How well-targeted are payroll tax cuts as a response to COVID-19? evidence from China

Numerous countries cut payroll taxes in response to COVID-19, including China, which reduced employer contributions by up to 21 percentage points. We use administrative data on more than 800,000 Chinese firms to evaluate payroll tax cuts as a business relief measure. We estimate that the tax cuts cover 31.5% of the decline in business cash flow, but labor informality causes 53% of registered firms-24% of aggregate economic activity-to receive no benefits at all. We quantify the targeting of the policy in terms of how much benefits flow to small firms less able to access external finance and to sectors worse hit by COVID-19. We find that (1) small firms and vulnerable industries are comparatively more labor intensive, which leads to desirable targeting; (2) labor informality worsens, but does not eliminate, targeting by firm size; and (3) labor informality is uncorrelated with the COVID-19 shock, and therefore does not affect targeting by sector.

     

Ramsey meets Thünen: the impact of land taxes on economic development and land conservation

Land taxes can increase production in the manufacturing sector and enhance land conservation at the same time, which can lead to overall macroeconomic growth. Existing research emphasizes the non-distorting properties of land taxes (when fixed factors are taxed) as well as growth-enhancing impacts (when asset portfolios are shifted to reproducible capital). This paper furthers the neoclassical perspective on land taxes by endogenizing land allocation decisions in a multi-sector growth model. Based on von Thünen’s observation, agricultural land is created from wilderness through conversion and cultivation, both of which are associated with costs. In the steady state of our general equilibrium model, land taxes not only may reduce land consumption (associated with environmental benefits) but may also affect overall economic output, while leaving wages and interest rates unaffected. When labor productivity is higher in the manufacturing than in the agricultural sector and agricultural and manufactured goods are substitutes (or the economy is open to world trade), land taxes increase aggregate economic output. There is a complex interplay of conservation policy, technological change and land taxes, depending on consumer preferences, sectoral labor productivities and openness-to-trade. Our model introduces a new perspective on land taxes in current policy debates on development, tax reforms as well as forest conservation.     

The Stability of Tax Elasticities over the Business Cycle in European Countries

We estimate short‐ and long‐run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short‐run tax elasticity changes according to the business cycle. We estimate a two‐state Markov‐switching regression on a novel data set of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of personal income taxes, corporate income taxes, indirect taxes and social contributions tend to be larger during recessions. Estimates of long‐run elasticities are in line with existing literature.     

A positive analysis of labor-market institutions and tax reforms

In this paper, we investigate the structure of the “Laffer curve” for taxes on labor and other factors of production, under different institutional frameworks of the labor market. Using a Cobb–Douglas production technology allows us to characterize important properties of the “Laffer curve” in terms of the wage share for a competitive labor market, the monopoly union model, the right-to-manage approach, the insider-dominated union, and efficient Nash bargains simultaneously. In this way, we are able to highlight the menu of factor tax systems, and thus of potential tax reforms available to a government, without perfect knowledge of the mechanism of the labor market. In particular, we show that the employment-maximizing tax system features a constant energy tax, while the energy mini-/maximizing tax system features a constant labor tax. We also illuminate to what extent these results must be modified if we either employ a CES production function, or if we allow for an endogenous reservation wage.     

Quantifying tax effects under policy foresight

Studies of tax effects make the conventional information assumption that changes in period-t taxes become known at t. Legislative lags, however, imply that news arrives before tax changes take place. Under policy foreknowledge, the conventional information structure is therefore misspecified. Simulations of a standard neoclassical growth model suggest that foresight of only one quarter can distort substantially the estimates of tax effects obtained under the no-foresight assumption. Also, it is crucial to model capital and labor taxes separately: anticipated changes in these two tax policies have opposite effects on consumption, investment, labor, and output before policy realization.     

Effective labor taxation and the international location of headquarters

Profit taxes are widely acknowledged to influence the location of firms’ headquarters. This paper sheds light on the role of aspects of labor taxation for the international location of headquarters. While profit taxes can be avoided in various ways, it is much harder for firms to manipulate the firm-specific labor tax base so that labor taxes may be relatively important for firm location. We construct a unique data set of effective labor taxes in 120 countries and use data on the location of 35,206 firms to analyze the impact of labor income tax rates, the progressivity of the income tax schedule, and social security contributions on firms’ decisions where to locate their headquarters. The findings suggest that both a higher progressivity of the tax system and higher (employee- and employer-borne) social security contributions negatively influence a country’s attractiveness for headquarters location. Hence, a one percentage point increase in these payroll taxes, reduces the probability of a country to attract headquarters by 6.1 %. The results prove robust in various empirical model specifications and subsets of the data.     

Public pensions and labor supply over the life cycle

In order to remain fiscally solvent, governments of many countries have reformed their public pension schemes to encourage labor supply at older ages. These reforms include reductions in the generosity of public pensions and reduced penalties for working past the normal retirement age. In this paper, we consider how reforms to public pension systems affect labor supply over the life cycle. We put the recent empirical evidence on the effect of government pensions on labor supply in a life cycle context, and we present evidence on the effectiveness of tax reforms for stimulating labor supply over the life cycle. Our main conclusion is that the labor supply of older workers is responsive to changes in retirement incentives. The labor supply of younger workers is less responsive. Thus the trend towards lower taxes on older workers in many developed countries should continue to fuel their trend towards later retirement.     

New Evidence That Taxes Affect the Valuation of Dividends

This paper uses British data to examine the effects of dividend taxes on investors' relative valuation of dividends and capital gains. British data offer great potential to illuminate the dividends and taxes question, since there have been two radical changes and several minor reforms in British dividend tax policy during the last 30 years. Studying the relationship between dividends and stock price movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors' valuation of dividends. Using daily data on a small sample of firms, and monthly data on a much broader sample, we find clear evidence that taxes affect the equilibrium relationship between dividend yields and market returns. These findings suggest that taxes are important determinants of security market equilibrium and deepen the puzzle of why firms pay dividends.     

Employment and wage effects of a payroll-tax cut—evidence from a regional experiment

In this paper, we evaluate the effects of a regional experiment that reduced payroll taxes by 3–6 percentage points for 3 years in northern Finland. We match each firm in the target region with a similar firm in a comparison region and estimate the effect of the payroll tax reduction by comparing employment and wage changes within the matched pairs before and after the start of the experiment. According to our results, the reduction in the payroll taxes led to an increase in wages in the target region. The point estimates indicate that the increase in wages offset roughly half of the impact of the payroll tax cut on the labor costs. The remaining labor cost reduction had no significant effects on employment.     

Payroll Taxes and the Decision to be Self-Employed

This paper investigates and quantifies the role of payroll taxes in the decision to be self-employed. It examines the effects of introducing into the labour market a payroll tax which taxes employers, but which exempts the self-employed. It exploits two changes in the tax legislation to confirm that it is changes in legislation and not other sector specific trends that are driving the results. Our findings suggest that payroll taxes do indeed influence the decision to be self-employed, with the probability of self-employment increasing as taxes on employees increase and vice versa. Furthermore, there appear to be declines in the return to self-employment caused by the tax, possibly due to inefficient allocation of labour towards self-employment.     

Why hasn’t tax competition triggered a race to the bottom? Some quantitative lessons from the EU

The integration of European financial markets in the early 1980s created an environment of near-perfect capital mobility across countries that had harmonized indirect taxes but maintained large differences in factor taxes. The years that followed witnessed several rounds of competition in capital taxes with puzzling results. Instead of the dreaded “race to the bottom” in capital taxes, the UK lowered its capital tax to a rate closer to those of France, Germany and Italy, while capital taxes changed slightly in these countries. The UK increased its labor tax marginally, but the other countries increased theirs sharply. This paper shows that these results are consistent with the quantitative predictions of a dynamic, Neoclassical general equilibrium model of tax competition that incorporates the key international externalities of tax policy operating via relative prices, wealth distribution and fiscal solvency. Tax competition is modeled as a one-shot game over time-invariant capital taxes with dynamic payoffs relative to a status quo calibrated to European data. The calibration is preceded by an empirical analysis that shows that the relationship linking taxes to labor supply and the investment rate in the model are in line with empirical evidence and that domestic taxes seem to respond to foreign taxes. The solutions of the games show that when countries compete over capital taxes adjusting labor taxes to maintain fiscal solvency, there is no race to the bottom and the Nash equilibrium is close to observed taxes. In contrast, if consumption taxes adjust to maintain fiscal solvency, competition over capital taxes triggers a “race to the bottom,” but this outcome entails large welfare gains. Surprisingly, the gains from coordination are small in all of these experiments.     

The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms

This paper provides additional evidence on the relationship between corporate taxes and debt using panel data on Italian companies. The panel covers 1054 companies for the years 1982–1994.The paper follows the Graham-Shevlin methodology for calculating company specific marginal tax rates (MTR) relying on the non-linearity of corporate tax schedules resulting from company losses and the ensuing tax provisions (carry-forward and backward rules). In the period covered by the panel there were in Italy two taxes on corporate income (IRPEG and ILOR), with different loss carry-forward rules, whose statutory tax rates and tax bases changed several times. For these reasons the simulated MTRs display both cross-sectional and time-series variation.The paper tests whether taxes encourage the use of debt by analysing incremental financing decisions. In order to cope with the endogeneity of the MTR the paper considers two different specifications. The first uses the lagged value of the simulated MTR. The second employs the estimate of before-financing MTR proposed by Graham et al. (1998). Significant cross-sectional tax effects are identified under both specifications whereas time-series variation cannot be identified if due account is taken of firm-fixed tax effects.The paper also investigates whether personal taxes affect corporate financing decisions. The MTR may either overstate or understate the fiscal benefit of debt financing according to whether, at the personal level, interest income is taxed at a rate that is higher or lower than the tax rate on returns from common stocks. Differences in the dividend-payout ratio across companies and several reforms in interest, dividend and capital gains taxation provide sufficient cross-section and time-series variations to identify the effect of personal taxes on debt usage.     

The German Tax Reform of 2000

Fundamental tax reform was a long time coming to Germany, but the landmark package of reforms agreed in July 2000 is substantially altering the business and personal tax environment. This paper describes and evaluates those reforms. It assesses the likely impact on investment and labor supply, and focuses particularly on key structural aspects of reform: the end of imputation, and the abolition of tax on corporate holdings in other corporations. Given Germany's prominence in Europe, and the structure of fiscal relations within Germany, it evaluates too the likely impact on other jurisdictions.     

Cost of capital and valuation in the public and private sectors: Tax,risk and debt capacity

Cost of capital and valuation differ in the private and public sectors, because taxes are a cost to the private sector but are only a transfer to the public sector. We show how to transform the after-tax private sector cost of capital into its pre-tax equivalent, for comparison with the public sector cost of capital. We establish the existence of a tax induced wedge between these two costs of capital. The wedge introduces a preference on the part of the private sector for assets with rapid tax depreciation, high debt capacity and low risk. We show that, in circumstances where an asset has identical public and private sector valuation in the absence of taxes, the tax induced difference in valuation is identical to the change in government tax receipts that results from having the asset owned by the private rather than the public sector. We provide some examples of distortions that result from failure to adjust for changes in tax revenues, and show how to effect such adjustment.     

The Relationship between Energy Taxation and Business Environmental Protection Expenditures in the European Union

Businesses are often subject to energy taxes that impose a charge on greenhouse gas emissions. Theoretically, energy taxes should motivate business spending on emissions abatement up to the point that, at the margin, the cost of reducing emissions equals the amount of the tax that is avoided. We use European Union (EU) data from 2001 to 2008 to test the hypothesized positive relationship between energy taxes and business spending on abatement initiatives for the protection of ambient air and climate. We find that while overall business spending and business investment expenditures are positively related to energy tax rates, current period expenditures are not related to energy tax rates.Supplemental analyses indicate that the imposition of the EU Emissions Trading Scheme (ETS) in 2005 affected these relationships. In the pre-ETS period, energy taxes were not related to overall business spending or to current period expenditures, but there was a significant positive relationship between energy taxes and investment expenditures. After the ETS was introduced, there was a significant positive relationship between energy tax rates and both overall business spending and business current period abatement expenditures, but the relationship between business investment spending and energy tax rates was not significant.Our results indicate that energy taxes are effective in motivating business spending on emissions abatement. However, the nature of the effect varies across investment spending and current period expenditures. As both long-term and current initiatives are necessary to meet abatement goals, policymakers should be aware of these differences.     

Taxes and stabilization in contemporary macroeconomic models

The role of proportional and procyclic labor income taxes for automatic stabilization with stochastic productivity is analyzed in a contemporary macroeconomic model based on imperfect competition. The importance of short-run nominal wage rigidity for the effectiveness of progressive taxes on labor income for stabilizing output and raising household welfare is examined in a model that yields complete analytical solutions with stochastic output shocks. Increasing the procyclicity of labor income tax rates raises welfare with and without rigid nominal wages in the model economy. With fully flexible prices and wages, a positive covariance between the distortionary tax rate and productivity reduces the volatility of production and employment. This effect disappears under nominal wage rigidity, although progressive taxation can still raise welfare by reducing the distortion caused by a proportional labor tax. With rigid nominal wages and flexible consumer goods prices, payroll taxes levied at rates that rise with output can serve as automatic stabilizers. JEL Code E62 · H20     

Trade and domestic tax reforms in the presence of a public good and different neutrality conditions

This paper develops a perfectly competitive general-equilibrium model of a small open economy with production of private traded goods and of a public good which is financed by revenues from trade and domestic taxes. Within this framework we consider the effects on public good provision and on welfare of the following tax reforms: (i) a producer-price-neutral reduction in export taxes and a corresponding increase in production taxes, (ii) a consumer-price-neutral reduction in tariffs and a corresponding increase in consumption taxes, and (iii) a partial tax-revenue-neutral reform in trade and domestic taxes.     

An evasive topic: theorizing about the hidden economy

This paper reviews some central issues that arise in theorizing about tax evasion decisions and the hidden economy. It starts from the Allingham and Sandmo (J. Public Econ. 1:323–338, 1972) modeling of the tax evasion decision as a choice under uncertainty based on expected utility maximization and risk aversion. It goes on to discuss alternative specifications of the taxpayer’s preferences with particular regard to the explanation of the extensive margin, i.e. the decision on whether or not to engage in tax evasion. It extends the model to the case of variable labor supply with work in both official and black labor markets. It then considers the application of the theory to taxes on wealth and income from capital, indirect tax evasion, and smuggling. It also includes a consideration of general equilibrium effects and of the problems that evasion causes for the theory of optimal income and commodity taxes. It concludes with a brief discussion of the implications of tax evasion for economic policy in the welfare state.     

On the Costs of Excise Taxes and Income Taxes in the UK

This paper develops an analytical framework for estimating the marginal excess burden (MEB) of taxes on gasoline, alcohol, tobacco, and labor in the UK, accounting for externalities and interactions among the taxes. Under most scenarios the MEB of the gasoline tax exceeds that for the labor tax, the MEB of the alcohol tax is roughly the same, while the MEB of the tobacco tax is lower than for the labor tax. These preliminary findings suggest that the gasoline tax may be too high, the alcohol tax might be about right, and the tobacco tax might be too low.     

“营改增”政策与产业链重整——基于山东德正达物流案例的分析

"营改增"作为我国十二五期间结构性减税的重大政策,正给企业发展带来实质性影响。本文通过对比山东德正达物流公司实施"营改增"政策前后的经营情况后发现:从短期看,"营改增"政策对物流企业税收不减反增;从长远看,"营改增"政策有助于推动企业进一步分工细化、转型升级,扩充企业生存发展空间;企业适应政策变化的能力和实际收益正相关。本文据此对未来金融业的"营改增"改革进行了前瞻性分析。