nep-pub New Economics Papers
on Public Finance
Issue of 2021‒09‒13
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Taxation in the Endogenous Growth Framework with the Private Information By Guo, Lu; Yan, Chong
  2. Combining microsimulation and optimization to identify optimal universalistic tax-transfer rule By Ugo Colombino; Nizamul Islam
  3. Social Construction and the Progressivity of Local Tax Relief By Momi Dahan
  4. Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach By Egor Malkov
  5. Who Benefits from Tax Incentives? The Heterogeneous Wage Incidence of a Tax Credit By Carbonnier, Clément; Malgouyres, Clément; Py, Loriane; Urvoy, Camille
  6. Fiscal Externalities in Multilevel Tax Structures: Evidence from Concurrent Income Taxation By Federico Revelli; Tsung-Sheng Tsai; Roberto Zotti
  7. Different policy effects of Ramsey and overlapping generations models By Watanabe, Minoru; Yasuoka, Masaya
  8. Intended and Unintended Effects of E-cigarette Taxes on Youth Tobacco Use By Rahi Abouk; Charles J. Courtemanche; Dhaval M. Dave; Bo Feng; Abigail S. Friedman; Johanna Catherine Maclean; Michael F. Pesko; Joseph J. Sabia; Samuel Safford
  9. Real effects of an international tax reform for MNEs By Ortmann, Regina; Simons, Dirk; Voeller, Dennis
  10. A European Wealth Tax for a Fair and Green Recovery By Rafael Wildauer; Stuart Leitch; Jakob Kapeller

  1. By: Guo, Lu; Yan, Chong
    Abstract: Differing from taxes of the new dynamic public finance theory without growth, our paper setups an endogenous growth model with the public finance sector which levies heterogeneous non-linear income taxes and linear flat-rate tax on gross outputs to guarantee the optimal investment in the public goods accumulation. Each taxation has individual effect: heterogeneous non-linear income taxes are used to keep standard Euler equation hold; flat-rate tax is used to compensate for the fiscal gap. The paper firstly makes the growth rate endogenous, and show there is a unique steady state growth rate for every aggregate variable by keeping assumptions of the dynamic general equilibrium theory unchangeable. We further prove the growth must exist when externalities are provided by public finance sector. The steady state growth rate can be expressed by coefficients, and the steady state intertemporal relationships of aggregate variables help us simplify simulation equations and calculations on endogenous heterogeneous non-linear income taxes in infinite periods.
    Keywords: endogenous tax; public finance; growth; uniqueness
    JEL: E6 H21 O41
    Date: 2021–07–16
  2. By: Ugo Colombino; Nizamul Islam
    Abstract: As a response to a changing labour market scenario and to the concerns for increasing costs and bad incentives of traditional income support policies, the last decades have witnessed, in many countries, reforms introducing more sophisticated designs of means-testing, eligibility and tagging. In this paper, we consider an alternative direction of reform that points towards universality, unconditionality and simplicity. Our main research question is whether tax-transfer rules designed according to these alternative criteria might be superior to the current one and could therefore be proposed as a policy reform. We adopt a computational approach to the design of optimal tax-transfer rules, within a flexible class. The exercise is applied to France, Germany, Italy, Luxembourg, Spain and the United Kingdom. The results suggest some common features in all the countries. The optimal tax-transfer rules feature a universal unconditional basic income or, equivalently, a negative income tax with a guaranteed minimum income. The tax profiles are much flatter than the current ones. For most social welfare criteria, and most countries, the simulated tax-transfer rules are superior to the current ones. These results confirm that policy reforms inspired by the principle of Universal Basic Income and Flat Tax might have good chances to dominate the current tax-transfer rules.
    Keywords: empirical optimal taxation; microsimulation; microeconometrics; social welfare evaluation of tax-transfer rules
    JEL: C60 H20 H30
    Date: 2021–09
  3. By: Momi Dahan
    Abstract: This paper reveals a noticeable difference between a high degree of progressivity of incomerelated local property tax relief versus the proportional or regressive incidence of recognition tax relief. Recognition tax relief is tax relief given to specified social sectors which recognizes either their contributions to society or their identity-related suffering. Social groups that are characterized by political power and positive image following social construction process are expected to receive more favorable tax treatment regardless of their material needs. This study advances our understanding by showing that the degree of progressiveness of a tax system is shaped by social construction which implies a more complex trade-off between equality, efficiency and social construction in designing the tax system.
    Keywords: tax relief, property tax, tax progressivity, social construction
    Date: 2021
  4. By: Egor Malkov (University of Minnesota, Federal Reserve Bank of Minneapolis)
    Abstract: This paper develops a framework for assessing the welfare effects of labor income tax changes on married couples. I build a static model of couples' labor supply that features both intensive and extensive margins and derive a tractable expression that delivers a transparent understanding of how labor supply responses, policy parameters, and income distribution affect the reform-induced welfare gains. Using this formula, I conduct a comparative welfare analysis of four tax reforms implemented in the United States over the last four decades, namely the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Tax Cuts and Jobs Act of 2017. I find that these reforms created welfare gains ranging from -0.16 to 0.62 percent of aggregate labor income. A sizable part of the gains is generated by the labor force participation responses of women. Despite three reforms resulted in aggregate welfare gains, I show that each reform created both winners and losers. Furthermore, I uncover two patterns in the relationship between welfare gains and couples' labor income. In particular, the reforms of 1986 and 2017 display a monotonically increasing relationship, while the other two reforms demonstrate a U-shaped pattern. Finally, I characterize the bias in welfare gains resulting from the assumption about a linear tax function. I consider a reform that changes tax progressivity and show that the linearization bias is given by the ratio between the tax progressivity parameter and the inverse elasticity of taxable income. Quantitatively, it means that linearization overestimates the welfare effects of the U.S. tax reforms by 3.6-18.1%.
    Keywords: Taxation of Couples, Tax Reforms, Welfare Analysis, Labor Supply, Sufficient Statistics, Linearization Bias
    JEL: D60 E62 E65 H31 J22
    Date: 2021–09
  5. By: Carbonnier, Clément (Sciences Po, Paris); Malgouyres, Clément (Paris School of Economics); Py, Loriane (Banque de France); Urvoy, Camille (Sciences Po, Paris)
    Abstract: Do workers gain from lower business taxes, and why? We estimate how a large corporate income tax credit in France is passed on to wages and explore the firm- and employee-level underlying mechanisms. The amount of tax credit firms get depends on their payroll share of workers paid less than a wage threshold. Exposure to the policy thus varies both across workers depending on their wage and across firms depending on their wage structure. Using exhaustive employer-employee data, we find that half of the surplus generated by the reform falls onto workers. Wage gains load on incumbents in high-skill occupations. The wage earnings of low-skill workers—nearly all individually eligible—do not change. This heterogeneous wage incidence is unlikely to be driven by scale effects or skill complementarities. We find that the groups of workers benefiting from wage gains are also more likely to continue working for the same firm. Further, we show that firms do not change their wage-setting behavior in response to the individual eligibility status of workers. Overall, our results suggest that the wage incidence of the tax credit operated collectively through rent-sharing and benefited workers most costly to replace.
    Keywords: business taxation, tax incentives, wage incidence, rent sharing
    JEL: D22 H25 H32
    Date: 2021–08
  6. By: Federico Revelli; Tsung-Sheng Tsai; Roberto Zotti
    Abstract: This paper exploits the multi-tiered structure of personal income taxation in Italy to investigate within-tier (horizontal) and between-tiers (vertical and diagonal) fiscal externalities. Estimation of an unrestricted income tax reaction function on municipalities located at internal regional borders using o¤-border Wald-type grouping variables as well as the staggered schedule of mayoral elections as instruments for endogenous spatial lags reveals strong positive spatial dependence in municipal tax rates. On the other hand, there is no evidence of a response of municipal tax rates to regional tax policies, suggesting that border discontinuity estimators that rely on consolidated spatial specifications (lower-plus-upper-tier tax rates) impose restrictions on the parameters of the reaction function that are unwarranted in these circumstances.
    Keywords: fiscal externalities; income taxation; grouping instrumental variable; border discontinuity estimator
    JEL: H24 H71 H73
    Date: 2021
  7. By: Watanabe, Minoru; Yasuoka, Masaya
    Abstract: Effects of taxation are examined in many studies. For such studies, the model economy assumes a logarithmic utility function. Results derived from our study indicate that attention should be devoted to using logarithm utility functions. We check the redistribution policy effect financed by capital income taxation in models of two types: a Ramsey model and an overlapping generations model. If the labor supply is inelastic, then effects of the redistribution policy financed by taxation of capital income differs between the Ramsey model and the overlapping generations model. However, if the labor supply is elastic, then the policy financed by capital income taxation is the same between the Ramsey model and the overlapping generations model. Moreover, this study presents simulation results.
    Keywords: Overlapping generations model, Ramsey model, Redistribution, Taxation
    JEL: E24 H20
    Date: 2021–09–06
  8. By: Rahi Abouk; Charles J. Courtemanche; Dhaval M. Dave; Bo Feng; Abigail S. Friedman; Johanna Catherine Maclean; Michael F. Pesko; Joseph J. Sabia; Samuel Safford
    Abstract: Over the past decade, rising youth use of e-cigarettes and other electronic nicotine delivery systems (ENDS) has prompted aggressive regulation by state and local governments. Between 2010 and 2019, ten states and two large counties adopted ENDS taxes. Applying a continuous treatment difference-in-differences approach to data from two large national datasets (Monitoring the Future and the Youth Risk Behavior Surveillance System), this study explores the impact of ENDS taxes on youth tobacco use. We find that ENDS taxes reduce youth e-cigarette consumption, with estimated e-cigarette tax elasticities of -0.06 to -0.21. However, we estimate sizable positive cigarette cross-tax elasticities, suggesting economic substitution between cigarettes and e-cigarettes for youth. These substitution effects are particularly large for frequent cigarette smoking. We conclude that the unintended effects of ENDS taxation may more than fully offset any public health gains.
    JEL: H2 I1 I18
    Date: 2021–09
  9. By: Ortmann, Regina; Simons, Dirk; Voeller, Dennis
    Abstract: With multinational enterprises (MNEs) centralizing production facilities, market countries claim not to receive their fair share of taxes. A reform of international business taxation that includes new profit allocation rules as well as the introduction of minimum taxation is being considered as a problem mitigating mechanism. We analyze theoretically the real effects of the aforementioned tax reform, i.e., MNEs' adjustments of production and sales decisions. Our findings show that the effects of an international tax reform on sales quantities depend on the properties of the underlying product markets. If national demand resembles characteristics of traditional industries, sales quantities remain unchanged. However, sales quantities are affected if specific demand characteristics of modern business models are assumed. For traditional industries a reformed tax regime increases tax revenues in high-tax market countries and even attracts production. In contrast, for modern business models tax revenues of high-tax countries can even decrease.
    Keywords: BEPS,corporate taxation,minimum taxation,profit shifting,tax avoidance
    JEL: C70 H26 H32 M48
    Date: 2021
  10. By: Rafael Wildauer (Department of International Business and Economics, University of Greenwich); Stuart Leitch (University of Greenwich); Jakob Kapeller (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper investigates the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed. To address the problem of under-reporting of wealth at the top of the distribution in survey data, a Pareto distribution is fitted to the right tail of the data and used to create an amended data set which also represents these missing rich, whose wealth goes unreported.
    Date: 2021–09

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