Florian Buhlmann, P. Dörrenberg, Benjamin Loos, Johannes Voget
How do taxes affect the investment behavior of private stock-market investors? We exploit a large reform of capital-gains taxation in Germany combined with confidential portfolio-level daily panel data to study the causal effect of capital-gains taxes on individual stock-trading behavior and the disposition effect. We find substantial spikes in selling probabilities around an intertemporal tax discontinuity, and no such spikes after the abolishment of the discontinuity. Using difference-in-bunching methods and non-parametric regressions, we quantify the tax effect and identify interesting patterns of heterogeneity. Asset holding periods exhibit a tax elasticity of 0.368 for gains and -0.435 for losses. Because the theoretical tax effect on trading behavior runs in opposite direction to the well-established disposition effect, we further study the interaction between taxes and the disposition effect. We find evidence that the disposition effect is strongly affected by the tax discontinuity through tax motivated selling of both gains and losses.
{"title":"How Do Taxes Affect the Trading Behavior of Private Investors? Evidence From Individual Portfolio Data","authors":"Florian Buhlmann, P. Dörrenberg, Benjamin Loos, Johannes Voget","doi":"10.2139/ssrn.3565547","DOIUrl":"https://doi.org/10.2139/ssrn.3565547","url":null,"abstract":"How do taxes affect the investment behavior of private stock-market investors? We exploit a large reform of capital-gains taxation in Germany combined with confidential portfolio-level daily panel data to study the causal effect of capital-gains taxes on individual stock-trading behavior and the disposition effect. We find substantial spikes in selling probabilities around an intertemporal tax discontinuity, and no such spikes after the abolishment of the discontinuity. Using difference-in-bunching methods and non-parametric regressions, we quantify the tax effect and identify interesting patterns of heterogeneity. Asset holding periods exhibit a tax elasticity of 0.368 for gains and -0.435 for losses. Because the theoretical tax effect on trading behavior runs in opposite direction to the well-established disposition effect, we further study the interaction between taxes and the disposition effect. We find evidence that the disposition effect is strongly affected by the tax discontinuity through tax motivated selling of both gains and losses.<br>","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129171208","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 studies the role of taxation in durable good markets with dynamic monopolies. By conditioning the marginal tax rate on the volume of trade, the regulator can provide incentives for the monopolist to accelerate trade. When marginal cost pricing generates a loss for the monopolist, strategic delay cannot be avoided under regulatory budget constraint and the effects of tax policy depend on the monopolist's ability to commit. In the context of binary consumer types, we find a tax policy involving “back‐loaded subsidy” that achieves the second‐best outcome with commitment. In contrast, without commitment, a “front‐loaded subsidy” improves welfare.
{"title":"Taxation and Durable Goods Monopoly","authors":"Chang-Gyu Kwak, Jihong Lee","doi":"10.2139/ssrn.3041687","DOIUrl":"https://doi.org/10.2139/ssrn.3041687","url":null,"abstract":"This paper studies the role of taxation in durable good markets with dynamic monopolies. By conditioning the marginal tax rate on the volume of trade, the regulator can provide incentives for the monopolist to accelerate trade. When marginal cost pricing generates a loss for the monopolist, strategic delay cannot be avoided under regulatory budget constraint and the effects of tax policy depend on the monopolist's ability to commit. In the context of binary consumer types, we find a tax policy involving “back‐loaded subsidy” that achieves the second‐best outcome with commitment. In contrast, without commitment, a “front‐loaded subsidy” improves welfare.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128814413","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 analyze the valuation-tax avoidance relation and find there is, in fact, a market value discount for tax avoidance. We identify several channels for the adverse valuation effects of tax avoidance. Tax-avoiding firms that (i) lack foreign income, (ii) are financially constrained, and (iii) incur relatively high capital expenditures have lower valuations. A portfolio long the highest and short the lowest tax-avoiding firms has a significantly positive four-factor alpha, highlighting greater risk and thus lower valuation associated with tax avoidance. Our results are robust to a variety of tests, including several different tax avoidance measures.
{"title":"Corporate Tax Avoidance and Firm Value Discount","authors":"Richard Herron, Rajarishi Nahata","doi":"10.2139/ssrn.3126418","DOIUrl":"https://doi.org/10.2139/ssrn.3126418","url":null,"abstract":"We analyze the valuation-tax avoidance relation and find there is, in fact, a market value discount for tax avoidance. We identify several channels for the adverse valuation effects of tax avoidance. Tax-avoiding firms that (i) lack foreign income, (ii) are financially constrained, and (iii) incur relatively high capital expenditures have lower valuations. A portfolio long the highest and short the lowest tax-avoiding firms has a significantly positive four-factor alpha, highlighting greater risk and thus lower valuation associated with tax avoidance. Our results are robust to a variety of tests, including several different tax avoidance measures.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129398790","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}
Singapore’s government imposed a new transaction tax in the form of an Additional Buyer’s Stamp Duty (ABSD) on developers who fail to sell all units within 5 years for projects that commenced after 2011. We find significant evidence that the ABSD shock triggers rational responses by private developers, who cut prices to clear unsold housing units. Developers of the ABSD-affected projects strategically cut prices by 2.8% to sell units in year 5 relative to other projects that are not subject to the ABSD. We also find that the treatment effects come mostly from three groups of developers, which include large developers, small project developers and local developers. Liquidity constraints and differential reference points are two potential channels that drive the differential price cutting responses of developers to the policy shock in the housing market.
{"title":"Rational Pricing Responses of Developers to Supply Shocks: Evidence from Singapore","authors":"Mi Diao, Yi Fan, T. Sing","doi":"10.2139/ssrn.3550620","DOIUrl":"https://doi.org/10.2139/ssrn.3550620","url":null,"abstract":"Singapore’s government imposed a new transaction tax in the form of an Additional Buyer’s Stamp Duty (ABSD) on developers who fail to sell all units within 5 years for projects that commenced after 2011. We find significant evidence that the ABSD shock triggers rational responses by private developers, who cut prices to clear unsold housing units. Developers of the ABSD-affected projects strategically cut prices by 2.8% to sell units in year 5 relative to other projects that are not subject to the ABSD. We also find that the treatment effects come mostly from three groups of developers, which include large developers, small project developers and local developers. Liquidity constraints and differential reference points are two potential channels that drive the differential price cutting responses of developers to the policy shock in the housing market.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"235 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123007998","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}
Tax treaties are often seen as a means to mitigate fierce tax competition. We challenge this view by arguing that taxes on passive income reduce effective average tax rates, and induce neighbouring countries to react by reducing bilateral tax rates. As opposed to traditional tax competition, where every foreign investor would benefit from lower tax rates, we show that countries also engage in cutting tax rates for investors from a particular country, leaving taxes for everyone else unaffected. We call this bilateral tax competition, and we test these predictions empirically. We focus on the four treaty withholding tax rates on passive income - portfolio dividends, participation dividends, interest, and royalties - and collect these rates for 3,000 tax treaties and amending protocols signed between 1930 and 2012. We find a positive relationship in the negotiated withholding tax rates of a destination country's tax treaty and destination country competitors' past tax treaties with the same source country. This relationship is strongest for the tax rates on interest and royalties, and varies from an average elasticity between 0.19 and 0.36 with both source and destination country being an OECD member, and an average elasticity up to 0.64 when both countries are tax havens.
{"title":"Bilateral Tax Competition and Regional Spillovers in Tax Treaty Formation","authors":"Kunka Petkova, A. Stasio, Martin Zagler","doi":"10.2139/ssrn.3567791","DOIUrl":"https://doi.org/10.2139/ssrn.3567791","url":null,"abstract":"Tax treaties are often seen as a means to mitigate fierce tax competition. We challenge this view by arguing that taxes on passive income reduce effective average tax rates, and induce neighbouring countries to react by reducing bilateral tax rates. As opposed to traditional tax competition, where every foreign investor would benefit from lower tax rates, we show that countries also engage in cutting tax rates for investors from a particular country, leaving taxes for everyone else unaffected. We call this bilateral tax competition, and we test these predictions empirically. We focus on the four treaty withholding tax rates on passive income - portfolio dividends, participation dividends, interest, and royalties - and collect these rates for 3,000 tax treaties and amending protocols signed between 1930 and 2012. We find a positive relationship in the negotiated withholding tax rates of a destination country's tax treaty and destination country competitors' past tax treaties with the same source country. This relationship is strongest for the tax rates on interest and royalties, and varies from an average elasticity between 0.19 and 0.36 with both source and destination country being an OECD member, and an average elasticity up to 0.64 when both countries are tax havens.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"431 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123592919","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}
Thailand’s e-commerce industry is growing fast and evolving rapidly. Currently, the majority of e-commerce SME sales occur on a handful of foreign-headquartered platforms: Lazada, Shopee, Facebook, Instagram and LINE. Meanwhile, business formalization amongst e-commerce SMEs is low. A minority of e-commerce SMEs are tax compliant, and e-commerce cases make up a disproportionate number of all consumer protection cases. Using interviews with industry participants and a literature review, this study outlines Thailand’s e-commerce ecosystem and its emerging regulatory framework. It analyses how e-commerce SMEs operate with regard to tax and consumer protection regulations. Using these insights, the study offers policy recommendations for the regulatory framework. The analysis points to emerging structural weaknesses in the regulatory framework, exacerbated by simultaneous trends of globalisation and localisation. Four main issues are identified. First, e-commerce is changing rapidly and forcing regulators across the world to catch-up. Second, regulators in emerging markets cannot simply import regulation from technologically-advanced countries, as the industry is developing simultaneously in countries across the world. Third, localized use of global platforms is creating regulatory fracture, where gaps are opening up in regulation, creating opportunities for businesses to undertake regulatory arbitrage. Fourth, as e-commerce networks have ‘winner takes all’ characteristics, regulatory decisions made now are critical, as they will affect the industry in the future. At a national level, Thailand’s regulators need to find strategic, regulatory coherence to streamline the plethora of regulations that apply to e-commerce and regulate effectively. Regulators need to understand the feedback loops in the industry, across regulators, businesses and consumers. Regulatory policies need to support the e-commerce ecosystem, ensuring that opportunities for regulatory arbitrage are rare and unprofitable. Three policy recommendations are offered, in particular: increasing regulatory coherence to make it easier for businesses to comply; reducing regulatory arbitrage at international and national levels; and promoting competition in ‘winner takes all’ markets.
{"title":"Thailand’s E-Commerce Ecosystem: Understanding Business Formalization Within the Framework of Tax and Consumer Protection Regulations","authors":"Pechnipa Dominique Lam","doi":"10.2139/ssrn.3536891","DOIUrl":"https://doi.org/10.2139/ssrn.3536891","url":null,"abstract":"Thailand’s e-commerce industry is growing fast and evolving rapidly. Currently, the majority of e-commerce SME sales occur on a handful of foreign-headquartered platforms: Lazada, Shopee, Facebook, Instagram and LINE. Meanwhile, business formalization amongst e-commerce SMEs is low. A minority of e-commerce SMEs are tax compliant, and e-commerce cases make up a disproportionate number of all consumer protection cases. \u0000 \u0000Using interviews with industry participants and a literature review, this study outlines Thailand’s e-commerce ecosystem and its emerging regulatory framework. It analyses how e-commerce SMEs operate with regard to tax and consumer protection regulations. Using these insights, the study offers policy recommendations for the regulatory framework. \u0000 \u0000The analysis points to emerging structural weaknesses in the regulatory framework, exacerbated by simultaneous trends of globalisation and localisation. Four main issues are identified. First, e-commerce is changing rapidly and forcing regulators across the world to catch-up. Second, regulators in emerging markets cannot simply import regulation from technologically-advanced countries, as the industry is developing simultaneously in countries across the world. Third, localized use of global platforms is creating regulatory fracture, where gaps are opening up in regulation, creating opportunities for businesses to undertake regulatory arbitrage. Fourth, as e-commerce networks have ‘winner takes all’ characteristics, regulatory decisions made now are critical, as they will affect the industry in the future. \u0000 \u0000At a national level, Thailand’s regulators need to find strategic, regulatory coherence to streamline the plethora of regulations that apply to e-commerce and regulate effectively. Regulators need to understand the feedback loops in the industry, across regulators, businesses and consumers. Regulatory policies need to support the e-commerce ecosystem, ensuring that opportunities for regulatory arbitrage are rare and unprofitable. \u0000 \u0000Three policy recommendations are offered, in particular: increasing regulatory coherence to make it easier for businesses to comply; reducing regulatory arbitrage at international and national levels; and promoting competition in ‘winner takes all’ markets.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"211 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116400640","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 consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended set-up in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy.
{"title":"Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions","authors":"Jean-Bernard Chatelain, K. Ralf","doi":"10.2139/ssrn.3444905","DOIUrl":"https://doi.org/10.2139/ssrn.3444905","url":null,"abstract":"We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended set-up in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"130 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122903462","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}
The tax legislation commonly referred to as the Tax Cuts and Jobs Act (Public Law 115-97) came into effect in 2018. The new tax law was flawed in five important ways. First, the law generates large deficits that will reduce the ability of the government to fund important priorities in the future; these deficits also risk justifying a more tepid fiscal response to the next recession. Second, after more than 35 years of increasing income inequality, the tax law moves the tax system in a regressive direction. Third, while the legislation increases economic efficiency in some ways, it decreases economic efficiency in other ways, moving the tax system away from optimal design principles. Fourth, the legislation misses an opportunity to combat profit shifting by multinational companies, changing the character of the problem but leaving its scale largely undiminished; also, the law provides new incentives for the offshoring of physical investment. And fifth, the legislation introduces new sources of complexity. This paper explains these five flaws in detail, setting the analysis within the context of relevant literature and facts. Thereafter, the paper suggests both short term and more fundamental ways to reform the tax code. Nearly immediately, simple fixes can address most of the TCJA flaws. Moving forward, a true tax reform can modernize the tax system to better handle the challenges posed by economic inequality, climate change, and the global nature of business activity.
{"title":"Fixing Five Flaws of the Tax Cuts and Jobs Act","authors":"K. Clausing","doi":"10.2139/ssrn.3397387","DOIUrl":"https://doi.org/10.2139/ssrn.3397387","url":null,"abstract":"The tax legislation commonly referred to as the Tax Cuts and Jobs Act (Public Law 115-97) came into effect in 2018. The new tax law was flawed in five important ways. First, the law generates large deficits that will reduce the ability of the government to fund important priorities in the future; these deficits also risk justifying a more tepid fiscal response to the next recession. Second, after more than 35 years of increasing income inequality, the tax law moves the tax system in a regressive direction. Third, while the legislation increases economic efficiency in some ways, it decreases economic efficiency in other ways, moving the tax system away from optimal design principles. Fourth, the legislation misses an opportunity to combat profit shifting by multinational companies, changing the character of the problem but leaving its scale largely undiminished; also, the law provides new incentives for the offshoring of physical investment. And fifth, the legislation introduces new sources of complexity. This paper explains these five flaws in detail, setting the analysis within the context of relevant literature and facts. Thereafter, the paper suggests both short term and more fundamental ways to reform the tax code. Nearly immediately, simple fixes can address most of the TCJA flaws. Moving forward, a true tax reform can modernize the tax system to better handle the challenges posed by economic inequality, climate change, and the global nature of business activity.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"260 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115960088","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}
Wealth tax reform proposals are playing a major role in the 2020 presidential campaign. However, some opponents of these wealth tax reform proposals have claimed that a wealth tax would be unconstitutional. Other prominent critics have argued that wealth tax reforms are probably unconstitutional, so that, after review by the courts, the “likeliest outcome is that a wealth tax will raise exactly zero dollars.” These claims are wrong. More precisely, these claims are wrong conditioned on wealth tax legislation being carefully drafted so as to ensure its constitutionality. As we will explain in this essay, properly drafted, wealth tax reform legislation is definitely constitutional and thus capable of raising substantial revenues to fund new spending programs. Constitutional scholars disagree about whether a new federal wealth tax would need to be "uniform" or "apportioned" in order to be constitutional. We explain how wealth tax legislation could be drafted to ensure its constitutionality regardless of how the Supreme Court ultimately decides on this question. In particular, we explain how Congress could design an apportioned federal wealth tax made equitable through the use of a fiscal equalization program, and could legislate this as a fallback option in case the Supreme Court were to rule against an unapportioned federal wealth tax.
{"title":"Why a Wealth Tax is Definitely Constitutional","authors":"J. Brooks, D. Gamage","doi":"10.2139/ssrn.3489997","DOIUrl":"https://doi.org/10.2139/ssrn.3489997","url":null,"abstract":"Wealth tax reform proposals are playing a major role in the 2020 presidential campaign. However, some opponents of these wealth tax reform proposals have claimed that a wealth tax would be unconstitutional. Other prominent critics have argued that wealth tax reforms are probably unconstitutional, so that, after review by the courts, the “likeliest outcome is that a wealth tax will raise exactly zero dollars.” \u0000 \u0000These claims are wrong. More precisely, these claims are wrong conditioned on wealth tax legislation being carefully drafted so as to ensure its constitutionality. As we will explain in this essay, properly drafted, wealth tax reform legislation is definitely constitutional and thus capable of raising substantial revenues to fund new spending programs. \u0000 \u0000Constitutional scholars disagree about whether a new federal wealth tax would need to be \"uniform\" or \"apportioned\" in order to be constitutional. We explain how wealth tax legislation could be drafted to ensure its constitutionality regardless of how the Supreme Court ultimately decides on this question. In particular, we explain how Congress could design an apportioned federal wealth tax made equitable through the use of a fiscal equalization program, and could legislate this as a fallback option in case the Supreme Court were to rule against an unapportioned federal wealth tax.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126105284","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}
Users of Exhibit 21 cannot tell whether a tax haven subsidiary is actively operating or a dormant shell company. In this paper, we develop a new set of parsimonious measures to highlight the distinct mechanisms and tax effects of offshore sales to, as opposed to purchases from, tax haven countries, offering insights on the effects of certain types of offshoring activities on firms’ tax burdens. Our main measure has about three times the effect of the mere existence of a haven subsidiary in explaining firms’ effective tax rates. We detail the processes to predict the offshore activities in tax haven countries for firms without an Exhibit 21 and firms reporting no subsidiary operations in a tax haven country. Relative to the mere mention of a tax haven subsidiary in Exhibit 21, our new measures provide a richer information set to capture different types of economic activities in tax haven countries.
{"title":"Taxes and Haven Activities: Evidence from Linguistic Cues","authors":"Kelvin K. F. Law, Lillian F. Mills","doi":"10.2139/ssrn.2768605","DOIUrl":"https://doi.org/10.2139/ssrn.2768605","url":null,"abstract":"Users of Exhibit 21 cannot tell whether a tax haven subsidiary is actively operating or a dormant shell company. In this paper, we develop a new set of parsimonious measures to highlight the distinct mechanisms and tax effects of offshore sales to, as opposed to purchases from, tax haven countries, offering insights on the effects of certain types of offshoring activities on firms’ tax burdens. Our main measure has about three times the effect of the mere existence of a haven subsidiary in explaining firms’ effective tax rates. We detail the processes to predict the offshore activities in tax haven countries for firms without an Exhibit 21 and firms reporting no subsidiary operations in a tax haven country. Relative to the mere mention of a tax haven subsidiary in Exhibit 21, our new measures provide a richer information set to capture different types of economic activities in tax haven countries.","PeriodicalId":431495,"journal":{"name":"Public Economics: Taxation","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127918130","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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