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on Public Economics |
| By: | Piotr Denderski |
| Keywords: | heterogeneous returns; financial assets; income tax; financial literacy |
| JEL: | H24 D31 E21 G11 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cxu:wpaper:60 |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Wendner, Ronald (Department of Economics, University of Graz) |
| Abstract: | This paper develops a dynamic model of optimal mixed taxation in a small open economy with two goods markets; one characterized by perfect competition and the other by market power on the production side. The purpose is to examine how the existence of market power affects the optimal structure of income, commodity, and production taxes. We show that a distortion created by monopoly power can either be targeted through a production subsidy or a reduction in the commodity tax. In turn, this means that the policy rules for marginal labor income taxation and marginal capital income taxation take the same forms as under perfect competition. We also show that the results on marginal income taxation carry over to the case of oligopolistic competition if (i) the firms are identical or (ii) their market shares are observable. |
| Keywords: | Income taxation; commodity taxation; redistribution; market power |
| JEL: | D42 H21 H25 |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1045 |
| By: | Giovanni Cuttica (University of Ferrara, Ferrara, Italy); Luisa Loiacono (University of Ferrara, Ferrara, Italy, and London School of Economics Visiting Fellow, London, United Kingdom.); Leonzio Rizzo (University of Ferrara, Ferrara, Italy, and Institut d’Economia de Barcelona (IEB), University of Barcelona, Barcelona, Spain.); Riccardo Secomandi (University of Ferrara, Ferrara, Italy, and Institut d’Economia de Barcelona (IEB), University of Barcelona, Barcelona, Spain.) |
| Abstract: | This paper studies whether indexation of personal income tax parameters mitigates fiscal drag, focusing on the Average Income Tax Rate (AITR) on labor income. Using an OECD panel, we estimate the impact of the intensity of inflation on the AITR, differentiating by non-indexing and indexing systems. We show that indexation systematically changes the inflation-AITR relationship by weakening the pass through from inflation into average tax rates. We show that the increase in the Consumer Price Index from 2019 to 2024 is associated with a decrease in the average AITR of more than 1.75 percentage points due to indexing regimes and an increase of 1.18 percentage points due to non-indexing regimes. The differential impact of the indexation of the fiscal system implies a decrease of the inflation impact on AITR of 0.57 percentage points, which is about 3% of the mean of the AITR in 2019. This means that the average income tax, when the fiscal system is indexed to inflation, decreases following an increase in consumer prices: the purchasing power of wages, even when updated, usually declines after inflation, and we show that if the fiscal system is properly indexed, it will take this into account by decreasing taxes. |
| Keywords: | Fiscal drag; inflation shock; tax indexation |
| JEL: | H24 H21 E31 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ipu:wpaper:123 |
| By: | Toshiyuki Uemura (School of Economics, Kwansei Gakuin University) |
| Abstract: | This study theoretically and empirically examines competition among local governments in Japan's hometown tax donation system (Furusato Nozei) using a Hotelling-type model. This study makes four main contributions. First, it develops a simplified Hotelling-type model that incorporates household attachment to local governments in an economic space with donor households and multiple local governments, thereby capturing strategic competition over donation prices. Second, it analyzes the strategic behavior of local governments under the hometown tax donation system within the frameworks of Bertrand and Stackelberg competition. Third, it identifies the effects of policy parameters on equilibrium donation shares through comparative static analysis and verifies these results using numerical simulations. Fourth, using prefecture-level data, it conducts an empirical analysis based on a two-stage least squares (2SLS) method to address potential endogeneity of donation prices, confirming that the theoretical sign conditions of the donation share function are supported by the data. The results indicate that higher marginal costs reduce donation shares, while stronger brand strength of reciprocal gifts and greater household attachment increase donation shares, yielding important policy implications for the design of the hometown tax donation system. |
| Keywords: | hometown tax donation system, Hotelling-type model, donation prices, household attachment |
| JEL: | H71 H72 H77 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:308 |
| By: | Forestra, Alessandra (Southampton University); Megalokonomou, Rigissa (Monash University); Vlassopoulos, Michael (Southampton University) |
| Abstract: | This paper investigates whether crisis narratives affect how the judiciary handles tax evasion. We study this question in the context of the Greek debt crisis, in which tax evasion was publicly blamed for the fiscal collapse, and judges themselves experienced substantial salary cuts as part of the resulting austerity programme. Using a novel dataset compiled from Greek Supreme Court rulings between 2006 and 2014, we compare tax evasion appeals with appeals in other serious crimes not directly related to the fiscal crisis, such as homicide and rape, in a difference-in-differences framework. We find that the probability that the Supreme Court rejects tax-evasion appeals increases by about 25 percentage points relative to these control offences after January 2010—about a 43% increase relative to the pre-crisis baseline. Effects are larger in months with greater public attention to tax evasion, as measured by Google Trends, suggesting a role for salience. Our findings suggest that crisis narratives, par- ticularly when coupled with personal economic shocks to judges, can influence the judicial treatment of tax offences. |
| Keywords: | economic narratives, judicial decision-making, tax evasion, financial crisis, legal institutions, difference- in-differences |
| JEL: | D91 P16 K40 K42 H26 Z13 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18489 |
| By: | Samuel Forbes |
| Abstract: | We analyse the UK income distribution from 2000 to 2023 using HMRC annual percentile data for both pre-tax and post-tax income. We fit a prefactor-adjusted $\kappa$-generalised specification to the data by weighted non-linear least squares and use inverse transform sampling to generate simulated income populations. The results suggest a redistribution of income shares over the period: the bottom 40\% appears to have increased its share, the middle-upper part of the distribution (50th--90th percentiles) lost share, the top 10\% remained broadly stable, and the top 1\% increased its share of pre-tax income. Because the modified specification is defined only above a positive threshold, conclusions concerning the lower tail should be interpreted with some caution. Using simulated 2023 pre-tax incomes to examine tax reform scenarios, we find that revenue-equivalent tax increases on high-income earners must be more than four times as large as comparable increases on lower-income earners. This suggests that, despite increased concentration at the top, the UK tax base remains driven primarily by the large number of taxpayers outside the very top of the distribution. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.03025 |
| By: | Andreas Stoller; Martin Huber |
| Abstract: | We estimate the effect of cigarette price and tax increases on smoking rates using Eurobarometer survey data from 27 European Union countries between 2012 and 2020. Following a difference-in-differences approach, we compare individuals exposed to large price and tax increases with those in stable price and tax environments. Estimation is based on a difference-in-differences estimator with double machine learning, which relaxes the functional form assumptions typically imposed by parametric approaches such as two-way fixed effects. Our results indicate that tax increases reduce smoking rates among individuals who smoke at least once per month and among daily smokers. The reduction is primarily driven by individuals aged 15-24. We examine the sensitivity of our findings to functional form assumptions and treatment definitions. While estimates are robust to alternative functional form assumptions, they are sensitive to whether the treatment is defined as binary or continuous. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.05841 |
| By: | Roberto Brunetti (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - Université Paris-Panthéon-Assas, Université Paris-Panthéon-Assas); Matthieu Pourieux (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This study leverages an online behavioural experiment to analyse whether politicians' decisions align with citizens' preferences and with citizens' decisions within the same decision environment. We recruited 760 local politicians and 655 non‐politicians in France to participate as policymakers in a taxation‐redistribution game. In the game, two policymakers compete to choose a flat tax rate for a group of citizens selected from the French general population. We manipulate (i) the information provided to policymakers about citizens' preferred tax rates, and (ii) the incentives associated with applying citizens' preferred tax rate. We also measure policymakers' beliefs regarding citizens' preferences. We observe that policymakers react positively to information, but they often deviate from it, which can be mostly explained by their beliefs. Incentivizing responsiveness has no impact on these results. This suggests that politicians trade off their own preferences about the policy outcome with an intrinsic motivation to implement citizens' preferences. Finally, we find that politicians believe that citizens want lower tax rates and are more confident in their beliefs than non‐politicians. Once beliefs are accounted for, we observe minor differences between the two samples. Our findings highlight the importance of politicians' beliefs and non‐financial motivations as determinants of their decisions. |
| Keywords: | representation, taxation-redistribution, politicians' behaviour, online experiment |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05577465 |
| By: | Mr. Damien Capelle; Yang Liu |
| Abstract: | This paper evaluates the effectiveness and robustness of a Tax on Inflation Policy (TIP) for improving welfare at the Zero Lower Bound (ZLB) in a New Keynesian model. When the ZLB results from a fall in the neutral interest rate, a negative TIP mitigates deflationary pressures, narrows the output gap, and implements the constrained-efficient allocation. When the ZLB is driven by self-fulfilling expectations, TIP can eliminate the deflationary equilibrium altogether. A rule that responds aggressively to inflation with a negative intercept proves robust across scenarios. Using a medium-scale model calibrated to Japan, we quantify a robust TIP rule that would have lifted the economy out of its liquidity trap. |
| Keywords: | Deflation; Zero Lower Bound; Liquidity Trap; Tax on Inflation; Taxbased Incomes Policies; Externality |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/059 |