nep-pub New Economics Papers
on Public Finance
Issue of 2018‒11‒05
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment By Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
  2. The vertical and horizontal distributive effects of energy taxes By Thomas Douenne
  3. Impacts of a Carbon Tax across US Household Income Groups: What Are the Equity-Efficiency Trade-Offs? By Lawrence H. Goulder; Marc A. C. Hafstead; GyuRim Kim; Xianling Long
  4. Taxes, Transfers and Income Distribution in Chile: Incorporating Undistributed Profits By Bernardo Candia; Eduardo Engel

  1. By: Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
    Abstract: Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of households co-exist in equilibrium with life-cycle savers gaining from the higher capital tax rates. These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.
    JEL: D31 E21 H31 H41 H54
    Date: 2018–10
  2. By: Thomas Douenne (Paris School of Economics)
    Abstract: This paper proposes a micro-simulation assessment of the distributional impacts of the French carbon tax. It shows that the policy is regressive, but could be made progressive by redistributing the revenue through a flat-recycling. However, it would still generate large horizontal distributive effects and harm an important share of low-income households. The determinants of the tax incidence are characterized precisely, and alternative targeted transfers are simulated on this basis. The paper shows that given the importance of unobserved heterogeneity in the determinants of energy consumption, horizontal distributive effects are much more difficult to tackle than vertical ones.
    Keywords: Energy taxes, Distributional effects, Demand-System, Micro-simulation
    JEL: D12 H23 I32
    Date: 2018–09
  3. By: Lawrence H. Goulder; Marc A. C. Hafstead; GyuRim Kim; Xianling Long
    Abstract: This paper assesses the impacts across US household income groups of carbon taxes of various designs. We consider both the source-side impacts (reflecting how policies affect nominal wage, capital, and transfer incomes) and the use-side impacts (reflecting how policies alter prices of goods and services purchased by households). We apply an integrated general equilibrium framework with extended measures of the source- and use-side impacts that add up to the overall welfare impact. The distributional impacts depend importantly on the revenue recycling method and treatment of transfer income. In the absence of compensation targeted to particular income groups, use-side impacts tend to be regressive and source-side impacts progressive, with the progressive source-side impacts fully offsetting the regressive use-side impacts. Both types of impact are considerably larger under our more comprehensive welfare measures than under more conventional measures. The efficiency costs of targeted compensation to achieve distributional objectives depend critically on the recycling method and compensation target. These costs are an order of magnitude higher when the revenues that remain after compensation are used for corporate income tax cuts than when the remaining revenues are used in other ways. Efficiency costs rise dramatically when targeted compensation extends beyond the lowest income quintiles.
    JEL: D58 H23 Q52 Q54
    Date: 2018–10
  4. By: Bernardo Candia (Universidad de Chile); Eduardo Engel (Universidad de Chile)
    Abstract: This paper seeks to measure the distributive impact of fiscal interventions in Chile, applying the “Commitment to Equity†(CEQ) methodology, a standardized fiscal incidence analysis. As a methodological innovation, we incorporated income accrued and not received by Chilean taxpayers through their companies and corporations into the distribution of pre-fiscal income. We find that the difference between the distribution of accrued and received income turns out to be important, around 6 Gini percentage points for each main concept of income. In addition, when moving from the distribution of market income to the distribution of final income (after taxes and transfers) the distribution of income improves by 7 Gini percentage points. To assign the improvement in the distribution of income between the different fiscal interventions, we apply the Shapley value and it is observed that half of the improvement in the distribution of income is due to transfers in education, while direct taxes only explain 20% of the reduction of the Gini coefficient. Finally, based on the simulation of the impact of the 2014 tax reform carried out by the World Bank, we estimate that the reform would produce an additional reduction of 2.4 Gini percentage points when going from market income to final income.
    Keywords: Fiscal incidence, inequality, poverty, undistributed profits, taxes, transfers, Chile
    JEL: D31 H22
    Date: 2018–09

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