Analysis of dependencies between state tax behavior and macroeconomic indicators

Sokolovskyi, Dmytro (2018): Analysis of dependencies between state tax behavior and macroeconomic indicators.

Abstract

Article examines the potential impact of macroeconomic parameters on tax behavior of governments, which can be regarded as integral part of more common problem of state’s economic behavior in tax policy area. We aimed to analyze and to reveal the interaction between base and derivative macroeconomic parameters, characterizing countries’ economic development and level of corporate taxation in order to conclude about effectiveness of state tax policy as well as about ways of its improving. Subject of study is the possible dependence of tax behavior of government institutions from macroeconomic indicators. In the framework of given study we used econometric methods. We made an analysis of eventual interdependence between value of corporate tax burden and certain macroeconomic indicators, representing evaluations of national economic systems: power, wealth, investment attractiveness and congenial investment climate. We revealed that corporate tax rate is used by governments not too actively, while the state tax behavior somewhere can be estimated as ineffective. Taking into account this fact as well as analysis of reasons causing such government behavior can facilitate the optimization of managerial decisions in the area of tax regulation. Also obtained results help to reveal instruments and motivation of economic agents’ behavior on macro-level. They can serve as base for further research concerning principles of behavior in economics in general as well as for examining more narrow areas such as “race to the bottom” problem.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic behavior; corporate tax rate; tax regulation; macroeconomic indicators
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; E - Macroeconomics and Monetary Economics > E0 - General > E03 - Behavioral Macroeconomics; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

References

Agnew, J., 2006. Do Behavioral Biases Vary Across Individuals: Evidence from Individual Level Data. The Journal of Financial and Quantitative Analysis, 41(4), 939-961.

Agnew, J., Pierluigi, B. and Sunden, A., 2003, Portfolio choice and trading in a large 401(k) plan. American Economic Review, 93(1), pp.193–215.

Algozhina, A., 2012. Monetary and fiscal policy interactions in an emerging open economy exposed to sudden stops shock: a DSGE approach, FIW Working Paper, 94, Wien.

Anand, P. and Cowton, C. J., 1993. The ethical investor: Exploring dimensions of investment behavior. Journal of Economic Psychology, 14(2), pp.377–385.

Barbosa, D., Carvalho, V.M. and Pereira, P.J., 2013. The Interaction between Firms and Government in the context of Investment Decisions: A Real Options Approach, FEP Working Papers, 507, Porto. [online] Available at: <https://www.fep.up.pt/investigacao/workingpapers/wp507.pdf> [Accessed 24.04.2018].

Besley, T., 1994. How Do Market Failures Justify Interventions in Rural Credit Markets? The World Bank Research Observer, 9(1), pp.27–47.

Cassar, G. and Friedman, H., 2007. Does overconfidence Affect entrepreneurial Investment? Wharton Research Scholars Journal, 5(1), pp.1–31.

Corporate tax rates table (2017) KMPG. [online] Available at: <https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html>. [Accessed 19/01/2018].

de Miguel, V., Garlappi, H. and Uppal, R., 2009. Optimal versus Naive Diversification: How Inefficient Is the 1/N Portfolio Strategy? The Review of Financial Studies, 22(5), pp.1915–1953.

Dittrich, D.A.V., Güth, W. and Maciejovsky, B., 2005. Overconfidence in investment decisions: An experimental approach. The European Journal of Finance, 11(6), pp.471–491.

Gayle, A.C. and Martinez, А., 2008. The Influence of Government Policy and NGOs on Capturing Private Investment. OECD Global Forum on International Investment, 27-28 March.

Iyengar, S.S. and Kamenica, E., 2010. Choice proliferation, simplicity seeking, and asset Allocation. Journal Public Economics, 94, pp.530–539.

James, S., 2013. Effectiveness of Tax and Non-Tax Incentives and Investments: Evidence and Policy Implications (September 1, 2013), SSRN [online] Available at: doi: http://dx.doi.org/10.2139/ssrn.2401905> [Accessed … 2017].

Kahneman, D. and Tversy, A., 1979. Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), pp.263–292.

Kent, D., Hirshleiferc, D. and Siew Hong, T., 2002. Investor psychology in capital markets: evidence and policy implications. Journal of Monetary Economics, 49, pp. 139–209.

OECD, 2007. Tax Effects on Foreign Direct Investment. Recent Evidence and Policy Analysis, OECD Observer.

OECD, 2008. Tax Effects on Foreign Direct Investment. Policy Brief, OECD Observer.

Parys, S. van, James, S., 2010. The effectiveness of tax incentives in attracting investment: panel data evidence from the CFA Franc zone. Tax Public Finance, 17, pp.400–429.

Pflug, G.Ch., Pichler, A. and Wozabal, D., 2012. The 1/N investment strategy is optimal under high model ambiguity. Journal of Banking & Finance, 36(2), pp.410–417.

Tapia, W. and Yermo, J., 2007. Implications of Behavioural Economics for Mandatory Individual Account Pension Systems. OECD Working Papers on Insurance and Private Pensions, 11, OECD Publishing, doi: 10.1787/103002825851.

Tirole, J., 2006. Theory of Corporate Finance. New Jersey: Princeton University Press.

Tirole, J., 2012. Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning. American Economic Review, 102(1), pp.29–59.

World Development Indicators. GDP (current US$), 2018. The World Bank. [online] Available at: <http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries> [Accessed 24.04.2018].

World Development Indicators. Foreign direct investment, net inflows (BoP, current US$), 2018. The World Bank. [online] Available at: <http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD/countries> [Accessed 24.04.2018].

World Development Indicators. GDP per capita (current US$), 2018. The World Bank. [online] Available at: <http://data.worldbank.org/indicator/NY.GDP.PCAP.CD> [Accessed 24.04.2018].