nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒02‒07
nine papers chosen by
Thomas Andrén

  1. A Fair Day's Pay for a Fair Day's Work: Optimal Tax Design as Redistributional Arbitrage By Christian Hellwig; Nicolas Werquin
  2. Consumption taxation to finance pension payments By Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
  3. Redistributive effect and the progressivity of taxes and benefits: evidence for the UK, 1977–2018 By Nicolas Hérault; Stephen P. Jenkins
  4. How Accurate Is the Kakwani Index in Predicting Whether A Tax or a Transfer Is Equalizing? An Empirical Analysis By Ali Enami; Patricio Larroulet; Nora Lustig
  5. Stamp duty and equity in Australia By Manning Clifford; John Freebairn
  6. Shifting the Tax Burden away from Labour towards Inheritances and Gifts – Simulation results for Germany By Andreas THIEMANN; Diana OGNYANOVA; Edlira NARAZANI; Balazs PALVOLGYI; Athena Kalyva; Alexander LEODOLTER
  7. Understanding the rising trend in female labour force participation By Nicolas Hérault Research, The University of Melbourne; Life Course Centre; Guyonne Kalb
  8. Digital Financial Services and Digital IDs: What Potential do They Have for Better Taxation in Africa? By Santoro, Fabrizio; Munoz, Laura; Prichard, Wilson; Mascagni, Giulia
  9. The effect of job search requirements on welfare receipt By Nicolas Hérault; Ha Vu; Roger Wilkins

  1. By: Christian Hellwig; Nicolas Werquin
    Abstract: We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners in dynamic environments, which relies on the observed distributions of both income and consumption. Because consumption has a thinner Pareto tail than income, our quantitative results suggest that it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings.
    Keywords: Capital Taxation; Income Taxation; Consumption Inequality
    JEL: D31 H21
    Date: 2022–01–06
  2. By: Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
    Abstract: This paper assesses how a permanent shift from financing a public pay-as-you-go pension by direct (labour income) taxation towards financing it by indirect(consumption) taxation affects the economy and welfare. To this end, we use anoverlapping-generations-augmented two-region general equilibrium framework withsearch frictions on the labour market. The analysed tax reform partially shifts thetax burden from domestic to foreign producers and lowers marginal costs of domes-tic production and generates positive domestic macroeconomic effects. In addition,the partial postponement of a household's tax burden to retirement leads to highersavings and increases domestic assets. However, for some time after implementationof the tax reform, the policy-induced increase in consumption costs makes retireesand households close to retirement worse off. Moreover, the increase in domesticnet foreign assets implies that consumption of foreign households eventually falls,which stands in contrast to what is commonly found in models without an endoge-nous savings motive.
    Keywords: Fiscal devaluation,OLG models,Pension system,Optimal taxation
    JEL: E24 E62 H21 H55 J26
    Date: 2021
  3. By: Nicolas Hérault (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne); Stephen P. Jenkins (London School of Economics and Political Science)
    Abstract: We apply the Kakwani approach to decomposing redistributive effect into average rate, progressivity, and reranking components using yearly UK data covering 1977–2018. We examine cash and in-kind benefits, and direct and indirect taxes. In addition, we highlight an empirical implementation issue – the definition of the reference (‘pre-fisc’) distribution. Drawing on an innovative counterfactual approach, our empirical analysis shows that trends in the redistributive effect of cash benefits are largely associated with cyclical changes in average benefit rates. In contrast, trends in the redistributive effects of direct and indirect taxes are mostly associated with changes in progressivity. For in-kind benefits, changes in the average benefit rate and progressivity each played the major roles at different times.
    Keywords: Kakwani decomposition, inequality, redistributive effect, progressivity, reranking, benefits, taxes
    JEL: D31 H24 H50 I38
    Date: 2021–11
  4. By: Ali Enami; Patricio Larroulet; Nora Lustig
    Abstract: The Kakwani index of progressivity is commonly used to establish whether the effect of a specific tax or transfer is equalizing. However, in the presence of reranking or the Lambert conundrum, a progressive tax could be unequalizing. While it is mathematically possible for counterintuitive results to occur, how common are they in actual fiscal systems? Using a novel dataset that includes fiscal incidence results for 39 countries, we find that the likelihood of the Kakwani index to be progressive (regressive) while the tax or transfer is unequalizing (equalizing) is minimal, except in the case of indirect taxes: in roughly 25 percent of our sample, regressive indirect taxes are equalizing (sign-inconsistent cases). Additionally, the likelihood that the index ranks the magnitude of the impact of a tax or a transfer wrongly exists but is also small. Finally, using regression analysis, we find that increasing the size or progressivity of a progressive tax (transfer) is equalizing and statistically robust for sign-consistent cases. For sign-inconsistent cases, the coefficient for the Kakwani index is not statistically significant. In sum, although the Kakwani index could yield interpretations that are inaccurate in actual fiscal systems, the risk seems small except for indirect taxes.
    Keywords: Kakwani index, fiscal redistribution, reranking, progressivity, marginal contribution, taxes, transfers, Lambert
    JEL: D31 D63 H22 H23
    Date: 2022–01
  5. By: Manning Clifford (No affiliation); John Freebairn (Department of Economics, the University of Melbourne)
    Abstract: Stamp duty is a core part of the Australian tax system, but large components of its effect on the economy are unknown. In particular, the distribution of stamp duty's costs are not well understood. This has been hampered by a lack of quantitative studies of stamp duty's costs, and by limited discussion of stamp duty's effect on rental markets. This paper addresses this gap by establishing a theoretical framework for understanding stamp duty's incidence, and then by estimating the distribution of its costs. We find that stamp duty is a regressive tax, and that this regressiveness is predominantly due to the fact that housing costs are a significantly higher share of household income in low income households. We also find that the economic incidence of stamp duty is not particularly relevant to interrogations of how costs are distributed, because (unlike in many other markets), most people who sell housing tend to purchase houses of a similar value within a short time period of selling. We also provide some thoughts on current reform proposals and then discuss how land taxes could be designed in light of political barriers.
    Keywords: Transfer taxes, stamp duty, equity, tax incidence, transaction costs
    JEL: D23 H22 H23 H27 R21 R31 R38
    Date: 2021–06
  6. By: Andreas THIEMANN (European Commission – JRC); Diana OGNYANOVA (European Commission – DG ECFIN); Edlira NARAZANI (European Commission – JRC); Balazs PALVOLGYI (European Commission - DG ECFIN); Athena Kalyva (Greek Ministry of Finance); Alexander LEODOLTER (European Commission – DG ECFIN)
    Abstract: Germany’s tax system places a relatively strong emphasis on direct taxes, particularly on labour. At the same time, revenues from the inheritance and gift tax are relatively low. This points towards a large-scale transfer of wealth from one generation to the next that is largely untaxed and thereby maintaining the high degree of wealth inequality observed in Germany. This is due mainly to the wide-ranging tax exemptions for business assets, which make the system complex, inefficient and regressive. This paper presents three hypothetical budget-neutral scenarios of broadening the inheritance and gift tax base while reducing the tax burden on labour income. Keeping the current progressive rates but abolishing tax exemptions would lead to about EUR 9-12 billion additional annual inheritance and gift tax revenue. Replacing the current tax regime by a flat rate of 10% or 15% could yield about EUR 0.5-2.3 billion or EUR 4-6.5 billion. Using EUROMOD, the microsimulation model of the EU, we show that these additional revenues could be used to reduce the tax burden on labour, which would improve income equality. Furthermore, estimations of labour supply responses to these reforms, based on the EUROLAB labour supply model, indicate that lowering the tax burden on labour may also lead to a slight increase in labour supply in particular for low-income earners.
    Keywords: tax shift, inheritance and gift tax, tax wedge on labour, wealth inequality.
    JEL: D31 H2 J2
    Date: 2021–12
  7. By: Nicolas Hérault Research, The University of Melbourne; Life Course Centre; Guyonne Kalb (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne | Life Course Centre; Institute of Labor Economics (IZA))
    Abstract: Female labour force participation has increased tremendously since World War II in developed countries. Prior research provides piecemeal evidence identifying some drivers of change but largely fails to present a consistent story. Using a rare combination of data and modelling capacity available in Australia, we develop a new decomposition approach to explain rising female labour force participation since the mid-1990s. The approach allows us to identify, for the first time, the role of tax and transfer policy reforms as well as three other factors that have been shown to matter by earlier studies. These are (i) changes in real wages, (ii) population composition changes, and (iii) changes in labour supply preference parameters. A key result is that –despite the ongoing emphasis of public policy on improved work incentives for women in Australia and elsewhere– changes in financial incentives due to tax and transfer policy reforms have contributed relatively little to achieve these large increases in participation. Instead, the other three factors drive the increased female labour force participation.
    Keywords: female labour force participation, employment rate, tax-transfer policy, behavioural microsimulation, decomposition
    JEL: H31 J22 J31
    Date: 2020–05
  8. By: Santoro, Fabrizio; Munoz, Laura; Prichard, Wilson; Mascagni, Giulia
    Abstract: New digital technologies are now being widely used in Africa and lower-income countries (LICs). This has had an impact on tax administration, which has been increasingly digitised. Specifically Digital Financial Services (DFS) and digital IDs can improve tax administration. They have the potential to identify taxpayers more easily, communicate with them better, enforce and monitor compliance, and reduce compliance costs. While the potential is clear, existing literature indicates some of the barriers. Take-up of digital technology is still low due to barriers. Also, when taking up the technology, taxpayers often tend to adopt various measures to minimise tax payments. Within tax administrations there are challenges to accessibility and use of quality data. Mistakes can be made when launching digitisation, and there are regulatory and political barriers for effective use of digital technology. Given this context, this paper summarises key questions that are relevant for research and policy development to make more effective use of digital technology in tax administration in Africa and LICs
    Keywords: Governance,
    Date: 2022
  9. By: Nicolas Hérault (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne | The ARC Centre of Excellence for Children and Families over the Life Course; Global Labor Organization); Ha Vu (Deakin University | Melbourne Institute: Applied Economic & Social Research, The University of Melbourne | Tax and Transfer Policy Institute, Australian National University); Roger Wilkins (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne | IZA Institute of Labor Economics, Global Labor Organization; Tax and Transfer Policy Institute, Australian National University)
    Abstract: Many countries impose job search requirements on unemployment benefit recipients. Existing studies have evaluated only incremental changes to requirements. Australian reforms in 1995 saw groups of welfare recipients newly subjected to job search requirements, allowing us to produce the first causal estimates of the total effects of such requirements on welfare receipt. Using a quasi-experimental design and administrative data, we find large negative effects on welfare receipt for mature-age partnered women targeted by the reforms. We also find large negative effects on welfare receipt of their partners, suggesting family labour supply decisions were considerably affected.
    Keywords: welfare receipt, unemployment benefit, job search requirements
    JEL: H31 D10 J65
    Date: 2020–09

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