Simplifying the personal income tax system: lessons from the 1998 Spanish reform

Governments often try to reduce the complexity of personal income tax systems by decreasing the number of tax filings. The 1998 reform of the Spanish income tax system has followed this approach by adjusting withholding on earned income to the income tax liability. In this paper, we assess to what extent the reform has fulfilled its purposes, making use of a micro‐simulation tax‐benefit model for Spain, ESPASIM. The number of individuals exempt from filing a tax return has been reduced to around half of the total number of taxpayers. However, the quantity of tax returns sent to the tax administration has not changed so much because the new withholding system adjusts taxes for only 29 per cent of those exempt. Moreover, the new system increases the overall excess of tax withholding by 1.5 billion euro. We also study alternative reforms that could achieve better results than the one implemented.     

Long‐Term Effects of Fiscal Policy on the Size and Distribution of the Pie in the UK*

This paper provides a joint analysis of the output and distributional long‐term effects of various fiscal policies in the UK, using a vector autoregression (VAR) approach. Our findings suggest that the long‐term impact on GDP of increasing public spending and taxes is negative, and especially strong in the case of current expenditure. We also find significant distributional effects associated with fiscal policies, indicating that an increase in public spending reduces inequality while a rise in indirect taxes increases income inequality.     

Survey Under‐Coverage of Top Incomes and Estimation of Inequality: What is the Role of the UK's SPI Adjustment?

Survey under‐coverage of top incomes leads to bias in survey‐based estimates of overall income inequality. Using income tax record data in combination with survey data is a potential approach to address the problem; we consider here the UK's pioneering ‘SPI adjustment’ method that implements this idea. Since 1992, the principal income distribution series (reported annually in Households Below Average Income) has been based on household survey data in which the incomes of a small number of ‘very rich’ individuals are adjusted using information from ‘very rich’ individuals in personal income tax return data. We explain what the procedure involves, reveal the extent to which it addresses survey under‐coverage of top incomes and show how it affects estimates of overall income inequality. More generally, we assess whether the SPI adjustment is fit for purpose and consider whether variants of it could be employed by other countries.     

国际税收协定与反避税

税收协定除对所得消除双重征税外,还有防止偷逃税(“财政逃避”)的重要目的。税收协定和反避税之间的关系十分紧密,反避税是税收协定的一个重要内容,是各国谈签协定的主旨之一。本文从反避税角度对协定中可能出现的协定滥用和避税问题进行了列举,并提出适时修订协定、完善国内法规、有效打击跨国偷逃税活动的建议。     

Removing Homeownership Bias in Taxation: The Distributional Effects of Including Net Imputed Rent in Taxable Income

The income tax systems of most countries entail a favourable treatment of homeownership, compared to rental‐occupied housing. Such ‘homeownership bias’ and its consequences for a wide range of economic outcomes have long been recognised in the economic literature. Although a removal of the homeownership bias is generally advocated on efficiency grounds, its distributional implications are often neglected, especially in a cross‐country perspective. In this paper, we aim to fill this gap by investigating the first‐order effects, in terms of distribution of income and work incentives, of removing the income tax provisions favouring homeownership. We consider six European countries – Belgium, Germany, Greece, Italy, the Netherlands and the UK – that exhibit important variation in terms of income tax treatment of homeowners. Using the multi‐country tax benefit model EUROMOD, we analyse the distributional consequences of including net imputed rent in the taxable income definition that applies in each country, together with the removal of existing special tax treatments of incomes or expenses related to the main residence; thus, we provide a measure of the homeownership bias. We implement three tax policy scenarios. In the first, imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In the two further revenue‐neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, through either a tax rate reduction or a tax exemption increase. The results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality‐increasing side effects.     

Response of Tax Credit Claims to Tax Enforcement: Evidence from a Quasi‐Experiment in Chile

Diesel in Chile receives different tax treatments depending on its use. If diesel is used in industrial activities, the diesel taxes paid can be fully used as a credit against VAT, but if it is used in freight or public transportation – basically trucks and buses – only a fraction of diesel taxes paid can be claimed as a tax credit for VAT payments. As a result of this different tax treatment, firms have incentives to use ‘tax‐exempted’ diesel in activities requiring ‘non‐tax‐exempted’ diesel. This tax wedge therefore generates an opportunity for tax evasion, especially for firms with multiple economic activities, one of them being transport. In this paper, we analyse the impact of a tax enforcement programme implemented by the Chilean Internal Revenue Service (IRS), where letters requiring information about diesel purchases and use and vehicle ownership were sent to around 200 firms in 2003. Using different empirical strategies to consider the non‐randomness of the selection of firms, the empirical results show consistently that firms receiving a letter decreased their diesel tax credits by around 10 per cent.     

The Distributional Impact of the Greek Crisis in 2010*

The severe economic crisis affecting Greece is widely thought to be having a significant social impact in terms of greater inequality and increased poverty. We provide an early assessment of whether (and to what extent) this was the case in 2010, the first year of the Greek crisis. We distinguish between two interrelated factors: on the one hand, the austerity policies taken to reduce fiscal deficits; on the other hand, the wider recession. Using a tax–benefit model, we attempt to quantify the distributional implications of both. With respect to the austerity policies, we focus on the changes affecting taxation, pension benefits and public sector pay. With respect to the wider recession, we model the effects of rising unemployment and inflation, as well as of lower earnings for self-employed workers and for employees of private firms. In simulating the impact of these changes on the distribution of incomes (and in estimating how the total burden of the crisis is shared across income groups), we take into account tax evasion and benefit non-take-up. We conclude by discussing the main findings, methodological pitfalls and policy implications of our research.     

Analysing Tax–Benefit Reforms Using Non‐Parametric Methods*

Static tax–benefit microsimulation models (MSMs) are widely used and well‐regarded tools for public policy analysis, but it is essential to use them very carefully. This paper focuses on the analysis of MSM output, suggesting the use of non‐parametric methods as a useful, informative and relatively straightforward complement to detect effects not always captured by measures often used to present MSM results. Non‐parametric methods are used here to analyse the output of an MSM applied to the 1998 Italian personal income tax reform, the main change in which concerned the tax schedule: the first tax rate was increased from 10 per cent to 18.5 per cent and the top one was reduced by 4.5 percentage points. Non‐parametric methods highlight that the effects of this reform were very different for different types of households, with low‐income pensioner households among the main losers. Results are checked for robustness by standard statistical methods and compared with empirical results obtainable using quintile histograms.     

Reduced Tax Progressivity in Norway in the Nineties: The Effect from Tax Changes

The inequality in pre-tax income increased in Norway in the 1990s, while the concentration of taxes remained largely unaltered. This means that tax progressivity has decreased in the period, as measured by summary indices of tax progressivity. In this paper I analyze individual income data to ascertain whether tax changes in the period can explain the observed decrease in tax progressivity. As marginal tax rates at high income levels have been substantially reduced in the period, for instance through the tax reform of 1992, it is expected that tax changes may have influenced the degree of inequality in pre-tax incomes. This behavioral effect is examined by deriving estimates of the elasticity of gross income with respect to the net-of-tax rate, obtained from various panel data regressions. The tax changes may also have shifted the distributional burden of taxes for unaltered level of pre-tax income inequality. In order to identify this (direct) effect of tax-law alterations, the same fixed distribution of pre-tax income is exposed to various tax-laws in the period.     

Redistributive impact of indirect tax reforms: Greece, 1988–2002

This paper assesses the distributional impact of indirect taxes among Greek households between 1988 and 2002, a period that coincides with the introduction of significant reforms in the tax system due to EU membership. The highly differentiated indirect tax structure prevailing at the beginning of the period had distributional benefits over the more simplified 2002 tax structure. The overall inequality of the after‐tax welfare distribution has increased by 6–12½ per cent and changes in the indirect tax system seem to explain about half of this increase. The paper also applies a recent method of measuring the distributional impact of relative price changes caused by changes in tax rates of commodities (Newbery, 1995) and establishes that indirect tax reforms introduced since 1988 had an adverse impact on the distribution of purchasing power, which nevertheless seems to be very small.     

The Elasticity of Taxable Income in New Zealand*

This paper reports estimates of the elasticity of taxable income with respect to the net‐of‐tax rate for New Zealand taxpayers. The relative stability of the New Zealand personal income tax system, in terms of marginal rates, thresholds and the tax base, provides helpful conditions for deriving these estimates. The elasticity of taxable income was estimated to be substantially higher for the highest income groups. Changes in the timing of income flows for the higher income recipients were found to be an important response to the announcement of a new higher rate bracket. The marginal welfare costs of personal income taxation were consistent across years, being relatively small for all but the higher tax brackets. For the top marginal rate bracket of 39 per cent, the welfare cost of raising an extra dollar of tax revenue was estimated to be well in excess of a dollar. Implications of the findings are that: disincentive effects of high top marginal rates can be substantial even when labour supply responses are small; the welfare costs of increases in top marginal tax rates can be high; and announcement effects of tax policy changes can lead to considerable income shifting between time periods.     

Fighting Tax Evasion by Discouraging the Use of Cash?

We 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.     

Local fiscal equalisation based on fiscal capacity: the case of Austria

This paper deals with local fiscal equalisation in Austria. The system of intergovernmental relations in Austria includes different regulations in order to equalise differences in the fiscal capacity of the municipalities. This leads to so‐called ‘compensation effects’, because additional revenues from a local government's own tax are (at least partly) compensated by losses from equalisation grants. This paper carries out a detailed analysis of these compensation effects. It is shown that they create strong fiscal disincentives for the local governments: on average, 55 per cent of additional revenues from the communal tax (which is the most important of a local government's own taxes) are compensated by losses of equalisation grants. In extreme cases, local governments can lose up to 144 per cent of the additional tax yields collected. These local governments would be better off if they made no effort to increase their tax base.     

新个人所得税法对扣纳双方的影响及应对——基于扣缴人义务及纳税人行为视角

新个人所得税法在实践中的运行效果取决于征纳双方在税收征管过程中的耦合作用。一方面,作为联系税务机关与纳税人的中介与桥梁,扣缴人在个税预扣预缴及汇算清缴方面发挥着重要作用;另一方面,税制结构变化与缴税申报模式转变对纳税人影响深远。在新个人所得税下,扣缴人的扣缴清缴合规、沟通保密及判定审查等义务均有不同程度的增加、拓展或提升。而纳税人的缴税申报、现金管理及税收规避等行为更易于引致税务管控及稽查。落实应对建议有助于促使扣纳双方在税务合规的框架内发挥正向合力作用,凭借税收法治助力个税财政收入的实现。     

Optimal International Taxation and Growth Rate Convergence: Tax Competition vs. Coordination

Optimal international taxation and its implications for convergence in long run income growth rates are analyzed in the context of an endogenously growing world economy with perfect capital mobility. Under tax competition (i) the residence principle will maximize national welfare; (ii) the optimal long run tax rate on capital incomes from various sources will be zero in all countries; and (iii) long term per capita income growth rates will be equalized across countries. Under tax coordination, (i) becomes irrelevant while (ii) and (iii) will continue to hold. In other words, optimal tax policies are growth-equalizing with and without international policy coordination. This revised version was published online in July 2006 with corrections to the Cover Date.     

Income Shifting in the Spanish Dual Income Tax*

Based on a model of behavioural response to taxes, and using the Taxpayers Panel from the Instituto de Estudios Fiscales for the period 1999–2009, we analyse whether the dual nature of the Spanish personal income tax (PIT), reinforced by the 2007 reform, has influenced taxpayers’ behaviour, causing them to convert part of their ‘general income’ (from labour, real estate or economic activities) into ‘savings income’ (from movable capital or capital gains). We also extend the analysis of income shifting and study whether Spanish taxpayers also responded to the different tax treatments given to the two types of savings income (from movable capital and capital gains) until 2007, transforming savings income from one type to the other. The results of our study demonstrate three facts. First, Spanish taxpayers did respond to the different tax rates, shifting income from the general base to different forms of savings, especially capital gains. The highest‐income individuals and the self‐employed and business owners are the groups where this behaviour was most marked. Second, the self‐employed and business owners also turned income from movable assets into capital gains, guided by their different tax rates. And third, we find signs of ‘anticipation’ and ‘learning’ effects caused by the 2007 tax reform. We believe that the results obtained will enrich the growing literature on income shifting.     

Tax Amnesties and Income Tax Compliance: The Case of Spain

The aim of this paper is to evaluate the long‐term impact on Spanish individual income tax (IRPF) compliance of the amnesty measures granted in 1991 within the framework of the 1988–91 income tax reform programme. To that end, we combine time‐series techniques with outlier detection methods and the Bai and Perron (1998) test for the endogenous estimation of structural breaks. On the basis of the analysis of the monthly IRPF tax collection series from 1979 to 1998, we find that the amnesty had no effect on tax collection in either the short or the long term. By contrast, we find evidence of the permanent positive impact caused by the legislative and administrative measures linked to the IRPF reform process begun in 1988.     

Financing Local Police Spending in England and Wales: Fiscal Federalism in Practice

Since 1995, police forces in England and Wales have been able to raise revenues locally to supplement grants from central government. We analyse the variation across police force areas in locally raised police revenues over the 2000s, and we find that three‐quarters of the temporal and spatial variation in local revenues per head can be explained by differences in incomes, prices and local preferences. A particularly robust parameter is the effective local community tax price associated with raising revenue. We discuss the police funding model in the wider context of fiscal federalism, and we point to alternative funding structures that could be adopted.     

Taxpayers' Behavioural Responses and Measures of Tax Compliance ‘Gaps’: A Critique and a New Measure

The work of Feldstein (1995 and 1999) has stimulated substantial conceptual and empirical advances in economists' approaches to analysing taxpayers' behavioural responses to changes in tax rates. Meanwhile, a largely independent literature proposing and applying alternative measures of tax compliance has also developed in recent years, which has sought to provide tax agencies with tools to identify the extent of tax non‐compliance as a first step to designing policies to improve compliance. In this context, measures of ‘tax gaps’ – the difference between actual tax collected and the potential tax collection under full compliance with the tax code – have become the primary measures of tax non‐compliance via (legal) avoidance and/or (illegal) evasion. In this paper, we argue that the tax gap as conventionally defined is conceptually flawed because it fails to incorporate behavioural responses by taxpayers. We show that conventional tax gap measures, which ignore the presence of behavioural responses, exaggerate the degree of non‐compliance. This potentially applies both to indirect taxes (such as the ‘VAT gap’) and direct (income) taxes. Further, where these conventional tax gap measures motivate reforms designed to increase the tax compliance rate, they will likely have a tax‐base‐reducing effect and hence generate a smaller increase in realised tax revenues than would be anticipated from the tax gap estimate.     

关注民生的重要改革——工资、薪金所得减除费用标准提高的意义与影响

在物价水平上涨、财政收入大幅度增加的情况下,政府出于对民生的关注,将个人所得税工资、薪金所得减除费用标准从1600 元提高到2000 元,这进一步推动了我国个人所得税改革的进程。展望改革前景,个人所得税工资、薪金所得减除费用标准应该指数化,与物价水平挂钩,还应该考虑以家庭为单位进行纳税申报。当然,个人所得税制度改革的最终目标,是实行综合和分类相结合的个人所得税制。