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Thursday, February 2, 2023
Londoño-Vélez Presents Behavioral Responses To Wealth Taxation: Proof From Colombia At this time At UCLA
Juliana Londoño-Vélez (UCLA; Google Scholar) presents Behavioral Responses to Wealth Taxation: Proof from Colombia (with Javier Avila-Mahecha (DIAN; Google Scholar)) at UCLA immediately as a part of its Colloquium on Tax Coverage and Public Finance hosted by Kirk Stark and Jason Oh:
We research behavioral responses to non-public wealth taxes in Colombia utilizing tax microdata (1993-2016) linked with the leaked Panama Papers, which make clear offshoring to Colombia’s most related tax havens. We leverage variation from 4 reforms that changed the wealth tax design—tax period and price schedule—and launched discrete jumps within the tax legal responsibility. Utilizing bunching and difference-in-difference methods, we get hold of 4 key outcomes. First, we discover salient and compelling proof that wealth tax hikes trigger taxpayers to decrease their reported wealth immediately—a reporting response that slashes, at most, one-fifth of tax income. Second, this response can persist even after the wealth tax not applies—i.e., “hysteresis”—reflecting taxpayers’ strategic avoidance conduct. Third, taxpayers misreport what authorities can not cross-verify: they inflate (interpersonal) debt and underreport non-third-party-reported enterprise belongings. Lastly, the wealthiest taxpayers reply to wealth tax hikes by hiding belongings in hard-to-track entities in tax havens.
Conclusion
Our findings have coverage implications for the design of wealth taxes. First, increasing the protection, high quality, and utilization of the data obtained by the tax authority about wealth owned by taxpayers is important. This contains requiring people to report wealth individually by asset and debt sort, enlarging the record of wealth objects coated by third-party reporting, and systematically cross-validating this info for tax enforcement functions. Furthermore, efforts to tax wealth should are available in tandem with cracking down on offshore evasion since offshoring is a vital mechanism for evasion for rich people. Combating offshore evasion necessitates further coverage devices, corresponding to selling monetary transparency, overseas asset reporting, and computerized TIEAs. It additionally requires cooperation from tax havens to share details about foreign-owned monetary belongings of their jurisdictions.
Lastly, it’s value discussing two limitations of our research. First, Colombia’s progressive abolishment of the wealth tax on companies—with its complete elimination beginning 2018—reinforces incentives for individuals to shift belongings from the person sector towards the company sector. Future analysis ought to research its impacts and the rising function of household companies, that are tough for the tax authority to penetrate (Slemrod, 2019). Second, Colombia not too long ago has sought to crack down on private wealth tax evasion with TIEAs and voluntary disclosures applications. Sadly, these enforcement devices post-date the tax variation we research. Future analysis ought to consider how they work together with the behavioral responses to wealth taxes now we have documented. Certainly, because the efficient tax price on an actual conduct will depend on the avoidance and evasion alternatives, taxpayers could react otherwise when these alternatives show restricted, presumably resorting to actual responses. In consequence, wealth taxation might have an effect on bequests, consumption, saving, and funding.
https://taxprof.typepad.com/taxprof_blog/2023/02/londopercentC3percentB1o-vpercentC3percentA9lez-presents-behavioral-responses-to-wealth-taxation-today-at-ucla.html
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