A selling point of recent attempts to end the incidence of "surprise" medial billing arising from the inadvertent use of out-of-network providers has been that it would increase tax revenue by reducing insurance costs, which would serve to boost (taxable) wage income. However, that increase in income for employees is offset by an equivalent decrease in taxable income for providers, who are in a higher tax bracket. The offsetting tax revenue loss may completely offset any ancillary tax gains, we submit.
{"title":"The Tax Consequences of Fixing Surprise Medical Billing are Slight","authors":"Ike Brannon, Chester Kowalski","doi":"10.2139/ssrn.3604576","DOIUrl":"https://doi.org/10.2139/ssrn.3604576","url":null,"abstract":"A selling point of recent attempts to end the incidence of \"surprise\" medial billing arising from the inadvertent use of out-of-network providers has been that it would increase tax revenue by reducing insurance costs, which would serve to boost (taxable) wage income. However, that increase in income for employees is offset by an equivalent decrease in taxable income for providers, who are in a higher tax bracket. The offsetting tax revenue loss may completely offset any ancillary tax gains, we submit.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115529522","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 the relation between patent concentration and tax-motivated income shifting. Using affiliate-level data for European multinational corporations (MNCs) and employing the relative share of patents held by an MNC as a measure for patent concentration, we predict and find that tax-motivated income shifting is increasing in the degree of patent concentration. This effect is economically meaningful: A one standard deviation higher patent concentration increases the extent to which affiliate-level profits are sensitive to income-shifting incentives by 25.6 percent. Additional tests exploiting variation in the information set of the local tax authority suggest that patent concentration facilitates tax-motivated income shifting by reducing comparable information available to the local tax authority. Overall, our results suggest that patent concentration shapes an MNC’s incentives to shift income via patents. Our findings also indicate that the effectiveness of tax-policy measures in curtailing this form of income shifting critically depends on their ability to improve the information set of the local tax authority.
{"title":"Patent Concentration, Asymmetric Information, and Tax-Motivated Income Shifting","authors":"H. Amberger, Benjamin Osswald","doi":"10.2139/ssrn.3600839","DOIUrl":"https://doi.org/10.2139/ssrn.3600839","url":null,"abstract":"We study the relation between patent concentration and tax-motivated income shifting. Using affiliate-level data for European multinational corporations (MNCs) and employing the relative share of patents held by an MNC as a measure for patent concentration, we predict and find that tax-motivated income shifting is increasing in the degree of patent concentration. This effect is economically meaningful: A one standard deviation higher patent concentration increases the extent to which affiliate-level profits are sensitive to income-shifting incentives by 25.6 percent. Additional tests exploiting variation in the information set of the local tax authority suggest that patent concentration facilitates tax-motivated income shifting by reducing comparable information available to the local tax authority. Overall, our results suggest that patent concentration shapes an MNC’s incentives to shift income via patents. Our findings also indicate that the effectiveness of tax-policy measures in curtailing this form of income shifting critically depends on their ability to improve the information set of the local tax authority.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117334062","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 study empirically investigates the “relative tax gap hypothesis,” which posits that the greater the size of the relative tax gap, the greater the degree to which the U.S. Treasury must borrow from domestic and/or other credit markets and hence the higher the ex ante real interest rate yield on the Bellwether 30 year U.S. Treasury bond. The study uses the most current data available for computing what is referred to here as the “relative tax gap,” which is the ratio of the aggregate tax gap (the loss in federal income tax revenue resulting from personal income tax evasion) to the GDP level. For each year of the study period, the nominal value of the tax gap is scaled by the nominal GDP level and expressed as a percentage. The study period runs from 1982 through 2016, reflecting data availability for all of the variables. The estimation results provide strong support for the hypothesis. In addition, in separate estimations, evidence is provided that the relative tax gap also acts to elevate the ex ante real interest rate yield on Moody’s Baa-rated long-term corporate bonds. It logically follows, then, that to the extent that a greater relative tax gap leads to higher ex ante real interest rates, it may contribute to the crowding out of corporate investment in new plant equipment associated heretofore with government budget deficits per se.
{"title":"The Relative Tax Gap Hypothesis: An Exploratory Analysis and Application to U.S. Financial Markets","authors":"R. Cebula","doi":"10.37625/abr.23.1.35-52","DOIUrl":"https://doi.org/10.37625/abr.23.1.35-52","url":null,"abstract":"This study empirically investigates the “relative tax gap hypothesis,” which posits that the greater the size of the relative tax gap, the greater the degree to which the U.S. Treasury must borrow from domestic and/or other credit markets and hence the higher the ex ante real interest rate yield on the Bellwether 30 year U.S. Treasury bond. The study uses the most current data available for computing what is referred to here as the “relative tax gap,” which is the ratio of the aggregate tax gap (the loss in federal income tax revenue resulting from personal income tax evasion) to the GDP level. For each year of the study period, the nominal value of the tax gap is scaled by the nominal GDP level and expressed as a percentage. The study period runs from 1982 through 2016, reflecting data availability for all of the variables. The estimation results provide strong support for the hypothesis. In addition, in separate estimations, evidence is provided that the relative tax gap also acts to elevate the ex ante real interest rate yield on Moody’s Baa-rated long-term corporate bonds. It logically follows, then, that to the extent that a greater relative tax gap leads to higher ex ante real interest rates, it may contribute to the crowding out of corporate investment in new plant equipment associated heretofore with government budget deficits per se.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"115 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133507817","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}
I assemble new cross-country evidence showing that contrary to the standard view, the relationship between the size of the informal sector and tax rates is, at best, ambiguous. Law enforcement and informality also show no clear relation. Motivated by these findings, I augment a standard two-sector (formal and informal) small open economy model with endogenous law enforcement that depends on the size of the informal sector (measured by its assets) and government expenditure. I use a micro-dataset from Colombia to show that both taxes and law enforcement are necessary to match the the size of the informal sector observed in the data. In the absence of law enforcement, tax evasion incentives imply a counterfactually large informal sector. However law enforcement motivates households to reduce the supply of capital to the informal sector, decreasing the probability of detection. The dependence of the latter on government expenditure creates a non-linearity between tax rates and the size of the informal sector through a Laffer curve. The model implies that lowering tax rates would not necessarily reduce the size of the informal sector since there is a trade-off with law enforcement capability.
{"title":"Law Enforcement and the Size of the Informal Sector","authors":"Miguel Acosta-Henao","doi":"10.2139/ssrn.3588010","DOIUrl":"https://doi.org/10.2139/ssrn.3588010","url":null,"abstract":"I assemble new cross-country evidence showing that contrary to the standard view, the relationship between the size of the informal sector and tax rates is, at best, ambiguous. Law enforcement and informality also show no clear relation. Motivated by these findings, I augment a standard two-sector (formal and informal) small open economy model with endogenous law enforcement that depends on the size of the informal sector (measured by its assets) and government expenditure. I use a micro-dataset from Colombia to show that both taxes and law enforcement are necessary to match the the size of the informal sector observed in the data. In the absence of law enforcement, tax evasion incentives imply a counterfactually large informal sector. However law enforcement motivates households to reduce the supply of capital to the informal sector, decreasing the probability of detection. The dependence of the latter on government expenditure creates a non-linearity between tax rates and the size of the informal sector through a Laffer curve. The model implies that lowering tax rates would not necessarily reduce the size of the informal sector since there is a trade-off with law enforcement capability.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122291058","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}
R. T. Ainsworth, Robert Chicoine, A. Leahey, S. Gee
Globally, consumption tax compliance (value added tax and retail sales tax) has gone digital – digital invoices are becoming mandatory, centralized monitoring of transactions and tax payments are increasingly common, and artificial intelligence is assessing fraud risks in real-time. When tax is collected, it is increasingly being remitted in near-real-time. This is the trajectory for the modern retail sales tax (RST) imposed by most states in the US. While this may appear to be revolutionary to the average American, it is a well-worn path among global nations using the value added tax (VAT). The RST will eventually be following suit. Washington has taken the first step on this journey with the help and cooperation of a small business owner who admitted to using an Electronic Sales Suppression (ESS) device when operating a highly regarded Asian restaurant in Seattle.
To address sophisticated tax fraud in the digital age, the Washington State Legislature commissioned a world-wide study, conducted by Gartner, Inc. was delivered April 22, 2019, to the Washington Department of Revenue (DOR) which in turn “... completed [its] review of relevant research into technology trends; Point of Sales (POS) solutions, the ecosystem of integrated retail software solutions, cloud technologies, [and] other underpinning technologies ...” The Gartner research effort was practical, market-driven, and encapsulated in a set of “... scenarios represent[ing] the full set of reasonable solutions for DOR’s consideration, ...”
Gartner’s scenarios in the commissioned study were distilled to four. In each instance the scenarios were numbered, characterized with a single word, differentiated by their primary focus, and then made more concrete by identifying (what Gartner considered to be) a representative country for each scenario.
• Alternative #2: Targeted – External Focus (“Like Netherlands”)
• Alternative #3: Broad – External Focus (“Like Belgium”)
• Alternative #4: Cutting Edge – External Focus (“Like Fiji”)
Unfortunately, the report has major deficiencies. Notably, it makes no reference to an ongoing pilot project conducted by the DOR as a result of a plea agreement in the State of Washington v. Wong, that initially followed an Gartner’s Alternative #2 approach, and then shifted to Gartner’s Alternative #4 to improve data monitoring scope and accuracy. This paper largely corrects the focus and the conclusions of the Gartner report, which (at some cost) completely missed an opportunity to contribute substantively to this field of endeavor.
The State of Washington’s pilot program on preventive technology for monitor electronic sale suppression is extraordinary, both in its design and in its implementation. As pilot programs go, this is a uniquely marketplace-driven effort controlled by self-interest and achievement not by fiat. This
{"title":"Washington’s 'Cutting-Edge' Technology Solution to Combating Sales Tax Fraud: Real-Time Data (Now), Real-Time Remittance in the Future","authors":"R. T. Ainsworth, Robert Chicoine, A. Leahey, S. Gee","doi":"10.2139/ssrn.3579818","DOIUrl":"https://doi.org/10.2139/ssrn.3579818","url":null,"abstract":"Globally, consumption tax compliance (value added tax and retail sales tax) has gone digital – digital invoices are becoming mandatory, centralized monitoring of transactions and tax payments are increasingly common, and artificial intelligence is assessing fraud risks in real-time. When tax is collected, it is increasingly being remitted in near-real-time. This is the trajectory for the modern retail sales tax (RST) imposed by most states in the US. While this may appear to be revolutionary to the average American, it is a well-worn path among global nations using the value added tax (VAT). The RST will eventually be following suit. Washington has taken the first step on this journey with the help and cooperation of a small business owner who admitted to using an Electronic Sales Suppression (ESS) device when operating a highly regarded Asian restaurant in Seattle.<br><br>To address sophisticated tax fraud in the digital age, the Washington State Legislature commissioned a world-wide study, conducted by Gartner, Inc. was delivered April 22, 2019, to the Washington Department of Revenue (DOR) which in turn “... completed [its] review of relevant research into technology trends; Point of Sales (POS) solutions, the ecosystem of integrated retail software solutions, cloud technologies, [and] other underpinning technologies ...” The Gartner research effort was practical, market-driven, and encapsulated in a set of “... scenarios represent[ing] the full set of reasonable solutions for DOR’s consideration, ...” <br><br>Gartner’s scenarios in the commissioned study were distilled to four. In each instance the scenarios were numbered, characterized with a single word, differentiated by their primary focus, and then made more concrete by identifying (what Gartner considered to be) a representative country for each scenario. <br><br>• Alternative #1: Foundational – Internal Focus (“Like UK”) (more properly Japan)<br><br>• Alternative #2: Targeted – External Focus (“Like Netherlands”) <br><br>• Alternative #3: Broad – External Focus (“Like Belgium”)<br><br>• Alternative #4: Cutting Edge – External Focus (“Like Fiji”) <br><br>Unfortunately, the report has major deficiencies. Notably, it makes no reference to an ongoing pilot project conducted by the DOR as a result of a plea agreement in the State of Washington v. Wong, that initially followed an Gartner’s Alternative #2 approach, and then shifted to Gartner’s Alternative #4 to improve data monitoring scope and accuracy. This paper largely corrects the focus and the conclusions of the Gartner report, which (at some cost) completely missed an opportunity to contribute substantively to this field of endeavor. <br><br>The State of Washington’s pilot program on preventive technology for monitor electronic sale suppression is extraordinary, both in its design and in its implementation. As pilot programs go, this is a uniquely marketplace-driven effort controlled by self-interest and achievement not by fiat. This ","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120933905","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 research investigates consumer willingness to pay (WTP) for water in Kuwait as a foundation for policy decisions on reducing water subsidies. Heavy subsidies have encouraged unsustainable very high consumption, but efforts to cut subsidies can generate strong political opposition. A survey (n = 443) indicates that WTP is greater at lower prices, but resistance is not purely about price. The presence of a continued partial water subsidy for basic household use slightly increases WTP, probably mainly from perceptions of fairness. Information about Kuwait’s water scarcity also has a small impact. All of these effect sizes are small, so we discuss these issues using a nudge framework from behavioral economics. A number of policies can foster small shifts in WTP; collectively they may have larger impact and make subsidy reduction relatively painless.
{"title":"Sustainable Policy for Water Pricing in Kuwait","authors":"Ali Aljamal, M. Speece, M. Bagnied","doi":"10.3390/su12083257","DOIUrl":"https://doi.org/10.3390/su12083257","url":null,"abstract":"This research investigates consumer willingness to pay (WTP) for water in Kuwait as a foundation for policy decisions on reducing water subsidies. Heavy subsidies have encouraged unsustainable very high consumption, but efforts to cut subsidies can generate strong political opposition. A survey (n = 443) indicates that WTP is greater at lower prices, but resistance is not purely about price. The presence of a continued partial water subsidy for basic household use slightly increases WTP, probably mainly from perceptions of fairness. Information about Kuwait’s water scarcity also has a small impact. All of these effect sizes are small, so we discuss these issues using a nudge framework from behavioral economics. A number of policies can foster small shifts in WTP; collectively they may have larger impact and make subsidy reduction relatively painless.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130796732","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 argues for enactment of accrual-based taxation of deferred compensation. Changes made by the Tax Cuts and Jobs Act of 2017 expanded the tax subsidy for deferred compensation, increasing an unjustifiable drain on federal revenues. Under accrual-based taxation, a corporate executive would include deferred compensation in gross income as soon as the deferred compensation vests. Accrual-based taxation better reflects economic income and removes the tax subsidy under current law.
本文主张对递延薪酬实行权责发生制征税。2017年的《减税和就业法案》(Tax Cuts and Jobs Act)所做的改变扩大了递延补偿的税收补贴，增加了对联邦收入的不合理消耗。在权责发生制税制下，企业高管一旦获得递延薪酬，就会将递延薪酬计入总收入。权责发生制税收更能反映经济收入，取消了现行法律规定的税收补贴。
{"title":"Deferred Compensation Unbound","authors":"M. Doran","doi":"10.2139/ssrn.3567916","DOIUrl":"https://doi.org/10.2139/ssrn.3567916","url":null,"abstract":"This paper argues for enactment of accrual-based taxation of deferred compensation. Changes made by the Tax Cuts and Jobs Act of 2017 expanded the tax subsidy for deferred compensation, increasing an unjustifiable drain on federal revenues. Under accrual-based taxation, a corporate executive would include deferred compensation in gross income as soon as the deferred compensation vests. Accrual-based taxation better reflects economic income and removes the tax subsidy under current law.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133123986","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}
Intangibles play an important role in the processes of many business enterprises. They facilitate value creation and enhance the profitability of businesses that deploy them. They are also valuable assets that can be traded in themselves, although their appropriate values are often difficult to ascertain. As such, studies show that transactions in intangibles also provide opportunities for profit shifting by multinational enterprises through transfer (mis)pricing; a situation that deprives source states of due and sometimes significant tax revenue. This situation has over time triggered both unilateral and concerted responses by states anxious to cauterize this conduit of revenue bleeding. Through analysis of relevant legislation, case law, policy documents and opinions, this paper examines the recent measures applied by Nigeria to regulate the transfer pricing of intangibles, evaluating the legal and administrative challenges confronting Nigeria as a developing country seeking to enforce the complex arm’s length principle of transfer pricing. Because the subject is of global character, the author relies on both Nigerian and foreign sources, including various OECD/UN initiatives.
{"title":"Intangibles and Transfer Pricing Regulation in Nigeria: An Exposition","authors":"O. Okanga","doi":"10.2139/ssrn.3571153","DOIUrl":"https://doi.org/10.2139/ssrn.3571153","url":null,"abstract":"Intangibles play an important role in the processes of many business enterprises. They facilitate value creation and enhance the profitability of businesses that deploy them. They are also valuable assets that can be traded in themselves, although their appropriate values are often difficult to ascertain. As such, studies show that transactions in intangibles also provide opportunities for profit shifting by multinational enterprises through transfer (mis)pricing; a situation that deprives source states of due and sometimes significant tax revenue. This situation has over time triggered both unilateral and concerted responses by states anxious to cauterize this conduit of revenue bleeding. Through analysis of relevant legislation, case law, policy documents and opinions, this paper examines the recent measures applied by Nigeria to regulate the transfer pricing of intangibles, evaluating the legal and administrative challenges confronting Nigeria as a developing country seeking to enforce the complex arm’s length principle of transfer pricing. Because the subject is of global character, the author relies on both Nigerian and foreign sources, including various OECD/UN initiatives.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125793097","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 : 2020-04-01DOI: 10.32721/ctj.2020.68.1.zeli
A. Zeli
An employment tax deduction is frequently used as a public policy tool to stimulate economic growth and recovery. Analysis of the impact of such provisions adopted in the recent past may shed light on the effects of current tax policies. This article aims to estimate the effects of a tax deduction for Italy's imposta regionale sulle attivit‡ produttive (regional tax on productive activities), or IRAP, granted to firms that increased their personnel between 2005 and 2007. The main objectives of the analysis are to assess the increase in, and the permanence of, new employment; to detect any changes in the employment structure of beneficiary firms; and to evaluate the effectiveness of different deduction amounts granted to firms in disadvantaged regions in order to reduce the employment gap.
The results of the analysis using a difference-in-difference model indicate that firms enjoying IRAP incentives registered more significant and more enduring changes in the selected indicators as compared with firms not taking the deduction, thus verifying the effectiveness of the provision. The adopted measure provided for larger deductions for disadvantaged regions of southern Italy, but the results do not register a larger increase in employment in those regions.
{"title":"The Evaluation of Job Tax Incentives: An Analysis of a Regional Tax","authors":"A. Zeli","doi":"10.32721/ctj.2020.68.1.zeli","DOIUrl":"https://doi.org/10.32721/ctj.2020.68.1.zeli","url":null,"abstract":"An employment tax deduction is frequently used as a public policy tool to stimulate economic growth and recovery. Analysis of the impact of such provisions adopted in the recent past may shed light on the effects of current tax policies. This article aims to estimate the effects of a tax deduction for Italy's <i>imposta regionale sulle attivit‡ produttive</i> (regional tax on productive activities), or IRAP, granted to firms that increased their personnel between 2005 and 2007. The main objectives of the analysis are to assess the increase in, and the permanence of, new employment; to detect any changes in the employment structure of beneficiary firms; and to evaluate the effectiveness of different deduction amounts granted to firms in disadvantaged regions in order to reduce the employment gap.<br><br>The results of the analysis using a difference-in-difference model indicate that firms enjoying IRAP incentives registered more significant and more enduring changes in the selected indicators as compared with firms not taking the deduction, thus verifying the effectiveness of the provision. The adopted measure provided for larger deductions for disadvantaged regions of southern Italy, but the results do not register a larger increase in employment in those regions.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123771216","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 : 2020-04-01DOI: 10.21799/frbp.wp.2020.12
Wenli Li, Edison G. Yu
In this paper, we examine the impact of changes in the federal tax treatment of local property taxes stemming from the implementation of the Tax Cuts and Jobs Act (TCJA) in January 2018 on local housing markets. Using county-level house price information and IRS tax data, we find that capping the federal tax deduction of real estate taxes at $10,000 has caused the growth rate of home value to decline by an annualized 0.8 percentage point, or 15 percent, in areas where real estate taxes as shares of taxable income exceeded the national median. Additionally, these areas with a high real estate tax burden suffered from reductions in market liquidity after the reform. Fewer houses were transacted either in absolute numbers or as shares of total listings, houses stayed on the market longer before being sold, and more houses were listed with price cuts. Importantly, we find that the housing market slowdown was accompanied by declines in local construction employment growth as well as multi-family building permits. Furthermore, on net more people moved out of these areas after the reform. Finally, we show that the act has already had political consequences. In the 2018 midterm Senate elections, more voters voted for Democratic candidates in areas with high real estate tax burden than they did for Republican candidates.
{"title":"Real Estate Taxes and Home Value: Winners and Losers of TCJA","authors":"Wenli Li, Edison G. Yu","doi":"10.21799/frbp.wp.2020.12","DOIUrl":"https://doi.org/10.21799/frbp.wp.2020.12","url":null,"abstract":"In this paper, we examine the impact of changes in the federal tax treatment of local property taxes stemming from the implementation of the Tax Cuts and Jobs Act (TCJA) in January 2018 on local housing markets. Using county-level house price information and IRS tax data, we find that capping the federal tax deduction of real estate taxes at $10,000 has caused the growth rate of home value to decline by an annualized 0.8 percentage point, or 15 percent, in areas where real estate taxes as shares of taxable income exceeded the national median. Additionally, these areas with a high real estate tax burden suffered from reductions in market liquidity after the reform. Fewer houses were transacted either in absolute numbers or as shares of total listings, houses stayed on the market longer before being sold, and more houses were listed with price cuts. Importantly, we find that the housing market slowdown was accompanied by declines in local construction employment growth as well as multi-family building permits. Furthermore, on net more people moved out of these areas after the reform. Finally, we show that the act has already had political consequences. In the 2018 midterm Senate elections, more voters voted for Democratic candidates in areas with high real estate tax burden than they did for Republican candidates.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"136 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115886039","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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