Tax Rebate Research Articles

Conspicuous Compassion and Taxation: A Reality

In modern public-finance literature, many canons or principles have been followed for tax policies, ‘ability principle’ (Pigou, 1933), ‘benefit principle’ (Lindahl as cited by Roberts, J, 1989). Under the benefit theory, tax levels are automatically determined and therefore self-loaded, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay most of the taxes (Lindahl model,). The present paper highlights that conspicuous compassion and taxation go hand in hand especially in case of rich people but not in case of poor people and as result in modern societies tax levels are not self-loaded, a claim made by benefit principle. Along with proportionate benefit principle ‘conspicuous compassion in favour of rich people’ is also in operation in most countries of the world. This paper argues that under proportionate benefit principle with conspicuous compassion in favour of rich, the rich people are gainers as compared to the poor people. Under this principle with compassion in favour of rich, benefits of rich outweigh their costs because rich sections of the society are usually provided with large invisible services by the government such as large tax incentives and rebates. On the other hand, the costs of poor people usually outweigh their benefits because poor sections of the society are usually provided with low or no invisible services, although, they are provided with large visible benefits. But these visible benefits provided to the poor people by the government get distributed among vast section of the population.In this process, the societies end with a highly inequitable distribution of income and a paradox emerges which may rightly called as paradox of evasion-to-evasion. To improve income distribution and to control evasion-to-evasion paradox, the present study advices governments to implement progressive taxation with conspicuous compassion in favour of poor and downtrodden sections of the society. By doing this, those who will benefit more (i.e. poor) will have to pay less taxes as it ensures that large invisible services are to be provided to the poor as compared to the rich and hence the principle can be called as proportionate principle with compassion or simply conspicuous compassion taxation principle.

Targeting with machine learning: An application to a tax rebate program in Italy

This paper shows how machine learning (ML) methods can be used to improve the effectiveness of public schemes and inform policy decisions. Focusing on a massive tax rebate scheme introduced in Italy in 2014, it shows that the effectiveness of the program would have significantly increased if the beneficiaries had been selected according to a transparent and easily interpretable ML algorithm. Then, some issues in estimating and using ML for the actual implementation of public policies, such as transparency and accountability, are critically discussed.

China's export tax rebate and the duration of firm export spells

AbstractUsing a survival analysis technique, this paper investigates the impact of the export tax rebate (ETR) on duration of the firm, country/destination, and product (F–C–P)‐level export spells in China. Empirical analysis of a large dataset that covers the 2001 to 2013 period shows that the effect of ETR on duration of export spells of Chinese firms is large and statistically significant. A 1 percentage point increase in ETR rate increases the duration rate of F–C–P relationships by 23.2%. Furthermore, compared with the high‐tech firms, low‐tech and middle‐tech firms experience a larger increase in the duration of export spells in response to increase in China's ETR. Firm ownership‐based analysis shows that an increase in ETR leads to a larger increase in export spells of privately owned firms than the export spells of state‐ and foreign‐owned firms. These findings have important policy implications for the design and implementation of China's ETR policy.

Who Benefits from the Export Tax Rebate Policy? Evidence from the Chinese Fishery Sector

The export tax rebate policy in China is under dispute, especially in agricultural sectors, as it is claimed that it works as a subsidy for foreign consumers rather than domestic producers. Surprisingly, little research has investigated the distribution of benefits of this policy. In this paper, we examine this in a partial equilibrium framework. We find that the effects of the export tax rebate on domestic producers depend on the relative magnitude of the export supply and import demand elasticities. The model is then applied to the Chinese fishery sector, a perfect example to illustrate the policy debate. Simulation results indicate that, although the export tax rebate increases Chinese producers’ welfare, foreign consumers capture most of its welfare benefits (60%-75%). Furthermore, the results imply that the welfare gain for Chinese producers is overestimated if vertical linkage between the retail and the farm markets is ignored.

Who Benefits from the Export Tax Rebate Policy? Evidence from the Chinese Fishery Sector

The export tax rebate policy in China is under dispute, especially in agricultural sectors, as it is claimed that it works as a subsidy for foreign consumers rather than domestic producers. Surprisingly, little research has investigated the distribution of benefits of this policy. In this paper, we examine this in a partial equilibrium framework. We find that the effects of the export tax rebate on domestic producers depend on the relative magnitude of the export supply and import demand elasticities. The model is then applied to the Chinese fishery sector, a perfect example to illustrate the policy debate. Simulation results indicate that, although the export tax rebate increases Chinese producers’ welfare, foreign consumers capture most of its welfare benefits (60%-75%). Furthermore, the results imply that the welfare gain for Chinese producers is overestimated if vertical linkage between the retail and the farm markets is ignored.

English

In 2000, Uganda instituted a tax rebate of 10 to 15% to industries willing to use locally sourced raw materials. This attracted Nile Breweries Ltd (NBL) to start using locally produced sorghum for beer production in 2002 and intervened in the sorghum value chain through mobilization of farmers into producer groups, established bulking centers and appointed buying agents. Despite these interventions, some farmers still sell their sorghum individually to open markets, hence limiting the volumes of sorghum sold through collection centers and eventually to the breweries. This study explored the marketing arrangements of sorghum farmers in Oyam district and their influence on marketable surplus. Using a cross sectional household survey, data were obtained from a random sample of 150 farmers in four major sorghum growing sub counties of Loro, Iceme, Acaba and Aber. T-tests and chi-square tests were used to determine the relationship between socio-economic and farm specific factors and marketing arrangements, and a two-step Heckman procedure was used to ascertain the determinants of collective marketing and the influence of collective marketing on marketable surplus. Chi-square results showed that gender of the household head, marital status, and road type significantly correlated with marketing arrangements while T-test results showed that distances to inputs and buyers significantly influenced marketing arrangements. From the two-step Heckman procedure, the Probit model showed that buyer distance and sales income significantly influenced the probability of collective marketing while the OLS model in the second step showed that marketable surplus significantly increased with input access, and selling price. Sorghum farmers in Oyam district can potentially increase their sorghum marketable surpluses and reduce rural poverty if they fully participate in collective marketing, access inputs and negotiate for better sorghum price with the breweries. Therefore, agri-businesses and policy makers should promote and enhance collective marketing to improve sorghum marketing in Uganda. Keys words: Sorghum farmers, socio-economic characteristics, collective marketing and marketable surplus.

Overcoming public resistance to carbon taxes.

Carbon taxes represent a cost‐effective way to steer the economy toward a greener future. In the real world, their application has however been limited. In this paper, we address one of the main obstacles to carbon taxes: public opposition. We identify drivers of and barriers to public support, and, under the form of stylized facts, provide general lessons on the acceptability of carbon taxes. We derive our lessons from a growing literature, as well as from a combination of policy “failures” and “successes.” Based on our stylized facts, we formulate a set of suggestions concerning the design of carbon taxes. We consider the use of trial periods, tax escalators, environmental earmarking, lump‐sum transfers, tax rebates, and advanced communication strategies, among others. This paper contributes to the policy debate about carbon taxes, hopefully leading to more success stories and fewer policy failures.This article is categorized under: Climate Economics > Economics of Mitigation

Getting More of Something Without Subsidizing It: Impact of Time-of-Use Electricity Pricing on Residential Energy Efficiency and Solar Panel Adoption

This paper provides the first empirical evidence of the impact of Time-Of-Use (TOU) electricity pricing on the adoption of energy efficient appliances and solar panels. A theoretical model is constructed to show that TOU customers have a larger incentive to adopt these technologies compared to customers on non-dynamic pricing plans. Using household-level data in Phoenix, Arizona from an appliance saturation survey of about 16,000 customers conducted by a major electric utility and relying on propensity score matching and coarsened exact matching to address potential selection bias, empirical results show that TOU consumers are 27% more likely to install solar panels but not more likely to adopt energy-efficient air conditioning. The findings highlight that TOU can act as a cost-effective policy instrument to facilitate solar panel adoption, compared to other more costly instruments with a similar magnitude of impacts such as tax credits or rebates of $2,070~$10,472.

Fighting Tax Evasion by Discouraging the Use of Cash?

AbstractWe propose a bargaining model of tax evasion with a seller that offers a price discount to a buyer in exchange for a cash payment without a receipt, which allows tax evasion. We study the effect on evasion and government revenue of two policy instruments: a tax on cash withdrawals (TCW), which imposes a cost on the buyers who pay cash, and a tax rebate conditional on having the receipt. The tax rebate reduces evasion but it is costly if tax evasion is low. The TCW reduces evasion only if it is set at a sufficiently high rate, which must be higher the larger is the mass of cash users. We also show that the implementation of a TCW, which poses several challenges, is easier if the cost of cash hoarding is high.

Housing and the Tax System: How Large Are the Distortions in the Euro Area?*

AbstractThis paper presents new evidence on the impact of the preferential treatment of owner‐occupied housing in the euro area. We find that tax benefits to homeowners reduce the user cost of housing capital by almost 40 per cent compared with the efficient level under neutral taxation. On average, the tax subsidy translates into an excess consumption of housing services equivalent to 7.8 per cent of the value of owner‐occupied housing, or about 30 per cent of financial asset holdings in household portfolios. The bulk of the subsidy stems from undertaxation of the return to home equity, while the average contribution of the tax rebate for mortgage interest payments is driven down by relatively low loan‐to‐value ratios in the data. However, at the margin, the tax‐induced incentive to use mortgage debt to finance the purchase of the main residence is sizeable.

Why is the market for hybrid electric vehicles (HEVs) moving slowly?

Hybrid electric vehicles (HEVs) could be a good short term option to help achieve global targets regarding road transport greenhouse gas emissions. Several common and country-specific public policies based on price or tax rebates are established in order to encourage the adoption of HEVs. The present research empirically assesses market preferences for HEVs in Spain, looking at the role of subsidies. An interactive internet-based survey was conducted in a representative sample (N = 1,200) of Spanish drivers. Drivers are willing to pay an extra amount of €1,645 for a HEV model compared to a conventional vehicle, premium which is well below the price markup for these cars. Therefore, current levels of economic subsidies applied in isolation to promote these types of vehicles may have a quite limited effect in extending their use. Overall, it is found that drivers have clear misconceptions about HEVs, which affect their purchasing choices and perceptions. Therefore, a policy mix of various incentives (including informational campaigns) may be required in order to stimulate the demand for HEVs.

DISTRIBUTIONAL IMPLICATIONS OF A NATIONAL CO2 TAX IN THE U.S. ACROSS INCOME CLASSES AND REGIONS: A MULTI-MODEL OVERVIEW.

This paper presents a multi-model assessment of the distributional impacts of carbon pricing. A set of harmonized representative CO2 taxes and tax revenue recycling schemes is implemented in five large-scale economy-wide general equilibrium models. Recycling schemes include various combinations of uniform transfers to households and labor and capital income tax reductions. Particular focus is put on equity — the distribution of impacts across household incomes — and efficiency, evaluated in terms of household welfare. Despite important differences in the assumptions underlying the models, we find general agreement regarding the ranking of recycling schemes in terms of both efficiency and equity. All models identify a clear trade-off between efficient but regressive capital tax reductions and progressive but costly uniform transfers to households; all agree upon the inferiority of labor tax reductions in terms of welfare efficiency; and all agree that different combinations of capital tax reductions and household transfers can be used to balance efficiency and distributional concerns. A subset of the models go further and find that equity concerns, particularly regarding the impact of the tax on low income households, can be alleviated without sacrificing much of the double-dividend benefits offered by capital tax rebates. There is, however, less agreement regarding the progressivity of CO2 taxation net of revenue recycling. Regionally, the models agree that abatement and welfare impacts will vary considerably across regions of the U.S. and generally agree on their broad geographical distribution. There is, however, little agreement regarding the regions which would profit more from the various recycling schemes.

How to Reduce the Tax Bill of a Multinational Technology Company?

It is said that nothing in this world is certain except for death and taxes. For those with clever accountants, however, the latter can be kept to a minimum. Particularly, companies seek to minimize their liability through tax planning, adopting deductions, rebates, exemptions and other “legal” tools that the domestic system provides to them. However, while planning is considered to be quite logical in the terms of making profit, there is a grey area between this and tax avoidance”. This paper suggests a legitimate plan for a multinational technology company that minimizes its obligations1, without being inconsistent with the policies of Corporate Social Responsibility1 (CSR) and the desire for profit maximization by the shareholders. As such, it is proposed that a multinational company should exploit havens’ opportunity to relocate the Intellectual Property (IP) ownership but ensuring, in the same time, that it shares its gross profit between the haven and the source country paying 13% of the gross profit to the relevant resident.

Analysis on the effects of China's fiscal and taxation policy on exporting products of photovoltaic and high-end equipment manufacturing industries

China's fiscal and taxation subsidy policy plays a positive role in promoting the international market development of emerging industries, which also brought about many problems. In this paper, countries with large overseas investment from China and those along the “One Belt One Road” project were specially selected and divided into different types of international markets according to parameters of political risk, relations with China, geographical locations, etc. The computable general equilibrium model was then used to analyze the change in the export volume to different types of countries influenced by the change in export tax rebate ratios and research and development (R&D) subsidies. Simulation results showed that the change in export tax rebate policy has a greater impact on the photovoltaic industry and a relatively low impact on the high-end equipment manufacturing industry. The change in the export tax rebate rate has different effects on the export volume of countries in different regions and has the greatest effect on the high risk region and the partnership region. Additionally, R&D subsidy has different effects on the export volume of countries in different regions and has the greatest effect on the low risk region and the poorer relation region. Therefore, suitable subsidy policy should be decided, based on the characteristics of foreign markets in different regions. Contributions of this study are expected to be used in governmental policy designing and company development strategy optimization.

Reported Effects vs. Revealed-Preference Estimates: Evidence From the Propensity to Spend Tax Rebates

We evaluate the consistency of two methods for estimating the effect of an economic policy: i) asking people how the policy caused them to change their behavior (reported effects); ii) inferring this change using data on behavior and differences in treatment across people (revealed-preference estimates). Both methods are widely used to measure spending caused by increases in liquidity. Using Federal stimulus payments disbursed quasi-randomly in 2008, we find larger revealed-preference estimates of spending propensities for households who report greater spending responses, and the methods produce similar average propensities. But evidence is mixed on the relationship between spending propensities and liquidity.

The Influence of Knowledge, Islamic Religiosity and Self-Efficacy on the Intention to Pay Income Zakat among Public Educators in Kedah, Malaysia

Zakat is not only a religious obligation which must be complied by all eligible Muslims but also plays a very important role in Islamic fiscal system, specifically as a major source of income and could be used as an instrument to finance certain programs in order to achieve social, political and economic development among Muslim communities. However, the issue which arises is that zakat collection including income zakat is still low which hinders the effectiveness of zakat in playing a more significant role in the state of Kedah. Therefore, this study examines determinants of compliance behavior of income zakat by adding Islamic religiosity and moral obligation to the Theory of Planned Behavior (TPB) in order to gain more understanding of determinants of employment income zakat. The sample size used in this study is 372. This study uses PLS-SEM bootstrap and blindfolding technique in order to examine the relationship, effect size and predictive relevance of the variables of the study. This study proves that attitude, selfefficacy, moral obligation and religiosity have significant relationships and positive influence on intention. However, it is revealed there is no significant relationship between subjective norms, knowledge, perception towards promotional exposure, perception towards law, perception towards service quality, and perception towards equity in zakat distribution, tax rebate, and intention. Furthermore, the finding of this study demonstrates that Islamic religiosity plays a significant role in moderating the relationships between (i) moral obligation and intention and (ii) promotion and intention. Moreover, this study verifies that intention not only has a significant relationship but also significant and large effect size and large predictive relevance on compliance behavior. The findings of this study have important implications not only for knowledge but also to zakat institutions. The empirical evidence has important implications for theory as well as policy. Using a new method, PLS-SEM, this study is able to provide empirical evidence which is in line with findings of previous studies as well as new findings which expand the boundary of knowledge in the area of compliance behavior of zakat. The important contribution of this study is that the factors identified as significant determinants of compliance behavior of income zakat such as attitude, self-efficacy, moral obligation and Islamic religiosity could be useful as a guide for relevant authorities and policy makers to formulate suitable strategies to increase zakat collection in the future.

Targeting Policy-Compliers with Machine Learning: An Application to a Tax Rebate Programme in Italy

Machine Learning (ML) can be a powerful tool to inform policy decisions. Those who are treated under a programme might have different propensities to put into practice the behaviour that the policymaker wants to incentivize. ML algorithms can be used to predict the policy-compliers; that is, those who are most likely to behave in the way desired by the policymaker. When the design of the programme is tailored to target the policy-compliers, the overall effectiveness of the policy is increased. This paper proposes an application of ML targeting that uses the massive tax rebate scheme introduced in Italy in 2014.

Promoting Solar Panel Investments: Feed-in-Tariff vs. Tax-Rebate Policies

Problem definition: Governments have adopted various subsidy policies to promote investment in renewable energy sources such as rooftop solar panels. The German government uses a feed-in-tariff policy that provides a guaranteed stream of payments for each unit of electricity generated by a household. In contrast, the U.S. government uses a tax-rebate policy that reduces the initial investment cost, and the household receives the retail price for the generated electricity. In this paper, we study the key practical factors that favor one policy over the other from the perspective of the government. These factors are the heterogeneity in the generating efficiency, the variability in the electricity price, and the variability in the investment cost. Academic relevance: Unlike the previous literature on the feed-in-tariff and tax-rebate policies, we focus on the effects of variability on a household’s investment timing. We identify the optimal policy for the government to manage the aggregate household investment, accounting for the heterogeneity in efficiency. Methodology: We consider an infinite-horizon, continuous-time model where the government moves first and announces either a feed-in tariff or a tax rebate. Then each household dynamically decides if and when to invest in a unit of solar panels. The objective of the government is to maximize the expected value of a subsidy policy, that is, the difference between the societal benefit of solar panel investments and the subsidy cost over time. Results: We characterize the timing of the investment decision of the households and the optimal subsidy parameters for the government. We identify which practical factors favor the feed-in-tariff or the tax-rebate policy. Policy implications: Our results suggest that a government should prefer the feed-in-tariff policy when the electricity price is highly uncertain. Intuitively, feed-in-tariff policy eliminates the price variability; thus, it removes the strategic delay in the investment. The tax-rebate policy should be adopted if the households are heterogeneous in generating efficiency, if the investment cost is highly variable, or if the price and cost uncertainty are positively correlated.

Promoting Solar Panel Investments: Feed-in-Tariff Versus Tax-Rebate Policies

Problem Definition: Governments have adopted various subsidy policies to promote investment in renewable energy sources, such as rooftop solar panels. The German government uses a feed-in-tariff policy that provides a guaranteed stream of payments for each unit of electricity generated by a household. In contrast, the U.S. government uses a tax-rebate policy that reduces the initial investment cost and the household receives the retail price for the generated electricity. In this paper, we study the key practical factors that favor one policy over the other from the perspective of the government. These factors are the heterogeneity in the generating efficiency, the variability in the electricity price, and the variability in the investment cost. Academic Relevance: Unlike the previous literature on the feed-in-tariff and tax-rebate policies, we focus on the effects of variability on a household's investment timing. We identify the optimal policy for the government to manage the aggregate household investment, accounting for the heterogeneity in efficiency. Methodology: We consider an infinite-horizon, continuous-time model where the government moves first and announces either a feed-in tariff or tax rebate. Then, each household dynamically decides if and when to invest in a unit of solar panel. The objective of the government is to maximize the expected value of a subsidy policy, i.e., the difference between the societal benefit of solar panel investments and the subsidy cost over time. Results: We characterize the timing of the investment decision of the households and the optimal subsidy parameters for the government. We identify which practical factors favor the feed-in-tariff or the tax-rebate policy. Policy Implications: Our results suggest that a government should prefer the feed-in-tariff policy when the electricity price is highly uncertain. Intuitively, feed-in-tariff policy eliminates the price variability; thus, it removes the strategic delay in the investment. The tax-rebate policy should be adopted if the households are heterogeneous in generating efficiency, if the investment cost is highly variable, or if the price and cost uncertainty are positively correlated.

China's exports, export tax rebates and exchange rate policy

AbstractThis paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.