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on Public Finance |
| By: | Mr. Alexander D Klemm |
| Abstract: | This note describes how most features of an income tax system (and to some extent social security and welfare) can be described as a combination of lumpsums and marginal tax rates and plotted in a summary chart. While this is by no means a new method, applying it consistently can help tremendously in understanding the impact of tax reforms on tax systems, including by identifying any unintentional humps or notches in tax schedules. This note uses this approach to discuss, for example, universal basic incomes, the issue of whether tax allowances should be phased out, and the difference between tax credits and allowances. It also points to the limitations of the approach, such as conditions that cannot be summarized in such tax schedules. |
| Keywords: | Income Tax; Marginal Tax Rate; Average Tax Rate |
| Date: | 2025–09–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfhtn:2025/007 |
| By: | Yusuke Makino (Graduate School of Economics, The University of Tokyo); Hikaru Ogawa (Faculty of Economics, The University of Tokyo) |
| Abstract: | This paper studies the anticipated effects of a Global Minimum Tax (GMT). Although the GMT is widely expected to curb tax competition by raising effective tax rates in low-tax jurisdictions, we show that by weakening direct competition in the short-run, it can induce entry by countries that previously could not participate in the long-run. This entry expands the set of competing jurisdictions and, on this extensive margin of participation, can place additional downward pressure on tax rates. Consequently, the introduction of the GMT need not restrain excessive tax reductions. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1259 |
| By: | Rym Aloui (Université Lumière Lyon 2, CNRS, Université Jean Monnet Saint Etienne, EMLyon Business School, GATE, 69007, Lyon, France); Hafedh Bouakez (HEC Montréal, 3000 Côte-Sainte-Catherine, Montréal, Québec, Canada) |
| Abstract: | We derive the (second-best) optimal long-run carbon tax in a polluted economy with preexisting tax distortions, where labor and capital income taxes adjust endogenously to changes in the ratio of public debt to GDP via pre-established fiscal rules, and sovereign debt carries default risk. Relative to the no-climate-policy scenario, the welfare-maximizing carbon tax lowers the debt-to-GDP ratio as well as labor and capital income taxes, while raising consumption and GDP. The strength of these effects depends on the aggressiveness of the tax rules and on the initial level of public debt. When initial debt is low, the optimal carbon tax and the resulting increase in consumption, GDP, and welfare rise with the aggressiveness of the tax rules. When initial debt is high, however, this monotonic relationship breaks down, and the highest welfare gain from the optimal carbon levy is attained when the tax rules are moderately aggressive. This result hinges crucially on the convexity of the default probability with respect to the ratio of public debt to GDP. |
| Keywords: | Distortionary Taxes, Optimal Carbon Tax, Public Debt, Revenue Recycling, Second Best, Sovereign Default |
| JEL: | E62 H21 Q56 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2519 |
| By: | Jesse LaBelle; Fernando M. Martin; Ana Maria Santacreu |
| Abstract: | We study how international tax regimes and intellectual property (IP) rights shape the global allocation of intangible assets. Using a new dataset of cross-border patent transactions, we find that tax differentials are a key determinant of intra-firm transfers within multinational companies. Stronger IP rights play a bigger role in inter-firm transactions. To interpret these patterns, we develop a model in which firms choose to license, sell, or profit-shift patents depending on tax wedges and differences in IP protection. The theory rationalizes these findings and highlights how differences in global taxation and IP rights jointly determine the movement of intangible assets across borders. |
| Keywords: | intangibles; cross-border patent sales; licensing; profit shifting; taxation; intellectual property rights |
| JEL: | F12 O33 O41 O47 |
| Date: | 2025–09–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101822 |
| By: | Nicolas Djob (CY Cergy Paris Université, THEMA) |
| Abstract: | We study optimal commodity taxation in an open economy with monopolistic competition and asymmetric fiscal capacity. In a two-country model, a supranational authority uses destination-based consumption taxes to finance public spending, correct market distortions, and redistribute across countries. We show that in the first-best, domestically produced goods are always subsidized, while cross-border tax differentials emerge based on relative labor valuations. In the second-best, when lump-sum transfers are unavailable, the optimal tax system resembles a pattern of asymmetric tariffs: goods from countries with lower marginal costs of public funds are subsidized, while more competitive trade directions are taxed. These results challenge the conventional neutrality of VAT under trade liberalization and suggest that differentiated tax treatment by origin can improve welfare. Our findings call for a reassessment of uniform VAT regimes, especially in economically asymmetric unions. |
| Keywords: | optimal taxation, monopolistic competition, fiscal asymetry, tariff equivalence, tax coordination, VAT |
| JEL: | F10 F13 H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2025-13 |
| By: | António Afonso; M. Carmen Blanco-Arana; Ana J. Cisneros-Ruiz |
| Abstract: | The main aim of this paper is to empirically assess the impact of education and tax revenue onfostering new business creation in the OECD countries. To this end, we employ fixed effects and random effects models using panel data from 2006 to 2022, incorporating alternative conditions. Results confirm that while education and the economic situation are key pillars in fostering new business creation, the role of tax revenue in supporting economic development – and, by extension, new business formation – is fundamental, even if non-linear, with a threshold of 30% of GDP. Tax revenue collected by governments provides essential funding for public goods and services such as infrastructure, education, and innovation support programs, all of which contribute to creating an environment where new businesses can emerge and thrive. Our findings remain robust under the GMM estimation. |
| Keywords: | new business, tax revenue, education, economic growth, panel data |
| JEL: | C23 H2 I2 M20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12180 |
| By: | Esteban García-Miralles; Maximilian Freier; Sara Riscado; Chrysa Leventi; Alberto Mazzon; Glenn Abela; Laura Lehtonen; Laura Boyd; Baiba BrusbÄ rde; Marion Cochard; David Cornille; Emanuele Dicarlo; Ian Debattista; Mar Delgado-Téllez; Mathias Dolls; Ludmila Fadejeva; Maria Flevotomou; Florian Henne; Alena Harrer-Bachleitner; Viktor Jaszberenyi-Kiraly; Max Lay; Mauro Mastrogiacomo; Tara McIndoe-Calder; Mathias Moser; Martin Nevicky; Andreas Peichl; Myroslav Pidkuyko; Mojca Roter; Frédérique Savignac; Andreja Strojan Kastelec; Vaidotas Tuzikas; Nikos Ventouris; Lara Wemans |
| Abstract: | This paper presents a comprehensive characterization of “fiscal drag†—the increase in tax revenue that occurs when nominal tax bases grow but nominal parameters of progressive tax legislation are not updated accordingly—across 21 European countries using a microsimulation approach. First, we estimate tax-to-base elasticities, showing that the progressivity built in each country’s personal income tax system induces elas- ticities around 1.7–1.9 for many countries, indicating a potential for large fiscal drag effects. We unpack these elasticities to show stark heterogeneity in their underlying mechanisms (tax brackets or tax deductions and credits), across income sources (labor, capital, self-employment, public benefits), and across the individual income distribu- tion. Second, we extend the analysis beyond these elasticities to study fiscal drag in practice between 2019 and 2023, incorporating observed income growth and legislative changes. We quantify the actual impact of fiscal drag and the extent to which govern- ment policies have offset it, either through indexation or other reforms. Our results provide new insights into the fiscal and distributional effects of fiscal drag in Europe, as well as useful statistics for modeling public finances. |
| Keywords: | Personal income tax; inflation; indexation; bracket creep; |
| JEL: | D31 H24 E62 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:844 |
| By: | Frederico Alencar (CAEN - Graduate Studies in Economics, Federal University of Ceara, Brazil); Marcus Araripe (CAEN - Graduate Studies in Economics, Federal University of Ceara, Brazil); Marcelo Arbex (Department of Economics, University of Windsor); Marcio V. Correa (CAEN - Graduate Studies in Economics, Federal University of Ceara, Brazil) |
| Abstract: | This paper quantifies the impact of tax evasion on the labor-income Laffer curve in Brazil. We develop a heterogeneous-agent model with incomplete markets, progressive taxation, and imperfect tax enforcement. Beyond the well-known arithmetic and economic effects, the model highlights a novel evasion effect – higher statutory rates induce greater concealment of income and reduce effective tax collections. Calibrated to Brazilian data, the model shows that the aggregate Laffer curve peaks at a marginal rate of 25.3%, below the current 27.5%. Tax evasion reduces potential revenue by up to 54% (3.1% of GDP), with losses concentrated among high-income households. A disaggregated analysis further reveals heterogeneous responses across income groups, underscoring distributional and policy implications. |
| Keywords: | Laffer Curve, Tax Evasion, Labor Income Taxation, General Equilibrium. |
| JEL: | E20 E60 D85 H26 I10 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2505 |
| By: | Nadine Riedel; Franziska Sicking; Ida Zinke |
| Abstract: | We study the impact of tax preparers on corporate tax optimization in South Africa. The analysis draws on the population of corporate income tax returns linked to data on tax preparer use. Consistent with tax code complexity and frictions in the take-up of tax advantages, we document that firms' reported taxable income and tax payments decline significantly when they start utilizing tax preparer services. |
| Keywords: | Taxation, Business tax, Tax compliance, South Africa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-64 |