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on Public Finance |
| By: | Axelle Ferriere (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Philipp Grubener (Goethe-University - Goethe-Universität Frankfurt am Main); Gaston Navarro (Federal Reserve Board); Oliko Vardishvili (Yale University [New Haven]) |
| Abstract: | We study the optimal joint design of targeted transfers and progressive income taxes. We develop a simple analytical model and demonstrate an optimally negative relation between transfers and income-tax progressivity, due to both efficiency and redistribution concerns. That is, higher transfers should be financed with lower income-tax progressivity. We next quantify the optimal fiscal plan in a rich dynamic model calibrated to the U.S. economy. Transfers should be generous and financed with moderate income-tax progressivity. To redistribute while preserving efficiency, average tax-and-transfer rates should be more progressive than marginal rates. Transfers, even if lump-sum, precisely allow to disentangle average from marginal rates. Targeted transfers further implement non-monotonic marginal rates, but generate only modest additional gains relative to a lump-sum transfer. Quantitatively, the left tail of the income distribution determines the optimal size of the transfer, while the right tail drives the optimal income-tax progressivity. |
| Keywords: | Fiscal Policy,Optimal Taxation,Redistribution,Heterogeneous Agents |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03466762&r= |
| By: | Morten Støstad (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Frank Cowell (LSE - London School of Economics and Political Science) |
| Abstract: | This paper proposes to treat income inequality as an economic externality in order to in troduce the societal effects of inequality into welfarist models. We introduce such effects in a simple and generalizable welfarist framework and show that they can have sizeable optimal policy consequences that cannot be captured by standard risk aversion or social welfare weights. Novel policy implications are illustrated through the classical optimal non-linear income taxation model, where the social planner must face a trade-off between collecting revenue and changing income inequality levels. Resulting policy consequences are disproportionately located at the top, where optimal marginal tax rates are strongly and robustly dependent on the magnitude of the inequality externality. We use several real-world examples to show that tax policy previ ously unsupported by optimal taxation theory can be explained in our framework. The findings indicate that the magnitude of the inequality externality could be considered a crucial economic variable. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03495989&r= |
| By: | Domenico Ferraro; Giuseppe Fiori |
| Abstract: | We study the non-linear propagation mechanism of tax policy in a heterogeneous agent equilibrium business cycle model with search frictions in the labor market and an extensive margin of employment adjustment. The model exhibits endogenous job destruction and endogenous hiring standards in the form of occasionally-binding zero-surplus constraints. After parameterizing the model using U.S. data, we find that the dynamic response of employment to a temporary change in the labor income tax is highly non-linear, displaying sizable asymmetries and state-dependence. Notably, the response to a tax rate cut is at least twice as large in a recession as in an expansion. |
| Keywords: | Search frictions; Job destruction; Heterogeneity; Aggregation; Tax policy |
| JEL: | E12 E24 E32 E62 |
| Date: | 2021–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1333&r= |
| By: | Mario Mansour; Mr. Philippe Wingender; Patrick Petit |
| Abstract: | Fighting the obesity epidemic4 has so far proven a difficult challenge, given the diversity of natural and processed foods, the complexity of food supply chains, and the fact that targeting excessive caloric consumption is far trickier than reducing overall consumption (as for tobacco). Nevertheless, efforts to curb caloric intake are gearing up and the experience from tobacco control has drawn much attention on a potential role for excise taxes in fighting obesity. Many related questions have therefore been raised as part of the IMF’s capacity development work: Should excises on unhealthy food be used to fight obesity? If so, under what conditions? What are the product and market characteristics that would help identify the relevant tax bases and the rates at which to tax them? While acknowledging that the scientific evidence keeps evolving, this note summarizes the ongoing debate and practice on food excises and on their potential role as a policy tool to fight the obesity epidemic, with a view to assist policymakers in deciding whether to go forward, and if so, how.How to Apply Excise Taxes to Fight Obesity |
| Keywords: | health, obesity, excise taxes |
| Date: | 2021–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:2021/008&r= |
| By: | Julian Diaz Saavedra (Department of Economic Theory and Economic History, University of Granada.); Ramon Marimon (European University Institute, UPF - Barcelona GSE, CEPR and NBER.); Joao Brogueira de Sousa (Nova School of Business and Economics.) |
| Abstract: | With ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades, threatening the sustainability of these systems. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform – measured by average social welfare in the economy – existing pay-as-you go systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing steady-state economies after the ongoing demographic transition under these different pension systems and by showing how a front-loaded transition from the PAYG to the BP system, ahead of the ‘ageing transition’, can be Pareto improving (i.e. without losers), while minimizing the cost of the reform. |
| Keywords: | Social security reform, Ageing, Taxation. |
| JEL: | C68 H55 J26 |
| Date: | 2021–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:21/15&r= |
| By: | Diya Elizabeth Abraham (Vienna University of Economics and Business & Masaryk University); Luca Corazzini (University of Venice, "Ca' Foscari"); Miloš Fišar (Vienna University of Economics and Business & Masaryk University); Tommaso Reggiani (Cardiff University, Masaryk University & IZA) |
| Abstract: | Experimental studies have modeled individual funding of social projects as contributions to a threshold public good. We examine donors’ behavior when they face multiple threshold public goods and the possibility of coordinating their contributions via an intermediary. Employing the experimental design developed in Corazzini, Cotton, and Reggiani (2020), we vary both the size of a ‘destination rule’, which places restrictions on the intermediary’s use of a donor’s funds, as well as the overhead cost of the intermediary, modeled as a sunk cost incurred by the intermediary whether or not any of the public goods are successfully funded. We show that subjects behave in line with equilibrium predictions with regard to the size of the destination rule, only increasing their contributions in the presence of a relatively high destination rule that prevents expropriation by the intermediary. However, we find that the positive effect of a high destination rule is undone in the presence of overhead sunk costs on the intermediary, thus providing evidence in favor of the sunk-cost bias and ‘overhead aversion’ that are commonly exhibited by donors when selecting charities. |
| Keywords: | overhead aversion, threshold public goods, delegation, fundraising |
| JEL: | C91 C92 H40 H41 L31 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:mub:wpaper:2021-14&r= |