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on Public Finance |
| By: | Jason Nassios; Janine Dixon |
| Abstract: | This paper extends the model of Dixon et al. (2004) by introducing taxes on non-labour income with thresholds into a simple firm-size framework. The modification allows analysis of how threshold-based corporate tax provisions distort firms' output decisions and create deadweight losses. By linking firm counts and average costs to the presence of a tax threshold, the model quantifies the efficiency costs associated with discontinuities in the effective tax schedule. The framework provides a transparent way to assess how threshold policies influence aggregate efficiency without relying on a full general equilibrium setting. |
| Keywords: | Monopolistic competition, Firm entry and scale, Tax efficiency, Tax incidence, Corporate income tax, Thresholds |
| JEL: | H21 H22 H25 L11 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-359 |
| By: | Laurent Bach (ESSEC Business School); Antoine Bozio (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris); Arthur Guillouzouic (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, IPP - Institut des politiques publiques); Clément Malgouyres (IPP - Institut des politiques publiques, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We link French households' tax records to the corporations they control, and build a payout-policy–neutral income measure, with corresponding tax burdens including those of "billionaires": the top 0.0002%. De- fined as such, income is more concentrated than taxable income, it better predicts rich-list membership, and persists more among billionaires. Personal taxes remain progressive until the top 0.1%, but eventually decline to 2% of income. Corporate taxes are an imperfect progressive backstop, as total tax rates fall from 45% at the 0.1% threshold to 25% for billionaires. Among these, the tax burden is global and tax-efficient pyramidal control over businesses ubiquitous. |
| Keywords: | Corporate tax, Business Income, Tax progressivity, Income distribution |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:ipppap:hal-05423119 |
| By: | Ashley C. Craig; Thomas Lloyd; Dylan Moore; Ashley Craig |
| Abstract: | How should taxes on externality-generating activities be adjusted if they are regressive? In our model, the government raises revenue using distortionary income and commodity taxes. If more or less productive people have identical tastes for externality-generating consumption, the government optimally imposes a Pigouvian tax equal to the marginal damage from the externality. This is true regardless of whether the tax is regressive. But, if regressivity reflects different preferences of people with different incomes rather than solely income effects, the optimal tax differs from the Pigouvian benchmark. We derive sufficient statistics for optimal policy, and use them to study carbon taxation in the United States. Our empirical results suggest an optimal carbon tax that is remarkably close to the Pigouvian level, but with higher carbon taxes for very high-income households if this is feasible. When we allow for heterogeneity in preferences at each income level as well as across the income distribution, our optimal tax schedules are further attenuated toward the Pigouvian benchmark. |
| Keywords: | optimal taxation, externalities, corrective taxation, income taxation, climate change, carbon tax, commodity taxation, redistribution |
| JEL: | H21 H23 Q52 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12317 |
| By: | Ken Tabata (School of Economics, Kwansei Gakuin University) |
| Abstract: | Does reducing the corporate income tax while increasing the consumption tax to satisfy government budget constraints improve welfare? To address this question, this paper examines the welfare-maximizing consumption and corporate income tax rates within a Rivera-Batiz and Romer (1991)-type variety-expanding growth model with financial frictions and heterogeneous R&D productivity. We also explore how these welfare-maximizing tax rates change as financial constraints become less binding due to financial development. The results indicate that under mild and plausible levels of financial frictions, relaxing financial constraints on R&D investment lowers the optimal corporate income tax rate, while raising the optimal consumption tax rate. This finding implies that when financial constraints are eased, enhancing innovation at the expense of current production—by raising the consumption tax and reducing the corporate income tax—improves welfare. The underlying mechanism is that relaxing financial constraints induces entry into R&D only by highly productive entrepreneurs, thereby increasing the average efficiency of R&D investment. |
| Keywords: | Financial Frictions, Corporate Income Tax, Consumption Tax, R&D, Endogenous growth |
| JEL: | E62 H21 H25 O30 O38 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:304 |
| By: | Massenz, Gabriella (Research Institute of Industrial Economics (IFN)) |
| Abstract: | What leads self-employed entrepreneurs to incorporate? I examine how tax incentives interact with the cost of incorporation to answer this question. I exploit the abolition of minimum capital requirements to set up a limited liability company in the Netherlands and compare entrepreneurs that differ in their incentive to incorporate but that are otherwise comparable. After the reform, entrepreneurs whose pre-reform taxable income was closest to a kink where marginal personal income tax rates steeply increase are more likely to start a corporation. Total tax paid by these entrepreneurs is significantly reduced, which suggests they are able to reap the tax benefits of conducting business activity as a corporation. However, there seems to be no significant impact on total business activity – at least in the short term. Finally, there appears to be no significant difference in the probability that business owners own an unincorporated business, which suggests that many entrepreneurs operate a corporation alongside an unincorporated firm. |
| Keywords: | Incorporation; Organizational form; Minimum capital requirements; Income shifting |
| JEL: | H25 H26 H32 |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1547 |
| By: | Andreas Haufler; Hirofumi Okoshi; Dirk Schindler |
| Abstract: | We study the effects that the introduction of the Global Minimum Tax (GMT) has from the perspective of developing countries. Our model features two asymmetric host countries for FDI that compete with each other for the location of multinational firms, and simultaneously fight profit shifting to a tax haven. The developing country has the weaker enforcement technology to fight profit shifting; it therefore loses more revenue from profit shifting, but also becomes a more attractive location for multinationals. The GMT reduces both profit shifting and the tax-avoidance advantage of the developing country. If tax competition for real investment is sufficiently severe, the introduction of the GMT reduces tax rates and tax revenues in the developing country while tax revenues in the developed country rise. Our results help explaining the opposition of developing countries to the GMT. |
| Keywords: | global minimum tax, developing countries, tax competition |
| JEL: | F23 H26 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12329 |
| By: | Janine Dixon; Jason Nassios |
| Abstract: | This study presents updated and extended economy-wide modelling of company income tax reform in Australia, using the VURMTAXG model. Relative to Nassios et al. (2025), this study introduces three extensions: estimates of foreign ownership shares by industry and firm size (these were previously estimated by industry only); the implementation of a Net Cash Flow Tax (NCFT); and consideration of threshold effects of a staged Corporate Income Tax (CIT) schedule under monopolistic competition. We find that a Net Cash Flow Tax displays considerable potential to recoup lost revenue from cuts to the CIT rate, taking pressure off domestic households and reversing losses in gross national income, domestic welfare, real post-tax wages and real private consumption associated with a cut to the CIT rate. Even after accounting for foreign ownership shares by firm size, and productivity losses due to the effects of size thresholds for CIT, the implementation of the full package of CIT cuts funded mainly by a NCFT and residually by personal income taxes is shown to increase gross national income and economic welfare. |
| Keywords: | Taxation policy, CGE modelling, Dynamics, Corporate income tax |
| JEL: | C68 E62 H21 H25 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cop:wpaper:g-361 |
| By: | Michael Barczay; Shafik Hebous; Fayçal Sawadogo; Jean-Francois Wen |
| Abstract: | Mobile money has become a central digital alternative to traditional banking in developing countries, yet several African governments have introduced taxes on mobile money transactions. We develop a model that characterizes how such taxes affect payment choices and generate excess burden. The model predicts that taxation reduces mobile money use, with elasticities shaped by access to substitutes and transaction costs: banked users substitute into formal alternatives, while unbanked users face higher effective costs, making the tax regressive. Taxation also induces substitution into cash, raising informality. We empirically test these predictions using cross-country survey data and novel transaction-level data from Cameroon, the Central African Republic, and Mali. Results show sharp declines in mobile money usage, with stronger responses among the banked. Unbanked and rural users bear a disproportionate burden. We use the empirical estimates to gauge the excess burden of the tax, which we quantify at 35% of revenue - highlighting its significant efficiency cost alongside its regressive impact. |
| Keywords: | mobile money tax, financial inclusion, transaction tax |
| JEL: | H27 O16 G20 E42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12322 |
| By: | Sarah S. Baker |
| Abstract: | Does a landlord’s property tax bill affect a new tenant’s rent? According to standard economic theory, it should not — the law of one price implies that identical rental units in the same market should be priced identically, despite heterogeneity in property tax costs. This paper provides new evidence that a landlord’s property tax bill does affect rent for new tenants, violating the law of one price. I investigate the effect of heterogeneous property tax shocks on rents using a unique, quasi-experimental setting in California. California’s Proposition 13 has created large discrepancies in property tax liability among otherwise similar rental units, and these discrepancies are exacerbated quasi-randomly around a sale. Using a novel, comprehensive dataset on new-tenant rents from the City of Berkeley, I find strong evidence that landlords faced with quasi-random, building-level property tax shocks pass through $0.50–$0.89 per $1 of the property tax shock to renters. The results are robust to the inclusion of landlord size, renovations around a sale, and a property’s purchase price. I propose and empirically motivate an explanatory model of heterogeneity in landlord sophistication that can rationalize the observed positive relationship between rent and property taxes. |
| Date: | 2025–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:102287 |
| By: | Pierre Pestieau; Maria Racionero |
| Abstract: | We consider a society where social mobility is influenced by parental wealth transfers and education investments. Specifically, the educational investments capture the time parents devote to the education of their children. We show that, in the absence of government intervention, the market equilibrium results in a level of upward social mobility lower than that in an ideal first-best scenario. Given the challenge of observing individual characteristics, we characterize the second-best solution achievable through the implementation of non-linear taxation. We consider two alternative government objectives: a weighted utilitarian criterion and a Rawlsian criterion. Additionally, we explore the implications of two alternative informational assumptions: whether educational investments are observable or non-observable. |
| Keywords: | H21, H31, H52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:acb:cbeeco:2025-706 |
| By: | Tervala, Juha; Puonti, Päivi |
| Abstract: | Abstract The chronic fiscal deficits of Finland and the continuous increase of the public debt-to-GDP ratio are likely to require further fiscal consolidation through cuts of public expenditure and increases of taxation. Although contractionary fiscal consolidation measures reduce the level of GDP in the short term, their effects may vary across categories of expenditure and taxation. The prolonged weakness of economic growth has further undermined the sustainability of the public finances of Finland, which in turn highlights the need for consolidation measures that minimise the losses of output. This literature review examines fiscal multipliers as support for the design of growth-friendly consolidation strategies. This analysis pays special attention to the impact of Finland’s economic structure on the size of fiscal multipliers, with the objective of producing policy-relevant evidence. |
| Keywords: | Fiscal consolidation, Fiscal policy, Fiscal multiplier, Fiscal sustainability, Macroeconomic policy |
| JEL: | E62 E63 H30 |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:171 |
| By: | Viktor Yarovyi |
| Abstract: | This research investigates the impact of tax policy changes on Ukraine's rural economy and local communities during the ongoing war. The study analyses how these reforms balance the need for revenue mobilization with the support of the agricultural sector. A mixed-methods approach combines quantitative fiscal data with qualitative insights from interviews with small-scale farmers. The findings reveal that, while wartime taxation has increased state revenue, its effects have been uneven and often disproportionate. |
| Keywords: | Taxation, War, Smallholder farmers, Local communities, Land tenure, Ukraine |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-105 |
| By: | Christian von Haldenwang; Gibson Chigumira; Erinah Chipumho; Chifundo Mchowa |
| Abstract: | This explorative study analyses how the use of tax expenditures affects the fiscal contract in Zimbabwe by focusing on special economic zones (SEZs) in the mining sector. SEZs combine a variety of business-related tax expenditures. Governments use them to attract investment, boost exports, promote employment and create positive spillover effects for the national economy. However, their efficiency is often in doubt. SEZs are frequently seen as a product of lobbying by powerful economic groups, and a source of rent-seeking and corruption. |
| Keywords: | Fiscal contractualism, Taxation, Tax expenditures, Special Economic Zones, Zimbabwe |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-108 |
| By: | Ana Cebreiro Gomez; Ms. Christina Kolerus; Guilherme Dal Pizzol; Pablo Moreira; Miguel Pecho |
| Abstract: | Brazil’s landmark VAT reform, approved in December 2023, will profoundly alter the way consumption taxes are raised across three levels of government. The dual VAT will replace five overlapping taxes, address major inefficiencies of the current system, and simplify and harmonize a widely scattered tax landscape. While the objective of revenue neutrality is anchored in the reform law, deep structural changes will generate uncertainty about the expected revenue collection. This paper estimates consumption tax revenues under the new VAT based on an adjusted IMF's RA-GAP framework taking into account Brazil’s specificities and documents sectoral shifts in tax burdens. We simulate a wide set of scenarios, modifying key assumptions including on the compliance gap and informality, while being guided by legislated decisions on rates and exemptions. Our findings indicate that minimizing the compliance gap will be the most effective way towards ensuring revenue neutrality. To address revenue risks and unleash the reform’s benefits, full integration of operations and effective management of the input tax credit mechanism are critical. |
| Keywords: | Tax policy; VAT; RA-GAP model; tax compliance; informality |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/266 |