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on Public Economics |
| By: | Michael C. Best; Luigi Caloi; François Gerard; Evan Plous Kresch; Joana Naritomi; Laura Zoratto |
| Abstract: | Governments frequently use proxies for deservingness—tags—to implement progressive tax and transfer policies. These proxies are often imperfect, leading to misclassification and inequities among equally deserving individuals. This paper studies the efficiency effects of such misclassification in the context of the property tax system in Manaus, Brazil. We leverage quasi-experimental variation in inequity generated by the boundaries of geographic sectors used to compute tax liabilities and a large tax reform in a series of augmented boundary discontinuity designs. We find that inequities significantly reduce tax compliance. The elasticity of compliance with respect to inequity is between 0.12 and 0.25, accounting for half of the overall change in compliance at the boundaries. A simple model of presumptive property taxation shows how mistagging affects the optimal tax schedule, highlighting the opposite implications of responses to the level of taxation and to inequity for optimal tax progressivity. Interpreting our findings through the lens of the model implies that optimal progressivity is around 50% lower than it would be absent inequity responses. These results underscore the importance of inequity for public policy design, especially in contexts with low fiscal capacity. |
| JEL: | H21 H26 H71 O17 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34062 |
| By: | Ana Gamarra Rondinel; James R. Hines Jr.; José F. Sanz-Sanz |
| Abstract: | This paper evaluates Laffer curves produced by reforms to nonlinear income taxes, focusing on individual taxpayers. A reform puts a taxpayer on the “wrong” side of the Laffer curve if it increases their tax burden while reducing tax payments. There always exist potential reforms with this property – and in particular, tax increases restricted to high-income taxpayers are guaranteed to consign some to the wrong side of the Laffer curve. The original design of the 2024 Australian tax reform would have put 15% of the taxpaying population on the wrong side of the Laffer curve, though subsequent modifications reduced this to 5%. Standard tax progressivity measures that ignore the endogeneity of taxable income generally understate the redistributive impact of progressive tax reforms. |
| JEL: | H21 H24 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34059 |
| By: | Shigeo Morita (Fukuoka University); Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | The development of online markets has raised ongoing concerns that foreign app service developers are avoiding value-added tax (VAT) in destination countries. To address this issue, some countries have introduced tax reforms that require platforms to pay VAT on behalf of foreign firms based on the sales generated by each firm. This study investigates whether preventing tax leakage through platform taxation improves welfare in the destination country. We first show that taxing foreign firms leads to a reduction in the commission fees charged by the platform to the sellers (developers) which replaces exited foreign developers with domestic ones. However, the increased tax burden also decreases the size of the network user base. Given this trade-off, we demonstrate that whether the domestic welfare increases after the tax reform depends critically on how responsive the sellers’ market entry is to network size. When the tax reform brings welfare gain, it increases with the tax rate and reduces with the initial share of foreign developers. Finally, we show that digitalization mitigates both welfare loss and the platform’s tax avoidance. |
| Keywords: | Value-added tax; Tax reform; Digital economy; Platform; Network externality |
| JEL: | H25 H26 F23 L13 L86 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2502r2 |
| By: | Esslinger, Anna; Pfeil, Katharina; Feld, Lars P. |
| Abstract: | Are the effects of tax aversion on labor supply symmetric? In a real-effort online experiment, participants are exposed to manipulated wages and taxes after first experiencing the same reference wage. We find no significant differences in their productivity; however, we find significant asymmetries in fairness perceptions of the treatments. We find that tax increases are viewed as more unfair than equivalent wage decreases and tax decreases are viewed as more fair than equivalent wage increases. Additionally, the negative effect of tax increases is larger than the positive effect of tax decreases. However, we find little to no evidence that these asymmetric fairness perceptions significantly shape working behavior. |
| Keywords: | Tax Aversion, Loss Aversion, Labor Supply Asymmetry, Online Experiment |
| JEL: | H20 H30 D91 J22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:323932 |
| By: | Blaufus, Kay; Bock, Julian; Peuthert, Benjamin |
| Abstract: | Using unique tax audit data of 499 German firms, we analyze whether family firms, public firms, financially constrained firms, and those firms with managers with low tax morale substitute two tax strategies, book-tax conforming and nonconforming tax avoidance strategies, and examine the effect on overall tax avoidance. The empirical results are in line with family firms and those firms with low tax morale managers substituting conforming for nonconforming tax avoidance strategies, whereas public and financially constrained firms do the opposite. Moreover, we find that family firms differ from nonfamily firms only in their strategic implementation but not in the overall amount of tax avoidance. With respect to public, financially constrained firms and those firms with low tax morale managers, we find a positive association with the total level of tax avoidance. |
| Keywords: | conforming tax avoidance, tax planning, nontax costs, book-tax conformity |
| JEL: | H26 M41 G32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323205 |
| By: | Matias Giaccobasso (VATT Institute for Economic Research, Finnish Center of Excellence in Tax Systems Research); Marcelo Bergolo (IECON -Universidad de La Republica (UDELAR) and IZA); Gabriel Burdin (University of Siena and IZA); Mauricio De Rosa (IECON-UDELAR); Martin Leites (IECON-UDELAR); Horacio Rueda (U. of Houston and IECON-UDELAR) |
| Abstract: | This paper presents new evidence on how top income earners respond to changes in the personal labor income tax schedule, uncovering both own-and cross-tax base responses within a unified framework. For identification, we exploit a 2012 tax reform in Uruguay that generated quasi-random variation in top marginal rates within the top 1% of the labor income distribution. Our empirical approach relies on a difference-in-differences identification strategy and administrative records linked at the individual level across multiple tax bases. We estimate an own-tax base intensive margin elasticity of 0.77 and extensive margin semi-elasticity of 2.64. Extensive margin responses are mostly driven by taxpayers shifting from the personal labor income tax base toward corporate income or capital income tax bases (semi-elasticities of -0.79 and -0.75, respectively). Our preferred estimates suggest that the reform was effective in increasing tax revenues, with efficiency costs representing 27% of the projected increase. However, it had limited impact on inequality, most likely due to its narrow scope and income shifting toward tax bases with lower and flat rates. Overall, our results indicate that policy efforts aiming to reduce inequality by increasing top marginal tax rates should also focus on limiting income shifting opportunities to strengthen their redistributive effects. |
| Keywords: | Income taxation, top income earners, tax reform, reported income supply, income-shifting |
| JEL: | H21 H24 H30 J22 O23 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:fit:wpaper:34 |
| By: | Owen Kay; Michael David Ricks |
| Abstract: | Pigouvian subsidies are efficient, but output subsidies with uncertain or limited durations are not Pigouvian. We show that optimal “time-limited” policies must also subsidize investment to correct externalities generated after the output subsidy ends. Furthermore, an output subsidy’s optimal duration is characterized by the change in production when it ends. In the wind-energy industry, we find that power generation decreases by 5-10% after the end of facilities’ ten-year eligibility for the Renewable Energy Production Tax Credit. This behavioral response has implications for energy transitions and highlights how time limits could cause larger distortions in more elastic industries. |
| Keywords: | energy taxes and subsidies; renewable energy; optimal taxation; policy uncertainty |
| JEL: | H23 H21 Q48 |
| Date: | 2025–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101407 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | Value-added tax (VAT) has two major problems in its enforcement: taxing foreign vendors which do not have a business entity in the destination country, and taxing small and medium-sized enterprises (SMEs) with small tax bases. As a solution of these problems, some countries attempt to utilize online platform, to let the platformer pay the foreign firms’ and SMEs’ VAT according to the sales each firm made (platform tax for the destination principle and formalization of informal sector). In the monopolistic market where the platformer determines the fees for the network entry and the commission fee of the platform services, standard-good’s price, we show that taxing foreign developers increases the tax burden laid on the standard good, and we show that the increased tax burden is born 100% by the domestic standard-good’s consumers. We also investigate whether or not the prevention of tax leaks by platform taxes improves the vendors’ entry and tax revenue of the destination country. The effect of the tax reform on home developers crucially depends on the responsiveness of the developers’ entry to the number of network users, which is decreasing in the VAT rate. The derived formula of marginal value of public funds suggests that, due to the simultaneity of price and quantity, more fully fledged structural analysis may be necessary. Additionally, we show that the VAT serves as a Pigouvian tax to ease congestion externalities, and our results are robust with platform competition. In the context of formalization of SMEs, the strength of network externalities matters to see if the existing formal sector receives windfall gains or losses. |
| Keywords: | Digital economy; Platform; Network externality |
| JEL: | F23 H26 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2506 |
| By: | Adam Bloomfield; Lucas Goodman; Shanthi Ramnath; Sita Slavov |
| Abstract: | In recent years, policy makers have adopted many measures to incentivize the establishment of employer-sponsored retirement plans (ESRPs). One such measure – implemented in the early 2000s and made more generous in recent years – allows smaller firms that establish an ESRP to claim a tax credit to offset part of their costs during the initial years. We examine firm take-up of this credit. We find that only 1 percent (pre-policy expansion) to 5.5 percent (post-policy expansion) of apparently eligible firms claim the credit. We document heterogeneity in credit take-up rates by industry, firm owner education, and use of tax preparation services. We also document evidence of “tax preparer learning, ” whereby take-up among a tax preparer’s clients increases after that preparer files their first credit. Finally, we document that most firms only claim the credit for one year despite being eligible to do so for up to three years. |
| JEL: | H32 J32 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34043 |
| By: | Baute, Sharon (University of Konstanz); Bellani, Luna (Ulm University); Hecht, Katharina (Northeastern University) |
| Abstract: | Wealth is increasingly unequally distributed in many countries. This study examines public perceptions of wealth deservingness and preferences for taxing the wealth of the rich, focusing on how opinions vary based on the amount, use, and origin of wealth. Drawing on an original vignette experiment conducted in Germany (n=6, 018), our results show a consistent pattern: as wealth increases, its perceived deservingness declines, while support for taxation rises. Similarly, spending on luxury items is seen as less deserving than philanthropic or nonprofit investments, leading to greater support for taxing the wealth of luxury spending rich people. However, wealth obtained through inheritance presents a puzzling exception: although it is perceived as the least deserving compared to wealth gained through entrepreneurship or management, this does not translate into a stronger preference for taxing inheritors over managers. These findings, which hold across different income and wealth groups as well as political affiliations, highlight the complex and sometimes contradictory public attitudes toward the rich and the taxation of their wealth. |
| Keywords: | survey experiment, richness, redistribution, inequality, wealth taxation |
| JEL: | D3 D6 H2 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18043 |
| By: | Massimo Bordignon; Nicolò Gatti; Gilberto Turati |
| Abstract: | This paper investigates how raising awareness of public debt sustainability affects individual attitudes toward debt reduction and fiscal policy preferences. Using a survey experiment on a representative sample of the Italian population, we randomly assign objective information about government debt to citizens, who become more sensitive to the risks of tax increases, spending cuts, and imbalances for future generations. We find no effect on the perception of debt reduction as an urgent policy priority. While remaining highly averse to any tax increase, treated respondents support spending cuts (but not in education and health care) as a policy to reduce the debt burden. We also show that subjects with distorted beliefs about government debt are no more responsive to the information treatment than subjects with correct beliefs, shedding light on the challenges of building a voting majority for debt-stabilizing policies. |
| Keywords: | public debt, fiscal policies, beliefs, information |
| JEL: | H63 H31 D83 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12013 |
| By: | Nicolas Audet; Joe Ning; Adam Epp; Jeffrey Gao |
| Abstract: | We present a dynamic debt strategy model framework designed to assist sovereign debt portfolio managers in choosing an optimal debt issuance strategy. The model consists of two parts: a simulation engine and a debt issuance optimization engine. The main innovation of this framework is the introduction of dynamic issuance strategies, which allow issuance decisions to vary over time based on the model’s simulated state variables. We apply this framework to Canada’s specific debt management setting and show that these dynamic strategies, when compared with the deterministic issuance strategies of the original Canadian debt strategy model, bring considerable improvements to the costs and risks of available debt portfolios. |
| Keywords: | Debt management; Econometric and statistical methods; Financial markets; Fiscal policy |
| JEL: | H63 H68 G11 G17 C61 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocatr:127 |