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on Public Economics |
| By: | Cremer, Helmuth; Casamatta, Georges |
| Abstract: | We examine the optimal combination of direct and indirect taxes in the presence of tax avoidance. Our findings indicate that linear commodity taxes should be included in the optimal tax mix, even when they are subject to avoidance and when the conditions of the Atkinson-Stiglitz theorem hold. This is because taxing consumption—despite the possibility of avoidance—enhances the ability to screen true income, whereas income taxation alone depends solely on reported income. Additionally, we show that when utility is weakly separable, tax rates should be positive and uniform across goods if the subutility function is homothetic, leading to linear Engel curves. However, when Engel curves are nonlinear, commodity taxes need not be uniform. Furthermore, the optimal taxation of luxuries versus necessities depends on the distribution of productivity levels. |
| Keywords: | direct and indirect taxes; avoidance |
| JEL: | H21 H26 |
| Date: | 2025–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130515 |
| By: | Pierre Bachas; Anne Brockmeyer; Roel Dom; Camille Marine Semelet |
| Abstract: | This paper documents new facts on corporate taxation and the revenue potential of corporate minimum taxes, leveraging firm-level tax returns from 16 countries. First, effective tax rates follow a humped-shaped pattern with firm size: small firms benefit from reduced rates, while large firms take up tax incentives, leaving mid-sized firms with the highest effective rates. On average, the effective tax rate for the largest 1 percent of firms is 2.2 percentage points lower than the average effective tax rate for the top decile of firms. Second, although statutory tax rates are above 15 percent in all sample countries, over a quarter of top firms face an effective rate below 15 percent, challenging the simple tax haven versus non-haven dichotomy. Third, a simple 15 percent domestic minimum tax for the top 1 percent firms could raise corporate taxes by 14 percent on average across countries, absent behavioral responses. In contrast, the global minimum top-up tax would only raise a quarter of this revenue due to its generous deductions and smaller number of firms in scope. |
| Date: | 2025–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11090 |
| By: | Holmberg, Johan (Department of Economics at Umea School of Business, Economics and Statistics, and Uppsala Center for Fiscal Studies (UCFS)); Selin, Håkan (Institute for Evaluation of Labour Market and Education Policy (IFAU) and UCFS) |
| Abstract: | An increase in the dividend tax on shares of Swedish closely-held corporations, scheduled for January 1, 2018, was canceled at short notice. In a difference-in-difference setting, we examine how firms reacted to the canceled reform. We find that dividends payments increased in 2016 and 2017 and declined sharply in 2018, especially for cash-rich firms. However, cash holdings recovered quickly in 2018 and 2019, and the excessive dividend payouts did not affect investments. Paradoxically, the discontinued reform implied an additional tax burden for those engaged in intertemporal tax arbitrage. |
| Keywords: | Owner level taxes; tax planning; investments; employment |
| JEL: | G35 H32 |
| Date: | 2025–04–08 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:ifauwp:2025_003 |
| By: | Wayne Aaron Sandholtz; Pedro C. Vicente |
| Abstract: | Tax revenue is vital for development, but governments must balance raising revenues with maintaining political support. Partnering with a city government in Mozambique, we experimentally vary the provision of information highlighting the role of municipal tax revenues in 1) local public good provision and 2) local political autonomy. We measure how this information affects property owners’ tax morale and political support for the government. Public goods information raises tax morale, especially in areas of low baseline public good provision, but has no effect on voting. The political message increases electoral support generally, but raises tax morale only among co-partisans. These results suggest that communication about the uses of public revenue offers a politically feasible way to increase tax morale. |
| Keywords: | Tax morale, Public goods, Information, Political economy, Experiments, Mozambique |
| JEL: | O12 H00 P00 C93 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unl:unlfep:wp671 |
| By: | Bursens Floore; De Poli Silvia; Maier Sofia (European Commission - JRC); Verbist Gerlinde |
| Abstract: | This paper explores the distributive impact of a hypothetical carbon tax on households' transport and energy consumption in Belgium. It focuses on the welfare effects across population groups and along the income distribution, as well as on the expected budgetary and environmental effects, accounting for consumer responses under a partial equilibrium microsimulation framework. Given the well-known regressive features of consumption taxes in general, and of energy- or carbon-related taxes in particular, this study evaluates various methods for making the carbon tax more progressive and assesses how these methods affect the overall distributional outcomes. We assess both the expected results as well as the feasibility of each of the tax design scenarios, considering the effect on household income and its distribution vis-a-vis the expected reduction in greenhouse gas emissions. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:taxref:202501 |
| By: | Van-Quy Nguyen (Faculty of Mathematical Economics, National Economics University, Hanoi, Vietnam); Jean-Marc Bonnisseau (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, Paris School of Economics); Elena L. Del Mercato (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, Paris School of Economics) |
| Abstract: | We consider a pure exchange economy with consumption externalities in preferences. We study commodity taxes and lump-sum transfers schemes, which lead to equilibrium allocations where all individuals are strictly better off. We extend the result of Geanakoplos and Polemarchakis (2008) on the generic existence of Pareto im- proving policies with uniform taxes and equal transfers to general non-separable preferences, when the number of individuals is strictly smaller than the number of commodities. We overcome this limitation by considering either uniform taxes with personalized lump-sum transfers, or personalized taxes with uniform lump-sum transfers. As in Geanakoplos and Polemarchakis (2008), we mainly use utility perturbations. We also provide the existence of Pareto improving policies for Bergson-Samuelson utilities and two-individual economies, without perturbing utilities |
| Keywords: | Consumption externalities; commodity taxes; lump-sum transfers; Pareto improvement |
| JEL: | D50 D60 D62 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:24007r |
| By: | Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This paper provides a critical assessment of the new EU fiscal framework, with a focus on its implications for public expenditure on the twin green and digital transition. According to the reformed rules, member states may commit to a package of investment and reform to extend the fiscal adjustment path from four years to a maximum of seven years, provided the European Commission agrees that the package meets predefined criteria, including the contribution to EU priorities (in particular, the European Green Deal and the EU digital strategy). However, the reformed framework does not provide any broad-based exemption for public investment in the twin transition, although the necessary large expansion in public assets is rather unlikely, given the requirement to reduce public liabilities relative to output over the medium term. This implies that, if member countries want to increase green and digital public spending, they will have to make room for it either by restraining other spending items (e.g. social protection, health or education) or by increasing taxes. A major fiscal consolidation will be required in a number of (big) euro area countries from 2025 onwards to comply with the reformed EU fiscal rules. However, the temporary exemption for additional defence spending will make the overall fiscal stance in EU countries more expansionary than it would otherwise have been. There is now a political focus in the EU on industrialisation through rearmament. The pressure to go for additional deficit-financed defence spending will, however, eventually raise the share of government interest payments in total tax revenue, and the political aversion to higher fiscal deficits must be expected to exert downward pressure on public spending on the green and digital transition. Against that background, this paper discusses three options for how to boost the fiscal space for the required additional public spending on the twin transition implementing changes to key assumptions in the technical substructure of the new fiscal framework when it comes to assessing country-specific debt sustainability; expanding national co-financing of EU programmes; and introducing an EU investment fund for climate and digitalisation. |
| Keywords: | Green transition, digital transition, EU fiscal rules, public investment, fiscal policy, austerity |
| JEL: | H41 H54 H60 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:94 |
| By: | Fikru, Mahelet G (Missouri University of Science and Technology); Ahmed, Bruktawit (Missouri University of Science and Technology); Daher, Wassim |
| Abstract: | This study uses a two-stage game theoretic approach to derive and characterize optimal decarbonization policies, focusing on emission taxes and carbon capture and storage (CCS) subsidies. By maximizing a welfare function, the government first selects policy instruments, while carbon-intensive firms subsequently determine production levels and abatement efforts to maximize profit. The derived optimal policies are then analyzed through Monte Carlo simulations to assess their variability and sensitivity under different scenarios. Key findings are: (1) Emission tax and CCS subsidies are strategic substitutes where pollution damage governs this relationship, (2) The optimal policy mix could be a tax-only regime if carbon intensity exceeds a given threshold, otherwise the optimal policy mix either includes both instruments (if pollution damage is large enough) or is a subsidy-only regime (if pollution damage is not very large), (3) Optimal subsidies are relatively more variable than optimal emission taxes, and (4) Certainty in production and market parameters does not reduce optimal policy variability, but shifts the focus towards subsidies rather than taxes. These results highlight the need for flexible and adaptable decarbonization policies in dynamic markets with evolving technologies. |
| Date: | 2025–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:t2bzw_v1 |
| By: | Christian Scharrer (University of Augsburg, Department of Economics); Johannes Huber (University of Regensburg, Department of Economics) |
| Abstract: | We study the effects of different financing rules for untargeted energy price brakes and subsidies on intergenerationalwelfare in a large-scale overlapping generations model. The results indicate that, in comparison to a laissez-faire solution without any government interventions, debt-financed implementations of such measures are very detrimental for young and future generations. However, the taxation of windfall profits can significantly contribute to reduce the economic burdens of these generations, whereas the positive effects on older generations are much less pronounced. |
| Keywords: | Fiscal Policy, Price Brakes, Price Subsidies, Energy Crisis, Welfare |
| JEL: | E62 E30 H20 H30 |
| Date: | 2023–08 |
| URL: | https://d.repec.org/n?u=RePEc:aug:augsbe:346 |
| By: | Müller, Lars (Center for Mathematical Economics, Bielefeld University); Karos, Dominik (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | This paper analyzes the welfare effects of private and unilateral disclosure of sensi- tive information in a sequential bargaining context. We consider a model where two sellers each propose a take-it-or-leave-it price for a homogeneous good to a single buyer. The buyer accepts or rejects the first seller’s offer before the second seller proposes her price. Crucially, the second seller might learn the first seller’s price and whether it was accepted, allowing her to update her belief about the buyer’s willingness to pay and optimize her pricing strategy. The welfare effects caused by this information exchange are evaluated under general conditions. We show that it benefits the buyer if a rejection is revealed but might harm him if an acceptance is revealed. Additionally, the information exchange improves the societal welfare by reducing inefficiencies and promoting additional trade. This paper strengthens the theoretical framework for assessing the welfare effects of information exchanges by offering new insights and providing tools to assess causality for alleged damages. |
| Keywords: | Information Exchange, Collusion, Unawareness |
| Date: | 2025–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:703 |
| By: | Marzian, Johannes; Trebesch, Christoph |
| Abstract: | Europe must rapidly increase its military spending, but how? We collect 150 years of data to study what governments in similar situations have done. How were past military buildups financed? What was the relative importance of debt financing, budget cuts, and taxes? Our main finding is that budget cuts, e.g. on social or foreign affairs, were rarely used to finance military buildups. Instead, governments typically relied on a mix of deficit financing and higher tax revenues. The larger the buildup, the more dominant debt financing has been. In line with history and theory, Germany and Europe should again rely on debt financing to quickly increase its defense spending and military capabilities. To deal with the added debt burden in the medium run, governments could increase taxes, reduce subsidies and tax avoidance, and freeze the growth of social spending. Fiscal rules must not stand in the way of the defence of Europe. A warning example is the case of the UK in the 1930s, which refrained from significantly ramping up military expenditure and instead pursued a policy of balanced budgets and appeasement. Consequently, the UK was ill-prepared when Nazi Germany launched its attack. Germany should not repeat the errors made by Britain in the 1930s and should invest heavily in defense so as to deter Russia. To achieve this, defense spending should be excluded from fiscal rules both in Germany and Europe. A less clear-cut alternative would be the creation of new debt funds, such as a European financing mechanism or another "Sondervermögen" in Germany. |
| Abstract: | Europa muss seine Militärausgaben deutlich erhöhen, aber wie? Diese Frage beantworten wir mit einem Blick in die Geschichte. Wie haben Regierungen in der Vergangenheit in ähnlichen Situationen reagiert? Wie wurden Aufrüstung und Kriege typischerweise finanziert - durch Schulden, Steuern oder Haushaltskürzungen? Hierzu sammeln und analysieren wir neue detaillierte Daten zu Staatsausgaben in 22 Ländern über einen Zeitraum von 150 Jahren. Unsere wichtigste Erkenntnis ist, dass Haushaltskürzungen, z.B. in Auswärtigen Angelegenheiten oder im sozialen Bereich, keine große Rolle spielten. Fast alle Aufrüstungen wurden kurzfristig über Defizite und höhere Steuereinnahmen finanziert. Je größer die Aufrüstung, desto stärker die Schuldenfinanzierung. Im Einklang mit ökonomischer Theorie sollten Deutschland und Europa die erhöhten Verteidigungsausgaben kurzfristig über Schulden finanzieren. Um die zusätzliche Schuldenlast zu bewältigen, könnten mittelfristig die Steuern erhöht, Subventionen und Steuervermeidung reduziert, und das Wachstum der Sozialausgaben begrenzt werden. Fiskalregeln dürfen der Verteidigung Europas nicht entgegenstehen. Ein warnendes Beispiel ist Großbritannien in den 1930ern, das auf Appeasement und eine "schwarze Null" setzte, statt die Militärausgaben zu erhöhen. Dies führte dazu, dass Großbritannien unzureichend vorbereitet war, als Nazi-Deutschland angriff. Wir sollten den schwerwiegenden Fehler Großbritanniens der 1930er vermeiden und heute ausreichend in Verteidigung investieren, um Russland abzuschrecken. Verteidigungsausgaben sollten daher von den Fiskalregeln ausgenommen werden, sowohl in Deutschland als auch in Europa. Eine weniger klare Alternative wären neue Schuldenfonds, etwa ein europäischer Finanzierungsmechanismus oder ein weiteres deutsches Sondervermögen. |
| Keywords: | Military expenditures, Fiscal multipliers, Innovation, Growth, Short- and long-run consequences of rearmament, USA, Europe, Militärausgaben, Steuermultiplikatoren, Innovation, Wachstum, kurz- und langfristige Folgen der Aufrüstung, USA, Europa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:313631 |
| By: | Toker Doganoglu (University of Wuerzburg); Lukasz Grzybowski (University of Warsaw, Faculty of Economic Sciences); Joanna Rachubik (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | In this paper, we analyze the determinants of individual’s willingness to pay higher prices and taxes and to reduce their standard of living to support environmental protection. Using data from the 2020 International Social Survey Programme (ISSP), Environment IV module from 26 countries on about 29, 000 individuals, we investigate the influence of socio-demographic factors, consumer behavior, environmental beliefs, opinions, and attitudes. The findings reveal significant variations in willingness to bear financial burdens for environmental protection across different countries and socio-economic groups. Our analysis highlights the critical role of education, religion, political affiliation, and trust in institutions in shaping environmental attitudes and behaviors. Moreover, after controlling for individual characteristics, significant international disparities persist, with countries like India showing exceptionally high willingness across all measures, while many European countries, despite their progressive environmental policies, show lower willingness for higher taxes due to possibly already high tax burdens. These findings underscore the importance of tailoring policy communications to different socio-economic groups, emphasizing both the immediate and long-term benefits of environmental protection to enhance acceptance among various demographic segments. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2024-24 |