nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒03‒07
thirteen papers chosen by
Thomas Andrén

  1. The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates By Ole Agersnap; Owen Zidar
  2. Can Progressive Taxation Address Gender Inequality in Income? Cross-National Evidence of Gender Differences in Income Tax Payment Patterns and Post-Tax Income. By Morgan Richards-Melamdir
  3. Taxing mobile and overconfident top earners By Andreas HAUFLER; Yukihiro NISHIMURA
  4. When do Minimum Wages Increase Social Welfare? A Sufficient Statistics Analysis with Taxes and Transfers By Dami\'an Vergara
  5. How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with VAT By Jing Xing; Katarzyna A. Bilicka; Xipei Hou
  6. Profit Shifting of Multinational Corporations Worldwide By Javier Garcia-Bernardo; Petr Jansk\'y
  7. The Impact of Inflation on Social Security Benefits By Alicia H. Munnell; Patrick Hubbard
  8. Redistributive Effect and the Progressivity of Taxes and Benefits: Evidence for the UK, 1977–2018 By Herault, Nicolas; Jenkins, Stephen P.
  9. Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-cum and Cum-ex Transactions By Casi, Elisa; Gavrilova, Evelina; Murphy, David; Zoutman, Floris
  10. Efficiency-inducing tax credits for charitable donations when taxpayers have heterogeneous behavioral norms By Ngo Van Long
  11. Top Wealth in America: New Estimates and Implications for Taxing the Rich By Matthew Smith; Owen Zidar; Eric Zwick
  12. Classes and Taxes: Socio-Economic Status, Ideology and (Un)Willingness to Pay By Olivier Jacques
  13. Sugar Taxes: Why They are Needed and Where are They? By Finlay, Evan

  1. By: Ole Agersnap (Princeton University); Owen Zidar (Princeton University)
    Abstract: This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is −0.5 to −0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.
    Keywords: U.S., Northern America, Revenue, Tax, Taxation
    JEL: E62 H25 H71
    Date: 2021–12
  2. By: Morgan Richards-Melamdir
    Abstract: Gender difference in taxation is generally understudied, especially in sociology literature, which often overlooks taxation as a social phenomenon. While a small literature, studies on gender and taxation from a wider range of disciplines have offered and tested some core mechanisms producing gender difference in tax payment and post-tax income. One such mechanism is degree of tax progressivity. Most research on progressivity and gender difference in taxation analyzes one or two countries. Less research has used cross-national methods and larger samples of countries. This paper uses the most recent dataset for 27 countries (Waves IX, X, XI, from 2013 to 2018) from the Luxembourg Income Study Database (LIS) and a sample of single working men and women between the ages of 25 and 64 to address unanswered questions about the relationship between tax progressivity and gender differences in income tax payment and post-tax income. As expected, progressive taxation taxes men at a higher rate when gender income gaps favor men, while, in countries with less progressive taxation, men paid rates more similar to women, regardless of gender gap size. Income tax progressivity was also associated with greater gender equality in income post-tax. These results support tax progressivity as a tool for producing more gender-equal income distributions post-tax. Alongside previous research, these findings indicate that policymakers seeking greater gender equity should prioritize both progressive taxation and individual tax filing. Such arrangements allow progressive taxation to support gender equality in income without discouraging labor force participation for coupled women.
    Date: 2021–10
  3. By: Andreas HAUFLER; Yukihiro NISHIMURA (Graduate School of Economics, Osaka University)
    Abstract: We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased.
    Keywords: Overconfidence, bonus taxes, tax competition, migration
    JEL: H20 H87 G28
  4. By: Dami\'an Vergara
    Abstract: This paper characterizes optimal redistribution for a social planner with three instruments: labor income taxes and transfers, corporate income taxes, and a minimum wage. The modeled economy features search-and-matching frictions, generates positive firm profits in equilibrium, and accommodates empirically relevant effects of the minimum wage such as wage spillovers and reallocation effects. I find that minimum wages are more likely to be desirable when corporate taxes are low because minimum wages generate corporate revenue losses and redistribute from capitalists to low-skill workers. Minimum wages can improve welfare even under optimal income taxes by shifting tax incidence when wages bunch at the minimum. I estimate the sufficient statistics that guide the welfare analysis using state-level variation in minimum wages. I find that minimum wages have increased low-skill workers' welfare with null effects on high-skill workers and negative effects on capitalists. Results suggest that, under current corporate tax rates, weak social preferences for redistribution toward low-skill workers would justify small state-level minimum wages increases.
    Date: 2022–02
  5. By: Jing Xing; Katarzyna A. Bilicka; Xipei Hou
    Abstract: In this paper, we investigate distortions created by turnover taxes. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for some service industries in China, while the taxation of manufacturing industries remained unchanged. The reform increased sales, R&D investment, and employment for affected service firms, which is primarily driven by outsourcing from downstream manufacturing firms. We document that smaller and less innovative manufacturing firms outsource more, and reallocation increases the quality of innovation for affected service firms. Our study provides new evidence on the negative impact of turnover taxes imposed on business inputs.
    JEL: D25 H25 H32 O32
    Date: 2022–01
  6. By: Javier Garcia-Bernardo; Petr Jansk\'y
    Abstract: We exploit the new multinational corporations' country-by-country reporting data with unparalleled country coverage to study the distributional consequences of profit shifting to tax havens. We find that countries with lower incomes tend to lose more tax revenue relative to total tax revenues. We estimate that multinational corporations worldwide shifted up to US\$1 trillion of profits in 2016. We further establish that corporations headquartered in the United States and China shift profits most aggressively and that the Cayman Islands is the largest tax haven. In terms of methodology, we show that a logarithmic function is preferable to linear and quadratic ones for modelling the extremely non-linear relationship between profits and tax rates. Although their estimates of the global scale of profit shifting are similar, they differ substantially at country level: the logarithmic function points to profits being shifted considerably more to countries with zero or very low effective tax rates.
    Date: 2022–01
  7. By: Alicia H. Munnell; Patrick Hubbard
    Abstract: This fall, the U.S. Social Security Administration is likely to announce that benefits will be increased by around 6 percent beginning January 1, 2022. This cost-of-living-adjustment (COLA), which would be the largest in 40 years, is an important reminder that keeping pace with inflation is one of the attributes that makes Social Security benefits such a unique source of retirement income. A spurt in inflation, however, affects two other factors that determine the net amount that retirees receive from Social Security. The first is the Medicare premiums for Part B, which are deducted automatically from Social Security benefits. To the extent that premiums rise faster than the COLA, the net benefit will not keep pace with inflation. The second issue pertains to taxation under the personal income tax. Because taxes are levied on Social Security benefits only for households with income above certain thresholds ($25,000 for single taxpayers and $32,000 for joint returns) and the thresholds are not adjusted for wage growth or inflation, rising benefit levels subject more benefits to taxation – again reducing the net benefit. This brief explores the interaction of inflation and Social Security benefits. The first section describes the nature of the COLA. The second section looks at the interaction of Medicare premiums and the COLA. The third section explores how inflation affects the taxation of benefits. The final section concludes that, while the inflation adjustment in Social Security is extremely valuable, the rise in Medicare premiums and the extension of taxation under the personal income tax limits the ability of beneficiaries to fully maintain their purchasing power.
    Date: 2021–08
  8. By: Herault, Nicolas; Jenkins, Stephen P.
    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. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2021–11–02
  9. By: Casi, Elisa (Dept. of Business and Management Science, Norwegian School of Economics); Gavrilova, Evelina (Dept. of Business and Management Science, Norwegian School of Economics); Murphy, David (Dept. of Business and Management Science, Norwegian School of Economics); Zoutman, Floris (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We study the effect of reforms that close loopholes in the enforcement of the dividend withholding tax (DWT). We focus on a Danish reform enacted in 2016, and compare Denmark to its Nordic neighbors. Our main outcome of interest is the quantity of stocks on loan. Before the reform all Nordic countries have a strong spike in stocks on loan centered around the ex-dividend day. The magnitude is large: on average excess stocks on loan peak at around 4 percent of the public float. The spike in lending is consistent with the most popular DWT arbitrage schemes. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. We consider the welfare effects of the reform. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We also consider DWT arbitrage among 15 European countries between 2010-2019. We find evidence of DWT arbitrage in all countries that levy DWT, though there is strong heterogeneity across countries. Importantly, similar to Denmark, Germany’s 2016 reform has eliminated the spikes in lending completely. We validate our identification strategy by showing that we find no evidence of DWT arbitrage in the UK, which does not levy a DWT.
    Keywords: Dividend Tax Arbitrage; Tax Enforcement; Financial Innovation; Welfare Analysis
    JEL: F38 H25 H26 O16
    Date: 2022–02–22
  10. By: Ngo Van Long
    Abstract: We consider an economy in which some taxpayers behave in a Kantian way in their donation behavior while others are Nash players. A Kantian taxpayer holds the norm that any suggested deviation from a proposed equilibrium profile would be adopted by him only if when all members of their community adopted the same deviation, they would all achieve a higher level of welfare. In contrast, a Nash player follows the individual rationality criterion: He would deviate if, assuming all others do not deviate, he would improve his own payoff. We show that if all taxpayers are Nash players, then there is an efficiency-inducing tax credit scheme for charitable contributions. In contrast, if all taxpayers are Kantian, the optimal tax credit for charity is zero. If both types of taxpayers co-exist, and the government does not know who is of what type, then it is not possible for the government to induce the first-best outcome, but it must rely on a second-best tax-credit scheme. Nous considérons une économie dans laquelle certains contribuables se comportent de manière kantienne dans leur comportement de don tandis que d'autres sont des joueurs de Nash. Un contribuable kantien maintient la norme selon laquelle tout écart suggéré par rapport à un profil d'équilibre proposé ne serait adopté par lui que si, lorsque tous les membres de leur communauté adoptaient le même écart, ils atteindraient tous un niveau de bien-être plus élevé. En revanche, un joueur de Nash suit le critère de rationalité individuelle : il s'écarterait si, en supposant que tous les autres ne s'écartent pas, il améliorait son propre gain. Nous montrons que si tous les contribuables sont des acteurs de Nash, alors il existe un régime de crédit d'impôt induisant l'efficacité pour les contributions. En revanche, si tous les contribuables sont kantiens, le crédit d'impôt optimal pour les œuvres caritatives est nul. Si les deux types de contribuables coexistent et que le gouvernement ne sait pas qui est de quel type, alors il n'est pas possible pour le gouvernement d'obtenir l’ optimum social, mais il doit s'appuyer sur un système de crédit d'impôt qui délivra un résultat `second-best’.
    Keywords: Categorical imperative,Kantian behavior,Kantian equilibrium,Kant-Nash equilibrium,voluntary contributions to a public good,tax credits, Impératif catégorique,comportement kantien,équilibre kantien,équilibre de Kant-Nash,contributions volontaires à un bien public,les crédits d'impôt
    JEL: H21 H31 H41
    Date: 2021–12–01
  11. By: Matthew Smith (US Treasury Department); Owen Zidar (Princeton and NBER); Eric Zwick (Chicago Booth and NBER)
    Abstract: This paper uses administrative tax data to estimate top wealth in the United States. We assemble new data that links people to their sources of capital income and develop new methods to estimate the degree of return heterogeneity within asset classes. Disaggregated fixed income data reveal that rich individuals earn much more of their interest income in higher-yielding forms, and have much greater exposure to credit risk. Consequently, in recent years, the interest rate on fixed income at the top is approximately three times higher than the average. Using firm-level characteristics to value firms, we find that twenty percent of total pass-through business wealth accrues to those with losses. We combine this new data on fixed income and pass-through business returns with refined estimates of C-corporation equity, housing, and pension wealth to deliver new capitalized wealth estimates. Our approach, which builds on Saez and Zucman (2016) and Bricker, Henriques, and Hansen (2018), reduces bias because wealth and rates of return are correlated. From 1989 to 2016, the top 1%, 0.1%, and 0.01% wealth shares increased by 7.6, 5.1, and 3.0 percentage points, respectively, to 31.5%, 15.0%, and 7.0%. While these changes are less dramatic than some prior estimates, wealth is very concentrated: the top 1% holds nearly as much wealth as either the bottom 90% or the "P90-99" class. We discuss implications for income inequality measures, capital tax policy, and savings behavior.
    Keywords: wealth, taxation
    JEL: D31 H20
    Date: 2021–10
  12. By: Olivier Jacques
    Abstract: While public opinion research has identified the drivers of preferences for tax progressivity, public spending and support for redistribution, the study of willingness to pay taxes remains underdeveloped. This paper uses the 2016 ISSP cross national survey on the Role of Government and the Risks that Matter survey (OECD 2018) to identify which groups of voters are more likely to be willing to pay higher taxes. It shows that ideology and income interact to predict willingness to pay. Among left-wing respondents, socio-economic status, measured by income and education, has a positive effect on willingness to pay additional taxes. Thus, the core constituencies of left-wing parties composed of socio-cultural professionals and of production and service workers have different tax policy preferences. Socio-cultural professionals have a higher socio-economic status and are significantly more willing to pay taxes than production and service workers, who share a lower socio-economic status. Si les recherches sur l'opinion publique ont permis d'identifier les moteurs des préférences en matière de progressivité de l'impôt, de dépenses publiques et de soutien à la redistribution, l'étude de la volonté de payer des impôts reste peu développée. Cet article utilise l'enquête transnationale 2016 de l'ISSP sur le rôle du gouvernement et les risques qui comptent (OCDE 2018) pour identifier les groupes d'électeurs les plus susceptibles d'être disposés à payer des impôts plus élevés. Elle montre que l'idéologie et le revenu interagissent pour prédire la volonté de payer. Parmi les répondants de gauche, le statut socio-économique, mesuré par le revenu et l'éducation, a un effet positif sur la volonté de payer des impôts supplémentaires. Ainsi, les principaux électeurs des partis de gauche, composés de professionnels socioculturels et de travailleurs de la production et des services, ont des préférences différentes en matière de politique fiscale. Les professionnels socioculturels ont un statut socio-économique plus élevé et sont significativement plus disposés à payer des impôts que les travailleurs de la production et des services, qui ont un statut socio-économique plus faible.
    Keywords: taxation,occupations,ideology,education,Europe,income, fiscalité,professions,idéologie,revenu,éducation,Europe
    JEL: C83 D72 H20 H30 H31
    Date: 2021–09–21
  13. By: Finlay, Evan
    Abstract: Sugar Taxes have become more prevalent, but their effectiveness is far from conclusive. This paper looks at the cause for the need for such taxes, where they have been used, and what factors may be contributing to their success or demise.
    Date: 2021–10–12

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