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on Public Economics |
| By: | Johannes Kasinger |
| Abstract: | Strategic shrouding of taxes by profit-maximizing firms can impair the effectiveness of corrective taxes. This paper explores tax shrouding and its consequences after the introduction of a digital sin tax designed to discourage harmful overconsumption of online sports betting in Germany. In response to the tax reform, most firms strategically shroud the tax, i.e., exclude tax surcharges from posted prices. Using an extensive novel panel data set on online betting odds, I causally estimate the effect of the tax on consumer betting prices. Consumers bear, on average, 76% of the tax burden. There is considerable and long-lasting heterogeneity in effects conditional on shrouding practices. Firms that shroud taxes can pass 90% of the tax onto consumers, while the pass-through rate is 16% for firms that directly post tax-inclusive prices. To understand the results' underlying mechanisms and policy implications, I propose an optimal corrective taxation model where oligopolistic firms compete on base prices and can shroud additive taxes. Tax shrouding is only attainable in equilibrium if (some) consumers underreact to shrouded attributes. According to the theoretical predictions, the empirically identified heterogeneity suggests that strategic tax shrouding significantly attenuates the positive corrective welfare effects of the tax. The results prompt regulating shrouding practices in the context of corrective taxation. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.01493 |
| By: | El Khalifi, Ahmed; Ouakil, Hicham |
| Abstract: | We examine the implications of different redistribution policy reforms in Morocco, considering taxation, and based on a dynamic general equilibrium model of three agents: households, firms and Ricardian government. Consequently, a policy that supports public investment guarantees significant social welfare gains, and has a positive multiplier effect on output and tax revenue. However, in the presence of a highly government-dependent population -which behaves like the hand-to-mouth population-, this policy destroys social welfare, through the effect of reducing other expenditure on this population. To counteract this negative impact, authorities can provide additional lump-sum transfers to this population. The paper also presents indifference curves (iso-output and iso-income tax) associating spending and taxes. A change in any tax could have negative effects on the economy if not combined with a new redistribution of public spending. On the other hand, reducing such a tax followed by a change in spending policy could have positive economic effects (on output, tax revenue and social welfare), and the gains are very high in the case of consumption taxes and employer payroll taxes. |
| Keywords: | Public spending; Ricardian households; Government-dependent households; Taxes; Indifference curves; Welfare cost. |
| JEL: | H21 H31 H42 |
| Date: | 2024–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121891 |
| By: | Vassili N. Kolokoltsov; Egor M. Dranov; Denis E. Piskun |
| Abstract: | The Nobel-price winning Mirrlees' theory of optimal taxation inspired a long sequence of research on its refinement and enhancement. However, an issue of concern has been always the fact that, as was shown in many publications, the optimal schedule in Mirrlees' paradigm of maximising the total utility (constructed from individually optimised individual ones) usually did not lead to progressive taxation (contradicting the ethically supported practice in developed economies), and often even assigned minimal tax rates to the higher paid strata of society. The first objective of this paper is to support this conclusion by proving a theorem on optimal tax schedule in (practically most exploited) piecewise-linear environment under a simplest natural utility function. The second objective is to suggest a new paradigm for optimal taxation, where instead of just total average utility maximization one introduces a standard deviation of utility as a second parameter (in some analogy with Marcowitz portfolio optimization). We show that this approach leads to transparent and easy interpreted optimality criteria for income tax. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.14476 |
| By: | Bassetto, Jacopo (University of Bologna); Ippedico, Giuseppe (University of Nottingham) |
| Abstract: | Brain drain is a key policy concern for many countries. In this paper we study whether tax incentives are an effective policy to attract high-skilled expatriates back to their home country, exploiting a generous income tax break for Italian returnees. Using administrative data and a Triple Differences design, we find that eligible individuals are 27% more likely to return to Italy. Additionally, we uncover significant effects throughout the wage distribution, revealing that tax-induced migration is a broad phenomenon beyond top earners. A cost-benefit analysis shows that the tax scheme can pay for itself by targeting young high-skilled individuals. |
| Keywords: | brain drain, tax incentives, return migration, personal income tax |
| JEL: | F22 H24 H31 J61 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17224 |
| By: | Taylor A. Kessinger; Joshua B. Plotkin |
| Abstract: | Indirect reciprocity is a plausible mechanism for sustaining cooperation: people cooperate with those who have a good reputation, which can be acquired by helping others. However, this mechanism requires the population to agree on who has good or bad moral standing. Consensus can be provided by a central institution that monitors and broadcasts reputations. But how might such an institution be maintained, and how can a population ensure that it is effective and incorruptible? Here we explore a simple mechanism to sustain an institution of reputational judgment: a compulsory contribution from each member of the population, i.e., a tax. We analyze the maximum possible tax rate that individuals will rationally pay to sustain an institution of judgment, which provides a public good in the form of information, and we derive necessary conditions for individuals to resist the temptation to evade their tax payment. We also consider the possibility that institution members may be corrupt and subject to bribery, and we analyze how often an institution must be audited to prevent bribery. Our analysis has implications for the establishment of robust public institutions that provide social information to support cooperation in large populations -- and the potential negative consequences associated with wealth or income inequality. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.11199 |
| By: | Daniel Wheadon; Gonzalo Castex; George Kudrna; Alan Woodland |
| Abstract: | We investigate the effects of self-control preferences on household life cycle decisions, macroeconomic outcomes, and the roles they play in determining optimal means testing of public old-age pensions. To that end, we develop a stochastic overlapping generations model with heterogeneous households that have Gul-Pesendorfer self-control preferences. First, we show that in economies with higher self-control costs lifetime savings diminish, while labor supply and retirement are postponed to later ages. Hence, the fiscal burden to fund the public pension system increases. Second, we examine the effects of increasing self-control costs in the context of age pension means testing with alternative taper rates at which the pension benefit is withdrawn. We show that there is a negative relationship between self-control costs and taper rates, i.e., populations with higher self-control costs prefer lower taper rates. We find that if self-control costs are sufficiently high, a universal pension with a zero taper rate may be optimal. |
| Keywords: | self-control preferences, public pensions, progressivity, labor supply, life-cycle, stochastic OLG model |
| JEL: | C68 D15 D91 H2 H55 J22 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-57 |
| By: | Andrew Koh; Sivakorn Sanguanmoo |
| Abstract: | We analyze how uncertain technologies should be robustly regulated. An agent develops a new technology and, while privately learning about its harms and benefits, continually chooses whether to continue development. A principal, uncertain about what the agent might learn, chooses among dynamic mechanisms (e.g., paths of taxes or subsidies) to influence the agent's choices in different states. We show that learning robust mechanisms -- those which deliver the highest payoff guarantee across all learning processes -- are simple and resemble `regulatory sandboxes' consisting of zero marginal tax on R&D which keeps the agent maximally sensitive to new information up to a hard quota, upon which the agent turns maximally insensitive. Robustness is important: we characterize the worst-case learning process under non-robust mechanisms and show that they induce growing but weak optimism which can deliver unboundedly poor principal payoffs; hard quotas safeguard against this. If the regulator also learns, adaptive hard quotas are robustly optimal which highlights the importance of expertise in regulation. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.17398 |
| By: | Andersen, Torben M.; Bhattacharya, Joydeep; Liu, Qing |
| Abstract: | A classic result in dynamic public economics says that for a dynamically-efficient overlapping-generations economy, there is no long-run welfare role for unfunded, pay-as-you-go (PAYG) pensions. Subsequently, the literature has shown that if agents are sufficiently myopic or present-biased, a welfare rationale arises only when agents wish to but cannot borrow (“borrowing constraint”) against future pensions – their private, voluntary retirement savings are zero. In this paper, we extend the scope of the results mentioned above. We prove that a positive optimal pension cannot coexist with a positive private retirement saving under standard preferences without the borrowing constraint. The same is true under myopia. Co-existence may obtain under the self-control and temptation preferences popularized by Gul and Pesendorfer (2004). |
| Date: | 2024–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:isu:genstf:202409052109480000 |
| By: | Emilia Soldani; Orsetta Causa; Maxime Nguyen; Tomasz Kozluk |
| Abstract: | Over the past decades, productivity growth and technology diffusion have slowed down, and business dynamism has declined in many advanced and emerging economies. Meanwhile, inequalities in economic outcomes, such as in income and wealth, and in opportunities, such as access to quality education and training, are pervasive. By hampering social mobility and the efficient allocation of talents, inequality of opportunities may trigger slower growth and even higher inequalities in outcomes. Policies to boost growth and make it more inclusive should focus on (i) ensuring broad access to quality education, from childhood onwards, and upskilling throughout working lives; (ii) addressing labour market insecurity and informality and improving job quality; (iii) curbing market power in products and labour markets to boost business dynamism; (iv) enhancing the efficiency and progressivity of taxes and transfer systems; and (v) fostering international cooperation, for instance in trade and taxation. |
| Keywords: | economic growth, inequality, productivity |
| JEL: | H10 H2 I28 I38 J38 J48 K2 L1 L5 O38 O4 |
| Date: | 2024–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1819-en |
| By: | Andersen, Torben M.; Bhattacharya, Joydeep; Grodecka-Messi, Anna; Mann, Katja |
| Abstract: | A growing literature explores reasons for rising wealth inequality, but is mostly silent on the role of pension systems despite their well-understood influence on life-cycle savings. This paper develops a simple life-cycle model to lay bare the primary theoretical mechanisms connecting pension systems, asset accumulation, and the wealth distribution. Mandated fullyfunded plans transformindividuals with lower incomes, often characterized as low savers, into asset owners, and may also imply a more equal wealth distribution than pay-as-you-go-based systems. To test the empirical validity of these predictions, the paper explores a pension reform in Denmark, a country that witnessed declining wealth inequality over the last decades. In a calibrated life-cycle model employing unique register data, the Danish pension reformemerges as a key factor explaining the downward trend in wealth inequality. |
| Date: | 2024–09–06 |
| URL: | https://d.repec.org/n?u=RePEc:isu:genstf:202409061340040000 |