Efficiency of selected fiscal policy instruments

Abstract

The thesis at hand intends to contribute to the understanding of behavioural responses to taxation by dedicating each chapter to the analysis of a different fiscal policy instrument. Chapter 2 focusses on the individual tax system in the Netherlands that exhibits tax brackets, as opposed to a smooth progressive tax system. The aim is to uncover the extent of behavioural responses to the kinks in the budget set that are created by the non-linear increases in the marginal tax rates at the tax brackets cut-off points. From the analysis it becomes evident that individuals react to jumps in the marginal tax rate. First, an extension to the classical bunching approach introduced by Saez (2010) and extended by Chetty et al. (2011) is provided. Because individuals face optimisation frictions, perfect bunching at the kink as predicted by theory is not observable. Rather, a window around the kink, known as the bunching window, is used in the analysis. Where prior research had relied on visual inspection to determine the size of the bunching window, a data-driven procedure is proposed instead, which is shown to be robust to variations in various parameters and takes away the researchers discretion in that matter. Thus, a methodological contribution to a comparably young, but growing field of research is made. Chapter 3 discusses the implications of the introduction of transfer pricing regulations (TPR) on intermediate goods trade. The chapter thus analyses an anti-avoidance measure implemented by many governments in recent years and evaluates the consequences for allocative and distributional efficiency. The empirical literature has shown that multinational enterprises (MNEs) utilise transfer prices to shift profits into (out of) low-tax (high-tax) jurisdictions. Evidence was given in prior literature that MNEs react sensitively to the introduction of TPR in reducing (increasing) their prices when they were overvalued (undervalued) before the implementation of regulations. Surprisingly, a reaction in quantities, i.e. shifts in production and trade flows, had not been analysed in the literature before. The results indicate a substantial quantity reaction and also a pricing reaction, which is shown to be in line with the literature. This suggests that before the introduction of TPR, firms shift more exports to low tax countries and less exports to high tax countries for tax optimising purposes. Following the introduction of TPR, especially the reduction in quantities traded with low tax countries is identified. Chapter 4 deals with a recently developed tax incentive for research and development (R&D), namely the intellectual property box (IP-Box). Said to foster innovation by the implementing governments, critics accuse the IP-Box regimes of providing yet another profit shifting opportunity for multinational enterprises (MNEs). The study assesses the implications that the introduction of IP-Box regimes has on innovation and shifting behaviour, in order to judge on the efficiency and effectiveness of such a policy instrument. Whilst most R&D incentives are ex ante tax incentives, i.e. incentives that act during the innovation process and before the innovative product was developed, IP-Boxes are an ex post tax incentive, thus only benefiting successful R&D. The analysis attempts to explore whether IP-Boxes are a local innovation enhancing device, as propagated by the countries implementing IP-Boxes, or merely facilitate profit shifting for MNEs by offering a substantially lower tax rate on income from intellectual property. The results clearly show that the shifting channel dominates the home innovation channel. Some evidence is found that home developed patents were crowded out by foreign developed and subsequently shifted patents. The total number of patents does not seem to react to the introduction of IP-Boxes, thus even questioning the global innovation enhancing effect of IP-Boxes. Given the nature of the country level data, it is not possible to investigate the different designs of IP-Boxes more thoroughly, although the implementation of a development condition should be part of every IP-Box regime. This ensures that, at least from a global or even European perspective, innovation must take place somewhere.

Die Dissertation befasst sich mit dem Verständnis verhaltensökonomischer Reaktionen auf Besteuerung. Hierbei werden sowohl Individuen als auch Firmen betrachtet, im nationalen wie im internationalen Kontext. Die drei Hauptkapitel der Arbeit befassen sich jeweils mit einem gesonderten fiskalpolitischen Instrument. Kapitel 2 analysiert die Auswirkungen von Steuerstufen mit steigenden marginalen Steuersätzen auf das zu versteuernde Einkommen. Die Ergebnisse zeigen, dass die Elastizität des zu versteuernden Einkommens gering ist. Das Kapitel liefert zudem einen methodischen Beitrag, indem die Präzision des Schätzers verbessert wird. Kapitel 3 analysiert die Einführung von Transferpreisregeln auf die Handelsmenge in der Automobilindustrie. Die Reaktion von Unternehmen mit den Preisen ist in der Literatur analysiert worden, aber die zusätzliche Mengenreaktion hat bisher keine Beachtung gefunden. Die Ergebnisse zeigen, dass die Unternehmen ihre Exporte in Länder mit einem niedrigeren (höheren) Steuersatz verringern (erhöhen) als Reaktion auf die Einführung der Transferpreisregeln. Kapitel 4 beschäftigt sich mit der Einführung von Patentboxen, die Innovationsanreize setzen sollen aber auch als Profitverschiebungsmöglichkeit genutzt werden können. Das Kapitel versucht der Frage nachzugehen, welcher der beiden Kanäle präsent sind und ob einer den anderen dominiert. Die Ergebnisse zeigen eine Verdrängung von heimischer Innovation durch Patente, die aus dem Ausland eingeführt werden. Somit dominiert der Profitverschiebungskanal.