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Over 140 countries agreed on a fundamental corporate tax reform in 2021 to be implemented in 2023 and beyond. To measure its potential effects, we study asset price changes within minutes of the reform announcements. We construct proxies for the reform's costs regarding U.S. companies' tax burdens and countries' public finances. Likely exposed companies exhibit significant negative stock returns. Our lower-bound estimates indicate total shareholder value losses of $112.6 billion one day after the reform announcements. Further, likely exposed countries experience increases in sovereign debt credit risk. Our findings inform the cost-benefit analysis of a historical international tax reform. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

The literature on the impact of financial inclusion on the instability of household consumption remains controversial. In this article, we considered the possibility that countries follow different regimes of household consumption instability and tested the hypothesis of whether financial inclusion is countercyclical or procyclical to a country's regime of consumption instability. Thus, relying on recent works that used the finite mixture regression method, we identify the different regimes of household consumption instability. Drawing on a sample of 28 developing countries over the period 2011–2020, the paper highlights that the impact of financial inclusion on consumption instability differs across classes and a three-class model best describes the sample. Specifically, we show that financial inclusion is positively associated with consumption instability in the first class, while financial inclusion significantly reduces consumption instability in the second class. Financial inclusion does not have a significant impact on the third class. Furthermore, exploring the potential role of democracy in determining class affiliation, the results emphasize that developing countries would fully benefit from financial inclusion by undertaking strong reforms to improve democracy. [ABSTRACT FROM AUTHOR]

The subject of this paper is to evaluate the ‘Polish Deal’ programme introduced in 2022 in the tax area. The purpose of this article is to show the impact of the ‘Polish Deal’ legislation on net salaries of persons employed under an employment contract.

Purpose: This article provides evidence of a long-term structural relationship between demand for heated tobacco products (HTPs) and for combustible cigarettes in a Marshallian demand framework, using data from the Italian market. Design/methodology/approach: A cointegration-based approach allows to capture the substitution effects between the two products arising for reasons (possibly) other than price. Findings: The authors find that such a relationship exists and is sufficiently strong to constitute a cointegration. Social implications: Since a fully consolidated consensus on reduced harm from smokeless tobacco products is absent, symmetric policies on both markets are therefore necessary in terms of regulation and excise incidence to minimize the social cost of substitution and to maximize government revenues, which are a necessary counterpart to negative externalities that arise with smoking both products. Originality/value: This paper focuses on the Italian market with product specific volume and price data, both for cigarettes and HTPs. Because of the detected relationship, a regulatory trade-off arises in case of a relatively mild regulation on heated-tobacco products: benefits from decreasing demand for combustible cigarettes may be offset by the social cost of increasing consumption of heated tobacco products. Moreover, a milder regulation makes price related policies to curb smoking less effective. [ABSTRACT FROM AUTHOR]

We examine whether the Internal Revenue Service (IRS) uses public information to obtain qualitative signals regarding the quality of firms' financial information or management integrity. Using the procurement of public information as a proxy for IRS attention, we test whether public signals of poor information quality (restatements) lead to an increase in IRS attention. To begin, we document that the IRS is both more likely and quicker to acquire public filings announcing a restatement than any other filing of the firm. Furthermore, we examine instances in which the IRS is more likely to learn of a restatement and find an increase in attention around both press releases and media coverage of the restatement. Next we examine the implications of increased IRS attention. Employing path analysis, we find that IRS attention is associated with both higher levels of future tax settlements and a greater likelihood of the mention of a tax audit. Overall our results are consistent with the IRS responding to signals of poor information quality or management integrity as if financial misreporting and tax reporting are related. [ABSTRACT FROM AUTHOR]

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AbstractThis study investigates the impact of tax revenue on economic growth in the context of increasing trade openness in developing countries by using the data of 29 developing countries with accelerating economic growth during the period 2000–2020. This study further applies the Fixed Effect Model (FEM) and the Generalized Least Squares (GLS) estimation methods for panel data to test the proposed hypotheses. The research results show that tax revenue positively affects economic growth in general. Furthermore, we find that trade openness increases the positive relationship between tax revenue and economic growth but excessive trade openness reduces such a relationship. Our findings provide important implications for developing countries in the context of increasing tax revenue and trade openness.

AbstractTax risk has the potential to have far-reaching economic consequences, including the effect on late audit reports. This study aims to empirically investigate the effect of tax risk on audit report lag. This study took a quantitative approach. Companies listed on the Indonesia Stock Exchange (IDX) between 2012 and 2017 were used as samples. Our final observations consist of 1,813 firm-years. We find that the tax risk has no effect on audit report lag. This finding holds up when one alternative measure of tax risk and several additional control variables are considered. The result of this study has clear implications not only for company management but also for tax authority. Company management is required to always implement good tax risk management practices because this can result in a relatively low corporate tax risk. A relatively minor tax risk will have no effect on auditors’ performance in completing audit work so that companies can submit their financial reports on time. Furthermore, the tax authority benefits because the finalization of tax collection settlement is improved. Tax authority is encouraged to always maintain tax regulations that are not overly complex, complicated, or change too frequently.

We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased. [ABSTRACT FROM AUTHOR]

This article analyzes the impact of population aging on the composition of taxes in an overlapping generations model. Taxes are levied on both income and expenditure, with the median voter being pivotal in the political-economy theoretical framework in question. As in Razin, Sadka, and Swagel (2002. “The Aging Population and the Size of the Welfare State.” Journal of Political Economy 110 (4): 900–918. doi:10.1086/340780), an increased fraction of retirees in the population leads to lower income taxes. Conversely, the results for expenditure taxes are ambiguous. The main proposition is that the composition of taxes–defined as the extent to which taxes are levied on income relative to expenditure–falls unambiguously with the share of retirees increasing as the tax burden is rebalanced toward the retired population. [ABSTRACT FROM AUTHOR]

Short-time work (STW) policies provide subsidies for hour reductions to workers in firms experiencing temporary shocks. They are the main policy tool used to support labour hoarding during downturns and were aggressively used during the coronavirus disease 2019 (COVID-19) pandemic. Yet, very little is known about their employment and welfare consequences. This article leverages unique administrative social security data from Italy and quasi-experimental variation in STW policy rules to offer evidence on the effects of STW on firms' and workers' outcomes during the Great Recession. Our results show large and significant negative effects of STW treatment on hours, but large and positive effects on headcount employment. We then analyse whether these positive employment effects are welfare enhancing, distinguishing between temporary and more persistent shocks. We first provide evidence that liquidity constraints and rigidities in wages and hours may make labour hoarding inefficiently low without STW. Then, we show that adverse selection of low productivity firms into STW reduces the long-run insurance value of the program and creates significant negative reallocation effects when the shock is persistent. [ABSTRACT FROM AUTHOR]

Abstract This paper aims to defend Adam Smith’s ideas of taxation via moral philosophical approaches. In the conventional interpretation such a view is assumed to be inconsistent particularly due to the shortcomings of his economic theory. We suggest that via his notions of justice and equity, and of surplus income counted on an equilibrium basis in his natural price system, his argument for proportional taxation is rather coherent, while considerations for horizontal equity would result in a support for some progressivity in taxation. In the latter sense the equity-based tax reform plans have some policy implications on distributive justice in the modern state. [ABSTRACT FROM AUTHOR]

This article combines cross-national statistical analysis and in-depth historical case studies of Argentina and Chile to explore the relationship between two crucial dimensions of state capacity. We show that information capacity contributes to the development of fiscal capacity. When states have accurate information about their subject populations, territories, and economies, they are more effective at mobilizing revenues. In developing this argument this article makes three broader contributions. First, while existing scholarship either treats distinct dimensions of state capacity as separate entities, or simply assumes that they complement each other, our findings urge scholars to treat state development as sequential and to further investigate how multiple dimensions of state capacity are interrelated. Second, the paper suggests a broader underlying set of mechanisms – economies of scope – which connect these dimensions, and explores them in the specific context of how information capacity facilitates fiscal capacity. Third, we join the scholarship on the importance of societal compliance in the creation of the fiscal state, but with a focus on elite cooperation with the state's information collection efforts, which we show to be crucial to tax state development. [ABSTRACT FROM AUTHOR]

This paper contributes to research on the institutional determinants of tax capacity using annual data from 39 sub-Saharan African countries from 1985 to 2018 to construct a measure of tax capacity for each country based on the trend component of the ratio of actual to potential tax revenue. Potential revenue is estimated by a parsimonious tax performance specification, including only variables found to be robust determinants of the tax/GDP ratio. The results show that, on average, tax capacity is high (given potential) and has improved over time (especially for low-income countries). The final stage of analysis selects, from a wide variety of economic and institutional variables, the most important determinants of cross-country variation in tax capacity. Equal distribution of resources is the most important institutional factor associated with greater capacity, consistent with perceptions of equity supporting the fiscal bargain; corruption is associated with lower capacity, consistent with undermining trust in government. Private consumption and resource rents are associated with greater capacity. Other institutional factors are indirectly associated with greater capacity, such as accountability and elements of democracy associated with equity in the allocation and use of public resources. [ABSTRACT FROM AUTHOR]

The enquiry arose from the necessity for a reevaluation of Nigeria's budgetary system. The current fiscal structure does not appear to be fair enough to foster social development in all of its ramifications. As a result, there is a void in infrastructure development in favor of citizens. The current study investigates the effect of federal government tax autonomy and statutory income on capital investment. The analysis spans the years 1990–2021 and using the ARDL, ECM and compound relapse method, revealing that the federal government's exclusive tax revenues have a large and beneficial influence on capital investment. The statutory allocation to the federal government, in divergence, has an insubstantial destructive impression on capital project spending. These findings suggest that statutory revenue at the federal level has little effect on capital project funding. There is also an existence of a long run relationship between federal government capital investment and the classes of earning applied in this investigation. The policy implication is that if the government does not expand its earning capacity, in the near future, the statutory income will be incapacitated in outlaying capital projects necessary to expand the economy. Study recommends outsourcing of more revenue avenues including foreign direct investment avenues. Study novelty: The study's originality is that it employs ARDL approaches to give an unbiased justification for the government's growth of income sources. Above all, this is a pioneering work that expressly highlights the efficacy, or lack thereof, of the federal government's tax autonomy, therefore demonstrating the short and long term link between capital outlay on infrastructure and independent proceeds of the central administration.

Research background: The contribution of Nigerian companies and personal income taxes to agricultural development must be assessed. Throughout the years, comparable studies have focused on general economic growth rather than a specific facet of the national economy. Agriculture ensures food safety, job creation, and industrialization, which is why government revenue should be reassigned to improve agricultural production.

Research background: Food production financing in Nigeria has been a source of concern for many years, causing the entire country to experience intense food insecurity as a direct consequence of entirely unnecessary insensitivity to what is needful at a time. This research took all of these misgivings into consideration and aims to figure out the degree to which direct taxes could alleviate this pressure by earmarking more direct tax receipts to farming activities.

It is sometimes argued that a flat-rate tax reform can reduce tax noncompliance. The argument is, however, inconsistent with the so-called Yitzhaki's puzzle of the classical expected utility (EU) model. The latter predicts an increase, rather than a reduction, in tax evasion following a cut in the tax rates resulting from a flat-rate reform. We study the impact of a flat-rate tax in a microsimulation tax-benefit model of Italy, which allows us to analyze various hypotheses of tax evasion behavior. In addition to the EU model, we analyze expected utility with rank dependent probabilities (EURDP) and the model of reference dependent (RD) preference, the most favorable to overturn Yitzhaki's puzzle. Our simulations show that a flat-rate tax would barely reduce overall evasion in Italy in all models considered. Redistributive effects are in all cases, large. [ABSTRACT FROM AUTHOR]

Many countries are still struggling to increase the collection of domestic revenue. Financial inclusion has the potential to raise massive income in any country. As people become more financially integrated and their income rises over time, their tax payments to the government may rise as well. Thus, using a wide dataset of 45 countries in Europe, the Middle East, and Africa from 2008 to 2019, this paper employs a panel threshold regression model to address the key issue of whether changes in tax revenue are linked to changes in financial inclusion. We use a generalized method of moments model to test the robustness of the results. The main findings show a nonlinear relationship between financial inclusion and tax revenue, which indicates that, at low levels, financial inclusion has a negative impact on tax collection, whereas, at the high level, financial inclusion has a positive and significant impact on tax revenue.

This article aims to measure and understand the role of inheritances in shaping wealth inequality. We use a quasi-experimental design and Swedish administrative data to document that the average heir depletes her inheritance within a decade while the inheritances of wealthy heirs remain intact. These different depletion rates are not due to different consumption or labour supply responses but due to different rates of return on inherited wealth. Upon their receipt, inheritances reduce relative measures of wealth inequality, such as top shares or percentile ratios. Theoretically, this reduction in inequality could be due to either a compressed inheritance distribution or similar chances of having wealthy parents (high intergenerational mobility). Empirically, the first force is more significant in Sweden. Within a decade, however, the effect is reversed: inheritances increase wealth inequality since the different depletion rates widen the inequality in inherited wealth over time. This implies that inheritance taxation can reduce long run wealth inequality only through the taxation of wealthy heirs. [ABSTRACT FROM AUTHOR]

According to neoclassical economic theory, indirect taxes fall on both suppliers and demanders, where the greater proportion of these impact on that agent whose curve is more inelastic. In this way, inelasticity would be the determining factor with respect to the agent that will bear the higher tax burden of the indirect tax. In the present paper, it is argued that the key to the analysis should not be the inelasticity of supplier or demander's curve, but the elasticity of the total profit of the firm with respect to the price. Thus, in a market of monopolistic competition (or non-perfectly competitive market), in the absence of perfect knowledge, the hypothesis defended is that the firm absorbs all indirect taxes under any case. The Austrian approach to price formation helps us understand it this way. [ABSTRACT FROM AUTHOR]