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on Public Economics |
| By: | Dirk Krueger (University of Pennsylvania, CEPR and NBER); Chunzan Wu (Peking University) |
| Abstract: | Household consumption and welfare are more strongly associated with 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 a government seeking to provide social insurance and redistribution? To answer this question, we build a quantitative life-cycle model of heterogeneous households with endogenous labor supply and idiosyncratic wage risks, 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: | Lifetime Income Tax, Progressive Taxation, Redistribution, Social Insurance. |
| JEL: | E60 H20 |
| Date: | 2025–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:25-011 |
| By: | World Bank |
| Date: | 2023–11 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40634 |
| By: | Congressional Budget Office |
| Abstract: | Investment in wind and solar electric power is directly supported by two tax credits, the investment tax credit (ITC) and the production tax credit (PTC), which were modified and extended by the 2022 reconciliation act. In CBO’s January 2025 baseline budget projections, the ITC and PTC together increase projected deficits by $308 billion from 2026 to 2035. The tax credits provide an incentive for private-sector investment; CBO estimates that without them, investment in wind and solar electric power from 2024 to 2026 would be about one-third less than is expected with the credits in |
| JEL: | H23 H25 Q48 |
| Date: | 2025–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:cbo:report:61188 |
| By: | Ricardo Vale; Gabriel Lara Ibarra; Eduardo Fleury; Kajetan Trzcinski |
| Keywords: | Law and Development-Tax Law Macroeconomics and Economic Growth-Taxation & Subsidies Governance-National Governance Poverty Reduction-Equity and Development |
| Date: | 2023–10 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40552 |
| By: | Bradbury, David; O'Reilly, Pierce |
| Abstract: | This Perspective discusses the fiscal and economic impacts of the global minimum tax; currently being implemented by many countries around the world. The global minimum tax is expected to raise tax revenues, reduce profit-shifting, and allow jurisdictions to strike a better balance between supporting investment and mobilising domestic revenues. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:colfdi:314444 |
| 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. |
| Keywords: | Long term care; uncertain altruism; opting out; topping up; public insurance |
| JEL: | H2 H5 |
| Date: | 2025–03–13 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130430 |
| By: | Iva Hasikova (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic); Jan Hanousek (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic) |
| Abstract: | This paper analyses factors affecting VAT compliance using a panel of 22 European countries from 2000 to 2021. In particular, we studied the influence of the shadow economy, macroeconomic conditions, quality and efficiency of public institutions, and the control of corruption influencing VAT compliance. The GDP growth proxying the phases of the business cycle has a stable and positive effect on VAT compliance. Similarly, the impact of the shadow economy has been negative, statistically, and economically significant. Also, we observe a substantial impact of the government quality indicators on reducing the VAT gap. We also examine the possible “import†of tax morale through foreign subsidiaries operating in the country, and the impact remains inconclusive. Likely positively induced VAT compliance is mitigated by a negative impact of possibly sizeable exports of foreign-owned subsidiaries. From the public administration perspective, we show that all factors that affect the shadow economy are almost at the same rate transferred into increasing VAT compliance, which could make the quest for policymakers more effective. |
| Keywords: | Value-added tax (VAT), VAT gap, Gross Value Added, Shadow Economy, Tax Collection, Policy and Governance, Economic sectors |
| JEL: | H26 C33 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:men:wpaper:100_2025 |
| By: | Pooja Madhanraj; Slawa Rokicki |
| Abstract: | Reduction of poverty among children may have significant long-run benefits. The Earned Income Tax Credit (EITC) is the largest federal anti-poverty program in the United States and a large body of evidence demonstrates beneficial impacts on family income, employment, and wealth. Research has also found positive effects of EITC exposure on health and social outcomes. However, there is limited understanding of the extent to which exposure to the EITC in early life affects long-run health. We conducted a scoping review to examine the current state of the evidence on the relationship between EITC exposure and health and social outcomes, and mapped that evidence to the broader literature on long-run health impacts across the life course. We searched the literature through August 2024, and focused on methodologically-strong studies (quasi-experimental or randomized trials). Results are presented across the stages of the life course, including infancy, childhood, adolescence, and adulthood. We discuss key gaps found. |
| Keywords: | Earned Income Tax Credit, Scoping Review, Life Course |
| JEL: | I10 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:psm:wpaper:202401 |
| By: | Matteo Iacoviello (Federal Reserve Board of Governors and CEPR); Ricardo Nunes (University of Surrey); Andrea Prestipino (Federal Reserve Board of Governors) |
| Abstract: | We study optimal credit market policy in a stochastic, quantitative, general equilibrium, infinite-horizon economy with collateral constraints tied to housing prices. Collateral constraints yield a competitive equilibrium that is Pareto inefficient. Taxing housing in good states and subsidizing it in recessions leads to a Pareto-improving allocation for borrowers and savers. Quantitatively, the welfare gains afforded by the optimal tax are significant. The optimal tax reduces the covariance of collateral prices with consumption, and, by doing so, it increases asset prices on average, thus providing welfare gains both in steady state and around it. We also show that the welfare gains stem from mopping up after the crash rather than a pure ex-ante macroprudential aspect, aligning with prior research that emphasizes the importance of ex-post measures compared to preventative policies alone. |
| JEL: | E32 E44 G18 H23 R21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0225 |
| By: | Oliver Hümbelin; Maurizio Strazzeri; Olivier Lehmann |
| Abstract: | This paper examines the impact of the COVID-19 pandemic on income and wealth inequality in Switzerland, with a particular focus on poverty dynamics and the role of the social security system. Using newly linked administrative tax data for four cantons covering over a third of the Swiss population, we track changes in household income and liquid assets from 2019 to 2021. We find that average net household income increased during the pandemic. However, households at the bottom and top of the income distribution experienced income declines, and a substantial share of households across all income groups faced losses in income or liquid assets. These effects were especially pronounced in the lower deciles. Despite this, relative and absolute poverty rates declined, largely due to the stabilizing effect of existing and newly introduced social security measures. Our results suggest that the Swiss social safety net—including extensions to unemployment benefits, short-time work compensation, and targeted COVID-19 support—effectively mitigated the immediate economic impact of the crisis. The findings underscore the importance of timely and well-targeted state interventions to prevent increases in poverty during large-scale economic shocks. |
| Keywords: | COVID-19 Pandemic, Public Economics, Inequality, Poverty, Tax Data |
| JEL: | D31 D33 H12 |
| Date: | 2025–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:bss:wpaper:50 |
| By: | Peter Claeys; Bettina Bökemeier; Benjamin Owusu; Juan Equiza Goñi; Michael Stierle; Andreea Stoian |
| Abstract: | Concerns about fiscal sustainability and worsening balance sheet conditions of major banks triggered a doom loop between banks and sovereigns during the 2010-2013 sovereign debt crisis. Despite closer financial integration and additional institutional safeguards, the home bias, i.e. domestic bank holdings of domestic sovereign debt, is still high in most EU countries. We examine the effects of home bias on fiscal sustainability. In this paper, fiscal sustainability is understood in a broad sense of a government's ability to manage its finances in a way that ensures the long-term viability of its economic and social programmes, without compromising the stability of its financial system. We first extend two IMF databases on sovereign debt holdings to all EU Member States. We then apply panel smooth transition regression models on a fiscal rule. We find that a high home bias does not reduce the reaction of governments to public debt, but only if the financial system is sufficiently developed. A developed banking system allows sovereigns to raise more public debt at acceptable conditions to support economic stabilisation. An increased presence of foreign banks has a benign effect on sustainability by reducing governments’ debt bias, but state-owned banks reduce it. We further test fiscal responses to public debt shocks with an interacted panel Vector Auto Regression model. Even though governments respond to public debt under a high home bias, they react only slowly and delay fiscal consolidations. Developing financial markets further through the completion of the Banking and Capital Markets Unions in the EU could help countries in the trade-off between economic stabilisation and debt sustainability, while bringing in more foreign banks might enforce stronger fiscal discipline. |
| JEL: | E43 G21 H62 H63 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:218 |
| By: | Hackmann, Martin (University of California, Los Angeles); Heining, Jörg (Institute for Employment Research (IAB), Nuremberg, Germany); Klimke, Roman (Harvard University); Polyakova, Maria (Stanford University); Seibert, Holger (Institute for Employment Research (IAB), Nuremberg, Germany) |
| Abstract: | "We leverage decades of administrative data and quasi-experimental variation in the introduction of universal long-term care (LTC) insurance in Germany in 1995 to examine whether health insurance expansions can stimulate local economies. We find that the LTC insurance rollout led not only to sizeable growth of the target LTC sector, but also to an aggregate fall in unemployment and an increase in the labor force participation. Quantitatively, a 10 percentage point increase in the share of insured LTC patients led to 4 more nursing home workers per 1, 000 individuals age 65 and older (12 percent increase). Wages did not rise in the LTC sector or other sectors of the economy. The quality of newly hired nursing home workers declined, but this had no negative effect on old-age life expectancy. Overall, the insurance expansion brought lower-skilled workers into new jobs rather than reallocating workers away from other productive sectors. Our marginal value of public funds (MVPF) analysis suggests that the reform paid for itself when taking the positive fiscal externalities in the labor market into account. To understand which market primitives underpin our findings and to inform the external validity of our results, we develop and estimate a general model of labor markets with product-market subsidies in the presence of wedges, such as income taxes. Our model simulations show that the aggregate welfare effects of insurance expansions are theoretically ambiguous and depend centrally on the magnitude of frictions in input markets." (Author's abstract, IAB-Doku) ((en)) |
| Keywords: | Bundesrepublik Deutschland ; IAB-Open-Access-Publikation ; Auswirkungen ; Beschäftigungseffekte ; Einkommenseffekte ; Erwerbsbeteiligung ; Arbeitslosigkeitsentwicklung ; Integrierte Erwerbsbiografien ; Altenpflege ; Altenpflegehelfer ; Altenpfleger ; Niedrigqualifizierte ; öffentliche Einnahmen ; Pflegeversicherung ; Sozialabgaben ; Steueraufkommen ; 1975-2008 |
| JEL: | D58 H00 H51 I00 I31 I38 J14 J23 J64 J08 I13 |
| Date: | 2025–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:iab:iabdpa:202503 |
| By: | Heise, Arne |
| Abstract: | During the neoliberal era, fiscal policy was side-lined: from a political economy perspective, it was seen as biased toward deficit and debt accumulation, while from a macroeconomic perspective, its potential role as a business cycle stabiliser was shifted to monetary policy, in line with the New Macroeconomic Consensus. This consensus codified the restrictive and passive orientation of fiscal policy through rules such as the European Stability and Growth Pact or Germany's 'Debt Brake.' Following a series of crises, fiscal rules have come under intense criticism, and Keynesian discretionary policy has regained popularity in both theory and practice. This article aims to provide a Post Keynesian perspective on fiscal policy: rejecting the idea of general equilibrium self-regulation and criticising the inherent limitations of (fiscal) policy, it advocates a functionally-oriented capital budgeting approach which favours an expansionary stance on the long-term budget balance and should not be left to the discretion of policy- makers. Instead, it should follow a transparent, non-overridable rule complemented in the short term by the unrestricted operation of automatic stabilisers and, only in exceptional cases, by discretionary measures to prevent severe depressions. |
| Keywords: | Capital Budgeting, Functional Finance, Fiscal policy rule, Post Keynesianism |
| JEL: | E12 E62 H30 H60 H62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cessdp:313615 |