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on Public Finance |
| By: | Julia Cots-Capell; Aieshwarya Davis; Duncan MacDonald |
| Abstract: | The TaxFit microsimulation model calculates the taxes payable and benefits receivable by hypothetical households across an expanding list of countries. It simulates personal income taxes and social security contributions for all adults in a household, as well as family benefits, social assistance, in-work benefits, and caregiver support. Users define household characteristics—such as gross income levels and family composition—to facilitate cross-country comparisons of tax burdens and benefit generosity. When microdata is available, it can be uploaded to generate diagnostic indicators that better reflect the population, assess the distributional effects of tax and benefit reforms, and estimate fiscal costs. This technical manual provides a detailed overview of the TaxFit model, explains its underlying assumptions, and offers guidance on using the Stata-based model and its associated online tool. |
| Keywords: | tax; social protection; simulation; work incentives; employment; informal work; effective tax rates |
| Date: | 2025–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imftnm:2025/008 |
| By: | Burkhard Heer |
| Abstract: | The optimal capital income tax rate has been shown to be nonzero in overlapping generations (OLG) models, as it helps redistribute income between cohorts and individuals with different labor supply elasticities and individual productivities. We show in a medium-scale OLG model that the optimal capital income tax rate is highly sensitive to the assumption of capital-skill complementarity in production technology. The imposition of the production function of Krusell et al. (2000) rather than the standard Cobb - Douglas function increases the optimal capital tax from 9.2% to 27.3% in our benchmark model. We also study the sensitivity of this result in the context of an aging economy and find that the optimal capital income tax increases over the upcoming decades depending on possible pension reforms and debt policies. |
| Keywords: | capital income taxes, Chamley-Judd result, skill-biased technological change, demographic change. |
| JEL: | E13 H21 H24 H25 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11845 |
| By: | Ignacio González; Juan A. Montecino; Joseph E. Stiglitz |
| Abstract: | We study the optimal design of corporate tax policy in a textbook life-cycle model featuring two key deviations: (i) firms are imperfectly competitive and (ii) households save by purchasing equity shares in a stock market. In this simple environment, the financial wealth of savers is equal to the sum of the productive capital owned by firms and a component capturing the NPV of unproductive rents – what we term “market power wealth” (MPW). We show that this novel component has non-trivial macroeconomic effects, with important implications for optimal corporate tax policy. In particular, MPW significantly crowds out productive investment and accordingly can rationalize a high corporate tax rate. The optimal corporate tax code in our setting assigns the statutory corporate tax rate to target the financial value of pure profits while incentivizing capital accumulation with a partial expensing of firm investment costs. |
| JEL: | E20 G12 H21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33544 |
| By: | Naruki Notsu (Osaka School of International Public Policy, The University of Osaka); Haruaki Hirota (Faculty of Economics, Musashi University); Nobuo Akai (Osaka School of International Public Policy, The University of Osaka) |
| Abstract: | This study examines the effects of enhancing the tax enforcement of administration on the tax gap, focusing on inter-municipal cooperation (IMC). IMC refers to collaborative tax collection efforts among multiple municipalities and promotes the aggregation of tax collection resources and expertise, improving tax enforcement. Using the time variation in IMC creation across municipalities, we show that IMC substantially improves the tax gap measurement by reinforcing tax enforcement in local governments. Our findings suggest that enhanced administrative capability in tax enforcement can be an effective tool against noncompliance in ways other than facilitating voluntary compliance. |
| Keywords: | Inter-municipal cooperation, Tax enforcement, Tax compliance |
| JEL: | H71 H77 H83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:osp:wpaper:24e004rev. |