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Taxation

Paper Session

Saturday, Jan. 4, 2020 2:30 PM - 4:30 PM (PDT)

Marriott Marquis, Balboa
Hosted By: American Economic Association
  • Chair: Danny Yagan, University of California-Berkeley

Sin Taxes and Self-Control

Renke Schmacker
,
DIW Berlin
Sinne Smed
,
University of Copenhagen

Abstract

Theoretical studies show that "sin taxes" are welfare improving if consumers with low self-control are at least as price responsive as consumers with high self-control, even in the absence of externalities. In this paper, we investigate if consumers with low and high self-control react differently to sin tax variation. For identification, we exploit two sets of sin tax reforms in Denmark: first, the increase of the soft drink tax in 2012 and its repeal in 2014, and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the consumption response empirically using a detailed homescan household panel. Our unique dataset comprises a survey measure of self-control linked to the panelists, which we use to separate the sample in consumers with low and high levels of self-control. We find that consumers with low self-control reduce consumption less strongly than consumers with high self-control when taxes go up, but increase consumption to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We show theoretically that these observations are consistent with a model of self-control and rational habit formation. The results suggest that price instruments are not an effective tool for targeting self-control problems.

Capital Gains Taxes and Real Corporate Investment

Terry Moon
,
Princeton University and University of British Columbia

Abstract

This paper assesses the effects of capital gains taxes on investment by exploiting a unique institutional setting in Korea, where the capital gains tax rates vary by firm size. I use a difference-in-differences design that compares the outcomes of firms whose tax rates were reduced, due to an unanticipated reform in 2014, to the outcomes of unaffected firms. I find that firms whose capital gains tax rates dropped from 24 percent to 10 percent increased investment by 48 log points, with the implied medium-run elasticity of 2.6 with respect to the net of tax rate, and increased newly issued equity by 5 cents per dollar of lagged revenue. The effects of the tax cut were larger for firms that appeared more cash-constrained, suggesting that these firms faced a higher marginal cost of investment, and for firms that appeared to have more agency conflicts. Taken together, these findings are consistent with a class of the ``traditional-view'' models predicting that lower capital taxes spur equity-financed investment by increasing the marginal returns on investment.

Carbon Pricing of International Transport Fuels: Impacts on Carbon Emissions and Trade Activity

Gabriela Mundaca
,
World Bank
Jon Strand
,
World Bank

Abstract

We study impacts of carbon pricing for international transport fuels on fuel consumption and carbon emissions, trade activity, and welfare, focusing on sea freight which constitutes the most important international trade transport activity. We use the WITS global dataset for international trade for the years 2009-2017 to estimate the impacts of changes in the global average bunker fuel price on the weight times distance for goods transported, and on bunker fuel consumption and carbon emission from international shipping. We find quite strong but variable negative effects of fuel cost increases on weight times distance for traded goods, and on carbon emissions from sea freight, for the heaviest goods categories at the 6-digit HS levels of aggregation in global trade, with elasticities ranging from -0.0028 up to -0.64. Considering an increase in the bunker fuel price as a proxy for a fuel tax, our results then indicate substantial impacts of bunker fuel taxes on the volume of sea transport, on bunker fuel consumption, and on carbon emissions from the international shipping sector. Our results indicate that a global $40 per ton CO2 tax on carbon emissions from ships will reduce carbon emissions from the global shipping fleet by about 4% for the goods categories considered.

How to Improve Tax Compliance? Evidence from Population-Wide Experiments in Belgium

Jan-Emmanuel De Neve
,
University of Oxford
Clement Imbert
,
University of Warwick
Johannes Spinnewijn
,
London School of Economics
Teodora Tsankova
,
University of Warwick
Maarten Luts
,
Federal Public Service Finance-Belgium

Abstract

We study the impact of deterrence, tax morale, and simplifying information on tax compliance. We ran five experiments spanning the tax process which varied the communication of the tax administration with all income taxpayers in Belgium. A consistent picture emerges across experiments: (i) simplifying communication increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not eective. Even tax morale messages that improve knowledge and appreciation of public services do not raise compliance. In fact, heterogeneity analysis with causal forests shows that tax morale treatments backre for most taxpayers. In contrast, simplication has large positive effects on compliance, which diminish over time due to follow-up enforcement. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare our letter treatments against standard enforcement measures. The simplication treatments are far more cost-effective, allowing for substantial savings on enforcement costs, and also improve compliance in the next tax cycle.

On the Differential Impact of the Tax Cuts and Jobs Act on the Housing Market: Blue versus Red

Zhiyong An
,
Fannie Mae

Abstract

This paper identifies and estimates the differential impact of the Tax Cuts and Jobs Act (TCJA) on the housing market, in particular, on the (median) price-to-rent ratio between the metropolitan statistical areas (MSAs) in the blue states and those in the red states by using a difference-in-differences approach. Employing the relevant data from 2017Q1 to 2018Q4 for the top 50 MSAs to implement the analysis, we find that the differential impact is positive and statistically significant, and that its magnitude increases with time. Our findings suggest that taxation plays an important role in the housing market.
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue