nep-pub New Economics Papers
on Public Finance
Issue of 2021‒09‒27
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Income Taxation under Monopolistic Competition By Alexander Tarasov; Robertas Zubrickas
  2. IPOs and Corporate Taxes By Christine L. Dobridge; Rebecca Lester; Andrew Whitten
  3. Can Today's and Tomorrow's World Uniformly Gain from Carbon Taxation? By Laurence J. Kotlikoff; Felix Kubler; Andrey Polbin; Simon Scheidegger
  4. Unilateral Tax Policy in the Open Economy By Miriam Kohl; Philipp M. Richter
  5. Empathy and the Efficient Provision of Public Goods By Geoffrey Heal
  6. Rising top-income persistence in Australia: evidence from income tax data By Hérault, Nicolas; Hyslop, Dean; Jenkins, Stephen P.; Wilkins, Roger

  1. By: Alexander Tarasov; Robertas Zubrickas
    Abstract: This paper is concerned with cross-dependencies between endogenous market structure and tax policy. We extend the Mirrlees (1971) model of income taxation with a monopolistic competition framework with general additively separable consumer preferences. We show that price and variety distortions resulting from the market structure imply that income tax policy needs to be complemented with commodity or firm taxation to achieve the constrained social optimum. We calibrate the model and find that, when choosing optimal tax policy, the failure to account for the market structure results in a welfare loss of 1:77 percent. Motivated by practical cases, we study a policy regime that is solely based on income taxation. Under this policy regime, departures from the social optimum can be compensated by lower and less regressive income taxes than those obtained under the regime with all forms of taxation. We also examine the role of consumer preferences for policy outcomes and show that it is substantially amplified by an endogenous market structure.
    Keywords: tax policy, monopolistic competition, variety effect, consumer preferences, endogenous labor
    JEL: D43 H21 L13
    Date: 2021
  2. By: Christine L. Dobridge; Rebecca Lester; Andrew Whitten
    Abstract: How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
    Keywords: Corporate tax; IPO; Investment; Tax haven
    JEL: G31 G32 H25
    Date: 2021–09–07
  3. By: Laurence J. Kotlikoff; Felix Kubler; Andrey Polbin; Simon Scheidegger
    Abstract: Carbon taxation is a widely proposed and in some countries already adopted means to limit anthropogenic climate change. This paper studies carbon taxation using an 18-region, 80- period overlapping generations model. We focus on carbon policy that delivers present and future mankind the highest uniform percentage welfare gain. The policy combines global carbon taxation and region- and generation-specific net transfers. In our main calibration, uniform welfare-improving carbon tax policy can make those agents already here and those yet to come, no matter their location, 4.35 percent better off. Achieving (such) equal proportionate gains, which may be needed for universal support, requires major interregional as well as intergenerational transfers. Universal support, though, is not essential. For example, even absent participation by China, whose projected carbon emissions are massive, the rest of the world can still materially limit the carbon externality. However, absent China, their optimal carbon tax is roughly half as large, and the uniform welfare-improving gain is less than three-fifths as large.
    JEL: H23 O44
    Date: 2021–09
  4. By: Miriam Kohl; Philipp M. Richter
    Abstract: This paper examines the effects of a unilateral reform of the redistribution policy in an economy open to international trade. We set up a general equilibrium trade model with heterogeneous agents allowing for country asymmetries. We show that under international trade compared to autarky, a unilateral tax increase leads to a less pronounced decline in aggregate real income in the reforming country, while income inequality is reduced to a larger extent for sufficiently small initial tax rates. We highlight as a key mechanism a tax-induced reduction in the market size of the reforming country relative to its trading partner, resulting in a firm selection effect towards exporting. From the perspective of a non-reforming trading partner, the unilateral redistribution policy reform resembles a unilateral increase in trade costs leading to a deterioration of terms-of-trade and a decline in both aggregate real income and inequality.
    Keywords: income inequality, redistribution, international trade, heterogeneous firms
    JEL: D31 F12 F16 H24
    Date: 2021
  5. By: Geoffrey Heal
    Abstract: I consider the effect of empathy towards others on the internalization of interpersonal externalities and on private contributions to the provision of public goods. I show that if preferences are empathetic in the sense of depending on the well-being of others, then in an extreme case external effects are fully internalized, and private contributions to the provision of a public good will be sufficient for it to be provided at an efficient level. Furthermore I show that an increase in the level of empathy shown by any agent will lead to an increase in the level of provision of the public good, and that as empathy levels increase towards their upper bound, the level of provision of the public good converges to the efficient level. Under certain conditions an increase in empathy is Pareto improving. As it is well-documented that people display some degree of empathy, it is arguable that our failure to provide public goods at efficient levels is attributable to lack of empathy as well as to the free rider problem.
    JEL: H00 H23 H41
    Date: 2021–09
  6. By: Hérault, Nicolas; Hyslop, Dean; Jenkins, Stephen P.; Wilkins, Roger
    Abstract: We use a new Australian longitudinal income tax dataset, Alife, covering 1991–2017, to examine levels and trends in the persistence in top-income group membership, focussing on the top 1%. We summarize persistence in multiple ways, documenting levels and trends in rates of remaining in top-income groups; re-entry to the top; the income changes associated with top-income transitions; and we also compare top-income persistence rates for annual and ‘permanent’ incomes. Regardless of the perspective taken, top-income persistence increased markedly over the period, with most of the increase occurring in the mid-2000s and early 2010s. In the mid- to late2010s, Australian top-income persistence rates appear to have been near the top of the range of tax-data estimates for other countries. Using univariate breakdowns and multivariate regression, we show that the rise in top-income persistence in Australia was experienced by many population subgroups.
    Keywords: top incomes; income mobility; top-income persistence
    JEL: D31 I31 C81
    Date: 2021–09

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