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on Public Economics |
| By: | Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University) |
| Abstract: | To tackle profit shifting, the OECD/G20 Inclusive Framework proposes a Global Minimum Tax. The general presumption is that high-tax countries will gain and low-tax countries will lose because the minimum tax will reduce their inward profit shifting. Recent papers have shown that the minimum tax can be welfare improving for all countries even if the welfare of the firm owners are taken into account (Johannesen 2022, Hebous and Keen 2023). The purpose of this paper is to extent that analysis to endogenous enforcement choices. By means of a formal model of international tax competition with heterogeneous countries, we study explicitely how the minimum tax will change the dynamics of tax competition, profit allocation and enforcement incentives. We show that in this broader framework, there exists a critical threshold for the minimum tax beyond which the low-tax country will defect from international enforcement cooperation, making the high-tax country worse off. We also show that our analysis is robust to the presence of tax haven. |
| Keywords: | Profit shifting ; Tax competition ; Tax enforcement |
| JEL: | C72 F23 F68 H25 H87 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025003 |
| By: | Anders G Fr{\o}seth |
| Abstract: | A proportional wealth tax -- a levy on the stock of wealth -- preserves portfolio neutrality by acting as a uniform drift shift in the Fokker-Planck equation for wealth dynamics. We extend this result to the full system of ownership taxes (eierkostnader) that a shareholder faces: a corporate tax on gross profits, a capital income tax on the risk-free return, a dividend and capital gains tax on the excess return, and a wealth tax on net assets. Each tax modifies the drift of the wealth process in a distinct way -- multiplicative rescaling, constant shift, or regime-dependent compression -- while leaving the diffusion coefficient unchanged. We show that the combined system preserves portfolio neutrality under three conditions: (i) the capital income tax rate equals the corporate tax rate, (ii) the shielding rate equals the risk-free rate, and (iii) the wealth tax assessment is uniform across assets. When these conditions hold, the after-tax excess return is a uniform rescaling of the pre-tax excess return by the factor (1-tau_c)(1-tau_d), and the drift-shift symmetry of the wealth-tax-only case generalises to a drift-shift-and-rescale symmetry. We classify the distortions that arise when each condition fails and show that flow-tax distortions and stock-tax distortions are additively separable: they do not interact. The shielding deduction -- a feature of several real-world tax systems, including the Norwegian aksjonaermodellen -- emerges as the mechanism that restores the symmetry between equity and debt taxation within this framework. Calibrated to the Norwegian dual income tax, conditions (i) and (ii) hold by institutional design; the only binding distortion is non-uniform wealth tax assessment, which generates portfolio tilts roughly 300 times larger than any residual flow-tax channel. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15974 |
| By: | Michael Graber; Morten Håvarstein; Magne Mogstad; Gaute Torsvik; Ola L. Vestad |
| Abstract: | The elasticity of taxable income (ETI) parameter is a key quantity in empirical analysis of tax policy and labor supply. We examine when a commonly applied class of ETI estimands can be used to learn about individuals’ ETI parameters and their (un)compensated elasticities of labor supply. We begin by providing necessary and sufficient conditions for these estimands to be given a causal interpretation as a positively weighted average of heterogeneous ETI parameters. We then apply these results to empirically analyze a reform of the Norwegian tax system that reduced the marginal tax rates on middle and high incomes. The estimated ETI parameters increase steadily with income, meaning high-income individuals are more responsive to tax changes than middle-income individuals. Next, we show how (un)compensated elasticities of labor supply can be bounded directly from the ETI estimands, or point identified by combining these estimands with estimates of earnings responses to lottery winnings. The results suggest an (un)compensated elasticity of 0.1 (0.0) for middle-income individuals. The (un)compensated elasticity estimates increase steadily with income to around 0.45 (0.3) for high-income individuals. These findings imply a substantial excess burden of taxation, and that reducing top-income tax rates would increase tax revenue. Our findings are also informative about how the intertemporal elasticity of substitution and the Frisch elasticity vary across the income distribution. |
| JEL: | C26 C36 H20 J22 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34987 |
| By: | Kuusi, Tero; Kotamäki, Mauri; Kirkko-Jaakkola, Mikael |
| Abstract: | Abstract We examine the effects of Finland’s highest marginal income tax rates by integrating traditional analytical frameworks, recent empirical evidence, and dynamic macroeconomic mechanisms that shape income formation and the economy’s growth potential. Based on our comprehensive assessment, the decision to lower marginal tax rates in spring 2025 appears justified. Our calculations, grounded in the traditional framework (Saez, 2001; Saez et al., 2012; Piketty et al., 2014), indicate that within the top percent of the earnings distribution—where the most recent evidence of behavioral responses to taxation among high-income groups is clearest—the revenue-maximizing marginal tax rate remains below the current level over the long term. Dynamic behavioral effects play a central role when evaluating the economic impacts of high marginal tax rates. While the traditional approach provides a useful starting point for estimating the tax rate that maximizes revenue, it relies on assumptions that may underestimate the adverse effects of taxation. In this report, we broaden the analysis by reviewing modern macroeconomic literature, which emphasizes career-long effort, accumulation of human capital, and mechanisms and externalities related to business dynamics. |
| Keywords: | Taxation, Marginal tax rate, Economic impact, Externalities, Intangible capital |
| JEL: | D6 E6 H2 H3 J2 J3 |
| Date: | 2026–03–17 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:175 |
| By: | Eiji Yamamura; Fumio Ohtake |
| Abstract: | This study explored the association between sleep duration and redistribution preferences. Using an online survey, we propose a hypothetical situation in which the tax paid directly by respondents is redistributed to those earning less than one-fifth of the respondents' income. Next, we asked about the allowable tax rates. We found the following through Tobit and ordered logit regression estimations: (1) The relationship between sleep hours and the allowable tax rate showed an inverted U-shape, where the optimal amount of sleep led to the highest allowable tax rate. (2) High-quality sleep was more positively correlated with the allowable tax rate than was low-quality sleep when the sleep quantity was the same. (3) Sleep hours were more significantly and positively correlated with the allowable tax rate in the high-income group than in the low-income group. (4) Assuming that twice the amount of tax paid goes to those with lower income, individuals who previously preferred a higher tax rate were more likely to increase the allowable tax rate. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.06118 |
| By: | Magda Malec |
| Abstract: | Motivated by ongoing debates about the effectiveness of inheritance taxation in reducing wealth concentration—especially in contexts marked by strong family ties and rising wealth accumulation—this study employs an overlapping generations model calibrated to Polish data to investigate whether such policies truly mitigate inequality. By incorporating ex ante heterogeneity and human capital investment, I find that increasing inheritance taxes while lowering labor taxes fails to improve welfare or lessen inequality. Instead, these changes distort saving incentives, disproportionately lowering retirees’ incomes and intensifying disparities across generations. Although redistributing tax revenues can benefit certain groups, it ultimately widens inequalities between retirees and working-age households. These results underscore the need for careful policy design and question the political feasibility of inheritance taxation, suggesting that inheritance taxation alone is insufficient as a policy tool for narrowing inequality. |
| Keywords: | Inheritance taxation, Welfare analysis, OLG modelling |
| JEL: | D15 D64 H23 I38 D58 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2024105 |
| By: | Tonetto, Jorge Luis; Fochezatto, Adelar; Pique, Josep Miquel; Rapetti, Carina |
| Abstract: | The state of Rio Grande do Sul, Brazil, implemented four behavioral experiments aimed at improving tax compliance. This study contributes to the literature by examining multiple behavioral tax programs over an extended period, providing a longitudinal assessment of citizen engagement. It highlights changes in citizen engagement in the Tax Education Program and their possible causes, focusing on the evolution of new subscribers over time and their relationship with the implementation of innovative projects. We estimate time-series regression models for new subscribers between November 2012 and May 2023, including specifications with and without structural breaks. The results show three moments of high impact on subscriber numbers. The key moment corresponds to the launch of Devolve-ICMS and Receita Certa, with a 635% increase in new subscribers. Inflation showed a small negative impact. Reductions in prize amounts and low-value incentives negatively affected engagement. Programs that provided direct and visible financial returns to citizens—reinforcing perceptions of fairness and reciprocity in the tax system—showed particularly strong effects on engagement. The findings suggest that tax innovations were successful in increasing citizen engagement and, consequently, reducing tax evasion. |
| Keywords: | Behavioral economics; Tax compliance; Technological Change; Time series analysis; Public policy; Brazil JEL Codes: D91, H26, O33, C22, H11, O54 |
| JEL: | C22 D91 H11 H26 O33 O54 |
| Date: | 2026–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128174 |
| By: | Anders G. Froeseth |
| Abstract: | We analyse the effect of a proportional wealth tax on asset returns, portfolio choice, and asset pricing. The tax is levied annually on the market value of all holdings at a uniform rate. We show that such a tax is economically equivalent to the government acquiring a proportional stake in the investor's portfolio each period, a form of risk sharing in which expected wealth and risk are reduced by the same factor, while the return per share is unaffected. This multiplicative separability drives four main results: (i) the coefficient of variation of wealth is invariant to the tax rate; (ii) optimal portfolio weights are independent of the tax rate; (iii) the wealth tax is orthogonal to portfolio choice, inducing a homothetic contraction of the opportunity set that preserves the Sharpe ratio of every portfolio; (iv) taxed and untaxed investors price assets identically. Results are derived under geometric Brownian motion and generalised to the location-scale family. A Modigliani-Miller analysis confirms pricing neutrality and identifies an inconsistency in the literature regarding the discount rate for after-tax cash flows. Under CAPM with CRRA preferences, after-tax betas equal pre-tax betas and the security market line contracts by the tax factor; general-equilibrium prices are unchanged. This resolves an error in Fama (2021). The neutrality results depend on three conditions commonly violated in practice: universal taxation at market value, frictionless markets, and dividend consumption. We formalise three channels through which relaxing these conditions breaks neutrality: book-value taxation, liquidity frictions, and dividend extraction, and show they have opposing effects on asset prices. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05264 |
| By: | Haotian Deng (Department of Economics, Ghent University, Belgium); Sam Desiere (Department of Economics, Ghent University, Belgium; IZA Institute of Labor Economics, Germany); Bart Cockx (Department of Economics, Ghent University, Belgium; IZA Institute of Labor Economics, Germany; IRES/LIDAM, UCLouvain, Belgium; CESIfo, Germany; ROA, Maastricht University, the Netherlands); Gert Bijnens (National Bank of Belgium) |
| Abstract: | This paper studies how employment subsidies for start-ups shape their performance. We exploit an unexpected policy reform in Belgium that permanently exempted start-ups hiring their first employee from payroll taxes for that employee. Using firm-level administrative data and a regression-discontinuity-in-time design, we find that subsidized post-reform startups employed fewer workers and generated lower output, value added, and profits compared to pre-reform start-ups. However, post-reform start-ups were more likely to survive as employers. These effects emerged within the first year after hiring and remained stable over a medium horizon of three years. Our findings indicate a compositional shift: the subsidy primarily induced low-productivity firms to enter the market. As most firms nowadays are nonemployers, our results meaningfully generalize the theoretical implications of standard neoclassical entrepreneurship models (employee–employer margin) and fill the important gap of the nonemployer–employer margin. |
| Keywords: | entrepreneurship; start-up; employment subsidy; tax reduction; labor demand; small firms |
| JEL: | H25 J23 J24 J38 L25 L26 M51 |
| Date: | 2026–02–04 |
| URL: | https://d.repec.org/n?u=RePEc:ctl:louvir:2026004 |
| By: | Anders G. Froeseth |
| Abstract: | Froeseth (2026) shows that a proportional wealth tax on market values is neutral with respect to portfolio choice, Sharpe ratios, and equilibrium prices under CRRA preferences and geometric Brownian motion. This paper investigates the robustness of that result along two dimensions. First, we extend the neutrality frontier: portfolio neutrality, including all intertemporal hedging demands, is preserved under stochastic volatility (Heston and general Markov diffusions) and Epstein-Zin recursive utility, but breaks under non-homothetic preferences such as HARA. Second, we identify four channels through which implemented wealth taxes depart from neutrality even under CRRA: non-uniform assessment across asset classes, general equilibrium price effects in inelastic markets, progressive threshold structures, and endogenous labour supply. Each channel is formalised and, where possible, calibrated to the Norwegian wealth tax system. The progressive threshold introduces a tax shield that increases risk-taking near the exemption boundary, an effect opposite in sign to the HARA distortion, and, at the extreme, generates a participation margin at which investors exit the tax jurisdiction entirely. We formalise this tax-induced migration as the extreme response at the progressive threshold and examine the Norwegian post-2022 experience as a case study. The full framework is applied to evaluate the Saez-Zucman proposal for a global minimum wealth tax on billionaires and the related French proposal for a national minimum tax above EUR 100 million. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05277 |
| By: | Thomas Webb; Arthur Apostel; Milena B\"uchs; Richard B\"arnthaler |
| Abstract: | Wealth taxes are a frequently proposed policy within the post-growth literature, but evaluations of their alignment with post-growth goals, and empirical estimates of their potential effects, are lacking. We contribute to this literature by examining the extent to which different wealth-tax designs can contribute to four goals of a post-growth transition: redistributing wealth; eradicating extreme wealth; curbing rent-seeking; and reducing CO2 emissions. The analysis is based on microsimulation modelling, using household-level data from 18 countries of the 2017 EU Household Finance and Consumption Survey. Our analysis finds that taxes on net wealth are the most progressive and redistributive, while taxes on financial and investment property wealth tend to be more effective at addressing rent-seeking. However, we also identify trade-offs and conflicts between different tax designs and goals. As a result, a broader package of policies will be necessary to navigate these conflicts and mitigate the limitations inherent in any single wealth-tax design. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17786 |
| By: | Piotr Dybka; Stanisław Bartha; Anna Komisarska; Michał Kowalczuk |
| Abstract: | The goal of this paper is to estimate the level and provide a sectoral decomposition of the VAT gap in Bulgaria based on the unique dataset provided by the National Revenue Agency in Bulgaria (NRA). We focus on the output VAT gap. Our potential VAT estimate takes into account the value of output VAT based on the estimate of sales. Our study also seeks potential macroeconomic factors that affect the VAT gap and obtained results indicate that a higher VAT gap can be associated with a larger share of micro enterprises, changes in the business cycle (i.e. increase in firm death rate and unemployment). Moreover, firms with higher shares of revenues from sales to government observe markedly lower output VAT gap. In Bulgaria, the largest share of the VAT gap in overall value of VAT is observed in the trade sector, followed by the information and communication sector and professional, scientific, and technical activities. |
| Keywords: | Shadow economy, VAT gap, VAT, Tax gap |
| JEL: | C51 E26 H21 H26 O17 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2026118 |
| By: | Abhishek Seth (Indian Institute of Technology Roorkee); Manish K. Singh (Indian Institute of Technology Roorkee); Diya Uday (xKDR Forum) |
| Abstract: | Property taxes (PTs) are the primary own-source revenue for Indian urban local bodies (ULBs), yet actual collections fall short of potential, constraining service delivery. Existing studies have documented this gap but have been limited to state or district-level analysis due to the absence of reliable municipal data. This paper exploits new geospatial datasets-ULB boundary maps, nighttime lights, and building volume to estimate PT demand at the ULB level in Karnataka. Using cross-sectional data for 268 ULBs in 2019-20, we show that the sum of building volume (SoBV) within a ULB boundary alone can explain over 80% of the variation in PT demand across ULBs, with a 1% increase in SoBV predicting a 1.09% rise in demand. Benchmarking exercises reveal stark regional disparities aligned with historical administrative boundaries. These findings demonstrate how non-government spatial data can measure fiscal capacity, verify self-reported statistics, and highlight institutional legacies that shape urban tax performance. |
| JEL: | H71 H72 R51 C21 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:anf:wpaper:47 |
| By: | Piotr Dybka; Magdalena Karska; Maciej Łopusiński; Andrzej Torój |
| Abstract: | We estimate the personal income tax (PIT) gap in Bulgaria using the Pissarides and Weber (1989) methodology (“traces of true income” approach), which compares the relationship between food expenditure and income of self-employed and other employees. Our analysis relies on a unique anonymized dataset prepared by the National Statistical Institute from Household Budget Survey and National Revenue Administration records, providing a more reliable measure of income than survey data alone. Extending the standard PW framework, we estimate under-reporting not only among the self-employed but also among private-sector employees. Our results show that unreported labour income averaged 6.37% of GDP during 2017–2021 (excluding 2020), with private-sector employees contributing 5.36% and the self-employed 1.01%. The PIT gap amounted to 13.8% of theoretical revenues, while the social security contribution gap reached 16.5%, corresponding to lost revenues of 0.54% and 1.71% of GDP, respectively. Moreover, our analysis also shows that households with children and younger earners are more prone to under-reporting. These findings underscore the importance of accounting for household characteristics when designing policies to mitigate tax non-compliance. |
| Keywords: | Shadow economy, PIT gap, PIT, Tax gap |
| JEL: | C51 E26 H21 H26 O17 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2026119 |
| By: | Anders G. Froeseth |
| Abstract: | We reformulate the neutral wealth tax framework of Froeseth (2026) in the language of stochastic dynamics and statistical physics. Individual wealth under geometric Brownian motion satisfies a Langevin equation with multiplicative noise; the probability density of wealth across a population then evolves according to a Fokker-Planck equation. A proportional wealth tax at market value enters as a uniform reduction of the drift coefficient, preserving the diffusion structure and all relative probability currents. This drift-shift symmetry is the physical content of tax neutrality. Each channel through which neutrality breaks down in practice, book-value assessment, liquidity frictions, forced dividend extraction, migration, and market impact, corresponds to a specific violation of this symmetry: a state-dependent, asset-dependent, or flow-dependent modification of the Fokker-Planck equation. The framework clarifies when wealth taxation is a benign rescaling of the dynamics and when it introduces genuinely new physics. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05283 |
| By: | Lynn van Raalte (Department of Applied Economics, Public Policies Section (OAP- GiM), Universitat de Barcelona, Spain.); Jordi J. Teixidó (Department of Applied Economics, Public Policies Section (OAP- GiM), Universitat de Barcelona, Spain.) |
| Abstract: | This paper estimates the causal impact of municipal property tax exemptions on the adoption of solar photovoltaic (PV) systems in Catalonia. Using a balanced monthly panel of municipalities from 2015 to 2022, we employ a difference-in-differences (DiD) framework with staggered policy implementation. The exemption increased installed PV capacity by 36% and led to roughly one additional installation per treated municipality per month. Focusing on residential installations, we find that 80% of the tax exempt installations would have occurred even without the policy, implying an implicit abatement cost of €142 per tonne of CO2. Heterogeneity analysis shows limited variation across structural and socioeconomic contexts. Overall, the policy was moderately effective but only partially efficient, suggesting that more targeted design could enhance its cost-effectiveness. |
| Keywords: | Solar PV Adoption; Property Tax Exemption; Causal Inference; Staggered Difference-in-Differences; Municipal Climate policy; Catalonia. JEL classification: Q42; H23; Q48; C21. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ira:wpaper:202605 |
| By: | Olivier Bargain; Miracle Benhura; H. Xavier Jara; Prudence Magejo |
| Abstract: | Market forces, and notably the role of trade openness, contribute to shaping inequality in South Africa and may limit the inclusiveness of its growth path. Recently, policy reforms may have helped to mitigate these effects. To better understand these developments, we analyse trends in post-tax income inequality using matched employer-employee administrative data from 2012 to 2021 and an original decomposition based on counterfactual tax microsimulations. |
| Keywords: | Trade, Inequality, Taxation, Decomposition |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2026-26 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy); Badola, Shivani (National Institute of Public Finance and Policy) |
| Abstract: | The recent restructuring of GST rates (also known as GST 2.0) results in reductions in tax rates for many commodities. It is expected that the benefits of lower tax rates will be passed on to consumers through lower retail prices. In this paper, we examine movements in the average Consumer Price Index (CPI) for selected commodities over four months before the GST rate restructuring (pre-GST 2.0 period) and four months after the restructuring (post-GST 2.0 period). The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities. Most food items, household, and personal care products recorded increases in the CPI during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group. Conversely, several consumer durables, such as motor vehicles, bicycles, tyres and tubes, air conditioners, and some selected household appliances, experienced a decline in CPI values, suggesting relatively effective price transmission in discretionary and high-value goods. |
| Keywords: | Goods and Services Tax (GST) ; Rate Restructuring ; Consumer Price Index ; India |
| JEL: | H22 H25 E31 D12 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:26/444 |