nep-pub New Economics Papers
on Public Finance
Issue of 2023‒12‒18
seven papers chosen by
Kwang Soo Cheong, Johns Hopkins University
  1. Optimal Taxation in the Life Cycle with Human Capital Investment Abstract : This paper studies optimal taxes in a lifecycle model with unverifiable human capital investment inseparable from regular consumption. The planner faces asymmetric information regarding agents’ exogenous abilities and endogenous human capital. Agents deviate in two ways: misreporting ability and mis-investing in human capital. We characterize the distortions in a model with i.i.d. shocks and full human capital depreciation. Distortions are characterized by capital wedges that are positive over the life cycle, labor wedges that are negative early and positive later in the life cycle, and net human capital wedges that are positive in the life cycle. These wedges serve as mechanisms to eliminate the distortion to consumption due to inseparability from education expenditure. Calibrate to U.S. data, we show numerically that these results apply in a richer model with persistent shocks and non-full human capital depreciation. Simulation suggests that average capital wedges are positive in all working periods, with progressive capital wedges in contemporary skills, average labor wedges are negative in early and positive in later periods, with hump-shape in skills and nonzero at the top and the bottom of the skill distribution, a nd net human capital wedges are positive and regressive in skills, indicating that human capital subsidies are in favor of the high skilled. By Been-Lon Chen; Fei-Chi Liang
  2. The Preference for Wealth and Inequality: Towards a Piketty Theory of Wealth Inequality By Jean-Baptiste Michau; Yoshiyasu Ono; Matthias Schlegl
  3. Left and Right: A Tale of Two Tails of the Wealth Distribution By Marcello D'Amato; Christian Di Pietro; Marco M. Sorge
  4. Incentives for Consumers to Act as Tax Auditors: (When) Are They Effective? By Burgstaller, Lilith; Doerr, Annabelle; Necker, Sarah
  5. Pass-through of Temporary Fuel Tax Reductions: Evidence from Europe By Drolsbach, Chiara Patricia; Gail, Maximilian Maurice; Klotz, Phil-Adrian
  6. Redistribution, horizontal inequity, and reranking: Direct taxation in the UK, 1977–2020 By Nicolas Hérault; Stephen P. Jenkins
  7. A reform option for pension fund contribution as tax expenditure in South Africa: A microsimulation model approach using tax administrative data By Ada Jansen; Winile Ngobeni; Wynnona Steyn
  1. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Fei-Chi Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Keywords: Optimal capital and labor taxes, Human capital accumulation
    JEL: E62 H21 J24
    Date: 2023–10
    URL: http://d.repec.org/n?u=RePEc:sin:wpaper:23-a006&r=pub
  2. By: Jean-Baptiste Michau (Ecole Polytechnique, France); Yoshiyasu Ono (Institute of Social and Economic Research, Osaka University, Japan); Matthias Schlegl (Sophia University, Japan)
    Abstract: What are the consequences of the preference for wealth for the accumulation of capital and for the dynamics of wealth inequality? Assuming that wealth per se is a luxury good, inequality tends to rise whenever the interest rate is larger than the economic growth rate. This induces the economy to converge towards an equilibrium with extreme wealth inequality, where the capital stock is equal to the golden rule level. Far from immiseration, this equilibrium results in high wages and in the golden rule level consumption for ordinary households. We then introduce shocks to the preference for wealth and show that progressive wealth taxation prevents wealth from being held by people with high saving rates. This permanently reduces the capital stock, which is detrimental to the welfare of future generation of workers. This also raises the interest rate, to the benefit of the property-owning upper-middle class. By contrast, a progressive consumption tax successfully and persistently redistributes welfare from the very rich to the poor.
    Keywords: Capital accumulation, Progressive wealth tax, Wealth inequality, Wealth preference
    JEL: D31 E21 E22 H20
    Date: 2023–11–15
    URL: http://d.repec.org/n?u=RePEc:crs:wpaper:2023-11&r=pub
  3. By: Marcello D'Amato (University of Naples Suor Orsola Benincasa, CSEF and CELPE.); Christian Di Pietro (University of Napoli Parthenope and CELPE.); Marco M. Sorge (Università di Salerno, University of Göttingen, and CSEF-DISES)
    Abstract: We study a model of wealth accumulation in altruistic lineages, in which households face uninsurable risk, investment indivisibilities and credit market imperfections. A thick upper tail of the stationary distribution of wealth is shown to emerge as a robust prediction, irrespective of (i) the presence of multidimensional (wealth and ability) heterogeneity and non-convexities in human capital formation, and (ii) the nature of parental bequest motives (joy-of-giving vs. paternalism). Additionally, (iii) we identify conditions under which the unique, ergodic wealth distribution exhibits a mass point at the bottom of its support, where bequest incentives are inactive and social mobility can only occur via occupational upgrading within lineages. Our interest in the features of the left tail motivates the exploration of the effects of various frictions and fiscal measures on intergenerational wealth transmission and the persistence of inequality. We show that tax policies (e.g. capital income taxation) targeting top wealth inequality can dilate expected residence time of lineages in the lower states of the wealth space, providing a strong case for redistributive policies that favour access to education for the less wealthy.
    Keywords: Wealth distribution, Wealth inequality, Capital income risk, Credit market imperfections, Educational investment.
    JEL: D31 H20 I24
    Date: 2023–11–03
    URL: http://d.repec.org/n?u=RePEc:sef:csefwp:691&r=pub
  4. By: Burgstaller, Lilith; Doerr, Annabelle; Necker, Sarah
    JEL: H26 C93 E26 J22 O17
    Date: 2023
    URL: http://d.repec.org/n?u=RePEc:zbw:vfsc23:277628&r=pub
  5. By: Drolsbach, Chiara Patricia; Gail, Maximilian Maurice; Klotz, Phil-Adrian
    JEL: H23 L13 L91 Q48
    Date: 2023
    URL: http://d.repec.org/n?u=RePEc:zbw:vfsc23:277655&r=pub
  6. By: Nicolas Hérault (University of Bordeaux and University of Melbourne); Stephen P. Jenkins (LSE and IZA)
    Abstract: We decompose the redistributive effect of direct taxes into vertical, horizontal, and reranking components applying the methods of Urban and Lambert (Public Finance Review, 2008). Inthe first such application to the UK, and using yearly data covering 1977–2020, we find thatredistributive effect increased over the period. However, there is no clear trend in horizontalinequity and this component forms a very small fraction of total redistributive effect bycomparison with reranking and especially vertical components. It is also the verticalcomponent that best tracks trends in redistributive effect. We give specific attention to thechoice of the bandwidth used to define ‘close equals’ in terms of pre-tax income. We alsoshow that implausible estimates of the horizontal inequity component arise for some yearsregardless of bandwidth used.
    Keywords: Redistributive effect, redistribution, horizontal inequity, reranking, Urban-Lambert decomposition, income tax
    JEL: D31 H24 H50 I38
    Date: 2023–11
    URL: http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2023-660&r=pub
  7. By: Ada Jansen; Winile Ngobeni; Wynnona Steyn
    Abstract: South Africa has a progressive broad-based personal income tax system with relatively few tax expenditures. The two most important are the medical contribution plus additional tax credits for medical expenses, and the deductions allowed for retirement contributions. A pertinent question for tax reform in South Africa is whether redistributive gains can be achieved by restructuring expenditures in the personal income tax system. This paper considers the redistributive implications of converting the tax deduction for retirement contributions to a tax credit.
    Keywords: Pensions, Tax expenditures, Microsimulation, Tax credit
    Date: 2023
    URL: http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-139&r=pub
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