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on Public Economics |
| By: | Bierbrauer, Felix; Boyer, Pierre; ,; Weishaar, Daniel |
| Abstract: | We develop a theory of tax reforms for a setting with multi-dimensional heterogeneity amongst taxpayers and multiple economic decisions that are all subject to fixed and variable costs. The theorems in this paper provide a complete characterization of the conditions under which Pareto- or welfare-improving tax reforms exist. We focus on one application, the taxation of couples, and present a detailed analysis of the behavioral responses to taxation in this setting. Squaring the theorems with this analysis yields sufficient statistics for the existence of Pareto- or welfare-improving tax reforms. In the empirical part, we apply them to US data. Our findings include the following: Tax rates on secondary earnings are inefficiently high when secondary earnings are close to primary earnings. Also, reducing the tax system's degree of jointness is not Pareto-improving. Whether it raises welfare depends on a trade-off between poverty alleviation and gender balance. |
| Keywords: | Pareto efficiency; Non-linear income taxation |
| JEL: | C72 D72 D82 H21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19750 |
| By: | Koch, Reinald; Rehrl, Christoph; Spengel, Christoph |
| Abstract: | Over the past decade, the European Union has built a comprehensive supranational framework to combat corporate tax avoidance. This article provides the first integrated assessment of the EU's post-2015 anti-avoidance architecture, combining evidence on profit shifting by European multinationals, the effectiveness and side-effects of individual regulatory instruments, and the cumulative costs of tax complexity. While these measures have reduced specific profit-shifting channels, their marginal revenue impact appears limited relative to the rise in tax complexity, compliance costs, and distortions to investment, risk-taking, and innovation. The uneven global implementation of recent instruments - notably the Global Minimum Tax and public country by-country reporting - has created a competitive asymmetry in which European multinationals bear regulatory burdens that their non-European competitors largely do not. The article concludes with policy recommendations to recalibrate the framework, eliminating rules whose marginal costs outweigh their marginal benefits while restoring the balance between enforcement and competitiveness that the EU's standard of "fair and efficient taxation" demands. |
| Keywords: | Anti-tax avoidance, profit shifting, ATAD, Global Minimum Tax (Pillar Two), tax policy, corporate tax competitiveness |
| JEL: | H26 H25 F23 H87 K34 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:341997 |
| By: | Fleck, Johannes; Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L. |
| Abstract: | Combining a variety of survey and administrative data, this paper measures the progressivity of taxes and transfers at the U.S. federal level and separately for each state. The findings are as follows. (i) The federal tax and transfer system is progressive. (ii) State and local tax and transfer systems are close to proportional, on average. (iii) There is substantial heterogeneity in tax levels and tax progressivity across states. (iv) States that are funded mostly by sales and property taxes tend to have regressive tax systems and low average tax rates. States that are funded mostly by income taxes tend to have progressive tax systems and high average tax rates. (v) Regressive states are concentrated in the South and attract more inter-state net migration, especially of high-income migrants. (vi) State progressivity has remained broadly stable between 2005 and 2016. (vii) Incorporating corporate income and business taxes decreases average state progressivity but increases federal progressivity. (viii) Including spending on public goods and services as a transfer has a large positive impact on measured progressivity. |
| Keywords: | Redistribution |
| JEL: | E6 H2 H7 I3 R5 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19888 |
| By: | Bilicka, Katarzyna; Devereux, Michael P; Güçeri, Irem |
| Abstract: | Many multinational firms (MNEs) pay low or no corporation tax in high-tax countries because they shift taxable income to tax havens. We incorporate nonconvex costs of profit shifting and unobserved heterogeneity in profit-shifting ability in the MNEs’ value maximization problem to study responses of firms to tax policies. We estimate our model using UK corporate tax returns data and quantify: (i) the elasticities of tax base and capital stock with respect to tax rates, (ii) the fixed and variable components of profit-shifting costs for different firm types, and (iii) the government’s trade-off between raising tax revenue by reducing profit shifting and attracting investment. Accounting for extensive margin profit-reporting decisions, we reconcile most of the discrepancies between previous micro- and macro-level estimates of tax base elasticities. We test the predictions of the model using a quasi-natural experiment that restricted profit-shifting by Italian MNEs that operated in the UK and evaluate two types of tax policies that can be analyzed using our approach. |
| Keywords: | investment |
| JEL: | H25 H26 H32 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19658 |
| By: | Busso, Matías; Messina, Julián; Quigua, Juliana |
| Abstract: | This study examines whether information about corruption and tax evasion changes perceived unfairness in the income distribution, perceived inequality of opportunity, and support for specific redistributive policies. Using a survey experiment administered in eight Latin American countries, we find that factual information about public corruption and elite tax evasion increases perceptions of unfairness and unequal opportunity. It also increases support for taxing rich households relative to middle-class households. However, these effects do not extend to broader tax-financed redistribution: respondents do not become more supportive of raising corporate taxes, broadening the personal income tax, or increasing the VAT to finance social spending, nor do they become more supportive of expanding conditional cash transfers or non-contributory pensions through higher taxes. The results are consistent with trust limiting the translation of inequality concerns into support for broader tax-financed redistribution: the treatments increased perceived elite influence over government policy and reduced some measures of trust in public officials and firms. |
| JEL: | D31 H21 H26 D73 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14661 |
| By: | Shafik Hebous; Brendan Crowley; Rasmi Das; Tibor Hanappi; Cory Hillier; Adam Jakubik; Eric Robert; Christophe Waerzeggers |
| Abstract: | Faced with the limitations of existing tax frameworks for cross-border trade in services — particularly the lack of taxing rights over certain income from highly digital business models and the continuing scope for profit shifting through payments for cross-border services — countries and scholars have adopted or proposed a wide range of tax measures. This paper brings these measures together in a coherent framework and examines them from both an economic and a legal perspective. It documents how cross-border services trade has grown, become more digital in composition, and become increasingly concentrated across sectors, firms, and jurisdictions. It then develops a comparative synthesis covering destination-based consumption taxes such as VAT, gross-revenue taxes — notably digital services taxes — as well as income-based instruments such as nexus and withholding rules, and anti-avoidance rules aimed at limiting profit shifting through deductible cross-border payments. The paper argues that the economic incidence of each instrument is central to policy assessment and that evaluating these instruments in isolation obscures their interaction. Its main conclusion is that broader reliance on destination-based taxation can address many of the core problems raised by digitalized services trade more effectively than narrower, more distortionary alternatives. |
| Keywords: | Digital Service Taxes (DST), tax policy, trade policy, digital economy, services trade |
| JEL: | H22 H25 F13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12845 |
| By: | James Giesecke; Jason Nassios |
| Abstract: | This paper compares three capital-gains tax designs for personally held assets: (i) the current nominal gains system; (ii) the new inflation indexation system with asymmetric treatment of real gains and losses; and (iii) a hypothetical system based on symmetric treatment of real gains and losses. We isolate the tax treatment of inflation-driven capital price changes by centring our analysis on the case where the expected capital-price path tracks the CPI. We make three findings. First, under the current system, which taxes nominal gains, the long-run CGT liability on an asset that merely preserves its purchasing power approaches 23.5 per cent of the asset's terminal value for a taxpayer on the top marginal tax rate. Second, the new system produces a loss recognition wedge, because real gains are fully recognised, while real losses are only recognised to the extent they are also nominal losses. At a 30-year horizon the resulting tax burden can exceed the tax burden of the current system. Third, the inflation rate contributes to the effective CGT burdens generated by both the current and the newly enacted systems, albeit via different channels: under the current system, inflation generates taxable nominal gains, while under the new system, inflation widens the band of unrecognised real losses. A symmetric real-gains tax avoids these distortions. |
| Keywords: | Capital gains tax, Asymmetric loss recognition, Inflation indexation, Nominal versus real gains, Effective tax burden |
| JEL: | E62 H21 H24 G11 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-373 |
| By: | Heathcote, Jonathan; Tsujiyama, Hitoshi |
| Abstract: | We review approaches to formulating and solving optimal tax problems in heterogeneous-agent economies. We first show that whether worker heterogeneity is represented through a small or a large number of different productivity types controls the tightness of incentive constraints facing the Mirrlessian planner and therefore has an important impact on policy prescriptions. A popular computational approach that iterates on the Diamond-Saez implicit optimal tax formula does not deliver the constrained efficient allocation when a coarse productivity grid is used. For the purpose of providing quantitative policy recommendations, one safe approach is to solve for the Mirrleesian optimum assuming a very fine grid of productivity types. Alternatively, one can formulate the problem assuming that the distribution of types is continuous, and search for a numerical solution to the system of ordinary differential equations that then define the optimal policy. If these options are infeasible, then optimizing within a flexible parametric class for taxes is preferable to a coarse grid Mirrleesian approach. |
| Keywords: | Optimal taxation; Mirrleesian taxation |
| JEL: | H21 H31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19857 |
| By: | Gubello, Michele; Strecker, Nora |
| Abstract: | This paper studies the effect of income tax progressivity on the disproportionate use of publicly funded higher education. Relying on recent trends among European countries, we build a theoretical model which illustrates that more progressive tax systems increase low-income households' net fiscal benefit of higher education, making their children more likely to attend university. To increase the university enrollment of children from low-income households, the 'degree' of income tax progressivity must increase along the income distribution. 'Weakly progressive' tax systems -- defined as progressive tax systems where the 'degree' of tax progressivity at the bottom of the income distribution is higher than at the top -- can result in a 'perverse redistribution' equilibrium, in which poorer households pay taxes but are unable to bear the additional cost of sending their children to higher education, thereby subsidizing the higher education for richer households through their taxes. We extend our model to accommodate commonly used financial support mechanisms without fundamentally changing the effect of tax progressivity on a household's choice to send a child into higher education. |
| Keywords: | Inequality |
| JEL: | I23 H41 H31 H24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19671 |
| By: | Bächli, Mirjam; Glitz, Albrecht |
| Abstract: | Immigration may affect income inequality not only by changing factor prices but also by inducing policy makers to adjust the prevailing income tax system. We assess the relative importance of these economic and political channels using administrative data from Switzerland where local authorities have a high degree of tax autonomy. We show that immigrant inflows not only raise gross earnings inequality but also reduce the progressivity of local income taxes, further increasing after-tax inequality. Our estimates suggest that around 10 percent of the impact of immigration on the net interquartile and interdecile earnings gaps can be attributed to the political channel. |
| Keywords: | Immigration |
| JEL: | H23 H24 H71 J31 J61 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19747 |
| By: | Le Barbanchon, Thomas |
| Abstract: | This paper tests whether partially unemployed workers value future preserved benefits when they bunch at the kink of the unemployment insurance benefit-withdrawal schedule. I extend the bunching formula of Saez (2010) to a dynamic setting that accounts for the value of future benefits tied to taxation. This yields new tests of tax-benefit linkage based on bunching heterogeneity. I verify in quasi-experiments that U.S. UI extension programs that decrease the value of future benefits lead to more bunching and to lower labor supply. Last, a quantification exercise of the dynamic bunching formula provides extra support for a strong tax-benefit linkage. |
| JEL: | J65 H24 H31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19890 |
| By: | Boas, Hjalte Fejerskov; Johannesen, Niels; Kreiner, Claus; Larsen, Lauge; Zucman, Gabriel |
| Abstract: | In the second half of the 2010s more than 100 countries - including all large offshore financial centers - started to automatically exchange bank information with foreign tax authorities. This informational big-bang marks a break with the situation of offshore bank secrecy that prevailed before. We study its effects on tax compliance by analyzing the universe of information reports sent by foreign banks to Danish authorities, matched to population-wide micro-data on income, wealth, and cross-border bank transfers. In response to the automatic exchange of bank information, tax evaders may repatriate previously undeclared offshore wealth, they may start to self-report offshore income to the tax authorities, or the tax authorities may detect their evasion in audits that use the new information reports. Using a variety of research designs, we find large compliance effects along all these margins, with the largest response coming from repatriation of wealth. Overall we estimate that the automatic exchange of bank information has closed about 70% of the offshore tax gap. These results highlight the power of international cooperation to improve tax compliance in a globalized world. |
| Keywords: | Tax havens; Tax enforcement; Globalization |
| JEL: | D31 H24 H26 K34 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19553 |
| By: | Aaberge, Rolf; Francesconi, Marco; Modalsli, Jorgen; Vestad, Ola |
| Abstract: | This paper presents estimates of income concentration and inequality for Norway using a new comprehensive measure of income, which identifies business income as it is earned by companies rather than when it is paid out as dividends to owners. We assemble several sources of high quality register data that allow us to account for multiple layers of business ownership across all companies between 2001 and 2018. Compared to official statistics, the new measure implies that the share of income attributable to the top 1% of the distribution more than doubles and the Gini coefficient estimates increase by about 40%. Our new measure identifies substantial tax regressivity for individuals in the top percentile, a feature that cannot be detected by standard income measures. For instance, while the share of gross income paid in taxes by individuals at the 99th percentile is about 36% in 2016, the corresponding share paid by individuals in the top 1% is 19%. |
| Keywords: | Income distribution; Top income shares; Gini coefficient; Dividends; Retained earnings; Tax burden |
| JEL: | D31 D63 E01 H24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19725 |
| By: | Dur, Robert (Erasmus University Rotterdam); Harms, Job (Ministry of Finance, The Netherlands); Non, Arjan (Erasmus University Rotterdam, Tinbergen Institute, and CESifo) |
| Abstract: | In countries with a complex tax system, it is difficult for people to correctly assess their effective marginal tax rate, which in turn can have important consequences for labor supply. We conduct a two-wave randomized survey experiment among a representative sample of the Dutch working-age population (N≈2, 000) to assess what misperceptions people have and whether addressing those misperceptions via an information intervention affects their labor supply. Our data show that people with low income greatly overestimate their marginal tax rate, while people with high income tend to slightly underestimate it. The information intervention results in more accurate perceptions of the effective marginal tax rate two months after treatment. Work hours of those who initially overestimated their marginal tax rate increase by 1.5 hours per week as a result of the information treatment. The implied compensated wage elasticity of labor supply is +0.3. The effect is concentrated among those who indicate in the first wave that they face no restrictions to increase their work hours. The information intervention reduces income inequality. |
| Keywords: | marginal tax rate, labor supply, information experiment, income inequality |
| JEL: | C83 C93 H24 J22 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18870 |
| By: | Ana Cebreiro Gomez; Ms. Christina Kolerus |
| Abstract: | After decades in the making, Brazil’s landmark VAT reform was approved in 2023. The primary objective of the reform is to eliminate distortions and reduce the complexity of the current consumption tax system while maintaining revenue neutrality. In addition, specific design features were included to alleviate the VAT’s inherent regressivity and improve the equity of the Brazilian tax system. This paper assesses the reform’s expected equity print leveraging a microstatic model based on household data and simulates policy options to further improve distributional outcomes. While the new VAT achieves a fairly equal distribution of the tax burden across most income groups, the poorest still carry a heavier load in terms of their disposable income. Dissecting the impact by policy instrument, the reform’s approved reduced rates aggravate regressivity, while zero rates and the new cashback lower the tax burden for poorer households, under the revenue neutrality assumption. Overall, the combined use of these measures dampens the reform’s equity outcomes somewhat as a higher VAT reference rate is required on all other items to maintain revenue neutrality. The paper also shows that some equity improvements stem from the reform’s implied pivot towards taxing services. Finally, simulations show that focusing on and expanding the cashback could amplify equity gains by raising the poorest disposable income by 25 percent via reductions in their tax liability. |
| Keywords: | VAT reform; equity analysis; microstatic simulations |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/132 |