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on Public Economics |
| By: | Kristijan Fidanovski (The Vienna Institute for International Economic Studies, wiiw); Biljana Jovanovikj (The Vienna Institute for International Economic Studies, wiiw); Nóra Kungl (The Vienna Institute for International Economic Studies, wiiw); Hana Ross (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This policy note presents simulation estimates for the fiscal and health impact of raising tobacco taxes in Ukraine through the Tobacco Excise Tax Simulation Model (TETSiM). It outlines two scenarios for tax reform, which differ in terms of the scale and type of the tax increases, as well as of their application to different tobacco products. Both scenarios reveal clear fiscal and health benefits, thus providing compelling evidence for increasing tobacco taxes in Ukraine. We estimate that by 2028 the tax reform would bring in between EUR 3.69bn (UAH 157.8bn) and EUR 5.22bn (UAH 223.7bn) of additional tax revenue, boosting total tobacco tax revenue by between 39.3% and 68.9%, while preventing between 65, 000 and 165, 000 smoking-related deaths. The results also reveal considerable revenue gains if there were more rapid excise tax increases without any tax advantage being given to heated tobacco products. |
| Keywords: | Excise, Taxation, Tobacco, Smoking |
| JEL: | H24 I18 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:82 |
| By: | Salla Kalin; Antoine B. Levy; Mathilde Muñoz |
| Abstract: | This paper investigates whether and why pensioners move across borders in response to tax rate differentials. In 2013, retirees relocating to Portugal became eligible to a full tax exemption of foreign-source pensions. Contrary to the broadly held belief that seniors "age in place", we find substantial international mobility responses to the reform, concentrated among wealthy and educated pensioners in higher-tax origin countries. The implied migration elasticity of the stock of foreign pensioners to the net-of-tax rate is large (between 1.5 and 2) and increases at longer horizons. Tax-induced retirement migration clusters in space, and exhibits amplification and hysteresis patterns consistent with agglomeration through endogenous amenities. We show such forces theoretically and empirically have significant implications for optimal tax rates, and for the limited efficacy of unilateral policy responses to tax competition, like the source-based taxation of pensions. |
| JEL: | H21 H31 R12 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32890 |
| By: | Julio Ortega Carrillo (ANALISTAS FINANCIEROS INTERNACIONALES); Roberto Ramos (BANCO DE ESPAÑA) |
| Abstract: | This paper provides an update for 2019 on the parametric function estimates of the Spanish personal income tax carried out by García-Miralles, Guner and Ramos (2019), which pertained to 2015 for individual taxpayers and to 2013 for households. Thus, the new estimates summarise personal income tax prior to the pandemic and, in particular, they include the 2015 tax reform in the case of households. These functions are useful for calibrating general equilibrium macroeconomic models to simulate tax reforms and to compute after-tax income in surveys where information is collected solely in gross terms. |
| Keywords: | personal income tax, tax functions |
| JEL: | E62 H24 H31 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2423e |
| By: | Damiani, Genaro Martín |
| Abstract: | This paper provides new theoretical insights into the causes and consequences of indirect tax evasion. I propose a decision-making framework that contemplates biased perceptions of apprehension probabilities, which are affected by the environment where the agents operate. This microfounded formulation allows for the analysis of how taxation affects tax evasion (and vice versa) in the aggregate, emphasizing the existing relationships between the relative size of the shadow economy, tax rates, and government revenue. It is shown that a traditional Laffer curve (inversely U-shaped and with a unique maximum) can only exist under certain conditions. The maximum government revenue attainable turns out to be, in any case, lower than in the absence of tax evasion. Nevertheless, evasion control policies are proven to be always effective in increasing government revenue. |
| Keywords: | Indirect tax evasion; Law and Economics; Biased perceptions |
| JEL: | D80 H26 K42 |
| Date: | 2024–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121779 |
| By: | Youssef Benzarti |
| Abstract: | This paper reviews the literature on the incidence of consumption and labor taxes and focuses on the empirical results that show stark departures from the canonical model of tax incidence, which I refer to as anomalies. In particular, there is mounting evidence questioning three fundamental implications of the canonical model: (1) that statutory incidence is irrelevant for economic incidence, (2) that the relative magnitude of the demand and supply elasticities is a sufficient statistic for tax incidence, and (3) that incidence is symmetric for increases and decreases. I review this empirical evidence and draw implications for the canonical model’s relevance. |
| JEL: | H0 H22 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32819 |
| By: | Sasaki, Hiroaki; Mizutani, Aya |
| Abstract: | This study presents a three-sector growth model that consists of manufacturing, private services, and public services, and examines the relationship between sectoral compositions and the tax rate. We identify an optimal tax rate that maximizes instantaneous utility. The optimal tax rate increases as manufacturing productivity increases, though it converges to a certain level that is less than unity. |
| Keywords: | public services; cost disease; optimal tax rate; growth disease |
| JEL: | H21 H40 H50 O14 O41 |
| Date: | 2024–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121693 |
| By: | Anne Brockmeyer; Francisco Garfias; Juan Carlos Suárez Serrato |
| Abstract: | Can the provision of public goods strengthen the fiscal capacity of governments in developing countries and move them toward an equilibrium of widespread tax compliance? We present evidence of the impact of local public infrastructure on tax compliance, leveraging a large public investment experiment and individual property tax records from Mexico City. Despite the salience and large effects of these investments on access to infrastructure, property values, and local economic development, we find no changes in property tax compliance and can rule out even small increases. These null effects persist even when taxpayers are reminded about the tax-benefit link. |
| JEL: | H41 H71 O23 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32776 |
| By: | Sergio Galletta; Tommaso Giommoni |
| Abstract: | We explore the effects of exposure to conflict and violence on civic compliance with the law. Using newly digitized historical records of income declarations and tax audits from post-World War I Italy, we show that losing a relative as a direct result of the war reduces tax compliance. To account for the potential endogeneity of the treatment, we use an instrumental variable strategy exploiting the exogenous allocation of soldiers to more/less dangerous military units. Our results show that the effect of reduced tax compliance remains consistent across different measures of compliance and is not due to economic reasons. We also find that this negative impact is lessened when the state acknowledges the sacrifice of the deceased, in communities that suffered many casualties, or in areas with high levels of social cooperation before the war. Overall, our findings suggest that war can erode social norms, leading to a lower willingness to contribute to public goods, such as paying taxes. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11230 |
| By: | Ogawa, Akinobu; Kondoh, Haruo |
| Abstract: | Many studies show that fiscal redistribution among regions carried out by a national government undermines the cost efficiency of local governments. In Japan, a unique fiscal system, the Hometown Tax Donation (HTD) system, was launched in 2008. Citizens may donate some of their inhabitant taxes to a different local government than their own. We examine the effects of the HTD using panel data of Japanese municipalities and stochastic frontier analysis. We find that revenue received by other regions leads to a misestimation of the cost of public services, even if this redistribution is based on residents’ intentions. |
| Keywords: | Cost efficiency of local governments; Intergovernmental fiscal transfer; Donation of inhabitant tax; Hometown tax donation system (HTD) |
| JEL: | H27 H71 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121688 |
| By: | Singh, Yadawendra; Chakraborty, Lekha |
| Abstract: | Against the backdrop of demographic transition in India, the study highlights the necessity of integrating the elderly population as a critical factor in formula-based intergovernmental fiscal transfers. The demographic transition, characterized by an increasing elderly population, imposes unique fiscal challenges on states, necessitating a revision of transfer formulas to ensure equitable and efficient resource distribution. The paper employs a historical analysis of fiscal devolution criteria, and analysing the impact of incorporating the elderly population into the devolution formula on the share of states in the total tax transfer to states. The findings indicate that integrating the elderly population into the tax devolution formula can significantly alter the distribution of resources among states, with states having higher shares of elderly populations benefiting more. The study recommends that there is a need to consider demographic changes by incorporating the share of elderly population to working age population ratio as a criterion by the Sixteenth Finance Commission to promote a more equitable and efficient allocation of resources. |
| Keywords: | Finance Commission, Tax Transfers , Demographic Transition, Elderly Population |
| JEL: | E6 E62 H0 H77 |
| Date: | 2024–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121658 |
| By: | David Neumark; Zeyu Li |
| Abstract: | California has the highest Earned Income Tax (EITC) supplement to the federal EITC, with an 85% supplement rate. However, we find that despite the apparent generosity of the California EITC, there is no employment effect on less-skilled single mothers, in sharp contrast to the evidence of positive extensive margin effects of other state EITC supplements, and of the federal EITC. Our analysis points to two reasons why, unlike other EITCs, California’s EITC does not appear to have an extensive margin effect. First, most states simply supplement the federal EITC by a fixed percentage. In contrast, in California the maximum credit is reached at a much lower income level, the state EITC begins to phase out as soon as the maximum EITC payment is reached (i.e., there is no plateau), and the phase-out rate is as steep as the phase-in rate. The result is a much higher marginal tax rate that sets in at a much lower income level. Second, California has a very high (and rising) minimum wage. The interaction between a high minimum wage and the unique budget constraint created by the California EITC implies that workers who work more than a relatively low number of hours are unlikely to gain any extra income because of the EITC. |
| JEL: | H23 J24 J38 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32883 |
| By: | Nobuki Mochida (The University of Tokyo) |
| Abstract: | In economics, uncertainty is distinguished into two types: risk, which can be evaluated in terms of probability, and ambiguity, in which the probability is unknown. In decision making under risk, the rational course of action is to make a choice that maximizes expected utility, which is the utility of an event weighted by its probability. On the other hand, under ambiguity, where the probability is unknown, how should decisions be made? We first introduce the Minimax Regret, a decision-making criterion under ambiguity where probabilities are unknown but the interval is known. As a concrete example, consider two slot machines: one existing and one new. The winning probability of the former is known, while the winning probability of the latter is unknown, with only the interval provided. In this case, the optimal strategy according to the Minimax Regret criterion would be to randomly pull each of the two slot machines with a certain probability. Next, when utility is measured by a long-term metric, the interval of uncertainty for this metric decreases over time. To address this, we introduce the Adaptive Minimax Regret (AMR) approach, which maximizes utility by updating the probabilities according to the Minimax Regret criterion based on the information available at each point in time. Simulation testing on the case of the existing and new slot machines mentioned earlier showed that AMR produced high performance comparable to bandit algorithms. As an application of AMR in marketing, we propose sequential campaign strategies and probabilistic A/B testing aimed at maximizing the average customer lifetime (utility) of the target audience. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2024cf1232 |
| By: | Iván Kataryniuk (Banco de España); Raquel Lorenzo Alonso (Banco de España); Enrique Martínez Casillas (Banco de España); Jacopo Timini (Banco de España) |
| Abstract: | The COVID-19 pandemic marked a watershed for public finances in Latin America and around the world. Fiscal measures adopted in 2020 to cope with the health emergency were substantial and affected debt dynamics. While the situation partially reverted in the following years, public debt is still higher than its recent historical average for most countries in the region. In this context, the sustainability of public debt dynamics has taken on renewed importance. In this paper, we extend a standard Debt Sustainability Analysis (DSA) framework that considers significant features of Latin American economies – such as the existence of foreign currency denominated debt – by introducing an economic model that jointly determines future values of key macroeconomic variables. We then compute different scenarios for Brazil, Chile, Colombia, Mexico, and Peru, illustrating how fiscal and structural policy changes affect the dynamics of public debt. |
| Keywords: | public debt, fiscal rules, structural reforms, Debt Sustainability Analysis (DSA), Latin America |
| JEL: | E62 H63 H68 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2412e |
| By: | Vladimir Smirnyagin; Aleh Tsyvinski; Xi Wu |
| Abstract: | Analyzing the universe of federal environmental regulations in the U.S., we construct a measure of regulations—direct taxes on pollution. Analyzing the universe of firms’ investor disclosures, we construct a measure of material environmental concerns—indirect taxes on pollution. These two empirical measures are new to the environmental regulations literature. Thirdly, we document an important new fact that the cross-sectional distribution of pollution changes is lumpy. We build a dynamic heterogeneous firm model with non-convex adjustment costs that fits the cross-sectional pollution evidence. The model explains half of the pollution decline in U.S. manufacturing over the last two decades due to direct and indirect taxes. We show that the dynamics of direct taxes (environmental regulations) and indirect taxes (environmental concerns), non-convex adjustment costs, and idiosyncratic productivity shocks are key determinants of pollution dynamics in U.S. manufacturing. |
| JEL: | E0 H0 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32852 |