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on Public Economics |
| By: | Varjonen-Ollus, Reetta |
| Abstract: | This paper estimates the elasticity of taxable income (ETI) for the top 1% of income earners, utilising a change in taxation in 2013, when a new top tax bracket was added to the earned income tax schedule in Finland. The response of top earners is crucial in determining the revenue-maximising level of top income taxation, and this study contributes to the top income ETI literature by employing a differences-in-differences method comparing changes in income within the same income groups for different time periods. The results suggest that the ETI for top wage earners (0.5) may be higher than found in previous population estimates. This finding is primarily driven by individuals experiencing fewer labour market frictions, such as those who have changed employer or have multiple concurrent employers. |
| Keywords: | Behavioural response, income taxation, labour supply, H21, H24, fi=Verotus|sv=Beskattning|en=Taxation|, |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:fer:wpaper:180 |
| By: | Salvatore Ciucci (Dipartimento di Economia, Università degli Studi della Campania “Luigi Vanvitelli”) |
| Abstract: | This study extends the theory of tax evasion by presenting a model of collaborative tax evasion between buyers and sellers. Buyers differ only in their level of tax morale, and tax evasion occurs when the seller fails to issue a receipt for the transaction. To counteract this, the government can disrupt the collusion between sellers and buyers by offering a tax rebate to buyers who request and retain the transaction receipt. The theoretical findings show that the tax rebate introduces a policy trade-off for the government between aggregate quantity and tax revenue. Furthermore, the marginal effect of the rebate on aggregate quantity, tax revenue, and social welfare is ambiguous. This study provides a theoretical foundation for understanding and managing the economic inefficiencies that may arise from tax rebate policies. |
| Keywords: | Tax rebate, cooperative tax evasion, tax morale |
| JEL: | H00 H20 H26 H30 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2025.26 |
| By: | Ashley C. Craig; Thomas Lloyd; Dylan T. Moore |
| Abstract: | How should taxes on externality-generating activities be adjusted if they are regressive? In our model, the government raises revenue using distortionary income and commodity taxes. If more or less productive people have identical tastes for externality-generating consumption, the government optimally imposes a Pigouvian tax equal to the marginal damage from the externality. This is true regardless of whether the tax is regressive. But, if regressivity reflects different preferences of people with different incomes rather than solely income effects, the optimal tax differs from the Pigouvian benchmark. We derive sufficient statistics for optimal policy, and use them to study carbon taxation in the United States. Our empirical results suggest an optimal carbon tax that is remarkably close to the Pigouvian level, but with higher carbon taxes for very high-income households if this is feasible. When we allow for heterogeneity in preferences at each income level as well as across the income distribution, our optimal tax schedules are further attenuated toward the Pigouvian benchmark. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.05602 |
| By: | Ciucci, Salvatore |
| Abstract: | This study extends the theory of tax evasion by presenting a model of collaborative tax evasion between buyers and sellers. Buyers differ only in their level of tax morale, and tax evasion occurs when the seller fails to issue a receipt for the transaction. To counteract this, the government can disrupt the collusion between sellers and buyers by offering a tax rebate to buyers who request and retain the transaction receipt. The theoretical findings show that the tax rebate introduces a policy trade-off for the government between aggregate quantity and tax revenue. Furthermore, the marginal effect of the rebate on aggregate quantity, tax revenue, and social welfare is ambiguous. This study provides a theoretical foundation for understanding and managing the economic inefficiencies that may arise from tax rebate policies. |
| Keywords: | Political Economy, Public Economics |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:376267 |
| By: | Owens, Jeffrey; Wamuyu, Ruth |
| Abstract: | Reactions to global tax reforms highlight ongoing tensions between national tax sovereignty and obligations under tax, trade, and investment agreements. Despite these issues, investment competition will persist, requiring countries to adopt multifaceted strategies that recognize the interconnectedness and synergies among tax, trade, and investment disciplines. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:colfdi:333595 |
| By: | Siminski, Peter (University of Technology, Sydney); Wilkins, Roger (Melbourne Institute of Applied Economic and Social Research) |
| Abstract: | We examine the role of owner-occupied housing for income inequality. Departing from related work, we incorporate accrued capital gains, focus on long-run measures of income, and consider implications for tax progressivity. Using Australia as a case study, we show that housing income can have major implications for the apparent level and trends over time of inequality, progressivity of taxes and transfers, as well as the demographic profile of the rich and the poor. When imputed rent and accrued capital gains—neither of which are taxed—are included in the income base, the redistributive impact of income tax is reduced by 40%. |
| Keywords: | tax progressivity, housing, inequality |
| JEL: | D63 R21 H24 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18303 |
| By: | Michael Barczay; Mr. Shafik Hebous; Fayçal Sawadogo; Jean-François Wen |
| Abstract: | Mobile money has become a central digital alternative to traditional banking in developing countries, yet several African governments have introduced taxes on mobile money transactions. We develop a model that characterizes how such taxes affect payment choices and generate excess burden. The model predicts that taxation reduces mobile money use, with elasticities shaped by access to substitutes and transaction costs: banked users substitute into formal alternatives, while unbanked users face higher effective costs, making the tax regressive. Taxation also induces substitution into cash, raising informality. We empirically test these predictions using cross-country survey data and novel transaction-level data from Cameroon, the Central African Republic, and Mali. Results show sharp declines in mobile money usage, with stronger responses among the banked. Unbanked and rural users bear a disproportionate burden. We use the empirical estimates to gauge the excess burden of the tax, which we quantify at 35% of revenue—highlighting its significant efficiency cost alongside its regressive impact. |
| Keywords: | Mobile Money Tax; Financial Inclusion; Transaction Taxes |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/255 |
| By: | Mariam Camarero (University Jaume I); Juan Sapena (Catholic University of Valencia); Cecilio Tamarit (University of Valencia) |
| 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: | H62 E62 C22 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202539 |
| By: | Eberhartinger Eva; Speitmann Raffael (European Commission - JRC); Sureth-sloane Caren |
| Abstract: | This study investigates the impact of mandatory public country-by-country reporting (CbCR) on European banks’ engagement in tax and regulatory havens characterized by financial secrecy. Employing a difference-in-differences approach, we find that following the introduction of CbCR, European banks reduced their number of tax haven subsidiaries by approximately one-third compared to insurers, which were exempt from the disclosure requirement. Further analysis reveals that this decline is primarily driven by withdrawals from economically insignificant “dot tax havens” and from countries that serve as both tax and regulatory havens. Additionally, we observe that banks with low exposure to reputational risk prior to the reform are more likely to reduce their presence in bank havens. These results reveal that public CbCR prompts withdrawals from low-tax locations but only under specific conditions. Public CbCR curtails tax haven presence when both financial secrecy and reputational concerns are at play, but on its own may not curb tax haven use. These insights contribute to ongoing tax policy debates by highlighting the limitations and conditional effectiveness of transparency-driven regulations. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:taxref:202505 |
| By: | Ekaterina Shabalina |
| Abstract: | This paper studies how tax progressivity affects monetary policy. Through the lens of a heterogeneous agent model with nominal rigidities it shows that, firstly, higher tax progressivity increases natural rate due to a lower demand for precautionary savings. Secondly, the effect of tax progressivity on the potency of monetary policy is small with a higher progressivity implying a slightly better inflation-output trade-off. Distributional effects of monetary policy, however, are amplified with a higher tax progressivity. |
| Keywords: | tax progressivity; monetary policy transmission; natural rate of interest; heterogeneous agents |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbaacp:acp2025-03 |
| By: | Hans Jarle Kind; Dirk Schindler; Guttorm Schjelderup |
| Abstract: | Digital Services Taxes (DSTs) and the OECD/G20 BEPS reforms are central pillars of current efforts to tax multinational digital platforms, yet their joint effects remain poorly understood. We develop a model of a platform that sells hardware to consumers and advertising to firms, with the two markets connected through cross-group network externalities. We show that a DST can have counterproductive effects: it may lower tax revenue in the implementing country, weaken downstream price competition, and reduce consumer surplus by inducing the platform to shift activity toward the untaxed side of the market. We further show that stricter transfer pricing regulation - a core element of BEPS - can paradoxically increase profit shifting when network effects are strong. |
| Keywords: | digital platforms, digital services tax, BEPS, profit shifting |
| JEL: | F23 H26 H25 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12302 |
| By: | Leopoldo Fergusson (Universidad de los Andes) |
| Abstract: | This paper argues that Colombia’s taxation problems reflect a deeper political economy equilibrium shaped by extractive institutions, extreme inequality, and cultural norms that favor individual solutions over collective ones. Historical legacies produced a weak and often distrusted state, which in turn fostered social norms that legitimize rule bending, low tax morale, and clientelistic exchanges. These institutional and cultural arrangements proved mutually reinforcing for decades. Since the 1990s, however, political openness expanded inclusion and triggered greater demand for public goods. The result has been a more responsive state, yet one constrained by persistent political inequality, clientelism, low trust, and reluctance to fund public spending through broad taxation. The mismatch between rising expectations and limited fiscal capacity has now produced a fragile and increasingly untenable fiscal position. Colombia faces a critical choice: renew its fiscal pact on new, more consensual terms or risk recurring crises and democratic erosion as an expensive but ineffective state structure constrains long-run development. |
| Keywords: | Taxation; State capacity; Inequality; Political economy; Clientelism; Social norms; Colombia; Fiscal policy; Institutional change; Public goods |
| JEL: | H11 H20 O17 P48 N16 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021810 |
| By: | Niesten, Hannelore Maria L.; Ferraz Di Ricco, Luiza; Sakhonchik, Alena |
| Abstract: | New data from the World Bank’s Women, Business and the Law project shed light on the gender dimensions of taxation and public spending—two key fiscal policy tools that impact economic growth and poverty reduction. This working paper presents new cross-country evidence and descriptive insights drawn from both binding legal frameworks (laws and regulations) and supportive policy instruments (such as budget circulars, guidelines, and institutional mechanisms). Together, these data establish a global baseline for assessing how gender dimensions are embedded in fiscal systems. The data presented in this working paper are current as of December 31, 2024, and cover 81 economies for taxation and 50 for gender-responsive budgeting. The findings point to opportunities for deeper integration of gender into fiscal systems and highlight areas where this integration is still evolving—such as limited gender information and analysis in tax laws and administration, gaps in data systems, and evolving gender-responsive budgeting frameworks. The insights from the data suggest avenues for reform: revising tax and spending laws and policies to better address gender differences in economic outcomes, investing in gender-disaggregated data systems, and strengthening gender-responsive budgeting frameworks. Such efforts can help ensure that fiscal policies are evidence-based and contribute to improved economic outcomes for women and girls, while also advancing broader goals of revenue mobilization and efficient, well-targeted public spending. |
| Date: | 2025–12–04 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11273 |
| By: | Alessandro Bellocchi (Department of Economics, Society, Politics, University of Urbino Carlo Bo and SEEDS); Chiara Lodi (Department of Economics, Society, Politics, University of Urbino Carlo Bo and SEEDS); Giovanni Marin (Department of Economics, Society, Politics, University of Urbino Carlo Bo, SEEDS and Fondazione Eni Enrico Mattei); Giuseppe Travaglini (Department of Economics, Society, Politics, University of Urbino Carlo Bo); Matteo Zavalloni (Department of Economics, Society, Politics, University of Urbino Carlo Bo) |
| Abstract: | We examine the impact of extreme hydrogeological events on local governments’ fiscal responses in Italy between 2016 and 2022, with a focus on how local public finances contribute to disaster resilience. Leveraging the staggered timing of disaster declarations and employing a difference-in-differences framework, we estimate dynamic treatment effects on revenue and expenditure of municipal governments. Our findings indicate that local governments of affected municipalities significantly increase total and capital expenditures in the aftermath of disasters, particularly in functions related to emergency management, environmental protection and economic development. These spending increases are primarily financed through capital revenues and transfers from higher levels of government, with no corresponding rise in current expenditures. To explore heterogeneity in fiscal responses, we develop a fiscal resilience index combining measures of debt servicing costs and tax autonomy. We find that municipal governments with both low debt burden and high tax autonomy exhibit the strongest and most persistent post-disaster financial adjustments. In contrast, municipal governments with high debt service obligations and limited tax autonomy exhibit weaker responses, reflecting a constrained capacity to mobilize financial resources. These results underscore the critical importance of fiscal space, beyond formal fiscal autonomy, in shaping local governments’ ability to respond to climate-related shocks. From a policy perspective, our findings highlight the need to strengthen institutional and financial mechanisms that enhance fiscal resilience and ensure timely access to recovery resources for municipal governments with limited capacity. |
| Keywords: | Fiscal resilience, Hydrogeological disasters, Municipal budgets |
| JEL: | H71 H72 H84 Q54 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2025.32 |
| By: | Anh Tuyet Nguyen (Independent Researcher); Hiroyuki Yamada (Keio University) |
| Abstract: | The rapid aging of populations has prompted the introduction of social pension programs aimed at preserving the welfare of the elderly. However, adverse socioeconomic behaviors may dampen the intended policy effects. Using a fuzzy regression discontinuity design, this study examines the impact of social pension receipt on expenditure patterns and material hardship among older adults aged 80 year or older in Vietnam. We find that social pension increases the risk of material hardship in rural areas and reduces non-food expenditures in urban areas. To explain these findings, we explore two potential pathways: economic behavioral mechanisms and social behavioral mechanisms. The results suggest that behavioral responses may offset the intended welfare benefits of social pensions, underscoring the need to account for such adjustments in the design of aging-related policies in developing countries. |
| Keywords: | social pensions, expenditure, material hardship, socioeconomic behavior, the elderly |
| JEL: | D10 H55 J14 O12 |
| Date: | 2025–12–08 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2025-027 |
| By: | Annica Gehlen (Berlin School of Economics); Sebastian Becker (Berlin School of Economics); Johannes Geyer (DIW Berlin); Peter Haan (Institute for Fiscal Studies) |
| Date: | 2025–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:25/56 |
| By: | Nicolas Audet; Adam Epp; Jeffrey Gao; Joe Ning |
| Abstract: | This paper provides a primer on the role of debt modelling in developing a sovereign debt issuance strategy, and how the policy objectives of a sovereign debt manager influence design decisions within their models. The insights provided here are supported by current and past uses of the Canadian Debt Strategy Model, which is a key component of Canada’s process to set its annual Debt Management Strategy and Medium-Term Debt Strategy. We address specific challenges that issuers of public debt often face. Those challenges include defining an appropriate objective function, specifying a strategy adaptable to an uncertain economic environment, operating within computational limitations and integrating qualitative considerations about liquidity and the needs of the investor base with quantitative assessments of costs and risks. |
| Keywords: | Debt management; Econometric and statistical methods; Financial markets; Fiscal policy |
| JEL: | G11 G17 H63 H68 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:25-16 |