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on Public Economics |
| By: | Massenz, Gabriella (Research Institute of Industrial Economics (IFN)) |
| Abstract: | How do corporate tax systems shape the boundaries of the firm? This paper shows that nonlinear corporate income taxation can distort firms’ organizational structures by inducing tax-motivated firm splitting. I use administrative data on corporations and their owners and exploit two reforms that altered the tax benefits and costs of dividing a firm into multiple entities. First, I show that a temporary increase in the tax advantage of splitting reduces the share of firms filing jointly for corporate income tax purposes. Second, once the benefit is perceived as permanent and minimum capital requirements for new firms are abolished, the number of firms per entrepreneur rises significantly and persistently. Finally, I show that reorganizations are primarily driven by tax motives, as I find no effect on firms’ total assets, employment, or industry diversification. These findings highlight extensive-margin responses of business organization to corporate taxation, with relevant implications for the understanding of firm dynamics and for tax design. |
| Keywords: | Firm splitting; Corporate income tax; Tax avoidance |
| JEL: | H25 H26 H32 |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1539 |
| By: | Rishi R. Sharma; Joel Slemrod; Michael Stimmelmayr; John D. Wilson; Peter Choi |
| Abstract: | Dual-regime business tax systems typically subject smaller firms to an output (turnover) tax and larger firms to a profit (corporate) tax. Despite their prevalence, there is little formal analysis of their optimal design. This paper addresses this gap by developing a theoretical framework to analyze the optimal tax parameters and the relative performance of two types of dual-regime systems: threshold and minimum tax systems. We show that either type of dual regime system can yield lower social costs than a single regime system. Using parameter values from recent empirical studies, we also show that a generalized minimum tax system we propose would outperform other dual regime systems under most parameter values. These findings carry important policy implications, particularly as many countries currently employ either threshold or minimum tax systems, but none have yet implemented a generalized minimum tax. |
| JEL: | H25 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34418 |
| By: | Katinka Kristine Holtsmark; Åsmund Sunde Valseth |
| Abstract: | To evaluate the marginal welfare effects of taxation and of public spending, we must account for both distortionary and distributional effects. The distributional consequences of taxation, in terms of welfare, cannot be fully captured in in the measures currently used in the literature, such as the Marginal Costs of public Funds (MCF) or the the Marginal Value of Public Funds (MVPF). We propose a measure for these welfare effects and define the Marginal Equity-Adjusted Cost of Public Funds (MECF). The MECF can be applied to any tax instrument and for any set of welfare weights. The MECF enables comparison of the marginal welfare effects of tax instruments with different tax incidence. We derive the MECF in a stylized model with linear taxation and provision of a public good. Finally, we define the analogous measure for the marginal welfare effects of public spending, and derive the Marginal Equity-Adjusted Value of Public Funds (MEVF). The MEVF enables comparison of the value of spending with different beneficiaries. |
| Keywords: | marginal cost of public funds, income inequality, lump-sum taxes, public good provision |
| JEL: | H20 H40 H50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12228 |
| By: | Priya Manwaring; Tanner Regan |
| Abstract: | Public disclosure of tax behavior is potentially promising for raising compliance in low-capacity states. This paper provides evidence on the social determinants of tax compliance through two cross-randomized experiments in Kampala, Uganda. We estimate effects of reporting delinquents and recognizing compliers. Compliance increases 17% for those subject to reporting but falls 16% for those promised recognition. Results support a model where being publicly known as tax-liable is costly but social sanctions for delinquency are limited. Further, disseminating tax behavior causes recipients to update compliance beliefs downward and reduces actual compliance by 20%. Overall, simple enforcement reminders raise more revenue. |
| Keywords: | property tax; tax morale; public disclosure; social image; Africa. |
| JEL: | H26 H30 D91 O18 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2025-010 |
| By: | Kimiko Terai (Faculty of Economics, Keio University) |
| Abstract: | This study examines interjurisdictional tax competition aimed at attracting portfolio investments by foreign creditors in sovereign bonds and corporate loans. In each of two jurisdictions, one with lower and the other with higher capital, governments maximize workers’ utility by choosing the volume of sovereign bond issuance to finance public inputs, the tax rate on creditors’ interest income, and the degree of compliance with bilateral treaty provisions concerning information exchange on creditors’ income. Under a bilateral treaty mandating only information exchange, the jurisdiction with initially lower capital tends to set a lower tax rate and exert less compliance effort, effectively functioning as a tax haven. In contrast, the jurisdiction with higher capital imposes a higher tax rate and demonstrates greater compliance, benefiting from the residence principle due to its substantial global interest income. Alternatively, under a bilateral treaty that combines information exchange with a withholding tax at source on foreign creditors, the two jurisdictions set the same tax rate on domestic creditors. This inadvertently weakens the incentives for the jurisdiction with higher capital to exchange information. These findings suggest that the specific design of international tax cooperation agreements critically shapes jurisdictions’ fiscal behavior, leading to divergent outcomes despite their shared objective of implementing residence-based taxation. |
| Keywords: | tax haven, interest income tax, home bias, Tax Information Exchange Agreement, Double Taxation Agreement |
| JEL: | H26 H54 H63 H73 |
| Date: | 2025–10–27 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2025-024 |
| By: | Luca Micheletto; Dylan T. Moore; Daniel Reck; Joel Slemrod |
| Abstract: | Traditional optimal commodity tax analysis, dating back to Ramsey (1927), prescribes that to maximize welfare one should impose higher taxes on goods with lower demand elasticities. Yet policy makers do not stress minimizing efficiency costs as a desideratum. In this note we revisit the commodity tax problem, and show that the attractiveness of the Ramsey inverse-elasticity prescription can itself be inverted if the tax system is chosen – or at least strongly influenced – by taxpayers who are overly confident of their ability, relative to others, to substitute away from taxed goods. |
| JEL: | H20 H21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34419 |
| By: | Holmberg, Johan (Department of Economics, Umeå University); Selin, Håkan (Institute for Evaluation of Labour Market and Education Policy (IFAU) and UCFS) |
| Abstract: | Several papers examine how firms react to dividend tax reforms. But can tax reforms affect firm behavior without even occurring? 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 government’s announced reform plans. We find that dividend payments increased in the “pre-reform years” and declined sharply in 2018, especially for cash-rich firms. This led to a reduction in the cash holdings, with potential implications for firm activity. |
| Keywords: | Owner level taxes; tax planning; investments |
| JEL: | G35 H32 |
| Date: | 2025–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1040 |
| By: | Bruno Paolo Bosco (Department of Economics, Management and Statistics, University of Milano-Bicocca); Carlo Federico Bosco (Independent Researcher); Paolo Maranzano (Department of Economics, Management and Statistics, University of Milano-Bicocca and Fondazione Eni Enrico Mattei) |
| Abstract: | Ignoring the possible hierarchical clustering of the data that frequently characterises the structure of labour markets implies that studies of the effects of income tax changes on labour supply use less than necessary information on the variability of the labour response. Estimation efficiency is reduced and relevant relationships affecting the agents’ reaction to net wage changes remain undetected. Motivated by the desire to implement an estimation procedure that accommodates a nested hierarchical statistical structure of labour supply macro data into of a causal-effect framework, we propose a novel multilevel DiD model that can estimate labour responses to exogenous tax hikes taking the above hierarchical structure into consideration. Using Italy as a case study, we examine the labour response to exogenous income tax changes using a hierarchical DiD model modified to account for the existence of different sources of variation of the data (regional and provincial labour markets) as well as for various possible clustering of the data (territorial, age and gender). We compare results obtained from various nested and non-nested procedures and show that our multilevel variant of the DiD model generates gains in efficiency with respect to approaches that ignore the clustering nature of the labour data. The hierarchical multilevel DiD procedure permits to qualify labour response in terms of cluster membership and to shed light on aspects of the tax issues not highlighted by current literature. |
| Keywords: | Income Taxation and Labour Supply, Tax Treatment Effect, Hierarchical Multilevel Panel Data DiD model, Linear mixed models for policy evaluation |
| JEL: | C21 C32 H24 H31 J38 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2025.20 |
| By: | Alessandra Fenizia; Nicholas Y. Li; Luca Citino |
| Abstract: | This paper studies the cost-effectiveness of targeted payroll taxes for stimulating labor demand. It uses rich administrative data to study the effects of an Italian reform that raised social security contributions for apprenticeship contracts but granted a substantial discount for firms with 9 employees or less. The discount does not increase demand for apprenticeship contracts. Instead, it subsidizes inframarginal hiring. This reform is not cost-effective. Point estimates imply that each million euros of foregone social security contributions supports the employment of 29 apprentices for one year and no permanent contracts (these estimates are not statistically different from zero). |
| JEL: | H20 H32 J23 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34437 |
| By: | Franziska Funke; Théo Konc; Linus Mattauch; Michael Pahle; Antonia Schwarz; Stephan Sommer |
| Abstract: | We propose a theory of public appraisal and employ it to explain divergent public opinion on similar economic policy instruments. In a survey-based policy design experiment with 13, 665 respondents from seven European countries, we study how policy perceptions and support rates differ across carbon pricing designed as “carbon taxation” and “emissions trading”. While there is considerable cross-country variation in the appraisal of both instruments, the emissions trading design reduces opposition in all countries except Germany. We find that the treatment effects of instrument design on policy perceptions are substantial: carbon taxes are consistently more often perceived as increasing the state budget, harming the economy, and increasing costs of living and production. Using causal mediation analysis, we ascertain that lower opposition to emissions trading is partly due to its perception as less costly. Overall, our results suggest that the public consistently perceives taxes as a “tougher” measure, and that emissions trading appeals more to European constituencies not already supportive of climate policy. |
| Keywords: | political economy, climate change, cap-and-trade, carbon tax, perceptions |
| JEL: | Q54 Q58 D78 H23 P48 |
| Date: | 2025–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0076 |
| By: | Armin A. Bolouri; Tim Lohse; Salmai Qari |
| Abstract: | We provide the first global, long-run analysis of how governments fund and de-fund military spending. Constructing a panel of 167 countries from 1817 to 2024, we estimate fiscal responses to armaments and disarmaments, including wartime shifts. Deficit spending is the primary financing policy, while larger armaments trigger deeper cuts to civilian spending. Fiscal space is a critical moderator: low-debt countries rely mainly on borrowing, whereas high-debt countries resort to taxation and budget reallocations. Armaments and disarma-ments have asymmetric effects: disarmaments only partially reverse prior poli-cies, sustaining elevated civilian spending as a fiscal peace dividend and leaving the state permanently larger. |
| Keywords: | military spending, war Finance, fiscal space, peace dividend |
| JEL: | N4 H1 H56 H60 E6 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12226 |
| By: | Aronsson, Thomas (Department of Economics, Umeå School of Business, Economics and Statistics, Umeå University, Department of Economics, University of Graz); Bastani, Spencer (Department of Economics, Uppsala University; Research Institute for Industrial Economics (IFN) Uppsala Center for Fiscal Studies (UCFS), Uppsala Center for Labor Studies (UCLS)); Tayibov, Khayyam (Department of Economics and Statistics, School of Business and Economics, Linnaeus University) |
| Abstract: | his paper incorporates labor market inactivity and long-term unemployment into the framework of optimal redistributive taxation. We examine how a combination of education policy, public employment programs, unemployment benefits, and optimal income taxation can effectively address both redistributive goals and the persistent challenges of long-term unemployment. Our analysis shows that the second-best optimal policy typically implies overprovision of education compared to a policy rule that reflects only direct marginal benefits and costs. At the same time, public employment programs and unemployment benefits tend to be underprovided. Through numerical simulations, we illustrate how this policy mix adapts to varying preferences for redistribution, productivity disparities, and the proportion of individuals at risk of long-term unemployment. |
| Keywords: | long-term unemployment; education; optimal income taxation; pub lic sector employment |
| JEL: | H21 I21 J24 J45 |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:ifauwp:2025_019 |
| By: | Konstantin von Beringe; Mark Whitmeyer |
| Abstract: | We study welfare analysis for policy changes when supply behavior is only partially known. We augment the robust-demand approach of Kang and Vasserman (2025) with two supply primitives--intervals of feasible pass-through and conduct (market-power) parameters--applied to two equilibrium snapshots. A simple accounting identity distills the supply-side contribution to welfare to a simple integral expression. From there, we deduce that the bounds are produced by a single-threshold "bang-bang" inverse pass-through function. This, plus a modification of Kang and Vasserman's (2025) demand-side characterization, delivers simple bounds for consumer surplus, producer surplus, tax revenue, total surplus, and deadweight loss. We also study an ad valorem extension. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.26387 |
| By: | Camarero, Mariam; Sapena, Juan; Tamarit, Cecilio |
| Abstract: | This paper estimates time-varying tax-tilting parameters for eleven EMU member states from 1970 to 2024 using a panel time-varying parameter state-space model that extends the traditional tax-smoothing framework to capture both common and country-specific dynamics. Core countries such as Austria, Belgium, Germany, the Netherlands, France, Ireland, and Finland display a more prudent fiscal stance, while peripheral countries, including Greece, Italy, Portugal, and Spain, shift taxation toward the future, generating current deficits. These patterns are driven by differences between government discounting of future revenues and market rates, and are further influenced by structural factors such as aging populations and unemployment. Periods of negative real interest rates relax fiscal constraints, encouraging governments to delay tax adjustments. The results underscore the need to reduce cross-country fiscal heterogeneity to strengthen long-term sustainability and advance fiscal integration in the Euro Area. |
| Keywords: | Tax-smoothing, time-varying cointegration, multiple structural breaks, Kalman Filter, Time-varying parameters, EU fiscal policy |
| JEL: | C22 E62 H62 |
| Date: | 2025–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125942 |
| By: | Olivera, Javier; Breunig, Christian; Broderstad, Troy; Dumont, PatricK; Sterba, Maj-Britt |
| Abstract: | This paper compares the “mental maps” of redistribution among politicians and citizens across seven parliaments, using original in-person surveys of sitting MPs and nationally representative citizen samples. Fairness beliefs and ideology are the strongest correlates of support for redistribution in both groups, while misperceptions of wealth concentration matter for citizens but much less for politicians. A central finding is that politicians hold markedly more polarized views on redistribution than citizens, including within the same party families. We also find systematic elite–voter gaps: left MPs are more supportive than their voters (notably on inheritance taxation), whereas right/liberal MPs are less supportive than theirs. These patterns point to a representation concern and a bargaining space among elites that is narrower than in the electorate. |
| Keywords: | preferences for redistribution; polarization; politicians; fairness beliefs; inequality perceptions; wealth taxes |
| JEL: | H24 D31 D63 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130033 |
| By: | Bruers, Stijn |
| Abstract: | A literature review is conducted of five recently developed methodologies to determine an optimal non-anthropocentric animal welfare levy that internalizes the social costs of animal suffering into the price of animal products, whereby animal and human welfare are counted equally. Chicken meat may get a levy of €30 to €8000 per kilogram, where the best estimates are closer to this upper value. Products from animals larger than chickens usually have a more than ten times lower levy than chicken meat and eggs. The non-anthropocentric animal welfare levy is several orders of magnitude higher than an anthropocentric animal welfare levy that is purely based on human’s altruistic preferences for animal welfare. At such high levels, farmed animal suffering could easily be the largest market failure in our global economy. A politically feasible implementation of a fee-and-dividend animal welfare levy is discussed. |
| Keywords: | animal welfare, meat, externalities, market failure, welfare economics, optimal tax |
| JEL: | Q18 Q50 H21 H23 I31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:330515 |
| By: | Strachman, Eduardo; Souza Fraga, Jefferson; Guidorzzi Girotto, Vitor |
| Abstract: | This chapter redefines monetary and fiscal policies through the lens of public goods, arguing that their non rival and economy wide benefits require coordinated management to foster inclusive economic growth and employment. Drawing on post Keynesian theory, it shows how money, as a social technology, and fiscal policy, through infrastructure and investment programmes, shape expectations, stimulate private investment, and enhance welfare. Integrating theoretical insights with historical and contemporary evidence, including the COVID 19 policy response, the chapter underscores the importance of strategic coordination to overcome uncertainty, stabilize long term investment and strengthen macroeconomic resilience. It challenges conventional approaches that treat policies in isolation, advocating instead their design as complementary instruments for sustainable development and shared prosperity. |
| Keywords: | Fiscal policy; Infrastructure investment; Monetary policy; Policy coordination; Post Keynesian economics; Public goods. |
| JEL: | E50 E60 H11 H41 H60 |
| Date: | 2025–07–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126340 |