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on Public Economics |
| By: | Ada Jansen; Winile Ngobeni; Wynnona Steyn |
| Abstract: | South Africa has a progressive broad-based personal income tax system with relatively few tax expenditures. The two most important are the medical contribution plus additional tax credits for medical expenses, and the deductions allowed for retirement contributions. A pertinent question for tax reform in South Africa is whether redistributive gains can be achieved by restructuring expenditures in the personal income tax system. This paper considers the redistributive implications of converting the tax deduction for retirement contributions to a tax credit. |
| Keywords: | Pensions, Tax expenditures, Microsimulation, Tax credit |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-139&r=pbe |
| By: | Herault, Nicolas (Melbourne Institute of Applied Economic and Social Research); Jenkins, Stephen P. (London School of Economics) |
| Abstract: | We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). In the first such application to the UK, and using yearly data covering 1977–2020, we find that redistributive effect increased over the period. However, there is no clear trend in horizontal inequity and this component forms a very small fraction of total redistributive effect by comparison with reranking and especially vertical components. It is also the vertical component that best tracks trends in redistributive effect. We give specific attention to the choice of the bandwidth used to define 'close equals' in terms of pre-tax income. We also show that implausible estimates of the horizontal inequity component arise for some years regardless of bandwidth used. |
| Keywords: | redistributive effect, redistribution, horizontal inequity, reranking, Urban-Lambert decomposition, income tax |
| JEL: | D31 H24 H50 I38 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16587&r=pbe |
| By: | Asmare, Fisha; Yimam, Seid; Semreab, Etsehiwot |
| Abstract: | Presumptive tax has become a popular way of taxing businesses operating in the informal sector across middle- and low-income countries. However, evidence on the unintended effects of presumptive tax systems is scant and the effects themselves are not yet clearly known. Presumptive taxation in general has been much criticised, and public outcry and complaints have emerged due to its alleged unfairness and a lack of clarity in its implementation. The case of Ethiopia is no different. It is expected that a simple imposition of the presumptive tax system to tax the informal sector without considering stylised facts in the sector would have various negative consequences, especially in terms of the repercussions on equity. This study examines the issue empirically in the case of Ethiopia and is probably the first study of its kind in the country. We explore the equity implications of the presumptive tax system to tax the informal sector in Addis Ababa, Ethiopia. We also critically evaluate income distribution among informal sector operators considering various social stratifiers such as gender. The main dataset we use to address our research questions is the informal micro enterprise (IME) survey data collected by BAN-Development Research Centre for Excellence (BAN-DRCE) in collaboration with Stichting Nederlandse Vrijwilligers (SNV) Ethiopia from Addis Ababa in 2021. Employing descriptive analysis and a representative taxpayer approach, we find that informal sector taxation using the turnover-based presumptive tax system would be both horizontally and vertically inequitable. Our analysis shows that about 44 per cent of informal sector businesses which participated in the survey earn below the minimum formal sector business income tax threshold. Most of these 44 per cent of businesses are owned by women. The plausible reasons for the inequitable taxation of the informal sector are the complexity of how the presumptive tax burden is determined, and lack of clarity on this process. Therefore, the presumptive tax system in Ethiopia requires a serious discussion that extends up to revision. |
| Keywords: | Economic Development, |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18191&r=pbe |
| By: | Brendan K. Beare; Alexis Akira Toda |
| Abstract: | This article concerns the optimal choice of flat taxes on labor and capital income, and on consumption, in a tractable economic model. Agents manage a portfolio of bonds and physical capital while subject to idiosyncratic investment risk and random mortality. We identify the tax rates which maximize welfare in stationary equilibrium while preserving tax revenue, finding that a very large increase in welfare can be achieved by only taxing capital income and consumption. The optimal rate of capital income taxation is zero if the natural borrowing constraint is strictly binding on entrepreneurs, but may otherwise be positive and potentially large. The Domar-Musgrave effect, whereby capital income taxation with full offset provisions encourages risky investment through loss sharing, explains cases where it is optimal to tax capital income. In further analysis we study the dynamic response to the substitution of consumption taxation for labor income taxation. We find that consumption immediately drops before rising rapidly to the new stationary equilibrium, which is higher on average than initial consumption for workers but lower for entrepreneurs. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.05822&r=pbe |
| By: | Burgstaller, Lilith; Doerr, Annabelle; Necker, Sarah |
| JEL: | H26 C93 E26 J22 O17 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277628&r=pbe |
| By: | Jean-Baptiste Michau (Ecole Polytechnique, France); Yoshiyasu Ono (Institute of Social and Economic Research, Osaka University, Japan); Matthias Schlegl (Sophia University, Japan) |
| Abstract: | What are the consequences of the preference for wealth for the accumulation of capital and for the dynamics of wealth inequality? Assuming that wealth per se is a luxury good, inequality tends to rise whenever the interest rate is larger than the economic growth rate. This induces the economy to converge towards an equilibrium with extreme wealth inequality, where the capital stock is equal to the golden rule level. Far from immiseration, this equilibrium results in high wages and in the golden rule level consumption for ordinary households. We then introduce shocks to the preference for wealth and show that progressive wealth taxation prevents wealth from being held by people with high saving rates. This permanently reduces the capital stock, which is detrimental to the welfare of future generation of workers. This also raises the interest rate, to the benefit of the property-owning upper-middle class. By contrast, a progressive consumption tax successfully and persistently redistributes welfare from the very rich to the poor. |
| Keywords: | Capital accumulation, Progressive wealth tax, Wealth inequality, Wealth preference |
| JEL: | D31 E21 E22 H20 |
| Date: | 2023–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2023-11&r=pbe |
| By: | Henrik Kleven (Princeton University, NBER, and CEBI); Claus Kreiner (University of Copenhagen and CEBI); Kristian Larsen (University of Copenhagen and CEBI); Jakob Søgaard (University of Copenhagen and CEBI) |
| Abstract: | A key contention in economics is the discrepancy between micro and macro elasticities of labor supply with respect to marginal tax rates. We revisit this question, focusing on the role of dynamic returns to effort among top earners. We develop a new model of earnings responses to taxes in the presence of dynamic returns. In this model, the returns to effort are delayed and mediated by job switches such as promotions within firms or movements between firms. Short-run micro elasticities are attenuated relative to the true long-run macro elasticity. We proceed by providing two main empirical analyses using rich administrative data from Denmark. The first part presents descriptive evidence on earnings and hours-worked patterns over the lifecycle that confirm the predictions of the theoretical model. The second part presents quasi-experimental evidence on earnings responses to taxes using discrete job switches. The empirical strategy is informed by the theoretical model, according to which job switches can be used to (partially) identify the macro elasticity of labor supply. The evidence shows that, at the top of the distribution, macro elasticities are much larger than micro elasticities due to dynamic compensation effects. |
| Keywords: | labor supply, dynamic returns |
| JEL: | J20 J22 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2023-15&r=pbe |
| By: | Püschel, Veronika; Kindermann, Fabian |
| JEL: | D15 H31 H55 J21 J22 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc23:277643&r=pbe |
| By: | Matteo Bizzarri (University of Naples Federico II and CSEF.); Daniele d'Arienzo (Capital Fund Management and Nova Business School.) |
| Abstract: | We study the welfare effects of overreaction to information in the form of diagnostic expectations in markets with asymmetric information, and the effect of a simple intervention in the form of a tax or a subsidy. A large enough level of overreaction is always welfare-decreasing and can rationalize a tax on financial transactions. A small degree of overreaction to private information can both increase or decrease welfare. This is because there are two competing externalities: an information externality, due to the informational role of prices, and a pecuniary externality, due to the allocative role of prices. When the information externality prevails on the pecuniary externality, the loading on private information in agents' trades is too small compared to the welfare optimum: in this case, a small degree of overreaction is welfare-improving. |
| Keywords: | Overreaction, Diagnostic Expectations, Non-Bayesian learning, Taxes on Financial Transactions, Asymmetric Information, Externalities. |
| JEL: | D82 D83 D91 G14 H23 |
| Date: | 2023–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:690&r=pbe |
| By: | Baistrocchi, Eduardo |
| Abstract: | Global tax hubs are the black boxes of the international tax regime (ITR). The driving forces of their strategic interaction with other building blocks of the ITR remain undertheorized. This paper offers the first theory of tax hubs as a two-sided global marketplace. It argues that tax hubs are the matchmakers of the ITR. Indeed, international investors, tax hubs and endpoint jurisdictions play different yet interrelated roles within the same ecosystem, i.e., the two-sided platform. The theory is positive rather than normative. It aims to explain how the creeping marketization of the ITR, as part of international law, has been frequently instrumented worldwide over the last century. The paper provides a stress test to the theory’s explanatory power and its limitations. The conceptual framework of this piece rests on antitrust law and economic concepts. |
| JEL: | F3 G3 J1 |
| Date: | 2023–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120635&r=pbe |
| By: | Johannes Geyer; Axel H. Börsch-Supan; Peter Haan; Elsa Perdrix |
| Abstract: | This chapter provides an overview of the German long-term care insurance. We document care needs and wellbeing of the elderly population. Moreover, we provide a detailed description of the German long-term care institutions (sources of finance and types of benefits), the professional care work force, and informal caregivers. Finally, we document expenditures on long-term care and estimate the value of informal care. The cost of long-term care for the elderly (65+), including both cost of nursing home and home health agency, reached 61 billion euro in 2019. Half of these spending are for nursing homes while only about 22.5% of beneficiaries use these institutions. Out-of-pocket spending differs greatly between modes of care. Out-of-pocket expenditures make up only about 7% of total expenditures for home care. In nursing homes, 41% of expenditures are out-of-pocket payment. Most of the expenditures are covered by the long-term care insurance. The share of other governmental schemes in expenditures for inpatient care is relatively high. This is explained by a high rate of benefit recipients who cannot afford co-payments for nursing homes: about one-third of all nursing home residents receive means- and wealth-tested social assistance. If we add the costs of informal care the share of privately financed care amounts to nearly 60% of total expenditures. |
| JEL: | H51 I13 I18 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31870&r=pbe |