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on Public Finance |
| By: | Julien Albertini (Université Lumière Lyon 2, CNRS, Université Jean Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France); Xavier Fairise (GAINS, Le Mans Université); Anthony Terriau (GAINS, Le Mans Université) |
| Abstract: | This paper explores the differentiated effects of corporate tax changes based on firm characteristics and evaluates the potential impact of a tax system modulated by both firm size and age. Using tax rate variations across U.S. states and comparing adjacent counties across state borders, we find that corporate taxes significantly reduce employment in small and young firms, while having no notable impact on large and older firms. We then develop a model to analyze firm dynamics throughout their life cycle under different tax regimes. Our simulations show that a corporate tax system adjusted by both firm size and age is more effective than one based solely on size (and even more so than a system with a single rate). This approach lightens the tax burden on highly productive young firms and shifts it toward less productive older firms, ultimately boosting employment and welfare without reducing the fiscal surplus. |
| JEL: | H25 H32 J21 J23 E61 E62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2410 |
| By: | Tess C. Scharlemann; Eileen van Straelen |
| Abstract: | We study how the mortgage interest deduction (MID) constrains mortgage refinancing. Households who deduct mortgage interest from their taxes face a lower post-tax interest rate, reducing the interest savings from refinancing net of taxes. We estimate the effect of the MID on refinancing using the Tax Cuts and Jobs Act (TCJA) of 2017 as a natural experiment. The TCJA doubled the standard deduction, dramatically reducing MID uptake and value. This policy affected borrowers differently based on their pre-existing mortgage interest, federal and state tax rates, and property taxes. We use heterogeneity in borrowers' pre-TCJA exposure to the policy to show that, following the TCJA, the refinancing rate amongst households who lose the MID increased by 25%. In response to a 19 basis point increase in the after-tax mortgage rate, we estimate that refinancing increases 25%. These results suggest that reductions in the MID may improve the pass-through of monetary policy. |
| Keywords: | Consumption; Household Finance; Monetary policy; Mortgages |
| JEL: | E52 G21 E21 D14 |
| Date: | 2024–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2024-82 |
| By: | Kitae Cho (Yonsei University); Eunseong Ma (Yonsei University) |
| Abstract: | This paper investigates the effects of hours constraints on optimal progressive tax structures. To this end, we present a heterogeneous-agent model with a nonlinear progressive tax system. As a form of hours constraints, we introduce a wage penalty for those working below 40 hours per week, generating a realistic distribution of work hours predominantly concentrated at 40 hours. Our findings indicate that optimal tax progressivity should be significantly higher than the current level. Poor households benefit from the reform, while the rich experience welfare losses, primarily due to productive households being unable to adjust their labor supply under hours constraints. The optimal tax reform reduces overall inequality, albeit at the cost of decreased economic activity. Uncovering the Pareto weights in the social welfare functions, under the current tax system, the weight assigned to the richest households is approximately twice the average. |
| Keywords: | hours constraints, optimal tax progressivity, labor supply elasticity, redistribution |
| JEL: | E21 H21 H23 J22 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2024rwp-231 |
| By: | Denderski, Piotr; Kaas, Leo; Schulz, Bastian; Siassi, Nawid |
| JEL: | E24 H24 J63 J64 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302388 |
| By: | Bruno Conte; Klaus Desmet; Esteban Rossi-Hansberg |
| Abstract: | Using a multisector dynamic spatial integrated assessment model (S-IAM), we argue that a carbon tax introduced by the European Union (EU) and rebated locally can, if not too large, increase the size of Europe’s economy by concentrating economic activity in its high-productivity non-agricultural core and by incentivizing immigration to the EU. The resulting change in the spatial distribution of economic activity improves global efficiency and welfare. A carbon tax introduced by the US generates similar effects. This stands in sharp contrast with standard models that ignore trade and migration in a world shaped by economic geography forces. |
| Keywords: | economic geography, climate change, carbon taxes |
| JEL: | R12 Q54 H23 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1464 |
| By: | Ethan Krohn |
| Abstract: | In this paper, I explore the impact of generalized coverage error, item non-response bias, and measurement error on measures of earnings and earnings inequality in the CPS ASEC. I match addresses selected for the CPS ASEC to administrative data from 1040 tax returns. I then compare earnings statistics in the tax data for wage and salary earnings in samples corresponding to seven stages of the CPS ASEC survey production process. I also compare the statistics using the actual survey responses. The statistics I examine include mean earnings, the Gini coefficient, percentile earnings shares, and shares of the survey weight for a range of percentiles. I examine how the accuracy of the statistics calculated using the survey data is affected by including imputed responses for both those who did not respond to the full CPS ASEC and those who did not respond to the earnings question. I find that generalized coverage error and item nonresponse bias are dominated by measurement error, and that an important aspect of measurement error is households reporting no wage and salary earnings in the CPS ASEC when there are such earnings in the tax data. I find that the CPS ASEC sample misses earnings at the high end of the distribution from the initial selection stage and that the final survey weights exacerbate this. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-52 |
| By: | Marie Briere; James Poterba; Ariane Szafarz |
| Abstract: | This paper presents new evidence on how employees respond to tax incentives for retirement saving. Using administrative data from a large retirement plan administrator in France, we examine the voluntary saving choices of approximately 1.4 million workers before and after the implementation of the 2019 Loi Pacte, a reform that introduced tax-deductible voluntary contributions into employer-sponsored retirement plans. One of the features of this multi-part reform was a change in the provisions for voluntary individual contributions to employer-sponsored saving plans. Prior to the implementation of the Loi Pacte, voluntary contributions could only be made on a post-tax basis. Wage earnings, for example, would be taxed before a worker could make a contribution, so that the contribution was post-tax. The reform introduced the possibility of making pre-tax contributions. In this case, labor income could be contributed to the plan without any payment of tax. The tax liability on this income was deferred until the funds were withdrawn from the account, typically when the worker was retired. This postpones the tax payment, often by several decades, and, given the progressivity of income tax rates and the fact that the income of many retirees is lower than their income while working, can also result in a lower tax burden on the earned income. The net effect the Loi Pacte was therefore to increase the rate of return on saving through employer-sponsored plans. On a net-of-tax return basis, post-tax contributions often dominate pre-tax contributions. The reform increased contributions to retirement saving accounts, especially among higher-income, older workers and those who contributed to a voluntary saving plan on a post-tax basis before the pre-tax option became available. There was no decline in contributions to “medium term” saving plans, which are provided by employers and can be accessed after five years, suggesting little substitution between these accounts. |
| Keywords: | Retirement savings; Tax incentives; France; Long-term savings; Rothification; Voluntary contributions |
| JEL: | E21 G28 J32 H24 G41 H31 |
| Date: | 2024–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:sol:wpaper:2013/378653 |
| By: | Guy Lacroix; Pierre-Carl Michaud |
| Abstract: | We provide empirical evidence on the effectiveness of a tax measure aimed at increasing the employment rates of older workers in Quebec, Canada. We use several data sources and various identification strategies. First, we use a Quebec-Ontario difference-in-differences design and do not detect robust effects on employment for most age groups except for those aged 60 to 64, but the common trend assumption is found not to hold. For this last group, we use an alternative identification strategy that exploits the variation in treatment intensity over time using longitudinal administrative tax data for Quebec only. Doing so, we do not f ind any effect on transitions in or out of the labour force. We do find a small positive effect on earnings (intensive margin) but a negative one on the affected workers’ net tax liability. Finally, addressing the invalid comparison with Ontario, we investigate the impact of the credit using a staggered adoption design exploiting differences across cohorts within Quebec. The results are consistent with the alternative approach. We conclude that the tax measure does not appear to be a cost-effective way of raising public revenues nor of increasing the employment rates of older workers. |
| Keywords: | older workers, labour market participation, tax incentives. |
| JEL: | J14 J16 H31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:rsi:cjpcha:02 |
| By: | Changchen Ge |
| Abstract: | This paper examines the impact of discretionary tax changes on economic activity in Australia. I use written records such as the Budget Report and Election Speeches to identify the revenue effect, timing and motivation of all major Commonwealth tax policy actions from 1983Q4 to 2018Q4. This approach allows me to isolate legislated tax changes that are not taken for reasons related to prospective economic conditions. I then examine the effects on output by treating the unanticipated exogenous tax changes as an instrument for tax revenue. The resulting estimates indicate that tax cuts are expansionary but much less persistent. The large effects stems in considerable part from a strong positive effect of tax cuts on consumption. |
| Keywords: | narrative approach, tax multiplier, Australia |
| JEL: | E32 E62 H20 N17 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-63 |