nep-pub New Economics Papers
on Public Finance
Issue of 2023‒11‒06
ten papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Optimal Income Taxation and Charitable Giving By Louis Kaplow
  2. Fiscal Federalism and the Role of the Income Tax By Roger H. Gordon
  3. The Economic Effects of an International Student Levy By Xianglong Locky Liu; James Giesecke; Jason Nassios
  4. Tax-Induced Emigration: Who Flees High Taxes? Evidence from the Netherlands By José Victor C. Giarola; Olivier Marie; Frank Cörvers; Hans Schmeets
  5. Costs of capital and wealth tax: Remarks on Bjerksund and Schjelderup (2022) By Kruschwitz, Lutz; Löffler, Andreas; Lorenz, Daniela; Uttscheid, Moritz
  6. Multidimensional tax compliance attitude By Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno
  7. The Effects of Sin Taxes and Advertising Restrictions in a Dynamic Equilibrium By Dubois, Pierre; Abi Rafeh, Rossi; Griffith, Rachel; O'Connell, Martin
  8. Optimal Taxation and Other-Regarding Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  9. Carbon Taxes: Many Strengths but Key Weaknesses By Roger H. Gordon
  10. Addressing poverty and inequality in Viet Nam during the COVID-19 pandemic: An examination of the alleviating impact of tax and benefit measures By Antoine de Mahieu; Jesse Lastunen

  1. By: Louis Kaplow
    Abstract: The philanthropic sector is highly consequential, particularly in the United States, and the most important policies directed toward this sector are tax policies. Yet most economic analysis of the optimal tax treatment of charitable giving is ad hoc, treating it as a subject unto itself. This article advances a different approach: integrating the tax treatment of charitable giving into the optimal income tax framework that has been developed over the past half century. The results supplement or overturn conventional wisdom. Notably, the analysis of revenue effects and the purported efficiency of subsidies to charitable giving is recast, focusing on the pertinent externalities rather than the direct revenue costs, which themselves are irrelevant in the basic case. Distributive concerns regarding donors are also misplaced because distributive effects can be offset by tax rate adjustments to the broader income tax and transfer system. These ideas are developed systematically, with an emphasis on intuition rather than technical formalism. The analysis also broadens and deepens the assessment of externalities from charitable giving, which are more numerous and heterogeneous than is generally recognized. Finally, refocusing our understanding of the optimal tax treatment of charitable giving identifies important subjects requiring further research.
    JEL: D64 H21 H22 H24 H41 K34 L38
    Date: 2023–10
  2. By: Roger H. Gordon
    Abstract: This paper rethinks the design of the income tax by assuming that the objective of the tax is not to redistribute from rich to poor but instead to provide some insurance to individuals against the uncertainties they face in their future earnings, a motivation for the tax proposed in Buchanan (1976). The income tax provides insurance by collecting money on net from individuals to the extent they end up doing well to finance net transfers to them when they end up doing badly. Individuals differ in the amount of future risks they face. These heterogeneous tastes for insurance provide a rationale for states to offer heterogeneous tax/transfer programs, each state attracting a different clientele in the population. Given the ease of household migration, state tax policies generate fiscal externalities to other states. The paper explores as well possible Federal interventions to improve on the equilibrium choices states make for their tax policies.
    JEL: H21 H24 H31 H71
    Date: 2023–10
  3. By: Xianglong Locky Liu; James Giesecke; Jason Nassios
    Abstract: We investigate the economic impacts and tax efficiency of an international student levy (ISL) levied at a rate of 5%. Like many other taxes, an ISL has adverse economic impacts. At the regional level, the adverse impacts are largest for regions that have relatively large export education sectors. At the industry level, the adverse impacts are largest for sectors involved in the export of education services. To compare the tax efficiency of an ISL to other Australian taxes, we calculate its marginal excess burden (MEB). We find that an ISL levied at a rate of 5% on international student fees has an MEB of 15, i.e. it generates economic damage of 15 cents per dollar of ISL revenue raised. This compares favourably with a number of major federal and state taxes, like personal income tax, GST, payroll tax, stamp duty and insurance duty, all of which have higher MEBs. When assessing tax mix change, comparative efficiency arguments should be balanced against broader economic implications and clear policy objectives.
    Keywords: Taxation, International Student, CGE modelling, Excess Burden
    JEL: C68 H2 H5 H72
    Date: 2023–08
  4. By: José Victor C. Giarola (Maastricht University); Olivier Marie (Erasmus University Rotterdam); Frank Cörvers (Maastricht University); Hans Schmeets (Maastricht University)
    Abstract: We study the impact of a policy change in the Netherlands that reduced preferential tax treatment duration for high-skilled migrants arriving from specific countries in certain years. Utilizing comprehensive tax and population data, we document substantial tax-induced emigration responses, primarily driven by the top 1% of earners. Highly mobile individuals within the top 5% also emigrate sooner, particularly to competing countries offering tax-breaks to attract skilled workers. Crucially, we uncover no change in mobility behavior among lower-earning workers. The increased tax receipts from lower-income individuals who remain offset the loss from fleeing high earners, making the policy fiscally cost-neutral.
    Keywords: Taxation, immigration, labor income, Netherlands.
    JEL: F22 H31 J61
    Date: 2023–10–12
  5. By: Kruschwitz, Lutz; Löffler, Andreas; Lorenz, Daniela; Uttscheid, Moritz
    Abstract: This note incorporates wealth taxes in a simple asset valuation model based on discounted cash flows. Any valuation method requires an adjustment of pre-tax into post-tax costs of capital. By adopting the adjustment procedure proposed in previous literature, we show that arbitrage opportunities can occur - which is incompatible with a consistent valuation. In particular, such problems arise if a wealth tax system applies that uses current (instead of previous) stock prices as the basis for assessment. Furthermore, in this setting we derive a consistent relation between pre-tax and post-tax costs of capital that is compatible with the premise of no-arbitrage by exploiting risk-neutral probabilities.
    Date: 2023
  6. By: Bruns, Christoffer; Fochmann, Martin; Mohr, Peter N. C.; Torgler, Benno
    Abstract: Citizen tax compliance significantly dictates governmental fiscal capacities. Recognizing this, understanding the determinants of tax compliance remains paramount. While existing literature frequently isolates and tests individual determinants such as audit likelihood, penalty structures, tax morale, and perceived fairness, an integrative, bottom-up approach addressing the spectrum of tax compliance attitudes has largely been overlooked. Addressing this gap, our study constructs a multidimensional Tax Compliance Attitude Inventory (TCAI) by harmonizing real taxpayer responses with established theoretical underpinnings. Through factor analysis, we delineate four pivotal factors: (i) morale, (ii) monetary benefit, (iii) deterrence, and (iv) authority. Notably, morale and deterrence emerge as consistent influencers of tax compliance. Embracing this multidimensionality, our cluster analysis demarcates two distinct taxpayer personas: (a) moralists and (b) rationalists. Our findings underscore that moralists consistently exhibit higher tax compliance than their rationalist counterparts. We further present a streamlined classification algorithm to operationalize the TCAI in new datasets, minimizing item count. This work serves as a seminal contribution, offering both academia and tax authorities a robust, quantitative tool to gauge tax compliance attitudes.
    Keywords: Behavioral economics, compliance attitudes, compliance behavior, tax evasion, heterogeneous individuals
    JEL: C38 C83 D91 H26
    Date: 2023
  7. By: Dubois, Pierre; Abi Rafeh, Rossi; Griffith, Rachel; O'Connell, Martin
    Abstract: We develop a dynamic equilibrium model of rm competition to study the impact of counterfactual policies, such as taxes and advertising restrictions, on pricing, advertising, consumption and welfare. We estimate the model using micro level data on the market for colas. We use consumer level exposure to television commercials to estimate the impact of advertising on product choice, model rms' dynamic competition through their choice of advertising budgets and product prices, and exploit rms' practice of delegating decisions over advertising slots to agencies to link the rich consumer-level advertising variation with rms' strategic choice variables. We show that a sugar- sweetened beverage tax leads to a reduction in advertising and that the incremental eects of implementing advertising restrictions are substantially reduced with a tax in place.
    Keywords: taxation, advertising, discrete choice demand, dynamic oligopoly
    JEL: D12 H22 I18 M37
    Date: 2023–10–16
  8. By: Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, University of Gothenburg)
    Abstract: The present paper analyzes optimal redistributive income taxation in a Mirrleesian framework extended with other-regarding preferences at the individual level. We start by developing a general model where the other-regarding preference component of the utility functions is formulated to encompass almost any form of preferences for other people’s disposable income, and then continue with four prominent special cases. Two of these reflect self-centered inequality aversion, based on Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), whereas the other two reflect non-self-centered inequality aversion, where people have preferences for a low Gini coefficient and a high minimum income level in society, respectively. We find that other-regarding preferences may substantially increase the marginal tax rates, including the top rates, and that different types of other-regarding preferences have very different implications for optimal taxation.
    Keywords: Optimal Taxation; Redistribution; Social Preferences; Inequality Aversion
    JEL: D62 D90 H21 H23
    Date: 2023–10–19
  9. By: Roger H. Gordon
    Abstract: There is a consensus among economists that a carbon tax is the best approach for addressing the effects of CO2 emissions on the global climate. However, past international agreements on climate change instead specify caps on emissions (a quantity target) for each country. This paper explores several advantages of such use of quantity targets. For one, if a country were to impose a carbon tax at a rate high enough to correct for global externalities, this rate would far exceed the rate in that country’s own self-interest. The result is an incentive to make use of other domestic government policies to encourage greater emissions, undercutting the intended abatement under a carbon tax. A quantity target instead by construction caps emissions. Second, the paper argues that a quantity target can better insure that global warming remains below two degrees Celsius, given the uncertainties faced regarding the response to any given carbon tax rate. Third, the set of quantity targets set for each country can more flexibly be adjusted to ensure that most countries benefit from participating in a global accord, while still allowing efficient patterns of abatement by giving countries credit for cross-border abatement efforts.
    JEL: H20 H22 H3 Q54
    Date: 2023–10
  10. By: Antoine de Mahieu; Jesse Lastunen
    Abstract: This paper investigates the impact of the COVID-19 pandemic and related tax-benefit measures in Viet Nam. The focus is on the initial phase of the crisis in 2020. The study delves into how the pandemic affected disposable incomes, examining the differences across the income distribution and impacts on measures of poverty and inequality.
    Keywords: COVID-19, Income distribution, Poverty, Inequality, Viet Nam
    Date: 2023

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