policies, tax incentives and public procurement legislation.

Geographical redistribution with disproportional representation: a politico-economic model of Norwegian road projects

Politicians bias public policies to favor particular election districts. According to the traditional common pool model, districts facing low tax shares should receive relatively large government projects. We suggest a swing-voter model where the number of voters on the ideological cut point, lack of party identification and number of district representatives per voter determine project sizes. We analyze the allocation of state road investments in Norway from 1973–1997 exploiting unique data on characteristics of voters, legislative representation and tax prices in 19 election districts. Geographical representation to parliament is biased, mostly due to an ancient constitution. Shares of swing voters and legislative over-representation lead to higher levels of road investments, while high levels of party identification reduce investments.

Price elasticities and tax reform in Mexico

Price responses are usually estimated for the average household. However, different households are unlikely to respond in a similar way to movement in prices. Consequently, relying on averages may be misleading when examining the behaviour of a particular group of households such as the poor. This article uses six household surveys collected in Mexico between 1989 and 2000 to derive price responses for 10 product groups and for five levels of income households. The estimated price elasticities are then fed into a micro simulation model to measure the effect of a marginal tax reform. The results find that that poorer households tend to react substantially more to movement in prices, suggesting the usefulness of estimating elasticities that reflect the behavioural responses of the poor rather than of the entire population. The micro simulation results indicate that reducing the taxes on maize, alcoholic beverages and vegetables would be both more equitable and more efficient in terms of social welfare. Meanwhile, a reduction in the tax on legumes, sugar, and oils and fats, while inefficient, would contribute to reduce inequality.

A Study on Formulary Apportionment for Transfer Pricing Taxation

A Study on Formulary Apportionment for Transfer Pricing Taxation