nep-pub New Economics Papers
on Public Finance
Issue of 2023‒01‒16
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Corporate tax cuts and the decline of the manufacturing labor share By Barış Kaymak; Immo Schott
  2. Equilibrium Effects of Payroll Tax Reductions and Optimal Policy Design By Breda, Thomas; Haywood, Luke; Wang, Haomin
  3. Judging Nudging: Toward an Understanding of the Welfare Effects of Nudges Versus Taxes By John List; Matthias Rodemeier; Sutanuka Roy; Gregory Sun
  4. Herding, rent-seeking taxpayers, and endemic corruption By Gil S. Epstein; Ira N. Gang
  5. Lower Taxes At All Costs? Evidence from a Survey Experiment in Four European Countries By Bremer, Björn; Bürgisser, Reto
  6. When Do Nations Tax? The Adoption of Property Tax Codes by First Nations in Canada By Feir, Donn. L.; Jones, Maggie E. C.; Scoones, David
  7. Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates By Lockwood, Ben; Simmler, Martin; Tam, Eddy H. F.
  8. The redistributive effects of inflation: a microsimulation analysis for Italy By Nicola Curci; Marco Savegnago; Giordano Zevi; Roberta Zizza
  9. Tax-benefit responses in Uruguay during the COVID-19 pandemic By Verónica Amarante; Federico Scalese
  10. How Quantitatively Important are Shocks to Consumption and Income Tax Rates for Business Cycle Fluctuations? Lessons from Bulgaria (1999-2020) By Aleksandar Vasilev

  1. By: Barış Kaymak; Immo Schott
    Abstract: We document a strong empirical connection between corporate taxation and the manufacturing labor share, both in the US and across OECD countries. Our estimates associate 30 percent to 60 percent of the observed decline in labor shares with the fall in corporate taxation. Using an equilibrium model of an industry where firms differ in their capital intensities, we show that lower corporate tax rates reduce the labor share by raising the market share of capital-intensive firms. The tax elasticity of the labor share depends on the joint distribution of labor intensities and value added at the micro level. Given the empirical distribution in the US manufacturing sector, our quantitative analysis suggests that corporate tax cuts explain a significant part of the decline in the manufacturing labor share since the 1950s. The shift away from traditionally large, labor-intensive production units raised the concentration of market shares and reduced the concentration of employment.
    JEL: E25 H32 L11 L60
    Date: 2022–12–20
  2. By: Breda, Thomas (Paris School of Economics); Haywood, Luke (Mercator Research Institute on Global Commons and Climate Change (MCC)); Wang, Haomin (University of Konstanz)
    Abstract: Recent empirical literature documents that targeted tax reductions or minimum wages can have unintended reallocation and spillover effects on workers not directly targeted by these policies. We quantify these effects using an equilibrium search-and-matching model estimated on French data before a low-wage payroll tax reduction in 1995; the model features heterogeneous workers and firms, labor taxation, and a minimum wage. Based on our model, the tax reduction led to changes in the vacancy distribution such that it becomes harder for workers to move up the job ladder in terms of firm productivity. We refer to this as the negative reallocation effect. The tax reduction also increased labor force participation of low-productivity workers, leading to a negative spillover effect because these workers create congestion in the labor market, lowering the job-finding rate for all workers. Given these unintended effects, low-wage tax reduction should cover jobs in a broad wage range. Finally, we find that the efficiency-maximizing policy mix involves moderately regressive payroll taxation and a low but binding minimum wage.
    Keywords: payroll tax, minimum wage, equilibrium job search, worker and firm heterogeneity
    JEL: J64 E24 H24 J38
    Date: 2022–12
  3. By: John List; Matthias Rodemeier; Sutanuka Roy; Gregory Sun
    Abstract: While non-price interventions ("nudges") have grown from academic curiosity to a bona fide policy tool, their relative economic efficiency remains under-researched. We develop a unified framework to estimate welfare effects of both nudges and taxes. We showcase our approach by creating a database of more than 300 carefully hand-coded point estimates of non-price and price interventions in the markets for cigarettes, influenza vaccinations, and household energy. While nudges are effective in changing behaviour in all three markets, they are not necessarily the most efficient policy. We find that nudges are more efficient in the market for cigarettes, while taxes are more efficient in the energy market. For influenza vaccinations, nudges may offer similar welfare gains to optimal vaccine subsidies. Importantly, two key factors govern the difference in results across markets: i) the standard deviation of the behavioral bias, and ii) the magnitude of the average externality. Nudges dominate taxes whenever i) exceeds ii).
    Date: 2022
  4. By: Gil S. Epstein; Ira N. Gang
    Abstract: In an environment with extensive corruption where much of the population evades paying their full taxes due, we tackle the question of optimal taxation when constituencies with opposing objectives (the poor and the rich) push tax policy in different directions. We think in terms of a government policy-maker, here called the tax administrator (TA), and rent-seeking lobbying efforts by poor and rich constituencies. We recognize taxpayers' inter-dependency as reflected in increased evasion likelihood when others are thought to be evading.
    Keywords: Tax evasion, Corruption, Rent-seeking, Tax administration, Poor
    Date: 2022
  5. By: Bremer, Björn (Max Planck Institute for the Study of Societies); Bürgisser, Reto (University of Zurich)
    Abstract: It is commonly assumed that voters favor lower taxes, which undermines the ability of governments to raise revenues. How does the demand for lower taxes change when it involves fiscal trade-offs? Who supports tax cuts at all costs? We use a survey experiment conducted in four European countries (Germany, Italy, Spain, and the UK) to answer these questions, studying preferences on income taxes, value added taxes (VAT), and top income taxes. The results show that support for income tax and VAT cuts drops profoundly when it implies lower government spending or higher government debt. Lower top income taxes are always unpopular. Both interest and ideology influence preferences, but for cross-pressured people, ideology dominates: high-income voters that are left-wing oppose tax cuts. The results are important because they suggest that a progressive coalition against lower taxes – including low-income voters and the high-income left – is possible.
    Date: 2022–12–27
  6. By: Feir, Donn. L. (University of Victoria); Jones, Maggie E. C. (University of Victoria); Scoones, David (University of Victoria)
    Abstract: Recent changes in Canadian legislation have enabled First Nations to adopt property taxation and other forms of taxation on reserves, thereby allowing them to directly finance their local governments through local tax revenues. In this paper, we compile data on the passage of First Nations tax laws over a thirty year period from a centralized national database on First Nations by-laws, the First Nations Gazette. We combine these data with additional sources to analyze the factors that are associated with First Nations exercising their taxation authority. We find evidence of geographic policy diffusion consistent with First Nations learning from their neighbours and direct evidence that formal educational and institutional resources are important correlates of tax law adoption. Understanding this process informs the broader literature on the evolution of taxation structures and local political incentives, and may contain important lessons for Indigenous tax jurisdiction in other contexts. It is also a critical first step towards assessing the long-term consequences of First Nations' new fiscal powers.
    Keywords: state evolution, First Nations, Indigenous, taxation, property, public finance
    JEL: H11 H12 H71 P48
    Date: 2022–12
  7. By: Lockwood, Ben (University of Warwick and Oxford University Centre for Business Taxation); Simmler, Martin (Oxford University Centre for Business Taxation and Thuenen Institute of Rural Economics); Tam, Eddy H. F. (King’s College London and Oxford University Centre for Business Taxation)
    Abstract: We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the “High St†) is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.
    Keywords: Commercial Property, Vacancy, Occupancy, Property Taxation JEL Codes: H25 ; H32 ; R30 ; R38
    Date: 2022
  8. By: Nicola Curci (Bank of Italy); Marco Savegnago (Bank of Italy); Giordano Zevi (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: We analyse the impact of the marked and unexpected increase in inflation recorded since the second half of 2021 on Italian households’ purchasing power. Exploiting microsimulation tools, we are able to quantify the extent to which government measures supporting households’ incomes and lessening energy price hikes, mitigated the distributional impact of the inflationary shock. According to our estimates, in 2022 the measures attenuated inflation on average by slightly less than 2 percentage points and reduced the impact of the shock on households’ purchasing power by almost €32 billion (from more than €80 billion to less than €50 billion). This implies that in 2022 government intervention reduced the expected drop in purchasing power from an average €3, 200 per household to about €2, 000, with a relatively more marked effect for low-income households. Evaluated on the basis of both their cost for the public finances and their impact on inequality, the strengthening of the electricity and gas social bonuses, targeted at less well-off households, was the most effective intervention while untargeted price reductions (such as the decrease in VAT rates on gas tariffs or lower excise duties on fuel) were the least effective. The one-off allowances (€200 and €150 bonuses) and the other measures affecting take-home pay (reduction of social security contributions paid by employees and the advance partial payment of pension revaluations) were only moderately effective since these measures, being conditional on individual income, also benefit wealthy households.
    Keywords: inflation, energy, redistribution, inequality, microsimulation
    JEL: E31 E21 D31 H23
    Date: 2022–12
  9. By: Verónica Amarante; Federico Scalese
    Abstract: We analyse the social protection policy response to COVID-19 and its impact on household incomes in Uruguay during 2020 and 2021, based on static microsimulation methods. From the onset of the crisis, the Uruguayan government implemented adjustments to existing social protection policies as well as a new transfer and an emergency tax. The configuration of pre-crisis social protection facilitated the setting-up of rapid support for the vulnerable and for formal workers.
    Keywords: COVID-19, Taxes, Benefits, Poverty, Inequality, Uruguay, Tax-benefit microsimulation
    Date: 2022
  10. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: This paper analyzes the macroeconomic effects of fluctuations in the marginal tax rates of consumption and income. To this end, stochastic tax rates are introduced as in Braun (1992), into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of stochastic taxation is investigated for the stabilization of cyclical fluctuations in Bulgaria. The quantitative effect of such shocks to the marginal tax rates is found to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, stochastic consumption and income taxes, Bulgaria
    JEL: E24 E32
    Date: 2023–01

This nep-pub issue is ©2023 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.