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on Public Finance |
| By: | Abdoulaye Ndiaye; Zhixiu Yu |
| Abstract: | Raising the retirement age is a common policy response when social security schemes face fiscal pressures. We develop and estimate a dynamic life cycle model to study optimal retirement and tax policy when individuals face health shocks and income risk and make endogenous retirement decisions. The model incorporates key features of Social Security, Medicare, income taxation, and savings incentives and distinguishes three channels through which health affects retirement: nonconvexities in labor supply due to health-dependent fixed costs of working, earnings reductions, and mortality risk. We estimate our model to match US microdata and show that labor supply nonconvexities play a dominant role in driving early retirement, making rigid increases in the retirement age welfare reducing. In contrast, more flexible policies, such as increasing the dependence of Social Security benefits on the claiming age, can improve welfare and pay for themselves with a fiscal surplus. We map a range of policy reforms to their marginal values of public funds (MVPFs), showing that certain incentives to delay claiming offer MVPFs of infinity while broad-based retirement age increases have negative willingness-to-pay. These findings offer novel retirement policy prescriptions and challenge the prevailing emphasis on raising the retirement age. |
| Keywords: | flexible retirement, optimal taxation, social security reform, life cycle model, health shocks, retirement decisions, marginal value of public funds (MVPF), labor supply nonconvexities, mortality risk, medicare |
| JEL: | H21 H55 J26 D15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11904 |
| By: | Narayana R. Kocherlakota |
| Abstract: | A classic result in trade theory is that it is socially optimal to set the tariff on a good equal to the inverse of the elasticity of its foreign supply. However, this result is based on the assumption that the government can use lump-sum taxes. The paper considers a simple open representative agent economy and characterizes second-best tariffs when the government's only non-tariff source of revenue is linear labor income taxation. If public spending needs are sufficiently large, and import demand is more (less) income-elastic than non-import demand, then the second-best tariff is lower (higher) than the standard optimal tariff. |
| JEL: | E60 F10 H21 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33759 |
| By: | Tobias Böhm; Antonia Hohmann; Roxanne Raabe; Nadine Riedel |
| Abstract: | A broad empirical literature examines the impact of corporate taxes on firms' investment, location, and tax avoidance behaviour. Other corporate adjustment margins have received little attention. In this paper, we use administrative customs and tax return data from South Africa to demonstrate that corporate taxes influence firms' export performance and their competitiveness in international product markets. |
| Keywords: | Corporate tax, Exports, Competition, Emerging markets, Commercial policy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-38 |
| By: | Radek Stefanski; Lassi Ahlvik; Jørgen Juel Andersen; Torfinn Harding; Alex Trew |
| Abstract: | How large are the productivity differences arising from micro-level distortions, and how much of that is due to tax policy? Using over a century of field-level data (1900-2023), this paper examines the role of field-level revenue taxes in explaining misallocation in the oil and gas industry, a single large sector that produces a homogeneous, globally-traded good. A key advantage is our ability to link model-implied distortions directly to these observed tax rates. We show that misallocation is significant in the oil industry, and that over half of this misallocation can be accounted for by the dispersion in revenue tax rates across fields, exceeding the 2-25% explanatory power typical in studies of misallocation sources. We show that nearly all of the impact of this tax dispersion operates through the intensive margin (the inputs allocated at a field) rather than the extensive margin (the choice to enter a field). These findings have direct implications for tax policy. |
| Keywords: | keywords |
| JEL: | O47 O11 D24 Q32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11915 |
| By: | Dina Pomeranz; Juan Carlos Suárez Serrato |
| Abstract: | The OECD has promoted the adoption of internationally standardized transfer pricing rules to curb profit shifting for tax avoidance by multinational firms. Bustos et al. (2023) analyzed a large reform in Chile based on these OECD standards and found that it led to a surge in tax advisory services. This paper investigates the external validity of this finding. Combining employment history data with information on countries’ strictness of transfer pricing regulations over time, we analyze the effect for four countries: Chile, Colombia, Spain, and Uruguay. Event-study difference-in-differences analysis shows that reforms led to substantial increase in transfer pricing consultants in most cases. The effect is larger when the reform is stronger and when a country has a lower level of pre-treatment transfer pricing strictness or of transfer pricing consultants. |
| JEL: | F23 H26 J21 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33736 |
| By: | Deparade, Darius; Jarmolinski, Lennart; Mohr, Peter |
| Abstract: | Tax evasion is associated with high social and fiscal costs. To address these, many governments employ behavioral interventions given their low implementation costs and high potential efficiency. Although many studies report positive effects of behavioral interventions to combat tax evasion, the effect sizes are often quite small. This may result from the partial cancellation of heterogeneous effects and prompts calls in the literature for individualized or group-tailored interventions. While classification approaches for taxpayer types exist, their practical implementation is limited by data availability. We systematically review 144 studies conducted between 1996 and 2024 and show that group-tailored interventions along key inequality dimensions-gender, income, age, and regionality-may not only enhance tax compliance but also help address inequality. Furthermore, our heterogeneity analysis shows that intervention effectiveness can be enhanced by the incorporation of specific characteristics related to framing, intervention frequency, and communication channels. Finally, we present a theoretical model to support group-tailored interventions and thus provide policymakers with an efficient strategy to combat tax evasion. |
| Keywords: | Tax Compliance, Behavioral Intervention, Heterogeneity, Inequality |
| JEL: | H26 D31 D90 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:318371 |
| By: | Lin, Ziqi (Rachel) |
| Abstract: | In this paper, a kernel Extreme Learning Machine (KELM) model based on vector weighted average algorithm is proposed for the prediction of national tax revenue ratio, which provides a new way of thinking and method for tax revenue prediction. By analyzing the correlation between each index and tax share, it is found that gasoline price and life expectancy are significantly positively correlated with tax share, while fertility rate and birth rate are significantly negatively correlated. The model shows excellent predictive performance on both training set and test set, with an R² of 0.995 in training set and 0.994 in test set, indicating that the model has excellent generalization ability. In addition, the root mean square error (RMSE) of the training set and the test set are 0.185 and 0.177, respectively, and the relative prediction deviation (RPD) is 14.234 and 13.178, respectively, which further verifies the high accuracy and stability of the model. Scatter plots of actual predicted versus actual values show that the model is able to accurately capture trends in tax shares with little prediction error. In summary, the optimized KELM model proposed in this paper not only has excellent performance on known data, but also has good expansion ability, and can be effectively applied to the tax share prediction of unknown data, providing a reliable tool for relevant policy making and economic analysis. The research of this paper provides a new technical path for the field of tax forecasting, which has important theoretical significance and practical value. |
| Date: | 2025–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:ymjw9_v1 |
| By: | Ahrens, Leo; Bremer, Björn (Central European University); Hakelberg, Lukas (Leuphana University of Lüneburg) |
| Abstract: | Carbon inequality implies that wealthy individuals contribute more to climate change than asset-poor indi-viduals, which is primarily driven by higher levels of consumption and investment in carbon-intensive in-dustries. Yet the prevailing policy response—the carbon tax—is regressive, as it places a higher relative bur-den on low-income than on high-income households. It is therefore politically unpopular, given that percep-tions of distributional fairness strongly shape public support for climate policies. We conduct two comple-mentary survey experiments to examine preferences over a recent policy proposal developed in response to accumulating evidence of carbon inequality: wealth taxation to finance the green transition. Using a ran-domized controlled trial, we find that while baseline support for wealth taxation is high among respondents in Germany, exposing them to a compensatory argument emphasizing carbon inequality does not further increase this support. However, emphasizing carbon inequality increases support for using wealth tax reve-nues to finance the green transition, making this the most popular option for using the revenue. A conjoint survey experiment further demonstrates that spending wealth tax revenue on public investment in transport infrastructure, subsidies for private investment in low-carbon technologies, and redistributive measures such as a lump-sum payment to all households paying carbon taxes receives the highest support among German respondents. In contrast, subsidies for the purchase of electric vehicles and investment in geo-engineering are highly unpopular. These findings suggest that invoking carbon inequality can help build democratic majorities for using wealth taxation to finance investment in climate change mitigation and adaptation. Hence, there is a path towards lower emissions and greater climate resilience that is unlikely to produce popular backlash. |
| Date: | 2025–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:h6rxc_v1 |
| By: | Michael E. Darden; Reginald B. Hebert; Michael F. Pesko; Samuel Sturm |
| Abstract: | We study the effects of cigarette excise taxes on smokers’ household budgets. In a randomized survey experiment, smokers respond to tax increases by adjusting cigarette shopping behaviors, substituting towards other tobacco products, and reducing both discretionary and human capital-related expenditures. Using Consumer Expenditure Survey data and a quasi-experimental design, we find cigarette taxes reduce smoking prevalence but increase cigarette expenditures among continuing smokers. Additionally, a $1 increase in cigarette taxes causes a 2.12% decline in human capital-related expenditures among below median income smokers. Our work uncovers important unintended consequences of cigarette taxes, particularly for low-income individuals. |
| JEL: | I10 I12 I14 I18 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33746 |
| By: | Álvaro Fernández-Gallardo (BANCO DE ESPAÑA); Iván Payá (UNIVERSIDAD DE ALICANTE) |
| Abstract: | Recent theoretical studies have highlighted that both the level of public debt and the unit cost of servicing the debt (r-g) play a role in the sustainability of public finances. This paper builds on this literature and introduces a new approach to analysing the relationship between economic downturns and sovereign debt risks by considering the total public debt burden, that is, the interaction between the level of debt and r-g. We conduct this analysis for 18 advanced economies over a span of 150 years, uncovering three novel findings. First, we document that the level of public debt and the interest-growth differential convey distinct information about public finances conditions, reinforcing the argument for incorporating both measures in the assessment of sovereign debt sustainability risks. Second, we offer a long-term historical perspective on the role of the total public debt burden in shaping the severity of recessions and the pace of subsequent recoveries. Our findings demonstrate that a high public debt burden is associated with deeper economic contractions, sharper declines in investment, deflationary pressures and pronounced credit contractions during recessions. Further analysis of plausible transmission mechanisms suggests that an elevated total debt burden at the onset of recessions is linked to more limited accommodative policies during financial crises. Third, we document the feedback effects of financial crises on the components of the total public debt burden, demonstrating that both the level and cost of public debt systematically deteriorate, thereby heightening the risk of sovereign debt crises in the aftermath of financial turmoil. |
| Keywords: | financial crises, sovereign debt sustainability, r-g, local projections |
| JEL: | E62 G01 H63 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2527 |
| By: | Noguchi, Soma |
| Abstract: | This study investigates the effects of increased tax rates on fertility decisions, pension benefits, and unemployment benefits in an economy with both a pay-as-you-go (PAYG) pension system and unemployment insurance. By incorporating voluntary unemployment, the model highlights how higher tax rates reduce households’ willingness to work, thereby affecting the social security system through the production channel. The analysis also reveals differing impacts of the two types of labor income taxes. |
| Keywords: | OLG, fertility, PAYG, pension, unemployment. |
| JEL: | D91 H55 J13 J65 |
| Date: | 2025–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124671 |
| By: | Noguchi, Soma |
| Abstract: | This study examines a new pension system in which pension benefits increase in proportion to the number of children. We demonstrate that transitioning to this new pension system can be achieved as a Pareto improvement. Additionally, we show that under certain conditions, the population may not decline within this system. |
| Keywords: | OLG, fertility, PAYG, pension, population. |
| JEL: | D91 H55 J13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124685 |