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International Tax and Public Finance

Erschienen in:

19.04.2019

Do the rich pay their taxes early?

verfasst von: Andreas M. Fischer, Lucca Zachmann

Erschienen in: International Tax and Public Finance | Ausgabe 1/2020

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Abstract

This paper examines the effects of household income on interest credits from early tax payments. The hypothesis that the richest households pay their income taxes early is tested in a demand specification for interest credit on early tax payments. The empirical analysis uses regional data from 170 municipalities in the canton of Zurich from 2007 to 2013. A one standard deviation increase in the ratio for household income between the mean and the 75th percentile increases the ratio of interest tax credit to total taxes by 5%. The finding that high-income households pay their taxes early supports the view that institutional arrangements supporting early tax payments make the (effective) tax system more regressive.

Vorheriger Artikel Which households matter most? Capturing equity considerations in tax reform via generalised social marginal welfare weights

Nächster Artikel Modeling fiscal sustainability in dynamic macro-panels with heterogeneous effects: evidence from German federal states

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Many Anglo-Saxon countries offer early payment discounts, including the time-varying rates for the UK under https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates.

There is no evidence that cantonal taxes became more progressive after the introduction of early payments. Such an action would offset the regressive outcome arising from early tax payments.

Extensions are possible, but they need to be requested.

The window can be theoretically larger, as it is possible for households in the canton of Zurich to make early tax payments starting on January 2.

Each Swiss canton sets their own credit interest rates for early or late tax payments. This means that the rates shown in Fig. 1 for Switzerland (i.e., federal level) do not correspond to the cantonal rates examined for the canton of Zurich in Sect. 4.

This formula is a simplification but representative for interest tax credit calculations.

The application date for tax payments in arrears depends on the finalization of the tax account, which is often after two years.

In Switzerland, there is no withholding tax on labor income.

We abstract from the second (overpayment) part for simplification. Even with the overpayment part, the interest tax credit to tax bill ratio is equivalently dependent on s and \(\mathrm{cir} \cdot dc/360\).

Other regional money demand studies include Lippi and Secchi (2009), Mulligan and Sala-i-Martin (1992), Fischer (2007), Jankowski et al. (2007), and Fujiki (2002).

There are 171 municipalities in the canton of Zurich as of December 31, 2013. We exclude one municipality from the analysis because there is no information for household income.

Discussions with the Cantonal Tax Office revealed that only in exceptional cases are household taxes not finalized after two years.

Figure 7 in Appendix shows that the bulk of the transfers for a particular year occur within the first two years.

The distributional information on firm activity at the municipality level is not available as in the case of household income.

Brewer, M., Saez, E., & Shephard, A. (2010). Means-testing and tax rates on earnings. In J. Mirrlees (Ed.), Dimension of tax design: The mirrlees review. London: Institute for fiscal studies. Oxford: Oxford University Press.

Duncan, D., & Sabirianova Peter, K. (2016). Unequal inequalities: Do progressive taxes reduce income inequality? International Tax and Public Finance, 23(4), 762–783.CrossRef

Fischer, A. M. (2007). Measuring income elasticity for Swiss money demand: What do the cantons say about financial innovation. European Economic Review, 51(7), 1641–1660.CrossRef

Fischer, A. M. (2014). Immigration and large banknotes. Macroeconomic Dynamics, 18(4), 899–919.CrossRef

Fujiki, H. (2002). Money demand near zero interest rate: Evidence from regional data. Monetary and Economic Studies, Bank of Japan, 20(2), 25–41.

Jankowski, C., Porter, R. D., & Rice, T. (2007). Against the tide—currency use among Latin American immigrants in Chicago. Economic Perspectives, Federal Reserve Bank of Chicago, 2Q, 2–21.

Lippi, F., & Secchi, A. (2009). Technological change and the households’ demand for currency. Journal of Monetary Economics, 56(2), 222–230.CrossRef

Mulligan, C. B., & Sala-i-Martin, X. (1992). U.S. money demand: Surprising cross-sectional estimates. Brooking Papers on Economic Activity, 2, 285–329.CrossRef

Piketty, T., Saez, E., & Stantcheva, S. (2014). Optimal taxation of top labor incomes: A tale of three elasticites. American Economic Journal: Economic Policy, 6(1), 230271.

Slemrod, J. (1996). High income families and the tax changes of the 1980s: The anatomy 22 of behavioral response. In M. Feldstein & J. Poterba (Eds.), Empirical foundations of household taxation. Chicago: University of Chicago.

Titel: Do the rich pay their taxes early?
verfasst von: Andreas M. Fischer
Lucca Zachmann
Publikationsdatum: 19.04.2019
Verlag: Springer US
Erschienen in: International Tax and Public Finance / Ausgabe 1/2020
Print ISSN: 0927-5940
Elektronische ISSN: 1573-6970
DOI: https://doi.org/10.1007/s10797-019-09541-0

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