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on Public Finance |
| By: | Vassili N. Kolokoltsov; Egor M. Dranov; Denis E. Piskun |
| Abstract: | The Nobel-price winning Mirrlees' theory of optimal taxation inspired a long sequence of research on its refinement and enhancement. However, an issue of concern has been always the fact that, as was shown in many publications, the optimal schedule in Mirrlees' paradigm of maximising the total utility (constructed from individually optimised individual ones) usually did not lead to progressive taxation (contradicting the ethically supported practice in developed economies), and often even assigned minimal tax rates to the higher paid strata of society. The first objective of this paper is to support this conclusion by proving a theorem on optimal tax schedule in (practically most exploited) piecewise-linear environment under a simplest natural utility function. The second objective is to suggest a new paradigm for optimal taxation, where instead of just total average utility maximization one introduces a standard deviation of utility as a second parameter (in some analogy with Marcowitz portfolio optimization). We show that this approach leads to transparent and easy interpreted optimality criteria for income tax. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.14476 |
| By: | Bassetto, Jacopo (University of Bologna); Ippedico, Giuseppe (University of Nottingham) |
| Abstract: | Brain drain is a key policy concern for many countries. In this paper we study whether tax incentives are an effective policy to attract high-skilled expatriates back to their home country, exploiting a generous income tax break for Italian returnees. Using administrative data and a Triple Differences design, we find that eligible individuals are 27% more likely to return to Italy. Additionally, we uncover significant effects throughout the wage distribution, revealing that tax-induced migration is a broad phenomenon beyond top earners. A cost-benefit analysis shows that the tax scheme can pay for itself by targeting young high-skilled individuals. |
| Keywords: | brain drain, tax incentives, return migration, personal income tax |
| JEL: | F22 H24 H31 J61 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17224 |
| By: | Taylor A. Kessinger; Joshua B. Plotkin |
| Abstract: | Indirect reciprocity is a plausible mechanism for sustaining cooperation: people cooperate with those who have a good reputation, which can be acquired by helping others. However, this mechanism requires the population to agree on who has good or bad moral standing. Consensus can be provided by a central institution that monitors and broadcasts reputations. But how might such an institution be maintained, and how can a population ensure that it is effective and incorruptible? Here we explore a simple mechanism to sustain an institution of reputational judgment: a compulsory contribution from each member of the population, i.e., a tax. We analyze the maximum possible tax rate that individuals will rationally pay to sustain an institution of judgment, which provides a public good in the form of information, and we derive necessary conditions for individuals to resist the temptation to evade their tax payment. We also consider the possibility that institution members may be corrupt and subject to bribery, and we analyze how often an institution must be audited to prevent bribery. Our analysis has implications for the establishment of robust public institutions that provide social information to support cooperation in large populations -- and the potential negative consequences associated with wealth or income inequality. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.11199 |
| By: | Johannes Kasinger |
| Abstract: | Strategic shrouding of taxes by profit-maximizing firms can impair the effectiveness of corrective taxes. This paper explores tax shrouding and its consequences after the introduction of a digital sin tax designed to discourage harmful overconsumption of online sports betting in Germany. In response to the tax reform, most firms strategically shroud the tax, i.e., exclude tax surcharges from posted prices. Using an extensive novel panel data set on online betting odds, I causally estimate the effect of the tax on consumer betting prices. Consumers bear, on average, 76% of the tax burden. There is considerable and long-lasting heterogeneity in effects conditional on shrouding practices. Firms that shroud taxes can pass 90% of the tax onto consumers, while the pass-through rate is 16% for firms that directly post tax-inclusive prices. To understand the results' underlying mechanisms and policy implications, I propose an optimal corrective taxation model where oligopolistic firms compete on base prices and can shroud additive taxes. Tax shrouding is only attainable in equilibrium if (some) consumers underreact to shrouded attributes. According to the theoretical predictions, the empirically identified heterogeneity suggests that strategic tax shrouding significantly attenuates the positive corrective welfare effects of the tax. The results prompt regulating shrouding practices in the context of corrective taxation. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.01493 |
| By: | Vincent Geloso; Alexis Akira Toda |
| Abstract: | American income inequality, generally estimated with tax data, in the 20th century is widely recognized to have followed a U-curve, though debates persist over the extent of this curve, specifically regarding how high the peaks are and how deep the trough is. These debates focus on assumptions about defining income and handling deductions. However, the choice of interpolation methods for using tax authorities' tabular data to estimate the income of the richest centiles -- especially when no micro-files are available -- has not been discussed. This is crucial because tabular data were consistently used from 1917 to 1965. In this paper, we show that there is an alternative to the standard method of Pareto Interpolation (PI). We demonstrate that this alternative -- Maximum Entropy (ME) -- provides more accurate results and leads to significant revisions in the shape of the U-curve of income inequality. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.16861 |
| By: | El Khalifi, Ahmed; Ouakil, Hicham |
| Abstract: | We examine the implications of different redistribution policy reforms in Morocco, considering taxation, and based on a dynamic general equilibrium model of three agents: households, firms and Ricardian government. Consequently, a policy that supports public investment guarantees significant social welfare gains, and has a positive multiplier effect on output and tax revenue. However, in the presence of a highly government-dependent population -which behaves like the hand-to-mouth population-, this policy destroys social welfare, through the effect of reducing other expenditure on this population. To counteract this negative impact, authorities can provide additional lump-sum transfers to this population. The paper also presents indifference curves (iso-output and iso-income tax) associating spending and taxes. A change in any tax could have negative effects on the economy if not combined with a new redistribution of public spending. On the other hand, reducing such a tax followed by a change in spending policy could have positive economic effects (on output, tax revenue and social welfare), and the gains are very high in the case of consumption taxes and employer payroll taxes. |
| Keywords: | Public spending; Ricardian households; Government-dependent households; Taxes; Indifference curves; Welfare cost. |
| JEL: | H21 H31 H42 |
| Date: | 2024–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121891 |