nep-pub New Economics Papers
on Public Finance
Issue of 2021‒06‒21
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation of Assets By Nicolaus Tideman; Thomas Mecherikunnel
  2. Static and Dynamic Mirrleesian Taxation with Non-separable Preferences: A Unified Approach By Hellwig, Christian
  3. Nonlinear Taxation and International Mobility in General Equilibrium By Eckhard Janeba; Karl Schulz
  4. Do Corporate Tax Cuts Boost Economic Growth? By Sebastian Gechert; Philipp Heimberger
  5. Can the wealth tax be a remedy for public finance and reduce wealth inequalities in Poland? By Marcin Wroñski
  6. Monopsony Power, Income Taxation and Welfare By Albert Jan Hummel
  7. Innovation for Tax Avoidance: Product Differentiation and the Arm's Length Principle By OKOSHI Hirofumi

  1. By: Nicolaus Tideman; Thomas Mecherikunnel
    Abstract: The optimal taxation of assets requires attention to two concerns: 1) the elasticity of the supply of assets and 2) the impact of taxing assets on distributional objectives. The most efficient way to attend to these two concerns is to tax assets of different types separately, rather than having one tax on all assets. When assets are created by specialized effort rather than by saving, as with innovations, discoveries of mineral deposits and development of unregulated natural monopolies, it is interesting to consider a regime in which the government awards a prize for the creation of the asset and then collects the remaining value of the asset in taxes. Analytically, the prize is like a wage after taxes. In this perspective, prizes are awarded based on a variation on optimal taxation theory, while assets of different types are taxed in divergent ways, depending on their characteristics. Some categories of assets are abolished.
    Date: 2021–06
  2. By: Hellwig, Christian
    Abstract: I analyze dynamic Mirrlees taxation with preferences that are non-separable between con- sumption, leisure and type, which determines both ability and consumption needs. I show how to account for non-separable preferences through a simple change in probability measures. I ge- neralize the existing Inverse Euler Equation and optimal static labor tax formulae and provide a unied intuition based on a set of perturbations around the optimal allocations that preserve expected utility and incentive compatibility. Non-separability in preferences gives rise to a new tradeo between current and future redistribution that is internalized by the planner's solution but not by private savings decisions. This leads to a novel rationale to subsidize (tax) savings and make labor taxes more (less) persistent, when more productive agents also have higher (lower) consumption needs.
    Date: 2021–06
  3. By: Eckhard Janeba; Karl Schulz
    Abstract: We study the nonlinear taxation of internationally mobile workers in general equilibrium. Contrary to conventional wisdom, in general equilibrium, migration lowers the bottom tax rate but raises the top tax rate, making the optimal tax system more progressive and moving tax rates closer to those in an economy with fixed wages. The intuition is that governments attract high-skilled workers by amplifying pre-tax wage inequality and partly offsetting trickle-down forces from production complementarities. This finding raises doubts about the importance of trickle-down for optimal taxation and offers a novel explanation for why globalization may increase tax progressivity and wage inequality.
    Keywords: optimal taxation, general equilibrium, trickle-down effects, migration, tax/subsidy competition
    JEL: H21 H24 H73 F22 R13
    Date: 2021
  4. By: Sebastian Gechert; Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The empirical literature on the impact of corporate taxes on economic growth reaches ambiguous conclusions corporate tax cuts increase, reduce, or do not significantly affect growth. We apply meta-regression methods to a novel dataset with 441 estimates from 42 primary studies. There is evidence for publication selectivity in favour of reporting growth-enhancing effects of corporate tax cuts. Correcting for this bias, we cannot reject the hypothesis of a zero effect of corporate taxes on growth. Several factors influence reported estimates, including researcher choices concerning the measurement of growth and corporate taxes, and controlling for other budgetary components.
    Keywords: Corporate income taxes; economic growth; meta-analysis
    JEL: E60 H25 O40
    Date: 2021–06
  5. By: Marcin Wroñski
    Abstract: Wealth tax proponents suggest that it should be introduced in order to reduce wealth inequalities and to gain additional tax revenues. In this paper, based on empirical data, I will attempt to prove that these objectives are hardly attainable through wealth tax. The impact of wealth tax on wealth inequalities would be rather low, as would any revenues resulting from its introduction. The tax would be paid by a relatively small number of taxpayers. Furthermore, the administrative requirements to collect it would be expensive and complicated. Therefore, since the benefit-cost ratio is unfavourable, the implementation of a wealth tax is an unfeasible solution. Instead, the objectives behind the wealth tax may be attained more effectively through a more progressive tax system and the imposition of an inheritance tax.
    Keywords: inequalities, public finance, wealth tax
    Date: 2021–04
  6. By: Albert Jan Hummel
    Abstract: This paper studies the implications of monopsony power for optimal income taxation and welfare. Firms observe workers’ abilities while the government does not and monopsony power determines what share of the labor market surplus is translated into profits. Monopsony power increases the tax incidence that falls on firms. This makes labor income taxes less (more) effective in redistributing labor income (profits). The optimal tax schedule is less progressive. Monopsony power alleviates the equity-efficiency trade-off that occurs because the government does not observe ability, but at the expense of exacerbating capital income inequality. I illustrate these findings for the US economy.
    Keywords: monopsony, optimal taxation, tax incidence
    JEL: H21 H22 J42 J48
    Date: 2021
  7. By: OKOSHI Hirofumi
    Abstract: Product differentiation both enhances consumer utility and firm profits but at the same time makes it difficult for tax authorities to audit MNE tax avoidance strategies, as the arm's length principle is difficult to apply. This paper incorporates these positive and negative aspects of product differentiation and studies the interrelation between profit shifting and product differentiation. The model shows that MNEs engage in more investment in product differentiation in the presence of profit shifting opportunities, and that globalization accelerates the investment. The model also shows that globalization can improve welfare in a non-tax haven.
    Date: 2021–05

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