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on Public Economics |
| By: | Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We study how wealth taxes affect portfolio choice in the presence of a realization-based tax on capital gains. We develop a two-period model with heterogeneous investors. Capital gains taxations distort portfolio choice by providing an incentive to postpone realization.We show that a wealth tax levied alongside the capital gains tax can eliminate this distortion for all investors. We develop an optimal-tax model that trades of equity gains from the capital-gains and wealth tax to efficiency losses related to intertemporal and portfolio choice, and derive an elasticity-based empirical criterion for the desirability of a wealth tax. |
| Keywords: | Wealth Tax; Capital-gains Tax; Dividend Tax; Lock-in Effect; Capital-market Efficiency |
| JEL: | D14 G51 H21 H24 M21 |
| Date: | 2024–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:nhhfms:2024_010 |
| By: | Tom Zawisza; Sarah Perret; Pierce O’Reilly; Antonia Ramm |
| Abstract: | This paper explores tax arbitrage incentives and behaviours in OECD countries, and their implications for tax systems more broadly. It focuses on how OECD tax systems might encourage business owners, in particular owners of unincorporated businesses and owner-managers of closely held incorporated businesses, to minimise their tax burdens through tax arbitrage. The paper finds that tax incentives to incorporate and earn capital income through corporations have increased in the last two decades. It shows that there has been an increase in incorporated businesses in many OECD countries, which has been partly driven by tax factors. The paper also finds that, in many countries, a combination of tax system features – related to corporate, dividend, capital gains, gift and inheritance taxation – provide particularly strong incentives to retain earnings inside corporations. |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ctpaaa:70-en |
| By: | Kasper Kragh Balke; Markus Karlman; Karin Kinnerud |
| Abstract: | This paper considers optimal taxation of housing capital. To this end, we employ a life-cycle model calibrated to the U.S. economy, where asset holdings and labor productivity vary across households, and tax reforms lead to changes in house and rental prices, wages, and interest rates. We find that the optimal property tax in the long run is considerably higher than today. A higher property tax leads to a reallocation from housing to business capital, which in turn increases wages and reduces interest rates. These equilibrium effects allow for an improved consumption smoothing over the life cycle, due to progressive earnings taxes and lower borrowing costs. However, most current households would incur substantial welfare losses from an implementation of a higher property tax, since house prices fall, and a majority own their home. Hence, when accounting for transitional dynamics, it is not clear that a higher property tax is feasible or preferred. |
| Keywords: | Housing, Property tax, Life cycle, general equilibrium |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bbq:wpaper:0010 |
| By: | Â Barra Roantree (Trinity College Dublin) |
| Abstract: | This paper explores the role fiscal policy plays in shaping the distribution of resources through the tax and transfer system in Ireland. It first shows that there has been a shift towards taxes on income and towards expenditure on income transfers as the size of government has increased. This has implications for the amount of redistribution, which appears relatively high compared to other European countries and has risen over the last three decades. However, the tax and transfer system can also shape the distribution of income through the effects it has on the behaviour of individuals, households and firms. Despite an explosion of international research on these effects in recent decades, we have little credible empirical evidence on the magnitude of these effects in Ireland, in large part due to the lack of access for researchers to administrative data. |
| Keywords: | redistribution; inequality; efficiency; Ireland |
| JEL: | H21 H23 H30 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0824 |
| By: | Oriol Carbonell-Nicolau; Humberto Llavador |
| Abstract: | Income inequality, bipolarization, and polarization more generally are critical issues that have drawn the attention of economists, policymakers, and social scientists. While related, these phenomena present important conceptual differences. This paper studies the role of nonlinear income taxation as a mechanism for income inequality reduction and depolarization. We introduce a novel and intuitive variance-sensitive axiom defined on perfectly bimodal income distributions, an axiom that serves as the basis for the definition of a social preorder, which is used as the main normative criterion for the evaluation of income distributions and encompasses various inequality and (bi)polarization measures. In an endogenous income framework, we fully characterize the conditions under which income tax schedules effectively reduce income inequality and (bi)polarization, as measured by a wide range of metrics. We show that such tax schedules are necessarily progressive and characterize subsets of tax policies that simultaneously achieve a universal reduction in inequality and (bi)polarization. These results underscore the critical role of progressive taxation in mitigating economic disparities and fostering a more balanced economic landscape. |
| Keywords: | Income inequality, income polarization, Progressive Taxation, social preorder, Lorenz criterion, endogenous income |
| JEL: | D31 D63 E62 H23 H24 D71 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1459 |
| By: | Rustam Jamilov; Martin B. Holm; Marek Jasinski; Plamen Nenov |
| Abstract: | This paper studies the spending response to news about a dividend tax reform to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, and implemented in 2006, raising the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households to a control group with no dividend income. Exposed households increased spending after the news and reduced spending after implementation. We show that this behavior is only consistent with an EIS above one. Using a capitalistworker framework, we estimate the EIS to be around 1.6. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bbq:wpaper:0009 |
| By: | Touria Jaaidane (Université de Lille, LEM (UMR 9221)); Sophie Larribeau (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France) |
| Abstract: | Over the seventeenth century, France relied mainly on private agents to build its state capacity but it shifted gradually to public agents, the intendants. We document this centralization process. The intendants’ appointment occurred at different times across regions. Their alternating arrivals and departures in the regions created sequences of presence and vacancy that our empirical strategy takes advantage of. Using an original panel dataset, we identify a causal effect of the intendants’ presence on tax revenues, tax and food riots. Before the 1635 Edict that permanently installed them, occasional missions were operated by special envoys who turned to be effective immediately, but only in the provinces that kept the privilege to negotiate on taxation: there, tax revenues increased and tax riots decreased. Under Richelieu and Mazarin governments, from 1635 to 1660, these privilege-provinces resisted as the presence of the intendant triggered a decrease in tax revenues. In the less autonomous common provinces, tax revenues were collected but tax riots were caused by the intendant’s presence. Finally, the institution reached its maturity under the period that saw the arrival of Colbert from 1661 on: tax revenues increased sharply in both types of provinces but so did tax riots. The policies implemeted by Colbert and his successors helped bringing money in but could not prevent the population fromrebelling. Nor the regulations taken by the intendants were sufficient to cope with food riots. |
| Keywords: | State capacity, Taxation, Conflict, Institutional reform, Venality, Dynamic treatment effects |
| JEL: | H11 D73 D74 H71 N43 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tut:cremwp:2024-06 |
| By: | Guillermo Cruces (CEDLAS-IIE-FCE-UNLP & CONICET & U. of Nottingham); Dario Tortarolo (DECRG World Bank); Gonzalo Vazquez-Bare (UC Santa Barbara) |
| Abstract: | We develop a framework to analyze partial population experiments, a generalization of the cluster experimental design where clusters are assigned to different treatment intensities. Our framework allows for heterogeneity in cluster sizes and outcome distributions. We study the large-sample behavior of OLS estimators and cluster-robust variance estimators and show that (i) ignoring cluster heterogeneity may result in severely underpowered experiments and (ii) the cluster-robust variance estimator may be upward-biased when clusters are heterogeneous. We derive formulas for power, minimum detectable effects, and optimal cluster assignment probabilities. All our results apply to cluster experiments, a particular case of our framework. We set up a potential outcomes framework to interpret the OLS estimands as causal effects. We implement our methods in a large-scale experiment to estimate the direct and spillover effects of a communication campaign on property tax compliance. We find an increase in tax compliance among individuals directly targeted with our mailing, as well as compliance spillovers on untreated individuals in clusters with a high proportion of treated taxpayers. |
| JEL: | C01 C93 H71 H26 H21 O23 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:dls:wpaper:0337 |
| By: | Maya Goldman; Ntuthuko Hlela |
| Abstract: | In this paper, we use a static fiscal incidence analysis model to evaluate the poverty and inequality impacts of using fiscal policy to finance expanded social spending in South Africa. We assess three methods to enhance the social protection system's equity objectives: increasing the size and/or coverage of the existing Social Relief of Distress grant and introducing a universal or working-age basic income grant. |
| Keywords: | Fiscal policy, Fiscal incidence, Social spending, Inequality, Poverty, Taxes and transfers |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-56 |
| By: | Frane Banić (Croatian National Bank, Croatia Author-Name2: Ivan Žilić Author-Name2-First: Ivan Author-Name2-Last: Žilić Author-Email2: ivan.zilic@hnb.hr Author-Workplace-Name2: Croatian National Bank, Croatia) |
| Abstract: | This paper estimates the effect of Excessive Deficit Procedure (EDP) on fiscal consolidation for EU member states between 2005 and 2019. Using the quarterly data which enables more time granularity and the recent advances in the difference-in-difference literature which allow for differently timed, non-absorbing treatments with dynamic effects, we estimate the causal effect of EDP on cyclically adjusted primary b alance. Our findings point to a strong fiscal consolidation effect in the EU under the EDP, measuring to 1.69 percentage point improvement in fiscal stance. While the improvement of fiscal stance under the EDP acted as a counter-cyclical measure during economic expansion, we descriptively show that fiscal consolidation due to the EDP directed policymakers towards a restrictive pro-cyclical stance, especially during the global financial c risis. Finally, we contextualize these findings within the new EU’s fiscal rules, which emphasize the medium-term fiscal adjustment. |
| Keywords: | Excessive Deficit Procedure, fiscal consolidation, difference-in-difference |
| JEL: | H30 H60 F62 |
| Date: | 2024–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:hnb:wpaper:74 |
| By: | Kasper Kragh Balke; Markus Karlman; Karin Kinnerud |
| Abstract: | This paper studies how down-payment requirements for house purchases affect households’ saving and housing decisions, and the implications for macroeconomic policy. Using a quantitative model, we find that households not only postpone homeownership when the down-payment constraint is higher, but they also delay when they start saving for the house. We show analytically that this result holds under standard assumptions for households’ earnings and preferences. The changes to saving and portfolio choices affect the distribution of liquidity-constrained households, which in turn impacts aggregate responses to policy. Specifically, the cash-flow channel of monetary policy is reduced, and it becomes increasingly important to direct fiscal transfers at low-income households to achieve the largest consumption response. We also find that a stricter down-payment requirement is associated with substantial welfare costs, especially for high-income households |
| Keywords: | down-payment requirement, heterogeneous households, housing, life cycle, loan-to-value constraint, marginal propensity to consume |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bbq:wpaper:0011 |