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on Public Economics |
| By: | Bargain, Olivier (University of Bordeaux); Jara, H. (London School of Economics); Rivera, David (Bordeaux University) |
| Abstract: | Tax–benefit systems in Latin America have expanded alongside social protection, yet persistently high informality continues to constrain fiscal capacity and redistribution. This paper examines how tax policy changes affect formal employment in Bolivia, Colombia, and Ecuador over three periods (2008–2014/15-2019). The multi-country, multi-period design generates multiple quasi-experiments, enhancing external validity relative to studies focused on single reforms. We measure the implicit tax burden of moving from informal to formal work and estimate behavioral responses using grouped estimations robust to treatment heterogeneity. Higher tax burdens on formalization significantly reduce formal employment, with stronger responses concentrated among low-skilled, often self-employed workers facing high social contributions. Counterfactual simulations show that revenue-neutral reforms combining the removal of contribution floors with higher top taxation may simultaneously raise formalization and income tax progressivity, suggesting that expanding redistribution and limiting efficiency costs need not be in conflict in Latin American labor markets. |
| Keywords: | informality, employment, self-employment, tax burden, social contributions, income tax, benefits |
| JEL: | H24 H31 J24 J46 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18621 |
| By: | Matthias Rodemeier; Gregory Sun |
| Abstract: | We study how Americans trade off the welfare of the poor versus the rich using incentivized transfer experiments. Combining this with estimates of the Elasticity of Taxable Income, we quantify optimal income tax rates in the US. Revealed preferences show strong concern for the poor across the political spectrum, implying tax rates far more progressive than existing political agendas. This creates a puzzle: individuals vote for policies that are less progressive than their distributive preferences imply. We trace this puzzle to aversion toward government-mediated redistribution. Liberals’ support for very progressive tax rates is dampened by misuse of public funds, while conservatives object to taxation on principled grounds tied to coercion and property rights. Our paper illustrates that disagreement over redistribution mostly reflects disagreement over institutions rather than over helping the poor. |
| Keywords: | income taxation, redistributive preferences, social welfare weights, government aversion, political economy |
| JEL: | D63 D72 D90 H21 H30 P35 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12645 |
| By: | Andrew Binning; Murat Özbilgin; Christie Smith; Hanna Vu (The Treasury) |
| Abstract: | New Zealand, like many advanced economies, faces long-term fiscal pressures arising from population ageing. Over coming decades, demographic change is projected to increase government expenditure on New Zealand Superannuation and public health care relative to the size of the economy. Addressing these pressures will require policy choices about how government revenue, expenditure, and public debt evolve over time. This Analytical Note is one of a series of background papers that informed the Treasury’s 2025 Long-term Fiscal Statement (LTFS). The LTFS considers a wide range of possible responses to long-term fiscal pressures, including changes to revenue, expenditure, and the design of major government programmes. The background papers supporting the LTFS provide more technical detail on particular modelling approaches and policy scenarios, complementing the more accessible analysis presented in the LTFS itself. In this paper we use the Treasury’s overlapping generations (OLG) model to describe the macroeconomic, fiscal, and distributional effects of strategies that adjust tax policies to ensure fiscal sustainability in the face of rising pension and health expenditure. The scenarios presented are hypothetical analytical exercises designed to illustrate the mechanisms at play within the model rather than represent specific policy proposals. New Zealand raises the bulk of its tax revenue from labour income, consumption expenditure, and capital income, with source deductions on labour income representing the largest source of tax revenue. In this paper we meet expenditure pressures by deploying labour income tax strategies that vary in their degree of progressivity. In all scenarios, tax rates adjust over time to fund projected increases in pension and health spending and to stabilise the government debt-to-GDP ratio. The paper compares four stylised tax strategies: a Baseline strategy where marginal tax rates increase by the same percentage point amounts across all income brackets; a Current progressivity strategy that broadly preserves the current degree of progressivity in the tax system (as represented by the ratios of labour tax rates); an Increased progressivity strategy where the lowest tax rate is held constant while higher tax brackets increase; and a Reduced progressivity adjustment where relatively larger increases occur in lower tax brackets. The modelling highlights several mechanisms relevant to long-term fiscal policy. In particular, the distribution of income across tax brackets affects the size of the tax bases available to fund increased expenditure. The model indicates that changes to labour taxes could suffice to meet expenditure pressures arising from an ageing population, but that tax increases would need to be shared across tax brackets because the share of labour income in the highest two tax brackets is not large enough to fund the entire projected increase in expenditure. The alternative tax strategies explored in the paper result in different macroeconomic and fiscal outcomes. The model suggests that more progressive increases in marginal tax rates on labour income tend to be more distortionary, leading to larger reductions in labour supply, capital accumulation, and economic activity than strategies that spread tax increases more broadly across the labour income tax base. In the model, less progressive tax increases generate higher effective labour supply, higher per capita capital, and higher aggregate income and consumption in the long run. While the model highlights the efficiency implications of different tax structures, there are also other well-established reasons why governments may choose to maintain progressive tax systems, including redistribution or equity considerations, and the role progressive taxation can play in providing insurance against income risk. These considerations are important but are not the primary focus of the analysis presented in this note. The OLG framework also enables us to examine how alternative tax strategies affect people with different lifetime income profiles and those born in different years. The results illustrate that different households respond differently to the tax strategies considered, and that the strategies have different consequences for their wellbeing across generations. Importantly, the scenarios examined in this paper consider only one dimension of the broader set of policy choices discussed in the LTFS. Governments have a range of potential tools available to address long-term fiscal pressures, including changes to spending programmes, eligibility settings, the mix of taxes used to raise revenue, and policies that influence economic growth and labour force participation. The purpose of this note is therefore to provide technical insight into how different labour income tax structures interact with demographic change within our modelling framework. Together with the other background papers released alongside the LTFS, this analysis contributes to the evidence base supporting public discussion of New Zealand’s long-term fiscal sustainability. |
| JEL: | H24 H3 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztans:an26/04 |
| By: | Michele Ceraolo; Roberto Iacono; Fernando Rios-Avila |
| Abstract: | This paper investigates the distributional consequences of Dual Income Taxation (DIT), a system that taxes labour income progressively while applying a flat rate to capital income. We make two complementary contributions. First, we classify income tax systems across 20 advanced economies from 1980 to 2019. Our country-by-country analysis reveals substantial heterogeneity in DIT regimes, and establishes a three-group taxonomy distinguishing full DIT systems, comprehensive income tax systems, and mixed regimes. Second, we conduct the first multi-country causal analysis of DIT's effects on income concentration using difference-in-differences methods that account for staggered treatment timing. We employ a 'relaxed' framework covering 15 countries that introduced flat capital income taxation and a 'strict' framework covering 8 countries that transitioned cleanly from comprehensive to dual taxation. The relaxed framework yields robust evidence that DIT adoption is associated with statistically significant increases in income concentration: the top 10% income share rises by 0.67 percentage points and the top 1% share by 0.50 percentage points. Effects materialise immediately after reform, consistent with income shifting and capital reallocation, and tend to plateau over the medium term. The strict framework produces ambiguous results owing to limited sample size and high sensitivity to methodological choices. Our findings document a measurable equity cost of DIT that policymakers should weigh against its efficiency gains. |
| Keywords: | dual income taxation, income inequality, nordic countries, tax policy |
| JEL: | D63 H23 H24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12642 |
| By: | Christl, Michael; Köppl-Turyna, Monika |
| Abstract: | This paper examines whether the design of a country's tax system matters for economic growth using the Tax Foundation's International Tax Competitiveness Index (ITCI), a composite of more than 40 legislated tax-policy variables spanning corporate, individual income, consumption, property, and cross-border tax rules. Exploiting within-country variation across 23 European economies over 2014-2024, we estimate two-way fixed-effects panel regressions and dynamic distributed-lag specifications. Three findings emerge. First, improvements in aggregate tax competitiveness are positively and significantly associated with real GDP per capita growth, robust to a wide range of controls. Second, this aggregate effect is driven entirely by the corporate tax pillar; no other component displays a significant growth effect. Third, the corporate tax effect materializes contemporaneously and accumulates over time, with a statistically significant three-year cumulative effect of approximately 0.16 percentage points per one-point improvement in the corporate tax score. These results suggest that the full architecture of the corporate tax system, not merely the headline statutory rate, is what matters for growth. |
| Keywords: | tax competitiveness, corporate taxation, economic growth, growth regressions |
| JEL: | H20 H25 O40 O43 E62 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1754 |
| By: | Margherita Borella; Mariacristina De Nardi; Michael Pak; Nicolò Russo; Fang Yang |
| Abstract: | Changes in effective income taxes can impact labor supply with different outcomes for married couples and singles, and changes can have a particularly notable impact on married women. |
| Keywords: | Public Finance; demographics; taxes |
| Date: | 2024–11–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:99174 |
| By: | Andrew Bibler; Yuting Gao; Laura Grigolon; Mark J. Tremblay |
| Abstract: | Statutory tariff rates may overstate the tariffs actually paid due to evasion and avoidance. We develop a novel method to estimate tariff compliance and apply it to the 2018 trade war, when several countries imposed retaliatory tariffs on U.S. exports. Estimated compliance falls by 25 percentage points after tariff increases; a one percentage point tariff increase reduces compliance by 1 to 2 percentage points. Compliance is lower for intermediate goods, which often qualify for duty-free treatment, and for differentiated products, whose valuation is more difficult to verify. The decline accounted for approximately $3.5 billion in foregone tariff revenue in 2019. |
| Keywords: | tariffs, taxation, tax compliance, tax evasion, avoidance, trade war |
| JEL: | F13 H20 H22 H26 L10 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12643 |
| By: | Bingley, Paul (VIVE - The Danish Center for Social Science Research); Lanot, Gauthier (Department of Economics, Umeå University) |
| Abstract: | We estimate the elasticity of taxable income (ETI) in Denmark from 1980 to 2022 using a consistent bunching design. Leveraging six distinct tax regimes, we document that behavioral responses depend crucially on employment status and the tax base definition. While employees exhibit negligible responsiveness (ETI ≈ 0.01) across all regimes, the self-employed show larger, variable elasticities (0.05–0.45) that track opportunities for income shifting. For job changers and by the composition of capital income, we show that small employee elasticities reflect institutional constraints on reported income rather than infrequent adjustment, explaining why aggregate bunching elasticities are smaller than macro estimates. |
| Keywords: | Elasticity of Taxable Income; Micro-Macro Puzzle; Third-Party Reporting; Income Shifting; Bunching |
| JEL: | H24 H26 H31 J22 |
| Date: | 2026–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1046 |
| By: | Andrew Binning; Murat Özbilgin; Christie Smith; Hanna Vu (The Treasury) |
| Abstract: | New Zealand, like many advanced economies, faces long-term fiscal pressures arising from population ageing. Over coming decades, demographic change is projected to increase government expenditure on New Zealand Superannuation and public health care relative to the size of the economy. Addressing these pressures will ultimately require policy choices about how government revenue, expenditure, and public debt evolve over time. This Analytical Note is one of a series of background papers that informed the Treasury’s 2025 Long-term Fiscal Statement (LTFS). The LTFS considers a broad range of possible responses to long-term fiscal pressures, including changes to government spending, revenue, and the design of major policy settings. The background papers supporting the LTFS provide additional technical detail on particular modelling approaches and policy scenarios, complementing the more accessible analysis presented in the LTFS itself. In this paper we use the Treasury’s overlapping generations (OLG) model to explore how different tax bases interact with demographic change and fiscal sustainability. The scenarios examined are stylised analytical exercises designed to illustrate the economic mechanisms within the modelling framework rather than represent specific policy proposals. The model assumes that health and pension spending follow projections based on current policy settings, and that tax policy adjusts over time to fund these expenditures and stabilise the government debt-to-GDP ratio. We examine three illustrative fiscal strategies. In the Baseline strategy, increases in expenditure are funded through higher marginal tax rates on labour income. In the GST strategy, expenditure increases are funded through higher consumption taxes. In the Combination strategy, fiscal adjustment is shared across labour income taxes, consumption taxes, and capital income taxes. These alternative strategies highlight how the choice of tax base affects economic behaviour and fiscal outcomes within the model. Taxes influence labour supply, saving, investment, and consumption decisions, which in turn affect economic activity and the size of the tax bases available to fund government spending. Because the labour, consumption, and capital tax bases differ in size and respond differently to taxation, the strategies generate different macroeconomic and fiscal outcomes over the projection horizon. Within the model, strategies that rely entirely on labour income taxation lead to larger reductions in effective labour supply and economic activity over time than strategies that spread fiscal adjustment across other tax bases. Strategies that rely more heavily on consumption taxation or a combination of tax bases tend to generate somewhat stronger labour supply and capital accumulation outcomes in the long run. However, the transition paths and distributional consequences differ across strategies, and households born in different periods and with different lifetime income profiles experience different outcomes. The OLG framework can be used to examine these distributional and intergenerational effects. The model shows that the alternative fiscal strategies have different implications for households with different lifetime income levels and for people born in different years. Some strategies impose larger adjustment costs on households currently alive, while others shift more of the fiscal adjustment toward future generations. While the analysis highlights the efficiency implications of different tax bases within the model, governments may pursue particular tax structures for a range of reasons, including redistribution or equity considerations, and administrative or political constraints. These broader considerations are outside the scope of this Analytical Note. The purpose of this paper is instead to provide technical insight into how alternative tax bases interact with demographic change within our OLG modelling framework. Together with the other background papers released alongside the LTFS, it contributes to the evidence base supporting discussion of New Zealand’s long-term fiscal sustainability. |
| JEL: | H24 H3 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztans:an26/03 |
| By: | Susan St John |
| Abstract: | This PIE working paper updates New Zealand Superannuation as a Basic Income, PensionBriefing 2021-2, Retirement Policy and Research Centre. It models how changing New Zealand Superannuation into a genuine basic income would allow a simple but effective clawback mechanism to operate through the tax system, generating useful revenue to help meet future government expenditure pressures in aged care, pensions, education, poverty reduction and climate change. This update is based on the Half Year Economic and Fiscal Update (HYEFU) 2024 forecasted rates of New Zealand Superannuation (NZS) as at 1 April 2025, incorporating the effect of income tax changes announced in the 2024 Budget. Treasury’s tax and benefit model TAWA (see Appendix 1) is used to estimate the savings on an annualised basis for various special tax schedules for superannuitants and NZS rate scenarios for the year 1 April 2025 to 31 March 2026 (2025/26 tax year). The modelling illustrates that significant savings may be achieved from a suitably progressive separate tax schedule for those who opt onto the basic income, called here the New Zealand Superannuation Grant (NZSG). Alignment of the various rates of NZS may generate additional saving. |
| Keywords: | New Zealand Superannuation; basic income; retirement income; social policy; New Zealand |
| JEL: | H55 I38 J26 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cyc:wpaper:023 |
| By: | Naomi Kodama (Faculty of Economics, Meiji Gakuin University, Japan); Naomi Shohei Momoda (Graduate School of Humanities and Social Sciences, Hiroshima University, Japan); Masahiro Mikayama (Policy Research Institute, Ministry of Finance, Japan); Tomohiro Iguchi (Policy Research Institute, Ministry of Finance, Japan) |
| Abstract: | This study estimates the elasticity of hours worked with respect to hourly wages among female part-time workers to examine the influence of the labor supply. Using data on female part-time workers in Japan from 1998 to 2022, we find that wage elasticity is consistently negative, indicating that higher hourly wages are associated with reduced hours worked. This relationship remains stable across income levels, including those around the tax and social insurance premium thresholds. While taxes and social insurance contributions reportedly play a major role in the adjustment of hours worked, this evidence suggests that these policies are not the primary drivers of working hours adjustments. Further analysis reveals that many women, particularly married women and those in their 30s to 50s, tend to seek additional income to meet economic needs as second earners in their households. When income targets serve as reference points to meet these needs, women often adjust their working hours to reach these targets even under relatively low wage rates. Female part-time workers are more likely to adjust their hours worked in response to income targets rather than to taxes or social insurance premium thresholds. These results suggest that tax and social insurance reforms alone may be insufficient to increase working hours among second earners in Japan. |
| Keywords: | Labor supply elasticity, Second earner, Income target, Tax and social insurance premiums |
| JEL: | J22 H24 J16 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mof:wpaper:ron383 |
| By: | Francesco Menoncin; Paolo Panteghini |
| Abstract: | The article studies differential capital taxation — distinct rates on interest income and risky profits — in a continuous-time representative-agent general equilibrium model with complete markets. It derives closed-form expressions for the equilibrium risk-free rate and the market price of risk. A sharp and non-trivial separation result emerges: although interest-income taxation enters the agent's wealth dynamics and could in principle affect portfolio choice, it leaves equilibrium risk premia entirely unchanged. In contrast, profit taxation generally affects both equilibrium prices, except under CRRA preferences. |
| Keywords: | capital income taxation, interest-income tax, market price of risk, general equilibrium, neutrality |
| JEL: | E44 G12 H24 H25 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12640 |
| By: | Mattia Ricci; Áron Kiss; Kristine Van Herck |
| Abstract: | This paper assesses the fiscal costs and redistributive effects of reduced VAT rates across product categories in the EU. The analysis reveals that reduced rates on essential goods, such as food and beverages, housing, water and electricity, and health-related products are the most cost-effective in achieving redistribution. Others, such as restaurants and accommodation, offer limited redistributive returns at best, while being fiscally costly. The findings show a degree of cross-country heterogeneity caused by different spending patterns across countries. Certain groups, in particular pension-age, female-headed, and rural households, benefit disproportionately from reduced VAT rates due to their consumption patterns. Overall, the findings suggest that better targeting of reduced VAT rates could enhance both their equity and fiscal revenues. |
| JEL: | H23 H24 H25 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:244 |
| By: | Andrew Binning; Murat Özbilgin; Christie Smith (The Treasury) |
| Abstract: | New Zealand’s population is ageing. Public spending on public pensions (NZ Superannuation) and health are particularly sensitive to this trend and are expected to increase accordingly. Current and future government policies aimed at addressing this challenge will not only influence macroeconomic outcomes and growth, but also generate distributional effects both within and across generations. This paper constructs an overlapping generations (OLG) model for New Zealand to analyse these issues. We show that the model replicates both macroeconomic and fiscal moments for the New Zealand economy. We then approximate Stats NZ’s median demographic projections to trace the rising trajectory of government expenditures driven by population ageing. The model suggests that significant policy adjustments will be required regardless of the rate of technological progress, and that more favourable demographic scenarios offer only partial and temporary relief. This paper forms part of a series of papers using Treasury’s OLG model to investigate the fiscal impacts of New Zealand’s ageing population. Other papers in the series look at the implications of tax and debt financing demographics-driven increases in health and pension spending, and the savings from pension reforms and spending restraint, amongst other issues. |
| Keywords: | Overlapping generations models; fiscal policy; fiscal sustainability; demographics; superannuation; pensions; public debt |
| JEL: | E62 H31 H55 H62 H63 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztwps:wp26/01 |
| By: | Sylwia Radomska (Institute of Economics, Polish Academy of Sciences (INE PAN); Group for Research in Applied Economics (GRAPE)); Marek Kapicka (Center for Economic Research and Graduate Education - Economics Institute (CERGE-EI)) |
| Abstract: | This paper studies optimal education finance in a dynastic Mirrlees economy in which parents derive direct utility from their children’s human capital alongside standard dynastic discounting. Education-specific parental altruism adds a non-productive utility return to investment: it raises parental utility independently of the output it generates. We show that this second channel alters the constrained-efficient human-capital wedge: sufficiently strong altruism reverses the wedge from negative to positive, the optimal education subsidy is decreasing in altruism, and stronger altruism shifts intergenerational transfers away from financial bequests toward education. Calibrated to the U.S. economy, the model implies that optimal education support is non-monotonic in income and decreasing in bequests: low-income dynasties receive support due to borrowing constraints, while middle-income families face the weakest case for intervention. Income-contingent loans raise schooling, output, and welfare, but widen educational dispersion. Income-dependent subsidies reduce educational inequality more directly, at the cost of labor-supply distortions and lower aggregate output. |
| Keywords: | optimal taxation; human capital, parental altruism, asymmetric information, dynastic Mirrlees model, income-contingent loans, education subsidies, intergenerational transfers, bequests. |
| JEL: | H21 H52 I22 J24 D82 D64 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:fme:wpaper:116 |
| By: | Sylwia Radomska (Institute of Economics, Polish Academy of Sciences (INE PAN) and Group for Research in Applied Economics (GRAPE)) |
| Abstract: | This paper studies optimal intergenerational transfers when altruistic parents can transfer resources to their children through financial bequests or through investment in human capital. The key distinction is that education is a productive transfer: it changes the mapping from privately observed ability to output, whereas bequests are budgetary transfers. The paper characterizes how this distinction affects information rents in a dynastic Mirrlees environment. The main result is a decomposition of the informational effect of education relative to bequests. With endogenous labor supply, both instruments affect incentive provision through marginal-utility and labor-supply responses. Education, however, generates an additional productivity-rent component governed by the cross-partial between ability and human capital in production. This component is absent for purely budgetary transfers. When ability and human capital are sufficiently complementary, the productivity-rent component can dominate the standard labor-requirement channel, so that education may be optimally distorted downward relative to the bequest margin. The analysis clarifies why education and bequests are not equivalent instruments of intergenerational redistribution. The difference is not only that education has risky returns, but also that it changes the sensitivity of output to privately observed ability. This distinction provides a force that can work against the standard education-subsidy logic in Mirrlees models. |
| Keywords: | optimal taxation; intergenerational transfers; human capital; financial bequests; private information; education wedge; ability risk. |
| JEL: | D64 D82 H21 H24 I26 J24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:fme:wpaper:115 |