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on Public Finance |
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Issue of 2024‒04‒22
eleven papers chosen by |
| By: | Ådne Cappelen; Aurora G. Hattrem; Thor O. Thoresen (Statistics Norway) |
| Abstract: | How taxation influences income mobility is largely a neglected topic. In this study we discuss the relationship between taxation and income mobility by analyzing both macro and micro data. Administrative register data based on income tax returns are used to produce individual and aggregate measures of income mobility from 1994 to 2021. Income mobility is explained in terms of marginal tax rates on both wage income and capital income. Estimation results are obtained from an autoregressive distributed lag model and a fixed effects linear probability model for the macro and micro data approaches, respectively. The macro and micro evidence point in the same direction — we find that income mobility is negatively influenced by higher marginal tax rates on both earnings and capital income, with the largest effect found for tax on capital income. |
| Keywords: | Income mobility; tax effects; administrative register data |
| JEL: | D31 H24 H30 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:1010&r=pub |
| By: | Murray, Cameron (The University of Sydney); Helm, Tim (Independent economic consultant) |
| Abstract: | Income tax and welfare withdrawal together penalise additional work effort by generating effective marginal tax rates (EMTRs) on extra income that are often as high as 75-80%. Flatter rate structures to provide fairer and more efficient returns to work require either lower top welfare payments, higher top tax rates, or reform of the tax mix. Levelling state taxes on land up to the benchmark set by the ACT could raise as much as $27 billion more in revenue each year without reducing investment or growth. With changes to Commonwealth-state grants, this could fund a halving of all welfare withdrawal rates, producing an effective tax cut of 20-30 cents in the dollar for over one million workers and extra cash in the pocket for around two million more. |
| Date: | 2024–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:zmypn&r=pub |
| By: | S. Nobili |
| Abstract: | Over the past few decades, there has been a notable increase in firms' market power accompanied by a global decrease in Corporate Income Tax (CIT) rates. This paper provides a theoretical framework to shed light on these diverging trends. I develop a general equilibrium model that incorporates imperfect competition and strategic interaction among firms, allowing them to shift profits abroad towards a tax haven. I find that increasing firms' market power enhances their incentives to engage in profit shifting, via larger profits. Profits rise through (i) larger markdowns and (ii) reallocation of market share towards more productive firms. A government, competing to retain firms' profits, set low tax rates to prevent local firms from evading toward tax haven(s). The competition is stronger, i.e. lower tax rates, when firms' market power is higher. Besides, I find that profit shifting widens the disparities among ex-ante heterogeneous firms and endogenously increases the level of market power in the economy, favouring the most productive firms. |
| Keywords: | L13;H73;H25;F23;E61;D43 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:202406&r=pub |
| By: | Martin B. Holm; Rustam Jamilov; Marek Jasinski; Plamen Nenov |
| Abstract: | This paper studies the spending response to news about a dividend tax reform in order to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, implemented in 2006, and raised the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households with a high share of dividends to income before the reform to a control group. Exposed households responded to the reform by increasing spending after the news and reducing spending after implementation. We interpret our findings using a capitalist-worker framework with dividend tax news shocks. The model can replicate the spending response to the dividend tax news only if the EIS is greater than one, with a baseline estimate of around 2 |
| Date: | 2024–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1038&r=pub |
| By: | Francesco Chiocchio (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | How do property taxes affect house prices, homeownership, and welfare? I focus on Italy, a country with high homeownership, an outdated property tax system, and failed reform attempts. As in many other countries, owner-occupied houses are exempt from property taxes in Italy. Additionally, property taxes are calculated using outdated cadastral values. I show that using cadastral values creates a regressive property tax since cadastral values are relatively lower for more expensive housing units. I develop a life-cycle model with endogenous homeownership to assess the effects of reforming the current system. My findings show that removing the owner-occupied exemption and adjusting cadastral values to market values increases government property tax revenues as a percentage of GDP by over 0.8 percentage points but also increases homeownership rates by 1.2 percentage points. The increase in homeownership results from lower property tax rates on smaller houses. Finally, I show that in the short run, the reform increases the welfare of young households but lowers the welfare of older ones. In the long run, welfare increases for new generations. Higher welfare is mainly due to the decrease in house prices in equilibrium. |
| Keywords: | Property taxes and assessment, housing markets, homeownership, wealth accumulation and bequests. |
| JEL: | D15 H24 H31 R21 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2024_2404&r=pub |
| By: | Michael Keen; Christos Kotsogiannis |
| Abstract: | Border Carbon Adjustment Mechanisms (BCAMs) are becoming reality in the EU and elsewhere, and recur—in very different form—in U.S. legislative proposals. But they remain contentious, with features and differences that leave the underlying welfare rationale and implications unclear. Exploring these, this paper establishes two general principles for Pareto efficient BCAM design: regulatory measures should be recognized symmetrically with explicit carbon prices; and, whatever the ambition of mitigation in the BCA-imposing country, a general ‘difference-in-differences’ form of a BCAM is appropriate. These nest, as special cases, the very different approaches to BCAM design in Europe and the U.S. |
| Keywords: | environmental taxation, carbon pricing, border tax adjustment, international taxation |
| JEL: | H21 H23 H87 F18 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11016&r=pub |
| By: | Koch, Reinald; Schön, Lena |
| Abstract: | This study investigates the impact of dividend taxes on equity mutual fund investments, using the 2018 German Investment Tax Reform as a unique case study. This reform eliminated the foreign tax credit for German fund investors, thereby introducing a new tax planning channel for German equity mutual funds. Analyzing data from 297 German equity mutual funds and comparable non-German equity and bond mutual funds, our findings indicate a significant shift in portfolio allocation post-reform. German equity mutual funds strategically shifted assets to countries with lower withholding tax rates and adjusted investments within countries to avoid taxes after the reform. We also examine the economic impact of the tax reform and find a negative relationship between the tax burden and fund inflows after the reform. Our findings provide valuable perspectives for policymakers, industry practitioners, and researchers by shedding light on the complex interplay between taxes, fund decisions, and investor responses. |
| Keywords: | Dividend Taxes, Mutual Funds, Investment Decisions, Tax Avoidance |
| JEL: | H26 G23 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:287738&r=pub |
| By: | Hans Gersbach; Fikri Pitsuwan; Giovanni Valvassori Bolgè |
| Abstract: | We examine democratic public-good provision with heterogeneous legislators. Decisions are taken by majority rule and an agenda-setter proposes a level of the public good, taxes, and subsidies. Members are heterogeneous with respect to their benefits from the public good. We find that, depending on the status quo public-good level, the agenda-setter will form a coalition with the agents who most desire, or least desire, the public good, and we may observe ‘strange bedfellow’ coalitions. Moreover, public-good provision is a non-monotonic function of the status quo public-good level. In the dynamic setting, public-good provision fluctuates endogenously, even if the agenda-setter stays the same over time. Moreover, the more polarized the legislature is, the higher is the volatility of public-good provision and the longer it may take for a society to recover from negative shocks to public-good provision. We illustrate these findings for a two-party system with polarized parties. |
| Keywords: | legislative bargaining, coalition, public goods, polarization, resilience |
| JEL: | C73 D72 H50 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11004&r=pub |
| By: | Joan E. Madia; Francesco Moscone; Asieh Hosseini Tabaghdehi; Jong-Chol An; Changkeun Lee |
| Abstract: | This study investigates the link between taxation and fertility in South Korea, focusing on the historical period surrounding the mid-70s tax reforms. The longstanding decline in fertility rates has been widely discussed in relation to factors such as increasing human capital, women’s employment, and rising housing costs, leading couples to postpone or forego childbearing decisions. However, less attention has been paid to how tax policies that influence disposable income and economic planning horizons could indirectly affect fertility choices. While taxation is crucial for funding social security systems, policies that reduce household resources without considering demographic impacts may have unintended consequences on population dynamics. Using a time-series of country-year from the World Bank, we exploit South Korea’s major mid-1970s tax reforms as a natural experiment to test the hypothesis that higher tax burdens also contributed to reducing fertility over the subsequent decades. The results suggest considerable negative effect of the mid-1970s tax reforms on fertility in South Korea. This macro-analysis shows tax policies can influence population dynamics, but lacks insight into how tax changes affected childbearing decisions at the household level. Future micro-level studies could reveal mechanisms linking tax policies and fertility behavior. Still, this study highlights potential demographic impacts of taxation policies. Policymakers should consider such consequences when modifying tax systems, especially policies related to family resources and child affordability. |
| Keywords: | Fertility, Taxation, Synthetic Control Method |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:fbk:wpaper:2024-02&r=pub |
| By: | Asmae AQZZOUZ; Nathalie PICARD |
| Abstract: | This study examines the influence of local taxes on household migration behavior between French municipalities (“communes”). We consider five tenure status categories and four categories of household head age. Our findings partially support Tiebout "voting with feet" theory, especially among young flat renters in the private sector, flat owners and social housing renters. A surprising result is related to the introduction of the municipality size in the regression, which dramatically affects the coefficient measuring the effect of local tax rates on migration probability. This suggests that a large part of the “Tiebout effect” usually found in the literature is an artefact caused by the spurious correlation between municipality size and local tax rates. |
| Keywords: | Residential mobility, local taxes, local public expenditures, heterogeneity, local amenities, life cycle. |
| JEL: | H71 H72 R23 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2024-12&r=pub |
| By: | Verde, Stefano F.; Di Cosmo, Valeria |
| Abstract: | This paper proposes a dynamic carbon tax (DCT) that stabilises gasoline prices by adjusting inversely to crude oil prices. Compared to a standard fixed-rate carbon tax, the DCT can be expected to cut more CO2 emissions while receiving greater public support. Therefore, it could be a useful instrument for accelerating the ecological transition. The analysis is articulated in three parts. First, we show how, in the context of vehicle choice decisions, any policy that reduces uncertainty about future gasoline prices improves the expected utility of more fuel-efficient vehicles relative to less efficient ones. Second, we show how a DCT could be designed to automatically stabilise gasoline prices and thereby reduce price uncertainty. Third, we conduct an econometric test for whether gasoline price volatility, considered as a proxy for price uncertainty, negatively affects vehicle fuel efficiency. Using microdata from the 2017 National Household Transport Survey, we test for negative correlation between gasoline price volatility and fuel efficiency of new vehicles sold in the US. Evidence of a negative correlation is indeed found despite limited volatility of gasoline prices in the study period. Further tests are warranted using data from different time periods and alternative model specifications. |
| Keywords: | Carbon taxation, Gasoline prices, Vehicle choice, Fuel efficiency, Energy transition |
| JEL: | H2 H23 H3 Q4 Q5 |
| Date: | 2024–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120485&r=pub |