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on Public Economics |
| By: | Papp, Tamás K.; Takáts, Előd |
| Abstract: | The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers – creating Laffer effects. Interestingly, cutting de facto tax rates imply increasing de facto or effective tax rates. The model is consistent with the consequences of Russian tax reform, and may provide basis for further thinking about tax rate cuts in other countries. |
| Keywords: | Laffer curve; tax compliance; tax evasion |
| JEL: | F3 G3 |
| Date: | 2024–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126682 |
| By: | Henrik Kleven |
| Abstract: | This paper characterizes the optimal taxation of top earners in a world with externalities. It takes a reduced-form approach that spans a broad class of models where top earners create externalities on the economy. The model allows for a flexible relationship between top earnings and the distribution of earnings capacities in the population, including positive externalities (such as innovation) and negative externalities (such as rent-extraction). The model allows for simple optimal tax formulas that clarify the role of different externality patterns. In general, externalities that run from top earners to bottom earners have much stronger tax implications than externalities within the top group. The results are expressed in terms of estimable sufficient statistics and linked to recent evidence on the externalities of top entrepreneurs. A calibration to the US economy suggests that the optimal top tax rate, while lower than the Mirrleesian optimum, remains higher than the current top tax rate. |
| JEL: | H21 H23 H24 H31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33345 |
| By: | Ms. Lydia E Sofrona; Mr. Christophe J Waerzeggers; Brendan Crowley |
| Abstract: | Well-functioning tax systems anchor their governance arrangements in law. This paper develops an analytical framework from which the core legal principles for sound tax governance can be derived to inform the design of countries’ legal frameworks for administration and tax procedure. It then applies this analytical framework to derive key legal features that should be embedded in laws for tax administration—including additional considerations for semi-autonomous revenue authorities— and tax procedure, to ensure a balance between tax administration powers and adequate taxpayer protections. |
| Keywords: | Tax governance; tax law; tax administration; tax procedure; legal design; A. tax Governance; governance arrangement; design consideration; taxpayer relationship; Tax administration core functions; Taxpayer charter; Semi-autonomous revenue bodies |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/017 |
| By: | Santos Bila; Utkarsh Kumar; Alexis Meyer-Cirkel |
| Abstract: | This paper analyzes the use of tax policy as industrial policy in Mozambique. Despite significant foregone tax revenue due to industrial policy in the form of tax incentives, the effectiveness of Mozambique's tax policy remains questionable due to insufficient data and unclear public policy strategy. Through an examination of macro data, tax reports, and data from World Bank Enterprise Surveys, the note underscores the need for a thorough reassessment of existing tax measures. It advocates for a more strategic, targeted and evidence-based design of tax incentives that deliver on industrial policy goals. |
| Keywords: | Tax Policy; Industrial Policy; Mozambique; Tax Incentives; Foreign Direct Investment (FDI); Revenue Mobilization; Market Distortions; Fiscal Expenditure; Domestic Investment |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/010 |
| By: | Ms. Elena D'Agosto; Michael A Hardy; Stefano Pisani; Anthony Siouclis |
| Abstract: | Traditional top-down tax gap assessments identify the size of a tax gap, but not its origins. By extracting more granular information from top-down tax gap assessments, and combining this information with compliance risk management (CRM) techniques, it is possible to: improve the accuracy of CRM techniques; improve the consistency of the likelihood and consequence dimensions of compliance risk assessments; identify emerging areas of tax compliance risk and; better disaggregate the direct and indirect revenue effects of compliance interventions, including the “behavioral component” within the indirect effects. Finally, it is also possible to determine the optimal revenue recovery from each segment of the taxpayer population. |
| Keywords: | tax administration; tax compliance; tax gap; compliance gap; Compliance Risk Management; CRM; direct revenue effect; indirect revenue effect; taxpayer behavioral component |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imftnm:2025/003 |
| By: | Anna Herget; Regina T. Riphahn |
| Abstract: | Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German Minijob program subsidizes low-income jobs. It generates a 'Minijob trap' with substantial bunching along the earnings distribution. Since 2003, the newly introduced Midijob subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group. |
| Keywords: | Midijobs, Minijobs, payroll tax subsidy, causal effects, difference-in-differences, regression discontinuity, SOEP, SIAB |
| JEL: | J21 J38 H24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11605 |
| By: | Erwin Ooghe; Erik Schokkaert; Hannes Serruys |
| Abstract: | In a setting with skill and preference heterogeneity, we characterize a family of social welfare measures that aggregate fairness gaps, de ned as the di erence between the money metric utilities that individuals have and the money-metric utilities they should have in a fair society. Each welfare measure can be decomposed into government revenues (size), excess burden (ine ciency), and unfair inequality (inequity). As a proof of concept, we evaluate four hypothetical earnings tax reforms based on two normative parameters: the degree of unfairness aversion and the degree of compensation for productive skills. |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:ete:ceswps:746851 |
| By: | Deza, María Cecilia; Dondo, Mariana; Jara, H. Xavier; Rodríguez Guerrero, David Arturo; Torres, Javier |
| Abstract: | This paper aims to assess the extent to which cash transfers, direct taxes, and social contributions help to reduce gender income inequalities in seven Latin American countries: Argentina, Bolivia, Colombia, Ecuador, Mexico, Peru, and Uruguay. We apply microsimulation techniques to household survey data and allocate incomes within the household, assuming that each person retains the income they receive (e.g., earnings, benefits targeting mothers) and pays taxes and social insurance contributions on an individual basis according to each countrys rules. Then, we compare gender income ratios based on market (before taxes and benefits) and disposable (after taxes and benefits) income. Our results show that, at the bottom of the distribution, tax-benefit systems significantly reduce gender income disparities in most countries due to the effect of social assistance benefits received by mothers in poor households. Additionally, we find that women have substantially higher poverty rates than men based on individual disposable income. Gender differences in poverty fade away when income is pooled at the couple level and, even more so, at the household level. |
| Keywords: | taxes;benefits;microsimulation;gender gap |
| JEL: | D31 J16 H24 I32 I38 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13941 |
| By: | Esteban Muñoz-Sobrado (Toulouse School of Economics (University of Toulouse Capitole)); Amedeo Piolatto (UAB & BSE & IEB); Antoine Zerbini (London School of Economics); Federica Braccioli (IAE-CSIC & BSE) |
| Abstract: | During the past two decades, several factors have challenged the stability of na-tional states, adding tensions to the connection between the state and the individual. This paper reviews the literature on state capacity. First, it introduces the origin of the literature and presents the well-established positive correlation between state ca-pacity and economic development. Second, it touches upon fiscal and administrative capacity and conflict. It concludes with a provocative reflection on digital nomads to push the research frontier in analysing the connection between the state and the individual. |
| Keywords: | Administrative Capacity, Fiscal Capacity, State Capacity, Conflict |
| JEL: | H11 H20 E62 H77 D73 H83 D72 D74 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ieb:wpaper:doc2024-05 |
| By: | Matthew R. Denes; Spyridon Lagaras; Margarita Tsoutsoura |
| Abstract: | Platform intermediation of goods and services has considerably transformed the U.S. economy. We use administrative data on U.S. tax returns to study the role of the gig economy on entrepreneurship. We find that gig workers are more likely to become entrepreneurs, particularly those who are lower income, younger, and benefit from flexibility. We track all newly created firms and show that gig workers start firms in similar industries as their gig experience, which are less likely to survive and demonstrate higher performance. Overall, our findings suggest on-the-job learning promotes entrepreneurial entry and shifts the types of firms started by entrepreneurs. |
| JEL: | G30 J21 J22 J24 L26 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33347 |
| By: | Congressional Budget Office |
| Abstract: | The Unemployment Insurance (UI) system provides temporary weekly benefits to qualified workers who are unemployed through no fault of their own. This brief examines trends in revenues and outlays associated with UI and provides information about how CBO treats that program in its baseline projections and cost estimates. |
| JEL: | H11 H20 J65 |
| Date: | 2025–01–23 |
| URL: | https://d.repec.org/n?u=RePEc:cbo:report:60776 |
| By: | Hong Ma; Luca Macedoni; Jingxin Ning; Mingzhi (Jimmy) Xu |
| Abstract: | Using disaggregated US household expenditure data, we study the distributional consequences of the US-China trade war. We estimate a highly flexible demand system to compute household-specific price indexes. The increases in US tariffs on Chinese products between 2018 and 2019 led to an average price index increase of 1.09%, with a disproportionately larger impact on low-income households. Specifically, we document a 0.9 percentage point smaller increase in the household price index for the top 20% income households compared to the bottom 20%. The dif-ference stems from wealthier households’ greater expenditure adjustments and smaller reductions in product variety. |
| Keywords: | US-China trade war, tariffs, income inequality, distributional effects of tariffs, household consumption |
| JEL: | F14 D31 F13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11610 |
| By: | Danny Yagan |
| Abstract: | Standard deficit accounting neglects the growth dividend: the amount by which annual GDP growth shrinks the debt-GDP ratio. America's growth dividend has more than doubled since the Great Recession because the debt ratio has more than doubled, leading to headline deficits that far exceed changes in the debt ratio. Each year's change in the debt ratio can be decomposed into three components: the primary deficit (non-interest spending minus tax revenue), interest payments, and the growth dividend. The sum of the latter two is excess interest: the impact of past debt on the debt ratio, roughly equal to last year's debt ratio times the excess interest rate (r-g)/(1+g) where r is the average nominal interest rate on federal debt and g is the nominal GDP growth rate. Excess interest remains slightly negative in CBO's baseline ten-year projection. Hence, current debt is sustainable in the CBO baseline despite high interest payments, and primary deficits entirely drive the unsustainable projected debt ratio path and provide a good guide for how the debt ratio is projected to change. However, America's higher debt ratio implies higher vulnerability to the risk that the excess interest rate turns persistently positive. |
| JEL: | H6 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33375 |
| By: | Papastaikoudis, I.; Prodromidis, P.; Watson, J.; Lestas, I. |
| Abstract: | We propose a new approach in public economics in a decentralized finance setting by using distributed optimization techniques for the planning of inter-regional and intra-regional public works/services for multiple regions each one with its own budget, natural and population characteristics. The goal of this study is to provide a toolkit for the planning of vast public works/services in an optimal way across the regions in order to improve the welfare of their respective populations. The proposed optimization approach can assist the government regarding its policy making for the public infrastructure, e.g., in the prioritization of the various public units across regions and also in the optimal geographical allocation of them. We will interpret the problem as a utility maximization problem and we will calculate the Marshallian demand for the public infrastructure. |
| Keywords: | Public Economics, Public Finance, Network Optimization |
| JEL: | C61 C62 D11 D30 D85 H40 H70 |
| Date: | 2025–01–22 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camjip:2502 |
| By: | Charles F. Manski |
| Abstract: | Researchers cannot definitively interpret what the framers of the United States Constitution had in mind when they wrote of the general Welfare. Nevertheless, welfare economics can contribute to policy choice in democracies. Specifying social welfare functions enables coherent analysis, by formalizing mechanisms for preference aggregation and studying the policies they yield. This paper argues that it is essential for welfare economics to adequately express the richness and variety of actual human preferences over social states. I first discuss devices that economists have used in attempts to circumvent or grossly simplify specification of social welfare functions. I next discuss the common welfare economic practice of assuming that personal preferences are homogeneous, consequentialist, and self-centered. I then call for incorporation of broader forms of personal preferences into social welfare functions. Individuals may hold heterogeneous social preferences, being concerned in various ways with the distribution of outcomes in the population. They may hold heterogeneous deontological preferences, placing value on their own actions and the actions of others. They may have preferences for the mechanism used to aggregate preferences in a social welfare function. These potential aspects of personal preference should be recognized in welfare economics. |
| JEL: | D60 H0 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33376 |