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on Public Economics |
| By: | José Victor C. Giarola; Olivier Marie; Frank Cörvers; Hans Schmeets |
| Abstract: | We study a policy change in the Netherlands that unexpectedly reduced the duration of preferential tax treatment for high-skilled migrants from specific countries. Using administrative data, we document substantial out-migration responses driven entirely by the top 1% of earners, with no detectable response below the 95th percentile. Among the 95-99th percentile, previously internationally mobile workers also leave sooner, particularly to countries offering tax breaks, consistent with tax shopping behavior and pointing to distortionary effects of international tax competition. Increased tax intake from remaining workers offsets revenue lost from departing high earners, making the policy fiscally cost-neutral. |
| Keywords: | taxation, immigration, labor income, Netherlands |
| JEL: | F22 H31 J61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12813 |
| By: | Krueger, Dirk; Wu, Chunzan |
| Abstract: | In standard life-cycle models, household consumption and welfare more strongly depend on lifetime income, but most countries base income taxes on current income and use progressive taxes to reduce inequality and provide social insurance. Is lifetime income a better tax base for governments seeking to provide such social insurance and redistribution? To answer this question, we build a quantitative life-cycle model of heterogeneous households with idiosyncratic wage risks and endogenous labor supply, and calibrate it to the U.S. economy. We document that switching to a lifetime income tax leads to a more efficient distribution of hours worked over time and across states of the world. This benefit rises with tax progressivity under a lifetime income tax, whereas the opposite is true under an annual income tax. Consequently, the optimal lifetime income tax is more progressive and achieves larger ex-ante welfare for a cohort of households than the optimal annual income tax. |
| Keywords: | Redistribution; Social insurance |
| JEL: | E60 H20 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20134 |
| By: | Markus Gehrsitz; Christian Traxler |
| Abstract: | This paper studies how vehicle taxation shapes fleet exit. We exploit Germany's 2008/9 circulation tax reform, which generated a sharp discontinuity in annual tax liabilities at a registration cutoff date. Using administrative micro-data covering the universe of registered vehicles during the second half of 2008, we apply a difference-in-discontinuities design to estimate the effect of annual circulation taxes on permanent deregistrations. A 10 percent higher tax increases the share of deregistered vehicles after six years by about 2.8 percent. Duration analyses exploiting within-model variation in taxes yield closely consistent estimates. The effect seems to be mainly driven by exports rather than vehicle retirement. |
| Keywords: | vehicle taxation, circulation tax, deregistrations |
| JEL: | H23 R48 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12815 |
| By: | Jacquet, Laurence; Lehmann, Etienne |
| Abstract: | When should governments sacrifice production efficiency for redistribution? We generalize the celebrated result of Diamond and Mirrlees (1971a, b) by allowing for imperfect competition, suboptimal and nonlinear taxation. We demonstrate that production efficiency hinges on the flexibility of the tax system in compensating gains and losses from changes in factor prices. This requires the tax system to target each factor’s income. We show how to adjust tax systems or production policies for imperfect targeting and market failures, even when the tax system is not flexible enough. We then obtain new sufficient statistics formulas. Endogenous factor prices do not modify the test to identify Pareto-improving tax reforms. |
| Keywords: | Production efficiency; Nonlinear income taxation; Several income sources; Endogenous prices |
| JEL: | H21 H22 H23 H24 L5 F13 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19982 |
| By: | Bustos, Sebastian; Pomeranz, Dina; Suárez Serrato, Juan Carlos; Vila-Belda, José; Zucman, Gabriel |
| Abstract: | Profit shifting by multinational corporations is thought to reduce tax revenue around the world. This paper provides a comprehensive analysis of the introduction of standard regulations to limit profit shifting. Using administrative tax and customs data from Chile, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. Interviews with tax advisors and employment history data reveal a drastic increase in consulting services. Our results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers. |
| JEL: | F23 H26 O23 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20207 |
| By: | Oliver Skultety (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Zalman (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper studies the capitalization of property taxes into housing prices by exploiting a unique institutional setting. We utilize a nationwide reform that raised the statutory base rate of the property tax by 80% while simultaneously restricting the fiscal instruments municipalities could use to mitigate the hike. Exploiting a population-based discontinuity in tax rates, we deploy a difference-in-discontinuities design to jointly identify municipal tax-setting behavior and asset price capitalization. We show that prior to the reform, municipalities aggressively used local coefficients to offset statutory rates. Following the reform, however, local governments failed to utilize their remaining discretionary tools to offset the tax increase, leaving residents with a higher effective tax burden. Despite this substantial fiscal shock, we find no evidence that the resulting tax wedge is capitalized into housing prices. Our findings demonstrate that accounting for endogenous municipal responses to nationwide policy shocks is vital for accurately evaluating the economic incidence of property taxation. |
| Keywords: | Property tax, municipal tax-setting, tax competition, capitalization |
| JEL: | H71 H73 H22 R21 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2026_21 |
| By: | Bierbrauer, Felix; Boyer, Pierre; Peichl, Andreas; Weishaar, Daniel |
| Abstract: | Joint taxation of married couples represents a puzzle for welfare economics. We investigate whether political economy forces can explain its persistence. We develop sufficient statistics to determine whether a reform towards individual taxation would garner majority support and apply this framework to the U.S. tax system since the 1960s. Our findings indicate that support for individual taxation has increased over time. As of today, 50% of all married individuals would benefit from such a reform. Among those worse off are poor single-earner couples. A reform that reduces marriage bonuses also for them is rejected by a social welfare function that concentrates weights at the bottom of the distribution. |
| JEL: | C72 D72 D82 H21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20042 |
| By: | Giommoni, Tommaso; Loumeau, Gabriel; Tabellini, Marco |
| Abstract: | We study the fiscal determinants of the French Revolution, exploiting plausibly exogenous variation in the salt tax—a large source of royal revenues and one of the most extractive forms of taxation of the Ancien R´egime. Implementing a Regression Discontinuity design (RDD), we find that parts of France subject to a higher salt tax experienced more revolts against the monarchy between 1750 and 1789. These effects already appear in the 1760s, but become stronger over time and peak in the 1780s. Combining the RD model with variation in local weather conditions during the 1780s, we document that droughts amplify the effects of the salt tax on revolts by increasing wheat prices and activating latent discontent. Then, we connect the discontent generated by the salt tax to the French Revolution. First, we provide evidence that riots spread across space through a process of contagion that is stronger in high tax areas. Second, we show that areas burdened by a higher salt tax report more complaints against the salt tax in the list of grievances collected by the king in the spring of 1789. Third, we document that legislators representing areas with a higher salt tax are more likely to demand the end of the monarchy and to support the death penalty for the king. |
| JEL: | D74 H20 H31 O23 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20110 |
| By: | Makarski, Krzysztof (FAME|GRAPE & Warsaw School of Economics); Tyrowicz, Joanna (FAME|GRAPE, University of Warsaw and IZA/LISER); Komada, Oliwia (FAME|GRAPE) |
| Abstract: | This paper studies the role for progressive labor income taxation in the context of social security reform. We propose a novel reform that replaces redistributive pensions with a contribution-based system while simultaneously increasing the progressivity of labor income taxation to preserve social insurance. Using a stylized model, we show that the benefit of such reform is derived from the Frisch elasticity of labor supply. For sufficiently high values, the reform can be fiscally neutral and Pareto-improving. We then evaluate the reform in a full general equilibrium model calibrated to the U.S. economy. Quantitative results on the efficiency-insurance trade-offs are in line with our theoretical predictions. In the steady-state, for plausible values of the Frisch elasticity, the fiscal space generated by increased labor supply is sufficient to compensate through lump-sum transfers the loss of pension-based insurance. These results carry over to transition dynamics: the reform yields a Pareto improvement along the transition path. Our findings highlight the potential for tax-based redistribution to replace pension-based insurance. |
| Keywords: | social security reform, labor income tax, redistribution, insurance, welfare effects |
| JEL: | C68 E62 H55 J26 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18810 |
| By: | Asher, Twisha; Giangregorio, Luca; Morelli, Salvatore; Schechtl, Manuel; Subioli, Francesca |
| Abstract: | This paper introduces a new harmonized global database on estate, inheritance, and gift (EIG) taxation, covering more than 170 countries, some with data going back to the 18th century, and all U.S. states from 2006. Despite substantial and persistent cross-country heterogeneity in tax design, we document a declining trend in the adoption and progressivity of EIG taxes since the 1980s. Using a two-way fixed effects (TWFE) framework complemented with an event-study approach, we find that a one percentage point increase in the top rate is associated with approximately 8% higher revenues between 1965 and 2022, with larger effects (9–17%) from 1995 through 2019. U.S. state-level estimates echo these results with a semi-elasticity of about 11%. An event-study analysis of 54 significant tax policy reforms shows no evidence of pre-existing differential trends and reveals dynamic effects: revenues decline by roughly 50% within four years following a cut of at least 10% in top rates, with symmetric effects for rate increases of similar proportion. Guided by a conceptual framework, we parse out the conditions that leads steady-state top wealth shares to fall when the average EIG tax rate increases. Using TWFE specifications with 5-, 10-, and 15-year lags, we find evidence consistent with the theoretical prediction. A one percentage point increase in the top marginal tax rate is associated with a 0.11-point decline in the Gini coefficient after 10 years, with consistent effects across top and bottom wealth shares. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:a8mzj_v1 |
| By: | Pomeranz, Dina; Suárez Serrato, Juan Carlos |
| Abstract: | The OECD has promoted the adoption of internationally standardized transfer pricing rules to curb profit shifting for tax avoidance by multinational firms. Bustos et al. (2023) analyzed a large reform in Chile based on these OECD standards and found that it led to a surge in tax advisory services. This paper investigates the external validity of this finding. Combining employment history data with information on countries’ strictness of transfer pricing regulations over time, we analyze the effect for four countries: Chile, Colombia, Spain, and Uruguay. Event study difference-in-differences analysis shows that reforms led to substantial increase in transfer pricing consultants in most cases. The effect is larger when the reform is stronger and when a country has a lower level of pre-treatment transfer pricing strictness or of transfer pricing consultants. |
| Keywords: | Transfer pricing; Profit shifting; Consulting; Tax avoidance |
| JEL: | F23 H26 J21 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20208 |
| By: | Cremer, Helmuth; Gahvari, Firouz |
| Abstract: | This study contributes to the long-term care policy literature by exploring how, in an uncertain environment, redistributive tax policies and long-term care program design interact with informal care incentives, shaping long-term caregiving outcomes. The analysis is done within an overlapping-generations model in the steady state under full and asymetric information. Altruistic children provide informal care to their elderly parents if dependent. Not all children are altruistic. Children's level of altruism is shaped by the time and attention they received in childhood. Key findings, under asymetric information, include: (i) Allocations are distorted for redistributive purposes, except for savings, (ii) marginal income tax rates are positive, aligning with standard nonlinear income taxation models, and (iii) a consequence of government's redistributive policies is to encourage time spent with children thus incresing family caregiving. These three findings apply to both "opting out" and "topping up" schemes. (iv) Savings must be subsidized in an opting out system due to fiscal externalities; (v) if public assistance carries a stigma, it may have to be distorted upward; the opting-out policy welfare dominates the topping-up policy. Finally, if long term care provision carries no stigma, opting out is more cost-effective than topping up in both first- and second-best. |
| JEL: | H2 H5 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20060 |
| By: | Koll, David; Sachs, Dominik; Stürmer-Heiber, Fabian; Turon, Hélène |
| Abstract: | We formalize and estimate the dynamic marginal efficiency cost of redistribution (MECR) in the spirit of Okun’s “leaky bucket†to compare the MECR of an incomecontingent childcare subsidy program and of the income-contingent tax and transfer schedule. We set up a dynamic structural model of heterogeneous households choosing their childcare demand and maternal labor supply. Allowing for the availability of informal childcare and for consumption of leisure, we estimate this model within the German context. Our analysis identifies two competing forces. (i) Labor supply responses increase the MECR of the childcare subsidy relative to the tax and transfer system. (ii) Child development effects decrease the MECR of the childcare subsidy relative to the income tax. We show that, under most plausible assumptions on the long-term returns to childcare attendance for children growing up in households of different incomes, progressive childcare subsidies are the more efficient redistribution tool. |
| Keywords: | Childcare; Redistribution |
| JEL: | H23 H31 J13 J22 J24 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20189 |
| By: | Sami Jysmä; Youssef Benzarti; Jarkko Harju |
| Abstract: | Discrete policy thresholds are pervasive in tax and regulatory systems and can substantially distort behavior. We show that notches acting as barriers to mobility within a distribution generate distortions extending far beyond the threshold. The same mechanism biases conventional difference-in-differences estimators, and we propose a new methodology to recover causal effects. Applying the method to the abolition of a size-based payroll tax notch, we find that the notch reduced the number of firms above the threshold by 18 percent and lowered treated firms' employment, capital stock, and value added by 10 percent, whereas conventional difference-in-differences estimates imply negligible effects. |
| Keywords: | size-based regulation, notches, difference-in-differences, payroll tax |
| JEL: | H30 C01 H25 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12821 |
| By: | Nezih Guner (CEMFI and Banco de España); Eugenio Renedo (CEMFI, Centro de Estudios Monetarios y Financieros); Emre Enes Yavuz (Reddit) |
| Abstract: | We study how the specification of wage risk in quantitative life-cycle models changes the welfare evaluation of taxes and transfers. We estimate four wage processes: a canonical linear process, a flexible nonlinear process with age dependence, non-normality, and state-dependent persistence, and two intermediate processes; comparisons across the four isolate the role of each feature: age dependence, non-normality, and nonlinear persistence. The estimated processes imply different allocations of wage risk across permanent, persistent, and transitory components: the richer processes assign less risk to short-lived transitory shocks and more to long-lived permanent and persistent components. We embed each process in the same incomplete-markets life-cycle economy with endogenous labor supply. Removing federal tax progressivity and means-tested transfers raises mean welfare by 0.72% of lifetime consumption under the nonlinear process but lowers it by 0.47% under the non-normal process. These welfare differences reflect both the total amount of wage risk and its allocation across permanent heterogeneity, persistent shocks, and transitory shocks. Holding this amount and allocation fixed, non-normal shocks create rare but severe low-income states that increase the value of public insurance, while the state-dependent mean reversion that characterizes the nonlinear specification works in the opposite direction: unusually bad persistent states tend to be undone by subsequent favorable shocks, so the wage process partly insures itself, and that lowers the value of public insurance. |
| Keywords: | Wage risk, nonlinear wage dynamics, social insurance, taxes and transfers, life-cycle models. |
| JEL: | D15 D31 E21 H21 I38 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cmf:wpaper:wp2026_2611 |
| By: | Jingnan Chen (Department of Economics, University of Exeter); Yixin Chen (Central University of Finance and Economics); Zhixin Dai (School of Finance, Renmin University of China); Tianqi Wei (China University of Political Science and Law); Su Yang (Renmin University of China) |
| Abstract: | Taxpayers rarely observe audit probabilities and must infer changes in enforcement from personal and social experience. We study this process in a laboratory tax-reporting experiment with 568 participants. Each participant faces hidden audit probabilities of 5 percent and 25 percent in randomized order, and we vary peer information across sessions from none to one or two preceding audit outcomes in a sparse network and three in a dense network. Before any peer outcome is transmitted, assignment to either network raises compliance by about 20% relative to no peer information. Once outcomes circulate, compliance in the dense network is approximately twice as responsive to enforcement as without peer information and about 60% more responsive than in the sparse network. This amplification is directional: relative to no peer information, the dense network raises compliance by about 12% after enforcement strengthens but lowers it by about 25% after enforcement weakens. Elicited belief distributions show that broader information reach improves learning about the changed enforcement environment. Higher perceived audit probabilities predict greater subsequent compliance, and the dense network's advantage comes from accumulating more peer signals rather than weighting each signal more heavily. Counterfactual policy exercises show that broader diffusion can reinforce deterrence under strong enforcement but erode it under weak enforcement; a model-based exercise suggests that full disclosure of the audit probability can reduce compliance under both weak and strong enforcement. |
| Keywords: | tax compliance, tax enforcement, social learning, information networks, subjective beliefs |
| JEL: | H26 D83 C91 |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:exe:wpaper:2610 |
| By: | Christl, Michael; Sologon, Denisa M.; Montes-Viñas, Ana; Wagener, Raymond |
| Abstract: | Cross-border labour markets integrate European regions economically, but welfare analysis remains constrained by national institutional systems. This paper develops a framework for measuring disposable income, redistribution, and inequality in functionally integrated but institutionally fragmented cross-border regions. We build on the European tax-benefit model EUROMOD to incorporate cross-border taxation, social insurance coordination, and family benefit allocation, and apply it to hypothetical household scenarios for workers residing in France and Belgium and employed in Luxembourg, the core of the Greater Region. We find that the disposable income consequences of cross-border employment are substantial and vary by household type and residence country. The cross-border premium is compressed at high earnings by France's exemption-with-progression mechanism, while Belgium's full exemption lets it persist and grow across the distribution. Modelling cross-border workers under residence-country rules alone likely overstates income equality, with the bias concentrated among households with children and at the lower end of the income distribution. These findings illustrate how territorial integration and welfare fragmentation coexist within functional cross-border regions. Combining country-specific EUROMOD models through a harmonised counterfactual approach, the paper offers a replicable method for measuring disposable income in cross-border contexts, and shows that inequality measurement remains tied to national welfare institutions even where labour markets operate at a regional scale. |
| Keywords: | cross-border workers, disposable income, microsimulation, tax-benefit systems, Luxembourg, Greater Region, income inequality, regional integration |
| JEL: | J20 J38 J48 H24 H55 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1790 |
| By: | Arnaud Costinot; Iván Werning |
| Abstract: | We develop a simple and intuitive Pigouvian perspective on optimal trade policy. Our approach unifies a wide range of rationales for taxing trade, from the classical optimal tariff argument to contemporary debates about global carbon emissions and geopolitics. We also clarify when trade policy intervention is warranted and when alternative domestic instruments should be used instead. |
| JEL: | F10 F13 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35461 |
| By: | Karen Dynan; Douglas Elmendorf; Louise Sheiner |
| Abstract: | Artificial intelligence will probably generate major changes in the US economy, although the nature, timing, and magnitude of those changes are highly uncertain. We analyze a set of long-term scenarios involving different combinations of faster productivity growth, greater income inequality, job displacement, and a higher capital share of income. For each scenario, we assess the implications for federal debt and potential policy responses related to faster economic growth, the distribution of income, support for workers who are laid off, and taxation and ownership of capital. Given the uncertainty surrounding AI’s economic effects, policies that are robust to different scenarios would be especially valuable. |
| JEL: | E62 H20 H60 H68 J24 O30 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35437 |