nep-pub New Economics Papers
on Public Finance
Issue of 2022‒08‒08
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Taxation of Closely Held Firms: The Achilles Heel of the Dual Income Tax System Reconsidered By Stenkula, Mikael; Wykman, Niklas
  2. "Tax Competition and Efficient Fiscal Transfers under Capital and Labor Income Taxes" By Mutsumi Matsumoto; Hikaru Ogawa
  3. Labor Supply and the Pension-Contribution Link By Eric French; Attila S. Lindner; Cormac O'Dea; Tom A. Zawisza
  4. Capital and Labor Income Pareto Exponents in the United States, 1916-2019 By Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
  5. Predistribution vs. Redistribution:Evidence from France and the U.S. By Antoine Bozio; Bertrand Garbinti; Jonathan Goupille-Lebret; Malka Guillot; Thomas Piketty
  6. Explaining Income and Wealth Inequality over the Long Run: The Case of France By Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret

  1. By: Stenkula, Mikael (Research Institute of Industrial Economics (IFN)); Wykman, Niklas (Örebro University School of Business)
    Abstract: This study presents an improvement of the King-Fullerton framework for calculating the marginal effective tax rate (METR) for active owners of closely held corporations in a dual income tax system with income splitting rules. The original King and Fullerton model was not modeled to incorporate this type of rule, making it difficult to fully calculate the METR in countries with a dual income tax. The model developed in this paper offers a more general method with less restrictive assumptions than earlier analyses of a dual income tax system. To illustrate the results, the model is applied to the Swedish dual income tax system and is contrasted with earlier works, revealing that the METR for new share issues may have been overestimated in earlier calculations. Our model provides a more comprehensive and flexible toolbox for calculating the METR in a dual income tax system with income splitting rules and improves the possibilities to evaluate how changes in the regulatory framework may affect the METR and the neutrality between investment opportunities. As such, the results are relevant not only for Sweden but also for other countries that have implemented a dual income tax system or are considering doing so.
    Keywords: Cost of capital; Marginal effective tax rates; Dual income tax; Income splitting rules; Income shifting
    JEL: H24 H25 H26
    Date: 2022–07–07
  2. By: Mutsumi Matsumoto (Graduate School of Environmental Policies, Nagoya University); Hikaru Ogawa (Faculty of Economics, The University of Tokyo)
    Abstract: This paper considers efficient fiscal transfer policies in a tax competition setting with ad valorem taxation (i.e., income taxation) on mobile capital and immobile labor. We show that fiscal equalization of regions’ capital income tax bases eliminates the inefficiency of horizontal tax competition if these tax bases are evaluated by the average taxable return on capital in all regions, rather than the taxable return in each region. This equalization system, together with revenue matching grants that correct vertical externalities, achieves efficiency. By investigating the nature of horizontal and vertical externalities arising from non-cooperative regional tax policies, we derive formulas for efficient fiscal transfer policies and explain their workings.
    Date: 2022–06
  3. By: Eric French; Attila S. Lindner; Cormac O'Dea; Tom A. Zawisza
    Abstract: We estimate the impact of public pension systems on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution scheme for men born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, we estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. We estimate a lifecycle model that matches these results. The model implies that the change in the contribution-benefit link from the reform increases employment among those in their 30s but decreases it at older ages, reducing overall labor supply across the lifecycle by 2 months.
    JEL: D15 H55 J22 J26
    Date: 2022–06
  4. By: Ji Hyung Lee; Yuya Sasaki; Alexis Akira Toda; Yulong Wang
    Abstract: Accurately estimating income Pareto exponents is challenging due to limitations in data availability and the applicability of statistical methods. Using tabulated summaries of incomes from tax authorities and a recent estimation method, we estimate income Pareto exponents in U.S. for 1916-2019. We find that during the past three decades, the capital and labor income Pareto exponents have been stable at around 1.2 and 2. Our findings suggest that the top tail income and wealth inequality is higher and wealthy agents have twice as large an impact on the aggregate economy than previously thought but there is no clear trend post-1985.
    Date: 2022–06
  5. By: Antoine Bozio (PSE, EHESS); Bertrand Garbinti (CREST-ENSAE-IP Paris, WIL); Jonathan Goupille-Lebret (Univ Lyon, CNRS, GATE UMR 5824, F-69342 Lyon, France, and ENS de Lyon); Malka Guillot (HEC Liège, IPP, WIL); Thomas Piketty (PSE, EHESS)
    Abstract: We construct series of post-tax income for France over the 1900-2018 period and compare them with U.S. series. We quantify the extent of redistribution and estimate the impact of redistribution vs pretax inequality on post-tax inequality. We obtain three major findings. First, redistribution has increased in both countries to reach similar levels today. Second, the long-run decline in post-tax inequality in France is due mostly to the fall in pretax inequality. Third, the relative lower post-tax inequality in France is entirely explained by differences in pretax inequality. This suggests that more attention should be paid to policies affecting pretax inequality.
    Keywords: inequality, redistribution, predistribution, taxes, transfers
    JEL: D3 H2 H3 H5
    Date: 2022
  6. By: Stéphane Auray (CREST-ENSAI, Campus de Kerlann, Bruz); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE-LSE UMR 5824, F-69130 Ecully, France, and Institut Universitaire de France); Bertrand Garbinti (CREST-ENSAE-Institut Polytechnique Paris, Palaiseau); Jonathan Goupille-Lebret (Univ Lyon, CNRS, GATE-LSE UMR 5824, F-69130 Ecully, France, and ENS de Lyon)
    Abstract: We build an original heterogeneous-agent model with three assets (deposits, housing and equity), labor-income risk, entrepreneurs, and a rich and realistic set of flat and progressive taxes and transfers. Using France as an illustration, the model fits the level and dynamics of wealth and income inequalities, the aggregate and distributional tax structure, the composition of wealth along the distribution as well as key macroeconomic aggregates over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.
    Keywords: Heterogeneous Agents, Taxes, Market Power, Income Inequality, Wealth Inequality
    JEL: D4 E2 H2 O4 O52
    Date: 2022

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