|
on Public Economics |
| By: | Roberto Iacono; Bård Smedsvik |
| Abstract: | How do wealthy individuals respond to wealth tax reforms? We analyse behavioral responses to intensive margin variation in wealth tax rates, estimating the causal effects of an unprecedented municipal wealth tax reform in Norway. We leverage variation from the single-period municipal reform reducing the marginal tax rate (MTR) on wealth exclusively in the northern Norwegian municipality of Bo from 0.85% to 0.35%, since 2021. Mimicking the behaviour of a tax haven, Bo represents the first municipality in Norway to unilaterally reduce the municipal wealth tax rate since 1978. We document a significant 60% increase in average taxable wealth in response to a 1 percentage point drop in the wealth tax rate. The elasticity of taxable wealth increases to 68.7% when focusing exclusively on wealth taxpayers. We also estimate a significant but more modest 10% jump in the weighted mass of wealth taxpayers in the treated municipality. Migration effects of the reform dominate: internal mobility of wealthy taxpayers appears as the major behavioral response to the change in the net tax rate, accounting for a large portion of the post-treatment total net wealth in the treated municipality. While these effects are pronounced at the municipal level, they do not suggest a large-scale exodus at the national level, indicating that migration to avoid wealth taxation is not necessarily an inevitable outcome of localized preferential tax regimes. These results emerge in a context of third-party reported wealth data with minimal measurement error, limited evidence of bunching, highly enforced residence-based wealth taxation, and negligible out-migration rates. |
| Keywords: | wealth taxation, behavioral responses, tax avoidance, migration |
| JEL: | H20 H21 H24 H26 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11335 |
| By: | Meling, Tom (Ohio State U); Mogstad, Magne (U of Chicago); Vestre, Arnstein (U of Chicago) |
| Abstract: | We quantify the extent of crypto tax noncompliance and evasion, and assess the efficacy of alternative tax enforcement interventions. The context of the study is Norway. This context allows us to address key measurement challenges by combining de-anonymized crypto trading data with individual tax returns, survey data, and information from tax enforcement interventions. We find that crypto tax noncompliance is pervasive, even among investors trading on exchanges that share identifiable trading data with tax authorities. However, since most crypto investors owe little in crypto-related taxes, enforcement strategies need to be well-targeted or cheap for benefits to outweigh costs. |
| JEL: | G10 G50 H20 H26 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:ohidic:2024-13 |
| By: | Katharina Pfeil; Matthias Kasper; Sarah Necker; Lars P. Feld |
| Abstract: | This study examines how tax system design and reform affect labor supply. We conduct an online experiment with 522 participants to assess labor responses to tax reforms that introduce or remove a notch, affecting after-tax income at either the lower or upper end of the income distribution. Our findings indicate asymmetric responses to tax reform as well as substantial heterogeneity at the individual level. In particular, we find an increase in labor supply in response to a tax reform only when the reform reduces the tax burden at the upper end of the income distribution. While, in the aggregate, labor supply adjusts on the extensive and intensive margins, we also find strong evidence of heterogeneity in individual responses, showing that the labor response is primarily driven by individuals directly affected by the reform. We examine the role of misperceptions at the individual level as well as fairness considerations in explaining these results. |
| Keywords: | tax system design, tax reform, notches, labor supply, online experiment |
| JEL: | J20 J22 H24 H30 C91 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11350 |
| By: | David R. Agrawal; Marie-Laure Breuillé; Julie Le Gallo |
| Abstract: | We study local tax competition when municipalities can voluntarily cooperate. We compare the intensity of interjurisdictional policy interdependence between competing municipalities within the same “establishment for inter-municipal cooperation” (EIMC) and competing municipalities outside of the cooperative unit. To resolve the endogeneity of the decision to cooperate we apply the approach of Kelejian and Piras (2014). The strategic response to the average tax rate among peer members of the same EIMC is less intense than the response to the average tax rate of municipalities outside of the cooperative unit. A one percentage point decrease in the average tax rate of non-members lowers the own-jurisdiction tax rate by 0.58 percentage points, while a one unit decrease in the tax rate of towns within the EIMC lowers the own-jurisdiction rate by 0.31 percentage points. Our empirical methods can be used to study strategic interactions within other cooperative groups, including supra-national institutions such as the European Union. |
| Keywords: | tax competition, intermunicipal cooperation, spatial autoregressive models, endogenous weight matrix, local public finance, networks |
| JEL: | C20 H20 H70 R50 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11334 |
| By: | Christl, Michael; De Poli, Silvia; Köppl-Turyna, Monika |
| Abstract: | This paper refines the concept of disposable income by incorporating governmentprovided in-kind benefits for education and health services, as well as imputed VAT payments, following Figari and Paulus (2015). Our analysis reveals that including these elements significantly reduces income inequality, as seen in a decrease in the Gini coefficient across all examined countries. While direct taxes and cash benefits are the main drivers of redistribution, in-kind benefits also play a substantial role, while VAT having a smaller, negative impact. Our study highlights that additionally extending the income concept increases also the targeting of the tax benefit system to low-income households, however to a very different extend across the EU Member States. Our new, broader approach allows for more accurate assessments of redistribution and cross-country comparisons, offering valuable insights for EU-level policy evaluations. |
| Keywords: | tax-benefits model, EUROMOD, welfare state, in-kind benefits, indirect taxes, redistribution |
| JEL: | H23 I38 H24 D31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1508 |
| By: | Touhami Abdelkhalek; Dorothee Boccanfuso |
| Abstract: | Public policies, particularly those related to taxes and subsidies, should help to reduce poverty and inequality. However, the combination of components of these two systems, as implemented, leads sometimes to an increase in poverty and or inequality without being necessarily anticipated. In this policy brief, based on data from the 2019 wave of the Enquête Panel de Ménage from the Observatoire National du Développement Human from Morocco, we first highlight the influence of taxes and subsidies on household incomes. We derive the income variations relating to the tax burden and gains from subsidies for the different population groups. We then characterize taxes and subsidies in terms of their progressiveness and regressiveness. Finally, using a Shapley decomposition, we determine the contribution of each tax and subsidy to poverty and inequality measures. This analysis is done separately for rural and urban areas, useful to formulate recommendations on this basis. Our results show that the tax and subsidy system, taken all together, is redistributive. We can also conclude unambiguously that this system reduces poverty and inequality. However, the value-added tax is regressive in its current form, unlike income tax, which is progressive. Subsidies for primary and secondary education are highly progressive, while those for higher education are regressive, benefiting the wealthiest quintiles. Finally, explicit subsidies on flour, butane gas, and sugar reduce poverty, although they are not pro-poor.1 |
| Date: | 2023–11 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_42-23 |
| By: | Eduardo A. Haddad; João Gabriel Sacco |
| Abstract: | - Brazil’s latest tax reform will replace five taxes on consumption with one single VAT to promote greater efficiency and sectoral isonomy. - Forecasts produced by a detailed ICGE model point to sizeable gains in GDP exceeding 4% in the long run, even if spatially unequal. - Exceptions to the rules reduce potential benefits in efficiency terms. - Policies meant to promote regional development and close the gap deepened by the reform partially achieve their goal at the expense of efficiency gains. - Lessons for the current tax reform in Morocco are drawn. |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_02_24 |
| By: | Fahd Azaroual; Otaviano Canuto |
| Abstract: | Base erosion and profit shifting (BEPS) involving multinational companies is a complex, multi-dimensional problem resulting from loopholes and inconsistencies between countries’ tax systems. Addressing it requires coordinated action at the international level. Several organizations have taken initiatives in this direction, including the Organization for Economic Co-operation and Development (OECD), which, with the support of the G20, launched an ambitious project to combat BEPS in 2013. The OECD has proposed 15 measures to strengthen international tax rules in various areas, including transfer pricing, combating harmful tax practices, preventing treaty abuse, and promoting transparency and tax information exchange. This study analyzes the challenges related to the fiscal space in Africa and examines the impact of BEPS on African economies. We examine the factors that exacerbate BEPS in the region, including the absence of relevant international tax laws, the dynamics of tax treaty negotiations, and limited tax administration capacity. We will also assess the negative impact of BEPS in Africa and discuss current initiatives to address BEPS in Africa, such as those proposed by the OECD. Finally, we discuss the challenges and offer policy recommendations for increasing fiscal space and reducing BEPS in Africa. |
| Date: | 2023–08 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:pbecon:pb_32-23 |
| By: | Gomtsyan, Suren Gomtsian; Schuster, Edmund-Philipp |
| Abstract: | Various reasons have been put forward for the declining global relevance of the London equity market. Reform proposals and changes already implemented target some of the major problems identified as reasons for the stock market's decline. Surprisingly, tax related explanations for the current state of the UK stock market are largely absent from the discourse. This paper argues that the preferential tax treatment of the dividend income of UK pension funds and insurance companies introduced in the early 1970s and repealed in the mid 1990s first contributed to the UK stock market's growth by implicitly subsidising financing via equity and encouraging the flow of the funds of these investors into the market, and subsequently led to the market's decline as a result of the outflow of the funds of the two major classes of institutional investors: UK pension funds and insurance companies. The key implication of this argument is that omitting tax as a major factor in the decline of the UK stock market risks ending up with reforms that can, at best, do little to change the current situation. |
| Keywords: | corporate governance; dividend taxation; institutional investors; London stock market; pension funds; tax |
| JEL: | F3 G3 J1 |
| Date: | 2024–09–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123539 |
| By: | Koeniger, Winfried; Kress, Peter |
| Abstract: | We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semi-durables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds. |
| Keywords: | Consumption expenditure, Transactional data, Temporary VAT cut, Unconventional fiscal policy |
| JEL: | D12 E21 E62 E65 H31 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:usg:econwp:2024:03 |
| By: | Alberto Botta (School of Accounting, Finance and Economics, University of Greenwich, London, UK); Eugenio Caverzasi (Department of Economics, Università degli Studi dell’Insubria, Varese, Italy); Alberto Russo (Department of Economics and Social Sciences, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain) |
| Abstract: | With central banks and national governments returning to more conservative monetary and fiscal policies after Covid, the debate about the macroeconomic effects of fiscal rules has revamped. We address this topic via an extended version of the hybrid ABM-SFC model in Botta et al. (2024) that includes a Taylor-type monetary policy rule and a variety of fiscal rules aimed at reducing the public debt-to-GDP ratio. We compare spending-based fiscal rules vastly advocated by international economic institutions with wealth tax-based fiscal policies. We do this in the context of a modern financialized economy where securitization and complex financial products like Asset-Backed Securities (ABS) alter economic dynamics and the effectiveness of monetary policy in controlling inflation. We assume heterogeneous households to track how alternative fiscal strategies affect income and wealth inequality. Our findings are threefold. First, spending-based fiscal rules can reduce the debt-to-GDP ratio in the long term but at the cost of significantly higher unemployment and permanently lower real GDP. Second, wealth tax-based fiscal policies reduce public debt without harming economic performance. Third, perhaps unexpectedly, in a financialized economy, spending-based fiscal austerity may hurt the relative position of rich households in wealth distribution as much as a wealth tax does; this is due to capital losses that spending cuts may eventually induce in households’ financial wealth. In the end, wealth taxes are preferable to spending cuts, and the usual political opposition against them by the rich appears largely unfounded given their potential economic benefits compared to spending-based fiscal austerity. |
| Keywords: | Spending-based fiscal rule, Wealth tax, Securitization |
| JEL: | E44 E63 H6 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:jau:wpaper:2024/07 |
| By: | Chomik , Rafal (University of New South Wales); O’Keefe , Philip (University of New South Wales); Piggott , John (University of New South Wales) |
| Abstract: | Asia and the Pacific has the most diverse regional pension landscape globally. Yet the region’s pension systems are facing common challenges as they attempt to expand coverage, and ensure adequacy and fairness, while maintaining fiscal sustainability. We review the structures and performance of pension systems across Asia and the Pacific. Most remain characterized by low contributory coverage, social pensions with inadequate benefits and often low (or no) coverage, and informal sector schemes with modest traction to date. They are also characterized by gender inequities, lack of policy flexibility and attention to labor incentives, and underdeveloped governance structures. The paper makes proposals for addressing these challenges through an expanded role for social pensions with inclusive targeting, reformed contributory schemes, ongoing innovations for the informal sector and women, and enhanced reliance on technology. |
| Keywords: | pension; Asian pension; social protection in Asia; means tested pension |
| JEL: | H55 J18 N35 |
| Date: | 2024–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0746 |
| By: | Christl, Michael; De Poli, Silvia; Ivaškaitė-Tamošiūnė, Viginta |
| Abstract: | This paper examines the extent to which fiscal policy protected household incomes in the second year of the COVID-19 pandemic in EU countries. Using microsimulation techniques and detailed Eurostat data, we analyse this impact separately for employees and the selfemployed. We show that while on average income protection was similar for employees and the self-employed at the EU level, the heterogeneity both between and within countries was much higher for self-employed households in 2021. For employees, both monetary compensation schemes and unemployment benefits played a similar role in absorbing the income shock, whereas for the self-employed it was mainly monetary compensation schemes and much less so unemployment benefits that stabilised their income. Overall, we find that monetary compensation schemes, together with automatic stabilisers, absorbed a substantial part (67%) of the market income shock in 2021, albeit with a reduced cushioning effect compared to the previous year (74%). Monetary compensation schemes alone account for almost a third of this cushioning effect in 2021. Our paper underlines the importance of targeted policies to ensure comprehensive support for vulnerable households amid ongoing economic uncertainties. |
| Keywords: | COVID-19, Self-employed, Income stabilisation, Microsimulation, EUROMOD |
| JEL: | D31 E24 H24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1509 |
| By: | Sidhya Balakrishnan; Roberta Costa; Johannes Haushofer; Fábio Waltenberg |
| Abstract: | We investigate the impact of a permanent unconditional cash transfer called “Citizen’s Basic Income” in the city of Maricá, Brazil. At the time of the study, the program made monthly household-level transfers of USD 180 PPP on average to about a fourth of the city’s residents. The program is unique in that it is both unconditional and permanent, while existing programs typically only have one of these features. Between September 2021 and April 2022, we surveyed 5, 182 individuals, about half of whom received the RBC. We use propensity score matching with inverse probability weights to create a matched comparison group and estimate the effect of the program on economic, social, and psychological outcomes. Our results reveal several positive welfare effects. Household income including transfers increased by 9%; consumption at the per capita level did not change significantly, but the household as a whole experienced a consumption increase of 5%. We also observe improvements in an index of children’s health and education, although the effect does not survive multiple inference correction and bounding. There was a notable displacement of other income sources, particularly labor income, which decreased by 17% among recipients, suggesting shifts to lower-paying but potentially more desirable jobs during the pandemic. The program also led to increased access to financial services, but decreased the propensity to save. These findings paint a nuanced picture of the socioeconomic benefits of unconditional cash transfers and established cash transfer administrative systems. |
| JEL: | H3 O12 O23 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33089 |