|
on Public Finance |
| By: | Anton Korinek; Lee Lockwood |
| Abstract: | Transformative artificial intelligence (TAI) - machines capable of performing virtually all economically valuable work - may gradually erode the two main tax bases that underpin modern tax systems: labor income and human consumption. We examine optimal taxation across two stages of artificial intelligence (AI)-driven transformation. First, if AI displaces human labor, we find that consumption taxation may serve as a primary revenue instrument, with differential commodity taxation gaining renewed relevance as labor distortions lose their constraining role. In the second stage, as autonomous artificial general intelligence (AGI) systems both produce most economic value and absorb a growing share of resources, taxing human consumption may become an inadequate means of raising revenue. We show that the taxation of autonomous AGI systems can be framed as an optimal harvesting problem and find that the resulting tax rate on AGI depends on the rate at which humans discount the future. Our analysis provides a theoretically grounded approach to balancing efficiency and equity in the Age of AI. We also apply our insights to evaluate specific proposals such as taxes on robots, compute, and tokens, as well as sovereign wealth funds and windfall clauses. |
| JEL: | H21 H24 O33 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34873 |
| By: | Steger, Paul |
| Abstract: | In many decentralized countries, local tax rates are set by local governments but are simultaneously linked to tax schedules that are determined by superior governments. In such systems, a change to the tax schedule by a superior level of government creates a vertical tax externality and affects local governments' budgets downstream. This raises the question whether federal tax changes provoke tax increases or other fiscal responses such as reductions of spending on the local level. In such a case, local government reactions eat away at the tax reform and its net effect might be different than anticipated by policymakers. To that end, I exploit a large-scale income tax cut in the Swiss canton of Bern to estimate a municipal response elasticity. I find that municipalities increase municipal tax disproportionately, resulting in higher municipal revenues and higher municipal spending. This implies a novel decentralization result such that municipalities' importance in taxation increases at the cost of cantonal importance. This response is much smaller when municipalities are more exposed to cross-municipal tax competition. |
| Keywords: | Fiscal Federalism, Local Public Finance, Vertical Tax Externality, Tax Competition |
| JEL: | H71 H72 H73 H77 R51 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:336763 |
| By: | Arpad Abraham; Pavel Brendler; Eva Carceles-Poveda |
| Abstract: | We study whether redesigning the social security and income tax-transfer systems can deliver significant welfare gains. Our rich quantitative model features both realistic inequality over the lifecycle and the key channels through which redistributive policies can distort aggregate allocations. We find that there are two distinct ways to achieve significant welfare gains. The first prioritizes reducing distortions through a regressive pension system, resulting in higher inequality. The second reduces inequality through progressive pensions, complemented with a less progressive tax system to mitigate the rise in distortions. In both reform types, pension progressivity emerges as a powerful instrument to either manage distortions or redistribute income within generations. Since redistributive instruments turn out to be highly distortionary in our benchmark economy, the policy reducing distortions turns out to be optimal under utilitarian social welfare. |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:bri:uobdis:25/820 |
| By: | Janosch Brenzel-Weiss; Winfried Koeniger; Arnau Valladares-Esteban |
| Abstract: | We calibrate a lifecycle portfolio-choice model of homeowners facing uninsurable income risk to show that tax deductions for mortgage interest payments and voluntary pension contributions have sizable effects on household portfolios and macroprudential risks. The deductions reduce the after-tax cost of debt and increase the after-tax return of pension savings so that the mortgage incidence increases and portfolios shift from home equity and liquid assets towards pension savings. Because the consumption responses to a house-price decline are heterogeneous, the distribution of household debt shapes the quantitative effect of the tax deductions on the homeowners' resilience after a house price bust. |
| Keywords: | mortgage amortization, tax incentives, household consumption, portfolio choice, housing busts, economic stability, macroprudential policy |
| JEL: | D14 D15 D31 E21 G11 G21 H24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12436 |
| By: | Andrianady, Josué R. |
| Abstract: | This paper develops a structural fiscal simulation model to evaluate the macroeconomic and budgetary effects of alternative tax reform scenarios in Madagascar. The model examines the impact of reductions in value-added tax (VAT), personal income tax (IRSA), employers’ social contributions, and customs duties, both individually and in combination, on output, employment, and public revenues. Simulation results show that isolated cuts in VAT or IRSA have negligible effects on production and employment but lead to substantial revenue losses. By contrast, lowering employers’ social contributions stimulates employment (+2.8%) and output (+1.8%) while limiting fiscal costs, highlighting the sensitivity of labor demand to labor costs. Reductions in customs duties modestly increase output (+1.9%) but do not affect employment significantly and generate large revenue shortfalls. A combined reform package maximizes output (+3.7%) and employment (+2.8%) but at a significant cost to public revenues (-39%), raising concerns about fiscal sustainability. Overall, targeted reductions in labor taxation emerge as the most effective instrument for promoting employment and growth while preserving fiscal balance in a developing-country context. The model provides a first-order analytical framework for Madagascar and a benchmark for future studies incorporating informality, distributional effects, and dynamic adjustments. |
| Keywords: | Fiscal policy; Tax reform; Employment; Public revenues; Madagascar. |
| JEL: | E23 E61 E62 H26 H30 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127737 |
| By: | Katarzyna Bilicka; Simone Traini; Katarzyna Anna Bilicka |
| Abstract: | We examine whether the public revelation of sensitive tax information prompts firms to adopt reputation repair policies targeting shareholders. Between 2013 and 2021, the International Consortium of Investigative Journalists (ICIJ) released leaked information on over 800, 000 offshore entities incorporated in tax havens, publicly revealing their use by multinational firms to avoid taxes. Leveraging this setting, we investigate whether firms implicated in the leaks improve their governance, increase investor remuneration, and reorganize their activities to restore shareholder trust relative to unaffected firms. We find that, after the leaks, firms appoint more directors, especially in operations, audit, and finance and accounting, pay higher dividends, and reduce their presence in tax havens, without increasing effective tax rates. Additional analyses suggest that concerns about managerial diversion and public scrutiny may drive these responses. Overall, data leaks appear to change the cost-benefit trade-off of tax strategies in ways that are, on net, favorable to shareholders. |
| Keywords: | offshore subsidiaries, tax havens, data leaks, corporate governance, dividend payouts, reputation repair |
| JEL: | G30 H25 L14 M41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12435 |
| By: | Ronald B. Davies; Margarita Lopez-Forero; Benjamin Michallet; Johannes Scheuerer |
| Abstract: | Despite their advantages, multinational enterprises (MNEs) receive significant criticism, particularly with regard to offshoring jobs and shifting profits abroad to avoid taxation. Using administrative data for the universe of Norwegian and French firms and workers, we link these two issues by documenting a negative relation between MNE investment in a tax haven and employment in the high-tax country. In particular, exploiting the 2006 European Court of Justice (ECJ) decision on the Cadbury-Schweppes case which upheld the use of EU tax havens, we are able to establish a causal link in which tax haven use lowers domestic employment by 6%. Heterogeneity analyses reveal that the effects are mainly concentrated among high-skilled workers. We further link the employment changes to the substance requirements mandated by the ECJ's ruling and the secrecy inherent to tax havens. |
| Keywords: | tax havens, multinational firms, employment, mass layoffs, economic substance |
| JEL: | F23 H26 J21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12464 |
| By: | Julia Cagé; Malka Guillot; Yuchen Huang |
| Abstract: | In many countries, both charitable and political donations benefit from generous – and often similar – tax incentives. While a large literature has studied the tax-price elasticity of charitable giving, little is known about political donations. Using a large-scale survey experiment (N = 12, 600), we investigate the relative efficiency of different tax schemes in fostering political and charitable donations. We document that repealing the existing non-refundable income-tax credit decreases charitable donations but not political donations, pointing toward greater fiscal incentives behind charitable giving. We next show that, conditional on giving, matching – where the government matches individual donations at a fixed rate – increases both political and charitable giving, but that it decreases the probability of giving to charities at the extensive margin. Finally, using a Principal Component Analysis (PCA) and generic machine learning, we document important dimensions of heterogeneity, and discuss the policy implications of our findings. |
| Keywords: | charitable giving, political donations, tax incentives |
| JEL: | H24 H31 L38 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12444 |
| By: | Spengel, Christoph; Gaul, Johannes; Göbel, Alexander; Gschossmann, Emilia; Gundert, Hannah; Jungmann, Felix; Käshammer, Daniel; Kindler, Cornelia; Pfrang, Alina; Porebski, Thu Thao; Schmidt, Christin; Schmidt, Katharina; Schulz, Inga; Spix, Julia; Weck, Stefan; Wickel, Sophia; Winter, Sarah Marie |
| Abstract: | This study examines the evolving landscape of anti-tax avoidance measures in the European Union (EU), focusing on the interplay between the Anti-Tax Avoidance Directive (ATAD), the EU Blacklist Code of Conduct on Business Taxation, various unilateral regulations, and the global minimum tax. Drawing on a comprehensive survey of local tax experts, we investigate how Member States have implemented the five core ATAD measures - interest barrier rules, exit taxation, controlled foreign company (CFC) rules, hybrid mismatch provisions, and general anti-abuse rules (GAAR) - as well as the EU Blacklist and additional national provisions such as royalty deduction limitations. The findings reveal a generally consistent adoption of ATAD rules, albeit with notable variation in strictness and scope across Member States. Furthermore, the study evaluates the interplay with the newly introduced global minimum tax. While this global measure primarily targets rate-based profit shifting, our analysis indicates that it may reinforce or partially overlap the EU's other directives - especially for countries that have already implemented extensive anti-tax avoidance legislation. We conclude by highlighting areas where policy refinements could enhance coherence - reducing complexity, avoiding double regulation, and strengthening the overall framework for combating tax avoidance within the EU. |
| Keywords: | Anti-Tax Avoidance, Taxation in the European Union, Global Minimum Tax |
| JEL: | H25 H26 K34 F23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:336766 |
| By: | Michael Funke; Raphael Terasa |
| Abstract: | Germany has introduced a comprehensive package of staggered business tax breaks to accelerate business investment and give new momentum to economic growth. The key components of the so-called investment booster program are a temporary tax write-off on machinery and other equipment investments to a maximum of 30% in 2025, 2026, and 2027, followed by a stepwise permanent reduction of the corporate tax rate from 15% to 10% between 2028 and 2032. We first present a stochastic general equilibrium (DSGE) modeling setup and baseline results for the enacted unconventional policy measures incentivizing investment, then assess counterfactual policy regimes including various red tape streamlining supply shock scenarios. Overall, the insights into the unconventional reform package provide actionable guidelines for the design of business tax breaks aimed at stimulating investment. |
| Keywords: | business taxation, unconventional fiscal policy, investment, DSGE model, Germany |
| JEL: | E22 E60 H25 Q54 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12385 |