nep-pbe New Economics Papers
on Public Economics
Issue of 2022‒11‒28
thirteen papers chosen by
Thomas Andrén

  1. Property Tax Competition: A Quantitative Assessment By Rainald Borck; Jun Oshiro; Yasuhiro Sato
  2. Optimal Commodity Taxation When Households Earn Multiple Incomes By Kevin Spiritus
  3. A Synthesis of Local and Effective Tax progressivity Measurement By Chakravarty, Satya R.; Sarkar, Palash
  4. Global profit shifting, 1975-2019 By Ludvig Wier; Gabriel Zucman
  5. Identifying behavioral responses to tax reforms: new insights and a new approach By Katrine Marie Jakobsen; Jakob Egholt Søgaard
  6. Evolution of fiscal systems: Convergence or divergence? By Paloma Péligry; Xavier Ragot
  7. The Unequal Incidence of Payroll Taxes with Imperfect Competition: Theory and Evidence By Felipe Lobel
  8. MARKUPS, TAXES, AND RISING INEQUALITY By Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
  9. Too Complex to Digest ? Federal Tax Bills and Their Processing in US Financial Markets By Hamza Bennani; Matthias Neuenkirch
  10. Do personal taxes affect investment decisions and stock returns? By Kontoghiorghes, Alex
  11. The crisis of the social democratic movement By Mavrozacharakis, Emmanouil
  12. Communicating Social Security Reform By Andrew Caplin; Eungik Lee; Søren Leth-Petersen; Johan Sæverud
  13. Unfunded mandates and the economic impact of decentralisation. When finance does not follow function By Andres Rodriguez-Pose; Miquel Vidal-Bover; ;

  1. By: Rainald Borck; Jun Oshiro; Yasuhiro Sato
    Abstract: We develop a model of property taxation and characterize equilibria under three alternative taxation regimes often used in the public finance literature: decentralized taxation, centralized taxation, and “rent seeking” regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
    Keywords: property taxes, tax competition, efficiency
    JEL: H71 H72 R13 R51
    Date: 2022
  2. By: Kevin Spiritus (Erasmus University Rotterdam)
    Abstract: I characterize the optimal linear commodity taxes when households differ in multiple characteristics and earn multiple incomes, in presence of an optimal non-linear tax schedule on the households’ labour incomes. The government should tax a commodity more heavily if, conditional on labour income, more deserving individuals consume larger quantities of that commodity. This is the case for merit goods, or if the government otherwise seeks to compensate individuals who consume larger quantities of that commodity. Furthermore, the government wishes to tax commodities at different rates to the extent that doing so reduces the distortions caused by the labour income tax. This is the case when individuals with different incomes have different preferences, or when individuals with different labour supplies also have different consumption pattern
    Keywords: optimal commodity taxation, multidimensional taxation
    JEL: H21 H24
    Date: 2022–11–13
  3. By: Chakravarty, Satya R.; Sarkar, Palash
    Abstract: This paper examines theoretical properties of local and global measures of income tax progressivity. In particular, consistency property of global measures with local measures is analyzed. Using a normative approach, an index of performance in effective progression underlying a tax system, in relation to that of a ‘norm’, is suggested and analyzed. The norm chosen here is the welfare level associated with the post-tax distribution resulting from an inequality minimizing taxation policy which maintains pre-tax rank orders of tax payers and does not impose any additional tax burden on them, given that the pre-tax distribution is fixed as well. As the actual post-tax welfare increases, effective progression (hence performance) improves, which ensures that it is possible to elevate the level of performance sequentially, as may be desired by a policy maker, towards achieving the norm welfare.
    Keywords: Taxation, effective progression, inequality minimization, welfare, performance, policy
    JEL: H24
    Date: 2022–10–19
  4. By: Ludvig Wier; Gabriel Zucman
    Abstract: This paper constructs time series of global profit shifting covering the 2015-19 period, during which major international efforts were implemented to curb profit shifting. We find that (i) multinational profits grew faster than global profits, (ii) the share of multinational profits booked in tax havens remained constant at around 37 per cent, and (iii) the fraction of global corporate tax revenue lost due to profit shifting rose from 9 to 10 per cent.
    Keywords: Profit shifting, Multinational firms, Taxation, Corporate tax
    Date: 2022
  5. By: Katrine Marie Jakobsen; Jakob Egholt Søgaard
    Abstract: We revisit the identification of behavioral responses to tax reforms and develop a new approach for graphical validation and representation of treatment effects. We show that the standard estimation strategy relies on an assumption of constant trend differentials. In the context of income taxation, this implies that differences in income trends across the income distribution should remain constant in the absence of tax reforms. Similar to pre-trend validation of differences-in-differences studies, we can validate this assumption by comparing the evolution of income in untreated parts of the income distribution. We illustrate our new approach by studying several tax reforms in Denmark.
    Date: 2022–04–01
  6. By: Paloma Péligry (CEPS - Centre d'Economie de l'ENS Paris-Saclay - Université Paris-Saclay - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay); Xavier Ragot (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, CNRS - Centre National de la Recherche Scientifique)
    Abstract: The purpose of this article is to analyze, more than ten years after the financial crisis of 2007, the convergence or divergence of the diversity of capitalism, focusing on the fiscal systems. Studying 29 countries, we first analyse the evolution of the taxation of households, firms, labour, consumption and capital. Then we use recent statistical method to indentify three types of fiscal systems: liberal, intermediate, and social-democratic, which can be ranked in ascending order of tax rates, confirming known typologies in the diversity of capitalism literature. The first result of this analysis is that only the tax rate on corporate profits shows signs of downward convergence over the period. The other tax rates, on labour or capital tax on households, show rather signs of divergence. Second, we show the divergence of the liberal and social-democratic group over the period. The European countries are converging towards the social-democratic model, with the exception of Great Britain, which is moving towards the liberal model over the period. Hence, the analysis shows that the divergence of fiscal systems is compatible with the convergence of certain taxes on the most mobile factors during a strong period of trade internationalization. Thus, the financial crisis does not seem to contribute to the convergence, but to the divergence of fiscal systems.
    Keywords: fiscal systems,globalization,capital taxation
    Date: 2022–02–03
  7. By: Felipe Lobel
    Abstract: This paper provides a comprehensive examination of a Brazilian corporate tax reform targeted at the sector and product level. Difference-in-differences estimates instrumented by sector eligibility show that a 20 percentage point cut on payroll tax rates caused a 9% employment increase at the firm level, mostly driven by small firms. This expansion is not driven by formalization of existing workers, and it is explained by reduction on separations rather than additional hires. In terms of earnings, there is a significant 4% earnings increase in the long run, which is concentrated at leadership positions. The unequal pass-through worsen within-firm wage inequality. I exploit the exogenous variation on labor cost to document substantial labor market power in Brazil, where wages are marked down by 36%. Consistent with the empirical findings, I develop a model of factor demand with imperfect competition in the goods and labor market to shed light on the mechanism through which imperfect competition drives corporate tax incidence. The model is identified by the reduced form elasticities, and allows me to structurally estimate the capital-labor elasticity of substitution, which differs from the benchmark case of perfect competition.
    Date: 2022–10
  8. By: Stéphane Auray (ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz], CREST-THEMA - CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique - THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Aurélien Eyquem (UNIL - Université de Lausanne = University of Lausanne); Bertrand Garbinti (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, ENSAE - Ecole Nationale de la Statistique et de l'Analyse Economique - Ecole Nationale de la Statistique et de l'Analyse Economique); Jonathan Goupille-Lebret (CNRS - Centre National de la Recherche Scientifique, GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique, ENS Lyon, Université de Lyon)
    Abstract: How to explain rising income and wealth inequality? We build an original heterogeneous- agent model with three key features: (i) an explicit link between firm's market power and top income shares, (ii) a granular representation of the tax and transfer system, and (iii) three assets with endogenous portfolio decisions. Using France as an illustration, we look at how changes in markups, taxes, factor productivity, and asset prices affect inequality dynamics over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.
    Date: 2022–10–27
  9. By: Hamza Bennani (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université - IUML - FR 3473 Institut universitaire Mer et Littoral - UM - Le Mans Université - UA - Université d'Angers - UBS - Université de Bretagne Sud - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université - Nantes Univ - ECN - Nantes Université - École Centrale de Nantes - Nantes Univ - Nantes Université); Matthias Neuenkirch (CESifo - CESifo, Universität Trier)
    Abstract: In this paper, we analyze whether the complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer and Romer (2010) in the period 1962-2003, we assess the relationship between tax bills' complexity and financial markets using an event study approach. Our results show a negative (positive) and significant relationship between the present value of tax bills and changes in the 10-year government bond yields (S&P 500 returns). The magnitude of this relationship increases over time, suggesting that market participants underreact at first and need a couple of days to digest the information contained in the tax bills. This delay can be explained by the textual characteristics of the bills in the case of the 10-year yields as a lower readability partly offsets the negative relationship for up to three days after the signing of a tax bill, but not thereafter. In the case of the stock market, we find similar offsetting evidence, but only for a part of the readability measures employed in this paper.
    Keywords: Complexity,Event Study,Financial Markets,Readability,Tax Bills
    Date: 2022–10–26
  10. By: Kontoghiorghes, Alex (Bank of England)
    Abstract: This paper studies the causal effects of personal investment taxes on stock demand, stock returns, and the financial decisions of companies. I exploit a change in legislation in 2013 which allowed stocks listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, to be held in a capital gains and dividend tax-exempt investment account for the first time. Using a difference-in-differences approach, I find that stock demand temporarily doubled, long-run stock returns decreased by 2 percentage points per month, dividend payments increased by 29%, and that the capital structure and shareholder composition permanently changed post-legislation.
    Keywords: Personal investment taxes; tax capitalisation; dividend policy; capital structure
    JEL: G11 G12 G18 G32 G35 H24
    Date: 2022–07–21
  11. By: Mavrozacharakis, Emmanouil
    Abstract: The financial collapse of 2007, the accompanying refugee crisis, the health crisis, and the coronavirus pandemic have all played their part in the current gloomy political climate. The left lacks a clear message or strategy to improve the lives of ordinary people. The emphasis on austerity and competitiveness brought about by the financial crisis has worsened people's social conditions. The need for a "new left" with a relevant narrative is undoubtedly important. The insecurity and instability currently facing the so-called social left is a direct cause of this desire. The demand for a "new left" with a relevant narrative is undoubtedly necessary. This demand arises directly from the current insecurity and instability that the so-called social left is facing. As part of a political program whose core is an effective welfare state, the democratic left needs contemporary pragmatism in the form of realistic but substantive political goals and demands. The new left narrative must place the goal of social justice at the center of a social realist framework that does not focus only on the need for economic competitiveness and financial balance. It is necessary to advocate a modern social "philosophy" of solidarity, progress, and justice. This new agenda must be embedded in a long-term political reform strategy that can only be realized if the goals are clear to the public.
    Keywords: the financial crisis; social democracy;, the welfare state; social policy, ;ideologies; political legitimacy; The Left
    JEL: H0 H10 H11 H12 H13 H20 H30 H31 H40 H41 H42 H43 H44 H49 H50 H51 H52 H53 H54 H55 H60 H70 I0 I1 I10 I2 I20 I3 I30 I31 I32 J0 J20 J30 J31 P0 P1 P2 P20
    Date: 2022–10–14
  12. By: Andrew Caplin; Eungik Lee; Søren Leth-Petersen; Johan Sæverud
    Abstract: Despite its centrality in monetary policy, communication is not a focus in social security reform. We investigate the potential for active communication to dissipate apparently widespread public confusion about the future of social security. We implement a simple information treatment in which we randomly provide survey respondents access to the longevity-based eligibility age implemented by reform that Denmark launched in 2006. Absent treatment, younger workers not only have biased beliefs, expecting to become eligible for social security earlier than policy makers intend, but also are highly uncertain about eligibility age. The information treatment eliminates the bias, suggesting it results from misunderstanding. Yet it has no influence on uncertainty, suggesting this is driven by unavoidable demographic and political uncertainties. Our results highlight the value of communication strategies and belief measurement as policy instruments outside the monetary policy arena.
    JEL: H55
    Date: 2022–11
  13. By: Andres Rodriguez-Pose; Miquel Vidal-Bover; ;
    Abstract: Decentralisation has frequently been sold as a means to increase well-being and development. Yet, questions remain as to whether decentralisation improves economic performance. This is possibly because decentralisation processes have often led to “unfunded mandates†, that is a mismatch between the powers transferred to subnational tiers of government and the resources allocated to them. In this paper we analyse how unfunded mandates shape regional economic growth across 518 regions in 30 OECD countries over the period 1997-2018. There is a negative, statistically significant, and robust impact of unfunded mandates on economic growth. This effect is higher in more politically and less fiscally decentralised regions and in regions with a higher level of wealth. Unfunded mandates thus represent a serious drag on the potential positive economic effect of political decentralisation. Hence, for those benefits to materialise, better not more decentralisation —ensuring that finance follows function— should be pursued.
    Keywords: political decentralisation, fiscal decentralisation, unfunded mandates, economic growth, regions, OECD
    JEL: H70 H77 O47
    Date: 2022–10

This nep-pbe issue is ©2022 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.