nep-pub New Economics Papers
on Public Finance
Issue of 2023‒05‒15
seventeen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Progressive Pension and Optimal Tax Progressivity By Chung Tran; Nabeeh Zakariyya
  2. Excise Tax Incidence: The Inequity of Taxing Obesity and Beauty By Osaid Alshamleh; Glenn Jenkins; Tufan Ekici
  3. Tax evasion in a Cournot duopoly with unions By Domenico Buccella; Luciano Fanti; Luca Gori
  4. Inciting Family Healthy Eating: Taxation and Nudging By Moustapha Sarr
  5. Public Procurement and Tax Havens By Petr Jansky; Miroslav Palansky; Jiri Skuhrovec
  6. Payroll Tax Incidence: Evidence from Unemployment Insurance By Audrey Guo
  7. What’s in Your Wallet? The Tax Treatment of Cryptocurrencies By Katherine Baer; Ruud A. De Mooij; Shafik Hebous; Michael Keen
  8. Tax Responses in Local Public Finance: The Flypaper Effect at Work By Marko Köthenbürger; Gabriel Loumeau
  9. Generational Distribution of Fiscal Burdens: A Positive Analysis By Uchida, Yuki; Ono, Tetsuo
  10. A Deep Dive into Tax Buoyancy: Comparing Estimation Techniques in a Large Heterogeneous Panel By Mr. Juan S Corrales; Antoine Cornevin; Juan Pablo Angel
  11. Human Capital and Pensions with Endogenous Fertility and Retirement By Cipriani, Giam Pietro; Fioroni, Tamara
  12. Income Taxes and the Mobility of the Rich: Evidence from US and UK Households in Switzerland By Marko Köthenbürger; Costanza Naguib; Christian Stettler; Michael Stimmelmayr
  13. Transportation Taxes and Energy Transitions: Alternative Policy Designs for Funding US Road Infrastructure and Pricing Externalities By Linn, Joshua; McConnell, Virginia; Pesek, Sophie; Raimi, Daniel
  14. Do People Really Dislike Wealth Taxes more than Other Types of Taxes? Evidence from a Survey-Experiment Representative of the Italian Population By Sergio Beraldo; Enrico Colombatto
  15. Taxation and Supplier Networks: Evidence from India By Lucie Gadenne; Tushar K. Nandi
  16. The South African personal income tax base, 2011-2018: Income and taxable income, adjusted for retirement fund and medical expense reporting changes By Andrew R. Donaldson
  17. Are Digital and Traditional Financial Services Taxed the Same? A Comprehensive Assessment of Tax Policies in Nine African Countries By Niesten, Hannelore

  1. By: Chung Tran; Nabeeh Zakariyya
    Abstract: We examine the extent to which progressivity in the income tax and public pension systems could complement one another. We demonstrate that there is a negative relationship between optimal tax progressivity and pension progressivity. Shifting the social insurance and redistribution roles embedded in the progressive income tax code to a progressive pension system with stricter means-testing rules can yield better overall welfare outcomes. Flattening the income tax code (less tax progressivity) while tightening means-testing rules for pension payments (more pension progressivity) indeed results in larger welfare gains. The optimal design consists of a flat income tax rate and a strict means-tested pension scheme. Overall, redistributive concerns should be addressed directly through more progressive transfers; meanwhile, reducing tax progressivity is important for improving aggregate efficiency.
    Keywords: Taxation; age pension; tax progressivity; income dynamics; inequality; Suits index; heterogeneity; dynamic general equilibrium
    JEL: E62 H24 H31
    Date: 2023–04
  2. By: Osaid Alshamleh (Department of Accounting and Finance, Cyprus International University, Hespolat, Mersin 10, Turkey); Glenn Jenkins (Queen's University); Tufan Ekici (Department of Economics, Ramapo College of New Jersey, Mahwah, N.J. USA)
    Abstract: The estimation and analysis of the distribution of the negative health impacts of certain commodities subject to excise taxes in Belize and the distribution of the burdens of the excise taxes across households of different income levels are the focus of this article. Particular attention is given to the taxation of soft drinks and cosmetics. We examine the income distribution and tax revenue impacts using the commodity data from the household expenditure survey by and the effective tax rates expressed as a percentage of the value of the final consumption of each item. As in many developing countries, taxes on alcoholic beverages and tobacco products are found to be regressive. The most regressive excise taxes are on soft drinks and cosmetics. Households across the economy pay more in excise taxes on cosmetics than they do on either alcoholic beverages or tobacco products. Relative to the level of household expenditures, the burden of the excise taxes on cosmetics is highest for households in the lowest quintile of total expenditures. The impact of soft drinks in creating obesity is likely to be much greater for high income households whose total consumption per household is twice that of low-income households.
    Keywords: excise tax, tax incidence, cosmetics, soft drinks, obesity, regressivity, Belize
    JEL: H22 L66
    Date: 2023–04
  3. By: Domenico Buccella; Luciano Fanti; Luca Gori
    Abstract: In a Cournot duopoly with indirect taxes evasion, this paper counter-intuitively shows that, in the presence of unions, a higher indirect taxation may increase profits because taxes reduce wage claims. This result is likely to occur if the market size is adequately large and the detection probability is not too high. Moreover, unionisation 1) leaves unaltered the absolute while reduces the relative tax evasion; and 2) increases tax revenue. As consumer and social welfare are unaffected by taxation, the policy implication is that higher taxes (which are always revenue-enhancing) ultimately lead to a redistribution from wages to profits.
    Keywords: Tax Evasion, Sales Tax, Cournot duopoly, Unions
    JEL: H20 H25 H26 J5
    Date: 2023–04–01
  4. By: Moustapha Sarr
    Abstract: This paper examines whether a tax on unhealthy food and a nudge are suitable to promote families healthy eating. We consider, in a theoretical model, an economy composed of two types of family that differ in their income and their nutritional knowledge, which reflects their degree of misperception of the future health effects of diet, and choose their consumption according to their perceived utility. We find that the decentralized solution of taxation on unhealthy good achieves the first-best optimum if and only if it is possible for the central planner to implement a targeted tax policy. Investigating the case of a mixed policy, we find that taxation of unhealthy food and nudge are probably complementary public policy instruments to promote family healthy eating. The mixed policy reduces both the perception and income gaps between the two family types.
    Keywords: tax, healthy eating, nudge, perception, family environment, nutritional knowledge
    JEL: D83 H21 I18
    Date: 2023
  5. By: Petr Jansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czechia); Miroslav Palansky (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czechia); Jiri Skuhrovec (Datlab)
    Abstract: To understand public procurement suppliers linked to tax havens, we analyse datasets of tender-level public procurement and firm-level suppliers a provide a series of stylized facts. We estimate that around 5% of tenders by value (145 billion EUR yearly) are supplied by firms with ownership links to tax havens that are black- or grey-listed by the EU. For example, firms linked to the British Virgin Islands and Bermuda supply tenders worth over 900 per cent of their GDP. To address the question of which tenders are more likely to be supplied by firms linked to tax havens, we draw on a theoretical model and a tender-level empirical analysis. We find that tenders co-financed from EU funds and those attracting a larger number of bidders are less likely to be supplied by firms linked to tax havens. Any policy intervention might therefore rely on both an increased government oversight associated with EU funds or an increased firm competition.
    Keywords: public procurement; government expenditures; offshore finance; secrecy jurisdictions; tax havens
    JEL: F36 F65 G28 H87 H57
    Date: 2023–04
  6. By: Audrey Guo
    Abstract: Economic models assume that payroll tax burdens fall fully on workers, but where does tax incidence fall when taxes are firm-specific and time-varying? Unemployment insurance in the United States has the key feature of varying both across employers and over time, creating the potential for labor demand responses if tax costs cannot be fully passed on to worker wages. Using state policy changes and matched employer-employee job spells from the LEHD, I study how employment and earnings respond to payroll tax increases for highly exposed employers. I find significant drops in employment growth driven by lower hiring, and minimal evidence of pass-through to earnings. The negative employment effects are strongest for young and low-earning workers.
    Date: 2023–04
  7. By: Katherine Baer; Ruud A. De Mooij; Shafik Hebous; Michael Keen
    Abstract: Policymakers are struggling to accommodate cryptocurrencies within tax systems not designed to handle them; this paper reviews the issues that arise. The greatest challenges are for implementation: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting. Design problems arise from crytocurrencies’ dual nature as investment assets and means of payment: more straightforward is a compelling case for corrective taxation of carbon-intensive mining. Ownership is highly concentrated at the top, but many crypto investors have only moderate incomes. The capital gains tax revenue at stake worldwide may be in the tens of billions of dollars, but the more profound risks may ultimately be for VAT/sales taxes.
    Keywords: cryptocurrency, virtual assets, tax evasion, tax compliance, Bitcoin
    JEL: E62 H25 H32
    Date: 2023
  8. By: Marko Köthenbürger; Gabriel Loumeau
    Abstract: The transfer elasticity of income tax rates is an important parameter in public finance. Given the significant fiscal autonomy of Swiss municipalities, Switzerland is an ideal setting for examining behavioral responses to tax policy. Using a regression kink design, we find robust causal evidence that transfers have a positive local average treatment effect on municipal expenditures while leaving the income tax rate (and other tax rates) unchanged. Thus, ‘money sticks where it hits’, providing comprehensive support for the flypaper effect, including with regard to income tax responses.
    Keywords: public finance, regression kink design, flypaper effect, transfers
    JEL: C21 H72 H77
    Date: 2023
  9. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: This study presents a political economy model with overlapping generations to analyze the effects of population aging on fiscal policy formation and the resulting distribution of the fiscal burden across generations. We show that population aging incentivizes the government to raise the capital and labor income tax rates as well as the ratio of public debt to GDP; this result is consistent with the cross-country evidence of OECD countries. We then undertake a model-based simulation over the period 2000-2070 for Japan and the United States and show that Japan is anticipated to face higher labor income tax rates, a greater public debt-to-GDP ratio, and a lower government expenditure-to-GDP ratio than the United States throughout the entire period. Moreover, starting form 2040, Japan is predicted to surpass the United States in terms of the capital tax rate.
    Keywords: Generational burden; Overlapping generations; Political economy; Population aging; Public debt
    JEL: D70 E24 E62 H60
    Date: 2023–04–22
  10. By: Mr. Juan S Corrales; Antoine Cornevin; Juan Pablo Angel
    Abstract: This paper provides new empirical evidence on tax buoyancy (tax revenues responsiveness to changes in economic activity) over the period 1990-2020 using a large panel of 185 countries. This study compares short-term and long-term buoyancy coefficients for total tax revenues and different individual taxes by reviewing and contrasting a range of estimators. Our results broadly confirm the main body of the literature on long-term buoyancy hovering around one. We find evidence of lower estimates for short-term buoyancy relative to previous literature, suggesting a limited automatic stabilization power of taxes. As a robustness exercise, in addition to changes in tax rates, we introduce novel control variables for tax exemptions and bases to disentangle discretionary from automatic tax revenue changes. The marginal changes in the results when controlling for policy actions suggest that, on average, the economic cycle does not necessarily influence tax reforms.
    Keywords: Tax buoyancy; tax elasticity; cross-sectional dependence; common correlated effect; fiscal sustainability; automatic stabilization; buoyancy coefficient; comparing estimation technique; MG estimator; buoyancy estimate; DFE estimator; Personal income tax; Value-added tax; Corporate income tax; Income tax systems; Global
    Date: 2023–03–17
  11. By: Cipriani, Giam Pietro (University of Verona); Fioroni, Tamara (University of Verona)
    Abstract: We study an OLG model with child policies and a PAYG pension with endogenous retirement and fertility. The result of the planned economy is compared to the decentralized competitive equilibrium deriving optimal policies. We show that in the presence of a PAYG pension system, the optimal policy mix includes an education subsidy and a subsidy for the supply of labor in old age. Fertility should be taxed or incentivized depending on whether there is full or partial retirement, and on the parameters. We focus on the parameter reflecting the deterioration of human capital and show that a child tax may be required.
    Keywords: PAYG pensions, endogenous fertility, endogenous retirement, social security, education subsidies, human capital
    JEL: J13 H2 H8 H55
    Date: 2023–03
  12. By: Marko Köthenbürger; Costanza Naguib; Christian Stettler; Michael Stimmelmayr
    Abstract: We provide quasi-experimental evidence on the income tax-induced migration of foreign high-income households living in Switzerland by exploiting the differential tax treatment of UK and US households. While the two groups are similar in terms of non-tax sorting preferences, US households are effectively insulated from Swiss income taxation due to the US world-wide income tax system. Comparing the location choices of UK households (our treatment group) with those of US households (our control group) within a one-hour commuting zone of Zurich, we find a migration elasticity with respect to the net-of-tax rate of around eight. This estimate mirrors the possibility of unrestricted migration between small Swiss municipalities with significantly different income tax rates.
    Keywords: high-income households, location choice, income taxes, sorting
    JEL: H24 H71 J44 R32
    Date: 2023
  13. By: Linn, Joshua (Resources for the Future); McConnell, Virginia (Resources for the Future); Pesek, Sophie (Resources for the Future); Raimi, Daniel (Resources for the Future)
    Abstract: Federal and state tax policies designed to fund the construction and maintenance of transportation infrastructure rely almost exclusively on excise taxes levied on petroleum products. But as the United States and the world seek to reduce greenhouse gas emissions, boosting fuel economy and electric vehicle (EV) sales will reduce the demand for petroleum and associated public revenues. In this analysis, we use an economic model of the US household vehicle market to estimate the effects of three alternative revenue policies: one that adjusts tax rates for internal combustion engine (ICE) vehicles and adds a new per-mile fee for EVs to maintain the performance of US roadways, a second that levies a per-mile fee on all vehicles in lieu of the gasoline tax, and a third that charges all motorists for the external costs of driving, including greenhouse gas emissions, “local†air pollution, traffic accidents, and congestion. We also examine the effects of extending fuel economy standards beyond their current levels. We find that current tax policies are insufficient by tens of billions of dollars per year to fund roadways and that either higher taxes on gasoline or a per-mile fee of $0.03 levied on all passenger vehicles could achieve the target revenue. Tightening fuel economy standards lowers the cost of operating ICE vehicles and reduces tax revenues. Imposing a per-mile fee on EV owners has virtually no effect on EV adoption because of interactions with other policies but does slightly reduce EV miles driven. We produce an updated estimate of the external costs of driving, averaging $0.16 per mile for gasoline vehicles ($3.85 per gallon) and $0.06 per mile for EVs, with large differences between urban and rural counties. Applying fees at this rate dramatically accelerates EV adoption, increases driving costs (especially for ICE vehicles), slightly reduces overall driving, and raises tax revenues well beyond the level needed to maintain roadway performance.
    Date: 2023–04–13
  14. By: Sergio Beraldo (Università di Napoli Federico II, IREF and CSEF); Enrico Colombatto (University of Turin and IREF)
    Abstract: We designed a Survey Experiment (SE) to study the attitudes of the Italians towards wealth, income and consumptions taxes. In particular, we interviewed a sample of 2, 400 subjects drawn from a larger representative pool of 120, 000 individuals. Beside collecting information about individuals’ values and beliefs, the survey also gathered information about (i) the preferred tax base, (ii) the attitudes towards replacing all the taxes with a unique tax, possibly on wealth, (iii) the views in regard to proposals to increase public expenditure by resorting to taxes of various kind and in different scenarios. We find that wealth taxes are definitely preferred to consumption taxes and that this preference is at par with income taxation. Wealth taxes are justified by the fact that they reflect one’s ability to pay. Opposition emerges when it is feared that wealth taxes end up increasing tax pressure and when the value of the main residence is included in the tax base. Political inclinations play a minor role.
    Keywords: Wealth taxes; Survey Experiment.
    JEL: D31 H24
    Date: 2023–04–06
  15. By: Lucie Gadenne (QMUL); Tushar K. Nandi (Indian Institute of Science Education and Research (IISER); CREST and CEPR)
    Abstract: Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supply chains in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier clientpairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ decision to pay VAT. Finally, we test the model’s predictions using variations over time within firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and evidence of strategic complementarities in firms’ tax choices within supplier networks. A hypothetical reform exempting all firm-to-firm transactions from the VAT would lead to growth of small- and medium-sized firms at the cost of a smalldecrease in tax revenues.
    JEL: O23 H25 L14
    Date: 2023–03–01
  16. By: Andrew R. Donaldson (Senior Research Associate, Southern Africa Labour and Development Research Unit, University of Cape Town)
    Abstract: Tax administration statistics now provide considerably more complete and reliable measures of South African personal income and its distribution than the available household or other survey sources. However, there are difficulties in using tax data across time, as both policy and reporting changes influence the administrative statistics of income. This paper uses two sets of adjustments to generate a consistent personal income series for the 2011–2018 period: upward adjustments to published statistics on assessed taxpayers to provide estimates consistent with the overall tax base, and adjustments for retirement contribution and medical expense reporting changes in 2013, 2015, and 2017 that affect the calculation of taxable income and income before deductions. About half of all individuals reporting income to the South African Revenue Service are contributors to retirement funds, and just over a quarter qualify for medical scheme or medical expense tax benefits. The resulting adjusted income distribution estimates show that the tax base increased robustly relative to GDP over this period, that income shifted towards older and higher real income taxpayers, and that income inequality increased.
    Keywords: Statistics of income, Income distribution, Personal income tax
    JEL: D31
    Date: 2023
  17. By: Niesten, Hannelore
    Abstract: This background report looks at tax implications for those providing and using digital financial services (DFS), and gives general observations as to whether DFS in Africa are taxed the same as traditional financial services (TFS). There is no categorical answer to this question. It varies country by country, depending on the specific arrangements in their legal and tax framework. Therefore, a country-specific approach is necessary. This report analyses key legislative, tax and regulatory policy instruments to compare the tax framework in nine African countries – Burundi, Côte d’Ivoire, Ghana, Kenya, Rwanda, South Sudan, Tanzania, Uganda and Zimbabwe. The country studies illustrate the diverse experience across the nine African economies, and the tension between the need for greater mobilisation of domestic resources and the desire to see rapid roll-out of digital infrastructure and services. The cross-country assessment highlights areas where the tax situation is different for DFS providers and users, compared to traditional financial institutions and actors. We present a number of preliminary considerations and lessons learned. These can help to shape an optimal tax environment, reduce friction, enhance beneficial competition in the financial services market, and minimise any negative consequences for DFS providers and users that arise within the taxation framework in all countries studied.
    Keywords: Finance,
    Date: 2023

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