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on Public Economics |
| By: | Richard Winter; Jan Zental |
| Abstract: | Wealth transfer taxes can be important instruments to counter increasing wealth inequality. Yet, inter-generational business transfers, whose distribution is particularly concentrated at the top, are inherently difficult to tax. Many countries treat this asset class preferentially to avoid overburdening family firms, and sophisticated tax avoidance strategies by business owners exploit this preferential treatment to erode the tax base. We analyse how business transfers react to anticipated changes in such preferential tax treatment using administrative data at the individual-transfer level from the universe of German gift tax assessments. We find strong and rapid timing responses of business transfers to expected tax changes. We show that the response is stronger for higher-valued transfers and find heterogeneity in transfer characteristics consistent with a tax avoidance motive. We further estimate that the amount of foregone gift tax revenue due to timing responses is up to 2.8 times the size of actual annual inheritance and gift tax revenue. |
| Keywords: | wealth transfer tax avoidance, business owners, tax uncertainty |
| JEL: | H00 H23 H25 H26 K34 D80 D81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11687 |
| By: | Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer |
| Abstract: | Joint taxation of married couples represents a puzzle for welfare economics. We investigate whether political economy forces can explain its persistence. We develop sufficient statistics to determine whether a reform towards individual taxation would garner majority support and apply this framework to the U.S. tax system since the 1960s. Our findings indicate that support for individual taxation has increased over time. As of today, 50% of all married individuals would benefit from such a reform. Among those worse off are poor single-earner couples. A reform that reduces marriage bonuses also for them is rejected by a social welfare function that concentrates weights at the bottom of the distribution. |
| Keywords: | taxation of couples, tax reforms, optimal taxation, political economy, non-linear income taxation |
| JEL: | C72 D72 D82 H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11728 |
| By: | Laurence Jacquet; Etienne Lehmann |
| Abstract: | We propose a new approach to assess the impact of regulatory changes on the production sector such as competition policies, taxing intermediate goods, robots or AI, trade regulation, production of public firms or environmental standards for firms. Our framework covers multidimensional nonlinear taxation with multiple income sources, General Equilibrium (GE) adjustments and market failures. We clarify under which conditions on the tax system the production sector should be regulated only to increase aggregate output, a recommendation we label the Production Regulation principle. Under these conditions, regulatory changes can be combined with adequate GE-neutralizing tax reforms to offset the GE effects on taxpayers’ utility levels. This ensures that changes in the production sector’s regulation that increases aggregate output do not deteriorate individual welfare, thereby resulting in a Pareto improvement. We also provide formulas that balance the effects of regulatory changes on aggregate production and their pre-distributive impact, when a GE-neutralizing tax reform is not feasible. These formulas introduce new GE-multipliers, which also appear in our calculations for the impact of tax reforms, optimal income tax systems and identifying Pareto-improving tax reforms. |
| Keywords: | production efficiency, market frictions, nonlinear income taxation, several income sources, endogenous prices |
| JEL: | H21 H22 H23 H24 L50 F13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11705 |
| By: | Giommoni, Tommaso (University of Amsterdam); Tabellini, Marco (Harvard Business School); Loumeau, Gabriel (VU university Amsterdam) |
| Abstract: | We study the fiscal determinants of the French Revolution, exploiting plausibly exogenous variation in the salt tax - a large source of royal revenues and one of the most extractive forms of taxation of the Ancien Régime. Implementing a Regression Discontinuity design (RDD), we find that parts of France subject to a higher salt tax experienced more revolts against the monarchy between 1750 and 1789. These effects already appear in the 1760s, but become stronger over time and peak in the 1780s. Combining the RD model with variation in local weather conditions during the 1780s, we document that droughts amplify the effects of the salt tax on revolts by increasing wheat prices and activating latent discontent. Then, we connect the discontent generated by the salt tax to the French Revolution. First, we provide evidence that riots spread more quickly in high tax areas. Second, we show that areas burdened by a higher salt tax report more complaints against the salt tax in the list of grievances collected by the king in the spring of 1789. Third, we document that legislators representing areas with a higher salt tax are more likely to demand the end of the monarchy and to support the death penalty for the king. |
| Keywords: | extractive taxation, regime change, French Revolution, state capacity |
| JEL: | D74 H20 H31 O23 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17825 |
| By: | Julia Cagé; Malka Guillot |
| Abstract: | Is charitable giving politically motivated? This article uses exhaustive administrative household panel data and a natural experiment to investigate the giving behavior of wealthy households and quantify their preferences for charitable and political donations. Our dataset includes all the households filing their income tax and/or wealth tax returns in France between 2006 and 2021. Both charitable and political donations benefit from a 66% income tax credit, but only the charitable ones are eligible for the 75% wealth tax credit. We exploit the 2017 wealth tax reform – a change in the taxable base that led to a drop of two thirds in the number of liable households and, as a result, an increase in the price of charitable giving – and show that charitable and political donations are substitute. According to our estimates, a ten-percent increase in the price of charitable giving leads to a 0:18 p.p. increase in the propensity to make a political donation, and to a large rise (corresponding to 3% of the mean) in the amount given conditional on giving. Next, using city-level information, we show that the increase in the price of charitable giving mostly benefits pro-business political parties. Finally, we document that the drop in charitable donations is mostly driven by politically involved nonprofit organizations, pointing toward political motivations behind charitable giving. |
| Keywords: | charitable giving, political donations, tax incentives for giving, wealth tax credit, cross-elasticity of donations, nonprofit organizations |
| JEL: | H24 H31 L38 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11731 |
| By: | Hötte, Kerstin; Koutroumpis, Pantelis; Theodorakopoulos, Angelos |
| Abstract: | Do automation-induced changes in labor and capital income undermine pub- lic revenues? Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation on tax revenues and the structure of taxation in 19 EU countries during 1995-2016. Before 2007 robot diffusion was associated with a decline in total tax revenues and taxes from capital, along with decreasing labor and capital income and output. After 2008, the negative effects diminish. ICTs show a weak negative but persistent effect on total tax revenues and taxes on goods for the full period, and an increase in capital income. Overall, the impact of automation on production and taxation varies over time. Whether automation erodes taxation depends on the technology and stage of diffusion. Concerns about public budgets are myopic when focusing on the short-run and ignoring relevant technological trends. |
| Keywords: | Technological Change, ICT, Robots, Fiscal Revenues, Labor |
| JEL: | H2 O3 |
| Date: | 2023–05 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2023-10 |
| By: | Xipeng Gao (School of Economics and Finance, XiÕan Jiaotong University, XiÕan, Shaanxi, PR China); Xiangju Li (School of Economics and Finance, XiÕan Jiaotong University, XiÕan, Shaanxi, PR China); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, Atlanta, Georgia, United States) |
| Abstract: | A central tenet in the fiscal federalism literature posits that inter-jurisdictional tax competition can engender economic efficiency losses. However, diverse firms exhibit heterogeneous sensitivities to varying tax burdens. When firms strategically evaluate differential tax pressures across tax categories, tax competition evolves into competition over tax structure. This dynamic is particularly pronounced in the case of green taxes and fees, which aim to internalize negative externalities compared to conventional tax instruments. We identify a Òrace to the bottomÓ phenomenon in corporate green taxes and fees driven by structural distortions within the tax system in China. Based on the constructed theoretical model of energy factor allocation that includes a distortionary coefficient of green taxes and fees, we predict that the efficiency growth of firms will decrease as the intensity of their Òrace to the bottomÓ competition increases in response to the relative pressure of green taxes and fees. Using data from listed companies in China, we find a robust negative relation between the Òrace to the bottomÓ competitive intensity of green taxes and fees pressure and total factor productivity growth. Our findings indicate that increasing the intensity of fiscal and environmental decentralization exacerbates the problem of the intensity of competition in the corporate tax structure, generating significant efficiency losses. These findings provide new evidence on the economic disadvantages of unchecked tax competition in decentralized systems. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2507 |
| By: | Motta Café, Renata |
| Abstract: | This paper examines the fiscal and extra-fiscal effects of decentralizing the collection of Brazil's rural land tax from the federal level to local governments. Using a difference-in-differences research design, we assess the impact of local tax enforcement on revenue, land use, and environmental outcomes. Decentralization led to sustained revenue gains, increased agricultural production, expanded reported environmental protection areas, and slightly decreased land concentration. Our findings highlight the role of property taxation as a policy instrument for environmental conservation and sustainable development. |
| Keywords: | fiscal decentralization;extra-fiscality;Land use;sustainable develop-ment;rural property tax |
| JEL: | H23 H30 H77 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14081 |
| By: | Luca Micheletto; Dylan Moore; Daniel Reck; Joel Slemrod |
| Abstract: | Traditional optimal commodity tax analysis, dating back to Ramsey (1927), prescribes that to maximize welfare one should impose higher taxes on goods with lower demand elasticities. Yet policy makers do not stress minimizing efficiency costs as a desideratum. In this note we revisit the commodity tax problem, and show that the attractiveness of the Ramsey inverse-elasticity prescription can itself be inverted if the tax system is chosen -- or at least strongly influenced -- by taxpayers who are overly confident of their ability, relative to others, to substitute away from taxed goods. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.22852 |
| By: | Rosenmüller, Joachim (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | We continue the discussion of the taxation game following our presentation in [12]. Our concept describes a cooperative game played between a set of jurisdictions (“ countries”). These players admit the operation of a multinational enterprise (MNE, the “firm”) within their jurisdiction. The original version of this game is due to W. F. Richter [3], [4]. We suggest an extension of the model by introducing the dual game of the firm’s profits and the tax function game. The latter is the NTU game generated by introducing tax functions (the term “tariffs” will be avoided henceforth). In [12] we treated the bargaining situation obtained when all countries decide to cooperate – otherwise everyone will fall back on their status quo point. However, in his basic paper, Richter argues that the share of the tax basis allotted to a country should be determined by the Shapley value of the taxation game. This idea establishes an interesting new field of applications. The Shapley value “as a tool in theoretical economics” [13], [14] has widely been applied in Game Theory, Equilibrium Theory, applications to Cost Sharing problems, Airport Landing Fee games, and many others. Based on these ideas, we continue our presentation by formulating the tax function game for the countries involved and introducing the Maschler–Perles–Shapley value as developed in [11]. To this end, we introduce the adjusted TU game, which reflects a rescaling of utility measurement as suggested by the superadditivity axiom of the Maschler–Perles solution. Then the Maschler–Perles–Shapley value of the tax function game is the image of the Shapley value of the adjusted TU game on the Pareto surface of the grand coalition. We demonstrate that the Maschler-Perles–Shapley value for the tax function game is Pareto efficient, covariant with affine transformations of utility, and anonymous. |
| Date: | 2025–04–23 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:704 |
| By: | Alice Pizzo; Christina Gravert; Jan M. Bauer; Lucia Reisch |
| Abstract: | We examine the impact of a carbon tax on consumer choices via a large-scale online randomized controlled trial. Higher taxes generally reduce the demand for high-carbon goods. Compared to an import tax, a carbon tax reduces demand when the tax is zero (i.e., announced but not levied) but leads to relatively higher demand for high-carbon goods when a positive tax is introduced. This contradiction of basic price theory is entirely driven by climate-concerned consumers. Our findings suggest that carbon taxes can crowd out climate concerns, leading to important implications for policy. |
| Keywords: | behavioral response, carbon pricing, climate change, climate policy, experiment, moral licensing |
| JEL: | Q58 C90 D03 D90 Q50 Q51 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11719 |
| By: | Ms. Anja Baum; Ms. Dorothy Nampewo; Greta Polo |
| Abstract: | In 2014, the collapse of global oil prices and the resulting increase in fiscal deficits and debt triggered a wave of spending cuts, tax policy and subsidy reforms. The introduction of excises and VAT, broadening of CIT, and subsidy reform have changed the GCC fiscal landscape. Little is known on how those recent changes have been impacting the economy. This paper first highlights the fiscal history and current fiscal landscape across the GCC. It then utilizes both macroeconomic and firm-level financial data to analyze the impact of tax policy reforms on economic and firm-level outcomes using panel data techniques. The paper finds that the different reforms have had a minor impact on GDP growth, inflation, and other economic variables, while the impact on firms is more nuanced. VAT is not found to impact firm financials, suggesting well-functioning VAT refund systems. Changes to CIT, however, have some impact especially on smaller companies, while the impact of excises depends on analyzed subgroups. The emerging picture suggests that tax policy reforms have had an overall rather small impact on the GCC economies, but care should be taken in exact policy design. |
| Keywords: | GCC; tax reform; firm financials |
| Date: | 2025–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/074 |
| By: | Mua, Kelly Kingsley; Kouam, Sonia; Kouam, Henri |
| Abstract: | Digitalization is an essential tool for the delivery of public services. The emergence of such services has taken the form of electronically mediated services such as e-taxation or e-filing. The process of digitization has equally seen the emergence of better information, better systems, and better policies, which will improve transparency, accountability, and governance whilst boosting tax revenues in Cameroon. Additionally, fiscal policy can be more targeted, achieving specific objectives such as supporting domestic demand, boosting fixed business investment, not least introducing and expanding a social safety net. The paper concludes with recommendations that enhance transparent revenue collection, streamline administrative procedures, and bolster governance. The ultimate findings are that Digitization will facilitate access to the tax base, broaden it, and enable more agile fiscal policies designed to bolster incomes, consumption, and investment. |
| Keywords: | Digitalization, Taxation, Artificial Intelligence, AI, Revenue Mobilization, |
| JEL: | H21 H26 H3 H30 H5 H54 |
| Date: | 2025–02–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124571 |
| By: | William D. Savedoff (Corresponding author and senior partner, Social Insight, Arrowsic, Maine, USA); Katherine Klemperer (Center for Global Development); Pete Baker (Center for Global Development) |
| Abstract: | Health taxes are a well-known fiscal measure for discouraging consumption of unhealthy products like tobacco, alcohol, and sugary beverages. Less well known are opportunities to eliminate government subsidies. This paper is an inquiry into subsidies for tobacco, alcohol, and sugary beverages, products that are particularly harmful to health and, as Adam Smith noted in 1776, “which are nowhere necessaries of life.” This paper estimates the revenues that could be saved by eliminating two types of subsidies for these products: budgetary transfers to farmers and forgone revenues from the tax deductibility of promotional spending. According to the agricultural subsidy database of the Organisation for Economic Co-operation and Development (OECD), government transfers to tobacco, alcohol, and sugar producers in 2022 amounted to less than US$10 billion worldwide. In 2023, forgone revenue from nine of the largest manufacturers of cigarettes, alcoholic beverages, and sugary beverages was about US$16.2 billion (about 20 percent of the US$85 billion these companies spent on product promotion). China is the one country confirmed to have a policy that does not allow tobacco manufacturers to deduct promotional spending as a business expense. This policy has led to increased revenues and indirectly discouraged smoking and its ill health effects. By contrast, other unhealthy subsidies are much larger. Some US$510 billion of taxpayer money promotes cultivation of vegetable oils and cereal crops—much of them used to produce ultraprocessed foods that contribute to noncommunicable disease. Fossil fuel subsidies, which harm health in many ways, are about US$1.3 trillion annually. Regardless of the scale, any existing taxpayer-supported subsidies for unhealthy products provide countries with a clear opportunity to save money and improve health. Identifying and eliminating such subsidies is a win for increased fiscal capacity and a win for better, longer lives. |
| Date: | 2025–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:356 |
| By: | Othman Bouabdallah; Pascal Jacquinot; Ante Šterc |
| Abstract: | We develop a Heterogeneous Agents New Keynesian model with a detailed outline (block) of financial intermediation and plausible marginal propensities to consume (MPC). Accounting for heterogeneous MPCs allows plausible predictions of the effectiveness of fiscal policy in the short and long term. Using our model, calibrated to the U.S. economy, we show that government spending has the largest short- and long-term effect on output when financed by debt, with gradual repayment through lump-sum transfers/taxes. We find a novel, non-linear, and non-monotonic relationship between the effectiveness of the fiscal stimulus, income tax progressivity, and the debt-to-GDP ratio, absent in representative or two-agent models. Lastly, the model suggests limited effectiveness of the fiscal stimulus and higher inflationary pressure for highly indebted economies. |
| JEL: | D31 E21 G11 H31 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202508 |
| By: | Martin Drees |
| Abstract: | This paper resolves Aaron's social insurance paradox, which suggests that introducing a pay-as-you-go (PAYG) pension system increases welfare when population growth plus average wage growth exceeds interest rates. Using a simplified overlapping generations model, we demonstrate this apparent advantage stems from asset reduction rather than inherent superiority. We analyze three pension systems - traditional PAYG, capital-funded, and capital-funded with bonus payments - and establish an equivalence between PAYG and the bonus-payment system. This equivalence reveals that systems with identical contributions and benefits differ only in accounting frameworks and asset positions, challenging the notion of PAYG superiority. Our analysis exposes a fundamental conceptual inconsistency in how sustainability is assessed across equivalent pension systems. As an alternative, we propose $\alpha$-stability, a framework using index shares to evaluate pension systems relative to economic indicators. These findings suggest that perceived advantages between pension systems often result from their formulation rather than substantive economic differences. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.00909 |
| By: | Sigurdsson, Jósef; Jósef Sigurdsson |
| Abstract: | I study how transitory increases in the opportunity cost of schooling affect dropout rates and long-run outcomes. Exploiting a tax-free year in Iceland and comparing teenagers around compulsory schooling age, I document increased dropout rates and a permanent loss in educational attainment for men, but not women. Consequently, they experience substantial lifetime earnings losses, enter occupations with limited career advancement, and have reduced marriage and fertility. Dropouts predominantly come from low-education - but not low-income - families and neighborhoods, consistent with misperceptions about the returns to education. The findings suggest that temporary economic booms can permanently reduce aggregate human capital accumulation. |
| Keywords: | educational attainment, opportunity cost, labor supply, tax reform. |
| JEL: | H24 I21 I26 J16 J24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11807 |