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on Public Economics |
| By: | Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Etienne Lehmann |
| Abstract: | We propose a new method, that we call an allocation perturbation, to derive the optimal nonlinear income tax schedules with multidimensional individual characteristics on which taxes cannot be conditioned. It is well established that, when individuals differ in terms of preferences on top of their skills, optimal marginal tax rates can be negative. In contrast, we show that with heterogeneous behavioral responses and skills, one has optimal positive marginal tax rates, under utilitarian preferences and maximin. |
| Keywords: | Optimal taxation,mechanism design,multidimensional screening problems,allocation perturbation |
| Date: | 2021–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03681456&r= |
| By: | Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Etienne Lehmann |
| Abstract: | Providing estimable sufficient statistics to give policy prescriptions has become a widespread approach over the recent years. A well-known limitation of this approach is the endogeneity of sufficient statistics to the policy. In this paper, using optimal tax policy as our field of application, we highlight a new source of endogeneity. It arises since, under multidimensional heterogeneity, optimal tax formulas are expressed as a function of weighted means of sufficient statistics computed at the individual level and the weights are endogenous to tax policy. We analytically show that ignoring these composition effects leads to underestimate the optimal linear tax and, under a restrictive set of assumptions, the optimal nonlinear tax as well. To relax these assumptions, we use an improved tax perturbation approach to study composition effects in the latter case. Our numerical simulations using U.S. data suggest the optimal tax rate may be underestimated by 6 percentage points for high incomes levels. As a secondary result, we relate our improved tax perturbation method to the first order mechanism design method, two methods which have hitherto been used separately to derive optimal tax schedules. |
| Keywords: | Optimal taxation,composition effects,sufficient statistics,multidimensional screening problems,tax perturbation |
| Date: | 2021–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03682208&r= |
| By: | Mutsumi Matsumoto (Graduate School of Environmental Policies, Nagoya University); Hikaru Ogawa (Faculty of Economics, The University of Tokyo) |
| Abstract: | This paper considers efficient fiscal transfer policies in a tax competition setting with ad valorem taxation (i.e., income taxation) on mobile capital and immobile labor. We show that fiscal equalization of regions’ capital income tax bases eliminates the inefficiency of horizontal tax competition if these tax bases are evaluated by the average taxable return on capital in all regions, rather than the taxable return in each region. This equalization system, together with revenue matching grants that correct vertical externalities, achieves efficiency. By investigating the nature of horizontal and vertical externalities arising from non-cooperative regional tax policies, we derive formulas for efficient fiscal transfer policies and explain their workings. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2022cf1196&r= |
| By: | Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University School of Business) |
| Abstract: | This study presents an improvement of the King-Fullerton framework for calculating the marginal effective tax rate (METR) for active owners of closely held corporations in a dual income tax system with income splitting rules. The original King and Fullerton model was not modeled to incorporate this type of rule, making it difficult to fully calculate the METR in countries with a dual income tax. The model developed in this paper offers a more general method with less restrictive assumptions than earlier analyses of a dual income tax system. To illustrate the results, the model is applied to the Swedish dual income tax system and is contrasted with earlier works, revealing that the METR for new share issues may have been overestimated in earlier calculations. Our model provides a more comprehensive and flexible toolbox for calculating the METR in a dual income tax system with income splitting rules and improves the possibilities to evaluate how changes in the regulatory framework may affect the METR and the neutrality between investment opportunities. As such, the results are relevant not only for Sweden but also for other countries that have implemented a dual income tax system or are considering doing so. |
| Keywords: | Cost of capital; Marginal effective tax rates; Dual income tax; Income splitting rules; Income shifting |
| JEL: | H24 H25 H26 |
| Date: | 2022–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1434&r= |
| By: | Pierre Bachas (The World Bank - The World Bank - The World Bank); Matthew Fisher-Post (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Anders Jensen (Harvard Kennedy School - Harvard Kennedy School, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research); Gabriel Zucman (University of California [Berkeley] - University of California, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research) |
| Abstract: | How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base.(3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In highincome countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03693211&r= |
| By: | Eric French; Attila S. Lindner; Cormac O'Dea; Tom A. Zawisza |
| Abstract: | We estimate the impact of public pension systems on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution scheme for men born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, we estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. We estimate a lifecycle model that matches these results. The model implies that the change in the contribution-benefit link from the reform increases employment among those in their 30s but decreases it at older ages, reducing overall labor supply across the lifecycle by 2 months. |
| JEL: | D15 H55 J22 J26 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30184&r= |
| By: | Gastón A. Giordana; María Noel Pi Alperin |
| Abstract: | This paper simulates long-term trends in Luxembourg’s public expenditure on healthcare and on long-term care. We combine population projections with micro-simulations of individuals’ health status that account for their demographic, socio-economic characteristics and their childhood circumstances. Model equations estimated on data from the SHARE survey and from several branches of Social Security provide a rich framework to study policy-relevant applications. We simulate public expenditure on healthcare and long-term care under different scenarios to evaluate the separate contributions of population ageing, costs of producing health-related services, and the distribution of health status across age cohorts. Results suggest that rising per capita expenditure on healthcare will mostly result from production costs, while rising expenditure on long-term care will mostly reflect population ageing. |
| Keywords: | Ageing, Dynamic micro-simulation, Healthcare, Health-related public expenditure, Health status, Long-term care, Luxembourg, SHARE. |
| JEL: | D3 H30 I10 I12 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp158&r= |