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on Public Finance |
| By: | James Alm (Tulane University) |
| Abstract: | How can tax policy â and other government policies â serve as a tool to promote âdistributive tax justiceâ? In this paper, I briefly discuss the many tax reform proposals that have been proposed by many others for the specific case of the United States. I then focus on a set of specific U.S. tax reforms that are, I believe, both feasible and effective in achieving distributive tax justice. If implemented, these policies would increase the taxes paid by the rich, reduce tax evasion by the rich, and decrease the tax burdens by the gender, race, and ethnicity of taxpayers, all of which would lead to what I believe would be a fairer (and a more productive) tax system. I also argue that these policies apply in some form to most other countries around the world. My basic themes are that tax changes must be feasible and effective rather than simply aspirational but that even within this somewhat limiting framework much can be done. Specifically, these policies all work through existing taxes, they are are all administratively (if not necessarily politically) feasible and effective, none of these policies raise statutory marginal tax rates, these policies are all broadly consistent with the standard âBroad Base, Low Rateâ approach to tax reform, and variants of all of these policies apply world-wide. |
| Keywords: | Distributive tax justice, inequality, tax reform, tax compliance |
| JEL: | H2 H26 D91 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2307&r=pub |
| By: | Pauwels, Wilfried (University of Antwerp); Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax |
| Keywords: | economic incidence; legal incidence; statutory incidence; ad valorem taxes; invariance theorem |
| JEL: | H22 |
| Date: | 2023–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2023_023&r=pub |
| By: | Mr. Damien Capelle; Yang Liu |
| Abstract: | When inflation originates from distributional conflicts, shifts in inflation expectations, or energy price shocks, monetary policy (MP) is a costly stabilization instrument. We show that a tax on inflation policy (TIP), which would require firms to pay a tax proportional to the increase in their prices, would effectively correct externalities in firms’ pricing decisions, tackle excessive inflation and reduce output volatility, without exacerbating price distortions. While proposals from the 1970s saw TIP as a substitute to MP, we find that it is a complement, with TIP addressing markups and inflation expectation shocks, and MP addressing demand shocks. |
| Keywords: | Inflation; Markup Shock; Monetary Policy; Tax on Inflation; Taxbased Incomes Policies; Externality |
| Date: | 2023–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/254&r=pub |
| By: | Katy Bergstrom (Tulane University); William Dodds (Tulane University) |
| Abstract: | Optimal taxation problems typically involve finding a tax schedule to maximize a welfare function. This paper considers the reverse problem of finding an inverse welfare function that rationalizes a given tax schedule as optimal. Inverse welfare functions encode the implicit interpersonal comparisons a society must make in order to justify a tax schedule. We develop a general theory to recover the inverse social welfare function not only for income tax schedules, but also for substantially more complex tax systems that incorporate many different forms of taxation and multidimensional agent heterogeneity. The key insight is that even in complex tax environments, the (Gateaux) derivative of government revenue with respect to the tax schedule is the key empirical object required to construct the inverse welfare function. Additionally, our framework allows us to characterize Pareto efficient schedules in complex environments and extend the Atkinson-Stiglitz result. Our framework can also be augmented to construct inverse welfare functions when there are general equilibrium effects of taxation and when agents make optimization errors. We provide a number of example inverse welfare function constructions related to the taxation of couples, income taxation with labor demand and endogenous wages, piecewise linear income taxation, and joint taxation of income and housing rent. |
| Keywords: | inverse optimal, inverse welfare, multidimensional taxation, multidimensional heterogeneity |
| JEL: | D82 D86 H21 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2309&r=pub |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | This paper is the first to integrate corruption with respect to tax collection in a Mirrleesian model of optimal redistributive taxation. The analysis starts with a simple two-type model, showing that the optimal marginal tax structure resembles that of the original Stiglitz (1982) model, albeit for different reasons. We also extend the analysis to a framework with many types and present policy rules for marginal taxation over the whole ability distribution. The marginal income tax rates are all non-negative and can be expressed in terms of two key determinants: the distributional weights attached to taxpayers, and how the private cost to evade taxes varies with the taxpayers’ income. Finally, we consider the role of government expenditures directly targeting the incentives of the tax collector, such that these public expenditures and the optimal tax structure are implemented simultaneously. |
| Keywords: | Redistribution; taxation; corruption |
| JEL: | D73 H21 H26 |
| Date: | 2023–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1020&r=pub |
| By: | Barış Kaymak; Immo Schott |
| Abstract: | Companies face different effective marginal tax rates on their income. This can be detrimental to allocative efficiency unless taxes offset other distortions in the economy. This paper estimates the effect of tax rate heterogeneity on aggregate productivity in distorted economies with multiple frictions. Using firm-level balance-sheet data and estimates of marginal tax rates, we find that tax heterogeneity reduces total factor productivity by about 3 percent. Our findings highlight the positive correlation between marginal tax rates and other distortions to capital and especially labor. This implies that tax rate heterogeneity exacerbates the distortionary effects of other frictions in the economy. |
| Keywords: | business taxation; aggregate productivity; TFP; misallocation |
| JEL: | D24 H25 O47 |
| Date: | 2023–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97473&r=pub |
| By: | Andrej Woerner (LMU Munich); Taisuke Imai (University of Osaka); Davide Pace (LMU Munich); Klaus Schmidt (LMU Munich) |
| Abstract: | The public acceptability of a carbon price depends on how the revenues from carbon pricing are used. In a fully incentivised experiment with a large representative sample of the German population, we compare five different revenue recycling schemes and show that support for a carbon price is maximised by a “Climate Premium” that pays a fixed, uniform, upfront payment to each person. This recycling scheme receives more support than tax and dividend schemes, than using revenues for the general budget of the government, and than earmarking revenues for environmental projects. Furthermore, we show that participants and experts underestimate the public support for carbon pricing. |
| Keywords: | carbon pricing; pigovian taxation; political support for carbon taxes; survey experiments; |
| JEL: | H23 P18 C9 D9 |
| Date: | 2023–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:489&r=pub |
| By: | Felix Hugger; Ana Cinta González Cabral; Massimo Bucci; Maria Gesualdo; Pierce O’Reilly |
| Abstract: | The paper assesses the impact of the global minimum tax (GMT) on the taxation of multinational enterprises (MNEs), based on a comprehensive dataset capturing the global activities of large MNEs. It has four key findings. First, the GMT substantially reduces the incentives to shift profits. Second, the GMT is estimated to very substantially reduce low-taxed profit worldwide through lower profit shifting and top-up taxation. Third, the GMT is estimated to increase CIT revenues. Finally, the GMT is estimated to reduce tax rate differentials across jurisdictions with potential impacts on the allocation of investment and MNE activity. |
| JEL: | F23 H26 H25 |
| Date: | 2024–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:68-en&r=pub |
| By: | Sileci, Lorenzo |
| Abstract: | I assess the air quality and environmental equity impacts of the 2008 carbon tax in British Columbia. Using high-resolution data and a synthetic difference-in-differences strategy, I find that the carbon tax has reduced PM2.5 emissions by 5.2-10.9%. This result is heterogeneously distributed, with larger reductions in areas with lower baseline pollution, lower population density, lower material deprivation, and higher income. While all areas experience substantial positive co-benefits in terms of reduced air pollution hazard rates, quantified at $198 per capita, my results imply a widening of the pre-existing environmental justice gaps. This dynamic represents an additional dimension of carbon tax regressiveness. |
| Keywords: | carbon tax; air quality; PM2.5; co-benefits; environmental justice; air pollution; British Columbia; Canada; climate policy; health impacts; social impacts |
| JEL: | Q58 Q53 H23 |
| Date: | 2023–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121047&r=pub |
| By: | FATICA Serena (European Commission - JRC); PYCROFT Jonathan; STASIO Andrzej Leszek (European Commission - JRC); STOEHLKER Daniel (European Commission - JRC) |
| Abstract: | We examine the effect of compliance frictions in reclaiming foreign withholding taxes on Foreign Portfolio Investments (FPI) using a comprehensive panel of FPI stocks of 83 countries, including EU Member States, between 2005 and 2019 and country-pair-specific withholding tax rates. We find a negative and statistically significant elasticity of the FPI stock of equity and debt holdings to non-refundable withholding taxes. The estimated elasticities imply that a 10 percentage point reduction in non-refundable withholding taxes increases the FPI stock of equity holdings by 8.2%. In a second step, we employ a general equilibrium model to quantify the macroeconomic implications of compliance frictions. In absence of costs in the withholding tax reclaim process, average GDP in the EU27 countries would increase by 0.10%, capital and wages would rise by 0.21% and 0.06%, respectively, suggesting noticeable macroeconomic costs arising from such compliance frictions. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202309&r=pub |