nep-pub New Economics Papers
on Public Finance
Issue of 2022‒11‒14
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Politics and income taxes: progress and progressivity By Berliant, Marcus; Boyer, Pierre
  2. Markups, Taxes, and Rising Inequality By Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
  3. How to account for tax planning and tax uncertainty in valuation: Separate vs. composite view By Knaisch, Jonas
  4. A solution for external costs beyond negotiation and taxation By Alexandre Magno de Melo Faria; Helde A. D. Hdom
  5. Taxes and Telework: The Impacts of State Income Taxes in a Work-from-Home Economy By David R. Agrawal; Jan K. Brueckner
  6. VAT Pass-Through: The Case of a Large and Permanent Reduction in the Market for Menstrual Hygiene Products By Alisa Frey; Justus Haucap

  1. By: Berliant, Marcus; Boyer, Pierre
    Abstract: This paper begins with a survey of the literature on the political economy approaches to labor income taxation. We focus on recent progress made by examining in detail the specific properties of non-linear taxes derived in the context of voting. Next, we present new results on the existence of majority voting equilibrium that unify work in the standard framework. Finally, we discuss how recent theoretical results help us uncover empirical patterns from the last 50 years in the US tax system, namely a sharp decrease in top marginal tax rates, the rise of the Earned Income Tax Credit (EITC), and increased progressivity in the middle of the income distribution.
    Keywords: Non-linear income taxation; Tax reform; Political economy; Optimal taxation; EITC
    JEL: C72 D72 D82 H21
    Date: 2022–10–13
  2. By: Stéphane Auray; Aurélien Eyquem; Bertrand Garbinti; Jonathan Goupille-Lebret
    Abstract: How to explain rising income and wealth inequality? We build an original heterogeneous-agent model with three key features: (i) an explicit link between firm’s market power and top income shares, (ii) a granular representation of the tax and transfer system, and (iii) three assets with endogenous portfolio decisions. Using France as an illustration, we look at how changes in markups, taxes, factor productivity, and asset prices affect inequality dynamics 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: D40 E20 H20 O40 O52
    Date: 2022
  3. By: Knaisch, Jonas
    Abstract: I investigate how investors value tax planning and tax uncertainty for the case of publicly listed German firms. I compare two recent approaches how to account for tax uncertainty: the separate view by Drake et al. (2019) and the composite view by Jacob and Schütt (2020) to find the better suited way to incorporate tax planning and uncertainty simultaneously. In a battery of tests, I fail to produce results consistent with the separate view. In contrast, the composite view yields robust results that are in line with theory and prior literature: A one standard deviation increase in the quality of tax planning leads to an increase in the positive effect of the return on equity on the firm value of 7.7%. Investors seem to not only care about the level of firms' tax planning, but also how it is achieved. Only combining the degree of tax planning and its associated uncertainty in a single measure (Tax Planning Score) leads to robust results, thereby providing support for the notion of Jacob and Schütt (2020) that these constructs should be considered jointly.
    Keywords: Tax Avoidance,Tax Uncertainty,Firm Value,Tax Planning Score
    JEL: G32 H25 H26 M21 M41
    Date: 2022
  4. By: Alexandre Magno de Melo Faria; Helde A. D. Hdom
    Abstract: This article aims to launch light on the limitations of the Coase and Pigou approach in the solution of externalities. After contextualizing the need for integration of ecological and economic approaches, we are introducing a new conceptual proposal complementary to conventional economic approaches. Whose process is guaranteed by a set of diffuse agents in the economy that partially reverses entropy formation and marginal external costs generated by also diffuse agents? The approach differs in six fundamentals from traditional theory and proposes a new way of examining the actions of agents capable of reducing entropy and containing part of external costs in the market economy.
    Date: 2022–10
  5. By: David R. Agrawal; Jan K. Brueckner
    Abstract: This paper studies the interstate effects of decentralized taxation and spending when individuals can work from home (WFH). Because WFH decouples population and employment, the analysis of tax impacts on state populations, employment levels, wages and housing prices is radically different than in the standard model where individuals live and work in the same state. Which state can tax teleworkers—leading to either source or residence taxation—matters for tax impacts under WFH. Our main findings, which pertain to the employment and wage effects of WFH, show that a shift from a non-WFH economy to WFH reduces employment and raises the wage in high-tax states, with larger effects under source taxation. Once WHF is established, an increase in a state’s tax rate either reduces employment further while raising the wage (source taxation) or leaves the labor market unaffected (residence taxation). The analysis also shows that the residence-taxation equilibrium is efficient, while source taxation is inefficient.
    Keywords: state income taxes, telework, work-from-home
    JEL: H20 H73 R12
    Date: 2022
  6. By: Alisa Frey; Justus Haucap
    Abstract: This paper is about the price effects caused by a VAT (value-added tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: The exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely passed through to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is larger.
    Keywords: VAT reduction, pass-through, hygiene products, retailer competition
    JEL: H22 H25 H32 K34
    Date: 2022

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