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on Public Finance |
| By: | Stefanie Stantcheva |
| Abstract: | I study how people understand, reason, and learn about tax policy. The goal is to uncover the mental models that people use to think about income and estate taxes. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. The detailed survey questions are designed to address the three main factors emphasized in our core tax model that can shape support for or opposition to taxes: efficiency effects, distributional implications, and fairness considerations. But they also elicit broader concerns that could influence policy views such as misperceptions, views of government, perceived spillovers from taxes, and views on how tax revenues are or should be spent. To extract people's first-order considerations that come to mind when they are prompted to think about tax policy, its shortcomings, and goals without priming them, open-ended questions are used and then evaluated with text analysis methods. There are partisan divergences not just in the final policy views, but also in reasonings about the underlying mechanisms and most starkly on the fairness considerations. I decompose policy views into the various underlying factors and find that support for tax policy is most strongly correlated with views on the benefits of redistribution and fairness, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the “Redistribution” and the “Efficiency” treatments) or that bring the two together and focus on the trade-off (the “Economist” treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive taxes. |
| JEL: | D72 D9 H20 H24 H3 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27699&r=all |
| By: | Demian Pouzo; Ignacio Presno |
| Abstract: | How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from incurring future tax distortions that would come along with the service of the debt. On the other hand, default risk gives rise to endogenous credit limits that hinder the government's ability to smooth taxes. We characterize the fiscal policy and show how the option to default alters the near-unit root component of taxes in the economy with risk-free borrowing. When we allow the government to default and calibrate the model to Spain, fiscal policies are more volatile, borrowing costs are higher, indebtness and welfare are both lower than in two alternatives economies, one with only risk-free debt available and the other with government's commitment to the default strategy. |
| Keywords: | Optimal taxation; Government debt; Incomplete markets; Default |
| JEL: | H30 H21 H63 D52 C60 |
| Date: | 2020–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1297&r=all |
| By: | Ana Venâncio; Victor Barros; Clara Raposo |
| Abstract: | We examine the impact of corporate taxation on entrepreneurship, using a quasi-natural experiment, which substantially reduced the corporate tax rate for start-ups located in inland municipalities in Portugal. The combination of a high quality and universal firm level database for Portugal allows the detailed study of firm's behaviour. We use BPlim’s harmonized Central Balance Sheet panel for the period of 2006 to 2015 to evaluate the different behaviour of exporters and non-exporters in Portugal. We follow on the self-selection and learning-by-exporting literature, estimating several exporter productivity premiums. After finding solid evidence of a productivity advantage of exporters compared to non-exporters, which seems to emerge several years before firms start to export, we expand our study in order to explore the causality of the previous findings. Thus, we estimate a logit fixed effects model to assess the impact of several variables in the export propensity of a firm. We corroborate the self-selection theory, given the significance of labour productivity in probability of a firm exporting, as well, as significant effects of firm absolute size, relative market share, sector concentration and investment. |
| Keywords: | Firm entry; Job creation; Tax policy; Corporate taxes; High-quality entrepreneurship |
| JEL: | H24 H26 J24 L26 M13 H25 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0140&r=all |
| By: | Corina Boar; Virgiliu Midrigan |
| Abstract: | We ask: what are the most efficient means of redistribution in an unequal society? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though taxing wealth and allowing for increasing marginal income tax schedules raises utilitarian welfare, the incremental gains from doing so are small. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return across financially constrained entrepreneurs. |
| JEL: | E2 E6 H2 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27622&r=all |
| By: | Justin E. Holz; John A. List; Alejandro Zentner; Marvin Cardoza; Joaquin Zentner |
| Abstract: | This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic’s tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic’s GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges. |
| JEL: | C93 H2 H26 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27666&r=all |
| By: | David Neumark; Katherine E. Williams |
| Abstract: | In recent years, many states and some local governments implemented or expanded their own supplemental Earned Income Tax Credits (EITCs). The expansion of state EITCs may have stemmed in large part from wanting to provide a more generous program than the federal program, because state EITCs increase transfer payments to low-income recipients who qualify. However, state and local governments can also benefit from maximizing participation of their constituents in the federal EITC, and there are several reasons why state or local EITCs could increase participation in the federal EITC program. We find some evidence suggesting that state EITCs may increase federal EITC program participation among low-skilled single filers with children. |
| JEL: | H24 H71 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27626&r=all |