The G-7’s “global minimum tax” accord—followed by a new version of the OECD’s “Two Pillar Solution” and its endorsement by the G-20—is accepted by many as evidence for international tax cooperation. But recent policy discussions offer no answer to a basic question: What can countries cooperate to achieve? This Article shows that the answers provided by proponents of the new international tax agreement are alarmingly ad hoc, misleading, and incoherent. Scholarship on corporate taxation has also long failed to identify potentials for international cooperation. The more successful international agreements purport to be, in other words, the more puzzling they become. I first examine three rationales recently identified for collective action. The first alleges a transformation in the services trade that supposedly undermines premises of traditional international tax design. The second emphasizes the international community’s need to appease the United States and prevent the latter from starting trade wars. Both make unusual and untenable factual and normative assumptions. A third rationale seems more familiar—countries should cooperate to end tax competition and multinational companies’ tax avoidance—but is at odds with both economic theory and the actual content of the OECD’s proposal. Theoretically, ending tax competitions—whether for productive capital or for corporate headquarters—cannot create gains for all countries. And in terms of policy content, the OECD proposal can more plausibly be read as limiting, rather than enhancing, governments’ capacities to tax MNCs. Older and more basic puzzles in theories of international taxation—concerning source-country taxation, residence countries’ unilateral relief from double taxation, and bilateral tax treaties—compound these new puzzles. Arguably, these puzzles have led tax scholars to abandon a basic social scientific template for explaining cooperation. Indeed, much of economic scholarship takes international tax institutions as exogenously given. I contrast this state of affairs with economic theories of trade agreements—in particular, with the way the “terms-of-trade” theory rationalizes the GATT/WTO regime. To emulate the success of the “terms-of-trade” theory, I argue, certain assumptions that have long prevailed in discourses about international taxation may need to be jettisoned. Only a more fundamental reconceptualization of the subject matter of international taxation can shed light on the true past and future grounds for international tax cooperation.
{"title":"New Puzzles in International Tax Agreements","authors":"W. Cui","doi":"10.2139/ssrn.3877854","DOIUrl":"https://doi.org/10.2139/ssrn.3877854","url":null,"abstract":"The G-7’s “global minimum tax” accord—followed by a new version of the OECD’s “Two Pillar Solution” and its endorsement by the G-20—is accepted by many as evidence for international tax cooperation. But recent policy discussions offer no answer to a basic question: What can countries cooperate to achieve? This Article shows that the answers provided by proponents of the new international tax agreement are alarmingly ad hoc, misleading, and incoherent. Scholarship on corporate taxation has also long failed to identify potentials for international cooperation. The more successful international agreements purport to be, in other words, the more puzzling they become. I first examine three rationales recently identified for collective action. The first alleges a transformation in the services trade that supposedly undermines premises of traditional international tax design. The second emphasizes the international community’s need to appease the United States and prevent the latter from starting trade wars. Both make unusual and untenable factual and normative assumptions. A third rationale seems more familiar—countries should cooperate to end tax competition and multinational companies’ tax avoidance—but is at odds with both economic theory and the actual content of the OECD’s proposal. Theoretically, ending tax competitions—whether for productive capital or for corporate headquarters—cannot create gains for all countries. And in terms of policy content, the OECD proposal can more plausibly be read as limiting, rather than enhancing, governments’ capacities to tax MNCs. Older and more basic puzzles in theories of international taxation—concerning source-country taxation, residence countries’ unilateral relief from double taxation, and bilateral tax treaties—compound these new puzzles. Arguably, these puzzles have led tax scholars to abandon a basic social scientific template for explaining cooperation. Indeed, much of economic scholarship takes international tax institutions as exogenously given. I contrast this state of affairs with economic theories of trade agreements—in particular, with the way the “terms-of-trade” theory rationalizes the GATT/WTO regime. To emulate the success of the “terms-of-trade” theory, I argue, certain assumptions that have long prevailed in discourses about international taxation may need to be jettisoned. Only a more fundamental reconceptualization of the subject matter of international taxation can shed light on the true past and future grounds for international tax cooperation.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"70 9 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-10-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81485948","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the quality of analysts’ GAAP earnings forecasts and consider implications for research that uses these forecasts as inputs. We first exploit a setting that allows for a clean identification of GAAP earnings forecast quality. We find that GAAP earnings forecasts generally fail to incorporate a known event with an estimable GAAP earnings impact, especially forecasts issued by analysts who lack GAAP forecasting effort. We also find that GAAP earnings forecasts are not a good proxy for investor expectations of GAAP earnings. Both findings in this setting cast doubt on the quality of GAAP earnings forecasts. We assess the implications of these findings for two research applications. Using data spanning 2004 to 2020, we find that the presence of GAAP earnings forecasts that lack forecasting effort affects research inferences regarding GAAP earnings response coefficients and the prevalence of managers’ meet-or-beat behavior. We illustrate two simple remedies to mitigate the adverse effects of low-quality GAAP earnings forecasts on research inferences.
{"title":"Analysts’ GAAP earnings forecast quality","authors":"Novia (Xi) Chen, Allison Koester","doi":"10.2139/ssrn.3599616","DOIUrl":"https://doi.org/10.2139/ssrn.3599616","url":null,"abstract":"We examine the quality of analysts’ GAAP earnings forecasts and consider implications for research that uses these forecasts as inputs. We first exploit a setting that allows for a clean identification of GAAP earnings forecast quality. We find that GAAP earnings forecasts generally fail to incorporate a known event with an estimable GAAP earnings impact, especially forecasts issued by analysts who lack GAAP forecasting effort. We also find that GAAP earnings forecasts are not a good proxy for investor expectations of GAAP earnings. Both findings in this setting cast doubt on the quality of GAAP earnings forecasts. We assess the implications of these findings for two research applications. Using data spanning 2004 to 2020, we find that the presence of GAAP earnings forecasts that lack forecasting effort affects research inferences regarding GAAP earnings response coefficients and the prevalence of managers’ meet-or-beat behavior. We illustrate two simple remedies to mitigate the adverse effects of low-quality GAAP earnings forecasts on research inferences.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"282 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72701909","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Due to technological advances and the COVID-19 pandemic, taxpayers are increasingly utilizing their homes as a focal point from which to conduct their business affairs. On the one hand, the nation should applaud this workplace transformation insofar as it may enhance job performance and efficiency, reduce product cost and overhead, and improve work–life balance. On the other hand, this transformation process may open the door to rampant tax abuse as taxpayers alone or in collusion with their employers seek to transform home usage into a tax shelter refuge.This analysis delves directly into the income tax compliance concerns that the workplace transformation engenders. It does so by exposing the nature of the problem, its prevalence, what it might cost the nation annually in terms of lost revenue, and why current safeguards are failing to achieve their sought-after objectives. The good news is that if Congress proactively takes immediate remedial measures to address this nascent problem, such actions could help foster taxpayer compliance, defend the income tax base, and halt the depletion of the nation’s revenue coffers. However, if Congress dallies and is derelict in fulfilling its oversight duties, this problem is poised to go from bad to worse.
{"title":"Workplace Transformation and Its Tax Compliance Implications","authors":"Jay A. Soled","doi":"10.2139/ssrn.3925552","DOIUrl":"https://doi.org/10.2139/ssrn.3925552","url":null,"abstract":"Due to technological advances and the COVID-19 pandemic, taxpayers are increasingly utilizing their homes as a focal point from which to conduct their business affairs. On the one hand, the nation should applaud this workplace transformation insofar as it may enhance job performance and efficiency, reduce product cost and overhead, and improve work–life balance. On the other hand, this transformation process may open the door to rampant tax abuse as taxpayers alone or in collusion with their employers seek to transform home usage into a tax shelter refuge.This analysis delves directly into the income tax compliance concerns that the workplace transformation engenders. It does so by exposing the nature of the problem, its prevalence, what it might cost the nation annually in terms of lost revenue, and why current safeguards are failing to achieve their sought-after objectives. The good news is that if Congress proactively takes immediate remedial measures to address this nascent problem, such actions could help foster taxpayer compliance, defend the income tax base, and halt the depletion of the nation’s revenue coffers. However, if Congress dallies and is derelict in fulfilling its oversight duties, this problem is poised to go from bad to worse.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"41 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87477235","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study how consumption taxes affect multinational companies' (MNCs') tax planning in the digital economy. We focus on the European value-added tax (VAT), a consumption tax collected and remitted by firms. Exploiting 43 staggered VAT rate changes, we show that MNCs in the business-to-consumer (B2C) service sector reallocate reported sales to benefit from VAT rate differentials across countries. Difference-in-differences analyses around a 2015 VAT reform that removed these VAT planning opportunities for digital B2C services indicate that MNCs reported disproportionally high digital B2C sales in Luxembourg, the country with the lowest VAT rate in 2014. Further analyses suggest that VAT planning behavior also shapes corporate income tax strategies. Contrary to conventional wisdom, pre-tax profits of MNC subsidiaries in the digital B2C sector were insensitive to changes in corporate income tax rates prior to 2015. However, since VAT planning strategies became obsolete, MNCs book substantially higher profits in Ireland and other low-tax European countries. Collectively, our evidence informs debates on taxing digital sales and tax strategies of MNCs in the globalized internet economy.
{"title":"Consumption Taxes and Multinational Tax Planning in the Digital Age - Evidence from the European Service Sector","authors":"Marcel Olbert, Annika Werner","doi":"10.2139/ssrn.3330523","DOIUrl":"https://doi.org/10.2139/ssrn.3330523","url":null,"abstract":"We study how consumption taxes affect multinational companies' (MNCs') tax planning in the digital economy. We focus on the European value-added tax (VAT), a consumption tax collected and remitted by firms. Exploiting 43 staggered VAT rate changes, we show that MNCs in the business-to-consumer (B2C) service sector reallocate reported sales to benefit from VAT rate differentials across countries. Difference-in-differences analyses around a 2015 VAT reform that removed these VAT planning opportunities for digital B2C services indicate that MNCs reported disproportionally high digital B2C sales in Luxembourg, the country with the lowest VAT rate in 2014. Further analyses suggest that VAT planning behavior also shapes corporate income tax strategies. Contrary to conventional wisdom, pre-tax profits of MNC subsidiaries in the digital B2C sector were insensitive to changes in corporate income tax rates prior to 2015. However, since VAT planning strategies became obsolete, MNCs book substantially higher profits in Ireland and other low-tax European countries. Collectively, our evidence informs debates on taxing digital sales and tax strategies of MNCs in the globalized internet economy.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77627399","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ruiyuan Chen, Sadok El Ghoul, O. Guedhami, Jeffrey A. Pittman, Yang Yang
Building on Desai and Dharmapala’s (2006) complementarity theory on the relation between tax avoidance and insider diversion, we contribute to international research by examining the importance of tax avoidance to equity pricing, and the role that institutional environments play in shaping this link. Our theoretical framework generates two predictions. First, investors require higher risk premium compensation for their exposure to insiders’ diversion of corporate resources hidden by obfuscatory tax avoidance activities. Second, stronger country-level legal institutions and disclosure regulations mitigate this impact. Analyzing a sample of firms from 47 non-U.S. countries, we report strong evidence that equity financing costs rise when firms take more aggressive tax positions. Additional analysis implies that stricter investor protection institutions and disclosure regulations alleviate investors’ concerns about insider diversion, moderating the positive impact of tax avoidance on equity pricing. The results are robust to specifying alternative measures of tax avoidance and equity financing costs, as well as to addressing endogeneity. Collectively, these findings suggest that investors recognize the complementarity between insider diversion and tax avoidance in less protective environments. Our evidence has major implications for investors and policy makers.
{"title":"Tax Avoidance and Equity Pricing: The Importance of Countries’ Legal Institutions and Disclosure Regulations","authors":"Ruiyuan Chen, Sadok El Ghoul, O. Guedhami, Jeffrey A. Pittman, Yang Yang","doi":"10.2139/ssrn.3914068","DOIUrl":"https://doi.org/10.2139/ssrn.3914068","url":null,"abstract":"Building on Desai and Dharmapala’s (2006) complementarity theory on the relation between tax avoidance and insider diversion, we contribute to international research by examining the importance of tax avoidance to equity pricing, and the role that institutional environments play in shaping this link. Our theoretical framework generates two predictions. First, investors require higher risk premium compensation for their exposure to insiders’ diversion of corporate resources hidden by obfuscatory tax avoidance activities. Second, stronger country-level legal institutions and disclosure regulations mitigate this impact. Analyzing a sample of firms from 47 non-U.S. countries, we report strong evidence that equity financing costs rise when firms take more aggressive tax positions. Additional analysis implies that stricter investor protection institutions and disclosure regulations alleviate investors’ concerns about insider diversion, moderating the positive impact of tax avoidance on equity pricing. The results are robust to specifying alternative measures of tax avoidance and equity financing costs, as well as to addressing endogeneity. Collectively, these findings suggest that investors recognize the complementarity between insider diversion and tax avoidance in less protective environments. Our evidence has major implications for investors and policy makers.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83271570","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reevaluates the low volatility investing strategies and, in particular, their tax efficiency. Low volatility strategies intend to help investors achieve market-like equity returns, but with less risk than that of the broader market. Among the low volatility strategies, those with lower volatility carry lower returns, but incur higher turnover and tax burdens. Explicit tax management can greatly improve the strategy performance. Tax management, nevertheless, is no easy task in practice due to the burdensome record keeping. This paper proposes two sets of tax managed low volatility investing strategies that require different amount of record keeping. Both strategies can significantly improve the after-tax strategy returns, while maintaining the compelling risk and pre-tax return profile. Specifically, accounting for net taxable gains alone can harvest most tax alphas, and accounting for the timing of tax lots accurately in addition can further improve the strategy performance.
{"title":"Toward Tax Efficient Low Volatility Investing","authors":"Shaojun Zhang","doi":"10.2139/ssrn.3890487","DOIUrl":"https://doi.org/10.2139/ssrn.3890487","url":null,"abstract":"This paper reevaluates the low volatility investing strategies and, in particular, their tax efficiency. Low volatility strategies intend to help investors achieve market-like equity returns, but with less risk than that of the broader market. Among the low volatility strategies, those with lower volatility carry lower returns, but incur higher turnover and tax burdens. Explicit tax management can greatly improve the strategy performance. Tax management, nevertheless, is no easy task in practice due to the burdensome record keeping. This paper proposes two sets of tax managed low volatility investing strategies that require different amount of record keeping. Both strategies can significantly improve the after-tax strategy returns, while maintaining the compelling risk and pre-tax return profile. Specifically, accounting for net taxable gains alone can harvest most tax alphas, and accounting for the timing of tax lots accurately in addition can further improve the strategy performance.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"76 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75945812","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-06-30DOI: 10.17951/sil.2021.30.2.339-356
Michal Radvan
This scientific article discusses issues related to the taxation of Instagram influencers. Its main objective is to define how the influencers’ incomes should be taxed. To achieve this primary purpose, the partial objective is defined to give the list of (legal) cooperation contracts between the marketers and influencers. The hypothesis that there is no need to adopt new specific tax law norms to tax influencers’ incomes properly, at least in developed countries, was confirmed. All jurisdictions are taxing influencers’ incomes. It is always necessary to focus on the content of the relationship generating influencer’s income, as the principle of priority of content over form must be used. The tax liability is influenced only by the tax base. The tax rate and other structural components of the tax remain the same for different types of incomes. Generally, it is always better for the influencer to have a trading license (to be a businessman) than tax his/her incomes as incomes from copyright. Incomes from dependent activities based on labour law contract or occasional incomes are not probable for a typical influencer, and still, the taxation in this way is not really favourable. The novelty of the presented research lies in the fact that no scientific articles deal with the covered issues published so far. The author believes that the article has a cognitive value for both science and practice.
{"title":"Taxation of Instagram Influencers","authors":"Michal Radvan","doi":"10.17951/sil.2021.30.2.339-356","DOIUrl":"https://doi.org/10.17951/sil.2021.30.2.339-356","url":null,"abstract":"This scientific article discusses issues related to the taxation of Instagram influencers. Its main objective is to define how the influencers’ incomes should be taxed. To achieve this primary purpose, the partial objective is defined to give the list of (legal) cooperation contracts between the marketers and influencers. The hypothesis that there is no need to adopt new specific tax law norms to tax influencers’ incomes properly, at least in developed countries, was confirmed. All jurisdictions are taxing influencers’ incomes. It is always necessary to focus on the content of the relationship generating influencer’s income, as the principle of priority of content over form must be used. The tax liability is influenced only by the tax base. The tax rate and other structural components of the tax remain the same for different types of incomes. Generally, it is always better for the influencer to have a trading license (to be a businessman) than tax his/her incomes as incomes from copyright. Incomes from dependent activities based on labour law contract or occasional incomes are not probable for a typical influencer, and still, the taxation in this way is not really favourable. The novelty of the presented research lies in the fact that no scientific articles deal with the covered issues published so far. The author believes that the article has a cognitive value for both science and practice.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"40 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77738472","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stamp duty is a core part of the Australian tax system, but large components of its effect on the economy are unknown. In particular, the distribution of stamp duty's costs are not well understood. This has been hampered by a lack of quantitative studies of stamp duty's costs, and by limited discussion of stamp duty's effect on rental markets. This paper addresses this gap by establishing a theoretical framework for understanding stamp duty's incidence, and then by estimating the distribution of its costs. We find that stamp duty is a regressive tax, and that this regressiveness is predominantly due to the fact that housing costs are a significantly higher share of household income in low income households. We also find that the economic incidence of stamp duty is not particularly relevant to interrogations of how costs are distributed, because (unlike in many other markets), most people who sell housing tend to purchase houses of a similar value within a short time period of selling. We also provide some thoughts on current reform proposals and then discuss how land taxes could be designed in light of political barriers.
{"title":"Stamp Duty and Equity in Australia","authors":"Manning Clifford, J. Freebairn","doi":"10.2139/ssrn.3875060","DOIUrl":"https://doi.org/10.2139/ssrn.3875060","url":null,"abstract":"Stamp duty is a core part of the Australian tax system, but large components of its effect on the economy are unknown. In particular, the distribution of stamp duty's costs are not well understood. This has been hampered by a lack of quantitative studies of stamp duty's costs, and by limited discussion of stamp duty's effect on rental markets. This paper addresses this gap by establishing a theoretical framework for understanding stamp duty's incidence, and then by estimating the distribution of its costs. We find that stamp duty is a regressive tax, and that this regressiveness is predominantly due to the fact that housing costs are a significantly higher share of household income in low income households. We also find that the economic incidence of stamp duty is not particularly relevant to interrogations of how costs are distributed, because (unlike in many other markets), most people who sell housing tend to purchase houses of a similar value within a short time period of selling. We also provide some thoughts on current reform proposals and then discuss how land taxes could be designed in light of political barriers.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85199558","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Although transparency has long been held as the key principle of taxation, recent behavioral public finance theory has shown that it may reduce social welfare as inattention can alleviate behavioral distortions. This paper extends this analysis by modeling inattention as a noise in the tax rate signal received by Bayesian citizens. In equilibrium, we find that transparency will improve social welfare by ensuring the government's ability to commit to a fairly low tax rate that is socially optimal. Moreover, this model yields new sufficient statistics formulas that inform whether a policy effort to ensure tax transparency is socially worthwhile.
{"title":"Tax Transparency and Social Welfare: The Role of Government Commitment","authors":"C. Furukawa","doi":"10.2139/ssrn.3862433","DOIUrl":"https://doi.org/10.2139/ssrn.3862433","url":null,"abstract":"Although transparency has long been held as the key principle of taxation, recent behavioral public finance theory has shown that it may reduce social welfare as inattention can alleviate behavioral distortions. This paper extends this analysis by modeling inattention as a noise in the tax rate signal received by Bayesian citizens. In equilibrium, we find that transparency will improve social welfare by ensuring the government's ability to commit to a fairly low tax rate that is socially optimal. Moreover, this model yields new sufficient statistics formulas that inform whether a policy effort to ensure tax transparency is socially worthwhile.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"44 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75699437","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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