nep-pub New Economics Papers
on Public Finance
Issue of 2021‒03‒22
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare Effects of Property Taxation By Loeffler, Max; Siegloch, Sebastian
  2. Optimal Taxation of Normal and Excess Returns to Risky Assets By Robin Boadway; Kevin Spiritus
  3. Optimal Taxation of Capital in the Presence of Declining Labor Share By Orhan Erem Atesagaoglu; Hakki Yazici
  4. Generalized Social Marginal Welfare Weights Imply Inconsistent Comparisons of Tax Policies By Itai Sher
  5. Do tax loss restrictions distort venture capital funding of start-ups? By Bührle, Anna Theresa
  6. the General Equilibrium Incidence of the Earned Income Tax Credit By Watson, C. Luke
  7. Optimal Carbon Taxation and Horizontal Equity: A Welfare-Theoretic Approach with Application to German Household Data By Martin C. Hänsel; Max Franks; Matthias Kalkuhl; Ottmar Edenhofer
  8. Does automation erode governments' tax basis? An empirical assessment of tax revenues in Europe By Kerstin H\"otte; Angelos Theodorakopoulos; Pantelis Koutroumpis
  9. The Economy as Reflected in Income Tax Data. By Rao, R. Kavita
  10. Price impact of taxes on sugary drinks in Brazil By Paula Carvalho Pereda; Carolina Policarpo Garcia
  11. Ultra-low tax regime in Imperial China, 1368-1911 By Deng, Kent

  1. By: Loeffler, Max (Maastricht University); Siegloch, Sebastian (University of Mannheim)
    Abstract: We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that the tax incidence depends on how housing prices, labor and other types of incomes as well as public services respond to property tax changes. Empirically, we exploit the German institutional setting with 5,200 municipal tax reforms for identification. We find that higher taxes are fully passed on to rental prices after three years. The pass-through is lower when housing supply is inelastic. Combining reduced form estimates with our theoretical framework, we simulate the welfare effects of property taxes and show that they are regressive.
    Keywords: property taxation, welfare, tax incidence, local labor markets, rental housing
    JEL: H22 H41 H71 R13 R31 R38
    Date: 2021–03
  2. By: Robin Boadway (Department of Economics, Queen's University); Kevin Spiritus (Department of Economics, Erasmus University Rotterdam)
    Abstract: We study the optimal taxation of risk-free and excess capital income with heterogeneous rates of return, alongside an optimal nonlinear earnings tax. Households can hold three assets: one risk-free, one risky but diversifiable, and one a private investment with idiosyncratic risk whose expected return differs among households. Contrary to expectations, the optimal tax on excess returns to risky assets is ineffective for redistribution, because its effects are annulled by a Domar-Musgrave effect. It assumes only an insurance role, and is positive. The optimal tax on risk-free returns does fulfill a redistributive role, insofar the risk-free returns reveal information about the investors' types beyond what is revealed by the earnings tax base. The optimal nonlinear earnings tax takes the standard Mirrleesian form amended to take account of the stochasticity of capital income tax revenue.
    Keywords: optimal capital taxation, Rate-of-Return Allowance, risk, excess returns
    JEL: H21 H23 H24
    Date: 2021–03–18
  3. By: Orhan Erem Atesagaoglu; Hakki Yazici
    Abstract: Numerous recent studies have documented that the labor's share in national income, which has been quite stable until the early 1980's, has been declining at a considerable rate since then. In this paper, we analyze the implications of this decline on the optimal capital and labor income taxation from the perspective of a government that needs to finance spending. Our main qualitative finding is that the optimal tax implications of the decline in the labor share depend on the mechanism responsible for it. In particular, if the labor share is declining because of rising market power or other mechanisms that raise the share of profits in national income, then this decline should optimally be accompanied with a rise in capital income taxes. If, on the other hand, the labor share is declining because of a rise in capital share, then it has no bearing on optimal capital income taxation. The quantitative significance of the decline in labor share for optimal capital taxes depends on the institutional details regarding the taxation of profits: in the baseline scenario, the optimal tax rate on capital income for the U.S. economy starts around zero in early 1980's and rises to about 25% by 2021 in response to the decline in labor share during the same period.
    Date: 2021–03–11
  4. By: Itai Sher (University of Massachusetts Amherst)
    Abstract: This paper concerns Saez and Stantcheva’s (2016) generalized social marginal welfare weights (GSMWW), which are used to aggregate losses and gains due to the tax system, while incorporating non-utilitarian ethical considerations. That approach evaluates local changes in tax policy without appealing to a global social objective. However, I argue that local comparisons between different tax systems implicitly entail global comparisons. Moreover, whenever welfare weights are not of a utilitarian kind, these implied global comparisons are inconsistent. Part of the motivation for the GSMWW approach is that it provides a way to incorporate broader ethical judgements into the evaluation of the tax system while preserving the Pareto principle. I suggest that the problems with the approach ought to spark a reconsideration of Pareto if one wants to represent broader values in formal policy analysis.
    Keywords: welfare weights, optimal taxation, utilitarianism, Pareto principle
    JEL: D63 H21 H23
    Date: 2021–03
  5. By: Bührle, Anna Theresa
    Abstract: Anti-tax loss trafficking rules disallow the use of loss carryforwards after a change in ownership or activity (such as significant changes in turnover, employment, or the product portfolio). This restriction could threaten accumulated loss carryforwards of start-ups. Accounting for the increased risk and reduced return on their investment, VC investors could reduce their funding. I analyze whether the venture capital (VC) funding of start-ups in Europe is affected by these regulations. I base my empirical analysis on several case studies and a panel analysis covering VC- funded companies in the EU28 Member States from 1999 to 2014. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially more mature companies and companies in high-tech industries are affected.
    Keywords: Venture capital,taxes,loss carryforward,start-ups,anti-tax loss trafficking
    JEL: M13 G24 H25
    Date: 2021
  6. By: Watson, C. Luke
    Abstract: The Earned Income Tax Credit is a $67 billion tax expenditure that subsidizes 20% of all workers. Yet all prior analysis uses partial equilibrium assumptions on gross wages. I derive the general equilibrium incidence of wage subsidies and quantify the importance of EITC spillovers in three ways. I calculate the GE incidence of the 1993 and 2009 EITC expansions using new elasticity estimates. I contrast the incidence of counterfactual EITC and Welfare expansions. I quantify the effect of equalizing the EITC for workers with and without children. In all cases, I find spillovers are economically meaningful.
    Date: 2021–02–02
  7. By: Martin C. Hänsel; Max Franks; Matthias Kalkuhl; Ottmar Edenhofer
    Abstract: We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first-best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency.
    Keywords: carbon price, horizontal equity, redistribution, renewable energy subsidies, climate policy, just transition
    JEL: H21 H23 Q52 Q54
    Date: 2021
  8. By: Kerstin H\"otte; Angelos Theodorakopoulos; Pantelis Koutroumpis
    Abstract: Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation (1) on tax revenues, (2) the structure of taxation, and (3) identify channels of impact in 19 EU countries during 1995-2016. Robots and Information and Communication Technologies (ICT) are different technologies designed to automate manual (robots) or cognitive tasks (ICT). Until 2007, robot diffusion led to decreasing factor and tax income, and a shift from taxes on capital to goods. ICTs changed the structure of taxation from capital to labor. We find decreasing employment, but increasing wages and labor income. After 2008, robots have no effect but we find an ICT-induced increase in capital income, a rise of services, but no effect on taxation. Automation goes through different phases with different economic impacts which affect the amount and structure of taxes. Whether automation erodes taxation depends (a) on the technology type, (b) the stage of diffusion and (c) local conditions.
    Date: 2021–03
  9. By: Rao, R. Kavita (National Institute of Public Finance and Policy)
    Date: 2021–03
  10. By: Paula Carvalho Pereda; Carolina Policarpo Garcia
    Abstract: Sugary drink consumption is an important contributor to the current global epidemic of obesity. In recent years, 50 countries or jurisdictions have implemented taxes on sugary drinks as an instrument to discourage consumption. Against the tide, Brazil reduced taxes on these beverages in 2017 and 2018. However, a recent debate – raised by the federal government – has started over taxation of sugary and alcoholic beverages (sin taxes). The effectiveness of this policy will depend on how the taxes are transferred to prices. In this sense, this paper we aim to quantify the impacts of the tax reduction on prices of sugary drinks in Brazil, and therefore to contribute to the debate by calculating the pass-through of taxes to prices of these products in the Brazilian context. We analyze the Brazilian market using a panel data of products, by brand, collected by Euromonitor from 2013 to 2018. Our results suggest that the transfer of taxes to prices depends on the firm size and the type of product, with pass-through rates ranging from 15-124%.
    Keywords: Tax incidence; sugar-sweetened beverages; difference-in-differences
    JEL: H22 D10 I18
    Date: 2021–03–12
  11. By: Deng, Kent
    Keywords: state-peasant alliance; benevolent rule; rent-seeking; tax-burden; mass rebellions; village autonomy
    JEL: B10 H11 N35 N45
    Date: 2021–02

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