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on Public Finance |
| By: | Ana Gamarra Rondinel; James R. Hines Jr.; José F. Sanz-Sanz |
| Abstract: | This paper evaluates Laffer curves produced by reforms to nonlinear income taxes, focusing on individual taxpayers. A reform puts a taxpayer on the “wrong” side of the Laffer curve if it increases their tax burden while reducing tax payments. There always exist potential reforms with this property – and in particular, tax increases restricted to high-income taxpayers are guaranteed to consign some to the wrong side of the Laffer curve. The original design of the 2024 Australian tax reform would have put 15% of the taxpaying population on the wrong side of the Laffer curve, though subsequent modifications reduced this to 5%. Standard tax progressivity measures that ignore the endogeneity of taxable income generally understate the redistributive impact of progressive tax reforms. |
| JEL: | H21 H24 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34059 |
| By: | Matias Giaccobasso (VATT Institute for Economic Research, Finnish Center of Excellence in Tax Systems Research); Marcelo Bergolo (IECON -Universidad de La Republica (UDELAR) and IZA); Gabriel Burdin (University of Siena and IZA); Mauricio De Rosa (IECON-UDELAR); Martin Leites (IECON-UDELAR); Horacio Rueda (U. of Houston and IECON-UDELAR) |
| Abstract: | This paper presents new evidence on how top income earners respond to changes in the personal labor income tax schedule, uncovering both own-and cross-tax base responses within a unified framework. For identification, we exploit a 2012 tax reform in Uruguay that generated quasi-random variation in top marginal rates within the top 1% of the labor income distribution. Our empirical approach relies on a difference-in-differences identification strategy and administrative records linked at the individual level across multiple tax bases. We estimate an own-tax base intensive margin elasticity of 0.77 and extensive margin semi-elasticity of 2.64. Extensive margin responses are mostly driven by taxpayers shifting from the personal labor income tax base toward corporate income or capital income tax bases (semi-elasticities of -0.79 and -0.75, respectively). Our preferred estimates suggest that the reform was effective in increasing tax revenues, with efficiency costs representing 27% of the projected increase. However, it had limited impact on inequality, most likely due to its narrow scope and income shifting toward tax bases with lower and flat rates. Overall, our results indicate that policy efforts aiming to reduce inequality by increasing top marginal tax rates should also focus on limiting income shifting opportunities to strengthen their redistributive effects. |
| Keywords: | Income taxation, top income earners, tax reform, reported income supply, income-shifting |
| JEL: | H21 H24 H30 J22 O23 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:fit:wpaper:34 |
| By: | Esslinger, Anna; Pfeil, Katharina; Feld, Lars P. |
| Abstract: | Are the effects of tax aversion on labor supply symmetric? In a real-effort online experiment, participants are exposed to manipulated wages and taxes after first experiencing the same reference wage. We find no significant differences in their productivity; however, we find significant asymmetries in fairness perceptions of the treatments. We find that tax increases are viewed as more unfair than equivalent wage decreases and tax decreases are viewed as more fair than equivalent wage increases. Additionally, the negative effect of tax increases is larger than the positive effect of tax decreases. However, we find little to no evidence that these asymmetric fairness perceptions significantly shape working behavior. |
| Keywords: | Tax Aversion, Loss Aversion, Labor Supply Asymmetry, Online Experiment |
| JEL: | H20 H30 D91 J22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:323932 |
| By: | Michael C. Best; Luigi Caloi; François Gerard; Evan Plous Kresch; Joana Naritomi; Laura Zoratto |
| Abstract: | Governments frequently use proxies for deservingness—tags—to implement progressive tax and transfer policies. These proxies are often imperfect, leading to misclassification and inequities among equally deserving individuals. This paper studies the efficiency effects of such misclassification in the context of the property tax system in Manaus, Brazil. We leverage quasi-experimental variation in inequity generated by the boundaries of geographic sectors used to compute tax liabilities and a large tax reform in a series of augmented boundary discontinuity designs. We find that inequities significantly reduce tax compliance. The elasticity of compliance with respect to inequity is between 0.12 and 0.25, accounting for half of the overall change in compliance at the boundaries. A simple model of presumptive property taxation shows how mistagging affects the optimal tax schedule, highlighting the opposite implications of responses to the level of taxation and to inequity for optimal tax progressivity. Interpreting our findings through the lens of the model implies that optimal progressivity is around 50% lower than it would be absent inequity responses. These results underscore the importance of inequity for public policy design, especially in contexts with low fiscal capacity. |
| JEL: | H21 H26 H71 O17 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34062 |
| By: | Adam Bloomfield; Lucas Goodman; Shanthi Ramnath; Sita Slavov |
| Abstract: | In recent years, policy makers have adopted many measures to incentivize the establishment of employer-sponsored retirement plans (ESRPs). One such measure – implemented in the early 2000s and made more generous in recent years – allows smaller firms that establish an ESRP to claim a tax credit to offset part of their costs during the initial years. We examine firm take-up of this credit. We find that only 1 percent (pre-policy expansion) to 5.5 percent (post-policy expansion) of apparently eligible firms claim the credit. We document heterogeneity in credit take-up rates by industry, firm owner education, and use of tax preparation services. We also document evidence of “tax preparer learning, ” whereby take-up among a tax preparer’s clients increases after that preparer files their first credit. Finally, we document that most firms only claim the credit for one year despite being eligible to do so for up to three years. |
| JEL: | H32 J32 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34043 |
| By: | Owen Kay; Michael David Ricks |
| Abstract: | Pigouvian subsidies are efficient, but output subsidies with uncertain or limited durations are not Pigouvian. We show that optimal “time-limited” policies must also subsidize investment to correct externalities generated after the output subsidy ends. Furthermore, an output subsidy’s optimal duration is characterized by the change in production when it ends. In the wind-energy industry, we find that power generation decreases by 5-10% after the end of facilities’ ten-year eligibility for the Renewable Energy Production Tax Credit. This behavioral response has implications for energy transitions and highlights how time limits could cause larger distortions in more elastic industries. |
| Keywords: | energy taxes and subsidies; renewable energy; optimal taxation; policy uncertainty |
| JEL: | H23 H21 Q48 |
| Date: | 2025–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101407 |
| By: | Baute, Sharon (University of Konstanz); Bellani, Luna (Ulm University); Hecht, Katharina (Northeastern University) |
| Abstract: | Wealth is increasingly unequally distributed in many countries. This study examines public perceptions of wealth deservingness and preferences for taxing the wealth of the rich, focusing on how opinions vary based on the amount, use, and origin of wealth. Drawing on an original vignette experiment conducted in Germany (n=6, 018), our results show a consistent pattern: as wealth increases, its perceived deservingness declines, while support for taxation rises. Similarly, spending on luxury items is seen as less deserving than philanthropic or nonprofit investments, leading to greater support for taxing the wealth of luxury spending rich people. However, wealth obtained through inheritance presents a puzzling exception: although it is perceived as the least deserving compared to wealth gained through entrepreneurship or management, this does not translate into a stronger preference for taxing inheritors over managers. These findings, which hold across different income and wealth groups as well as political affiliations, highlight the complex and sometimes contradictory public attitudes toward the rich and the taxation of their wealth. |
| Keywords: | survey experiment, richness, redistribution, inequality, wealth taxation |
| JEL: | D3 D6 H2 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18043 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | Value-added tax (VAT) has two major problems in its enforcement: taxing foreign vendors which do not have a business entity in the destination country, and taxing small and medium-sized enterprises (SMEs) with small tax bases. As a solution of these problems, some countries attempt to utilize online platform, to let the platformer pay the foreign firms’ and SMEs’ VAT according to the sales each firm made (platform tax for the destination principle and formalization of informal sector). In the monopolistic market where the platformer determines the fees for the network entry and the commission fee of the platform services, standard-good’s price, we show that taxing foreign developers increases the tax burden laid on the standard good, and we show that the increased tax burden is born 100% by the domestic standard-good’s consumers. We also investigate whether or not the prevention of tax leaks by platform taxes improves the vendors’ entry and tax revenue of the destination country. The effect of the tax reform on home developers crucially depends on the responsiveness of the developers’ entry to the number of network users, which is decreasing in the VAT rate. The derived formula of marginal value of public funds suggests that, due to the simultaneity of price and quantity, more fully fledged structural analysis may be necessary. Additionally, we show that the VAT serves as a Pigouvian tax to ease congestion externalities, and our results are robust with platform competition. In the context of formalization of SMEs, the strength of network externalities matters to see if the existing formal sector receives windfall gains or losses. |
| Keywords: | Digital economy; Platform; Network externality |
| JEL: | F23 H26 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2506 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | This paper develops a Kantian equilibrium framework that extends the global pollution model with private ownership, where agents condition their contributions on a universalizable moral imperative reflecting both income and preference heterogeneity. For both the Lindahl outcome and other proposed mechanisms, we identify specific proportionality conditions under which Kantian reasoning replicates these solutions as equilibrium behavior. We further show that the provision of public good does not necessarily increase with income inequality, and that some solutions exhibit invariance to inequality. Finally, we demonstrate that tradable permits may fail to achieve sufficient international redistribution to Southern countries to generate Pareto improvements over the voluntary contribution (disagreement) equilibrium. Grandfathering involves a form of proportionality between income and permit endowments, we show that this structure is better motivated by altruism. Our analysis contributes to a reinterpretation of morally grounded mechanisms for global public good provision, bridging normative ethics with economic design. |
| Keywords: | Global externalities, Kantian equilibrium, Income inequality, International emissions trading |
| JEL: | H41 D63 Q54 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2504r2 |
| By: | Blaufus, Kay; Bock, Julian; Peuthert, Benjamin |
| Abstract: | Using unique tax audit data of 499 German firms, we analyze whether family firms, public firms, financially constrained firms, and those firms with managers with low tax morale substitute two tax strategies, book-tax conforming and nonconforming tax avoidance strategies, and examine the effect on overall tax avoidance. The empirical results are in line with family firms and those firms with low tax morale managers substituting conforming for nonconforming tax avoidance strategies, whereas public and financially constrained firms do the opposite. Moreover, we find that family firms differ from nonfamily firms only in their strategic implementation but not in the overall amount of tax avoidance. With respect to public, financially constrained firms and those firms with low tax morale managers, we find a positive association with the total level of tax avoidance. |
| Keywords: | conforming tax avoidance, tax planning, nontax costs, book-tax conformity |
| JEL: | H26 M41 G32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323205 |
| By: | Jadhav, Vivek (Institute of Management Technology); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy) |
| Abstract: | Taxation affects the prices of commodities and influences consumer behaviour. Increasing taxes on intoxicants are expected to discourage consumption. However, the price elasticity of demand for intoxicants is often low compared to standard (normal) goods. Since the distortionary impacts of taxation on intoxicants are low (in terms of deadweight losses) compared to standard goods, higher taxes are applied to intoxicants. The effect of taxes on intoxicants in terms of price changes also depends on the shifting of the tax burden to consumers. Taxation as a tool to alter prices and, consequently, consumer behaviour becomes less effective when informal supplies of intoxicants (e.g., spurious, untaxed, contraband, smuggled, locally made alternatives) exist in the market. Assessing the price elasticity of demand for alcoholic beverages is the first step in understanding the effectiveness of alcohol taxation policies in India. In this paper, we estimate the own price, cross-price, and income elasticities of demand for foreign liquor (also known as Indian-made foreign liquor) and beer. We examine substitutions across beverage types and consider informal and unregulated supply channels. This study also differentiates between the price sensitivity of poorer households and more affluent ones. Using nationally representative household data for 2022-23 and 2023-24, we find that the own-price elasticity of demand for beer and foreign liquor ranges from -0.27 to -0.17, indicating moderate responsiveness to price changes. Elasticity estimates based on total MPCE range from 0.42 to 0.80, suggesting that increased household expenditure correlates with higher consumption. Substitution effects with country liquor were significant in 2022-23 but diminished in 2023-24. These findings provide timely evidence to inform alcohol taxation policies in India and highlight the need for targeted strategies that consider income groups, price sensitivity, and changing substitution patterns. The implications are substantial, raising questions about the effectiveness of current alcohol taxation measures and encouraging discussion on potential improvements. |
| Keywords: | Price elasticity ; cross-price elasticity ; income elasticity ; alcoholic beverages ; consumption expenditure ; India |
| JEL: | H21 H22 H31 I18 P36 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/431 |