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on Public Economics |
| By: | Jason Nassios; Janine Dixon; Xianglong Locky Liu; Sam Marginson |
| Abstract: | This study assesses the long-run economic impacts of reducing the corporate income tax rate for small and medium turnover firms in Australia. Using an updated and extended version of the VURMTAXG model -- an economy-wide model with detailed fiscal and regional structure -- we simulate three reform scenarios. The core policy reduces the company tax rate to 20 per cent for firms with annual turnover below A$1 billion, funded by higher personal income tax rates. Two comparator scenarios help isolate key policy mechanisms: one applies a uniform company tax cut to all firms (Scenario 1), and another funds the core reform with lump-sum taxation (Scenario 2). All three reforms increase real GDP, investment, output-per-worker, and pre-tax wages by 2050, while keeping total tax revenue unchanged. However, they reduce real Gross National Income (GNI), which is a better indicator of national living standards. In the core scenario, GDP rises by 0.20 per cent, but GNI falls by 0.31 per cent, and per capita welfare declines by A$292 in real terms. Scenario 2 shows that the negative effects on post-tax wages and employment stem from the choice to raise personal income tax, not from the company tax cuts themselves. Scenario 1 delivers stronger GDP growth (1.46 per cent) but also results in the largest GNI loss (0.41 per cent). These results underscore a key trade-off: company tax cuts can boost investment, output-perworker, and GDP, but neither of the modelled scenarios is estimated to generate a boost in real national income. Furthermore, the choice of how to fund the tax cut affects distributional and welfare outcomes. Alternative funding mechanisms not examined herein -- such as taxes on economic rents -- may help to mitigate the trade-off between GDP growth and national income losses, though this remains untested in our framework. Likewise, while applying company tax cuts to firms with below-average foreign ownership shares could moderate adverse effects on national income, our simulations assume that small firms have the same foreign ownership shares as the industry average, and we do not explore deviations from this assumption. Our findings are subject to important caveats. In particular, we abstract from firm behavioural responses to tax thresholds and omit channels through which tax cuts may ease financing constraints. These areas warrant further attention in designing efficient, equitable tax reform. Based on analysis of the three simulations presented herein, we find that the current schedule of corporate income tax rates outperforms any tax cut scenario when national income and welfare are the key metrics. Our key conclusion is that the upfront loss in national income through company tax revenue is not likely to be recovered through the subsequent increase in economic activity. The loss of national income is likely to be subdued when applied to a cohort of companies with lower-than-average foreign ownership shares, but there is still the risk that national income does not fully recover. Even if it does, overall gains may remain small. |
| Keywords: | Taxation policy, CGE modelling, Dynamics, Corporate income tax |
| JEL: | C68 E62 H21 H25 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-356 |
| By: | Kaoru HOSONO; Masaki HOTEI; Daisuke MIYAKAWA |
| Abstract: | Using tax filing data of Japanese business enterprises from 2014 to 2020, we investigate how the 2015-2018 tax reforms in Japan affected the average tax burden and whether the reforms benefited growing firms or not. We first calculate backward-looking effective tax rates (ETRs) and then estimate the sensitivity of the ETR and its components with respect to firm sales growth, R&D intensity, and other characteristics. Our findings are as follows. First, the average ETR increased after the reform. Second, compared with the average ETR, ETRs for growing and R&D-intensive firms initially decreased, but then began to increase. The reforms did not benefit growing firms in the long run due to the expansion of tax bases. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25072 |
| By: | Enrico Rubolino; Enrico Rubolino |
| Abstract: | Unpaid domestic work continues to fall largely on women, despite their growing presence in the workforce. This paper asks whether policies changing the relative bargaining position of spouses can disrupt this pattern. I use the introduction of a bachelor tax in fascist Italy to show that altering men’s incentives to marry shaped the allocation of domestic work. Men in tax-induced marriages took on more domestic work, while their wives gained time, agency, and better economic outcomes. Effects are long-lasting and transmitted across generations: women raised in households with more equitable labor divisions also perform less housework. The findings suggest shocks in bargaining power can loosen the hold of social norms and reconfigure domestic life. |
| Keywords: | domestic work, female labor force participation, intra-household bargaining, bachelor tax, marriage market, gender-based taxation |
| JEL: | J22 J16 J12 H31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11998 |
| By: | Emma LaGuardia; Leslie McGranahan; Diane Whitmore Schanzenbach |
| Abstract: | The Earned Income Tax Credit is unique among social programs in that benefits are not paid out evenly across the calendar year but are received in a lump-sum cash payment. We exploit this feature of the EITC to investigate how receiving this influx of cash affects food expenditure patterns of eligible households. We find consistent evidence that households increase their spending on healthy foods such as fresh fruit and vegetables, meat and poultry, and dairy products when they receive their tax credit. Causal estimates of the spending response to this lump-sum payment are about twice as large as the cross-section variation in spending by income implies. By contrast, there is no measurable increase in spending on soft drinks including sodas and sports drinks, and evidence suggests that spending on soft drinks is relatively inelastic with regard to income. |
| JEL: | H3 I38 Q18 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34007 |
| By: | Paul-Emile Bernard (University of Paris-Dauphine, PSL) |
| Abstract: | This paper examines the role of political connections in shaping firm-level resource allocation in China. Using administrative data, I distinguish between national and local ties and estimate their effects on subsidies, capital costs, and tax liabilities. Politically connected managers secure systematically larger transfers and face more favorable financial conditions. National connections increase access to direct subsidies, while local ties reduce capital costs and effective tax rates. A difference-in-differences design reveals that nationally connected firms receive 38% higher annual subsidies over four years. Locally connected firms lower their capital costs by 2.5%. Political access substitutes for marketbased allocation. |
| Keywords: | Political Connection, Subsidy, Tax Avoidance, Misallocation |
| JEL: | D24 D72 L38 L52 H2 O25 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:dia:wpaper:dt202505 |
| By: | Kuźniacki, Błażej |
| Abstract: | This Perspective focuses on the thorny interplay between the global minimum tax regime and the global investment regime. Within that 'niche' of a high level of complexity and thus specialization, the Perspective answers the question: how best to minimize conflicts between those regimes. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:colfdi:321911 |
| By: | Elisa Stumpf (Friedrich Schiller University Jena); Silke Uebelmesser (Friedrich Schiller University Jena, CESifo) |
| Abstract: | This paper investigates preferences for wealth redistribution through a conjoint experiment. Specifically, we explore how support for wealth redistribution depends on the social background of the taxpayer and whether their wealth is perceived as resulting from luck or hard work. Our findings reveal significantly more support for taxing individuals from rich families, an effect that is particularly pronounced among relatively poor participants and those with low trust in official statistics. Attributing wealth to luck rather than effort also increases support for taxation, though this effect is less substantial than the influence of a privileged background. When individuals are both from a wealthy family and being perceived as lucky, the combined effect on support for taxation is only marginally larger than either factor alone. |
| Keywords: | wealth inequality, preferences for redistribution, wealth tax, conjoint experiment |
| JEL: | C90 D31 D63 |
| Date: | 2025–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:jrp:jrpwrp:2025-0008 |
| By: | Salvatore Federico; Andrea Modena; Luca Regis |
| Abstract: | In this paper, we examine how dividend taxes (and bans) and capital requirements that vary with the state of the economy influence a bank’s optimal capital buffers and shareholder value. In the model, the bank distributes dividends and issues costly equity to maximise shareholder value, while its assets generate stochastic income under time varying macroeconomic conditions. We solve the bank’s stochastic control problem and derive the distribution of its capital buffers in closed form. Imposing dividend taxes (or bans) in bad macroeconomic states generates an intertemporal trade-off, as it encourages capital buffers accumulation in those states but promotes dividend payouts in the good ones. Furthermore, the policy undermines financial stability by reducing the bank’s value and weakening its incentives to recapitalise in both good and bad states. Coordinating dividend taxes with counter-cyclical capital requirements can mitigate value losses and ease the trade-off, but it also exacerbates disincentives for recapitalisation. |
| Keywords: | Capital requirements; dividend bans; dividend taxes; policy coordination; stochastic optimal control |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:746 |
| By: | Yoshiki Ando (Singapore Management University); Emin Dinlersoz (US Census Bureau); Jeremy Greenwood (University of Pennsylvania); Ruben Piazzesi (University of Pennsylvania) |
| Abstract: | How do advanced technology adoption and venture capital (VC) funding impact employment and growth? An analysis of data from the US Census Bureau suggests that while both advanced technology use and VC funding matter on their own for firm outcomes, their joint presence is most strongly correlated with higher employment levels. VC presence is linked with a high increase in employment, though primarily among a limited subset of firms. In contrast, technology adoption is associated with a smaller rise in employment, yet it influences a considerably larger number of firms. A model of startups is created, focusing on decisions to use advanced technology and seek VC funding. The model is compared with firm-level data on employment, advanced technology use, and VC investment. Several thought experiments are conducted using the model. Some experiments assess the importance of advanced technology and VC in the economy. Others examine the reallocation effects across firms with different technology choices and funding sources in response to shifts in taxes and subsidies. |
| Keywords: | Advanced technology; banks; capital gains taxation; corporate income taxation; difference-in-differe |
| JEL: | E13 G24 O30 O40 |
| Date: | 2025–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:021427 |
| By: | Waldo Mendoza (Departamento de Economía de la Pontificia Universidad Católica del Perú); Marko Razzo (Departamento de Economía de la Pontificia Universidad Católica del Perú); Rafael Vilca (Departamento de Economía de la Pontificia Universidad Católica del Perú) |
| Abstract: | This paper presents a macro-fiscal model for examining the public sectorprimary surplus and the dynamics and sustainability of public debt in closedand open economies. The model simulates how changes in the primary surplusaffect public debt, highlighting key differences between these economiccontexts. Notably, open economies can finance fiscal deficits with foreigncurrency-denominated debt, introducing additional sources of instability inpublic debt dynamics. The analysis demonstrates how a permanent reduction inthe primary surplus undermines public debt sustainability, with outcomes shapedby economic conditions and the features of open and closed economies.Furthermore, it confirms that delays in implementing fiscal adjustmentsfollowing a destabilizing shock result in increasingly severe correctivemeasures over time. Palabras claves: Debt, Dynamic, Sustainability, Fiscal Adjustment JEL Classification-JE: E62, H62, H63 |
| Keywords: | Debt, Dynamic, Sustainability, Fiscal Adjustment |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pcp:pucwps:wp00541 |