UNIVERSIDADE DE LISBOA Lisbon School of Economics and Management ESSAYS on MACROECONOMIC ASPECTS of TAXATION José Ricardo Borge
Total Page:16
File Type:pdf, Size:1020Kb
UNIVERSIDADE DE LISBOA Lisbon School of Economics and Management ESSAYS ON MACROECONOMIC ASPECTS OF TAXATION José Ricardo Borges Alves Orientador: Prof. Doutor António Manuel Pedro Afonso Tese especialmente elaborada para obtenção do grau de Doutor em Economia 2019 UNIVERSIDADE DE LISBOA Lisbon School of Economics and Management ESSAYS ON MACROECONOMIC ASPECTS OF TAXATION José Ricardo Borges Alves Orientador: Prof. Doutor António Manuel Pedro Afonso Tese especialmente elaborada para obtenção do grau de Doutor em Economia Júri: Presidente: Doutor Nuno João de Oliveira Valério, Professor Catedrático e Presidente do Conselho Científico, Instituto Superior de Economia e Gestão da Universidade de Lisboa. Vogais: - Doutor João Alberto Sousa Andrade, Professor Catedrático, Faculdade de Economia da Universi- dade de Coimbra. - Doutor Miguel Pedro Brito St. Aubyn, Professor Catedrático, Instituto Superior de Economia e Gestão da Universidade de Lisboa. - Doutor António Manuel Pedro Afonso, Professor Catedrático, Instituto Superior de Economia e Gestão da Universidade de Lisboa. - Doutor Carlos José Fonseca Marinheiro, Professor Auxiliar, Faculdade de Economia da Universi- dade de Coimbra. A elaboração desta tese teve o apoio da Universidade de Lisboa e do Instituto Superior de Economia e Gestão no âmbito da Bolsa de Apoio a Doutoramento. 2019 Abstract In this thesis, we develop three essays to evaluate the impacts of taxation, in a macroeconomic perspec- tive. First, we investigate and compare the existing tax systems in France, Germany, Portugal, United Kingdom and United States, over the XIX and XX centuries. With this historical exercise, we highlight the common and different features among tax systems, explaining the contribution of taxation in the raise of the fiscal state. Moreover, we reflect on the tax incidences, the revenues collected and the efficiency of each tax as well as the existing political decision problems registered over the last 200 years. In the second essay, we assess the effect of tax items’ revenues in four economic variables - economic growth, investment decisions, aggregate consumption and income inequalities – resorting to econometric techniques, namely the panel data. With this exercise and with a sample covering the OECD countries as a sample 1980 and 2015, it is also our intention to retrieve possible non-linear relationships comput- ing, consequently, the existing tax items thresholds. This essay allows providing several tax systems arrangements based on the desire political objectives for the economy. Lastly, this thesis is concluded by a development of a DSGE model, which provides general impacts of taxation in a macroeconomic perspective. This model includes several important and common as- sumptions and hypothesis that add value for a better understanding of taxation effects over an economy, such as the observance of both Ricardian and non-Ricardian households, wage and price’s stickiness as also the interaction between fiscal and monetary policies, among others, allowing to evaluate not only the impact of tax shocks in the collection of aggregate taxes and tax items revenues, but also to assess the dynamics of important economic aggregates detailed in the model. iii Resumo Nesta tese desenvolve-se três ensaios para avaliar os impactos da fiscalidade, numa perspetiva macroe- conómica. Primeiro, investigamos e comparamos os sistemas fiscais existentes na França, Alemanha, Portugal, Reino Unido e Estados Unidos, ao longo dos séculos XIX e XX. Com este exercício histórico, destacamos as características comuns e diferentes entre os sistemas fiscais, explicando a contribuição da tributação na edificação do estado fiscal. Além disso, refletimos sobre as incidências tributárias, as re- ceitas arrecadadas e a eficiência de cada imposto, bem como os problemas existentes de decisão política registados nos últimos 200 anos. No segundo ensaio, avaliamos o efeito das receitas dos vários tipos de impostos em quatro variáveis económicas - crescimento económico, decisões de investimento, consumo agregado e desigualdades de rendimento - recorrendo a técnicas econométricas, mais especificamente, usando dados em painel. Com este exercício, e para os países da OCDE para o período de 1980 a 2015, temos como objetivo analisar possíveis relações não-lineares e, consequentemente, calcular valores limite de cada tipo de imposto. Este ensaio permite fornecer várias soluções de sistemas fiscais baseados nos objetivos políticos desejados para a economia. Por fim, esta tese é concluída pelo desenvolvimento de um modelo DSGE que fornece impactos gerais da tributação n uma perspetiva macroeconómica. Este modelo inclui várias premissas e hipóteses que possibilitam uma melhor compreensão dos efeitos da fiscalidade sobre uma economia, como, por exemplo a existência de agentes Ricardianos e não-Ricardianos, rigidez salarial e de preços, bem como a interação entre as políticas orçamental e monetária , entre outros, permitindo avaliar não apenas o impacto de choques dos vários impostos na coleta de receita fiscal, agregado e por imposto, mas também, avaliar a dinâmica de importantes agregados económicos descritos no modelo. Acknowledgements First, I would like to thank to my supervisor Professor António Afonso, who was fundamental for the good development of this thesis. Without his guidance, this journey would be much more difficult. In addition, I would like to thank to my good friend André Canhoto Costa. The important discussions we had regarding the topics of this thesis were crucial for this research. I have no words to express my gratitude for his friendship and support during these four years. Moreover, a special thanks to my boss and Research Officer Paula Couto for her continuous moti- vation, demonstrated during the last year. In addition, I am also grateful for the support given by my colleague and friend Graça Igreja. To my family, Teresa, José and Francisco. There are no words to express all the good feelings they conveyed during these last four years. They are very special to me and they deserve all the best. I cannot be what I am without them. Additionally, I would like to recognize the financial support from University of Lisbon to conduct my PhD, on the one hand, and to all my friends who support me during this journey I would like also to express my gratitude. Lastly, the most important acknowledgements are for Raquel Balhote. There are no countable words to express my gratitude for all support, tolerance and kindness she gave me during this period. Without vi her, it was not possible, at all, to accomplish this challenge. I do not truly know how to thank her for all of this. As my gratitude, I dedicate to her the following poem: Entro como espectador da própria escrita; O instante, a vírgula, toda a sensação Que impõe a representação das horas vagas Assisto à maestria do infinito movimento, à tranquilidade da alma, toda a assimilação da bela da perfeita dança, leva à dissipada hora do esquecimento. Debruçar-me-ei sobre essa pobre mesa; A interpelação que o venerado tempo me impele a outras e tão desejadas vivências, o perfilado rosto da mera satisfação do poder da enorme rejeição pela vivência mundana, E que só agora o imperativo relógio me abre a porta à cor do feliz silêncio. in Discurso do Cadeirão Burocrático vii “No taxation without representation.” American colonists slogan. Contents List of Tables xiii List of Figures xiv 1 Introduction 2 2 Tax incidence and fiscal systems: some problems on tax compared history in XIX and XX centuries. 9 2.1 Introduction . .9 2.2 On the tax composition for the five countries . 11 2.2.1 The beginning of some tax divergences . 11 2.2.2 A Trade Age and Direct vs. Indirect Tax Frictions . 15 2.2.3 The Emergence of Income Taxation . 17 2.2.4 Between tax progressivity and tax cuts . 21 2.3 Centralizing tax data and revenues collection efficiency: Is there a mutual gain? . 26 2.4 Conclusions . 32 ix Contents 3 An analysis of tax composition effects on OECD countries 36 3.1 Introduction . 36 3.2 The sinful side of taxation: is it possible to satisfy the government hunger for revenues while promoting economic growth? . 39 3.2.1 Introduction . 39 3.2.2 Literature Review . 40 3.2.3 Methodology and Data . 42 3.2.4 Results . 46 Short-run effects of taxation on economic growth . 46 Long-run effects of taxation on economic growth . 52 3.2.5 Concluding Remarks . 57 3.3 The impact of tax structure on investment: an empirical assessment for OECD countries 59 3.3.1 Introduction . 59 3.3.2 Literature Review . 60 3.3.3 Methodology and Data . 62 3.3.4 Results . 65 Short-run effects of taxation on investment dynamics . 65 Long-run effects of taxation on investment dynamics . 68 3.3.5 Concluding Remarks . 70 3.4 Optimal Tax Structure for Consumption and Income Inequality: an Empirical Assessment 73 3.4.1 Introduction . 73 3.4.2 Literature Review . 73 3.4.3 Methodology and Data . 75 3.4.4 Results . 79 Short-run impacts of taxation structure on aggregate consumption and inequality dynamics. 79 x Contents Long-run impacts of taxation structure on aggregate consumption and inequality dynamics. 85 3.4.5 Concluding Remarks . 90 3.5 Conclusions . 92 4 A DSGE model for the effects of taxation on the economy 95 4.1 Introduction . 95 4.2 The Literature Review . 96 4.3 The Model . 100 4.3.1 Households . 100 Ricardian households . 101 Non-Ricardian households . 103 4.3.2 Wage’s dynamics . 103 4.3.3 Firms . 105 4.3.4 Fiscal and Monetary Policies . 107 4.4 Calibration and empirical analysis . 108 4.4.1 The impact of tax shocks in taxation . 109 4.4.2 The behaviour of economic aggregates to tax shocks . 110 4.5 Concluding Remarks . 117 5 Conclusions 119 xi List of Tables 2.1 Tax structure by country in percentage of total revenues, 1800-1990. 34 2.2 Tax revenues in proportion of GDP, and average per capita GDP growth rate by country and per decade, 1800-1990.