nep-pub New Economics Papers
on Public Finance
Issue of 2022‒08‒15
eleven papers chosen by

  1. Fiscal multipliers in the COVID19 recession. By AUERBACH, Alan J.; Gorodnichenko, Yuriy; McCrory, Peter; Murphy, Daniel
  2. Optimal Income Taxation By Louis Kaplow
  3. One step forward and three steps back: pros and cons of a flat tax reform By Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo; Manzo, Marco; Riganti, Andrea
  4. Will the Remote Work Revolution Undermine Progressive State Income Taxes? By David R. Agrawal; Kirk J. Stark
  5. Property transfer taxes, residential mobility, and welfare By Daniel Jonas Schmidt
  6. Real-Time Inequality By Thomas Blanchet; Emmanuel Saez; Gabriel Zucman
  7. Tax thy neighbour: Corporate tax pass-through into downstream consumer prices in a monetary union By Dedola, Luca; Osbat, Chiara; Reinelt, Timo
  8. How Did Federal Aid to States and Localities Affect Testing and Vaccine Delivery? By Jeffrey Clemens; Philip G. Hoxie; John Kearns; Stan Veuger
  9. You don't need an invoice, do you? An online experiment on collaborative tax evasion By Burgstaller, Lilith; Pfeil, Katharina
  10. Antidumping on Tax-induced Dumping By MUKUNOKI Hiroshi; OKOSHI Hirofumi
  11. Using Divide-and-Conquer to Improve Tax Collection: Evidence from the Field By Lucia Del Carpio; Samuel Kapon; Sylvain Chassang

  1. By: AUERBACH, Alan J.; Gorodnichenko, Yuriy; McCrory, Peter; Murphy, Daniel
    Abstract: In response to the record-breaking COVID19 recession, many governments have adopted unprecedented fiscal stimuli. While countercyclical fiscal policy is effective in fighting conventional recessions, little is known about the effectiveness of fiscal policy in the current environment with widespread shelter-in-place (lockdown) policies and the associated considerable limits on economic activity. Using detailed regional variation in economic conditions, lockdown policies, and U.S. government spending, we document that the effects of government spending were stronger during the peak of the pandemic recession, but only in cities that were not subject to strong stay-at-home orders. We examine mechanisms that can account for our evidence and place our findings in the context of other recent evidence from microdata.
    Keywords: COVID19, Fiscal multiplier, Stimulus
    Date: 2022–09–01
  2. By: Louis Kaplow
    Abstract: This article explores subjects in optimal income taxation characterized by recent research interest, practical importance in light of concerns about inequality, potential for misunderstanding, and prospects for advancement. Throughout, the analysis highlights paths for further investigation. Areas of focus include multidimensional abilities and endogenous wages; asymmetric information and the income of founders; production and consumption externalities from labor effort; market power and rents; behavioral phenomena relating to perceptions of the income tax schedule, myopic labor supply, and the interactions of savings, savings policies, and labor supply; optimal income transfers; the relationship between optimal income taxation and the use of other instruments; and issues relating to the social welfare function and utility functions, including nonwelfarist objectives, welfare weights, heterogeneous preferences, and taxation of the family.
    JEL: A13 D61 D62 D63 D82 D83 H20 H21 H23 H24 H41 H43 H53 H55 J22 L40
    Date: 2022–07
  3. By: Di Caro, Paolo; Figari, Francesco; Fiorio, Carlo; Manzo, Marco; Riganti, Andrea
    Abstract: We use a rich administrative dataset on individual tax returns from 2008 to 2015 to analyse the behavioural and distributive effects of a flat tax (FT) reform introduced in 2011 for residential property income in Italy replacing the progressive personal income tax. Linking a panel of individual tax data with cadastral property records, and using a difference-in-difference identification strategy, we address five research questions: (i) does the FT increase the probability of declaring a positive rental income to the tax authorities? (ii) does the FT increase the declared tax base? (iii) is the reduced tax burden shared with the tenant? (iv) does the FT affect the overall tax revenue? (v) who are the gainers of the policy? The estimated intention-to-treat effects suggest that the decrease of tax evasion is limited whereas tax burden reduction is large, it is not shared with tenants and it mostly benefits top-income taxpayers. Overall, top 1% of property owners reap about 20% of the overall lost tax revenues.
    Keywords: Flat tax reform; administrative data; tax evasion; income distribution
    JEL: D12 H24 H25
    Date: 2022–07–01
  4. By: David R. Agrawal; Kirk J. Stark
    Abstract: The remote work revolution raises the possibility that a larger segment of the population will be able to sever the geographic linkage between home and work. What are the taxing rights of states as to nonresident remote workers? May a state impose income taxes on nonresident employees only to the extent they are physically working within the state? Does state taxing power extend to all income derived from in-state firms, including wages paid to those who never set foot in the state? Standard sourcing rules attribute wage income to the employee’s physical location. In the presence of remote work, however, rigid adherence to this physical presence rule could intensify the progressivity-limiting dynamics of federalism by reducing the costs to households of exploiting labor income tax differentials across jurisdictions. We document the rise of remote work and the status of state-level income tax progressivity as well as its evolution over time. We consider how alternative legal rules for the sourcing of income can affect telework-induced mobility, but conclude that, regardless of which sourcing regime prevails in coming legal battles, the rise of remote work is likely to limit redistribution via state income taxes. While some sourcing rules may better preserve progressivity in the short term than others, the more fundamental threat to progressive state tax regimes derives from remote work’s long-term erosion of the benefits of urban spatial clustering. To the extent that the nation’s productive cities lose their allure as centers of agglomeration and the wages of high-skilled workers in these cities fall, the ability of their host states to pursue redistributive tax policies will likely be constrained. These deglomeration effects will arise regardless of how state taxing rights are adapted for the remote work era, and therefore may carry with them implications for income tax progressivity at the federal level.
    Keywords: income tax, remote work, sourcing rules, progressivity
    JEL: H20 H70 J60 K30 R50
    Date: 2022
  5. By: Daniel Jonas Schmidt (University of Amsterdam)
    Abstract: In this paper, I develop an overlapping generations model to analyze the effects of property transfer taxes on homeownership, residential mobility, and welfare in the Netherlands. A revenue-neutral abolition of the 2% transfer tax increases the likelihood that homeowners sell their old house and buy a new one by about 40%. It also leads to a rise of the homeownership rate by 1-5 percentage points (depending on how revenue neutrality is achieved). Newborns prefer to live in an economy without property transfer taxes if the forgone tax revenues are replaced with higher annual property taxes, but not if revenue neutrality is achieved with higher income taxes. I also consider a partial reform that only exempts young first-time homebuyers from the transfer tax and is financed with higher annual property taxes. The resulting welfare gains are approximately one half of the welfare gains from the complete reform.
    Keywords: Property transfer tax, transaction tax, stamp duty, first-time buyers, residential mobility, OLG model
    JEL: R28 E60 R21
  6. By: Thomas Blanchet; Emmanuel Saez; Gabriel Zucman
    Abstract: This paper constructs high-frequency and timely income distributions for the United States. We develop a methodology to combine the information contained in high-frequency public data sources—including monthly household and employment surveys, quarterly censuses of employment and wages, and monthly and quarterly national accounts statistics—in a unified framework. This allows us to estimate economic growth by income groups, race, and gender consistent with quarterly releases of macroeconomic growth, and to track the distributional impacts of government policies during and in the aftermath of recessions in real time. We test and successfully validate our methodology by implementing it retrospectively back to 1976. Analyzing the Covid-19 pandemic, we find that all income groups recovered their pre-crisis pretax income level within 20 months of the beginning of the recession. Although the recovery was primarily driven by jobs rather than wage growth, wages experienced significant gains at the bottom of the distribution, highlighting the equalizing effects of tight labor markets. After accounting for taxes and cash transfers, real disposable income for the bottom 50% was 20% higher in 2021 than in 2019, but fell in the first half of 2022 as the expansion of the welfare state during the pandemic was rolled back. All estimates are available at and are updated with each quarterly release of the national accounts, within a few hours.
    JEL: E01 H2 H5 J3
    Date: 2022–07
  7. By: Dedola, Luca; Osbat, Chiara; Reinelt, Timo
    Abstract: We estimate the response of product-level retail prices to changes in the corporate tax rates paid by wholesale producers (pass-through). Under perfect competition in goods and factor markets, pass-through of corporate taxes should be zero, and their incidence mainly falls on factor prices. We use variation in tax rates across time and space in Germany, where municipalities set the local business tax once a year, to provide estimates of tax pass-through into the retail prices of more than 125,000 food and personal care products sold across Germany. By leveraging 1,058 changes in the local business tax rate between 2013 and 2017, we find that a one percentage point tax increase results in a 0.4% increase in the retail prices of goods produced by taxed _rms and purchased by consumers in the rest of Germany, who thus end up bearing a substantial share of the tax burden. This finding suggests that manufacturers may exploit their market power to shield profits from corporate taxes, complicating the analysis of the redistributive effects of tax reforms. We also explore various dimensions of heterogeneity in pass-through related to market power, including producer size, market shares, and retail store types. While producer heterogeneity does not seem to matter, the significant passthrough of corporate taxes to consumer prices in the low inflation period covered by our sample is mostly due to price changes in supermarkets and hypermarkets. JEL Classification: F12, F45, E13, H71, L11
    Keywords: corporate taxes, imperfect competition, producer pass-through to retail prices, vertical interactions
    Date: 2022–07
  8. By: Jeffrey Clemens; Philip G. Hoxie; John Kearns; Stan Veuger
    Abstract: We estimate whether federal aid for state and local governments played a role in advancing population testing for COVID-19 and the administration of vaccines. To overcome biases that can result from the endogeneity of federal aid allocations, we use an instrumental-variables estimator reliant on the substantial variation in federal aid predicted by variation in states’ congressional representation. We find that federal fiscal assistance dollars had a modest if any impact on the pace of vaccine rollouts, may have improved the equitability of vaccine administration, and had a substantial impact on the volume of tests administered. Regarding the total number of vaccines delivered, we estimate that an additional $1,000 in fiscal relief per resident, which would amount to $330 billion nationwide, translated into just under 1,200 extra doses of the vaccine being delivered per 100,000 people, with the upper bound of our confidence interval suggesting that we can rule out effects in excess of 7,030 extra doses per 100,000 people. We find that federal dollars predict a smaller gap between the vaccination rates of those with a college education relative to those with a high school education. Finally, our baseline estimate implies that each $1,000 in COVID-19 relief aid per capita generated 55,850 additional tests per 100,000 people.
    JEL: H75 H77 I14
    Date: 2022–07
  9. By: Burgstaller, Lilith; Pfeil, Katharina
    Abstract: Collaborative evasion of taxes and social security fees is prevalent in household services, when a household hires a service provider and no third party is involved. However, evidence on the determinants of collaborative tax evasion in general and the household context in particular is lacking. This paper examines two coordination mechanisms of collaborative tax evasion: A partner's signaled intention and information about majority's evasion behavior (empirical evasion expectation). We implement an interactive tax evasion game in an online labor market (MTurk) with 560 participants. Our findings show that priming with an empirical evasion expectation increases the fraction of evaded transactions by 20 percentage points. Our treatment manipulation of intention signals does not render a significant effect on evasion. However, when willingness to evade is signaled first in the chat, the probability of evasion increases by 45 percentage points.
    Keywords: Collaborative Tax Evasion,Compliance,Social Norm,Intention,Online Experiment
    JEL: H26 E26 O17 D91
    Date: 2022
  10. By: MUKUNOKI Hiroshi; OKOSHI Hirofumi
    Abstract: This study theoretically investigates the effects of antidumping protection on tax-induced dumping. When the goods are exported from a high-tax to a low-tax country, the exporters have an incentive to set a lower internal price to their distribution affiliates in the destination country. By doing so, they are able to avoid high taxes and also gain a stronger position in the product market. The politically-motivated importing country can implement antidumping protection to protect domestic firms. It is shown that a more stringent regulation on transfer pricing can trigger the antidumping protection, which benefits the exporting country due to larger tax revenues and larger consumer surplus. It also improves the world welfare. However, when the antidumping protection is implemented, a further tightening of the transfer-price regulations may worsen the exporting country’s welfare and the world welfare. These results suggest an important link between tax policies and trade policies.
    Date: 2022–07
  11. By: Lucia Del Carpio; Samuel Kapon; Sylvain Chassang
    Abstract: In the context of collecting property taxes from 13432 households in a district of Lima (Peru), we investigate whether prioritized enforcement can improve the effective use of limited enforcement capacity. We randomly assign households to two treatment arms: one replicating the city’s usual collection policy, and one implementing a prioritized enforcement rule in which households are ordered according to a suitable rank and sequentially issued clear short-term promises of collection if they fail to make minimum tax payments. Raw findings show that prioritized enforcement improved tax collection by increasing tax revenue, and decreasing the number of costly collection actions taken. We identify an important friction ignored by existing theory: tax-payers’ response to incentives is slow, which changes the optimal management of collection promises. Finally, we estimate a model of tax-payer behavior and use it to produce counterfactual treatment estimates for other collection policies of interest. In particular, we estimate that, keeping the number of collection actions fixed, prioritized enforcement would increase tax revenue over 5 months by 11.3%.
    JEL: C72 D04 D82 H26
    Date: 2022–07

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