nep-pub New Economics Papers
on Public Finance
Issue of 2022‒05‒30
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Losses never sleep: The effect of tax loss offset on stock market returns during economic crises By Koch, Reinald; Holtmann, Svea; Giese, Henning
  2. The evolution of owner-entrepreneurs’ taxation: five tax regimes over a 160-year period By Elert, Niklas; Johansson, Dan; Stenkula, Mikael; Wykman, Niklas
  3. Bunching and Taxing Multidimensional Skills By Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
  4. Sin goods taxation: an encompassing model By Maria Alessandra Antonelli; Valeria De Bonis; Angelo Castaldo; Alessandrao Gandolfo
  5. Wealth Taxation and Charitable Giving By Marius A. K. Ring; Thor Olav Thoresen
  6. The Dynamics of Tax Compliance By Francesco Pappadà

  1. By: Koch, Reinald; Holtmann, Svea; Giese, Henning
    Abstract: We analyze to what extent more generous tax loss offset regulations are associated with a weaker decline and stronger recovery of firm stock prices during economic crises. We argue that an unrestricted loss carryforward and, particularly, an unrestricted loss carryback provides firms with additional liquidity, which should lower the risk of bankruptcy and can be used for investment purposes. Our empirical findings document that (1) an unrestricted loss carryforward and an unrestricted loss carryback result in a weaker decline and more timely recovery of stock prices during the considered crises, (2) this effect is stronger in high-tax countries, and (3) this effect is also dependent upon pre-crisis profitability.
    Keywords: tax loss offset,economic crisis,firm performance
    JEL: H25 G01
    Date: 2022
  2. By: Elert, Niklas (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University School of Business)
    Abstract: The institutional literature suggests that long-term tax incentives are crucial for entrepreneurs, but studies on this topic are hampered by theoretical and empirical problems related to how to define and measure entrepreneurial income. We resolve these problems by drawing on a theoretical definition of the entrepreneur as an owner, which enables us to identify entrepreneurship empirically by means of investments made by active owners of closely held firms. Using detailed Swedish tax data, we analyze the tax incentives for such owner-entrepreneur investments from 1862 to 2018, thereby highlighting the evolution of a general institutional phenomenon through a long-run, in-depth, country-specific analysis. We calculate the annual marginal effective tax rate (METR) on capital income for investments, distinguishing between average- and top-income entrepreneurs, and between three sources of finance. We identify five tax regimes that indicate substantial differences in institutional quality over time according to the magnitude of the METR and METR differences between average- and top-income entrepreneurs and across sources of finance. Increased taxation of owner-entrepreneurs helps explain the absence of new large entrepreneurial firms in Sweden after World War II, while improved incentives can be associated with Sweden’s recent entrepreneurial renaissance.
    Keywords: high-impact entrepreneurship; institutional quality; arginal effective tax rates; tax regimes; tax reforms
    JEL: H21 H31 H32 L25 L26 N44
    Date: 2022–05–12
  3. By: Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
    Abstract: We characterize optimal policies in a multidimensional nonlinear taxation model with bunching. We develop an empirically relevant model with cognitive and manual skills, firm heterogeneity, and labor market sorting. The analysis of optimal policy is based on two main results. We first derive an optimality condition - a general ABC formula - that states that the entire schedule of benefits of taxes second order stochastically dominates the entire schedule of tax distortions. Second, we use Legendre transforms to represent our problem as a linear program. This linearization allows us to solve the model quantitatively and to precisely characterize the regions and patterns of bunching. At an optimum, 9.8 percent of workers is bunched both locally and nonlocally. We introduce two notions of bunching - blunt bunching and targeted bunching. Blunt bunching constitutes 30 percent of all bunching, occurs at the lowest regions of cognitive and manual skills, and lumps the allocations of these workers resulting in a significant distortion. Targeted bunching constitutes 70 percent of all bunching and recognizes the workers' comparative advantage. The planner separates workers on their dominant skill and bunches them on their weaker skill, thus mitigating distortions along the dominant skill dimension. Tax wedges are particularly high for low skilled workers who are bluntly bunched and are also high along the dimension of comparative disadvantage for somewhat more skilled workers who are targetedly bunched.
    Date: 2022–04
  4. By: Maria Alessandra Antonelli; Valeria De Bonis; Angelo Castaldo; Alessandrao Gandolfo (Università Sapienza di Roma - Dipartimento di Studi Giuridici, Filosofici ed Economici)
    Abstract: We analyse optimal sin taxes. After identifying the distinctive features of sin goods, we develop a simple, encompassing framework that allows to treat the main models found in the literature as subcases. We derive the optimal sin tax rates, also considering the subsidisation of healthy goods. We then discuss the Pareto-improvement result obtained in the theoretical literature, confronting it with the debate on the regressivity of this kind of taxation. We highlight the crucial role of the interaction of tastes, self-control problems and poverty when deriving policy conclusions from theoretical models.
    Keywords: Sin goods; Optimal taxation; Tax burden; Consumer sovereignty.
    JEL: H21 H22 D11
    Date: 2022–04
  5. By: Marius A. K. Ring; Thor Olav Thoresen
    Abstract: We provide novel evidence on the linkages between capital taxation and charitable giving on three fronts. First, we use quasi-experimental variation in the annual Norwegian wealth tax to study the effect on how much households give. Inconsistent with the notion that households give more in order to reduce future wealth taxes, we find a small negative effect. This is effect is entirely driven by households paying more in wealth taxes. The extensive-margin variation has no effect, which suggests an absence of intertemporal substitution effects in giving. Second, we study bunching at an income-tax exemption threshold for giving and estimate a modest own-price elasticity that is decreasing in income, age, and wealth. Third, we show that these nominally unrelated tax incentives interact: wealth taxation increases the after-tax own-price elasticity of giving. Overall, our evidence is consistent with modest effects of capital taxation on charitable giving that are primarily driven by income effects.
    Keywords: charitable giving, wealth taxation, tax incentives
    JEL: H24 H31 H41 D64
    Date: 2022
  6. By: Francesco Pappadà (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - 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, Banque de France - Banque de France - Banque de France)
    Abstract: The literature on tax compliance has focused on its level but little is known about its dynamics. This paper shows that fluctuations in tax compliance are driven by changes in the state of the economy and the response of tax compliance to them. Tax compliance is markedly volatile and there are large differences in such volatility across countries. A large fraction of these differences (about 70%) is explained by different responses of tax compliance to tax changes and output fluctuations.
    Keywords: Tax compliance,Volatility,Fiscal policy
    Date: 2022–04

This nep-pub issue is ©2022 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.