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on Public Economics |
| By: | Yu-Ting Chiang; Collin Eldridge |
| Abstract: | While the federal income tax system is progressive, the degree of progressivity depends on whether income comes from wages or from other sources. |
| Keywords: | income taxes; wage taxation; investment taxation |
| Date: | 2026–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:103739 |
| By: | Esslinger, Anna |
| Abstract: | This study investigates how the connection of taxation to public benefits can decrease tax payers' perceived tax burden, affecting their labor-leisure decision. We present a model of tax and benefit (mis)-perception, in which payoff maximizing work effort increases when the perceived tax burden de- creases. Increasing the salience of benefits funded by taxation and the prob- ability of receiving them decreases this perceived tax burden. We use two real-effort online experiments to test the suppositions of the model. In a flat tax system, we find that lack of information on the accrual of benefits increases perceived tax burden and decreases labor supply. In a progressive tax system, we find that full benefit salience improves motivation to re- main in the unemployment insurance system and that effort increases under benefit salience when the unemployment rate is high. As such, behavioral responses to the salience of benefits also requires the expectation of their need. |
| Keywords: | Work Motivation, Online Experiment, Tax and Benefit Salience, Unemployment Insurance |
| JEL: | D91 H24 J22 J31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:343050 |
| By: | Jamal, Usama |
| Abstract: | Governments worldwide are strengthening corporate tax enforcement to protect revenue, yet the impact of these policies on internal capital allocation within multinational firms remains underexplored. This paper examines the real and fiscal effects of Earnings Stripping Rules (ESR)—a major reform limiting debt-based profit shifting, now adopted by over 90 jurisdictions. Using a large affiliate-level panel and multiple research designs, I document that ESR adoption triggers sharp increases in reported profits and effective tax rates, but simultaneously reduces local investment and employment. Multinational groups offset these declines by reallocating activity to affiliates in non-adopting jurisdictions, effectively preserving an international escape margin. Notably, this reallocation pattern reverses when ESR adoption is coordinated globally: domestic sister affiliates expand, and foreign reallocation ceases. These findings demonstrate that the real effects of enforcement depend critically on policy coordination, determining whether anti-avoidance rules distort the geography of global capital or raise revenue without displacing economic activity abroad. |
| Keywords: | Tax Avoidance, Multinational Investment, Profit Shifting |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:docweb:2603 |
| By: | Shehaj, Pranvera |
| Abstract: | This study provides the first firm-level evidence on how the residence country's double tax relief method and tax sparing provisions in asymmetric tax treaties affect foreign investment by OECD multinational enterprises in low-and-middle income countries. Combining unconsolidated subsidiary-level data for 2005-2016 with detailed tax treaty information, the analysis distinguishes between investment entry (extensive margin), investment intensity (intensive margin), and the directness of the investment route. The results show that treaty-induced changes in the residence country's relief method do not affect subsidiary creation once investment routing is taken into account, while tax sparing provisions consistently encourage market entry. At the intensive margin, improvements in the residence country's relief method increase investment intensity only for firms investing through indirect routes, whereas tax sparing provisions have either no effect or are negatively associated with reinvestment. These findings reveal substantial heterogeneity concealed by aggregate FDI data and demonstrate that the investment effects of tax treaty provisions differ across firms depending on whether they enter or expand, as well as on the route through which they invest. |
| Keywords: | Tax treaties, Double relief method, Tax sparing, New foreign subsidiaries, Gross investments, MNEs, Developing countries |
| JEL: | F21 F23 F53 H25 H73 C23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:343047 |
| By: | Daniel Suva (Institute of Economic Studies, Faculty of Social Sciences, Charles University) |
| Abstract: | This paper revisits the empirical evidence on multinational profit shifting using a unique confidential administrative dataset from the General Financial Directorate of the Czech Republic, which includes firm-level Country-by-Country Reporting from every international enterprise operating in Czechia. The analysis reveals a shift in the selection of profit-shifting destinations in recent years. Between 2016 and 2023, the share of global profits shifted into European profit centres decreased from 78.7% to 40.9%, while Caribbean destinations rose in importance. Additionally, our results affirm the emerging pattern in contemporary literature, in which micro-level datasets systematically yield more conservative estimates of the magnitude of profit shifting than previous macro-level studies. Lastly, the exceptional level of granularity in our data enables us to confirm the extreme nonlinearity of the semi-elastic relationship between booked corporate profits and effective tax rates, with both logarithmic and cubic specifications emerging as the most suitable functional forms, each performing best under different conditions - cubic model capturing the proportional responses more effectively across the full distribution, while logarithmic specification better accommodates localized curvature and asymmetries at extreme tax rate ranges. |
| Keywords: | profit shifting; multinational enterprises; corporate taxation; administrative data |
| JEL: | F23 H26 H32 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2026_27 |
| By: | Annette Alstadsæter; Niels Johannesen; Ségal Le Guern Herry; Gabriel Zucman |
| Abstract: | This paper uses administrative data to analyze wealth flows from Norway to offshore tax havens before and after a major improvement of global financial transparency: automatic exchange of bank account information between tax authorities. We present three results suggesting that the policy is a significant deterrent of offshore tax evasion: First, taxpayers who become wealthy are much less likely to shift wealth to offshore banks. Second, when wealth does flow to offshore banks, it is much less likely to reduce domestic tax payments. Third, there is no increase in the use of complex ownership structures for offshore wealth flows. |
| JEL: | H26 H87 K42 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35505 |
| By: | Flurim Aliu; Mario Mansour; Mr. Christophe J Waerzeggers |
| Abstract: | Special economic zones (SEZs) are widely used to attract investment, promote exports, and support industrialization, yet their performance is uneven and often uncertain. This IMF How To Note reviews global experience with SEZs—their rapid expansion, diverse design, and mixed economic impact—and highlights that many operate as enclaves with limited spillovers and high fiscal costs. While generous tax incentives are common, evidence suggests they are rarely decisive drivers of investment and can lead to significant revenue losses, distortions, and opportunities for profit shifting. The note provides practical guidance for policymakers on how to design and tax SEZs effectively. It emphasizes that taxation should generally remain neutral relative to the domestic economy, with any incentives closely aligned to clear policy objectives, time-bound, and subject to regular evaluation. Priority should be given to well-designed indirect tax regimes, and cost-based investment incentives rather than profit-based tax holidays. Ultimately, the success of SEZs depends far more on fundamentals—such as infrastructure, governance, regulatory efficiency, and integration with the domestic economy—than on tax breaks alone. |
| Keywords: | Final Keywords special economic zones; tax incentives; direct taxes; indirect taxes; customs; international tax issues; trade liberalization; Sub-Saharan Africa; Africa; Middle East and Central Asia; Asia and Pacific; Middle East; Central America; Western Hemisphere; Central Asia |
| Date: | 2026–08–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfhtn:2026/005 |
| By: | Pau Belda (Bank of England) |
| Abstract: | Do capital gains tax cuts destabilize or stabilize asset prices? In an asset pricing model with heterogeneous agents and realization-based taxation, a tax cut has two opposing effects. It dampens volatility by reducing realization-based trading frictions, but also amplifies it by strengthening the pass through from expectations to prices, fuelling self-fulfilling fluctuations. Estimated on US stock-market data, the model implies that the sequence of tax cuts since the 1970s triggered a net increase in volatility of about +35%, driven primarily by stronger belief-to-price pass-through. Policy experiments suggest a tax on unrealized gains robustly reduces volatility, whereas a financial transaction tax has mixed effects. |
| Keywords: | Capital gains taxation;asset pricing;learning |
| JEL: | D83 D84 E44 G12 G14 H20 H31 |
| Date: | 2026–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023541 |
| 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. |
| JEL: | C01 H25 H30 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35484 |
| By: | Monteiro, Gabriel (Carnegie Mellon University); Severnini, Edson (Boston College) |
| Abstract: | Transportation is a major source of greenhouse gas and air pollution emissions worldwide, with most automobile pollution coming from vehicles older than 10 years. Yet, policies often discourage removing older vehicles from the fleet, with consequences for pollution and public health. This paper examines an equity-motivated anti-scrappage policy in Brazil using a border-pair design exploiting state variation in vehicle tax exemption age thresholds. Using municipality-level vehicle registration data from 2013-2020, we find lower exemption thresholds increase average fleet age by up to one year, encouraging owners to retain vehicles until they qualify for tax exemptions. Using fleet- and satellite-based pollution estimates and administrative health data, we show these policies increase on-road CO2 emissions per capita by up to 23% and PM2.5 concentrations by 4%, while worsening infant health. Leveraging state reforms that raised exemption ages, we find incumbents face greater electoral penalties where more vehicles re-enter the tax base, consistent with a “political environmental trap.†Within an MVPF framework, lowering the exemption age by five years generates a net welfare loss of $0.78 for every $1 of forgone government revenue. |
| Keywords: | vehicle ownership tax, transportation-related local air pollution, infant health, electoral and fiscal outcomes, border-pair approach |
| JEL: | Q53 Q56 Q58 H23 I18 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18898 |
| By: | Leonard Goff; Simon Quach |
| Abstract: | Most unemployment insurance (UI) systems condition the potential duration of benefits on claimants' work history, yet little evidence exists on whether doing so is socially optimal. We study this question using 25 regression discontinuities in Canada's UI system, where benefit duration increases discretely when prior hours worked crosses various thresholds. Using administrative records covering the universe of UI claims from 1997 to 2018, we estimate the fiscal effects of extending potential duration across the work-history distribution. On average, an additional week lengthens unemployment by 0.30 weeks and costs the government $96. However, this average effect masks significant heterogeneity: the mechanical cost falls steeply with prior hours, while the behavioral cost increases modestly. Consequently, the fiscal externality of extending UI rises with labor market attachment. Embedding these estimates in a sufficient statistics framework, we find that the fiscal externality of a uniform extension is 76% larger than that of an extension targeted at claimants with short histories. Moreover, aggregate welfare can be raised at zero fiscal cost by redistributing benefits from high to low hour claimants. |
| JEL: | H53 J64 J65 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35524 |
| By: | Anders G Fr{\o}seth |
| Abstract: | We characterise minimum-distortion wealth taxation under two contrasting normative criteria within a Fokker-Planck framework on log-wealth: the JKO free-energy gap, an information-theoretic measure aligned with the Mirrleesian decision-distortion tradition, and the squared 2-Wasserstein distance from the no-tax distribution at horizon $T$, a transport-geometric measure aligned with the Saez-Zucman distributional-compression tradition. Restricting to the neutrality-preserving (C1)-(C3) schedule class of a companion paper (Froseth 2026), both optima admit closed forms in the two-dimensional design plane parametrised by the corporate-dividend retention $k = (1-\tau_c)(1-\tau_d)$ and the proportional wealth-tax rate $\tau_w$. The JKO optimum partitions the regime axis into three phases as a function of the dimensionless ratio $\rho = \Sigma_0 m_0/\sigma^2$, with $m_0 = \mu - \sigma^2/2$ the geometric mean log-return: a pure wealth-tax phase at low $\rho$, a mixed-instrument phase at intermediate $\rho$, and a pure flow-tax phase at high $\rho$. The $W_2$ optimum, by contrast, is degenerate in this calibration: it pins to the pure flow-tax corner across the whole regime axis. The criterion contrast admits an economically meaningful reading via a bluntness index $B(m_0) = b/(a m_0)$ that measures the wealth-tax channel's mean-displacement-per-revenue overshoot relative to the flow-tax channel; JKO weights $B$ linearly, $W_2$ weights it quadratically, and the two normative traditions correspond to this difference in weighting. Norwegian-flavoured calibrations sit inside the JKO mixed-instrument phase under stock-heavy portfolio volatility but move into the pure flow-tax phase under the realised effective volatility of typical real-estate-heavy households. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.23576 |