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on Public Economics |
| By: | Sumiya, Kazuhiko (Waseda University); Bagger, Jesper (Royal Holloway, University of London) |
| Abstract: | This paper provides quasi-experimental evidence on the effects of income taxes on gross hourly wages by utilizing administrative data and a tax reform in Denmark. The reform introduced joint taxation to a middle tax bracket, bringing large changes to the tax system facing married couples. Using variation in spousal income for identification, we present non-parametric graphical evidence based on a difference-in-differences design among working married males. First, we find hetero- geneous effects across income levels. For low-income workers, taxes have negative and dynamic effects on wages. Their elasticity of wages (with respect to net-of-marginal-tax rates) is close to one. For higher-income workers, the effects are small and static, with an elasticity of approximately 0.2. Second, wages respond to taxes through human capital accumulation and job changes. Finally, with smaller magnitudes than wages, daily hours worked also respond negatively to taxes, which contrasts with the prediction from a standard labor supply-and-demand model. |
| Keywords: | income taxation, administrative data, tax reforms, difference-in-differences, gross hourly wages, labor supply, human capital accumulation, job changes |
| JEL: | H22 H24 J22 J24 J30 J62 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15502&r= |
| By: | Feng, Haibo (Jinan University, College of Economics); Liu, Sheng (Guangdong University of Foreign Studies, School of Economics and Trade); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | The impact of China’s VAT reform on enterprise innovation is the result of the combination of tax cuts and endogenous incentives. We find evidence that China’ VAT reform generally reduced the tax burden of firms but had a different impact on the manufacturing and the service industry. The tax burden of the manufacturing dropped significantly, but that of the service industry did not change markedly. Furthermore, we show that China’s VAT reform had also a significant positive impact on corporate innovation for both the service industry and the manufacturing. However, these effects were significantly greater in the manufacturing. Meanwhile, China’s VAT reform did not alleviate the tax burden of all the enterprises. For the enterprises facing the increased burden of tax, the reform can still stimulate the enterprise innovation if it has sufficient own capital, whereas the impact coefficient and significant level reduced significantly compared with the enterprises that the burden of tax reduced. If the enterprise’s own capital is insufficient, VAT reform has little effect on enterprise innovation. Finally, we show that China’s VAT reform exerted different influences on the innovative behavior of heterogeneous enterprises. |
| Keywords: | China’s VAT reform; Tax Burden; Innovation |
| JEL: | H25 H32 O31 |
| Date: | 2022–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1008&r= |
| By: | Axelle Ferrière; Philipp Grübener; Gaston Navarro; Oliko Vardishvili |
| Abstract: | We study the optimal design of means-tested transfers and progressive income taxes. In a simple analytical model, we demonstrate an optimally negative relation between transfers and income-tax progressivity due to efficiency and redistribution concerns. In a rich dynamic model, we quantify the optimal plan with flexible tax-and-transfer functions. Transfers should be larger than currently in the U.S. and financed with moderate income-tax progressivity. Transfers are key to implement higher progressivity in average than in marginal tax-and-transfer rates, achieving redistribution while preserving efficiency. Quantitatively, the left tail of the income distribution determines optimal transfers, whereas the right tail determines income-tax progressivity. |
| Keywords: | Heterogeneous Agents; Fiscal Policy; Optimal Taxation; Redistribution |
| JEL: | E21 E62 H21 H23 H53 |
| Date: | 2022–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1350&r= |
| By: | Niklas Uliczka |
| Abstract: | In 1997, the Irish government introduced reforms to revolutionize corporate taxation, with focus on creating opportunities for tax neutrality and on reducing the standard corporate tax rate. This paper studies the relationship between this Irish corporate tax reform and income shares at the top and the upper middle of the distribution. Using the synthetic control method, findings suggest that the reforms had large positive effects on the income share of the top 1% and sizeable negative effects on the upper middle 40% of income earners. Such heterogenous effects indicate increasing income inequality due to targeted corporate tax incentives. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:toh:tupdaa:27&r= |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University); Yadav, Sonal (Department of Economics, Umeå University) |
| Abstract: | This note analyzes optimal taxation when (i) a fraction of people has positional preferences, and (ii) concerns for relative consumption and preferences for equality are operative simultaneously. We show that incentive compatibility motivates a regressive marginal tax structure, which in the end implies that people with positional preferences are taxed at a lower marginal rate than people without such preferences. A counteracting mechanism arises if those who are not concerned with their relative consumption have preferences for income-equality, even if people with positional preferences should still be taxed at a lower marginal rate than motivated by their contributions to externalities. |
| Keywords: | Optimal taxation; relative consumption; equality |
| JEL: | D60 D62 D90 H21 |
| Date: | 2022–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1009&r= |
| By: | Sebastian Dyrda; Guangbin Hong; Joseph B Steinberg |
| Abstract: | We develop a framework to study the macroeconomic implications of taxing multinational enterprises (MNEs) that shift profits to subsidiaries in low-tax jurisdictions by transferring ownership of non-rival intangible capital. We first prove analytically that profit shifting increases intangible investment, leading to higher profits and output at the MNE level. We then calibrate our model so that it reproduces salient country-level facts about production, trade, FDI, and, most importantly, profit shifting. We use our calibrated model to evaluate the consequences of two proposals by the OECD and G20 governments to reduce profit shifting by MNEs: allocating the rights to tax some of an MNE's profits to the countries in which it sells its products; and a 15% minimum global corporate income tax. We show that these policies would reduce profit shifting by more than two-thirds, but would also reduce intangible investment and output in high-tax regions. This highlights a key tension for policymakers: profit shifting erodes high-tax countries' tax bases, but also boosts economic activity, and thus policies that reduce profit shifting have harmful macroeconomic side effects. |
| Keywords: | Multinational enterprise; transfer pricing; profit shifting; base erosion; intangible capital; corporate tax |
| JEL: | E6 F23 H25 H27 |
| Date: | 2022–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-731&r= |
| By: | Pieter Van Rymenant; Freddy Heylen; Dirk Van de gaer (-) |
| Abstract: | This paper studies the effects of the sharp decline since 1980 in U.S. federal estate taxes on the past and future evolution of per capita growth, labor supply, the wealth-to-GDP ratio (capital-output ratio), the real interest rate, and cross-sectional wealth inequality and concentration. To do so, we construct, calibrate, and simulate a dynamic general equilibrium model featuring firms, a fiscal government, and overlapping generations of heterogeneous households connected via bequests and inter-vivos transfers. The model includes crucial elements in the debate on the effects of estate tax changes and accounts for structural developments in recent decades, such as demographic change and ‘skill-biased’ technological progress. It replicates key U.S. data since the 1960s quite well. We find that the studied estate tax reforms have not generated the desired positive effects on labor supply, private capital formation, and economic activity. Rather, they have contributed considerably to rising aftertax wealth inequality and concentration and explain a fraction of the long-term decline in the real interest rate. The key underlying result from our simulations is that the aggregate stocks of pre-tax wealth and pre-tax bequests are insensitive to changes in the estate tax, even when all households have an after-tax bequest motive. As a result, the foregone estate tax revenues are large. |
| Keywords: | Wealth inequality, economic growth, bequests, estate tax, OLG model |
| JEL: | E17 E21 E27 E62 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1052&r= |
| By: | Lei Fang; Fang Yang |
| Abstract: | We document large differences between the United States and Europe in allocations of expenditures and time for both market and home activities. Using a life-cycle model with home production and endogenous retirement, we find that the cross-country differences in consumption tax, social security system, income tax and TFP together can account for 68-95 percent of the cross-country variations and more than half of the average differences between Europe and the United States in aggregate hours and expenditures. These factors can also account well for the cross-country differences in allocations by age and generate substantially lower market hours in Europe for the age group of sixty and above as in the data. All the factors, except income tax, are quantitatively important for determining cross-country differences in expenditure allocations. While the differences in social security system and income tax are crucial in explaining the difference in market hours around retirement ages, TFP and consumption tax are more important for the difference in market hours for prime ages. |
| Keywords: | Consumption expenditure; home production; labor supply; fiscal policy |
| JEL: | E21 E62 J22 O57 H31 |
| Date: | 2022–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:94739&r= |
| By: | Jeehoon Han; Bruce D. Meyer; James X. Sullivan |
| Abstract: | In response to the COVID-19 pandemic two new timely poverty measures have been developed to monitor fast-changing economic conditions for the most deprived. The Han et al. near real-time poverty measure uses responses to a global income question on the Monthly Current Population Survey (CPS) that is available for a subsample of those surveyed. The CPSP monthly poverty measure, widely cited in the media, uses data from the Annual Social and Economic Supplement to the CPS and other sources to impute poverty in the Monthly CPS sample based on demographic and employment variables. This paper evaluates the two measures and their estimates of child poverty around the 2021 temporary changes to the Child Tax Credit (CTC). We argue that conceptually the measure based on responses rather than the one based on imputations is preferable, though both measures suffer from important drawbacks. We also conclude that widely publicized claims that child poverty fell by 25 percent when the Advance CTC payments started and subsequently rose by 41 percent when they ended are based on weak evidence and are overstated. The best evidence, though still imperfect, suggests poverty was relatively stable in 2021 and the first half of 2022. Part of the explanation for the lack of change appears to be a compensating decline in employment among low-skilled workers with children. Other evidence tying changes in well-being to the tax credit is confounded by other policy changes. |
| JEL: | C42 C81 H2 I32 I38 J20 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30371&r= |
| By: | Emmanuel Saez; Gabriel Zucman |
| Abstract: | Recent estimates of US top wealth shares obtained by capitalizing income tax returns (Saez and Zucman, 2020; Smith, Zidar and Zwick, 2022) are close in both levels and trends except for the top 0.01% where a large discrepancy remains. We examine this difference and, using public data, quantify three main issues in Smith et al. (2022). First, Securities and Exchange Commission data at the shareholder firm level show that billionaires' equity wealth is underestimated by a factor of 2.1. Second, interest-bearing assets at the top are under-estimated by a factor of 1.6, because of an extrapolation from a small and unrepresentative sample of investment funds. We quantify this issue using mandatory filings of US hedge funds. Third, issues involving tiered partnerships and the measurement of business profits suggest that large S-corporations are undervalued by a factor of 1.2 and top-owned partnerships by up to 2.2. After incorporating these results, the top 0.01% wealth share of Smith et al. (2022) is close to the one found in Saez and Zucman (2020) and estimates of US wealth inequality are reconciled. |
| JEL: | D31 H25 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30396&r= |
| By: | Cockx, B.; Declercq, Koen; Dejemeppe, Muriel |
| Abstract: | Providing income support to unemployed education-leavers reduces the returns to investments in education because it makes the consequences of unemployment less severe. We evaluate a two-part policy reform in Belgium to study whether conditioning the prospective entitlement to unemployment benefits for education-leavers on age or schooling attainment can affect educational achievements. The results show that the prospect of financial loss in case of unemployment can significantly raise degree completion and reduce dropout in higher education, but not in high school. We argue that the higher prevalence of behavioral biases among lower educated and younger students could explain these contrasting findings. |
| JEL: | H52 I21 I28 J08 J18 J24 J65 J68 |
| Date: | 2022–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2022008&r= |