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on Public Economics |
| By: | Carlo Pizzinelli; Samuel Pienknagura; Santiago Acosta-Ormaechea |
| Abstract: | This study provides an overview of tax structures in LAC before the COVID-19 pandemic, compares it to OECD countries, and provides recommendations for growth-friendly and inclusive tax policy reforms. LAC countries collect significantly lower tax revenue relative to OECD countries and have tax structures that rely excessively on corporate-income taxes (CIT) while personal-income taxes (PIT) remain largely underutilized. LAC countries could strengthen their PIT to mobilize revenue and improve progressivity by addressing critical design flaws. Possible adverse growth effects could be mitigated by providing incentives to labor force participation and formalization (e.g., through earned-income tax credits). The ongoing global corporate income tax reforms present a great opportunity to reassess thoroughly the CIT in LAC. Specifically, reforms would need to focus on aligning CIT statutory rates with those of other regions—when assessed to be relatively high—to attract investment and alleviate profit shifting, and on broadening the corporate tax base. Value-added taxes (VAT) could be improved by tackling exemptions and reduced rates. Furthermore, while estimates of additional revenue from levying the VAT on the digital economy appear modest, taxing this sector as others in the economy is critical to avoid further tax base erosion. |
| Keywords: | Taxation, Progressivity, Inclusive Growth, Latin America and the Caribbean |
| Date: | 2022–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/008&r= |
| By: | Mr. Alexander D Klemm; Maria Delgado Coelho; Ms. Carolina Osorio Buitron; Aieshwarya Davis |
| Abstract: | This paper provides an overview of the relation between tax policy and gender equality, covering labor, capital and wealth, as well as consumption taxes. It considers implicit and explicit gender biases and corrective taxation. On labor taxes, we discuss the well-established findings on female labor supply and present new empirical work on the impact of household taxation. We also analyze the impact of progressivity on pay gaps and labor supply. On capital and wealth taxation, we discuss the implications of lower effective capital income taxation on the personal income tax burden gap across genders. We show that countries with relatively low female shares of capital income and wealth also tend to tax property and inheritances particularly lightly. On consumption taxes, we cover taxes on female hygiene products and excise taxes, which we assess in relation to externalities and differences in consumption patterns across genders. |
| Keywords: | Tax, Gender, Labor Supply, Biased Taxes. |
| Date: | 2022–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/026&r= |
| By: | Spiritus, Kevin (Erasmus University Rotterdam); Lehmann, Etienne (CRED, Université Panthéon Assas Paris 2); Renes, Sander (Erasmus University Rotterdam); Zoutman, Floris T. (Norwegian School of Economics) |
| Abstract: | We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple incomes and differ along many unobserved dimensions. We derive the necessary conditions for the government’s optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique. |
| Keywords: | nonlinear optimal taxation, multidimensional screening, household income taxation |
| JEL: | H21 H23 H24 D82 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15036&r= |
| By: | Dingquan Miao |
| Abstract: | I analyze the role of the distribution of skills in shaping optimal nonlin-ear income tax schedules. I use theoretical skill distributions as well as empirical skill distributions for 14 OECD countries. I find that a more dispersed log-normal skill distribution implies a more progres-sive optimal tax schedule. Optimal tax rates should be lower through-out if a greater number of unskilled agents cluster at the bottom, and the scheme is more progressive if a greater number of agents locate at the top. I also highlight how the impact of the skill distribution is affected by the form of the social welfare function and the utility function. The findings using empirical skill distributions suggest that the results are sensitive to the type of statistical estimator used to estimate the skill distribution. |
| JEL: | H21 J24 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:lis:liswps:823&r= |
| By: | Duggan, Mark (Stanford University); Guo, Audrey (Santa Clara University); Johnston, Andrew C. (University of California, Merced) |
| Abstract: | The tax base for state unemployment insurance (UI) programs varies significantly in the U.S., from a low of $7,000 annually in California to a high of $52,700 in Washington. Previous research has provided surprisingly little guidance to policy makers regarding the tradeoffs associated with this variation. In this paper, we use 37 years of data for all 50 states and Washington, D.C. to estimate the impact of the UI tax base on labor-market outcomes. We find that the low tax base that exists in California and many other states (and the necessarily higher tax rates that accompany these) negatively affects labor market outcomes for part-time and other low-earning workers. |
| Keywords: | unemployment insurance, tax base, payroll taxes, experience rating |
| JEL: | D22 H22 H25 H71 J23 J32 J38 J65 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15020&r= |
| By: | Ms. Dora Benedek; Juan Carlos Benitez; Charles Vellutini |
| Abstract: | Personal Income Tax (PIT) is one of the key sources of revenues in Advanced Economies (AEs) but plays a much more limited role in Low-Income Developing Countries (LIDCs) and Emerging Market Economies (EMEs), both in terms of revenue and redistributive impact. Notwithstanding, this paper shows that LIDCs and EMEs increased their PIT-to-GDP revenue by 110 and 48 percent, respectively, during the 1990-2019 period, a marked improvement in the PIT revenue performance. We find that this rise was driven primarily by economic developments and to a lesser extent by changes in the design of PIT systems. We also find that LIDCs that improved their tax-to-GDP ratios relied on a broader set of tax instruments and not exclusively on the PIT, suggesting that a successful revenue mobilization strategy of developing countries requires a comprehensive approach covering a wider range of taxes. Finally, using a newly assembled dataset of PIT characteristics of 157 countries over the 2006-2018 period, we estimate a novel redistribution index of the PIT in LIDCs. We show that the contribution of the PIT to inequality reductions has been significant. |
| Keywords: | Personal income tax, progressivity, redistribution, low-income countries, emerging market economies |
| Date: | 2022–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/020&r= |
| By: | Assaf Razin; Alexander Horst Schwemmer |
| Abstract: | It has been well recognized that population ageing could generate structural changes centered around the dwindling labor force, on one hand, and the expanding dependency on the generosity of the welfare state, on the other hand. Ageing-related welfare state policy entails both fiscal issues and migration issues. The paper employs a general-equilibrium model with a policy-making focus, to help understand the mechanism governing the provision of social benefits, labor income taxation, capital income taxation, migration curbs on low skilled and high skilled, driven by the ageing of the population. Greater generosity of the welfare state comes together with policy-- incentive compatible with the interests of the majority voters-- of a more liberal migration policy. Effects of ageing on the tax and benefit sides of the welfare state depends on the size of dependents in the population and on whether the country is a capital importer (in which case the capital tax burden is shared with foreigners) or a capital exporter (in which case the age-related wage increase skews taxation towards labor income). Low ageing evolution correlates with a relatively labor-abundant country (low retirement) turns into labor-scarce country (high retirement). Parallel to the evolution of the labor force, a capital-importer country (high rate of return) becomes capital-exporter (low rate of return). Greater ageing-related demand for social benefits is balanced against the rising cost of labor income taxation, and capital income taxation. |
| JEL: | F2 H2 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29700&r= |
| By: | Munoz, Laura; Mascagni, Giulia; Prichard, Wilson; Santoro, Fabrizio |
| Abstract: | Digital financial services (DFS) have rapidly expanded across Africa and other low-income countries. At the same time, low-income countries face strong pressures to increase domestic resource mobilisation, and major challenges in taxing the digital economy. A growing number are therefore advancing or considering new taxes on DFS. These have generated much debate and there are significant disagreements over the rationale for the taxes and their likely impacts. This paper examines three key questions that could help governments and other stakeholders to better understand the rationale for, and impacts of, different decisions around taxing DFS – and to arrive at policies that best meet competing needs. First, what is the rationale for imposing specific taxes on money transfers or mobile money in particular? Second, and most importantly, what is the likely impact of DFS taxes? Third, how do the policy processes through which taxes on DFS and money transfers are introduced function in practice? The paper looks at the core principles of good taxation and presents the existing debate around whether taxes on DFS observe them. It explains why understanding the landscape of financial services is essential to designing suitable tax policies and lays out a framework for developing the necessary analysis of the impacts of taxes on DFS. It also highlights the importance of better understanding the processes that give rise to these taxes. |
| Keywords: | Governance, |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:17171&r= |
| By: | Rauh, C.; Santos, M. R. |
| Abstract: | This paper studies the impact of existing and universal transfer programs on vacancy creation, wages, and welfare using a search-and-matching model with heterogeneous agents and on-the-job human capital accumulation. We calibrate the general equilibrium model to match key moments concerning unemployment, wage and wealth distributions, as well as the distribution of EITC and transfers. In addition, unemployment insurance benefits are related to pre-unemployment earnings and subject to exhaustion, after which agents can only rely on transfers and savings. First, we show that existing transfers hamper economic activity but provide sizeable welfare gains. Next, we show that a universal basic income of nearly $12,500 to each household per year, which replaces all existing transfer programs and unemployment benefits, can lead to small aggregate welfare gains. These welfare gains mostly accrue to less skilled individuals despite their sizable fall in wages, and the overall rise in skill premia and wage inequality. Albeit the extra burden of higher taxes to finance UBI, we show that the increased action in hiring is a key channel though which outcomes for low education groups improve with the reform. However, if we keep the UI benefits in place, the positive effects on job creation vanish and UBI does not improve upon the current system. |
| Keywords: | Transfer programs, EITC, Means-tested transfers, Welfare programs, Labor supply, On-the-job human capital accumulation, Life cycle, Inequality, Universal basic income, UBI, Unemployment, General equilibrium |
| Date: | 2022–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2205&r= |
| By: | Francesco Berardini (Bank of Italy); Fabrizio Renzi (Bank of Italy) |
| Abstract: | Policy evaluation based on the estimation of dynamic stochastic general equilibrium models with aggregate macroeconomic time series rests on the assumption that a representative agent can be identified, whose behavioural parameters are independent of the policy rules. Building on earlier work by Geweke, the main goal of this paper is to show that the representative agent is in general not structural, in the sense that its estimated behavioural parameters are not policyindependent. The paper identifies two different sources of nonstructurality. The latter is shown to be a fairly general feature of optimizing representative agent rational expectations models estimated on macroeconomic data. |
| Keywords: | Covid-19, value added tax, vat compliance, vat gap, cashless payments, payment habits, household behavior, consumer preferences. |
| JEL: | H21 H26 E21 E32 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_669_22&r= |