Research Collection Doctoral Thesis Labor Income Taxation in a Globalizing World: 1980-2012 Author(s): Strecker, Nora Publication Date: 2017 Permanent Link: https://doi.org/10.3929/ethz-a-010852381 Rights / License: In Copyright - Non-Commercial Use Permitted This page was generated automatically upon download from the ETH Zurich Research Collection. For more information please consult the Terms of use. ETH Library DISS. ETH No. 24020 Labor Income Taxation in a Globalizing World: 1980-2012 A thesis submitted to attain the degree of Doctor of Sciences of ETH Zurich (Dr. sc. ETH Zurich) presented by NORA MARGOT STRECKER Master of Arts in Economics New York University, Graduate School of Arts and Science born on July 29, 1986 citizen of Germany accepted on the recommendation of Professor Peter H. Egger, ETH Zurich, examiner Professor Georg Wamser, University of T¨ubingen,co-examiner 2017 Acknowledgments Words can hardly express the debt of gratitude I owe Professor Peter Egger for giving me the opportunity to work with him and his team at the Chair of Applied Economics: Innovation and Internationalization at ETH Zurich and to complete this dissertation. The research environment at his Chair has produced wonderful interactions, fostered great relationships with my co-authors and colleagues, and greatly advanced both my work and my research. I also gratefully acknowledge the financial support of the Swiss National Science Foundation. I also want to thank my thesis committee, Professors Georg Wamser of the University of T¨ubin- gen and Marko K¨othenb¨urgerof ETH Zurich, for taking the time to read and comment on the dissertation presented here. Of those who have taught me over the years, two stand out in particular. I thank Professor T. Clark Durant for supporting me during my Master's degree at New York University. His courses and seminars allowed me to pursue wild ideas, led me to my first academic conference, and planted the idea of pursuing the even wilder idea of completing a PhD. I am also forever indebted to Marc Vincenti, who, in class and later via his wonderful letters, has continually expressed his unwavering support of me and my goals. His encouraging words were beacons in the dark times of my life, guiding me to where I am today. And for that I can never repay him. I thank my co-authors Simon B¨osenberg, Peter Egger, Sergey Nigai, Doina Radulescu, and Benedikt Rydzek for their efforts on behalf of our joint work and, along with Marie Poprawe, Michaela Kesina, Katharina Erhardt, Andrea Lassmann, Federica Liberini, Michael Stimmelmayr, and the many other current and former colleagues at the Chair for Applied Economics and the Chair for Public Economics at ETH Zurich, for the numerous discussions, the exchange of ideas, and the supportive and motivating environment they've created. This work has been a lengthy labor of love and for their patience I truly thank my friends, who have endured my absence at parties and lack of visits without complaint. For 17 years, Caroline Hintermann's friendship has given me the endurance to work through difficulties and been a light in my life. For fewer but by no means less important years, Polina Minkovski has believed in me, encouraged me, and been my cheerleader. Transitioning from challenging me to think outside i the box in class to think of the big picture outside of it, Polina has been my sounding board and wide-angle lens and invaluable addition to my life and my work. The patience and wholehearted love of my family, Annegret and Achim, Norbert and Ako, and my brother, Alexander, has been the source of great support and encouragement to pursue my goals and overcome our shared hardships. I thank them for their faith in me and my ambitions. Without them I would not be who I am or where I am today. Nora Strecker, Zurich, November 2016 ii To second chances iii Contents Acknowledgements i Abstract xvii Zusammenfassung xix 1 Introduction 1 2 A Tour of Labor Income Tax in the World, 1980-2012 5 2.1 Descriptive statistics . .6 2.1.1 Features of the tax system . .7 2.2 Some insights on the drivers of income-tax-system characteristics in the data . 26 2.2.1 Top rate and number of kinks in the statutory personal income tax schedule 28 2.2.2 Total tax bill paid by an average employee and its composition . 30 2.2.3 Social security . 32 2.2.4 Untargeted family assistance . 34 2.3 Conclusions . 35 2.A EATR and EMTR: Other Household Archetypes . 37 2.B Social Security: Other Household Archetypes . 43 2.C Progressivity: Other Household Archetypes . 49 2.D Family Assistance Shares: Other Household Archetypes . 53 3 Determinants of Personal Income Tax Setting 57 3.1 Empirical model . 59 3.1.1 Third-country personal income tax weighting schemes . 60 3.2 Tax structures, rates, and overall measures . 65 3.3 Empirical results . 69 3.3.1 Overall results . 70 v 3.3.2 Results by country group . 74 3.4 Conclusion . 77 3.A Sample details and co-variates . 78 3.B Additional Results . 80 3.C Income distribution estimates . 87 4 Effective Labor Taxation and the International Location of Headquarters 89 4.1 Data . 92 4.1.1 Data on headquarters location . 93 4.1.2 Data on income taxation . 93 4.1.3 Data on control variables . 94 4.1.4 Descriptive statistics . 95 4.2 Empirical strategy . 96 4.2.1 Conditional logit . 96 4.2.2 Nested logit . 97 4.3 Estimation results . 100 4.3.1 Conditional logit estimates . 101 4.3.2 Nested logit estimates . 104 4.3.3 Sensitivity analysis and further results . 106 4.4 Conclusion . 107 5 On the Distribution of Tax Effects on Headquarters Location 109 5.1 Econometric models of headquarters activity . 110 5.1.1 Conditional and mixed logit models for location choice . 110 5.1.2 Random coefficients model for asset intangibility . 111 5.2 Empirical analysis . 111 5.2.1 Data . 111 5.2.2 Results . 114 6 The Taxing Deed of Globalization 119 6.2 Globalization, tax revenues, and personal income tax rates . 121 6.2.1 Globalization . 122 6.2.2 Tax revenue composition . 123 6.2.3 Corporate and personal income tax rates . 124 6.3 An instrument for endogenous globalization . 125 6.4 The effect of globalization on the size and composition of tax revenues . 127 6.5 The effects of globalization on personal income taxes . 130 vi 6.5.1 Globalization and the relative personal income tax burden across earners . 130 6.5.2 Globalization and the effective average personal income tax rate . 135 6.6 Case study: Interstate migration and changes in effective taxation in the United States140 6.7 Conclusions . 143 6.A List of countries and data sources . 145 6.A.1 List of countries . 145 6.A.2 Data sources: International . 145 6.A.3 Data Source: United States case study . 148 6.B Imputation comparisons to available data . 148 6.B.1 Imputed wages vs. Luxembourg Income Study micro-data . 148 6.B.2 Imputed employee-borne tax revenues vs. data . 150 6.C Non-OECD results . 151 A References 155 B Sourcebook: Global Labor Income Taxation 167 vii List of Figures 2.1 Lowest Positive Tax Income Thresholds in 1980 and 2012 For Single Male Earners ......................................9 2.2 EATR and EMTR for average income and top statutory tax rate for single male workers .................................. 11 2.3 Number of tax brackets ............................... 13 2.4 Employer-borne social security .......................... 14 2.5 Employee-borne social security contributions ................. 15 2.6 Total tax bill and composition for single male worker (average income) 17 2.7 Point progressivity measure excluding SSC ................... 19 2.8 ∆............................................... 20 2.9 ∆ and gross income Gini coefficients: single male .............. 21 2.10 EATRs (+/- 1 SD) across time ............................ 21 2.11 Assessment structure ................................. 22 2.12 Specialized family tax rules ............................. 22 2.13 Tax rate for married, 1-earner household with 2 children (average income) ........................................... 23 2.14 Countries with a family allowance system ................... 24 2.15 Family assistance share in total household income .............. 25 2.16 EATR in 1980 ....................................... 38 2.17 EATR in 2012 ....................................... 39 2.18 EMTR in 1980 ...................................... 41 2.19 EMTR in 2012 ...................................... 42 2.20 Employer-borne social security in 1980 ..................... 44 2.21 Employer-borne social security in 2012 ..................... 45 2.22 Employee-borne social security rates in 1980 ................. 47 2.23 Employee-borne social security rates in 2012 ................. 48 2.24 Point progressivity in 1980 .............................. 51 ix 2.25 Point progressivity in 2012 .............................. 52 2.26 Assistance share in 1980 in total household income .............. 54 2.27 Assistance share in 2012 in total household income .............. 55 3.1 Global average corporate tax rate +/- 1SD .................. 57 3.2 Weights of Germany's immediate neighbors ................... 62 3.3 Global mean +/- 1SD across PIT components ................. 66 3.4 EATR & EMTR and their components across income distribution .... 67 3.5 Global development of tax effect measure ................... 69 3.6 Regression coefficients for EATR and EMTR components ......... 72 3.7 Regression coefficients for EAT R: By income group ............. 75 3.8 Sample countries in 2012 ............................... 78 3.9 Regression coefficients: Results of Model (5) for EATR, EMTR, and their components .................................... 81 3.10 Regression coefficients for avτ components: By income group ...... 84 3.11 Regression coefficients for EMT R components: By income group .... 85 3.12 Regression coefficients for mτ components: By income group ...... 86 4.1 Predicted Number of Headquarters vs. Average Labor Income Tax .. 92 4.2 Conditional Logit Choice Structure .