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on Public Finance |
| By: | Pfeil, Katharina; Kasper, Matthias; Necker, Sarah; Feld, Lars P. |
| Abstract: | We study how individuals adjust their labor supply in response to tax reforms that alter income tax progressivity. In an online experiment with 522 participants, we compare responses to reforms that replace a progressive tax system with a flat tax and vice versa. We find asymmetric effects: labor supply increases when a progressive regime is replaced by a flat tax system, but does not decline when progressivity is introduced. This increase in labor provision occurs only when the reform lowers the marginal tax rate, not when it raises it. Our results suggest that labor supply responses to tax reforms are nuanced and path-dependent: reforms change behavior when they ease tax burdens for individuals who were previously discouraged from working more due to progressive thresholds. |
| Keywords: | Tax System Design, Tax Reform, Notches, Labor Supply, Online Experiment |
| JEL: | J20 J22 H24 H30 C91 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:aluord:327115 |
| By: | Daniel Overbeck; Eliya Lungu |
| Abstract: | This paper shows that bargaining over tax payments is an important feature of tax compliance and enforcement in lower income countries. Analyzing the universe of administrative tax filings from Zambia, we document sharp bunching in (i) dominated regions above tax schedule discontinuities, inconsistent with standard models of tax compliance and (ii) at round number tax payments, implying that certain payments are being targeted. Additional evidence from our own survey suggests that discussing tax payments with tax officials before filing taxes is widespread, in line with tax payments being the outcomes of bargaining. Such bargaining over taxes is consistent with fact (ii), as bargaining outcomes are often round and salient numbers, and with fact (i), because tax schedule discontinuities restrict the set of feasible bargaining outcomes. Finally, we generalize the conventional Allingham & Sandmo (1972) model to allow for bargaining as a mode of tax compliance. We show that bargaining leads to Pareto-improvements for both taxpayers and the state as long as state capacity is sufficiently low. |
| Keywords: | taxation, bargaining, development, small-and medium enterprises, tax compliance, Zambia |
| JEL: | H20 O17 D73 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12172 |
| By: | Jean Hindriks (CORE (LIDAM) and Economics School of Louvain, Université catholique de Louvain, Louvain-la-Neuve, Belgium); Yukihiro Nishimura (Osaka University) |
| Abstract: | New technologies and the globalization of the economy have facilitated tax avoidance through the shifting of profits by multinational enterprises (MNEs) to low-tax jurisdictions. We develop a three-country asymmetric tax competition model where, in addition to the conventional profit shifting to the tax haven, the high- and low-tax member (of an economic union) countries encourage MNEs to shift resources through the shifting of production activities and employment (activity shifting). We examine how the relative proportions of profit vs activity shifting are determined in the noncooperative equilibrium. We also examine the implications of the Global Minimum Tax (GMT). |
| Keywords: | Profit shifting; Tax competition; Tax enforcement; |
| JEL: | C72 F23 F68 H25 H87 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2513 |
| By: | Yang Zhang (University of Macau); Ziang Qiu (University of Macau); Donghyun Park (Asian Development Bank); Shu Tian (a) |
| Abstract: | The intricate relationship between wealth redistribution policies and entrepreneurial vitality has long captivated the attention of economists and policymakers. Drawing on data from the Global Entrepreneurship Monitor (GEM) and manually collected information on inheritance taxation policy reforms across a diverse panel of 55 countries from 2000 to 2023, this study uses a staggered difference-in-differences model to examine how the changing rules for wealth transfer taxation influence entrepreneurial activity. Our results show that higher inheritance tax rates are associated with elevated entrepreneurial index scores and that rising inheritance taxes correlate with increases in the entrepreneurial index, while tax cuts correspond to declines. This finding is robust to alternative measures of key constructs and identification strategies. Our results offer valuable insights into how inheritance tax policies influence entrepreneurial behavior, providing essential guidance for policymakers and economists aiming to comprehend the intricate dynamics of wealth transfer and entrepreneurship on a global scale. |
| Keywords: | inheritance tax;entrepreneurship;cross-country;difference-in-differences |
| JEL: | L26 H24 |
| Date: | 2025–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:021559 |
| By: | Subhayu Bandyopadhyay; Sugata Marjit; Santiago Pinto; Marcel Thum |
| Abstract: | We investigate the trade-off policymakers face between raising tax revenues for public good provision and mitigating the distortionary effects of taxation when individuals can evade taxes and allocate work hours between legal and clandestine (illicit) activities. These distortions lower the constrained optimal tax rate and result in the under-provision of the public good. This under-provision problem is mitigated when surplus from the audit agency is seamlessly transferred to the taxing authorities. Extensions of the basic model incorporate agent heterogeneity and a more general specification of the concealment cost function for infringements. |
| Keywords: | Taxation; evasion; compliance; legal and illicit activities; public goods; externalities |
| JEL: | H40 K10 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:101772 |