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on Public Finance |
| By: | Michael Barczay (European University Institute and Study Center Gerzensee) |
| Abstract: | This paper studies the optimal design of differentiated consumption taxes in the presence of progressive labor income taxes and capital income taxation. A quantitative heterogeneousagent model with non-homothetic preferences and uninsurable idiosyncratic risk is estimated using US consumption and price data to match expenditure patterns across the income distribution. Solving the Ramsey problem in which the government jointly chooses labor income and commodity taxes, the optimal policy prescribes a subsidy on necessities of -52% and a positive tax of 7% on luxuries, accompanied by a reduction in labor tax progressivity. Three mechanisms account for these results: subsidized necessities provide consumption insurance, taxation of luxuries acts as an implicit tax on existing wealth, and differentiated rates strengthen labor supply incentives among highly productive households. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:szg:worpap:2503 |
| By: | Ruud A. De Mooij; Shafik Hebous; Michael Keen |
| Abstract: | This paper examines the efficiency of the Value Added Tax (VAT), focusing on its role as a revenue-raising tool and its use to achieve non-revenue objectives. The analysis highlights the VAT's potential ability to generate revenue with minimal distortions, emphasizing its advantages over alternative taxes, such as turnover taxes and tariffs, particularly in minimizing the cascading effects of input taxation. The paper also explores the VAT as a macroeconomic policy tool, especially in counter-cyclical fiscal policy, and its potential to address environmental and health objectives. It concludes that a well-designed and implemented VAT is a highly efficient revenue-raising tool, surpassing other forms of consumption taxation, but cautions against its misuse in industrial policy and other contexts for which it is ill-suited. |
| Keywords: | value added tax, efficiency, welfare, consumption taxes |
| JEL: | H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12089 |
| By: | FLORINA POPA (INSTITUTE OF NATIONAL ECONOMY, ROMANIAN ACADEMY, BUCHAREST) |
| Abstract: | The efficiency of revenue collection is a process that involves different operations in collection procedures, with the revenue collected being a main source of support for state budget spending. The paper aim was studying the impact of the direct taxes/indirect taxes ratio changes on Gini coefficient (inequality). The main result from the analysis is that the impact of the ratio between the direct taxes and indirect taxes on Gini coefficient (inequality) was pursued from three perspectives: a) increases in the direct taxes/indirect taxes ratio; b) decreases in the direct taxes/indirect taxes ratio; c) other situations regarding the change in the direct taxes/indirect taxes ratio. The paper was accomplished by: studying the scientific literature in the field, selecting, synthesizing and interpreting the ideas retained through the own view of the author; collecting data from the European Commission, DG Taxation and Customs Union, based on Eurostat; Eurostat Gini Coefficient of equivalised disposable income by age, drawing up the table needed in the analysis of economic indicators and processing and analysis of the data collected. The analysis was achieved for Member States of European Union (EU 27), for the period 2014-2022. Finally the paper ends with conclusions which highlights the final results of the research and signalize the three situations met in the analysis, mentioned above. |
| Keywords: | Efficiency of tax collecting; Taxation changes; Impact; Member States of European Union (EU 27); Direct taxes; Indirect taxes, Gini coefficient (inequality) |
| JEL: | H21 H71 O11 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15116786 |
| By: | Mark Verhagen; Menno Schellekens; Michael Garstka |
| Abstract: | Across the developed world, there are growing calls to streamline and improve ever more complex income tax codes. Executing reform has proven difficult. Even when the desired outcomes of a reform are clear, the tools to design fitting reforms are lacking. To remedy this, we developed \texttt{TaxSolver}: a methodology to help policymakers realize optimal income tax reform. \texttt{TaxSolver} allows policymakers to focus solely on what they aim to achieve with a reform -- like redistributing wealth, incentivizing labor market participation or reducing complexity -- and the guarantees within which reform is acceptable -- like limiting fluctuations in taxpayer incomes, protecting households from falling into poverty or shocks to overall tax revenue. Given these goals and fiscal guarantees, \texttt{TaxSolver} finds the optimal set of tax rules that satisfies all the criteria or shows that the set of demands are not mathematically feasible. We illustrate \texttt{TaxSolver} by reforming various simulated examples of tax codes, including some that reflect the complexity and size of a real-world tax system. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.03708 |
| By: | Edenhofer, Ottmar; Kalkuhl, Matthias; Stern, Lennart |
| Abstract: | This paper examines how donor countries can be motivated by self-interest to fund emission reductions in low- and middle-income countries (LMICs). While not solving the broader climate cooperation problem, we propose pragmatic measures that do not require global consensus on future climate risks or binding commitments. We quantify the unilateral benefits for donors - reduced climate damages and improved terms-of-trade from lower fossil fuel prices - resulting from financing fossil fuel demand reductions. To address project-level finance inefficiencies, we introduce jurisdictional reward funds targeting governments, which also generate implicit wealth transfers to LMICs. A self-enforcing coalition of fossil fuel importers, such as the European Union and China, could mobilize USD 66 billion annually for mitigation in LMICs, cutting emissions by 1060 Mt CO₂ per year and transferring USD 33 billion per year. LMICs additionally benefit from USD 78 billion in reduced climate damages and USD 19 billion from lower fuel prices. We explore coalition stability, geopolitical considerations, and how broader tax and reward mechanisms could further improve global climate, forest, and health outcomes. |
| Keywords: | Jurisdictional Reward Funds, tax coalitions, fuel market leakage, global public goods, terms-of-trade effects, demand-side climate policy |
| JEL: | H23 H87 F55 Q41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:324658 |
| By: | Fotis Delis (European Commission, Joint Research Centre); Manthos D. Delis (Audencia Business School); Sotirios Kokas (University of Essex - Essex Business School); Luc Laeven (European Central Bank (ECB); Centre for Economic Policy Research (CEPR)); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Profit shifting by multinational enterprises (MNEs) increases after-tax earnings but can expose firms to regulatory and reputational risks. We examine how stock markets price profit shifting using global profit shifting estimates from approximately 30, 000 MNE-year observations between 2010 and 2020. We find that a one standard deviation increase in profit shifting is associated with 6.4% higher monthly stock returns, indicating that stock markets require compensation for the underlying risks. The identified effects become significant only after the initiation of the Base Erosion and Profit Shifting program and gain further strength following the implementation of the Tax Cuts and Jobs Act. |
| Keywords: | Corporate taxes, Profit shifting, Stock returns, Enforcement risk, Global data |
| JEL: | G14 H25 H26 F23 F42 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2562 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy) |
| Abstract: | Assessment of the revenue performance of states in the GST is vital, as State GST (SGST) constitutes a significant part of states' own tax revenue. Sustaining the revenue stream from taxes included in the GST is crucial for managing state finances. It is expected that states will at least generate revenue from SGST to maintain the share of revenue (in the nominal GSDP) incorporated into the GST during the base year (i.e., 2015-16). This paper's assessment reveals that some states, between 2018-19 and 2023-24, did not achieve the required share. Even with GST compensation, some states still fall short of the target share. This indicates that managing revenue shortfalls will be a challenge for some states after the GST compensation period. Moreover, there is a need to explore options for increasing states' revenue base by examining new tax sources and investigating innovative areas of taxation (e.g., storage and usage of digital information, online video sharing, robotics). The taxation system could also address externalities related to the environment, biodiversity, health, and activities/entertainments that have financial risks. |
| Keywords: | Revenue performance assessment ; Goods and Services Tax (GST) ; Tax buoyancy |
| JEL: | H20 E62 H26 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/433 |