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on Public Economics |
| By: | Mark A. Aguiar; Benjamin Moll; Florian Scheuer |
| Abstract: | Standard optimal capital tax theory abstracts from modeling asset prices, making it unsuitable for thinking about capital gains and wealth taxation. We study optimal redistributive taxation in an environment with asset price changes, adopting the modern finance view that asset prices fluctuate not only because of changing cash flows, but also due to other factors (“discount rates”). We show that the optimal tax base (i) generally differs from the case with constant asset prices, and (ii) depends on the sources of asset-price changes. Whenever asset prices fluctuate, and are not exclusively driven by cash flow changes, taxes must target realized trades and generally involve a combination of realization-based capital gains and dividend taxes. This result stands in contrast to the classic Haig-Simons comprehensive income tax concept, as well as recent proposals for wealth or accrual-based capital gains taxes. |
| JEL: | E6 H21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32951 |
| By: | Xuyang Chen |
| Abstract: | This paper investigates how the OECD's global minimum tax (GMT) affects multinational enterprises (MNEs) behavior and countries' corporate taxes. We consider both profit shifting and capital investment responses of the MNE in a formal model of tax competition between asymmetric countries. The GMT reduces the true tax rate differential and benefits the large country, while the revenue effect is generally ambiguous for the small country. In the short run where tax rates are fixed, due to tax deduction of the substance-based income exclusion (SBIE), a higher minimum rate exerts investment incentives but also incurs a larger revenue loss for the small country. We show that under high (low) profit shifting costs the former (latter) effect dominates so that the small country's revenue increases (decreases). In the long run where countries can adjust tax rates, the GMT reshapes the tax game and the competition pattern. In contrast to the existing literature, we reveal that the minimum rate binds the small country only if it is low. With the rise of the GMT rate, countries will undercut the minimum to boost real investments and collect top-up taxes. For small market-size asymmetry and intermediate profit shifting cost, the revenue loss from the elimination of profit shifting may dominate the revenue gain from taxing the true profits generated by substantive activities, so that even a marginal GMT reform may harm the small country. Otherwise, it can raise the small country's tax revenue. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.05397 |
| By: | Martin Grote; Jean-François Wen |
| Abstract: | Property taxes are often under-exploited sources of local public revenues. A broad-based tax, raised at modest rates, can potentially generate significantly higher revenues in many countries, and meet most of the costs of improved local public services. This note provides a practical guide to designing and implementing reforms to recurrent taxes on immoveable property and real estate transfer taxes. It addresses the fundamental policy choices regarding the property tax base and tax rate, and the key functions of the tax administration for managing collections – valuation, billing, and enforcement. The advice in the note stems from a review of the literature and insights gained from the experiences of the Fiscal Affairs Department in delivering capacity development on property taxes. It covers and updates some of the analytical work by Norregaard (2013) while providing granular advice on practical aspects of reforming property taxes. The note is motivated by the resource mobilization needs of developing countries, but the design considerations are also pertinent for advanced and emerging market economies seeking to increase the revenue productivity of property taxes. |
| Keywords: | property tax; recurrent tax; real estate; real property transfer tax; tax reform; implement property tax reform; property tax tax collection; revenue identity; property tax administration; property tax system; Tax administration core functions; Transaction tax; Estate tax; Africa |
| Date: | 2024–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfhtn:2024/006 |
| By: | Hikaru Ogawa (Faculty of Economcis, The University of Tokyo); Ryota Tsuchiya (Graduate School of Economcis, The University of Tokyo) |
| Abstract: | This study examines the effect of international taxation rules that allow market countries to tax the sales of a giant digital IT firm based outside the countries. It develops an asymmetric tax competition model where one country hosts an online service supplier selling digital services over the Internet worldwide. The main finding indicates that changes in tax rules improving market countries will not only benefit them but also the country hosting the global supplier whose tax bases would shrink. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2024cf1235 |
| By: | Bargain, Olivier; Jara, H. Xavier; Rivera, David |
| Abstract: | To finance increased public spending and social programs, Latin America's tax systems need to develop further. Yet taxation can reduce the tax base by discouraging formal employment. Evidence on the intensity of the problem is limited and tends to focus on specifically large reforms of the tax system. Conversely, and to improve external validity, we study whether routine changes in tax policies also alter labor market formalization. Our approach is based on grouped-data estimations of formal employment responses to policy changes. We exploit tax variation across three countries (Bolivia, Ecuador and Colombia) and three periods (2008, 2014/15, 2019). We use precise calculations of counterfactual tax burdens when moving from informal to formal jobs, i.e. formalization tax rates (FTRs). For most countries and pairs of years, FTRs have a negative and significant effect on formal employment, particularly when wages are held constant across periods – in order to extract the pure policy effect – and in a series of sensitivity checks. |
| Keywords: | taxation; benefits; labor supply; informality |
| JEL: | H24 H31 J24 J40 |
| Date: | 2024–09–09 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125368 |
| By: | Liu, Sheng (School of Economics and Trade, Guangdong University of Foreign Studies); Feng, Haibo (School of Economics, Jinan University); Xu, Yongyi (School of Economics, Jinan University); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | Tax incentive policies are an important means for governments to encourage corporate innovation. The issue of policy composite fallacy exists under certain conditions, which has been overlooked by existing studies. Based on China's tax survey data from 2008 to 2016 and employing the method of constructing the marginal effective tax rate for enterprises, this paper empirically tests the effects of tax rate-based incentives, tax base-based incentives, and their combined policy effects. The following findings are obtained: tax base-based incentives consistently promote corporate innovation through the innovation risk-sharing mechanism. Whether tax rate-based incentives promote innovation depends on the extent to which the expectation of compensating for innovation risk loss through tax rate incentives is met. The combined policy effect of tax base- and tax rate-based incentives also depends on the level of government risk-sharing and the expectation of compensation for corporate innovation risk loss, with empirical results showing that the combination of the two policies impedes corporate innovation; compared with tax rate-based incentives and their combination, tax base-based incentives have a greater and more lasting impact in terms of lagged effects. Finally, the paper conducts a heterogeneity analysis on enterprises with different levels of innovation and different property rights. The conclusions of the article provide theoretical and practical bases for optimizing the combination of tax incentive policies and improving the quality of innovation. |
| Keywords: | Tax incentives; Risk sharing; Innovation |
| JEL: | H20 O10 O31 |
| Date: | 2024–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1027 |
| By: | Tomer Blumkin (BGU); Spencer Bastani (IFAU and Department of Economics, Uppsala University;); Luca Micheletto (Department of Law, University of Milan) |
| Keywords: | optimal taxation, signaling, status, redistribution |
| JEL: | H21 D63 D82 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bgu:wpaper:2412 |
| By: | Andrew B. Abel; Stavros Panageas |
| Abstract: | We characterize a planner's optimal allocation of consumption and capital in an overlapping generations model with exogenous government purchases, privately-observed idiosyncratic shocks to the depreciation rate of capital, and a proportional cost of reversing investment to transform used capital to consumption. We show how a package of various taxes and government bonds can finance government purchases and support the same balanced growth path as in the planner's optimum. The optimal tax rate on capital income implements the planner's optimal (but incomplete) sharing of idiosyncratic depreciation risks, while respecting the private nature of these risks. |
| JEL: | E6 H2 H6 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32961 |
| By: | Tomer Blumkin (BGU); Spencer Bastani (IFAU and Department of Economics, Uppsala University); Luca Micheletto (Department of Law, University of Milan) |
| Keywords: | nonlinear taxation, education, asymmetric information, human capital, predistribution |
| JEL: | D82 H21 H52 J31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bgu:wpaper:2413 |
| By: | NARAZANI Edlira (European Commission - JRC); RISCADO Sara; WEMANS Lara |
| Abstract: | In the last decade, two major disruptions – the Great Recession and the Covid sanitary crisis – hit the world economy and gave rise to a battery of government measures. In Portugal, after the fiscal consolidation efforts implemented to tackle the severe sovereign debt crisis that accompanied the Great Recession, some restrictive fiscal measures were reversed. Throughout and after the pandemic crisis, fiscal measures maintained their expansionary nature, with reinforcements to child benefits and income tax cuts. This paper quantifies the distributional and labour market impacts of policy changes implemented on the income tax system and on the child benefit in Portugal in 2022 and 2023. First-order effects of these measures, quantified using the EUROMOD microsimulation model, reveal that changes to the income tax schedule exhibit a regressive pattern, whereas those affecting the minimum untaxed income were more evenly distributed. In contrast, the child benefit reinforcements show a progressive impact. Employing EUROLAB, a behavioural labour supply and demand model, we find that labour supply responses are relatively modest, due to the small direct impacts of the measures on disposable income. Overall, labour supply, both in terms of hours of work and participation, reacts positively to the tax breaks but negatively to the reinforcement of the child benefit, with this negative reaction being concentrated on specific income and gender groups, such as single parents with children or families in lower income quintiles. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:taxref:202406 |
| By: | Léon-Gómez, Carlos R.; Teixidó, Jordi J.; Verde, Stefano F. |
| Abstract: | We study the local distortionary effects of notches in Spain’s CO2-based vehicle registration tax on the distribution of new car CO2 performance. These effects are the smoking gun of carmaker strategic behaviour and affect in turn tax revenue and CO2 emissions. Using model-level data on all car registrations in Spain 2010-2020, we apply the bunching approach to the three thresholds of the tax scheme: 120, 160, and 200 gCO2/km. We find that the tax notches strongly affected market outcomes, resulting in the sale of about 388, 000 more cars (overall) at or just below the thresholds compared to the respective counterfactuals without the thresholds. This translates into about €335 million of foregone tax revenue and only very limited extra abatement of CO2 emissions. Over 90-95% of all estimated bunching took place at the first threshold (120 gCO2/km). Over 60% of all estimated bunching took place before 2015. Bunching diminished over time, which reflects diminished effectiveness of the tax in both reducing CO2 emissions and generating revenue. Taking the interactions with both EU vehicle emission standards and similar CO2-related policies in other Member States into consideration is important for interpreting these results. |
| Keywords: | CO2-based vehicle taxes, Notches, Bunching, Carmakers, Strategic behaviour, Emissions, Tax revenue, Policy interactions |
| JEL: | H23 H30 Q58 |
| Date: | 2024–09–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122103 |
| By: | Becker, Sebastian (Federal Ministry of Labor and Social Affairs (BMAS), Germany); Gehlen, Annica (DIW Berlin); Geyer, Johannes (DIW Berlin); Haan, Peter (DIW Berlin) |
| Abstract: | We provide novel evidence about the incentive and welfare effects of an increase in the generosity of disability benefits. Importantly, a unique policy variation in Germany allows us to isolate the income effect of a change in benefit generosity. We leverage this quasi-experimental policy variation using an RD design to estimate the effect of increasing disability benefits on employment, earnings, labor market transitions, and mortality outcomes using administrative data on the universe of new disability benefit recipients. Contrary to previous literature, our analysis reveals no significant impact on the employment and earnings of DI recipients due to the increased benefits. However, we find a sizable effect of the probability of returning to the labor market. We find no effects on recipient mortality six years after benefit award, but estimates imply a notable reduction in poverty risk, highlighting meaningful welfare implications of increased generosity. |
| Keywords: | disability insurance, pension reform, wealth effect, labor supply, mortality, RDD |
| JEL: | H55 I12 J22 J26 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17298 |
| By: | Andrian, Leandro Gaston; Rodríguez, César M.; Valencia, Oscar |
| Abstract: | In this paper, we study the drivers of public debt surges across 172 countries from 1980-2021. We focus on the role of discrepancies between the annual change in public debt and the budget deficit, referred to as stock-flow adjustments (SFA). The analysis employs survival methods to model the effect of SFA and other macroeconomic factors on the hazard rate for debt spike events. We differentiate between debt accumulation trends and spikes to examine how SFA influences the likelihood of a spike once a country is already on an increasing debt trajectory. Our results indicate that an increase of one percentage point in the SFA to GDP ratio increases the hazard rate of a surge by 15%. This effect is greater for advanced economies (25%) relative to emerging markets (14%). Moreover, contingent on a debt trend, a higher SFA significantly increases the chance that a spike will materialize, especially in advanced countries. We address the self-selection problem associated with SFA by using an IV approach based on the notion that fiscal transparency. We conclude that accurate SFA estimates are critical for debt sustainability analyses. Overall, our analysis provides novel evidence on the mechanisms underlying public debt surges and their consequences. Our findings can guide policymakers in identifying risks from hidden debt trajectories and improving transparency. The results are robust to various sensitivity checks and alternative specifications and methodologies. |
| Keywords: | Debt spikes;Stock Flow Adjustment;Debt |
| JEL: | H61 H62 H63 H69 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13725 |