This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal ...tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and on expenditure components.
We quantify how sensitive is migration by star scientists to changes in personal and business tax differentials across states. We uncover large, stable, and precisely estimated effects of personal ...and corporate taxes on star scientists' migration patterns. The long-run elasticity of mobility relative to taxes is 1.8 for personal income taxes, 1.9 for state corporate income tax, and — 1.7 for the investment tax credit. While there are many other factors that drive when innovative individuals and innovative companies decide to locate, there are enough firms and workers on the margin that state taxes matter.
This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data. First, we provide a theoretical ...framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research.
Long-Run Corporate Tax Avoidance Dyreng, Scott D.; Hanlon, Michelle; Maydew, Edward L.
The Accounting review,
01/2008, Volume:
83, Issue:
1
Journal Article
Peer reviewed
We develop and describe a new measure of long-run corporate tax avoidance that is based on the ability to pay a low amount of cash taxes per dollar of pre-tax earnings over long time periods. We ...label this measure the "long-run cash effective tax rate." We use the long-run cash effective tax rate to examine (1) the extent to which some firms are able to avoid taxes over periods as long as ten years, and (2) how predictive one-year tax rates are for long-run tax avoidance. In our sample of 2,077 firms, we find there is considerable cross-sectional variation in tax avoidance. For example, approximately one-fourth of our sample firms are able to maintain long-run cash effective tax rates below 20 percent, compared to a sample mean tax rate of approximately 30 percent. We also find that annual cash effective tax rates are not very good predictors of long-run cash effective tax rates and, thus, are not accurate proxies for long-run tax avoidance. While there is some evidence of persistence in annual cash effective tax rates, the persistence is asymmetric. Low annual cash effective tax rates are more persistent than are high annual cash effective tax rates. An initial examination of characteristics of firms successful at keeping their cash effective tax rates low over long periods shows that they are well spread across industries but with some clustering.
No government can announce a tax system and then rely on taxpayers' sense of duty to remit what is owed. Some dutiful people will undoubtedly pay what they owe, but many others will not. Over time ...the ranks of the dutiful will shrink, as they see how they are being taken advantage of by the others. Thus, paying taxes must be made a legal responsibility of citizens, with penalties attendant on noncompliance. But even in the face of those penalties, substantial tax evasion exists. Tax evasion is widespread, always has been, and probably always will be. This essay reviews what is known about the magnitude, nature, and determinants of tax evasion, with an emphasis on the U.S. income tax. It then places this information into a conceptual context, examining various models and theories, and considers policy implications.
Tax Morale Luttmer, Erzo F. P.; Singhal, Monica
The Journal of economic perspectives,
10/2014, Volume:
28, Issue:
4
Journal Article
Peer reviewed
Open access
There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting ...tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected. Meanwhile, tax administrators also tend to place a great deal of emphasis on the importance of improving “tax morale,” by which they generally mean increasing voluntary compliance with tax laws and creating a social norm of compliance. We will define tax morale broadly to include nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework. Tax morale does indeed appear to be an important component of compliance decisions. We demonstrate that tax morale operates through a variety of underlying mechanisms, drawing on evidence from laboratory studies, natural experiments, and an emerging literature employing randomized field experiments. We consider the implications for tax policy and attempt to understand why recent interventions designed to improve morale, and thereby compliance, have had mixed results to date.
This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a ...tenfold increase since the 1980; their effective tax rate has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world's personal financial wealth is held offshore, costing more than $200 billion to governments every year. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising. I discuss the recent proposals made to address these issues, and I argue that the main objective should be to create a world financial registry.
Most prior studies model tax avoidance as a function of firm-level characteristics and do not consider how individual executive characteristics affect tax avoidance. This paper investigates whether ...executives with superior ability to efficiently manage corporate resources engage in greater tax avoidance. Our results show that moving from the lower to upper quartile of managerial ability is associated with a 3.15% (2.50%) reduction in a firm’s one-year (five-year) cash effective tax rate. We examine how higher-ability managers reduce income tax payments and find that they engage in greater state tax planning activities, shift more income to foreign tax havens, make more research and development credit claims, and make greater investments in assets that generate accelerated depreciation deductions. Identifying a manager characteristic related to firms’ tax policy decisions adds to our understanding of the factors that explain the substantial variation in corporate income tax payments across firms.
This paper was accepted by Mary Barth, accounting
.
We hypothesize that corporate income taxes distort firms’ incentives to innovate by reducing their pledgeable income. Using a differences-in-differences methodology, we document that large corporate ...income tax cuts boost corporate innovation. We find a similar but opposite effect for tax increases. Most of the change in innovation occurs 2 or more years after the tax change, and there’s no effect before the tax change. Exploring the mechanisms, we show that tax cuts have a stronger impact on innovation for firms with weaker governance, greater financial constraints, fewer tangible assets, smaller patent stock, and a greater degree of tax avoidance.
Do Taxpayers Bunch at Kink Points? Saez, Emmanuel
American economic journal. Economic policy,
08/2010, Volume:
2, Issue:
3
Journal Article
Peer reviewed
Open access
This paper uses tax return data to analyze bunching at the kink points of the US income tax schedule. We estimate the compensated elasticity of reported income with respect to (one minus) the ...marginal tax rate using bunching evidence. We find clear evidence of bunching around the first kink point of the Earned Income Tax Credit but concentrated solely among the self-employed. A simple tax evasion model can account for those results. We find evidence of bunching at the threshold of the first income tax bracket where tax liability starts but no evidence of bunching at any other kink point.
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