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Who Really Benefits from Consumption Tax Cuts? Evidence from a Large VAT Reform in France
In this paper we evaluate the incidence of a large cut in value-added taxes (VAT) for French sit-down restaurants. In contrast to previous studies that focus on prices only, we estimate its effect on four groups: workers, firm owners, consumers and suppliers of material goods. Using a difference-in-differences strategy on firm-level data we find that: (1) the effect on consumers was limited, (2) employees and sellers of material goods shared 25 and 16 percent of the total benefit, and (3) the reform mostly benefited owners of sit-down restaurants, who pocketed 41 percent of the tax cut.
Do Value-added Taxes Affect International Trade Flows?
This paper uses all Value Added Tax (VAT) changes across all EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, in spite of some of the VAT changes being substantial. We estimate substantially smaller responses of trade flows to VATs compared to the responses of trade flows to tariffs estimated in the trade literature. This finding holds across different time periods, countries and types of reforms. Our results imply that VATs are unlikely to distort trade flows.
VAT in the Digital Era
With the growth of the digitalized economy, VAT on cross-border digital supplies has emerged as an important issue. Yet, views and practices regarding the application of the VAT on these supplies differ significantly across different jurisdictions. A lack of international VAT harmonization can cause double taxation or unintended double non-taxation, resulting in distortions and revenue losses. VAT in the Digital Era considers unilateral and multilateral options for the creation of an internationally coordinated VAT framework. Providing analysis of the status quo in key jurisdictions, the book explores the implications of the digitalized economy for the VAT systems across borders. It outlines...
Do Prices Respond Differently to Increases and Decreases in Consumption Taxes?
This paper shows that prices respond asymmetrically to increases and decreases in consumption taxes. We combine monthly commodity price data with information on Value Added Tax (VAT) rates across several European countries for the period 1996-2015 and show that prices respond more to VAT increases than to decreases. We explain this asymmetric pass-through to prices with a simple model of fairness based on the findings of Kahneman et al. (1986). Our finding cautions against using incidence estimates derived in previous studies without accounting for the direction of the tax change and questions the effectiveness of reductions in consumption taxes to achieve redistribution or stimulate economic growth.
Should I Stay Or Should I Go? The Migration Patterns of High-Skilled Workers
This paper uses a novel dataset to provide new series on the international migration of high skilled workers educated in France from 1944 to 2012. I use alumni databases to track the location of graduates from leading French post- secondary institutions. The proportion of high skilled individuals working in France has been steadily decreasing from 1944 to 2004. Recent years have seen an increase in the percentage of graduates staying in France in contradiction with the view that high taxes and administrative costs have been leading high skilled workers to leave France.
What Goes Up May Not Come Down
This paper shows that prices respond more to increases than to decreases in Value-Added Taxes (VATs). First, using all VAT reforms from 1996 to 2015 across all European countries we show that prices respond 3 to 4 times more to VAT increases than decreases. Second, using a plausibly exogenous VAT reform, we show that the asymmetry persists over several years. Third, we document several empirical features of this asymmetry that are inconsistent with the standard incidence model. We provide evidence consistent with firm behavior driving the asymmetry.
Are Taxes Turning Humans Into Machines? Using Payroll Tax Variation to Estimate the Capital-Labor Elasticity of Substitution
This paper provides the first quasi-experimental estimate of the micro capital-labor elasticity of substitution. We use a discontinuity in the average payroll tax rate to show that firms decrease both labor and capital when experiencing higher payroll tax rates. We argue that this is consistent with Leontief production functions, implying a micro capital-labor elasticity of substitution of zero. Using a conceptual framework to aggregate micro elasticities, we estimate a macro capital-labor elasticity of substitution of 0.17. Our finding sheds new light on the role of the substitution of labor with capital in the fall of labor shares and on the fiscal externalities imposed by payroll taxes.
Between Market Economy and State Capitalism
The WTO provides tools to address China's state capitalism and should be the preferred forum for negotiations on SOE's and industrial subsidies.
Using Payroll Tax Variation to Unpack the Black Box of Firm-level Production
This paper uses quasi-experimental variation in payroll taxes to estimate their incidence and investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee earnings. As payroll taxes increase, firms substitute away from low-skilled, routine and manual workers towards more productive workers and also reduce investments. Our results imply that, contrary to the canonical tax incidence model, firm-level production and input factor choices are affected by payroll taxes.
