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on Public Economics |
| By: | Chen, Xuyang; Sun, Rui |
| Abstract: | This paper investigates how the OECD's global minimum tax (GMT) affects multinational enterprises (MNEs) behavior and countries' corporate taxes. We consider both profit shifting and capital investment responses of the MNE in a formal model of tax competition between asymmetric countries. The GMT reduces the true tax rate differential and benefits the large country, while the revenue effect is generally ambiguous for the small country. In the short run where tax rates are fixed, due to tax deduction of the substance-based income exclusion (SBIE), a higher minimum rate exerts investment incentives but also incurs a larger revenue loss for the small country. We show that under high (low) profit shifting costs the former (latter) effect dominates so that the small country's revenue increases (decreases). In the long run where countries can adjust tax rates, the GMT reshapes the tax game and the competition pattern. In contrast to the existing literature, we reveal that the minimum rate binds the small country only if it is low. With the rise of the GMT rate, countries will undercut the minimum to boost real investments and collect top-up taxes. Our simulations show that introducing a GMT with moderate minimum rate raises both countries' revenues and the large country's welfare. However, it may reduce the small country's welfare if the welfare weight of private income is high. |
| Keywords: | Corporate taxes, Global minimum tax, Profit shifting, SBIE, Tax competition |
| JEL: | F21 F23 H25 H73 H87 |
| Date: | 2025–09–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126538 |
| By: | Alejandro Esteller-Moré; José María Durán-Cabré; Christos Kotsogiannis; Luca Salvadori |
| Abstract: | Enforcing wealth tax compliance among high-net-worth individuals is particularly challenging. Using administrative data on the Net Wealth Tax for Catalan taxpayers over the 2011–2020 period, this paper evaluates the impact of audits on voluntary compliance. The evidence suggests that wealth tax audits do enhance compliance, but the impact is short-lived — and driven by taxpayers rebalancing their tax evasion and avoidance responses. On the institutional side, the results indicate that Spain's overlapping tax audit mandates can create coordination frictions that reduce the efficiency and effectiveness of audit-based enforcement of the New Wealth Tax. Effective enforcement depends not only on robust audit strategies, but also on coherent institutional design and sound tax policy. |
| Keywords: | overlapping tax audit mandates, tax audit evaluation, tax compliance, Tax evasion, wealth tax |
| JEL: | H26 D31 O17 D02 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1527 |
| By: | Kazuhiko Sumiya; Jesper Bagger |
| Abstract: | This paper provides quasi-experimental evidence on how income taxes affect gross hourly wages, utilizing Danish administrative data and a tax reform that introduced joint taxation. Exploiting spousal income for identification, we present nonparametric, difference-in-differences graphical evidence among husbands. For low-income workers, taxes have negative and dynamic effects on wages; their wage elasticity with respect to net-of-marginal-tax rates is 0.4. For medium-income workers, the effects are smaller and insignificant. Wages respond to taxes through promotions or job-to-job transitions. Neither daily nor annual hours worked respond significantly; consequently, annual earnings respond to taxes primarily through hourly wages, rather than through labor supply. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.16483 |
| By: | Bray, Sean; Bunn, Daniel; Gaul, Johannes; Spengel, Christoph |
| Abstract: | This study examines the compliance costs of OECD Pillar Two, i.e., the "Global Minimum Tax, " for multinational enterprises headquartered in the European Union. Collecting data from chief financial officers and heads of finance or tax departments, we estimate compliance cost determinants and subsequently predict the overall compliance burden. Results indicate total one-off costs of about EUR 1.2 billion (up to EUR 2.0 billion) and total recurring costs of EUR 517 million EUR p.a. (up to EUR 865 million EUR p.a.). Our findings inform the public discourse by mitigating information asymmetries between policymakers and corporations. Moreover, we contribute by establishing a cost benchmark to facilitate a systematic cost-benefit evaluation of this policy. |
| Keywords: | Global Minimum Tax, Corporate Taxation, Tax Compliance Costs, Tax Complexity, Council Directive (EU) 2022/2523 |
| JEL: | H25 H32 H87 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:330317 |
| By: | Edward Lane |
| Abstract: | he Social Security "full retirement age" (FRA) is the age at which retirement income benefits are available without reduction for early commencement. Presently, that age is 67 for those born in 1960 or later. This paper is about the unfair and unnecessary threat to reduce Social Security retirement income benefits (Romig 2023) by extending the full benefit retirement age--a change that will affect upwards of 80 percent of future retirees (Ross 2024), most of whom can ill-afford the reduction (Romig 2023). For those who don't follow these issues closely, the Social Security retirement, or Old-Age & Survivors Insurance (OASI) Trust Fund is projected to become insolvent in 2033. Without Congressional action to preserve scheduled benefits, payable benefits would then be reduced by 20-25 percent. While both President Trump (Bolton 2024) and House Speaker Mike Johnson (Murray et al. 2025) have promised not to cut Social Security at a time when there is intense political pressure to reduce the federal budget deficit (Duehren 2025), it is unclear what will happen once Congress settles on a fiscal 2026 budget and the president signs off. If benefits are not reduced, the trust fund insolvency issue must still be resolved. To better understand why extending Social Security's FRA would be both unnecessary and unfair, this paper briefly explores Social Security's history, how Social Security payroll taxes subsidize other government expenditures, and how attempts are being made to roll back Social Security retirement benefit eligibility while other publicly funded retirement programs covering government employees have far more generous retirement eligibility provisions. The paper will conclude with recommendations to avoid program insolvency while preserving the FRA. |
| Keywords: | Social Security; FICA; Taxes; Trust Funds; OASI; OASDI; Medicare; Deficit; Inflation; Welfare; Treasury; Old-age; Intragovernmental and Federal debt; Retirement age |
| JEL: | H00 H50 H51 H53 H55 H61 H62 H63 H21 H22 H23 H24 H31 E62 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1080 |
| By: | Bahn, Dorothée; Bredemeier, Christian; Juessen, Falko |
| Abstract: | We study how the division of household chores and individual preferences contribute to gender differences in labor supply elasticities and examine the implications for optimal taxation. In a model of labor supply in dual-earner households, we show that elasticities and optimal income tax rates depend jointly on gender and the within-household allocation of chores. Using PSID data, we find that chore division substantially affects labor supply elasticities, whereas gender per se plays a smaller role. We then evaluate how well simple, feasible tax rules can approximate the optimal within-household tax structure. Gender-based taxation captures a sizable share of the potential efficiency gains, but gender-neutral rules with realistic levels of progressivity perform better. |
| Abstract: | Wir untersuchen, wie die Aufteilung von Aufgaben im Haushalt sowie individuelle Präferenzen zu Geschlechterunterschieden in Arbeitsangebotselastizitäten beitragen und welche Konsequenzen sich daraus für die optimale Gestaltung der Einkommenssteuer ergeben. In einem Modell des Arbeitsangebots von Doppel-Verdiener-Paaren zeigen wir, dass Elastizitäten und optimale Einkommensteuersätze sowohl vom Geschlecht als auch von der innerfamiliären Aufgabenverteilung abhängen. Bei der Analyse von US-Mikrodaten aus dem PSID stellen wir fest, dass die innerfamiliäre Aufgabenverteilung Arbeitsangebotselastizitäten erheblich beeinflusst, während das Geschlecht an sich eine geringere Rolle spielt. Anschließend prüfen wir, inwieweit einfache und praktisch umsetzbare Steuerregeln die optimale innerfamiliäre Steuerstruktur approximieren können. Geschlechtsspezifische Besteuerung ("gender-based taxation") realisiert einen beträchtlichen Teil der potenziellen Effizienzgewinne, doch geschlechtsneutrale Regeln mit realistischen Progressivitätsgraden, aber ohne Splitting, schneiden besser ab. |
| Keywords: | Elasticity of labor supply, taxation, household chores, gender-based taxation |
| JEL: | J42 J16 J62 J71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:rwirep:330181 |
| By: | Felipe Lozano Rojas; John Cawley; David E. Frisvold |
| Abstract: | Taxes on sweetened beverages have been widely adopted in response to increases in diet-related chronic disease. An episode of particular interest occurred in Cook County, Illinois, where a beverage tax was announced, implemented, and then repealed. This paper is the first to estimate the effects of this tax using household-level data on purchases. We estimate difference-in-differences models that compare the change in beverage purchases over time in Cook County to that in comparison areas. The results indicate that consumer purchases did not detectably respond to the announcement of the tax. Implementation of the tax reduced purchases by 22.5% for all taxed beverages, 16.5% for high-calorie taxed beverages and a 33% for low-calorie (e.g. diet) taxed beverages. This implies a price elasticity of demand of -0.66 for all taxed beverages, -0.48 for high-calorie taxed beverages and -0.97 for low-calorie taxed beverages. The impact of the tax did not vary by household income, and there is no detectable impact of the tax on purchases of possible substitutes (bottled water, fruit juice, milk). After repeal of the tax, purchases of taxed beverages returned to their baseline quantities; there was no evidence of habit formation. |
| JEL: | H2 I12 I18 Q18 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34412 |
| By: | Leonard Gregor; Justus Haucap |
| Abstract: | This paper evaluates the temporary reduction in energy taxes implemented by the German government between June and September 2022. We use pricing and quantity data from the wholesale market for crude oil, gasoline, and diesel and find an average pass through of 80% to 85% of the tax cut, which amounts to a 3.7 cents per liter increase in wholesale prices net of tax. We do, however, document significant treatment heterogeneity over time and across regions within Germany. When weighting price effects by quantities sold, the estimated pass-through of the tax cut decreases to about 70% for gasoline and 58% for diesel, suggesting that refinery margins increased significantly during times of higher demand. |
| Keywords: | pass-through, tax reduction, fuel prices, wholesale markets |
| JEL: | H22 L13 L71 Q48 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12214 |
| By: | Ms. Li Liu; Mr. Alexander D Klemm; Parijat Lal |
| Abstract: | This paper investigates the effects of withholding taxes on cross-border trade in services, using a newly compiled dataset covering the universe of bilateral service imports and withholding tax rates from 2005 to 2021. Employing a theoretical framework that highlights the role of withholding taxes in curbing base-eroding payments, the empirical analysis reveals significant effects, with estimated semi-elasticities of 4 for royalties, 1 for technical fees, and 1 for total service import. |
| Keywords: | Services Trade; Corporate Taxation; Withholding Taxes; Profit Shifting |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/214 |
| By: | Esteban García-Mirallas (Banco de España); Maximilian Freier (European Central Bank); Sara Riscao (Organisation for Economic Co-operation and Development (OECD)); Chrysa Leventi (European Commission, Joint Research Centre); Alberto Mazzon (European Commission, Joint Research Centre); Glenn Abela (Central Bank of Malta); Laura Boyd (Central Bank of Ireland); Baiba Brusbārde (Latvijas Banka); Marion Cochard (Banque de France); David Cornille (National Bank of Belgium); Emanuele Dicarlo (Banca d’Italia); Ian Debattista (Central Bank of Malta); Mar Delgado-Téllez (Banco de España); Mathias Dolls (ifo Institute); Ludmila Fadejeva (Latvijas Banka); Maria Flevotomou (Bank of Greece); Florian Henne (Banque centrale du Luxembourg); Alena Harrer-Bachleitner (Office of the Austrian Fiscal Council); Viktor Jászberényi-Király (Magyar Nemzeti Bank); Max Lay (ifo Institute); Laura Lehtonen (De Nederlandsche Bank); Mauro Mastrogiacomo (De Nederlandsche Bank); Tara McIndoe-Calder (Central Bank of Ireland); Mathias Moser (Oesterreichische Nationalbank (OeNB)); Martin Nevicky (National Bank of Slovakia); Andreas Peichl (ifo Institute); Myroslav Pidkuyko (Banco de España); Mojca Roter (Banka Slovenije); Frédérique Savignac (Banque de France); Andreja Strojan Kastelec (Banka Slovenije); Vaidotas Tuzikas (Lietuvos bankas); Nikos Ventouris (Bank of Greece); Lara Wemans (Banco de Portugal) |
| Abstract: | This paper presents a comprehensive characterization of “fiscal drag”—the increase in tax revenue that occurs when nominal tax bases grow but nominal parameters of progressive tax legislation are not updated accordingly—across 21 European countries using a microsimu-lation approach. First, we estimate tax-to-base elasticities, showing that the progressivity built in each country’s personal income tax system induces elasticities around 1.7–2 for many countries, indicating a potential for large fiscal drag effects. We unpack these elasticities to show stark heterogeneity in their underlying mechanisms (tax brackets or tax deductions and credits), across income sources (labor, capital, self-employment, public benefits), and across the individual income distribution. Second, we extend the analysis beyond these elastici-ties to study fiscal drag in practice between 2019 and 2023, incorporating observed income growth and legislative changes. We quantify the actual impact of fiscal drag and the extent to which government policies have offset it, either through indexation or other reforms. Our results provide new insights into the fiscal and distributional effects of fiscal drag in Europe, as well as useful statistics for modeling public finances. |
| Keywords: | personal income tax, inflation, indexation, bracket creep. |
| JEL: | D31 H24 E62 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202510-483 |
| By: | Sarah Clifford; Jakob Miethe; Camille Semelet |
| Abstract: | Key MessagesTax haven subsidiaries are instrumental in multinational profit shiftingProfit shifting is concentrated in firms exceeding the EUR 750 million revenue threshold of the recently introduced global minimum tax (GMT)The GMT captures 95 percent of shifted profits from German multinationalsGMT compliance costs are modest compared to the revenues raised by large multinational firmsPursuing a consistent policy remains preferable even in light of the recent US exemption |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpb:_78 |
| By: | João B. Duarte; Afonso S. Moura |
| Abstract: | We study how local corporate tax increases affect firms’ financing and real activity. In Portugal, municipalities independently set a surtax on corporate income, generating plausibly exogenous variation across space and time. We link the universe of corporate balance sheets and profitand-loss statements to loan-level data from the Bank of Portugal’s credit registry, allowing us to track firms’ liquidity, leverage, borrowing costs, and credit quality alongside revenues, inputs, employment, and productivity. We estimate local-projection difference-in-differences models that address staggered treatment timing and dynamic responses. Surtax hikes immediately tighten financing conditions: liquidity falls, implicit interest rates rise, debt increases at shorter maturities, and non-performing loans become more prevalent. These strains spill over into real outcomes: firms reduce sales, inputs, and employment and experience persistent declines in total factor productivity. Effects are strongest among small and young firms, where leverage rises in response to liquidity losses, while larger firms increase leverage in line with tax-shield incentives. We also find higher exit and relocation probabilities, but no gains in neighboring output, pointing to inefficient reallocation. Our results highlight how local tax policy can transmit through both financial and real margins, with implications for fiscal design in decentralized settings. |
| JEL: | E62 G38 H25 H32 H71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202511 |
| By: | Raian Kudashev (DEM, Université du Luxembourg); Pierre M. Picard (DEM, Université du Luxembourg) |
| Abstract: | Cross-border housing markets have become more prevalent in Europe since the establishment of the European Union. Using data from the functional urban area of Luxembourg, we document significant floorspace price discontinuities at the borders of Luxembourg with Belgium, France, and Germany. Employing a quantitative spatial urban model and spatial regression discontinuity techniques, we show that differences in tax rates and tax importation account for 9% and 17% of the observed price jump, respectively. The remaining price discrepancy is explained by differences in productivity and amenities. |
| Keywords: | Tax, cross-border employment, land rents, quantitative urban economics. |
| JEL: | H73 R13 R14 R23 R31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:25-16 |
| By: | Jean-Marc B. Atsebi; Nikolay Gueorguiev; Manabu Nose |
| Abstract: | Building on previous studies, we propose a robust estimation strategy to uncover the causal effects of tax administration strength on tax revenue in 121 countries over the period 2014–2022. Our novel approach utilizes a unique expert survey to construct an Operational Strength Index of tax administration, using the International Survey on Revenue Administration (ISORA), and employs an instrumental variable strategy based on the IMF Fiscal Affairs Department’s Capacity Development programs. We find that strengthening tax administration significantly boosts tax revenue, particularly in emerging and developing economies, and especially in countries with lower levels of informality, stronger institutions, and higher financial development. These findings carry important policy implications for governments and development partners aiming to enhance tax administration capacity and strengthen public finances overall. |
| Keywords: | Tax Administration; Tax Policy; ISORA |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/219 |
| By: | Fadzayi Chingwere; Aimable Nsabimana; Kunal Sen |
| Abstract: | How does political alignment with the ruling party influence the audit outcomes of the firms? This paper investigates whether political alignment with the ruling party influences the intensity and outcomes of firm audits in South Africa. Using a regression discontinuity design based on close provincial election results from 2014, we examine how firms are treated in municipalities narrowly won versus narrowly lost by the African National Congress (ANC). |
| Keywords: | Elections, Audits, Firms, Tax evasion, South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-75 |
| By: | Grindaker, Morten (University of Chicago); Simmons, Michael (Department of Economics, Umeå University) |
| Abstract: | Does Unemployment Insurance affect how employed workers search for new jobs? We provide novel evidence by combining administrative data on the universe of Norwegian workers and firms with a regression kink design. A marginal increase in benefits lowers job-to-job transitions, increases unemployment incidence, and lowers future earnings. These effects are stronger for workers with higher predicted unemployment risk and align with job search models where workers systematically move towards safer jobs. In an equilibrium job search model calibrated to match these empirical effects, employed workers’ responses account for 45 percent of the net fiscal costs of a marginal benefit expansion. |
| Keywords: | On the job search; Unemployment Insurance; Regression kink design; Unemployment Risk |
| JEL: | G33 G52 H31 H55 J31 J65 |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1039 |