nep-pub New Economics Papers
on Public Finance
Issue of 2020‒10‒26
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal income taxation with tax avoidance and endogenous labor supply By George Casamatta
  2. A Characterization for Marginal Income Tax Schedules By Oztek, Abdullah Selim
  3. Corporate Taxation and the Distribution of Income By James R. Hines Jr.
  4. Budget deficits, public debt and the Ricardian Equivalence By Claudio Sardoni
  5. Income tax rate increases and heterogeneous taxpayers’ reactions: a spatial regression discontinuity design By Augusto Cerqua; Emma Galli
  6. An Assessment of Wealth Taxes in a Joint Income-Wealth Perspective By Kuypers, Sarah; Figari, Francesco; Verbist, Gerlinde
  7. Promoting Education under Distortionary Taxation: Equality of Opportunity versus Welfarism By Pertti Haaparanta; Ravi Kanbur; Tuuli Paukkeri; Jukka Pirttilä; Matti Tuomala
  8. Who Benefits From the Child Tax Credit? By Jacob Goldin; Katherine Michelmore
  9. The Corporate Tax Haven Index: A New Geography of Profit Shifting By Petr Jansky; Markus Meinzer; Miroslav Palansky; Leyla Ates; Alex Cobham; Moran Harari; Lucas Millan-Narotzky
  10. The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts By Emmanuel Saez; Gabriel Zucman

  1. By: George Casamatta (Laboratoire Lieux, Identités, eSpaces et Activités (LISA))
    Abstract: We determine the optimal income tax schedule when individuals both determine endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the standard Mirrlees formula to the case of tax avoidance. We also show that the results obtained by (2020) in the fixed income case hold true when labor supply is endogenous: with a low enough marginal cost of avoidance, part of the taxpayers, located in the interior of the skill distribution, optimally choose to avoid taxes.
    Keywords: tax avoidance, optimal income taxation
    JEL: H21 H26
    Date: 2020–06
  2. By: Oztek, Abdullah Selim
    Abstract: The paper studies the optimal income taxation with a finite number of types. It is shown that Rawlsian social welfare and maximax social welfare functions constitute upper and lower bounds for the second-best optimal marginal tax schedules. Therefore any marginal tax schedule with a higher tax rate than Rawlsian bound or with a lower tax rate than maximax bound would be inefficient. Moreover, it is shown that reasonable marginal tax schedules between these two benchmarks could be supported as a second-best tax schedule with appropriate social weights. These results are also valid when bunching is optimal. Additionally, some characterization for the total tax rates at the top and bottom of the income distribution are given.
    Keywords: Public Economics; Optimal Income Taxation
    JEL: H2 H21
    Date: 2019–09–02
  3. By: James R. Hines Jr.
    Abstract: Higher corporate taxes reduce corporate business operations, replacing them with operations by noncorporate businesses that are risky and have undiversified ownership. This shift contributes to income dispersion, with effects so large that higher corporate taxes can increase income inequality even when the corporate tax burden falls entirely on capital owned disproportionately by the rich. Estimates suggest that the riskiness of U.S. noncorporate business increases by 12.3% the aggregate income of the top one percent, and that income dispersion created by a higher U.S. corporate tax rate offsets more than half of the distributional effects of reducing average returns to capital.
    JEL: D31 H22 H25
    Date: 2020–10
  4. By: Claudio Sardoni (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: The paper criticizes the so-called Ricardian equivalence (RE) and its implications for the analysis of the problem of the public debt. It is argued that the validity of the RE hinges on an unsatisfactory view of the economic role of the state as a mere `parasite' and on an unwarranted extension of the micro-economic analysis of debts to the macro-economic level. When dealing with the problem of the ratio of the public debt to GDP, the acceptance of the RE translates into the assumption that the economy's rate of growth is independent of public spending, taxes and debt. On the grounds of the critique of the RE, the paper presents a differ- ent approach, based on the idea that an adequate composition of public spending can ensure a stable public debt ratio even though the government runs a primary deficit. According to such approach, public outlays should be mostly devoted to productive expenditures, i.e. those which a ect the equilibrium rate of growth thanks to their positive impact on overall productivity.
    JEL: E21 E62 E60 H30 H54 H60
    Date: 2020–09
  5. By: Augusto Cerqua (Department of Social Sciences and Economics, Sapienza University of Rome); Emma Galli (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper exploits a sudden increase in the regional surcharge on the income tax rate in Lazio, one of the most populated regions of Italy, to compare taxpayers’ reported income in Lazio’s municipalities with those in the municipalities located in six neighboring regions. To this end, we have built a new yearly dataset (2012-2018) at municipal level containing the reported income of different categories of taxpayers and employ a spatial regression discontinuity design to estimate the response to an increase of the marginal tax rate in terms of reported taxable income by different types of taxpayers. We find a sizable and persistent decrease in reported income only for the self-employed and entrepreneurs, while the employees respond by slowly reducing their declared incomes. As expected, the retirees do not exhibit any response.
    Keywords: Income tax; taxpayers’ responses; spatial regression discontinuity design
    JEL: C21 H26 J21
    Date: 2020–09
  6. By: Kuypers, Sarah; Figari, Francesco; Verbist, Gerlinde
    Abstract: Many researchers and policymakers have made strong arguments for broadening the taxes on wealth and its returns. Although the theoretical literature on (optimal) wealth taxation is growing, there exists a large void in empirical research. This paper addresses this void by analysing the redistributive and budgetary impact of wealth taxes in six European countries using the perspective of the joint distribution of income and wealth. We use data from the Eurosystem Household Finance and Consumption Survey (HFCS) and EUROMOD. We show that existing wealth taxes do not achieve any significant redistribution. Although they are in most cases strongly progressive, the low redistributive effect is mainly due to their small size. Moreover, there is a lack of neutrality in the tax system with regard to the source from which households draw their financial living standard: income or wealth. Hence, existing wealth taxes score badly on both vertical and horizontal equity grounds.
    Date: 2020–10–06
  7. By: Pertti Haaparanta; Ravi Kanbur; Tuuli Paukkeri; Jukka Pirttilä; Matti Tuomala
    Abstract: A common claim in the policy discourse is that a government wishing to achieve equality of opportunity should use public provision of education for equalisation of opportunities rather than income taxation, which only equalizes incomes. We develop a framework in which the tax and education provision rules in the welfarist and non-welfarist/equality of opportunity cases can be transparently compared. We show that in addition to education policies, progressive taxation also plays a role in achieving equality of opportunity, and illustrate how its use may differ under the two objectives. We also show how the provision of public education depends on how private education choices respond, potentially differentially by higher- and lower-income families.
    Keywords: educational subsidies, equality of opportunity, income taxation, inequality, public good provision
    JEL: H21 H40 O12
    Date: 2020
  8. By: Jacob Goldin; Katherine Michelmore
    Abstract: The Child Tax Credit (CTC) provides a cash transfer of up to $2,000 per child under age 17 to millions of families in the United States. Using the Current Population Survey, we examine the aggregate effects and distributional implications of the rules governing children’s eligibility for the credit. While approximately 90% of all children qualify for at least a partial CTC, we document striking disparities in eligibility by income and race. The vast majority of children living in households in the bottom decile of the national AGI distribution are completely ineligible for the CTC and the majority of filers in the bottom thirty percent are eligible only for a partial credit. In contrast, virtually all children living in households in the top half of the income distribution qualify for the full credit amount. Approximately three-quarters of white and Asian children are eligible for the full CTC, compared to only about half of Black and Hispanic children. We use our results to estimate the distributional effects of a range of reforms to the CTC eligibility rules. Our results suggest that reforming the credit to include a larger share of children would more evenly distribute the credit’s benefits across children of different races and incomes.
    JEL: H2
    Date: 2020–10
  9. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Markus Meinzer (Tax Justice Network, London, United Kingdom); Miroslav Palansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic); Leyla Ates (Tax Justice Network, London, United Kingdom); Alex Cobham (Tax Justice Network, London, United Kingdom); Moran Harari (Tax Justice Network, London, United Kingdom); Lucas Millan-Narotzky (Tax Justice Network, London, United Kingdomuthor-Name:)
    Abstract: The geography of corporate profit shifting is often presented in public discourse in simplistic and inaccurate terms. Not only can this easily mislead audiences, but it shapes political responses to the problem in such a way as to undermine the prospects for genuine progress. In this paper, we set out a new approach to the geography of profit shifting, based on a range of objectively verifiable criteria. These are combined in the Corporate Tax Haven Index, published for the first time in 2019. We present the technical argument for the index as a meaningful representation of the global distribution of the risks of corporate tax abuse and explore the new geography that emerges. The key findings show the UK’s dominant responsibility for corporate tax avoidance risks and the colonial roots of many exploitative double tax treaties. We end by considering the index’s political implications for the immediate process of international tax reform, and for the longer-term prospects for global governance in this area. We conclude that greater clarity about the geography of profit shifting is likely to support growing demands for redistribution not only of taxing rights but also of decision-making power in the global architecture for tax governance.
    Keywords: Corporate tax, multinational corporations, tax, transparency, tax avoidance, tax havens, profit shifting
    JEL: F36 F63 F65 H26 O16
    Date: 2020–09
  10. By: Emmanuel Saez; Gabriel Zucman
    Abstract: This paper studies inequality in America through the lens of distributional macroeconomic accounts—comprehensive distributions of the aggregate amount of income and wealth recorded in the official macroeconomic accounts of the United States. We use these distributional macroeconomic accounts to quantify the rise of income and wealth concentration since the late 1970s, the change in tax progressivity, and the direct redistributive effects of government intervention in the economy. Between 1978 and 2018, the share of pre-tax income earned by the top 1% rose from 10% to about 19% and the share of wealth owned by the top 0.1% rose from 7% to about 18%. In 2018, the tax system was regressive at the top end; the top 400 wealthiest Americans paid a lower average tax rate than the macroeconomic tax rate of 29%. We confront our methods and findings with those of other studies, pinpoint the areas where more research is needed, and describe how additional data collection could improve inequality measurement.
    JEL: D31 H20
    Date: 2020–10

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