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on Public Economics |
| By: | Natalia Jiménez-Jiménez (Universidad Pablo de Olavide); Elena Molis-Bañales (Universidad de Granada); Ángel Solano-García (Universidad de Granada) |
| Abstract: | In this paper, we analyze theoretically and experimentally the relationship of tax avoidance and voting decisions over the size of taxation. We propose a basic model of redistributive politics in which there are two types of voters (skilled and unskilled workers) and two exogenous tax schemes to vote for. We design a laboratory experiment to test the results of the model. We consider a control treatment where tax avoidance is not feasible. In the main treatments, only the high skilled workers are allowed to avoid taxes with a fixed cost that varies in two different treatments. We also consider two additional treatments with explicit or implicit information about tax avoidance decisions. The impossibility of tax avoidance favors the support for the high tax rate. A sufficiently high cost of tax avoidance makes unskilled workers vote mostly for a low tax rate and skilled workers opt for almost no tax avoidance. Nevertheless, if tax avoidance is cheap enough, a higher than predicted proportion of unskilled workers still vote for the low tax rate, even in a high tax avoidance context. The only effect of information occurs when the cost of tax avoidance is low, and it entails a decrease in tax avoidance levels. Finally, regardless the tax avoidance cost, a higher rate of tax avoidance yields to a higher likelihood of unskilled workers voting for the high tax rate, and, vice versa, a higher probability of voting for the high tax rate results in a higher tax avoidance level. |
| Keywords: | tax avoidance; voting; income inequality; real-effort task; information. |
| JEL: | C92 D72 H26 H30 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pab:wpaper:25.07 |
| By: | Justin E. Holz; Ricardo Perez-Truglia; Alejandro Zentner |
| Abstract: | The wealthiest individuals frequently engage in tax avoidance, and public awareness of this behavior is growing. Such awareness may undermine tax compliance among the broader population, either by revealing strategies others can emulate or by shifting social norms to make avoidance seem more acceptable. We first document that individuals are less tolerant of both tax avoidance and tax evasion when carried out by the wealthiest households. We next present results from a field experiment on property tax appeals, which—like other forms of tax avoidance—is used disproportionately by the wealthiest households. Providing information about the appeal rates of the richest-1% of households increased individuals' perceptions of unfairness, but did not affect their own appeal decisions—measured via administrative records—or even their expected tax savings. Information about the prevalence of appeals among comparable households also had no effect. By contrast, information about the expected financial gains from appealing had a significant effect on appeal choices. In sum, while the public condemns tax avoidance by the wealthiest households, we find no sign that such behavior encourages similar actions among the broader population. |
| JEL: | C9 H26 Z13 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34209 |
| By: | Anmol Bhandari; Jaroslav Borovička; Yuki Yao |
| Abstract: | This paper studies optimal tax design when the cross-sectional distribution of types may be misspecified, and the government acts cautiously vis-à-vis these misspecifications. In models without such concerns, fat-tailed distributions imply positive—often high—top marginal tax rates. We demonstrate that even vanishingly small misspecification concerns overturn this finding, driving top marginal tax rates to zero. Calibrating concerns to observed variation in income distributions shows that taxes for below-average incomes remain essentially unchanged, while progressivity for high-income earners is substantially reduced. |
| JEL: | D61 D81 D82 E61 H21 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34218 |
| By: | Natalia Jiménez-Jiménez (Universidad Pablo de Olavide); Elena Molis-Bañales (Universidad de Granada); Ángel Solano-García (Universidad de Granada) |
| Abstract: | This paper examines how voters choose both the tax rate and the level of tax avoidance in different societies, considering luck versus merit as the source of pre-tax income inequality. We propose a laboratory experiment based on the redistributive politics and labor market model by Jiménez-Jiménez et al. (2025). In this model, skilled and unskilled workers decide, by majority voting, between two tax schemes (low and high), with only skilled workers able to avoid taxes. Our experimental design includes four treatments that vary the cost of tax avoidance and the source of initial pre-tax income inequality, with the role of skilled or unskilled workers determined either through a tournament or randomly. Our findings suggest that in economies where tax avoidance is easy, luck as the source of pre-tax income inequality leads individuals to behave more frequently as in the theoretical equilibrium in which the high tax rate is implemented, and skilled workers avoid taxes. Conversely, in economies with a high cost of tax avoidance, meritocracy reinforces the theoretical equilibrium characterized by a higher frequency of votes for the low tax rate and lower levels of tax avoidance. Notably, meritocracy appears to improve income inequality when the cost of tax avoidance is high, but it harms income inequality when that cost is low. |
| Keywords: | tax avoidance; meritocracy; voting; income inequality; real-effort task. |
| JEL: | C92 D72 H26 H30 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pab:wpaper:25.05 |
| By: | Adam Lavecchia; James Stutely |
| Abstract: | This paper documents sharp bunching in third-party reported employment earnings at a basic exemption for social security contributions among older workers. Beginning in 2012, workers age 60-64 who were receiving a public pension were required to make social security contributions equal to 9.9 percent of their employment earnings above a basic exemption threshold of $3, 500. Using administrative data on third-party reported earnings and a differences-in- bunching estimator we document sharp bunching at the $3, 500 threshold. We argue that our results represent new evidence on the role of firms in mediating the earnings response to payroll taxes. |
| Keywords: | social security contributions, sharp bunching, employment earnings |
| JEL: | H20 H24 H25 H31 H32 H55 J22 J23 J38 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12112 |
| By: | Caffera, Marcelo; Chávez, Carlos; Lopez, Carolina; Murphy, James J; Briozzo, Juan |
| Abstract: | We present the results of a series of public-bad laboratory experiments in which we assess whether a salient message suggesting pro-social behavior with an implicit moral appeal, and a tax that is insufficient to induce the optimal level of the externality, can complement each other when implemented jointly. Our results suggest that, on average, (a) behavior is consistent with subjects having moral preferences, (b) a salient message suggesting pro-social behavior can be effective, (c) preferences are non-separable from the choice of instrument (i.e, the tax crowds-out part of the subjects´ moral preferences), and crucially, (d) the tax and the informative message do not complement each other. The tax has a greater impact on reducing the externality than the prosocial guideline, even though the tax was only half of that needed to reach the socially optimal level. Nevertheless, when implemented together, the total effect of both instruments is similar to that of the tax alone. This result is stronger for those subjects that are more “nudgeable” by the prosocial guideline. These results challenge the policy recommendation that nudges can effectively complement low taxes while awaiting the political will to raise them. |
| Keywords: | Economic experiment, nudge, prosocial guideline, public bad, tax |
| JEL: | Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125756 |
| By: | De Simone, Lisa; Giese, Henning; Koch, Reinald; Rehrl, Christoph |
| Abstract: | This study examines the real effects of earnings stripping rules introduced in the European Union in 2019, which tie interest deductibility to contemporaneous profitability. Exploiting a quasi-natural experiment created by the EU's harmonized implementation under the Anti-Tax Avoidance Directive and using a difference-in-differences design, we analyze consolidated data from 3, 312 firms across 22 EU Member States from 2012 to 2023. We find that earnings stripping rules significantly reduce operational risk-taking, investment, and innovation, consistent with profit-contingent deductibility lowering the expected debt tax shield in low-profit years. These effects are particularly pronounced among firms with high pre-reform operating risk, which also experience slower growth and a higher likelihood of financial distress following the reform. This study contributes to the literature on corporate taxation and risk-taking, showing that profit-linked interest limitations have real effects and underscoring the importance of rule design in balancing anti-avoidance objectives with investment and innovation. |
| Keywords: | corporate risk-taking, capital structure, asymmetric taxation, earnings stripping rule |
| JEL: | G32 G33 H25 H26 H87 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:325832 |
| By: | Alejandro Beltran (The Alan Turing Institute, London); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Andres Munoz (Inter-American Development Bank); Enid Slack (Institute on Municipal Finance and Government, Canada) |
| Abstract: | The property tax in Mexico is far from reaching its potential. It has grown little over the past 25 years due to both policy and administrative shortcomings. A major issue lies in the weak management of cadastersÑthe systems used to identify, register, and value propertiesÑwhich are often outdated or poorly maintained because of lack of interest and capacity, and inconsistent federal and state support. The effectiveness of property tax collection hinges on a strong cadastral administration, which is complex, costly and often unpopular among citizens, especially in developing countries. The debate over whether cadastral functions should be centralized or decentralized centers on a trade-off between capacity (favoring centralization) and incentives for revenue collection (favoring decentralization). Using municipal-level data from 2016 to 2022, this study analyzes how different governance structures regarding cadastral administration affect property tax revenues in Mexico, with particular focus on the role of local capacity in shaping outcomes. It finds that municipalities with low administrative capacity benefit from state-managed cadasters, while those with high capacity perform better when managing their own. These findings support an asymmetric approach to cadastral management, tailored to local capacities, to enhance revenue collection. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2513 |
| By: | Dominika Langenmayr; Mikayel Tovmasyan; Sebastian Vosseler |
| Abstract: | Are sanctions bypassed by hiding money offshore? Using bilateral data on bank deposits, we compare how offshore deposits from sanctioned versus nonsanctioned countries develop after the U.S. and the EU impose financial sanctions. Sanctions targeting individuals increase offshore deposits, as (potential) targets attempt to hide their funds. Broader financial sanctions reduce offshore (and other foreign) deposits, as money is repatriated. A synthetic control case study of Russia following the annexation of Crimea confirms our main findings, showing a 15% post-sanction increase in offshore deposits. These findings highlight the limits of symbolic sanctions and the need for secondary sanctions and financial surveillance. |
| Keywords: | Sanctions, tax havens, illicit financial flows |
| JEL: | F51 H12 K42 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:243_langenmayr_tovmasyan_vosseler.rdf |
| By: | Massimo Bordignon (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Nicolò Gatti (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Gilberto Turati (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | This paper investigates how raising awareness of public debt sustainability affects individual attitudes toward debt reduction and fiscal policy preferences. Using a survey experiment on a representative sample of the Italian population, we randomly assign objective information about government debt to citizens, who become more sensitive to the risks of tax increases, spending cuts, and imbalances for future generations. We find no effect on the perception of debt reduction as an urgent policy priority. While remaining highly averse to any tax increase, treated respondents support spending cuts (but not in education and health care) as a policy to reduce the debt burden. We also show that subjects with distorted beliefs about government debt are no more responsive to the information treatment than subjects with correct beliefs, shedding light on the challenges of building a voting majority for debt-stabilizing policies. |
| Keywords: | public debt; fiscal policies; beliefs; information. |
| JEL: | H63 H31 D83 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ctc:serie1:def144 |
| By: | Dominika Langenmayr (KU Eichstätt-Ingolstadt, WU Vienna, CESifo); Mikayel Tovmasyan (KU Eichstätt-Ingolstadt); Sebastian Vosseler (KU Eichstätt-Ingolstadt) |
| Abstract: | Are sanctions bypassed by hiding money offshore? Using bilateral data on bank deposits, we compare how offshore deposits from sanctioned versus non-sanctioned countries develop after the U.S. and the EU impose financial sanctions. Sanctions targeting individuals increase offshore deposits, as (potential) targets attempt to hide their funds. Broader financial sanctions reduce offshore (and other foreign) deposits, as money is repatriated. A synthetic control case study of Russia following the annexation of Crimea confirms our main findings, showing a 15% post-sanction increase in offshore deposits. These findings highlight the limits of symbolic sanctions and the need for secondary sanctions and financial surveillance. |
| Keywords: | Sanctions; tax havens; illicit financial flows |
| JEL: | F51 H12 K42 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202536 |
| By: | Hicks, Jeffrey |
| Abstract: | How does in-person support affect access to safety net programs? I study this question by examining how the closure of field offices has changed welfare and disability assistance caseloads. Using rich administrative data and a staggered difference-in-differences design, I estimate that closures, on average, reduced local caseloads by 11.5% for welfare and a statistically insignificant 1.6% for disability assistance. Declines in welfare caseloads (i) occurred across demographic, health, education, and eligibility groups, (ii) were somewhat larger among young and healthier individuals, and (iii) were suggestively larger among persons less familiar with the programs. On the whole, I find limited change in the relative targeting of benefits. |
| Keywords: | welfare, disability assistance, screening, take-up |
| JEL: | H31 H83 H75 H53 I32 I38 J18 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:clefwp:325487 |
| By: | Henrik Yde Andersen (Danmarks Nationalbank); Camilla Skovbo Christensen (Department of Economics, University of Copenhagen); Claus Thustrup Kreiner (Department of Economics, University of Copenhagen); Søren Leth-Petersen (Department of Economics, University of Copenhagen) |
| Abstract: | Many people forgo substantial economic gains by not responding to financial incentives, even in major decisions such as retirement savings and mortgage refinancing. But do the same people systematically fail to respond across financial contexts? We study this using a quasi-experimental setting that combines policy changes in pension incentives with shifts in mortgage refinancing incentives from interest rate fluctuations. Linking Danish administrative records, we uncover a striking independence between financial decisions: people who are inactive in one context are not systematically inactive in the other. One implication is that the costs of inaction are not concentrated among specific groups. |
| Keywords: | Tax incentives for pension savings, Mortgage refinancing, inaction |
| JEL: | G51 H24 |
| Date: | 2025–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2511 |
| By: | Fallou Niakh; Arthur Charpentier; Caroline Hillairet; Philipp Ratz |
| Abstract: | We consider an economy composed of different risk profile regions wishing to be hedged against a disaster risk using multi-region catastrophe insurance. Such catastrophic events inherently have a systemic component; we consider situations where the insurer faces a non-zero probability of insolvency. To protect the regions against the risk of the insurer's default, we introduce a public-private partnership between the government and the insurer. When a disaster generates losses exceeding the total capital of the insurer, the central government intervenes by implementing a taxation system to share the residual claims. In this study, we propose a theoretical framework for regional participation in collective risk-sharing through tax revenues by accounting for their disaster risk profiles and their economic status. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.18895 |
| By: | Hanna Wang |
| Abstract: | I develop and estimate a life-cycle discrete-choice model of fertility and female labor supply to study the optimal design of a range of child-related policies. First, I examine two German reforms that introduced wage-contingent parental leave payments and expanded access to low-cost public childcare. I find that both reforms raised completed fertility, with the parental leave reform having a particularly strong impact on highly educated women. Second, I solve for a budget-neutral optimal policy portfolio that maximizes either aggregate welfare or fertility, while ensuring that welfare and fertility do not decline for any education group. I consider four prominent child subsidies as well as the degree of tax jointness. My results show that optimal policy has the potential to increase welfare by 0.5% or fertility by 5.7%. While the solutions are qualitatively similar, they prioritize different policy instruments depending on the specific objective being targeted. |
| Keywords: | childcare subsidies, fertility, optimal policy, parental leave |
| JEL: | H21 J13 J24 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1507 |
| By: | Hamid Noghanibehambari; Jason Fletcher |
| Abstract: | An old and debated line of research examines the income-mortality relationship and finds mixed evidence. In this paper, we re-evaluate previous studies using a new dataset and implementing a difference-in-difference model based on a Notch in Social Security retirement benefits to overcome selection and endogeneity issues. We employ Social Security Administration death records and find a positive income-longevity relationship. Moreover, we find more pronounced effects among low-educated individuals and people from low socioeconomic status families. Analyses using census data suggest that part of the reductions in retirement income are offset by wage income due to post-retirement labor force participation. Past age 80, the net adverse effects of the policy on both income and longevity become more pronounced. |
| JEL: | H40 H50 I1 I18 J1 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34199 |
| By: | Amory Gethin; Emmanuel Saez |
| Abstract: | This paper uses labor force surveys from 160 countries to build a new microdatabase on hours worked covering 97% of the world population in cross section. We also construct time series spanning over 20 years in 86 countries. Hours worked per adult are slightly bell-shaped with GDP per capita but weakly correlated with development overall. Hours worked by the young (aged 15-19) and elderly (aged 60+) decline with development, driven by growing school attendance and public pension coverage. Hours worked among prime-age adults (aged 20-59) are mildly bell-shaped with development for men while they are increasing for women. The fall in male hours in middle-to-higher income countries is driven by reduced hours per worker and is offset by increases in female labor force participation. These two forces have exactly compensated each other in many countries, leading to a remarkable long-run stability of prime-age hours worked. Labor taxes are strongly negatively correlated with prime-age hours worked both in international comparisons and overtime within countries. Controlling for government transfers only partly reduces the link between labor taxes and prime-age hours, ruling out substitution and income effects on labor supply as the only driver. Controlling for working hours regulations and the size of the formal sector eliminates this link, suggesting that regulations also play a large role in reducing intensive hours in higher-income countries. |
| JEL: | H20 J20 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34217 |