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on Public Economics |
| By: | Ruud A. de Mooij |
| Abstract: | This paper discusses the theory and practice of tax design to achieve an efficient and equitable outcome, i.e. in support of inclusive growth. It starts with a discussion of the key principles from tax theory to guide practical tax design. Then, it elaborates on more granular tax policy, discussing key choices in the structure of the personal income tax on labor and capital income, taxes on wealth, the corporate income tax, and consumption taxes. The paper concludes by highlighting the political economy considerations of the issues with concrete recommedtions as to how to implement tax reform. |
| Keywords: | tax policy;inclusive growth;inequality;poverty;income distribution;WP;economic rent;personal income;tax liability;cost of capital;external cost;public finance;rate of return; low income; take-home pay; Income; Capital income tax; Income and capital gains taxes; Corporate income tax; Income tax systems; Europe; Global |
| Date: | 2020–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2020/271&r= |
| By: | Advani, Arun; Tarrant, Hannah |
| Abstract: | In this paper, we review the existing empirical evidence on how individuals respond to the incentives created by a net wealth tax. Variation in the overall magnitude of behavioural responses is substantial: estimates of the elasticity of taxable wealth vary by a factor of 800. We explore three key reasons for this variation: tax design, context and methodology. We then discuss what is known about the importance of individual margins of response and how these interact with policy choices. Finally, we use our analysis to systematically narrow down and reconcile the range of elasticity estimates. We argue that a well-designed wealth tax would reduce the tax base by 7–17 per cent if levied at a tax rate of 1 per cent. |
| Keywords: | behavioural responses; efficiency; tax elasticities; wealth tax; ES/L011719/1; ES/V012657/1; International Inequalities Institute AFSEE COVID‐19 fund |
| JEL: | D14 H21 H26 H31 |
| Date: | 2021–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112695&r= |
| By: | Francesco Furno |
| Abstract: | This paper extends a standard general equilibrium framework with a corporate tax code featuring two key elements: tax depreciation policy and the distinction between c-corporations and pass-through businesses. In the model, the stimulative effect of a tax rate cut on c-corporations is smaller when tax depreciation policy is accelerated, and is further diluted in the aggregate by the presence of pass-through entities. Because of a highly accelerated tax depreciation policy and a large share of pass-through activity in 2017, the model predicts small stimulus, large payouts to shareholders, and a dramatic loss of corporate tax revenues following the Tax Cuts and Jobs Act (TCJA-17). These predictions are consistent with novel micro- and macro-level evidence from professional forecasters and sectoral tax returns. At the same time, because of less-accelerated tax depreciation and a lower pass-through share in the early 1960s, the model predicts sizable stimulus in response to the Kennedy's corporate tax cuts - also supported by the data. The model-implied corporate tax multipliers for Trump's TCJA-17 and Kennedy's tax cuts are +0.6 and +2.5, respectively. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.12799&r= |
| By: | Advani, Arun; Hughson, Helen; Tarrant, Hannah |
| Abstract: | In this paper, we model the revenue that could be raised from an annual and a one-off wealth tax of the design recommended by Advani, Chamberlain and Summers in the Wealth Tax Commission's Final Report (2020). We examine the distributional effects of the tax, in terms of both wealth and other characteristics. We also estimate the share of taxpayers who would face liquidity constraints in meeting their tax liability. We find that an annual wealth tax charging 0.17 per cent on wealth above £500,000 could generate £10 billion in revenue, before administrative costs. Alternatively, a one-off tax charging 4.8 per cent (effectively 0.95 per cent per year, paid over a five-year period) on wealth above the same threshold, would generate £250 billion in revenue. To put our revenue estimates into context, we present revenue estimates and costings for some commonly proposed reforms to the existing set of taxes on capital. |
| Keywords: | distribution; personal tax; revenue; wealth tax; ES/L011719/1; ES/V012657/1; International Inequalities Institute AFSEE COVID‐19 fund |
| JEL: | D31 H24 |
| Date: | 2021–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112699&r= |
| By: | Vitalijs Jascisens (HSE University); Anna Zasova (Baltic International Centre for Economic Policy Studies (BICEPS)) |
| Abstract: | This paper explores the effect of tying social security benefits to declared wages on firm-worker collusion and strategic income reporting before the benefit entitlement. We use administrative data from Latvia covering the entire working population over a 15-year period from 1996 to 2010 to study generous parental benefits, which depend on the reported wage in the time period before the childbirth. Our analysis delivers three principal results. First, we observe a sharp increase in the wage during the time period taken into account to calculate parental benefits, and interpret the obtained result as a collusive legalization of previously unreported income with an aim to increase the future benefit. Depending on the specification, we conclude that during this period the wage on average increases by 5.4%-7.5%. Second, obtained effects are highly heterogeneous. We find that the wage growth is much higher in small firms, where it is presumably easier to sustain collusion between employees and employers. Finally, we demonstrate that legalization of wages is temporary and lasts only until the end of the period taken into account to calculate parental benefits. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bic:rpaper:9&r= |
| By: | M. Kate Bundorf; Daniel P. Kessler |
| Abstract: | Although economic theory suggests that the federal government can influence spending by states through subsidies to programs that states operate, no recent work has quantified the magnitude of this effect for Medicaid, the largest program of this type in the U.S. We find that Medicaid spending per enrollee responds to the magnitude of the federal subsidy. The Affordable Care Act (ACA) and its subsequent interpretation by the Supreme Court gave states the option to expand eligibility for their Medicaid programs in exchange for increases in the generosity of the federal subsidy. States that exercised this option increased Medicaid spending per enrollee on enrollees who were eligible even before the ACA by approximately 15 percent. Depending on the specification, this translates into an elasticity of Medicaid spending per enrollee with respect to the after-subsidy price of Medicaid to a state of -0.494 to -0.579. |
| JEL: | H11 H71 H72 H75 H77 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29492&r= |
| By: | Nicolas Gavoille (Stockholm School of Economics in Riga (SSE Riga)and Baltic International Centre for Economic Policy Studies (BICEPS)); Anna Zasova (Baltic International Centre for Economic Policy Studies (BICEPS)) |
| Abstract: | This paper shows that in a context of widespread labor tax evasion, employees of foreign-owned firms receive less undeclared cash payments than employees of domestic firms. The empirical analysis relies on a combination of administrative and survey data and implements an expenditure-based underreporting analysis a la Pissarides and Weber (1989). This provides an alternative explanation for the wage premium for employees of foreign-owned firms observed in similar environments. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bic:rpaper:8&r= |
| By: | Efobi, Uchenna; Adejumo, Oluwabunmi O. |
| Abstract: | Studies have noted the possibility of tax treaties constraining the tax policy autonomy of developing countries, while their impact on enterprise development within host economies remains an empirical issue. This study examines the effects and heterogeneous differences in estimated effects of tax treaties on small businesses in developing countries that agree to these agreements. The study uses the ICTD tax treaties dataset and the World Bank Enterprise Survey data to set up a quasi-experiment framework for selected African Countries. The framework compares countries’ outcomes for small businesses that ratify and enforce a tax treaty and those without a ratified tax treaty for the years pre-2005–2010 and post-2011–2019). We find that tax treaties signed and enforced by developing countries in Africa have a consistent, negative relationship with small business outcomes. These results are driven by the enterprise’s size and internationalisation status but not by the subsidiary status of the sampled small businesses. The findings have implications for policy targeted towards industrial development alongside tax treaty negotiations. |
| Keywords: | Governance, |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:16986&r= |
| By: | NARAZANI Edlira (European Commission - JRC); COLOMBINO Ugo; PALMA FERNANDEZ Bianey (European Commission - JRC) |
| Abstract: | This paper describes EUROLAB, a labour supply-demand microsimulation model that relies on EUROMOD, the static microsimulation model for the European Union countries. EUROLAB is built on a multidimensional discrete choice model of labour supply and accounts for involuntary unemployment. The model estimates individual changes in supplied hours of work and participation as a reaction to a hypothetical or real tax transfer reform, often referred to in the literature as “second-order” effects. Furthermore, the model allows for the demand-side effects of a labour market that, depending on how elastic it is, would lead to a different labour supply when the market reaches its equilibrium. The model is unique in covering 27 countries under the same specification of preferences, opportunity set representation and the same concept of income and working hours. We illustrate the usefulness of the model by showing several examples of EUROLAB, using both the one-dimensional and multidimensional versions. Potential extensions of the model are also discussed in the paper. |
| Keywords: | Behavioural Models, Discrete Choice Modelling, Labour supply, Labour market equilibrium |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202115&r= |
| By: | Mr. Alexander D Klemm; Mr. Paolo Mauro |
| Abstract: | Based on a survey of about 2,500 US resident adults, we show that people who have experienced serious illness or job loss caused by the COVID-19 pandemic, or who personally know someone who has, favor a temporary progressive levy or structural progressive tax reform to a greater extent than others in the sample, controlling for income, demographic characteristics, and other factors. People who reveal preferences for spending items (more on police, military, border protection; less on education, health, environment) that are associated with communitarian (rather than universalist) moral perspectives generally show weaker support for progressive reforms, but more communitarians change their views as a result of personal experience. The results are consistent with previous findings that economic upheavals can mold individuals’ views on policy matters. |
| Keywords: | Solidarity taxes;surcharges;surveys;attitudes;progressivity;tax reform.;WP;solidarity contribution;solidarity tax;recovery contribution;household income;income level |
| Date: | 2021–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/024&r= |
| By: | Moutsopoulos, Michael; Pelagidis, Theodore |
| Abstract: | One of the main topics highlighted in the field of economic policy applications is the impact of taxation on labor. In an era in which macroeconomic stability, technological change, and globalization pressure the job market, there exists no strong consensus in the literature on how exactly taxation influences growth, choice between work and leisure, share of income attributed to labor, or participation in different job market segments. This article focuses on employment levels and uses the results of the World Economic Forum (WEF) Executive Opinion Survey (EOS) between 2013 and 2017 to bypass several challenges often faced in the literature. By doing so, we complement the insights of the existing literature by establishing that, in institutionally mature countries, taxation that is deemed by a survey of business executives to pose a disincentive to work reduces employment. |
| Keywords: | Labor, Taxation |
| JEL: | E2 F66 H21 J01 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110823&r= |