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on Public Economics |
| By: | Mr. David Coady; Zhiyong An |
| Abstract: | The benchmark optimal income taxation model of Mirrlees (1971) finds that the optimal marginal income tax rate (MIT) is always non-negative. A key model assumption is the coincidence between social and individual work preferences. This paper extends the model to allow for differences in social and individual work preferences. The theoretical and simulation analyses show that under this model, when the government places a higher social weight on work than individuals, the optimal MIT schedule is shifted downwards, introducing the possibility for optimal wage subsidies at the bottom of the income distribution. This implies lower revenues, demogrants, and overall progressivity. |
| Keywords: | Preference Differences; Optimal Income Taxation; Wage Subsidies; Progressivity; taxation model; preference difference; model of Mirrlees; income taxation; MIT schedule; Marginal effective tax rate; Income tax systems; Income; Labor supply; Employment subsidies |
| Date: | 2022–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/062&r= |
| By: | Jing Xing; Katarzyna Anna 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 _rms. 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. |
| Keywords: | turnover tax, value-added tax, outsourcing, R&D investment |
| JEL: | H25 H26 O32 D25 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9511&r= |
| By: | Enrico Rubolino |
| Abstract: | This paper studies the labor market effects of a large employer-borne payroll tax cut for unemployed women, introduced in Italy since 2013. I combine social security data with several empirical approaches, leveraging the time-limited application of the tax scheme and discontinuities in eligibility criteria across municipalities, cohorts, and occupations. I find that the payroll tax cut generates long-lasting growth in female employment, reduces the time spent on welfare, and spurs business growth, without crowding out male employment. By contrast, the tax cut does not raise net wages, suggesting that tax incidence is mostly on firms. A cost-benefit analysis implies that the net cost of the policy is nearly half of the budgetary cost. These findings suggest that employer-borne payroll tax cuts are an efficient strategy to raise demand for female labor and tackle the gender employment gap, but they are not sufficient for reducing the gender pay gap. |
| Keywords: | gender gap, female employment, payroll tax, tax incidence |
| JEL: | H22 J21 J31 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9671&r= |
| By: | Maebayashi, Noritaka; Morimoto, Keiichi |
| Abstract: | In a two-country model of endogenous growth with international knowledge spillover, corporate income tax competition reproduces the second-best allocation attained by tax harmonization, despite complex externalities. This stems from the positive spillover effect across the border and free trading by Ricardian households in the global financial market. However, such a neutrality result does not hold in the extended model, which includes non-Ricardian households. The equilibrium tax rate under the corporate income tax competition can be excessively high or low, depending on the elasticity of the spillover effect to the share of the firms’ locations. |
| Keywords: | corporate income tax; tax competition; spillover; welfare; economic growth; non- Ricardian household |
| JEL: | E62 F23 F42 H21 H54 |
| Date: | 2022–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112781&r= |
| By: | Elert, Niklas (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University Schoolf of Business) |
| Abstract: | The institutional literature suggests that long-term tax incentives are crucial for entrepreneurs, but studies on this topic are hampered by theoretical and empirical problems related to how to define and measure entrepreneurial income. We resolve these problems by drawing on a theoretical definition of the entrepreneur as an owner, which enables us to identify entrepreneurship empirically by means of investments made by active owners of closely held firms. Using detailed Swedish tax data, we analyze the tax incentives for such owner-entrepreneur investments from 1862 to 2018, thereby highlighting the evolution of a general institutional phenomenon through a long-run, in-depth, country-specific analysis. We calculate the annual marginal effective tax rate (METR) on capital income for investments, distinguishing between average- and top-income entrepreneurs, and between three sources of finance. We identify five tax regimes that indicate substantial differences in institutional quality over time according to the magnitude of the METR and METR differences between average- and top-income entrepreneurs and across sources of finance. Increased taxation of owner-entrepreneurs helps explain the absence of new large entrepreneurial firms in Sweden after World War II, while improved incentives can be associated with Sweden’s recent entrepreneurial renaissance. |
| Keywords: | High-Impact Entrepreneurship; Institutional Quality; Marginal Effective Tax Rates; Tax Regimes; Tax Reforms |
| JEL: | H21 H31 H32 L25 L26 N44 |
| Date: | 2022–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1429&r= |
| By: | Georg Schneider; Frank Stähler; Georg U. Thunecke |
| Abstract: | This paper employs a structural gravity model and novel value-added tax (VAT) regime data to investigate the impact of VAT rate changes on imports and domestic production of final goods. We demonstrate that the VAT is both non-neutral and discriminatory. A one percentage point VAT increase reduces aggregate imports and internal trade by 3.05% and implies a 5.4 to 7.9% reduction of foreign imports relative to internal trade. Based on these results we conduct a counterfactual equilibrium analysis and illustrate that VAT rate changes imply substantial welfare effects for an average country in the European Union. |
| Keywords: | structural gravity, value-added taxation, neutrality, discrimination |
| JEL: | F10 F14 H22 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9663&r= |
| By: | Wei Jiang; Thomas J. Sargent; Neng Wang; Jinqiang Yang |
| Abstract: | An optimal tax and government borrowing plan in a setting with tax distortions (Barro, 1979) locally pin down the marginal cost of servicing government debt, called marginal p. An option to default determines the government’s debt capacity and its optimal state-contingent risk management policies make its debt risk-free. Optimal debt-GDP ratio dynamics are driven not only by three widely discussed forces, 1.) a primary deficit, 2.) interest payments, and 3.) GDP growth, but also by 4.) hedging costs. Hedging fundamentally alters debt transition dynamics and equilibrium debt-capacity, which are at the center of the recent 'r-g' and debt sustainability discussions. We calibrate our model and make comparative dynamic quantitative statements about the debt-GDP ratio transition dynamics, equilibrium debt capacity, and how long it will take the US to attain debt capacity. |
| JEL: | E44 E62 G12 H21 H63 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29931&r= |
| By: | David Silver; Jonathan Zhang |
| Abstract: | We study impacts of a cash transfer program with no means-test and no work restrictions: the US Department of Veteran Affairs (VA) Disability Compensation program. Our empirical strategy leverages quasi-random assignment of veterans claiming mental disorder disability to examiners who vary in their assessing tendencies. We find that an additional $1,000 per year in transfers decreases food insecurity and homelessness by 4.1% and 1.3% over five years, while the number of collections on VA debts declines by 6.4%. Despite facing virtually no direct monetary costs, healthcare utilization increases by 2.5% over the first five years, with greater engagement in preventive care and improved medication adherence. This demand response is in part explained by the ability to overcome indirect costs of accessing care ("ordeals"). Additionally, VA-conducted surveys suggest that transfers improve communication and trust between veterans and VA clinicians, leading to greater overall satisfaction. Apart from a reduction in self-reported pain, we estimate precise null effects on mental and physical health, including depression, alcohol and substance use disorders, body mass index, blood pressure, and glucose levels. Effects on mortality are small: we can rule out reductions greater than 0.011 percentage points (0.14%) over five years. |
| JEL: | H51 H53 I1 I3 I38 J01 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29877&r= |
| By: | Eileen Rocard (OECD); Ana Llena-Nozal (OECD) |
| Abstract: | Informal carers – family and friends who perform care - are the first line of support for older people. About 60% of older people who receive care at home report receiving only informal care across OECD countries.While informal carers help to contain public costs, those costs are borne elsewhere. Women perform the majority of informal care, posing a barrier to their labour market participation. It is generally impacted when caring over 20 hours per week. The COVID-19 pandemic has increased pressures on carers.Making informal care a choice without constrains requires a comprehensive set of policies. Countries have taken steps, though more could be done. While access to information has improved, counselling and training depends heavily on the voluntary sector and respite typically remains insufficient. About two-thirds of OECD countries provide direct or indirect cash benefits to informal carers. Nearly two-thirds also mandate paid or unpaid care leave entitlements. |
| JEL: | H51 H53 H75 I31 I38 J48 |
| Date: | 2022–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaad:140-en&r= |