Tax Policy and the Economy

In 2004 Norwegian authorities announced a reform introducing dividend taxation for personal (but not corporate) owners to take effect starting in 2006. This change provided incentives to maximize dividends in 2004 and 2005, and to retain earnings in the following years. Using Norwegian registry data that cover the universe of nonpublicly traded firms, we find that dividend payments responded very strongly to the anticipated reform, but also that much of the response was compensated by reinjecting shareholder equity in the same firms. On the other hand, following the reform, firms began to retain earnings. While all categories of assets grow, the increase in durable assets categories that include equipment, machinery, company cars, planes, and boats is particularly striking. We find that personally owned firms and those that pursued aggressive dividend maximization policy in anticipation of the reform exhibit lower profits and economic activity in the aftermath, but retain earnings and accumulated assets at comparable or faster rates than others. The differential effect on assets is concentrated in financial (a potential substitute for private saving) and durable (a potential substitute for private consumption) asset categories. We interpret these results as indicating both the existence of real tax responses and supportive of the notion that in the presence of dividend taxation, closely held firms partially serve as tax shelters.

We examine effective tax rates (ETRs) for 9,022 multinationals from 87 countries from 2006 to 2011. We find that, despite extensive investments in international tax avoidance, multinationals headquartered in Japan, the United States, and some high-tax European countries continue to face substantially higher worldwide taxes than their counterparts in havens and other less heavily taxed locations. Other findings include: (1) effective tax rates remained steady over the investigation period; (2) entering a tax haven country for the first time results in a slight reduction in the firm’s ETR; (3) ETR changes vary depending on whether the subsidiary is a financial conduit or an operating subsidiary. These results should aid ongoing international tax policy debates and expand scholars’ understanding about the taxation of multinationals.

Tax benefits to owner-occupied housing provide incentives to consume housing, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally increase efficiency in consumption, but reduce efficiency in location decisions, unless they are accompanied by tax rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.

From 1864 to 1972, the real price of oil fell by, on average, over 1% per year. This trend dramatically broke when prices for crude increased by over 650% from 1972 to 1980. Policymakers adopted several policies designed to keep oil prices in check and reduce consumption. Missing from these policies were taxes on either oil or gasoline, prompting a long economics literature documenting the inefficiencies of these alternative policies. In this chapter, I review the policy discussion related to the transportation sector that occurred during the time through the lens of the printed press. In doing so, I pay particular attention to whether gasoline taxes were “on the table,” as well as how consumers viewed the inefficient set of policies that were ultimately adopted. The discussions at the time suggest that meaningful changes in gasoline taxes were on the table; the public discussion seemed to be much greater than it is today. Some in Congress and many presidential advisors in the Nixon, Ford, and Carter administrations supported and proposed gasoline taxes. The main roadblocks for taxes were Congress and the American people. Polling evidence at the time suggests that consumers preferred price controls and rationing and vehicle taxes over higher gasoline taxes or letting gasoline prices clear the market. Given the saliency of rationing and vehicle taxes, it seems difficult to argue that these alternative policies were adopted because they hide their true costs.

In this paper, we use financial valuation techniques to measure the unfunded liabilities associated with the Pension Benefit Guaranty Corporation (PBGC) single-employer pension insurance program. This is an alternative approach to the calculations of expected future PBGC payouts in the PBGC exposure reports. The PBGC insurance is akin to an exchange option, a financial instrument that allows a party to exchange one risky asset for another. Calculating the value of this option for each PBGC-covered plan provides a measure of the fair market price of the PBGC guarantee that is consistent with the finance principles of risk-neutral pricing. That is, the market valuation method reflects the fact that bad outcomes tend to coincide with times when losses are particularly painful. The valuation we perform also reflects the fact that PBGC insurance is triggered only in the case of bankruptcy by drawing on the default probabilities implied by the credit ratings of insured plans. Under the baseline parameters, the PBGC’s insurance of the unfunded liabilities has a financial value of $358 billion, net of the estimated present value of PBGC premiums.