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on Public Economics |
| By: | Christopher Mantzaris (University of Primorska); Ajda Fošner (University of Primorska) |
| Abstract: | Tax administrative cost reduction is an economically and socially desirable goal for public policy. This article proposes total administrative cost as percentage of total tax revenue as a vivid measurand, also useful for cross-jurisdiction comparisons. Statistical data, surveys and a novel approach demonstrate: Germany's 2021 tax administrative costs likely exceeded 20% of total tax revenue, indicating need for improvement of Germany's taxation system – and for the many jurisdictions with similar tax regimes. In addition, this article outlines possible reasons for and implications of the seemingly high tax administrative burden as well as solutions. |
| Keywords: | Tax revenues, Tax revenue, Ratio, Percentage, Economics, Public policy, Administrative costs |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04792276 |
| By: | Gopi Shah Goda; Ithai Lurie; Priyanka S. Parikh; Chelsea Swete |
| Abstract: | Approximately $76 billion in out-of-pocket medical spending was deducted as an itemized medical deduction (IMD) in 2021, resulting in about $9 billion in federal forgone tax revenue. We use data from U.S. tax returns to examine how these tax savings are distributed across income and age, how the distributions differ from the mortgage interest deduction, and how the distributions changed with the 2017 Tax Cuts and Jobs Act. While a given level of medical spending is less likely to be above the income threshold for higher-income households, itemization rates and marginal tax rates increase with income, resulting in tax savings skewed towards higher-income taxpayers: 94 percent of the tax savings accrue to those in the top half of the income distribution. The tax savings are also highly concentrated at older ages, with 42 percent accruing to those over age 65. Using rich survey data on out-of-pocket medical spending, we illustrate how the distribution of tax savings varies across policy alternatives. We find that expanding eligibility for the tax subsidy would likely reduce the concentration of tax savings at higher incomes and increase the concentration of tax benefits at older ages. |
| JEL: | H22 I18 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33157 |
| By: | Gopi Shah Goda |
| Abstract: | The U.S. tax code partially subsidizes out-of-pocket medical spending as itemized medical deductions (IMDs). In this paper, using detailed information in the Health and Retirement Study, I find that while a substantial share of medical spending among older Americans is deducted through the tax code, take-up is incomplete: 61.8 (50.5) percent of potential tax savings (deductions) are claimed, resulting in lost tax savings of $5.4 billion annually. Further, frictions in take-up result in diverting tax savings from higher-need populations. I investigate potential mechanisms and estimate a discrete choice model to simulate eligibility, take-up and the implied cost of claiming under different policy counterfactuals. The results indicate that subsidizing medical expenses through the tax code imposes significant economic burdens, reducing the net subsidy available to taxpayers. |
| JEL: | H51 I13 J14 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33213 |
| By: | Mirjam Bachli (HEC University of Lausanne); Albrecht Glitz (Universitat Pompeu Fabra) |
| Abstract: | Immigration may affect income inequality not only by changing factor prices but also by inducing policy makers to adjust the prevailing income tax system. We assess the relative importance of these economic and political channels using administrative data from Switzerland where local authorities have a high degree of tax autonomy. We show that immigrant inflows not only raise gross earnings inequality but also reduce the progressivity of local income taxes, further increasing after-tax inequality. Our estimates suggest that 10 percent of the impact of immigration on the net interquartile and interdecile earnings gaps can be attributed to the political channel. |
| Keywords: | Immigration, Income Taxes, Earnings Inequality |
| JEL: | H23 H24 H71 J31 J61 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2435 |
| By: | Le Barbanchon, Thomas (Bocconi University) |
| Abstract: | This paper tests whether partially unemployed workers value future preserved benefits when they bunch at the kink of the unemployment insurance benefit-withdrawal schedule. I extend the bunching formula of Saez (2010) to a dynamic setting that accounts for the value of future benefits tied to taxation. This yields new tests of tax-benefit linkage based on bunching heterogeneity. I verify in quasi-experiments that UI extension programs that decrease the value of future benefits lead to more bunching and to lower labor supply. Last, a quantification exercise of the dynamic bunching formula provides extra support for a strong tax-benefit linkage. |
| Keywords: | tax-benefit linkage, bunching, unemployment insurance |
| JEL: | J65 H24 H31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17600 |
| By: | Ross McKitrick (Department of Economics and Finance, University of Guelph, Guelph ON Canada) |
| Abstract: | The classical Pigovian analysis leads to the “polluter pay” concept, in which firms pay the marginal damages (MD) of their emissions, evaluated where MD equals marginal abatement costs (MACs). But Sandmo (1975) showed that the emission tax rate should be normalized by the marginal social cost of the tax system or it will lead to a suboptimal outcome. This insight implies a distinction between private and social MACs, the implication of which is largely ignored in environmental policy textbooks and in practice. Here I review the underlying theory, provide a simple graphical summary and then offer a formal derivation in general equilibrium. The Pigovian and Sandmo pricing rules can be reconciled by noting that tax distortions drive a wedge between private and social MACs and the Sandmo rule compensates for the difference. I discuss some of the practical implications and surprising paradoxes created by the Sandmo analysis. I then present a detailed discussion of how the Sandmo model can be applied to the development of optimal climate policy. |
| Keywords: | Green taxes; Pigovian rule; Sandmo model; tax interactions; damage thresholds; climate policy |
| JEL: | H21 H23 Q54 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gue:guelph:2024-03 |
| By: | Axelle Ferriere (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Gaston Navarro (Federal Reserve Board) |
| Abstract: | Historically, large changes in U.S. government spending induced fiscal efforts that were not all alike, with some using more progressive taxes than others. We develop a heterogeneous-agent New Keynesian model to analyse how the distribution of taxes across households shapes spending multipliers. The model yields empirically realistic distributions in marginal propensities to consume and labour elasticities, which result in lower responsiveness to tax changes for higher-income earners. In turn, multipliers are larger when spending is financed with higher tax progressivity—that is, when the tax burden falls more heavily on higher-income earners. This result is historically material. We estimate that, on average, tax rates increased more for top-income than for bottom-income earners after a spending shock. Thus, the typical U.S. spending shock was financed with higher tax progressivity. We further exploit the historical variation in the financing of spending to estimate progressivity-dependent multipliers, which we find consistent with the model. |
| Keywords: | Fiscal stimulus, Government spending, Transfers, Heterogeneous agents |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04849051 |
| By: | Erlend Eide Bø; Odd Erik Nygård; Thor Olav Thoresen (Statistics Norway) |
| Abstract: | Different types of taxation include the market value of housing or housing returns in their tax base, making it essential to obtain accurate and up-to-date assessments of property values. However, to value residential property represents a major challenge for tax administrations due to informational constraints. In the present paper we present and discuss a simple, inexpensive, and transparent procedure for assigning market value to each dwelling in Norway, based on deriving estimates from hedonic regressions. The valuations are updated yearly to reflect changes in market value. This is a novel example of using predictions obtained from regression estimates to define full-scale housing values for tax purpose. We present and discuss two iterations of the method: the initial prediction model introduced in 2010 and a refined version that would offer substantial improvements without the need for additional data collection efforts. |
| Keywords: | Taxation of housing; Hedonic regression; Housing valuation |
| JEL: | C51 D31 H61 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ssb:dispap:1019 |
| By: | Oscar Becerra; Leonardo Fabio Morales |
| Abstract: | This paper analyzes the effect of payroll taxes on the formal sector labor demand in the presence of wage rigidity. In particular. We study the impact of a reduction of payroll taxes on the creation of formal jobs in Colombia, where about 40 percent of formal-sector workers earn the minimum wage. Using a reform that granted tax credits to firms hiring workers younger than 28 years of age, we obtain estimates of the effect of payroll taxes on formal-sector employment and wages. We show that payroll tax incidence is borne by formal-sector employers. The reduction in payroll taxes increased Formal-sector employment and did not affect wages. Using the estimation results, we recover an estimate of the elasticity of the formal-sector labor demand between −0.53% and −0.87%. **** RESUMEN: Este artículo analiza el efecto de los impuestos a la nómina sobre la demanda laboral en el sector formal en presencia de rigidez salarial. En particular, estudiamos el impacto de una reducción de los impuestos a la nómina en la creación de empleos formales en Colombia, donde alrededor del 40 por ciento de los trabajadores del sector formal ganan el salario mínimo. Utilizando una reforma que otorgó créditos fiscales a las empresas que contratan trabajadores menores de 28 años, obtenemos estimaciones del efecto de los impuestos a la nómina sobre el empleo y los salarios en el sector formal. Mostramos que la incidencia del impuesto a la nómina es soportada por los empleadores del sector formal. La reducción en los impuestos a la nómina aumentó el empleo en el sector formal y no afectó los salarios. A partir de los resultados de estimación, recuperamos una estimación de la elasticidad de la demanda laboral en el sector formal entre −0.53% y −0.87%. |
| Keywords: | Payroll taxes, formal employment, formal wages, labor policy, impuestos a la nómina, empleo formal, salarios formales, política laboral |
| JEL: | E62 H25 J21 J3 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1297 |
| By: | Sofronis Clerides; Maria Delgado Coelho; Mr. Alexander D Klemm; Mr. Christos Kotsogiannis |
| Abstract: | This paper discusses under what circumstances residence and citizenship by investment (RBI or CBI) schemes could be used by individuals engaging in tax avoidance or evasion. It describes the market for CBI and RBI and how features of the offered programs might reveal the underlying motivations of governments offering them. The paper then presents empirical evidence on the conditions under which such schemes are offered. Finally, the paper estimates the impact of such schemes on investment, house prices, and public revenues. |
| Keywords: | Residence by Investment; Citizenship by Investment; Tax Evasion. |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/008 |
| By: | Ávila-Montealegre, Oscar; Bauhoff, Sebastian; Botero, Jesús; Giles Álvarez, Laura; León-Moncada, Santiago; Larrahondo, Cristhian; Lozano-Espitia, Luis Ignacio; Melo-Becerra, Ligia Alba; Ortiz-Hoyos, José Luis; Rodríguez-Ávila, Jesús |
| Abstract: | This study analyzes the macroeconomic and fiscal effects of greater efficiency in medicines procurement in Colombia, using both static (computable) and dynamic general equilibrium models. The findings indicate that implementing an efficient drug procurement policy could reduce the total health system spending, with potential savings of up to 8.4% in the short term and up to 10.8% in the long term. These savings could be reinvested within the health system, allocated to other sectors, or used to reduce tax burden on capital, consumption, or social contributions. The latter option would increase production by up to 1.1%, investment by 1.7% and consumption by 0.8%. Potential measures to achieve such efficiency gains include promoting and purchasing generic drugs, conducting joint procurement, and implementing price regulation. |
| Keywords: | Medications; Health expenditure; Health system; Colombia; Taxes; General equilibrium models; Pharmaceutical policy |
| JEL: | C68 D58 E26 H21 H51 I11 I18 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:rie:riecdt:110 |
| By: | Stephen Calabrese; Dennis Epple; Richard Romano |
| Abstract: | Beginning in the 1970’s, many state courts declared the widespread inequality in education spending across schools to violate their state’s constitution. Funding systems then emerged providing differing approaches to state and local support of education. We develop a theoretical framework and characterize outcomes under alternative systems. Our framework is distinctive in having voting over policies in both state and local elections. We also develop a calibrated computational model to compare equilibrium outcomes under the alternative school finance systems and to examine across state differences in expenditures. The model predicts that voters prefer systems with mixed state and local finance with designs mirroring those observed in practice. |
| JEL: | H10 H19 H72 I24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33212 |
| By: | Yuki Uchida (Faculty of Economics, Seikei University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study examines the limitations of political equilibrium in fiscal policy formation by short-sighted governments that represent only the currently living generations, as compared to an allocation determined by a long-lived planner who values both current and future generations. Using an overlapping-generations model calibrated to Germany, Japan, and the United Kingdom, we evaluate the role of the Golden Rule of Public Finance (GR), which restricts deficit financing to public investment. The findings reveal that (i) reduced GR compliance shifts fiscal burdens from middle-aged voters to future generations and older adults, resulting in spillover effects; (ii) GR compliance is significantly influenced by the elasticity of public capital to investment, preferences for public goods, and GDP growth rates; and (iii) non-compliance with the GR causes political equilibrium to diverge from the planner’s optimal allocation. |
| Keywords: | Fiscal Rule; Golden Rule of Public Finance; Probabilistic Voting; Overlapping Generations; Political Distortions |
| JEL: | D70 E62 H63 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2501 |
| By: | Niels Johannesen; Johan Sæverud; Emmanuel Saez |
| Abstract: | This paper provides evidence that asset testing of social transfers substantially depresses the liquid wealth of the poor. Our setting is Denmark where the low-income elderly receive an annual payment (around $3, 000) if their end-of-year liquid wealth is below a threshold (around $15, 000). Using administrative data on income and wealth for the full population, we document that the wealth density distribution of the low-income elderly exhibits large but diffuse excess mass below the wealth threshold: The fraction with wealth between 50% and 100% of the wealth threshold is twice as high as for ineligible control groups who are slightly younger or have slightly higher income. A reform analysis supports a causal interpretation: excess mass below the threshold emerges around the introduction of the program and shifts when the threshold is increased discretely. The excess mass remains when we rely solely on third-party reported data to measure liquid wealth and therefore does not reflect strategic misreporting by the recipients. Finally, analyzing bank customer data with monthly information about wealth, spending and cash withdrawals shows that the excess mass largely reflects permanently lower levels of liquid wealth rather than temporary responses around the end of the year. |
| JEL: | H20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33189 |
| By: | Gordon Burtch; Alejandro Zentner |
| Abstract: | Gender bias distorts the economic behavior and outcomes of women and households. We investigate gender biases in property taxes. We analyze records of more than 100, 000 property tax appeal hearings and more than 2.7 years of associated audio recordings, considering how panelist and appellant genders associate with hearing outcomes. We first observe that female appellants fare systematically worse than male appellants in their hearings. Second, we show that, whereas male appellants' hearing outcomes do not vary meaningfully with the gender composition of the panel they face, those of female appellants' do, such that female appellants obtain systematically lesser (greater) reductions to their home values when facing female (male) panelists. Employing a multi-modal large language model (M-LLM), we next construct measures of participant behavior and tone from hearing audio recordings. We observe markedly different behaviors between male and female appellants and, in the case of male appellants, we find that these differences also depend on the gender of the panelists they face (e.g., male appellants appear to behave systematically more aggressively towards female panelists). In contrast, the behavior of female appellants remains relatively constant, regardless of their panel's gender. Finally, we show that female appellants continue to fare worse in front of female panels, even when we condition upon the appelant's in-hearing behavior and tone. Our results are thus consistent with the idea that gender biases are driven, at least in part, by unvoiced beliefs and perceptions on the part of ARB panelists. Our study documents the presence of gender biases in property appraisal appeal hearings and highlights the potential value of generative AI for analyzing large-scale, unstructured administrative data. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.12610 |
| By: | Lauren L. Bauer; Krista J. Ruffini; Diane Whitmore Schanzenbach |
| Abstract: | This paper examines how providing families with lump-sum in-kind assistance during the pandemic affected food hardship, economic well-being, and maternal health. We study the introduction of a new program, P-EBT, that provided grocery vouchers worth approximately $300 per student during spring and summer 2020. Using cross-state variation in program timing, we find that families spent $18-42 per student per week in the 6 weeks after benefit receipt. Household food insufficiency and children’s food insecurity among low-income families declined by 27-49% in the month following receipt, and maternal mental health improved by 0.9 standard deviation. |
| JEL: | H51 H53 I18 I38 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33199 |
| By: | Sarah Le Duigou (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Pierre-Jean Messe (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, TEPP - Théorie et évaluation des politiques publiques - CNRS - Centre National de la Recherche Scientifique, CEET - Centre d'études de l'emploi et du travail - CNAM - Conservatoire National des Arts et Métiers [CNAM] - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche - Ministère du Travail, de l'Emploi et de la Santé, LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM]) |
| Abstract: | This paper examines how unemployment insurance rules influence the employment effects of pension reforms prior to retirement. We develop a job-search model with a finite horizon introducing age-specific unemployment insurance rules and endogenous separations. The latter result from the employer's decision to offer a mutually agreed termination after an adverse productivity shock and from the worker's choice to accept the offer. We estimate the structural parameters of the model using French data on quarterly job separation and finding rates for workers aged 55-59 years. The model fits the data at more than 99%. It allows to reproduce the observed peak in employment outflows when the distance to the legal retirement age equals the potential benefit duration of the UI system. We demonstrate that combining an increase in the retirement age with a reduction in the generosity of the unemployment insurance scheme is an efficient policy for raising older workers' employment rates. We also put forward that the horizon effect, i.e. the positive effect of a rise in the legal retirement age on employment prior to retirement, is greater when the job-search requirements are low or when the potential benefit duration is high. |
| Keywords: | Pension Reform, Unemployment Benefits, Older Workers’ Employment |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04814517 |
| By: | Jansen, Laura (University of Groningen); Angelini, Viola (University of Groningen); Groneck, Max; van Ooijen, Raun (De Nederlandsche Bank) |
| Abstract: | This paper studies the impact of stronger employer responsibilities for facilitating work resumption of sick or disabled workers on employers' workplace accommodation efforts during sick leave. We exploit a reform in the Netherlands that altered experience rating – i.e., shifting the costs of sick leave and disability insurance to the firm – both for permanent and non-permanent employees. Using unique Dutch survey data on workplace accommodation of long-term sick-listed workers, we show that experience rating has no significant impact on accommodation efforts. Moreover, we provide evidence that the reform led to more firms opting for self-arranging both the sick leave benefits and the reintegration process of sick non-permanent workers, instead of using the public insurance scheme. |
| Keywords: | workplace accommodation, disability insurance, experience rating, employer incentives |
| JEL: | H32 I13 J14 J24 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17606 |