nep-pub New Economics Papers
on Public Finance
Issue of 2023‒11‒20
eleven papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. Redistribution with Unequal Life Expectancy By Sebastian Koehne
  2. Adaptive maximization of social welfare By Nicolo Cesa-Bianchi; Roberto Colomboni; Maximilian Kasy
  3. Optimal Taxation and Other-Regarding Preferences By Aronsson, Thomas; Johansson-Stenman, Olof
  4. Racial Disparities in the Income Tax Treatment of Marriage By Janet Holtzblatt; Swati Joshi; Nora R. Cahill; William Gale
  5. Corporate Income Tax Gap Estimation by using Bottom-Up Techniques in Selected Countries: Revenue Administration Gap Analysis Program By Patricio A Barra; Mr. Eric Hutton; Polina Prokof'yeva
  6. Double taxation treaties and resource revenue mobilization in developing countries: A neural network approach By Harouna Kinda; Abrams M.E. Tagem
  7. Tax Progressivity and Output: Evidence from OECD countries By João Tovar Jalles; Georgios Karras
  8. Tax Haven Welfare and the Crackdown on Secrecy: Evidence from Night Light Emissions By Hoang Ha Nguyen Thi; Alfons Weichenrieder
  9. Exploring the Effects of Medicaid During Childhood on the Economy and the Budget: Working Paper 2023-07 By Elizabeth Ash; William Carrington; Rebecca Heller; Grace Hwang
  10. Informal Fiscal Systems in Developing Countries By Shan Aman-Rana; Clement Minaudier; Sandip Sukhtankar
  11. Performance of tax-benefit systems amid COVID-19 crises in sub-Saharan Africa: A comparative perspective By Jesse Lastunen; Adnan Abdulaziz Shahir; Pia Rattenhuber; Kwabena Adu-Ababio; Rodrigo Oliveira

  1. By: Sebastian Koehne
    Abstract: This paper introduces life expectancy inequality into a tractable Mirrleesian life-cycle model and characterizes the optimal income tax policy using theory and calibration. A positive association between life expectancy and income counteracts the well-known static pattern of declining marginal utility. As a result, the mechanical value of redistribution is reduced at all income levels. Moreover, the pension wedge becomes a novel determinant of optimal taxation, motivating relatively lower optimal tax rates for low earners and relatively higher optimal tax rates for high earners. Quantitatively, the effects of the mechanical value of redistribution dominate, and the optimal marginal tax rates fall by up to 10 percentage points when life expectancy is heterogeneous.
    Keywords: optimal taxation, redistribution, life expectancy, inequality
    JEL: D82 H21
    Date: 2023
  2. By: Nicolo Cesa-Bianchi; Roberto Colomboni; Maximilian Kasy
    Abstract: We consider the problem of repeatedly choosing policies to maximize social welfare. Welfare is a weighted sum of private utility and public revenue. Earlier outcomes inform later policies. Utility is not observed, but indirectly inferred. Response functions are learned through experimentation. We derive a lower bound on regret, and a matching adversarial upper bound for a variant of the Exp3 algorithm. Cumulative regret grows at a rate of $T^{2/3}$. This implies that (i) welfare maximization is harder than the multi-armed bandit problem (with a rate of $T^{1/2}$ for finite policy sets), and (ii) our algorithm achieves the optimal rate. For the stochastic setting, if social welfare is concave, we can achieve a rate of $T^{1/2}$ (for continuous policy sets), using a dyadic search algorithm. We analyze an extension to nonlinear income taxation, and sketch an extension to commodity taxation. We compare our setting to monopoly pricing (which is easier), and price setting for bilateral trade (which is harder).
    Date: 2023–10
  3. By: Aronsson, Thomas (Umeå University, Umeå School of Business); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    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
  4. By: Janet Holtzblatt; Swati Joshi; Nora R. Cahill; William Gale
    Abstract: Although it is generally blind with respect to race, the federal individual income tax can create racial disparities when factors that affect tax liability are associated with race. We provide new evidence on racial differences in marriage penalties and bonuses in the income tax, using data from eight waves of the Survey of Consumer Finances. Our results support Brown’s (2021) hypothesis that, controlling for income, penalties are more frequent and larger for Black couples than white couples. We link these results to racial differences in relative spousal earnings, the presence of dependents, and the level of income. We show that marriage rates are much higher among white adults than Black adults, which implies that two policy reforms we examine end up benefiting a greater share of white adults than Black adults.
    JEL: H20 H24 J15
    Date: 2023–10
  5. By: Patricio A Barra; Mr. Eric Hutton; Polina Prokof'yeva
    Abstract: This technical note describes bottom-up CIT gap estimation techniques applied by revenue administrations in the following highly experienced countries in this approach: Australia, Brazil, Canada, Denmark, Sweden, the United Kingdom, and the United States. The main topics included in the descriptions are techniques applied, CIT gap results, advantages and disadvantages of different available options, and future developments and recommendations for any revenue administration interested in starting bottom-up CIT gap estimation programs having no prior experience.
    Keywords: Tax Administration; Tax Compliance; Corporate Income Tax; Tax Gap; Tax Evasion; Random Audit Program; Risk-Based Audits
    Date: 2023–10–31
  6. By: Harouna Kinda; Abrams M.E. Tagem
    Abstract: Double taxation treaties, by assigning taxing rights to rival countries and thereby eradicating double taxation, aim to facilitate cross-border trade and investment. The eradication of double taxation is achieved through reductions in withholding tax rates on passive income in source countries, resulting in revenue losses. Multinational corporations structure their investments to benefit from treaty-reduced withholding tax rates, exacerbating the revenue losses.
    Keywords: Double taxation treaties, Entropy balancing weights, Resource revenues, Revenue mobilization, Taxes
    Date: 2023
  7. By: João Tovar Jalles; Georgios Karras
    Abstract: Compared to the economic effects of tax rates, those of tax progressivity have been much less studied. In this paper, we estimate the output effects of changes in tax progressivity using a data set of 33 OECD economies since 1980. Our results show that tax progressivity affects the economy in a way that is broadly consistent with the predictions of a standard neoclassical growth model. In particular, increasing tax progressivity reduces the economy’s growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust. Our findings also emphasize the importance of including both the tax rate and tax progressivity in the estimation: omitting either can lead to biased results.
    Keywords: Tax progressivity, Tax rates, Economic Growth, Panel Data, Local Projections
    JEL: E62 H20
    Date: 2023–10
  8. By: Hoang Ha Nguyen Thi; Alfons Weichenrieder
    Abstract: Following numerous high-profile international initiatives, tax haven jurisdictions have been nudged into agreeing on tax information exchange. We analyse whether these agreements had measurable effects on the economy of cooperative tax havens. As GDP data are missing for many small tax haven jurisdictions, we use night light data as a proxy for economic activity. Depending on the exact list of tax havens, using this proxy allows us to increase the number of tax haven jurisdictions by up to 25 percent compared to using GDP. We find that tax havens which have signed more tax information exchange agreements experienced a significantly higher economic activity, as proxied by the sum of night light emissions. This applies to agreements that provide information exchange on request as well as agreements that implement automatic information exchange. When we use GDP as a measure of economic activity, tax information exchange agreements are not associated with a differential development of economic activity. Both observations suggest that information exchange treaties so far have not reduced economic growth in more cooperative tax havens.
    Keywords: tax haven, night light emissions, tax information exchange, economic development
    JEL: H26 H87 O11
    Date: 2023
  9. By: Elizabeth Ash; William Carrington; Rebecca Heller; Grace Hwang
    Abstract: This paper examines the short- and long-term fiscal effects of Medicaid spending on children. In the short run, costs for Medicaid are paid upfront when the children (or their mothers) receive health care. In the long run, Medicaid enrollment during childhood has been shown to increase earnings in adulthood. Those higher earnings imply greater tax revenues and lower transfer payments by the federal government in the future. On a present-value basis, the Congressional Budget Office estimates that long-term fiscal effects of Medicaid spending on children could offset half or
    JEL: H20 H50 H60 I13 J3
    Date: 2023–11–01
  10. By: Shan Aman-Rana; Clement Minaudier; Sandip Sukhtankar
    Abstract: Governments in developing countries have low fiscal capacity yet face pressures to provide public goods and services, leading them to rely on various unusual fiscal arrangements. We document one such - hitherto unexplored - arrangement: informal fiscal systems that rely on local bureaucrats to fund the delivery of public goods and services. Using survey data and government accounts from Pakistan, we show that public officials are expected to cover funding gaps in public services and they do so, at least partially, through extracted bribes. We propose a model of bureaucratic agency to explore when governments benefit from sustaining such systems and investigate welfare implications. Informal fiscal systems are more likely to arise when monitoring corruption is difficult relative to monitoring the provision of public services, and politically-important groups of citizens do not bear the full cost of corruption. The existence of such systems can distort the effective incidence of the tax burden, reduce the incentives of government to fight corruption, and legitimize bribe-taking.
    JEL: D73 H20 H40 H70 O17 O23
    Date: 2023–10
  11. By: Jesse Lastunen; Adnan Abdulaziz Shahir; Pia Rattenhuber; Kwabena Adu-Ababio; Rodrigo Oliveira
    Abstract: We examine the distributional effects of the COVID-19 pandemic and associated tax-benefit measures in seven sub-Saharan African countries, focusing on the onset of the crisis. We evaluate impacts on disposable incomes, considering variations across income groups; assess the effectiveness of tax-benefit policies in mitigating income losses; and analyse the influence of these measures on income-based poverty and inequality. We find notable reductions in disposable incomes, concentrated among higher-income households, and moderate increases in headcount poverty rates and poverty gaps.
    Keywords: COVID-19, Income distribution, Poverty, Inequality, Africa
    Date: 2023

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