nep-pub New Economics Papers
on Public Finance
Issue of 2022‒11‒07
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Globalization and Factor Income Taxation By Bachas,Pierre Jean; Fisher-Post,Matthew; Jensen,Anders; Zucman,Gabriel
  2. Optimal Institutions Under Persistent Tax Uncertainty By Victor Peirone
  3. Sufficient Statistics for Nonlinear Tax Systems with General Across-Income Heterogeneity By Antoine Ferey; Benjamin B. Lockwood; Dmitry Taubinsky
  4. Tax reforms and network effects By Ferreira, Pedro Cavalcanti; Delalibera, Bruno Ricardo; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
  5. Optimal fiscal and monetary policy with preference over safe assets By Guillermo Santos
  6. Revisiting the Effects of Cigarette Taxes on Smoking Outcomes By Vinish Shrestha
  7. The EITC and the Extensive Margin: A Reappraisal By Henrik Kleven
  8. So close and yet so far: the ability of mandatory disclosure rules to crack down on offshore tax evasion By Elisa Casi; Mohammed Mardan; Rohit Reddy Muddasani
  9. Pass-through of Temporary Fuel Tax Reductions: Evidence from Europe By Chiara Drolsbach; Maximilian Maurice Gail; Phil-Adrian Klotz
  10. The Effects of Income on the Economic Wellbeing of Families with Low Incomes: Evidence from the 2021 Expanded Child Tax Credit By Natasha Pilkauskas; Katherine Michelmore; Nicole Kovski; H. Luke Shaefer
  11. Do Tax Subsidies for Retirement Saving Impact Total Private Saving? New Evidence on Middle-income Workers By Camilla Skovbo Christensen; Bastian Emil Ellegaard

  1. By: Bachas,Pierre Jean; Fisher-Post,Matthew; Jensen,Anders; Zucman,Gabriel
    Abstract: How has globalization affected the relative taxation of labor and capital, and why To addressthis question, this paper builds and analyzes a new database of effective macroeconomic tax rates covering 150 countriessince 1965, constructed by combining national accounts data with government revenue statistics. Four main findings areobtained. (1) The effective tax rates on labor and capital have converged globally since the 1960s, due to a 10percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) Thedecline in capital taxation is concentrated in high-income countries. By contrast, capital taxation has increased indeveloping countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs,the findings show that the rise in capital taxation in developing countries can be explained by a tax capacityeffect of international trade: trade openness leads to a concentration of economic activity in formal corporatestructures, where capital taxes are easier to impose. (4) At the same time, international economic integration reducesstatutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effectof trade has dominated, while in developing countries, the positive tax-capacity effect of international trade appearsto have prevailed.
    Date: 2022–03–15
  2. By: Victor Peirone
    Abstract: Various economic models ignore the complexity of green field investment and do not assign a fundamental role to institutional uncertainty on the decision making of capital expenditures. These assumptions can be applicable to developed nations, but do not certainly fit into emerging economies. We found that countries with greater volatility in taxation invest less on average. In the Argentine case, this country is among the 1/8 highest tax volatility and lowest investment economies in a sample of ninety nations. Here we explore a tool kit to analyze policies and institutional arrangements to improve pareto optimal outcome.
    JEL: E C7 H2
    Date: 2022–10
  3. By: Antoine Ferey; Benjamin B. Lockwood; Dmitry Taubinsky
    Abstract: This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of across-income heterogeneity in preferences, inheritances, income-shifting capabilities, and other sources. We study unrestricted tax systems on income and savings (or other commodities), as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for general across-income heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. We provide tractable extensions of these results that include multidimensional heterogeneity, additional efficiency rationales for taxing heterogeneous returns, and corrective motives to encourage more saving. Drawing on recent empirical work, we apply our formulas to savings and wealth taxation in the U.S., and find that the optimal savings tax is positive and progressive.
    Keywords: sufficient statistics, nonlinear tax systems, general heterogeneity
    JEL: D61 H21 H24
    Date: 2022
  4. By: Ferreira, Pedro Cavalcanti; Delalibera, Bruno Ricardo; Gomes, Diego Braz Pereira; Soares, Johann Rodrigues de Souza
    Abstract: This paper investigates the effects of a tax reform that eliminates tax rate heterogeneity and cumulative taxation using a general equilibrium model calibrated to Brazil that includes multiple sectors with market power. Industries are connected through input-output linkages and changes in tax costs are not confined within industries. The tax reform shocks propagate through the production network, which may amplify or mitigate their results. The revenue-neutral tax reform generates gains of 7.8% of GDP and 1.9% of welfare. Just eliminating VAT rate dispersion leads to a 5.9% increase in GDP. As expected, sectors that were heavily taxed prior to the reform, as well as their suppliers, benefit the most. Yet, due to propagation effects, in 10 sectors direct taxes increased but output and profits did not fall. This is because their costs were reduced as a result of lower taxes on their suppliers and/or increased demand. Moreover, tax distortions were leading to a shorter and inefficient production chain as the reform significantly changed the linkage structure of the economy.
    Date: 2022–10–07
  5. By: Guillermo Santos (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper investigates optimal fiscal and monetary policy in a New-Keynesian model with preferences over safe assets (POSA). Relative to a model with standard preferences, a Ramsey planner facing POSA uses inflation more actively to absorb the effects of fiscal and demand shocks despite inflation being costly. The optimal response of inflation to the shocks thus departs from the traditional prescription observed in standard New-keynesian models with sticky prices in which inflation volatility is near zero. Moreover, under POSA taxes are not as smooth as under standard preferences and are more frontloaded, an outcome that brings the model closer to optimal policy under flexible prices. With POSA, debt issuance depresses the liquidity premium, reducing revenues collected by the government and tightening the budget constraint. Therefore the planner is much less willing to issue debt in response to (say) a fiscal shock, which explains the excess tax volatility observed. These results do not dramatically change when private capital is introduced to the economy, the planner stills finds optimal to use inflation to absorb the shocks. Moreover in spite of the fact that debt issuance is lower private investment is still crowded out under POSA due to the higher distortionary taxes. Finally, the planner faced with POSA outperforms the New-Keynesian planner (with standard preferences) in terms of stabilizing the economy to a negative demand disturbance, but underperforms in terms of managing the government spending shock. The negative demand shock increases the demand for government debt and relaxes the tradeoff facing the planner. The opposite holds in the case of a spending shock.
    Keywords: optimal fiscal and monetary policy, bonds in the utility function, distortionary taxes, liquidity premium
    JEL: E31 E52 E62 H21
    Date: 2022–10–12
  6. By: Vinish Shrestha (Department of Economics, Towson University)
    Abstract: This study re-evaluates the efficacy of cigarette taxation in curtailing smoking. I use recent advancements in the difference-in-differences (DiD) literature to account for heterogeneous treatment effects and compare the findings to the two-way-fixed effect (TWFE) estimates. Using data from the Behavioral Risk Factor Survelliance System Selected Metropolitan/Micropolitan Area Risk Trend (BRFSS SMART) for sample periods 2004-2010 and 2015-2020, the study presents three main findings. First, the results for 2004-2010 sample show that the TWFE estimate is only about 65% of the size of the overall average treatment effect on the treated (ATT) estimate obtained using DiD framework. Second, the event-study type estimates increase gradually in magnitude following the treatment year, thus demonstrating dynamic treatment effects ignored by the TWFE estimate. Third, the ATT estimate pertaining to 2015-2020 sample is only about 63% of the ATT estimate for 2004-2010 sample. Overall, the findings point out that relying on TWFE models to obtain elasticity estimates may bias the estimates towards zero.
    Keywords: Cigarette taxation, Difference-in-Differences, Treatment heterogeneity, Dynamic treatment effects, Elasticity.
    JEL: I10 I18 D00 B23 H20
    Date: 2022–10
  7. By: Henrik Kleven (Princeton University)
    Abstract: This paper reappraises the impact of the Earned Income Tax Credit (EITC) on labor supply at the extensive margin for single mothers. I investigate every EITC reform at the state and federal level since the inception of the policy. Apart from the federal 1993 reform, EITC expansions have not had any clear and significant effects on employment. The 1993 reform is associated with large employment effects, but these effects align more closely with confounding changes from welfare reform and the macroeconomy than with the EITC. I conduct a comprehensive analysis of the robustness of the EITC null result to model uncertainty.
    Keywords: labor supply, taxation, fiscal policy
    JEL: H20 H24 H31 J20 J21 J22
    Date: 2022–09
  8. By: Elisa Casi; Mohammed Mardan; Rohit Reddy Muddasani
    Abstract: We study the short-term effect of the introduction of the mandatory disclosure programme for aggressive tax arrangements by focusing on the one introduced in May 2018 under Council Directive 2018/288/EU (or DAC6). Employing bilateral data on cross-border deposits, we study the effect of this new disclosure requirement on cross-border tax evasion. Our results show a reduction of cross-border deposits in EU countries with strong enforcement, captured by large monetary penalties for misreporting.
    Keywords: Tax evasion, Income under-reporting, Regulation, Wealth, Income
    Date: 2022
  9. By: Chiara Drolsbach (Justus Liebig University Giessen); Maximilian Maurice Gail (Justus Liebig University Giessen); Phil-Adrian Klotz (Justus Liebig University Giessen)
    Abstract: Several European countries have implemented temporarily fuel tax reductions in 2022 to relieve the financial burden on their citizens. This paper provides estimates of the pass-through rates as well as the effect on retail margins for France, Germany and Italy. Using a unique data set containing daily consumer prices for gasoline and diesel in five European countries, we employ a staggered Difference-in-Differences design. Our results show a very heterogeneous pass-through of the fuel tax reductions depending on the country and on the type of fuel. These findings also have important implications for the effective design of unconventional fiscal policy as well as for competition policy in the fuel market.
    Keywords: pass-through, fuel taxes, staggered DiD
    Date: 2022
  10. By: Natasha Pilkauskas; Katherine Michelmore; Nicole Kovski; H. Luke Shaefer
    Abstract: We examine the effects of an unconditional cash transfer on the economic wellbeing (material hardship, ability to meet needs, money on hand, use of friends and family for assistance, and employment) of families and children with very low incomes. We use a parameterized difference-in-differences approach to study the impact of the 2021 temporary expansion of the Child Tax Credit (CTC), which provided monthly, unconditional cash payments to families with children from July to December 2021. The 2021 monthly CTC reduced the number of hardships families experienced, and in particular their food insecurity. We find some evidence that the credit reduced medical hardships, reduced reliance on friends and family for food, and improved respondents’ ability to pay utility bills. We also find no effects on any labor supply measures. Analyses that examine differences by racial/ethnic groups show that the effects are somewhat stronger for Black families than for Hispanic and White families, but the differences are not large.
    JEL: H20 I3 I30 I31 I38 J20
    Date: 2022–10
  11. By: Camilla Skovbo Christensen (University of Copenhagen, Center for Economic Behavior and Inequality); Bastian Emil Ellegaard (University of Copenhagen, Department of Economics)
    Abstract: We exploit exogenous variation from a pension reform in Denmark to estimate the e ect of tax subsidies on total private saving. We present new evidence on individuals in the middle of the income distribution and show that a reduction in tax subsidies for retirement saving reduces total private saving. The reform changed the tax incentives for saving in the pension scheme that holds the highest tax advantage for middle-income workers in Denmark. We find that for each unit of reduced saving in this pension scheme, only 63 percent is substituted to other types of saving.
    Keywords: Crowd-out, Savings, Retirement, Tax incentives, Household Finance
    JEL: H24 H31 D14 G51
    Date: 2022–09–18

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