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on Public Economics |
| By: | Mr. Shafik Hebous; Mr. Alexander D Klemm; Geerten Michielse; Ms. Carolina Osorio Buitron |
| Abstract: | Tackling income and wealth inequality is at the top of the policy agenda in many countries. This note discusses three approaches of wealth taxation, based on (1) returns with a capital income tax, (2) stocks with a wealth tax, and (3) transfers of wealth through an inheritance (or estate) tax. Taxing actual returns is generally less distortive and more equitable than a wealth tax. Hence, rather than introducing wealth taxes, reform priorities should focus on strengthening the design of capital income taxes (notably capital gains) and closing existing loopholes, while harnessing technological advances in tax administration—including cross-border information sharing—to foster tax compliance. The inheritance tax is important to address the buildup of dynastic wealth. |
| Keywords: | income inequality; wealth inequality; wealth tax; capital income tax; estate tax; capital gains; tax loopholes; tax administration |
| Date: | 2024–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:2024/001&r=pbe |
| By: | Gundert, Hannah; Nicolay, Katharina; Steinbrenner, Daniela; Wickel, Sophia |
| Abstract: | Tax incentives are a key component of governments' investment policy mix as they directly impact companies' tax burden. In this paper, we illustrate the EU's tax attractiveness as investment location over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives reduce the effective average tax rate significantly. However, we argue that targeted measures such as accelerated depreciations and R&D incentives are most suitable for creating an attractive tax environment for business investments, especially in the context of the global minimum tax. |
| Keywords: | Mannheim Tax Index, effective tax rates, Devereux-Griffith methodology, globalminimum tax, tax incentives, investment, location attractiveness |
| JEL: | F21 F23 H25 K34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283587&r=pbe |
| By: | Mariona Mas-Montserrat; Céline Colin; Bert Brys |
| Abstract: | Presumptive tax regimes (also known as simplified tax regimes) intend to reduce tax compliance costs for micro and small businesses (and enforcement costs for the tax administration) while levying a lower tax burden as compared to the standard tax system. This working paper compiles detailed information on the presumptive tax regimes existing in a selection of OECD and non-OECD countries, identifies common practices adopted across the countries examined and provides multiple examples of best practices observed in these regimes. These examples can serve as guidance to policy makers and tax administrations to strengthen particular features of the presumptive tax regimes implemented in their jurisdictions. Lastly, the paper highlights the main challenges generally observed in the presumptive tax regimes under study, which might undermine the role of these regimes in incentivising business formalisation and strengthening tax compliance over time. |
| Keywords: | micro and small business taxation, presumptive tax regimes, simplified tax regimes, tax policy design |
| JEL: | H25 |
| Date: | 2024–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:69-en&r=pbe |
| By: | Siahaan, Fernando; Amberger, Harald; Sureth, Caren |
| Abstract: | This study investigates the effect of a Turnover-based Corporate Income Tax (TbCIT) on corporate risk-taking. TbCIT is a simplified presumptive tax levied on a firm's turnover and commonly applied to SMEs and hard-to-tax income. Using a rich sample of Indonesian firms for the years 2009 to 2021, we provide evidence that corporate risk-taking is negatively associated with a firm's TbCIT exposure. The negative effect is stronger for firms in industries with high profit margins and firms with prior year losses. However, we find no association between risk-taking and the effective TbCIT rate. Overall, our findings extend prior research on the effects of limited risk sharing between taxpayers and the government by showing that turnover-based taxation can depress corporate risk-taking. Our study also informs policymakers about potential unintended consequences of adopting simplified, turnover-based tax regimes. |
| Keywords: | turnover-based tax, corporate income tax, risk-taking, SMEs taxation |
| JEL: | H25 H32 G32 O53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:285364&r=pbe |
| By: | Banga, Karishma; Beyleveld, Alexander |
| Abstract: | In the face of emerging and new digital business models, countries are facing a political and technical choice of adapting the existing taxation instruments of corporate income tax (CIT) and value added tax (VAT) or creating new ones, such as digital services taxes (DSTs) and customs duties on electronic transmissions (CDETs). Countries have the potential to tax the digital economy through a combination of at least these four measures, which can be incorporated into their industrial policy and revenue collection strategies. |
| Keywords: | Governance, |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18264&r=pbe |
| By: | Giovanni Carnazza (Università di Roma Tre); Federica Lanterna (University Roma Tre, Department of Economics) |
| Abstract: | An extensive economic literature has investigated the cyclical behaviour of the budget balance in response to the business cycle. However, little is known about the behaviour of one of its two main components, i.e. tax revenue. We shed new light on this issue by focusing on a panel of 27 EU countries for the period 1995-2022. Using a novel empirical strategy to pre-adjust each revenue item for the business cycle, we study the behaviour of personal income tax, corporate income tax, indirect taxes, social security contributions, and non-tax revenues. Considering different econometric techniques, we find a general and stable pro-cyclical behaviour for all tax items in the EU, except for corporate income tax. This behaviour is then analysed with the varyingcoefficient model, assessing the impact of a novel variable combining the stringency of the European fiscal framework and the debt-to-GDP ratio. Generally, this indicator seems to have intensified the procyclical trend of each revenue item. |
| Keywords: | Tax policy, Pro-cyclicality, Tax Revenue, Cyclical adjustment, European Union |
| JEL: | E32 E62 H20 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0281&r=pbe |
| By: | Bastani, Spencer (IFAU - Institute for Evaluation of Labour Market and Education Policy); Blumkin, Tomer (Department of Economics, Ben Gurion University of the Negev); Micheletto, Luca (Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University) |
| Abstract: | This paper studies optimal taxation of income and education when employers cannot observe workers’ productivity and workers signal their productivity to firms by choosing both quantity and quality of education. We characterize constrained efficient allocations and derive conditions under which there is predistribution, i.e., redistribution through wage compression. Implementation through income and education dependent taxes is discussed, as well as education mandates. A key insight is that achieving predistribution requires complementing the income tax with additional policy instruments that regulate the flow of information in the labor market and prevent high skilled individuals from separating themselves from their low-skilled counterparts. |
| Keywords: | nonlinear taxation; education; asymmetric information; human capital; predistribution |
| JEL: | D82 H21 H52 J31 |
| Date: | 2024–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2024_008&r=pbe |
| By: | McDonald, Tia M.; Durst, Ron |
| Abstract: | Two recent laws enacted temporary provisions to the Federal tax code: the American Rescue Plan Act (ARPA) and the Tax Cuts and Jobs Act (TCJA). The authors of this report assess the impact of these expired and expiring Federal income and estate tax policies on tax liabilities for farm households. The authors estimate that the expiration of the temporary provisions of the ARPA and TCJA would increase farm households’ Federal income tax liabilities by $8.9 billion and estate tax liabilities by $647 million the year following expiration. The change in tax liabilities varies by farm size and for groups of farmers considered underserved by USDA programs. This analysis suggests that the combined effect of the sunsetting of reduced individual income tax rates, the increased standard deduction, a cap on State and local tax deductions, and the elimination of the personal exemptions would have the largest impact on underserved and all other farm households, except for very large farm households identified as those with annual gross cash farm income above $5 million. For these very large farm households, the sunsetting of the qualified business income deduction (QBID) would result in the largest increase in tax liabilities. |
| Keywords: | Consumer/Household Economics, Financial Economics, Research Methods/ Statistical Methods |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uersrr:340569&r=pbe |
| By: | Fan, Simon; Pang, Yu; Pestieau, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | This paper explains why democracies marked by inequalities may not experience aggressive redistribution through the lens of parent-child interactions. Parental concerns about the negative impacts of high taxation on their children’s motivation to study and pursue high-paying careers deter the poor majority from harboring an inclination to expropriate the rich. We construct an overlapping generations model in which workers vote on the redistributive policy under majority rule, while considering the incentive costs that the policy imposes on their children. We analyze the stationary Markov perfect equilibrium where the likelihood that a moderate income tax can be credibly enforced increases with the degree of parental altruism. In an extended model where career prospects are jointly determined by study efforts and received educational resources, we provide an analytical and numerical characterization of the conditions under which full redistribution does not materialize in the steady state under both private and public school systems. |
| Keywords: | Credible tax policy ; parental altruism ; Markov perfect equilibrium ; education ; majority voting |
| JEL: | D72 H31 I24 |
| Date: | 2024–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2024002&r=pbe |
| By: | Nelson, Clare; Rowangould, Gregory |
| Abstract: | In the United States, mileage fees, or road user charges, are being explored as an alternative to motor fuel taxes, often called “gas taxes.” The search for alternatives is motivated by rising fuel efficiency standards and the increasing number of electric vehicles on the road. These factors have diminished the revenue-generating capacity of gas taxes. While mileage fees are a more stable and fuel-agnostic transportation funding source, they face criticism and low levels of public support due to concerns about costs, protection of drivers’ location and privacy, and perceptions that they would raise taxes on low-income and rural households. Researchers from the University of Vermont Transportation Research Center used data from over 360, 000 Vermont vehicles to assess the financial and equity impacts of replacing the Vermont state gas tax with a revenue-neutral mileage fee of 1.5 cents per mile. The researchers then surveyed 623 car drivers in northern New England and 2, 114 drivers around the US, before and after offering them an educational experience about mileage fees. The educational experience included videos and quiz-style questions. It covered reasons for a switch to mileage fees, fairness across income and community types, and a personalized cost comparison between the gas tax and mileage fee, based on each respondent’s vehicle and travel information. This brief summarizes the findings from that research and provides implications for the field. View the NCST Project Webpage |
| Keywords: | Social and Behavioral Sciences, Mileage fees, gas tax, transportation funding, information choice questionnaire, equity, education |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt88k6z1zq&r=pbe |
| By: | Altamirano Montoya, Álvaro; Oliveri, María Laura; Bosch, Mariano; Tapia Troncoso, Waldo |
| Abstract: | This paper examines the implicit subsidies within pension systems across Latin America and the Caribbean (LAC) region. We first calculate the theoretical benefits of pension for hypothetical workers in 25 countries in LAC. We show that, on average, LAC's pension systems are subsidized, as they provide pensions above what workers would have obtained by investing pension contributions in a safe asset. Similarly, pension systems are designed to be progressive by offering higher replacement rates (pensions relative to earnings) for low-income workers. Despite this progressivity, in some countries, absolute subsidies could be higher for high-income workers. This occurs because the cost of one percentage point of the replacement increases with the average pension. Second, using data from social protection surveys, we estimate the incidence of pension systems in five LAC countries. We show that, on average, all five systems provide important subsidies to those workers who obtain a pension. However, given the high levels of informal work, in some countries, those subsidies are highly concentrated among high-income workers. Variation is large across countries. The three highest labor income deciles concentrate 70-95% of all subsidies in defined benefit systems such as Paraguay and Colombia. In defined contribution systems, subsidies are much more progressive, but still, because low-income workers do not qualify for minimum pensions, between 50-60% of subsidies concentrate in the high-income deciles. Countries like Chile, with explicit subsidies targeted at the bottom of the income distribution, obtain a more progressive distribution of subsidies. Because of relatively low participation rates, women have a weaker link with the pension system. They are also less likely to benefit from implicit subsidies. Finally, we show that non-contributory pensions, if well-targeted, largely improve the redistributive properties of pension systems in LAC. |
| Keywords: | pensions;subsidies;taxes;Latin America |
| JEL: | H55 J11 J14 J18 J26 J32 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13185&r=pbe |
| By: | Julio López-Laborda; Carmen Marín-González; Jorge Onrubia |
| Abstract: | The aim of this paper is to explain the main aspects of the "Observatory on the distribution of taxes and benefits among Spanish households", which FEDEA has been preparing and publishing since 2016. We describe the databases used, the taxes and benefits considered and the methodology employed to allocate them to households. For illustrative purposes, the results obtained for 2021 are presented in some detail and compared with those achieved for the period 2017-2021. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2024-02&r=pbe |
| By: | Charles Brown (Institute for Social Research, University of Michigan); John Bound (Institute for Social Research, University of Michigan); Chichun Fang (Institute for Social Research, University of Michigan) |
| Abstract: | We use data from the Health and Retirement Study to identify the effect of job demands on applications for Social Security Disability Insurance and Supplemental Security Income benefits and to assess whether these job demands have been changing among older (ages 51 to 61) workers. We find that workers in jobs with physical demands — physical effort, stooping, heavy lifting — are more likely to apply for disability benefits, controlling for workers’ age, education, marital status, and health. We find that other job characteristics that we can measure — requiring good eyesight, concentration, and dealing with people; and being stressful and becoming more difficult — have little effect on disability benefit applications. We do not find a reduction in the physical demands of jobs held by older workers over our 1992 to 2016 sample period. When we control for workers’ education, they have increased. More in line with expectations, we find older workers’ jobs increasingly require good eyesight, concentration, and dealing with people, and weaker trend increases in stressfulness or increasing difficulty of the job. Together, these findings suggest that changing job requirements are unlikely to be an important driver of changing disability benefits applications in the foreseeable future. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp461&r=pbe |
| By: | Giesecke, Oliver (Hoover Institution, Stanford U); Rauh, Joshua (Stanford U) |
| Abstract: | We survey public employees across the United States about their preferences regarding retirement plan options, and in particular at what employer contribution rate public employees would agree to switch to a defined contribution (DC) plan on a forward- looking basis. Overall, 89.2% of respondents are willing to accept a hard freeze of their defined benefit (DB) plan and the introduction of a DC plan at some contribution level. Conditional on acceptance, the median minimum contribution rate that respondents would require--if no additional retirement benefits would accumulate under their existing plan--is 10.0% of payroll, while the mean is 18.2% of payroll. The perceived and actual financial generosity of the pension plan relates negatively to the acceptance rate and positively to the minimum required contribution. More senior employees are somewhat less likely to accept the DC option, but there is over 80% acceptance even among long-tenured employees. Consistent with typical DB accrual patterns in the presence of early retirement options, employees with around 20 years of service require the largest DC contributions to switch. Employees who perceive the financial stability of their current plan as weaker are, on average, more likely to accept a DC plan and at lower contribution levels. We find no statistically significant heterogeneity with respect to educational attainment or financial literacy, making an explanation of the results based on cognitive ability less likely. In comparison to the economic cost of prevailing DB plans, introducing DC options that are acceptable to employees could potentially improve the sustainability of pension systems across the United States without compromising employees' satisfaction with their pension plan options. |
| JEL: | H55 H75 J26 J45 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:4156&r=pbe |
| By: | Francisco Perez-Arce (University of Southern California); Lila Rabinovich (University of Southern California) |
| Abstract: | Social Security information can be complex but is crucial for financial planning. The Social Security Statement, which was recently redesigned, aims to better inform the public. We assess the impact of the Statement’s redesign on people’s understanding of Social Security, their interest in acquiring further information, and their intended behavior, including their intended age for claiming retirement benefits. We do this through a randomized control trial of an information treatment that uses the revised and old versions of the Statement for the treatment and control groups, respectively. Finally, we show respondents an information screen and links that encourage them to check the revised Statement through their my Social Security account, and test whether those exposed to the revised Statement are more likely to click on them. We find that the redesigned Statement is more successful in improving understanding of critical issues around benefits. We also find evidence of higher clarity and interest in acquiring more information among those assigned to the redesigned Statement treatment, though we find no effects on clicks to my Social Security links. The redesign also affects the ages respondents intend to claim, but these effects dissipated by the time of the follow-up survey. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp450&r=pbe |
| By: | Heinemann, Friedrich; Nover, Justus |
| Abstract: | State-owned enterprises (SOEs) provide opportunities for a more flexible and market-based provision of public services. At the same time, they may impair fiscal transparency and offer politicians discretion in the presence of strict fiscal rules if these only constrain the core udget. Using a comprehensive micro-data set of German SOEs, this paper studies a possible impact of the German debt brake on SOEs by tracking changes in financial indicators at the firm level that would hint to a circumvention of the rule. The identification exploits that the mounting compliance pressures over the lagged implementation of the debt brake from 2010 to 2020 differs across the 16 states. The results show that SOEs in fiscally more constrained states exhibit a stronger decrease in equity and reserves and a higher increase in debt compared to SOEs in less constrained states and the shorter the distance to the 2020 deadline. This result is based on a combined sample of state and municipal SOEs, a finding pointing towards the vertical spillover of a fiscal rule. |
| Keywords: | fiscal rules, extra budgets, Stability and Growth Pact |
| JEL: | H10 H60 H74 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:283578&r=pbe |