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on Public Economics |
| By: | Nakatani, Ryota |
| Abstract: | Using the consumption equivalent welfare gain as social welfare and assuming an automation technology shock, we derive the optimal tax rates for various tax policy instruments in the steady state of the model economy calibrated for the U.S. We find that the optimal capital income tax rate lies between 22 percent and 23 percent under realistic technology shocks, while the tax rate could be higher if the elasticity of substitution between automation-related capital and unskilled workers becomes greater. Another finding is that the optimal labor income tax rate for unskilled workers is lower than that for skilled workers, although the social welfare gain from such optimal labor income tax reform is very small. We also find that the optimal tax rate on automation-related capital is zero due to its large economic distortion in the long run. Furthermore, the redistributive mechanism of the optimal consumption tax depends on the elasticity of substitution between automation-related capital and unskilled workers. Finally, we find that Pareto-efficient optimal tax reform is a combination of raising the capital income tax rate and lowering the consumption tax rate from the status quo. When automation-augmented technological progress is rapid, it is even optimal to rely solely on the capital income tax rate hike as a redistributive tax policy tool. |
| Keywords: | Automation; Optimal Taxation; Capital Income Tax; Labor Income Tax; Consumption Tax; Robot Tax; Tax Mix |
| JEL: | C68 E25 H21 H24 H25 H30 O30 O40 |
| Date: | 2024–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121347 |
| By: | Luna Bellani; Kattalina Berriochoa; Mark Kapteina; Guido Schwerdt |
| Abstract: | We study the effects of information on attitudes towards inheritance taxation using survey experiments fielded in Germany. We show that information about tax allowances increases demand for higher taxes and shifts public opinion from favoring abolition to supporting the tax. Effects are primarily due to a prevalent underestimation of tax allowances and the alteration of people’s expectations of being affected by such taxes. In contrast, information highlighting the increasing proportion of inherited wealth only negligibly affects policy demand. Our results suggest that pocketbook motives and misinformation may contribute to explaining the paradox of limited demand for inheritance taxation despite growing inequality concerns. |
| Keywords: | capital taxation, equality of opportunity, inheritance tax, information, randomized experiment |
| JEL: | H20 D72 D83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11189 |
| By: | Gabriel Chodorow-Reich; Owen M. Zidar; Eric Zwick |
| Abstract: | We assess the business provisions of the 2017 Tax Cuts and Jobs Act, the biggest corporate tax cut in US history. We draw five lessons. First, corporate tax revenue fell by 40 percent due to the lower rate and more generous expensing. Second, firms with larger declines in their effective tax wedge increased investment relatively more. In aggregate, we suggest a loose consensus from the literature that total tangible corporate investment increased by 11 percent. Third, the business tax provisions increased economic growth and wages by less than advertised by the Act’s proponents, with long-run GDP higher by less than 1% and labor income by less than $1, 000 per employee. Fourth, provisions that increase foreign investment by US-based multinationals also boost their domestic operations. Fifth, some of the expired and expiring provisions, such as accelerated depreciation, generate more investment per dollar of tax revenue than others. |
| JEL: | H25 H32 K34 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32672 |
| By: | Ricardo Perez-Truglia; Jeffrey Yusof |
| Abstract: | In the United States, there are 741 billionaires with a combined net worth of $5.2 trillion. These billionaires live highly public lives, with some achieving superstar status. Despite growing inequality, billionaires face effective tax rates lower than the average American. Is this due to a lack of public support for taxation? Is it due to misperceptions about billionaires’ lives and careers? To address these questions, we conducted a survey experiment with a sample of 9, 013 Americans. We designed multiple treatments based on research on preferences for redistribution and arguments made by academics, journalists, and the general public to increase taxes on the ultra-wealthy. Our findings reveal significant misperceptions about billionaires, with individuals updating their beliefs in response to information. Contrary to expert predictions that all treatments would positively affect the demand for taxation, most treatments have a null or negative effect. Providing information about the lavish lifestyles of billionaires does have a robust positive effect on the demand for taxation. |
| JEL: | D31 H24 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32712 |
| By: | Thomas Le Barbanchon; Johannes F. Schmieder; Andrea Weber |
| Abstract: | This chapter, prepared for the Handbook of Labor Economics, presents a comprehensive overview of how labor economists understand job search among the unemployed and how job search is shaped by unemployment insurance (UI) and active labor market policies (ALMP). It focuses on synthesizing key lessons from the empirical research of the last decade and presents recent novel theoretical developments. |
| JEL: | H0 J0 J6 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32720 |
| By: | David Koll; Dominik Sachs; Fabian Stürmer-Heiber; Hélène Turon |
| Abstract: | We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket” to compare the MECR of an income-contingent childcare subsidy program and of the income-contingent tax and transfer schedule. We set up a dynamic structural model of heterogeneous households choosing their childcare demand and maternal labor supply. Allowing for the availability of informal childcare and for consumption of leisure, we estimate this model within the German context. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the tax and transfer system. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. We show that, under most plausible assumptions on the long-term returns to childcare attendance for children growing up in households of different incomes, progressive childcare subsidies are the more efficient redistribution tool. |
| Keywords: | female labor supply, childcare, family policies, fiscal externalities, dynamic discrete choice, redistribution |
| JEL: | H23 H31 J13 J22 J24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11196 |
| By: | Xiao Han; Daniel M. Hungerman; Mark Ottoni-Wilhelm |
| Abstract: | The Tax Cuts and Jobs Act eliminated federal charitable giving incentives for roughly 20 percent of US income-tax payers. We study the impact of this on giving. Basic theory and our empirical results suggest heterogeneous effects for taxpayers with different amounts of itemizable expenses. Overall, the reform decreased charitable giving by about $20 billion annually. Using a new method to adjust estimates for retimed giving, we find evidence of moderate intertemporal shifts from pre-announcement of the law. The permanent price elasticity of giving estimates range from .6 for the average donor to over 2 for those predicted to be most responsive to the reform. |
| JEL: | D64 H41 L31 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32737 |
| By: | Joshua Coven; Sebastian Golder; Arpit Gupta; Abdoulaye Ndiaye |
| Abstract: | Property taxes impact the housing distribution across generations. Low property taxes lead to concentrated ownership among elderly empty-nesters, limiting housing for financially constrained young families. Conversely, high property taxes act as a “forced mortgage, ” reducing upfront downpayments and enabling greater homeownership among younger households. We show in an overlapping generations model that raising property taxes in low-tax California to match those in higher-tax Texas increases homeownership in California by 4.6% and among younger households by 7.4% in steady state. Asset taxes can reallocate housing to higher-valuation households in the presence of financial constraints, providing an independent rationale for property taxes. |
| Keywords: | property taxes, housing affordability, housing inequality |
| JEL: | H71 R21 H24 J11 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11203 |
| By: | Hjalte Fejerskov Boas; Niels Johannesen; Claus Thustrup Kreiner; Lauge Truels Larsen; Gabriel Zucman |
| Abstract: | In the second half of the 2010s more than 100 countries—including all large offshore financial centers—started to automatically exchange bank information with foreign tax authorities. This informational big-bang marks a break with the situation of offshore bank secrecy that prevailed before. We study its effects on tax compliance by analyzing the universe of information reports sent by foreign banks to Danish authorities, matched to population-wide micro-data on income, wealth, and cross-border bank transfers. In response to the automatic exchange of bank information, tax evaders may repatriate previously undeclared offshore wealth, they may start to self-report offshore income to the tax authorities, or the tax authorities may detect their evasion in audits that use the new information reports. Using a variety of research designs, we find large compliance effects along all these margins, with the largest response coming from repatriation of wealth. Overall we estimate that the automatic exchange of bank information has closed about 70% of the offshore tax gap. These results highlight the power of international cooperation to improve tax compliance: tax evasion is not a law of nature in a globalized world. |
| JEL: | D31 H24 H26 K34 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32714 |
| By: | Wei Jiang; Thomas J. Sargent; Neng Wang |
| Abstract: | Lucas and Stokey (1983) motivated future governments to confirm an optimal tax plan by rescheduling government debt appropriately. Debortoli et al. (2021) showed that sometimes that does not work. We show how a Ramsey plan can always be implemented by adding instantaneous debt to Lucas and Stokey’s contractible subspace and requiring that each continuation government preserve that debt’s purchasing power instantaneously. We formulate the Ramsey problem with a Bellman equation and use it to study settings with various initial term debt structures and government spending processes. We extract implications about tax smoothing and effects of fiscal policies on bond markets. |
| JEL: | E6 H2 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32658 |
| By: | Kazakis, Pantelis |
| Abstract: | This study investigates the unexplored nexus between rhetorical nationalism and corporate tax avoidance. Analyzing Chinese firms from 2010 to 2022, it shows that companies with pronounced nationalistic rhetoric are significantly more prone to engage in tax avoidance. This finding highlights the profound impact of nationalistic sentiments on corporate financial strategies. The result holds through an instrumental variables approach, with an even stronger effect observed among state-owned enterprises. This research offers insights for policymakers and scholars interested in the intersection of nationalism and corporate behavior, paving the way for those looking to understand the drivers of tax avoidance. |
| Keywords: | rhetorical nationalism, tax avoidance, China |
| JEL: | G38 H26 M14 |
| Date: | 2024–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121633 |
| By: | Severin Borenstein; Lucas W. Davis |
| Abstract: | Over the last two decades, U.S. households have received $47 billion in tax credits for buying heat pumps, solar panels, electric vehicles, and other “clean energy” technologies. Using information from tax returns, we show that these tax credits have gone predominantly to higher-income households. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the tax credit for electric vehicles, for which the top quintile has received more than 80% of all credits. The concentration of tax credits among high-income filers is relatively constant over time, though we do find a slight broadening for the electric vehicle credit since 2018. The paper then turns to the related question of cost effectiveness, examining how clean energy technology adoption has changed over time and discussing some of the broader economic considerations for this type of tax credit. |
| JEL: | H23 Q42 Q58 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32688 |
| By: | Lisa A. Gennetian; Anna Gassman-Pines |
| Abstract: | Although improving psychological well-being was not the explicit focus of the 2021 expanded Child Tax Credit (CTC), psychological health outcomes may have been affected by the positive income shocks generated by the credit. In this chapter we ask: How did the 2021 expanded CTC affect parents’ psychological well-being? Some studies have found that the CTC led to reductions in parental reports of clinical levels of depression and anxiety and in subclinical depressive and anxiety symptoms. Using similar methods, other studies have found no effect on these same outcomes. Importantly, however, the evidence does not point to the CTC worsening psychological well-being. We conclude that the evidence so far is thin, narrow, and mixed, even when our review is expanded to comparable studies on the impact of income support. Alignment of policy objectives with a broader range of measurement approaches will be important in building a more conclusive evidence base. |
| JEL: | H31 I3 J18 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32662 |
| By: | Robert W. Hahn; Nathaniel Hendren; Robert D. Metcalfe; Ben Sprung-Keyser |
| Abstract: | What are the most effective ways to address climate change? This paper extends and applies the marginal value of public funds (MVPF) framework to help answer this question. We examine 96 US environmental policy changes studied over the past 25 years. These policies span subsidies (wind, residential solar, electric and hybrid vehicles, vehicle retirement, appliance rebates, weatherization), nudges (marketing, energy conservation), and revenue raisers (fuel taxes, cap and trade). For each policy, we draw upon quasi-experimental or experimental evaluations of causal effects and translate those estimates into an MVPF. We apply a consistent translation of these behavioral responses into measures of their associated externalities and valuations of those externalities. We also provide a new method for incorporating learning-by-doing spillovers. The analysis yields three main results: First, subsidies for investments that directly displace the dirty production of electricity, such as production tax credits for wind power and subsidies for residential solar panels, have higher MVPFs (generally exceeding 2) than all other subsidies in our sample (with MVPFs generally around 1). Second, nudges to reduce energy consumption have large MVPFs, with values above 5, when targeted to regions of the US with a dirty electric grid. By contrast, policies targeting areas with cleaner grids such as California and the Northeast have substantially smaller MVPFs (often below 1). Third, fuel taxes and cap-and-trade policies are highly efficient means of raising revenue (with MVPFs below 0.7) due to the presence of large environmental externalities. We contrast these conclusions with those derived from more traditional cost-per-ton metrics used in previous literature. |
| JEL: | H0 Q5 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32728 |
| By: | Andrew Garin; Dmitri K. Koustas; Carl McPherson; Samuel Norris; Matthew Pecenco; Evan K. Rose; Yotam Shem-Tov; Jeffrey Weaver |
| Abstract: | We study the effect of incarceration on wages, self-employment, and taxes and transfers in North Carolina and Ohio using two quasi-experimental research designs: discontinuities in sentencing guidelines and random assignment to judges. Across both states, incarceration generates short-term drops in economic activity while individuals remain in prison. As a result, a year-long sentence decreases cumulative earnings over five years by 13%. Beyond five years, however, there is no evidence of lower employment, wage earnings, or self-employment in either state, as well as among defendants with no prior incarceration history. These results suggest that upstream factors, such as other types of criminal justice interactions or pre-existing labor market detachment, are more likely to be the cause of low earnings among the previously incarcerated, who we estimate would earn just $5, 000 per year on average if spared a prison sentence. |
| JEL: | H2 J01 J20 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32747 |
| By: | Cesa-Bianchi, Nicol`o; Colomboni, Roberto; Kasy, Maximilian |
| Abstract: | We consider the problem of repeatedly choosing policies to maximize social welfare. Welfare is a weighted sum of private utility and public revenue. Earlier outcomes inform later policies. Utility is not observed, but indirectly inferred. Response functions are learned through experimentation. We derive a lower bound on regret, and a matching adversarial upper bound for a variant of the Exp3 algorithm. Cumulative regret grows at a rate of T2/3. This implies that (i) welfare maximization is harder than the multi-armed bandit problem (with a rate of T1/2 for finite policy sets), and (ii) our algorithm achieves the optimal rate. For the stochastic setting, if social welfare is concave, we can achieve a rate of T1/2 (for continuous policy sets), using a dyadic search algorithm. We analyze an extension to nonlinear income taxation, and sketch an extension to commodity taxation. We compare our setting to monopoly pricing (which is easier), and price setting for bilateral trade (which is harder). (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2024–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:bgcjk |
| By: | Felix Bierbrauer |
| Abstract: | Should climate policy rely on a price of Carbon that is uniform across sectors? This paper studies this question from a public finance perspective. It is found that a justification for a uniform price can be given, but it relies on strong assumptions, among them indifference with respect to the distributive consequences of climate policy. Distributive considerations may imply that sectors whose output is consumed mostly by “the poor” should contribute less to meeting the government’s emission target, whereas sectors whose output is consumed mostly by “the rich” should contribute more. |
| Keywords: | climate policy, equity-efficiency trade-off, optimal taxation |
| JEL: | D63 H21 H22 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11201 |
| By: | M. Kate Bundorf; Melissa McInerney; Kosali I. Simon; Ruth Winecoff |
| Abstract: | Enrollment in one public benefit program often affects enrollment in others. We study life-course spillovers by examining how access to publicly subsidized health insurance prior to age 65 affects public benefit choices at the age of Medicare eligibility. We use administrative data to examine several Medicare enrollment choices: the heavily under-subscribed Medicaid “dual” coverage as a supplement to Medicare; Medicare Part D; the Part D Low Income Subsidy (LIS); and Medicare Advantage. Focusing on people living in low-income zip codes, we find a large increase in dual Medicaid among new Medicare beneficiaries in Medicaid expansion states relative to non- expansion states, as well as corresponding increases in healthcare use and reductions in out-of-pocket spending. The dual Medicaid increase exerts a bonus effect: greater take-up of LIS and Part D programs, which we attribute to the accompanying automatic enrollment in these programs. Our results on Medicare Advantage enrollment are inconclusive. Overall, our results suggest that experience with Medicaid before age 65 causes meaningful behavioral responses among the lowest-income beneficiaries when they age into Medicare; this emphasizes the importance of longitudinal spillovers also present in other public programs with eligibility criteria that differ by applicant age (e.g., Supplemental Nutrition Assistance Program (SNAP) and Supplemental Security Income (SSI)). |
| JEL: | H0 H51 H75 I0 I13 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32675 |