nep-pub New Economics Papers
on Public Finance
Issue of 2023‒10‒23
five papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Education, mobility and redistribution By Pierre Pestieau; Maria Racionero
  2. Health externalities to productivity and efficient health subsidies By Siew Ling Yew; Jie Zhang
  3. Cryptocarbon: How Much Is the Corrective Tax? By Mr. Shafik Hebous; Nate Vernon
  4. The State Capacity Ceiling on Tax Rates: Evidence from Randomized Tax Abatements in the DRC By Augustin Bergeron; Gabriel Z. Tourek; Jonathan L. Weigel
  5. Taxation and Mobility: Evidence from Tax Decentralization in Italy By Enrico Rubolino; Tommaso Giommoni

  1. By: Pierre Pestieau; Maria Racionero
    Abstract: Recent evidence suggests that social mobility has declined in many developed countries despite some of them pursuing proactive redistribution policies. In this paper we characterize the optimal mix of income tax and education policies that a government should adopt to maximize a long-term social objective that includes considerations for income redistribution and upward mobility. We show that switching from an elitist to a meritocratic education system, or from a short-term to a long-term vision of social welfare, fosters upward mobility but it can sometimes lead to increased inequality
    Keywords: social mobility; education policy; Great Gatsby curve
    JEL: H21 H31 H52
    Date: 2023–09
  2. By: Siew Ling Yew (Department of Economics, Monash University); Jie Zhang (School of Economics and Business Administration, Chongqing University and Department of Economics, National University of Singapore)
    Abstract: We explore optimal health subsidies in a dynastic model with health externalities to productivity that cause low health spending, productivity, longevity, savings and labor but high fertility. Public or firms’ health subsidies increase health spending, longevity and productivity and decrease fertility. Labor income taxes reduce the marginal benefit of health spending and the time cost of raising a child, while consumption taxes reduce the relative cost of raising a child. Appropriate public or firms’ health subsidies can internalize the externalities through age-specific labor income taxes and consumption taxes. Calibrating the model to the Australia economy, numerical results suggest policy improvements.
    Keywords: Health externality, Longevity, Productivity, Fertility, Savings
    JEL: H21 I13 I15
    Date: 2023–10
  3. By: Mr. Shafik Hebous; Nate Vernon
    Abstract: With increasing awareness of past environmental damage from crypto mining, questions arise as to how persistent the problem will be in the future and how taxation can help in addressing this negative externality. We estimate that the global demand for electricity by crypto miners reached that of Australia or Spain, resulting in 0.33% of global CO2 emissions in 2022. Projections suggest sustained future electricity demand and indicate further increases in CO2 emissions if crypto prices significantly increase and the energy efficiency of mining hardware is low. To address global warming, we estimate the corrective excise on the electricity used by crypto miners to be USD 0.045 per kWh, on average. Considering also air pollution costs raises the tax to USD 0.087 per kWh. Country-specific estimates vary depending on their electricity sources.
    Keywords: Corrective Taxes; Carbon Tax; Mitigation Policy; Crypto Assets; Crypto Mining; Bitcoin
    Date: 2023–09–15
  4. By: Augustin Bergeron; Gabriel Z. Tourek; Jonathan L. Weigel
    Abstract: This paper investigates how tax rates and tax enforcement jointly impact fiscal capacity in low-income countries. We study a policy experiment in the D.R. Congo that randomly assigned 38, 028 property owners to the status quo tax rate or to a rate reduction. This variation in tax liabilities reveals that the status quo rate lies above the revenue-maximizing tax rate (RMTR). Reducing rates by about one-third would maximize government revenue by increasing tax compliance. We then exploit two sources of variation in enforcement — randomized enforcement letters and random assignment of tax collectors — to show that the RMTR increases with enforcement. Including an enforcement message on tax letters or replacing tax collectors in the bottom quartile of enforcement capacity with average collectors would raise the RMTR by about 40%. Tax rates and enforcement are thus complementary levers. Jointly optimizing tax rates and enforcement would lead to 26% higher revenue gains than optimizing them independently. These findings provide experimental evidence that low government enforcement capacity sets a binding ceiling on the revenue-maximizing tax rate in some developing countries, thereby demonstrating the value of increasing tax rates in tandem with enforcement to expand fiscal capacity.
    JEL: H11 H21 H26 H71 O12
    Date: 2023–09
  5. By: Enrico Rubolino; Tommaso Giommoni
    Abstract: We study the impact of taxation on the location choices of individuals and tax bases in Italy. We exploit some recent tax decentralization reforms, which granted regions and municipalities greater power in setting income tax rates across brackets. Combining granular micro-level data on tax residence transfers with tax rate variations both within and across locations, we show that taxation significantly shapes location decisions. The mobility response greatly varies across the income distribution, with higher responsiveness among top incomes. Yet, our estimates imply that revenue losses due to tax-induced mobility are small, making local redistribution feasible at least over the medium-run.
    Keywords: local income taxation, migration, tax decentralization
    JEL: H24 H71 J61
    Date: 2023

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