nep-pub New Economics Papers
on Public Finance
Issue of 2022‒02‒28
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Optimal Labor Income Taxation - The Role of the Skill Distribution By Dingquan Miao
  2. Progress of the Personal Income Tax in Emerging and Developing Countries By Ms. Dora Benedek; Juan Carlos Benitez; Charles Vellutini
  3. Getting the Measure of Inequality By Jenkins, Stephen P.
  4. Would Broadening the UI Tax Base Help Low-Income Workers? By Duggan, Mark; Guo, Audrey; Johnston, Andrew C.
  5. Should Governments Tax Digital Financial Services? A Research Agenda to Understand Sector-Specific Taxes on DFS By Munoz, Laura; Mascagni, Giulia; Prichard, Wilson; Santoro, Fabrizio
  6. Gendered Taxes: The Interaction of Tax Policy with Gender Equality By Mr. Alexander D Klemm; Maria Delgado Coelho; Ms. Carolina Osorio Buitron; Aieshwarya Davis
  7. Investment-Specific Technological Change and Universal Basic Income in the U.S. By Vedor, Bernardo

  1. By: Dingquan Miao
    Abstract: I analyze the role of the distribution of skills in shaping optimal nonlin-ear income tax schedules. I use theoretical skill distributions as well as empirical skill distributions for 14 OECD countries. I find that a more dispersed log-normal skill distribution implies a more progres-sive optimal tax schedule. Optimal tax rates should be lower through-out if a greater number of unskilled agents cluster at the bottom, and the scheme is more progressive if a greater number of agents locate at the top. I also highlight how the impact of the skill distribution is affected by the form of the social welfare function and the utility function. The findings using empirical skill distributions suggest that the results are sensitive to the type of statistical estimator used to estimate the skill distribution.
    JEL: H21 J24
    Date: 2022–01
  2. By: Ms. Dora Benedek; Juan Carlos Benitez; Charles Vellutini
    Abstract: Personal Income Tax (PIT) is one of the key sources of revenues in Advanced Economies (AEs) but plays a much more limited role in Low-Income Developing Countries (LIDCs) and Emerging Market Economies (EMEs), both in terms of revenue and redistributive impact. Notwithstanding, this paper shows that LIDCs and EMEs increased their PIT-to-GDP revenue by 110 and 48 percent, respectively, during the 1990-2019 period, a marked improvement in the PIT revenue performance. We find that this rise was driven primarily by economic developments and to a lesser extent by changes in the design of PIT systems. We also find that LIDCs that improved their tax-to-GDP ratios relied on a broader set of tax instruments and not exclusively on the PIT, suggesting that a successful revenue mobilization strategy of developing countries requires a comprehensive approach covering a wider range of taxes. Finally, using a newly assembled dataset of PIT characteristics of 157 countries over the 2006-2018 period, we estimate a novel redistribution index of the PIT in LIDCs. We show that the contribution of the PIT to inequality reductions has been significant.
    Keywords: Personal income tax, progressivity, redistribution, low-income countries, emerging market economies
    Date: 2022–01–28
  3. By: Jenkins, Stephen P. (London School of Economics)
    Abstract: I focus on one of the most-commonly-cited 'facts'; about UK income inequality – that it has changed little over the last 30 years – and reflect on how robust that description is. I look at a number of fundamental issues in inequality measurement related to inequality concepts (e.g., inequality aversion, relative versus absolute inequality, and inequality of opportunity versus outcome), definitions of 'income', the income-receiving unit, and the reference period, and related data issues. There are grounds for arguing that income inequality levels are higher, and the inequality increase over time greater, than conventional approaches indicate.
    Keywords: top incomes, income inequality, inequality, tax return data, survey data
    JEL: D31 C81
    Date: 2022–01
  4. By: Duggan, Mark (Stanford University); Guo, Audrey (Santa Clara University); Johnston, Andrew C. (University of California, Merced)
    Abstract: The tax base for state unemployment insurance (UI) programs varies significantly in the U.S., from a low of $7,000 annually in California to a high of $52,700 in Washington. Previous research has provided surprisingly little guidance to policy makers regarding the tradeoffs associated with this variation. In this paper, we use 37 years of data for all 50 states and Washington, D.C. to estimate the impact of the UI tax base on labor-market outcomes. We find that the low tax base that exists in California and many other states (and the necessarily higher tax rates that accompany these) negatively affects labor market outcomes for part-time and other low-earning workers.
    Keywords: unemployment insurance, tax base, payroll taxes, experience rating
    JEL: D22 H22 H25 H71 J23 J32 J38 J65
    Date: 2022–01
  5. By: Munoz, Laura; Mascagni, Giulia; Prichard, Wilson; Santoro, Fabrizio
    Abstract: Digital financial services (DFS) have rapidly expanded across Africa and other low-income countries. At the same time, low-income countries face strong pressures to increase domestic resource mobilisation, and major challenges in taxing the digital economy. A growing number are therefore advancing or considering new taxes on DFS. These have generated much debate and there are significant disagreements over the rationale for the taxes and their likely impacts. This paper examines three key questions that could help governments and other stakeholders to better understand the rationale for, and impacts of, different decisions around taxing DFS – and to arrive at policies that best meet competing needs. First, what is the rationale for imposing specific taxes on money transfers or mobile money in particular? Second, and most importantly, what is the likely impact of DFS taxes? Third, how do the policy processes through which taxes on DFS and money transfers are introduced function in practice? The paper looks at the core principles of good taxation and presents the existing debate around whether taxes on DFS observe them. It explains why understanding the landscape of financial services is essential to designing suitable tax policies and lays out a framework for developing the necessary analysis of the impacts of taxes on DFS. It also highlights the importance of better understanding the processes that give rise to these taxes.
    Keywords: Governance,
    Date: 2022
  6. By: Mr. Alexander D Klemm; Maria Delgado Coelho; Ms. Carolina Osorio Buitron; Aieshwarya Davis
    Abstract: This paper provides an overview of the relation between tax policy and gender equality, covering labor, capital and wealth, as well as consumption taxes. It considers implicit and explicit gender biases and corrective taxation. On labor taxes, we discuss the well-established findings on female labor supply and present new empirical work on the impact of household taxation. We also analyze the impact of progressivity on pay gaps and labor supply. On capital and wealth taxation, we discuss the implications of lower effective capital income taxation on the personal income tax burden gap across genders. We show that countries with relatively low female shares of capital income and wealth also tend to tax property and inheritances particularly lightly. On consumption taxes, we cover taxes on female hygiene products and excise taxes, which we assess in relation to externalities and differences in consumption patterns across genders.
    Keywords: Tax, Gender, Labor Supply, Biased Taxes.
    Date: 2022–02–04
  7. By: Vedor, Bernardo
    Abstract: Since 1980, income and wealth inequality increased gradually in the U.S.. Several solutions have been proposed, namely the introduction of a Universal Basic Income (UBI) system. In order to assess whether a UBI financed by a progressive labor tax is a viable solution to reduce inequality, we develop an overlapping generations model, with multiple sources of technological change and four different occupations. Calibrating the model to the U.S. we find that the welfare-maximizing level of UBI is actually quite low, 0.5% of GDP. Even though a higher UBI would decrease income and wealth inequality, it would negatively affect economic efficiency and make all types of agents worse off. The main mechanism is the distortionary effect of higher labor income taxation on capital accumulation which prevents the economy from incorporating the gains from investment-specific technological progress.
    Keywords: Macroeconomics, Income Inequality, Technological Change, Universal Basic Income
    JEL: E21 H21 J31
    Date: 2022–01–25

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