nep-pbe New Economics Papers
on Public Economics
Issue of 2020‒08‒24
twelve papers chosen by
Thomas Andrén

  1. Taxation and migration: Evidence and policy implications By Kleven, Henrik; Landais, Camille; Muñoz, Mathilde; Stantcheva, Stefanie
  2. Pareto-improving tax reforms and the Earned Income Tax Credit By Felix Bierbrauer; Pierre Boyer; Emanuel Hansen
  3. Bunching and Rank-Dependent Optimal Income Taxation By Laurent Simula; Alain Trannoy
  4. Impacts of Earned Income Tax Credit on Wages of Ineligible Workers By Aida Farmand
  5. Which way the pendulum swings? Equity and efficiency of three decades of tax-benefit reforms in Belgium By André Decoster; Sergio Perelman; Dieter Vandelannoote; Toon Vanheukelom; Gerlinde Verbist
  6. Hide-and-seek: Can tax treaties reveal offshore wealth? By Jeong-Dae Lee
  7. Tax reform and the political economy of the tax base By Ilzetzki, Ethan
  8. An empirical analysis of the mechanisms of international tax competition between Russia and foreign countries By Milogolov, Nikolay (Милоголов, Николай); Korytin, Andrey (Корытин, Андрей)
  9. Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy By Moretti, Enrico; Wilson, Daniel J
  10. Social Security Reforms and the Changing Retirement Behavior in Germany By Axel H. Börsch-Supan; Johannes Rausch; Nicolas Goll
  11. Taxing hidden wealth: the consequences of U.S. enforcement initiatives on evasive foreign accounts By Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
  12. Expanding Social Security Benefits All Workers By Aida Farmand; Teresa Ghilarducci; Siavash Radpour; Bridget Fisher

  1. By: Kleven, Henrik; Landais, Camille; Muñoz, Mathilde; Stantcheva, Stefanie
    Abstract: In this article, we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications. We start by laying out the empirical challenges that prevented progress in this area and then discuss how recent work has made use of new data sources and quasi-experimental approaches to credibly estimate migration responses. This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions. When considering the implications for tax policy design, we distinguish between uncoordinated and coordinated tax policy. We highlight the importance of recognizing that mobility elasticities are not exogenous, structural parameters. They can vary greatly depending on the population being analyzed, the size of the tax jurisdiction, the extent of tax policy coordination, and a range of non-tax policies. While migration responses add to the efficiency costs of redistributing income, we caution against over-using the recent evidence of (sizeable) mobility responses to taxes as an argument for less redistribution in a globalized world.
    JEL: H23 H24 H71 H73 H87
    Date: 2020–03–01
  2. By: Felix Bierbrauer (Center for Macroeconomic Research, University of Cologne); Pierre Boyer (CREST, ́Ecole Polytechnique); Emanuel Hansen (Center for Macroeconomic Research, University of Cologne)
    Abstract: This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a newperspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.
    Keywords: Tax reforms, Non-linear income taxation, Optimal taxation, Earned Income Tax Credits, Pareto Efficiency
    JEL: C72 D72 D82 H21
    Date: 2020–06
  3. By: Laurent Simula; Alain Trannoy
    Abstract: We consider optimal non-linear income tax problems when the social welfare function only depends on ranks as in Yaari (1987) and weights agree with the Lorenz quasi-ordering. Gini, S-Gini, and a class putting more emphasis on inequality in the upper part of the distribution belong to this set. Adopting a first-order approach, we establish marginal tax formula assuming a continuous population framework, and derive conditions on the primitives of the model for which the socially optimal allocation is either fully separating or involves some bunching. For all log-concave survival functions, bunching is precluded for the maximin, Gini, and ”illfare-ranked single-series Ginis”. We then turn to a discrete population setting, and provide ”ABC” formulas for optimal marginal tax rates, which are related to those for a continuum of types but remain essentially distinct.
    Keywords: rank dependence, Gini, optimal income taxation, bunching, log-concavity
    JEL: D63 D82 H21
    Date: 2020
  4. By: Aida Farmand (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: This paper analyzes the impact of the Earned Income Tax Credit (EITC) pay- ments on labour market behaviors, wages and the tax incidence. The variation in state EITC supplement in the U.S. provides the opportunity to examine the real redistributive impacts of this policy. More specifically, if EITC recipients compete in the same labor markets as others who are ineligible for the credit this can cause wage declines for workers who do not receive off setting EITC payments. Using a fixed effect model that controls for inter-state heterogeneity this study concludes that based on industry from 1991-2017 older (over age 55) ineligible workers who resided in states with more generous EITC benefits saw significantly less wage growth compared to their counterparts that did not reside in states with generous EITC supplements.
    Keywords: EITC, wages, bargaining power
    JEL: J50 J58 J59
    Date: 2019–06
  5. By: André Decoster; Sergio Perelman; Dieter Vandelannoote; Toon Vanheukelom; Gerlinde Verbist
    Abstract: Belgium has seen major changes in its tax-benefit system over the 28 year period 1992-2020. These changes have, to a large extent, co-determined the evolution of disposable incomes of Belgian households on the one hand, and work incentives on the other. In this paper we assess changes in tax-benefit policies over the full course of 1992-2020 along three dimensions: equity, efficiency and budgetary impact. We construct counterfactual distributions of disposable incomes under alternative tax benefit systems by means of the arithmetic microsimulation model EUROMOD. We summarize distributional effects of changes in the tax benefit system by measuring the impact on inequality of pre-tax and transfer income, and the impact on work incentives by aggregating the marginal tax rates at the intensive and extensive margin into the marginal cost of public funds. We find that most changes in the tax-benefit system have been pro-poor and that the redistributive power has -depending on the chosen benchmark- either been increased, or remained stable. Two reductions of personal income taxes eroded the redistributive power of the tax benefit system. Work incentives deteriorated under the tax hikes of the fiscal consolidation period in the nineties. The improvement of work incentives was considerable thanks to the introduction of an earned income tax credit, and the lowering of personal income taxes and social security contributions, but came at a large budgetary cost. Finally, the size of some of the effects crucially depends on the choice of the ‘no policy change’ counterfactual: either indexation with inflation or indexation with nominal wage growth.
    Date: 2019–04
  6. By: Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, UNESCAP)
    Abstract: In response to offshore tax evasion, governments have introduced new tax treaties to facilitate the exchange of financial account information between jurisdictions, including traditional tax havens. Based on international banking statistics, I examine whether these treaties have had a material impact on offshore evasion. Based on panel regression analysis, I find that cross-border deposits in traditional haven jurisdictions, taken as a proxy for offshore evasion in the literature, have declined substantially. However, I also find that these offshore assets are being relocated to few non-compliant tax havens and moreover, “non-haven” offshore financial centres, most notably the United States, which has yet to commit to reciprocal and automatic exchange of information and establish a public register of ultimate beneficial ownership.
    Keywords: tax evasion, tax haven, exchange of information
    JEL: H26
    Date: 2019–08
  7. By: Ilzetzki, Ethan
    Abstract: This paper studies the political prospects for reform in a model where the tax base and statutory rate are separate instruments of tax policy. The model suggests that large changes in the tax code may be easier to enact than marginal reforms. The tax base faces a tipping point where even the beneficiaries from tax exemptions support reform. At this tipping point, tax reform is Pareto improving. Politically feasible tax reform occurs when fiscal needs are large, but may nonetheless involve reductions in marginal tax rates. There is strategic complementary in lobbying for tax exemptions, resulting in multiple equilibria. The model’s main predictions are consistent with recent tax reforms in OECD countries.
    JEL: D72 D78 H26
    Date: 2018–08–01
  8. By: Milogolov, Nikolay (Милоголов, Николай) (The Russian Presidential Academy of National Economy and Public Administration); Korytin, Andrey (Корытин, Андрей) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: This paper is devoted to the testing of the empirical hypothesis about impact of taxation on the decisions of foreign investors. We use empirical model suggested by the authors in order to assess the impact of tax factor on the decisions of foreign investors choosing sectors of Russian economy as object of investment. Authors make conclusion that there are necessary pre-conditions for international tax competition in the economic conditions which are common for Russian economy.
    Date: 2020–04
  9. By: Moretti, Enrico; Wilson, Daniel J
    Abstract: We study the effect of state-level estate taxes on the geographical location of the Forbes 400 richest Americans and its implications for tax policy. We use a change in federal tax law to identify the tax sensitivity of the ultra-wealthy's locational choices. Before 2001, some states had an estate tax and others didn't, but the tax liability for the ultra-wealthy was independent of their domicile state due to a federal credit. In 2001, the credit was phased out and the estate tax liability for the ultra-wealthy suddenly became highly dependent on domicile state. We find the number of Forbes 400 individuals in estate tax states fell by 35% after 2001 compared to non-estate tax states. We also find that billionaire's sensitivity to the estate tax increases significantly with age. Overall, billionaires' geographical location appears to be highly sensitive to state estate taxes. We then estimate the effect of billionaire deaths on state tax revenues. We find a sharp increase in tax revenues in the three years after a Forbes billionaire death, totaling $165 million for the average billionaire. In the last part of the paper, we study the implications of our findings for state tax policy. We estimate the revenue costs and benefits for each state of having an estate tax. The benefit is the one-time tax revenue gain when a wealthy resident dies, while the cost is the foregone income tax revenues over the remaining lifetime of those who relocate. Surprisingly, despite the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority of states.
    Date: 2019–10
  10. By: Axel H. Börsch-Supan; Johannes Rausch; Nicolas Goll
    Abstract: As much like other industrialized countries, in recent decades the employment rate in Germany for those aged 55 to 69 had been declining first to considerably rise again afterwards. This paper investigates the role of structural policy changes, in particular reforms of the pension system, since 1980 in explaining this trend reversal. We summarize the institutional changes and pension reforms that may account for the trend reversal, and calculate an “implicit tax on working longer”. We find that for both men and women the increase in the employment rate coincides with a reduction in the early retirement incentive. The reduction of incentives mainly stems from the introduction of actuarial deductions for early retirement and from the abolishment of specific early retirement pathways.
    JEL: H55 J26
    Date: 2020–07
  11. By: Johannesen, Niels; Langetieg, Patrick; Reck, Daniel; Risch, Max; Slemrod, Joel
    Abstract: In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of enforcement efforts on taxpayers’ reporting of offshore accounts and income. We find that enforcement caused approximately 50,000 individuals to disclose offshore accounts with a combined value of about $100 billion. Most disclosures happened outside offshore voluntary disclosure programs, by individuals who never admitted prior noncompliance. Disclosed accounts were concentrated in countries often characterized as tax havens. Enforcement-driven disclosures increased annual reported capital income by $2-$4 billion, corresponding to $0.6-$1.2 billion in additional tax revenue.
    JEL: H24 H26 K34
    Date: 2020–08–01
  12. By: Aida Farmand; Teresa Ghilarducci; Siavash Radpour; Bridget Fisher (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: The COVID-19 recession increased the risks of job loss and getting sick on the job and worsened the inequality in the distribution of job safety among older workers. Older women workers and older Black workers are underrepresented in safe jobs and overrepresented in jobs at risk for job loss and illness.
    Keywords: Covid-19, Public health, Workers, Jobs, Unemployment, Risk, Frontline, Race, Older workers
    JEL: E24 I14 J62 J38 E21 J83 J32
    Date: 2020–07

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