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on Public Finance |
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Issue of 2024‒06‒24
eight papers chosen by |
| By: | de Padua, David (Asian Development Bank); Kiocho, Mae Hyacinth (Asian Development Bank); Park, Donghyun (Asian Development Bank) |
| Abstract: | We investigate the conditions under which tax revenues can enhance economic growth. Using a newly constructed dataset consisting of 135 economies and spanning the period 1990–2019, we study how changes in tax revenues impact economic growth using a panel vector autoregression (PVAR) model. Tax revenues have a persistent positive impact on growth, and the association is especially pronounced in emerging economies. Strict inflation targeting, low-inflation, flexible exchange rates, a more developed financial sector, higher investment rates, and strong governance reinforce the growth-enhancing effect of taxes, but these results are conditional on the income level of the economy. Our findings imply that the effect of taxes on growth should be evaluated within macroeconomic and structural constraints. |
| Keywords: | taxes; growth |
| JEL: | H20 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0727&r= |
| By: | Ivan T. Ivanov; Luke Pettit; Toni Whited |
| Abstract: | We use variation in state corporate income tax rates to re-examine the relation between taxes and corporate leverage. Contrary to prior research, we find that corporate leverage rises after tax cuts for small private firms. An estimated dynamic equilibrium model shows that tax cuts make capital more productive and spur borrowing. Tax cuts also produce more distant default thresholds and lower credit spreads. These effects outweigh the lower interest tax deduction and lead to higher optimal leverage choices, especially for firms with flexible investment policies. The presence of the interest tax deduction raises consumer welfare in equilibrium. |
| JEL: | G31 G32 H25 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32398&r= |
| By: | Stephie Fried; Kevin Novan; William B. Peterman |
| Abstract: | This paper develops a general equilibrium lifecycle model to explore the welfare and inequality implications of different ways to return carbon tax revenue back to households. We find that the welfare maximizing rebate uses two thirds of carbon-tax revenue to reduce the distortionary tax on capital income while using the remaining one third to increase the progressivity of the labor-income tax. This recycling approach attains higher welfare and more equality than the lump-sum rebate approach preferred by policymakers as well as the approach originally prescribed by economists __ which called exclusively for reductions in distortionary taxes. |
| Keywords: | Carbon tax; inequality; overlapping generations; Revenue recycling |
| JEL: | Q58 E62 H21 H23 |
| Date: | 2024–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98314&r= |
| By: | Michael J. Boskin; Kareem Elnahal; Adam Zhang |
| Abstract: | Using data on U.S. state and federal taxes and transfers over a quarter century, we estimate a regression model that yields the marginal effect of any shift of market income share from one quintile to another on the entire post tax, post-transfer income distribution. We identify exogenous income distribution changes and account for reverse causality using instruments based on exposure to international trade shocks, international commodity price shocks and national industry demand shocks, as well as lagged endogenous variables, with controls for the level of income, the business cycle and demographics. We find the degree of attenuation of market income shifts initially increases in quintile rank, peaks at the middle quintile and then falls for higher income quintiles, consistent with median voter political economy theory and what Stigler called Director’s Law. We also provide evidence of considerable and systematic spillover effects on quintiles neither gaining nor losing in the “experiments, ” also favoring the middle quintile, what we label the greedy median voter. “Voting” and “income insurance” coalition analyses are presented. We find a strong negative relationship between average real income and redistribution and a modest effect of two year led inequality. |
| JEL: | H10 H2 H20 H30 H5 H50 H51 H53 H7 H70 H71 H72 H75 H77 P0 P00 P1 P10 P16 P46 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32492&r= |
| By: | Tayibov, Khayyam (Department of Economics and Statistics) |
| Abstract: | This paper studies the question of how place of birth affects the design of effective tax policies. Using Swedish population-wide register data, I investigate the relationship between regional origin and economic outcomes. Using a numerical simulation approach, I explore the implications of tagging individuals based on their place of birth for optimal tax policy and income redistribution. The numerical simulations show that under optimal tax policy, individuals from more populous regions are consistently assigned higher marginal and average tax rates, implying that the government redistributes from these regions to less populous ones. Moreover, I find that such policies can lead to significant welfare improvements. |
| Keywords: | Optimal taxation; tagging; regional heterogeneity |
| JEL: | H21 H24 |
| Date: | 2024–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:vxesta:2024_009&r= |
| By: | Ludovic A. Julien; Gagnie Pascal Yebarth |
| Abstract: | This paper explores the possibility that a taxation mechanism always implements a Pareto-optimal allocation in bilateral exchange when the market participants behave strategically and noncooperatively. To this end, we reconsider the taxation mechanism, namely the endowment taxation with transfers, implemented in the strategic bilateral exchange models by Gabszewicz and Grazzini (JPET, 1999). In this framework of strategic bilateral exchange, we consider a general class of smooth utility functions, and we determine the conditions under which the taxation mechanism is Pareto-optimal, i.e., whether there exists an equilibrium tax such that endowment taxation with transfers always implements a Pareto-optimal allocation. Furthermore, we explain why this taxation mechanism could implement a Pareto-optimal allocation. |
| Keywords: | Cournot-Nash equilibrium, Pareto-optimality, taxation |
| JEL: | C72 D41 H21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-19&r= |
| By: | Claudio Ferraz; Dirk Foremny; Juan Francisco Santini |
| Abstract: | This paper investigates how non-tax revenues impact tax collection in Brazilian municipalities, focusing on shifts in intergovernmental transfers due to population updates. Our analysis reveals asymmetric effects of shocks: revenue gains lead to increased spending without tax reductions, while losses in transfers prompt investments in fiscal capacity and boost tax revenues. Enhancing fiscal capacity entails adjusting tax bureaucrat payments, improving property registries, and cracking down on delinquency, with heterogeneous responses based on political competition and the educational levels of local leaders and the bureaucracy. These findings emphasize the importance of rules that reduce the reliance on non-tax revenues and promote effective tax collection. |
| JEL: | H71 H72 H83 P11 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32440&r= |
| By: | Ifeanyichi, Martilord; Dim, Cyril; Bognini, Maeve; Kebede, Meskerem; Singh, Darshita; Onwujekwe, Obinna; Hargest, Rachel; Friebel, Rocco |
| Abstract: | This study determined the feasibility of investing revenues raised through Nigeria’s sugar-sweetened beverage (SSB) tax of 10 Naira/l to support the implementation of the National, Surgical, Obstetrics, Anaesthesia and Nursing Plan, which aims to strengthen access to surgical care in the country. We conducted a mixed-methods political economy analysis. This included a modelling exercise to predict the revenues from Nigeria’s SSB tax based on its current tax rate over a period of 5 years, and for several scenarios such as a 20% ad valorem tax recommended by the World Health Organization. We performed a gap analysis to explore the differences between fiscal space provided by the tax and the implementation cost of the surgical plan. We conducted qualitative interviews with key stakeholders and performed thematic analyses to identify opportunities and barriers for financing surgery through tax revenues. At its current rate, the SSB tax policy has the potential to generate 35 914 111 USD in year 1, and 189 992 739 USD over 5 years. Compared with the 5-year adjusted surgical plan cost of 20 billion USD, the tax accounts for ∼1% of the investment required. There is a substantial scope for further increases in the tax rate in Nigeria, yielding potential revenues of up to 107 663 315 USD, annually. Despite an existing momentum to improve surgical care, there is no impetus to earmark sugar tax revenues for surgery. Primary healthcare and the prevention and treatment of non-communicable diseases present as the most favoured investment areas. Consensus within the medical community on importance of primary healthcare, along the recent government transition in Nigeria, offers a policy window for promoting a higher SSB tax rate and an adoption of other sin taxes to generate earmarked funds for the healthcare system. Evidence-based advocacy is necessary to promote the benefits from investing into surgery. |
| Keywords: | global surgery; health policy; health financing; innovative financing; Nigeria; OUP deal |
| JEL: | F3 G3 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:122863&r= |