|
on Public Economics |
| By: | Xincheng Qiu; Nicolo Russo |
| Abstract: | This paper examines income tax systems in over thirty countries over the past forty years using microdata from the Luxembourg Income Study. We show that income tax systems worldwide are well approximated by a two-parameter log-linear effective tax function. We provide country- and year-specific estimates and document several insights. First, higher average tax rates are associated with higher progressivity. Second, richer countries have more progressive tax systems. Third, progressivity varies by family structure, with marriage and children associated with higher progressivity. Finally, transfers play an important role in redistribution, making the overall tax-and-transfer function more progressive than the tax function. |
| JEL: | E62 H20 H30 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:lis:liswps:906 |
| By: | Annalisa Tassi; Adrien Bussy |
| Abstract: | We investigate whether firms engage in VAT evasion at the retail stage—typically a point of weakness in VAT systems—in a high-enforcement, low-informality setting. To measure evasion, we exploit a reform of VAT rules (the reverse charge, RC) whereby retailers do not only remit taxes on their own value-added, but on that created along the entire supply chain, increasing their incentive to evade. Using German administrative firm-level VAT return data and an instrumental variable approach based on RC’s staggered introduction, we find no evidence of greater evasion under RC. Our results suggest that evasion at the retail stage might not be quantitatively important in high-enforcement and low-informality settings, implying little need to enlist consumers in tax enforcement to boost tax compliance. |
| Keywords: | Value Added Tax; VAT; Reverse Charge Mechanism; Tax Evasion; Withholding; Last- Mile Problem |
| JEL: | H21 H26 D22 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:fbk:wpaper:2025-05 |
| By: | Berliant, Marcus; Gouveia, Miguel |
| Abstract: | The political economy setting of voting over general nonlinear income taxes with labor disincentives and information asymmetry in consumer/worker/voter types is considered. The economy is the realization of a finite draw from a continuous distribution. The revenue required from a draw is determined by Pareto optimal provision of a public good for that draw. Assuming that the government must meet the revenue requirement for any possible draw, in other words the tax is robust, a majority rule equilibrium is shown to exist at the median voter's preferred tax function out of this robust set. |
| Keywords: | Voting; Income taxation; Public good; Robustness |
| JEL: | D72 D82 H21 H41 |
| Date: | 2025–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126649 |
| By: | Javier Garcia-Bernardo (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic and Department of Methodology & Statistics, Utrecht University, the Netherlands); Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Gabriel Zucman (Paris School of Economics and University of California, Berkeley) |
| Abstract: | The 2017 Tax Cut and Jobs Act lowered the US corporate tax rate and introduced provisions to curb profit shifting. We combine survey data, tax data, and firm financial statements to study the evolution of the geographical allocation of US firms´ profits after the reform. Between 2017 and 2020, the share of profits booked abroad declined by 1 - 5 percentage points, in part related to repatriations of intellectual property to the US. However, the share of foreign profits booked in tax havens remained stable at around 50%. While aggregated changes in profit allocation are small, a number of firms responded strongly. |
| Keywords: | multinational corporation; corporate taxation; profit shifting; effective tax rate; country-by-country reporting; Tax Cuts and Jobs Act |
| JEL: | F23 H25 H26 H32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_28 |
| By: | José Félix Sanz Sanz |
| Abstract: | This paper analyses the effectiveness of statutory marginal rates in generating revenue and (local) progressivity in personal income taxation. Utilising an analytical approach, we derive expressions for the elasticity of the average tax rate and its progression in response to changes in marginal tax rates. The analysis recognises the endogeneity between taxable income and marginal rates (behaviour) and is carried out for the individual taxpayer and the population aggregate. Regarding tax collection, we confirm a low elasticity of the average tax rate to marginal tax rates, individually and in the aggregate. Regarding progressivity, when the marginal rate of a given bracket increases, the progressivity of this specific bracket is heightened. However, it decreases the progressivity of the brackets above while leaving the progressivity in the brackets below unchanged. In other words, increasing the marginal tax rate in a given bracket is “backwards neutral” but “forward regressive”. Finally, to show the use of the analytical expressions derived, they are applied to a Spanish microdata set of tax returns. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:fda:fdaddt:2025-13 |
| By: | Arbind Modi (xKDR Forum) |
| Abstract: | This paper examines the conceptual foundations and legal architecture of input tax credit (ITC) and refunds under India's Good and Services Tax (GST). It highlights how current design features have diluted the GST's character as a neutral, consumption-based value-added tax. While a well-functioning VAT hinges on seamless ITC across goods, services and capital goods, India's regime embeds on extensive restrictions, delayed credit flow, and narrowly circumscribed refund entitlements. These provisions create cascading, raise effective tax incidence, distort production and trade neutrality, and weaken the self-enforcing compliance mechanism intrinstic to the invoice-credit method. Comparative evidence from OECD and emerging economics shows that India's approach is unique in its own way, with refund design and blocked functioning as de facto taxes on investmenet and intermediate production. The paper argues that restoring neutrality requires full and immediate ITC, rationalized rates to reduce inversion, and automated refund administration. Such reforms are essential for reducing hidden cascading, improving competitiveness, and realigning India's GST with global best practice. |
| JEL: | H2 H20 H21 H77 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:anf:wpaper:44 |
| By: | Theo Palomo (Paris School of Economics (PSE)); Davi Bhering (Paris School of Economics (PSE)); Thiago Scot (World Bank); Pierre Bachas (World Bank); Luciana Barcarolo (Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)); Celso Campos (Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)); Javier Feinmann (EU Tax Observatory); Leonardo Moreira (Secretariat of the Federal Revenue of Brazil, Ministry of Finance (Receita Federal do Brasil, RFB)); Gabriel Zucman (Paris School of Economics (PSE), UC Berkeley) |
| Abstract: | We use population-wide administrative micro-data to provide new estimates of income inequality and effective tax rates by income groups in Brazil, capturing all income and all tax payments. Our data allow us to link businesses to their owners and thus to allocate business income and associated taxes to the corresponding individual firm owners. We provide sharp upward revisions to official inequality estimates: the top 1% earns 27.4% of total income in 2019, one of the highest level recorded in the world. The tax system, which relies heavily on consumption taxes, is regressive: while the average tax rate in the economy is 42.5%, this rate falls to 20.6% for million-dollar earners (roughly the top 0.01% of the distribution), due to the non-taxation of dividends and provisions that reduce corporate tax liabilities. We provide evidence suggesting that inequality in developing countries may be systematically underestimated, as even in Brazil—where dividends are untaxed, and hence incentives to retain income within companies are limited—attributing profits to business owners substantially raises income inequality. |
| Keywords: | Income inequality, effective tax rates, Brazil |
| JEL: | D3 H2 H3 H5 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:dbp:report:009 |
| By: | Usama Jamal (CY Cergy Paris Université, THEMA) |
| Abstract: | Anti-tax avoidance policies aim to curb profit shifting by MNEs, yet their effects on capital costs and economic growth remain a critical question. This study examines the causal impacts of Earnings Stripping Rule (ESR)—a core anti–tax-avoidance measure adopted by more than ninety countries in the last decade—that limits profit shifting through debt channels but increases the cost of debt-financed capital. Using a large panel dataset on global MNE operations and a staggered difference-in-difference design, I compare the real activities of MNEs affected by ESR with those of unaffected groups. I find that ESR effectively reduces profit shifting and tax avoidance but also lowers investments in affected subsidiaries. MNEs offset these declines by reallocating capital and employ-ment toward unconstrained affiliates, primarily abroad. However, as the policy coverage expands across a group’s global footprint, this reallocation shifts from foreign to domes-tic units, closing the international escape margin and raising grouplevel tax liabilities. These findings suggest that international coordination is crucial for designing effective, non-distortionary anti-avoidance policies. |
| Keywords: | Tax Avoidance, Multinational Investment, Profit Shifting |
| JEL: | F23 H25 H26 H32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2025-16 |
| By: | Adib Rahman (University of Hawaii); Liang Wang (University of Hawaii) |
| Abstract: | We investigate the effects of central bank digital currency (CBDC) issuance in an economy where individuals can evade taxes by using cash. Our tractable model features agent heterogeneity with unobservable idiosyncratic shocks and voluntary exchange, where CBDC and cash compete as payment methods. CBDC's transparency enables governments to collect a labor tax that proves non-distortionary in our quasi-linear environment. Agents with higher marginal utility voluntarily pay fixed fees to access interest-bearing CBDC when their debt constraints bind, allowing the implementation of optimal policy with strictly positive inflation and nominal interest rates. We demonstrate how CBDC enables redistribution between agent types that is not possible in cash-only economies. We conjecture that an optimal CBDC policy involves higher nominal interest rates and lower inflation compared to cash regimes. By reducing tax evasion incentives, the introduction of CBDC can increase both output and aggregate welfare. |
| Keywords: | Cash, CBDC, Labor Tax, Tax Evasion, Monetary Policy |
| JEL: | E42 E58 H21 H26 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202505 |
| By: | Shahra Razavi; Umberto Cattaneo; Helmut Schwarzer; Andrea Visentin |
| Abstract: | The primary aim of this study is to provide evidence regarding the impact of social protection benefits, taxes and social security contributions in reducing income inequalities. The study employs a well-established methodology to estimate the partial redistributive effect of contributory and non-contributory pensions, family benefits, unemployment benefits, sickness and employment injury benefits, disability benefits, social security contributions, as well as income and property taxes. The partial redistributive effect corresponds to the percentage decrease in the Gini coefficient that is attributable to each social protection benefit and tax. The main data input is microdata from the Luxembourg Income Study (LIS). The evidence presented shows that social protection benefits, and its financing through taxes and social security contributions, are effective policy measures for reducing income inequalities. On average countries that spend more on social protection are those that experience larger reductions in income inequality. The paper concludes with practical recommendations on how to finance and design social protection systems that reduce inequalities, as well as ideas for future research in this area. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:lis:liswps:908 |
| By: | Sayag, Doron; Snir, Avichai; Levy, Daniel |
| Abstract: | In 1991 and 2008, Israel abolished the equivalents of 1¢ and 5¢ coins, respectively, effectively eliminating low-denomination coins and introducing rounding in cash transactions. When totals were rounded up, shoppers incurred a small rounding tax. Using detailed data on price endings and basket sizes across supermarkets, drugstores, small groceries, and convenience stores, we estimate that the magnitude of the rounding tax borne by Israeli consumers averaged only 0.001%–0.002% of revenues in the fast-moving consumer goods markets. These findings have implications for the ongoing debate regarding the desirability and viability of abolishing the 1¢ and 5¢ coins in the US. |
| Keywords: | Rounding Tax; Round Prices; Price Rounding Regulation; 9-Ending Prices; Just-Below Prices; Currency Indivisibility; Rigid and Flexible Prices; Elimination of Low-Denomination Coins; Cost of Producing Low-Denomination Coins; 1¢ coin; 5¢ coin; |
| JEL: | K00 K20 L11 L40 L51 M30 |
| Date: | 2025–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126714 |
| By: | Alessandro Bellocchi (Dipartimento di Economia, Società , Politica, Università di Urbino Carlo Bo, Italy); Chiara Lodi (Dipartimento di Economia, Società , Politica, Università di Urbino Carlo Bo, Italy); Giovanni Marin (Dipartimento di Economia, Società , Politica, Università di Urbino Carlo Bo, Italy; SEEDS, Italy; FEEM,); Giuseppe Travaglini (Dipartimento di Economia, Società , Politica, Università di Urbino Carlo Bo, Italy); Matteo Zavalloni (Dipartimento di Economia, Società , Politica, Università di Urbino Carlo Bo, Italy) |
| 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:srt:wpaper:1625 |
| By: | Oscar Valencia; Alfredo Villca; Carolina Ulloa-Suárez; Gustavo Sánchez |
| Abstract: | Fiscal rules are intended to support sustainable public finances, yet whether compliance with these rules actually improves fiscal sustainability remains an open question. This paper provides the first cross-country causal assessment of the effects of fiscal rule compliance on governments’ fiscal behavior and borrowing conditions. We extend the fiscal reaction function to allow both the primary balance response and the growthadjusted interest rate to depend on compliance, and address endogeneity using external instruments based on exogenous peer behavior across spatial and rating networks combined with System GMM. The results show that compliance substantially strengthens the fiscal response to rising debt and lowers the interest–growth differential, indicating that financial markets react to credible implementation rather than to the existence of rules alone. These effects intensify under high-debt conditions, where compliant governments adjust more forcefully and experience larger improvements in borrowing terms. Our analysis shows that compliance meaningfully enhances both fiscal reaction and financing conditions, but its contribution to sustainability ultimately depends on credible enforcement. Policy efforts should therefore prioritize the capacity and incentives needed for governments to effectively comply with their rules, not merely adopt them. |
| Keywords: | Instrument variable (IV) estimation; Fiscal rules; Compliance; Sustainability. |
| JEL: | E62 H61 H68 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2025-50 |
| By: | Xu, Jack |
| Abstract: | This paper proposes an alternative way of assessing government debt sustainability – instead of focusing on the absolute level of debt-to-GDP ratio, compute the time it takes before the government is compelled, if ever, to finance debt interest with additional debt, a condition I refer to as “Defit” (Debt-Financing of Interest), to distinguish it from Default. Defit occurs when the government’s annual revenue falls short of annual debt interest obligation, which is equivalent to the debt-to-GDP ratio reaching the threshold x/r, where x is the effective tax rate of the government revenue and r the average interest rate on outstanding debt. The paper derives the sufficient and necessary conditions of Defitting, and the formula for time to Defit in terms of observable economic and fiscal inputs. The present analysis departs from the prior literature as it models the joint dynamics of government cash and debt balances, establishing a link between the debt-to-GDP ratio and the debt-to-cash ratio. This approach yields a more precise characterization of debt-to-GDP divergence, particularly in relation to the differential g-r, where g is the nominal GDP growth rate. The result replaces the absolute level of primary surplus with the differential s-r, where s is the ratio of primary surplus to primary outlays. |
| Keywords: | Government Debt, Sustainability, Debt-to-GDP, Growth, Surplus, Interest Rate |
| JEL: | H62 H63 |
| Date: | 2025–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126739 |