Worldwide experience in sales taxation: Lessons for North America

Worldwide fiscal experience over the past twenty-five years indicates steady expansion in the political and academic constituency for expenditure taxation, including indirect taxes on consumption. Retail levies have emerged as the preferred method of indirect taxation of consumption, as older, pre-retail sales taxes have proven unsuited to modern economic structures. Increasingly, reform of sales taxation has involved a shift to one particular form of tax, the European Community type of value-added tax (VAT). This consumption tax option is again a topic of policy debate in North America, particularly in Canada where a VAT was under active consideration in 1985.This paper sifts through worldwide experience with broad-based sales taxes to identify lessons for tax policy in North America both in the short and longer-run. It indicates that the reputation of such taxes as regressive instruments may have been much exaggerated, and that in any case methods are available, particularly in Canada, for resolving equity issues in sales taxation. The VAT is shown to have marginal economic and administrative advantages over single-stage federal retail taxes in both Canada and the US. However, these advantages are not nearly so significant as in European countries where the VAT was adopted there. Further, sensible debate over the merits and limitations of the VAT in North America will call for much closer scrutiny of the problems unique to this form of tax. Finally, three political issues that were not significant in Europe will likely have an important bearing on any future choices of sales tax instruments, both in the U.S. and in Canada.     

State Sales Tax Policy in a Changing Economy: Balancing Political and Economic Logic Against Revenue Needs

Soon after implementation in the 1930s, the general sales taxes emerged as the largest state tax source. In 1990, income taxes produced nearly as much state revenue as did sales taxes. Although income tax revenue have increased significantly, the sales tax is not in jeopardy of being replaced in the immediate future. The sales tax still remains a vital state fiscal concern, particularly to those states without a broad individual income tax.     

The Tax That Failed: The VAT in Niger

The value-added tax (VAT) requires considerable sophistication on the part of both the taxpayers and the tax authorities in order to function effectively; not all countries meet this criteria. After Niger implemented the VAT in 1986, instead of realizing an increase in tax revenue it witnessed a decline, creating a major budget crisis. This article discusses why the VAT was an inappropriate choice for Niger, analyzes the reasons for the decline in tax revenue, and proposes alternative policies consistent with the administrative capacity of the Niger government and the existing socioeconomic environment.     

Unintended Consequences of Local Sales Tax: Capitalization of Sales Taxes into Housing Prices

Local governments are under pressure to look for alternatives to property taxes as their main revenue source. One response has been to adopt local sales taxes. Prior studies offer little guidance on whether and how much local governments enhance their revenue capacity with local sales taxes. This article unveils the underlying mechanisms by exploring the capitalization of sales taxes into housing prices as a property tax base measure. The empirical analysis reveals a capitalization of local sales taxes into housing prices, indicating the reduction of property tax bases in higher sales tax areas from the long-term perspective. The findings suggest that a sales tax rate increase might not raise local revenue capacity as much as policymakers intend.     

The Growth and Stability of the Local Tax Revenue in Japan

This paper estimates the elasticity of the local tax revenue in Japan and analyzes the growth and stability of the Japanese local tax system. The main estimated results are as follows. The growth taxes in the long run are the Individual Enterprise Tax and the Fixed Asset Tax. There are no stable taxes in the short run. The total amount of prefectural tax revenue is low growth in the long run and unstable in the short run. The total amount of municipal tax revenue is low growth in the long run and neutral in the short run. The total amount of the local tax revenue in the prefecture and the municipality does not have stability and growth.     

Changing the Federal Tax Philosophy: A National Value-Added Tax or Retail Sales Tax?

Moving the federal government from its heavy reliance on taxes on income and profits to taxes on general consumption has been proposed as a way to improve equity, economic efficiency, and transparency of the tax system. The value-added tax and the retail sales tax offer economically equivalent approaches to general consumption taxation, differing only in how they are administered. A comparison of the two taxes as they now operate, however, suggests considerable advantage for the value-added tax as a national revenue source. Only in terms of requiring fewer businesses to collect the tax is there an advantage to the retail sales tax. The value-added tax is superior or equivalent to the retail sales tax in other important fiscal criteria.     

The Politics and economics of revenue growth: A cross–national analysis

Despite considerable interest in comparative fiscal policy in general, and the high salience of tax policy and tax reform in the industrialized democracies, there are relatively few cross–national studies of the economic and political correlates of revenues over time. We undertake a cross–national time series study of revenue growth in fourteen OECD countries between 1958 and 1990.We test a number of political and economic hypotheses about revenue change, including political business cycle, 'fiscal illusion', elasticity, and ideological theories. For the 1958—1990 period, we find that all countries, regardless of revenue structure, experience higher real revenue growth as a result of inflation, but that revenue growth is more responsive to unemployment in countries that rely more on direct taxes compared to countries with less direct–tax reliance. We find that this effect is most pronounced in the post–1972 period. We also find that revenue tends to increase in the years following elections, consistent with the idea that governments try to minimize the political fallout from tax increases by separating them as much as possible from election campaign periods; this effect, too, is most pronounced in the post–1972 period. We find no support for 'fiscal illusion' and ideological theories of revenue growth.     

虚开增值税专用发票犯罪的侦查与控制

虚开增值税专用发票犯罪的发生率不断上升,犯罪涉案金额越来越大,国家税收流失非常严重,呈现出严峻态势,必须加强对这类犯罪的侦查和控制。为此,要大力加强增值税专用发票的管理工作,加强公安机关与工商、税务等部门的协调合作;在侦查工作中,应及时调查相关企业的工商税务和银行资料并取证,及时发现犯罪嫌疑人和控制赃款赃物。     

The politics and economics of revenue growth: A cross-national analysis

Abstract Despite considerable interest in comparative fiscal policy in general, and the high salience of tax policy and tax reform in the industrialized democracies, there are relatively few cross–national studies of the economic and political correlates of revenues over time. We undertake a cross–national time series study of revenue growth in fourteen OECD countries between 1958 and 1990.We test a number of political and economic hypotheses about revenue change, including political business cycle, 'fiscal illusion', elasticity, and ideological theories. For the 1958—1990 period, we find that all countries, regardless of revenue structure, experience higher real revenue growth as a result of inflation, but that revenue growth is more responsive to unemployment in countries that rely more on direct taxes compared to countries with less direct–tax reliance. We find that this effect is most pronounced in the post–1972 period. We also find that revenue tends to increase in the years following elections, consistent with the idea that governments try to minimize the political fallout from tax increases by separating them as much as possible from election campaign periods; this effect, too, is most pronounced in the post–1972 period. We find no support for 'fiscal illusion' and ideological theories of revenue growth.     

Revenue Diversification: Fiscal Illusion or Flexible Financial Management

This study examines the trends in revenue diversification in approximately 240 suburban municipalities in the Chicago metropolitan region between 1988 and 1997. It then tests a model of revenue diversification's impact on tax effort using data from 1993 to 1997, and separated by home rule and non–home rule municipalities. Trends show that suburbs with higher increases in diversification tend to be home rule, younger, less residential, experiencing more growth, less reliant on property taxes, and more reliant on sales taxes. Model estimates show that communities with more revenue diversification have lower tax effort when controlling for other determinants of tax effort, and this effect is stronger in non–home rule municipalities.     

Testing the Mill hypothesis of fiscal illusion

According to the “Mill hypothesis”, the tax burden from indirect taxation is underestimated because indirect taxes are less “visible” than direct taxes. We experimentally test the Mill hypothesis and identify tax framing as a cause of fiscal illusion. We find that the tax burden associated with an indirect tax is underestimated, whereas this is not the case with an equivalent direct tax. In a referendum to tax and redistribute tax revenue, fiscal illusion is found to distort democratic decisions and to result in “excessive” redistribution. Yet, voters eventually learn to overcome fiscal illusion.     

Elections and the structure of taxation in developing countries

This article analyses the impact of the electoral calendar on the composition of tax revenue (direct versus indirect taxes). It thus represents an extension of traditional political budget-cycle analyses assessing the impact of elections on overall revenue. We appeal to the opportunistic political budget model of Drazen and Eslava (2010) to predict the relationship between taxation structure and elections. Panel data from 56 developing countries over the 1980–2006 period reveals a clear pattern of electorally-related policy interventions. Taking the potential endogeneity of election timing into account, we find robust evidence of lower indirect taxes being applied by incumbent governments in the period just prior to an election. Indirect tax revenue in election years is estimated to be 0.3 GDP percentage points lower than in other years, corresponding to a fall of about 3.4% of the average figure in the sample countries, while there is no such relationship with direct tax revenue.     

INFORMAL SECTOR TAX ADMINISTRATION IN ZIMBABWE

Governments have to raise revenue to finance public goods. This study analyses the challenges that Zimbabwe, like most developing countries, faces in attempting to collect taxes from its informal sector. Because the so‐called informal sector forms a large and sometimes growing component of the economy, collecting sufficient revenues to fund expenditure requires tax authorities to seek ways to collect revenues from those earning their incomes in the informal sector. There has been an attempt to collect taxes from the informal sector in Zimbabwe over the past 8 years. Although the actual amount collected from this sector has increased, an evaluation of the way taxes are administered needs to go beyond the amount of revenue collected. It needs to also look at issues such as the proportion of the informal sector paying these taxes, the amount collected as a proportion of total revenues, the costs incurred in collecting these taxes and the tax administration's ability to encourage quasi‐voluntary compliance. This study indicates that the levels of evasion (confirmed by the informal sector associations themselves), selective application of tax regulations and corruption are alarmingly high. These factors, together with the very high tax rates and sheer ignorance, operate as a serious disincentive in informal sector tax compliance resulting in very low revenues from this sector. Copyright © 2014 John Wiley & Sons, Ltd.     

The tax-welfare mix: explaining Japan's weak extractive capacity

Abstract

Despite having the highest level of public debt in the Organisation for Economic Co-operation and Development (OECD), higher than Greece or Italy, Japan has one of the lowest aggregate tax burdens of the advanced industrial democracies. This paper asks why Japan, once described as a strong developmental state, has had such a weak extractive capacity, an inability to raise revenues to confront deficits and public debt? In contrast to the existing explanations that focus on political institutions, partisan preferences, or economic globalization, this article argues that Japan's ‘tax–welfare mix’ – the combination of taxes and redistributive welfare polices – undermined the state's long-term capacity to secure adequate tax revenue. More than just a source of revenue, taxes can be used directly to achieve redistributive goals, such as targeting low taxes and exemptions to specific groups. This study shows how Japan's tax–welfare mix diminished its extractive capacity through three mechanisms: the political lock-in of a redistributive social bargain struck around low taxes, the timing and sequencing of its tax policy and welfare development, and the erosion of public trust, which undermined tax consent. Beyond offering a new theory of extractive capacity, the tax–welfare mix explains aspects of Japan's tax structure that defy existing explanations and contributes to our understanding of the capitalist development state by highlighting the redistributive political function of tax policy and its long-term impact on state capacity.     

The Fiscal Impact of Federal and State Aid to Large U.S. Cities: An Empirical Analysis of Budgetary Response

This article examines four types of aid programs to thirty-nine large U.S. cities federal revenue sharing, federal categorical aid, state general aid, and state categorical aid. The central finding is that there is significant variation in the magnitude of property tax reduction resulting from different types of state general aid. Property tax credits and exemptions are less effective approaches in reducing local property taxes than are state lump-sum aid or city use of piggybacked taxes Categorical state and federal aid mostly fund additional city spending and have small but important stimulative effects on the revenue side These results suggest that differences in the design of aid programs have important implications for their fiscal impact and their effectiveness in reducing property taxes.     

Politicians' Opinions on Tax Reform

This paper examines politicians' stated preferences on tax reforms which aim to bring about a given change in revenue. The paper starts from a simple framework inwhich politicians are vote maximisers, analyses how disequilibria may affect tax choices and considers possible asymmetries in decisions. The empirical examination of the problem uses the stated preferences of 637 Flemish local politicians for both raising and lowering taxes by the same amount. Using multinomial logit estimation, symmetric and asymmetric effects are found and so the symmetry assumption underlying the standard approach is questioned in the analyses of tax choices.     

Does the Local‐Option Sales Tax Provide Property Tax Relief? The Georgia Case

This study examines the effect of a one percent local-option sales tax (LOST) on property tax level, millage rate, and total spending level in Georgia counties. The study covers a 13-year period for 136 Georgia counties. The findings suggest that the law, which requires rollback of property taxes when the LOST is used, led to actual property tax relief as well as millage rate reduction. Regression results show that counties collecting the LOST tend to have per capita property taxes that are an average of $12 or 1.8 mills lower than counties that do not collect the tax. Whereas an extra dollar of LOST revenue provides about 28 cents in property tax relief, it leads to an increase in total spending of about 48 cents. In sum, the LOST has achieved the objectives of property tax relief, but on balance it is more an augmentation of than an effective substitute for property taxes in Georgia counties.     

Administrative problems of the provincial sales tax on beer in Papua New Guinea

With the establishment of provincial government in Papua New Guinea, the Organic Law has conferred on the provincial governments the authority to raise revenue using local revenue bases including retail sales taxes. These taxes have significant advantages and a sales tax on beer has particular benefits in P.N.G. in terms of potential yield and ease of administrative management. The tax is levied on the two breweries and the breweries collect the tax at their breweries and wholesale warehouses on behalf of the provincial governments. For the brewery with the dominant share of the market the arrangement under which it collects the tax for a commission and pays over quarterly to the provincial governments brings financial advantage. The brewery with a smaller share of the market and localized sales is less likely to be benefitting by the arrangement. For the future given expected beer consumption a change from a quantity based tax to ad valorem rates would be financially advantageous to the provincial governments, and would reduce the need for some provinces to seek tax sources elsewhere, but experience shows the general benefit of raising the tax, not at the point of final sale, but on the wholesaler or manufacturer.     

The growth in Social Security benefits among the retirement-age population from increases in the cap on covered earnings

Analysts have proposed raising the maximum level of earnings subject to the Social Security payroll tax (the "tax max") to improve long-term Social Security Trust Fund solvency. This article investigates how raising the tax max leads to the "leakage" of portions of the additional revenue into higher benefit payments. Using Health and Retirement Study data matched to Social Security earnings records, we compare historical payroll tax payments and benefit amounts for Early Boomers (born 1948-1953) with tax and benefit simulations had they been subject to the tax max (adjusted for wage growth) faced by cohorts 12 and 24 years older. We find that 43.2 percent of the additional payroll tax revenue attributable to tax max increases affecting Early Boomers relative to taxes paid by the cohort 12 years older leaked into higher benefits. For Early Boomers relative to those 24 years older, we find 53.5 percent leakage.     

Property Tax Responses to State Aid Cuts in the Recent Fiscal Crisis

Many states experienced fiscal crises at the beginning of this decade. Some responded by cutting state aid to local governments. This paper explores the extent to which local governments responded to these aid cuts by raising property taxes. The authors hypothesize that changes in aid help explain the observed differences in per capita property tax revenue changes across states. They find that on average school districts increased property taxes by 23 cents for each dollar cut in state aid. These results highlight the important role that the property tax plays in maintaining the stability of the state and local sector.