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on Public Finance |
| By: | Etienne Lehmann; Eddy Zanoutene |
| Abstract: | We study the optimal taxation of corporate and dividend income when entrepreneurs can use retained earnings to reduce their tax burden. We show that eliminating dividend taxes while increasing the corporate income tax (CIT) to keep investment unchanged raises total tax revenue. Our simulations suggest net revenue gains of 0.1-0.4% of GDP. In an infinite-horizon model, the optimal policy sets dividend taxes to zero in every period. As the discount factor approaches one and when the planner values only workers’ welfare, the optimal steady-state CIT converges to a standard inverse elasticity rule. |
| Keywords: | corporate tax, dividend tax, optimal taxation, capital taxation |
| JEL: | H21 H24 H25 H26 H32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12424 |
| By: | van Langenhove, Christophe; Lorenz, Jan; Schulz-Gebhard, Jan |
| Abstract: | We compare wealth taxes and capital gains taxes in a random growth model with idiosyncratic investment risk. At equal tax revenue, wealth taxes generate higher wealth inequality but also higher wealth mobility than capital gains taxes. The mechanism operates through variance: wealth taxes shift the mean of post-tax wealth growth without affecting variance, while capital gains taxes compress the upper tail and reduce variance. Lower variance compresses the stationary distribution, reducing wealth inequality, but also dampens rank changes, reducing wealth mobility. The variance effect dominates the fact that lower inequality shrinks the wealth gaps agents must overcome. Policymakers who value both low wealth inequality and high wealth mobility therefore face a trade-off. This trade-off is robust to type and scale dependence in returns, hand-to-mouth households, aggregate risk, and tax progressivity. |
| Keywords: | random growth model, wealth inequality, social mobility, wealth taxation, capital gains taxation, Geometric Brownian Motion |
| JEL: | D31 H24 E21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bamber:337495 |
| By: | Alexander Dimitrov; Christoph K\"uhn |
| Abstract: | We generalize classical results on the existence of optimal portfolios in discrete time frictionless market models to models with capital gains taxes. We consider the realistic but mathematically challenging rule that losses do not trigger negative taxes but can only be offset against potential gains in the future. Central to the analysis is a well-known phenomenon from arbitrage-free markets with proportional transaction costs that does not exist in arbitrage-free frictionless markets: an investment in specific quantities of stocks that is completely riskless but may provide an advantage over holding money in the bank account. As a result of this phenomenon, on an infinite probability space, no-arbitrage does not imply that the set of attainable terminal wealth is closed in probability. We show closedness under the slightly stronger {\em no unbounded non-substitutable investment with bounded risk} condition. As a by-product, we provide a proof that in discrete time frictionless models with short-selling constraints, no-arbitrage implies that the set of attainable terminal wealth is closed in probability -- even if there are redundant stocks. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.15177 |
| By: | Mark Aguiar; Benjamin Moll; Florian Scheuer; Luis Aguiar |
| Abstract: | Standard optimal capital tax theory abstracts from modeling asset prices, making it unsuitable for thinking about capital gains and wealth taxation. We study optimal redistributive taxation in an environment with asset price movements, adopting the modern finance view that asset prices fluctuate not only because of changing cash flows, but also due to other factors ("discount rates''). We show that a combination of realization-based capital gains and cash flow taxes implements the optimal allocation regardless of the source of asset-price fluctuations. Moreover, the capital gains tax avoids distortions in portfolio choice (the so-called lock-in effect) by targeting total net trades rather than gains from selling individual assets. These results stand in contrast to the classic Haig-Simons comprehensive income tax concept as well as recent proposals for wealth or accrual-based capital gains taxes. |
| Keywords: | capital and wealth taxation, asset pricing, portfolio choice |
| JEL: | E6 G1 H2 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12472 |
| By: | Amberger, Harald; Giese, Henning; Koch, Reinald; Ortner, Lukas |
| Abstract: | Despite the central role of corporate tax departments in managing multinational enterprises' (MNEs) global tax positions, little is known about how their internal design shapes corporate tax behavior. Drawing on hand-collected data on more than 8, 000 tax employees across 309 publicly listed European MNEs, we examine the association between tax department centralization and firm-level tax outcomes. We find no evidence for tax department centralization being associated with the overall level of tax planning. However, firms with more centralized tax departments engage in greater cross-border profit shifting, respond less to local tax incentives, and face higher tax risk. These findings suggest that tax department design shapes the means rather than the intensity of corporate tax planning. Our study extends the emerging literature on tax department design and provides insights for managers responsible for corporate tax strategies as well as for policymakers anticipating organizational responses to international tax reforms |
| Keywords: | management structure, tax planning, tax risk |
| JEL: | H25 H26 M12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:337471 |
| By: | Jan LukÅ¡iÄ; Jörg Peschner; Giuseppe Piroli |
| Abstract: | We find that patents registered by multinational enterprises (MNEs) in tax havens help avoid taxes in the EU but fail to increase the total factor productivity (TFP) of EU-located group members. We conclude that many of those patents' prime purpose is not to make technology available and then diffuse it smoothly within the group. It is rather to avoid taxes in the EU by shifting profits to low-tax offshore entities. We suggest that implementing a comprehensive system of withholding taxes on outbound royalty payments could reduce profit-shifting associated with patents, thereby fostering more innovative and efficient uses of intellectual property. |
| Keywords: | Multinational enterprises, taxes, TFP, innovation. |
| JEL: | D24 F38 H21 H25 O32 |
| Date: | 2026–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2026_04 |
| By: | David R. Agrawal; Xinyu Chen |
| Abstract: | The taxing authority of subnational governments is limited by the geographic location of individuals and economic activity. The rise of telework decouples a worker's residence from the employer's location, creating challenges for personal income taxes, corporate income taxes, and unemployment insurance. Using Census data, we show that teleworkers are more likely than non-teleworkers to move interstate and realize larger reductions in their state tax burdens from a move. Motivated by this evidence, we evaluate alternative principles for sourcing labor income to the state of residence, the employer, or work and discuss how remote work reshapes subnational tax bases. |
| Keywords: | telework, work-from-home, income tax, sales tax, property tax, sourcing rules, migration |
| JEL: | H24 H25 H71 J21 J68 R51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12422 |
| By: | Marcelo Bergolo; Martin Leites; Ricardo Perez-Truglia; Matías Strehl-Pessina |
| Abstract: | Why do some individuals evade taxes while others do not? We study this question using administrative tax records from Uruguay linked to a tailored survey of taxpayers. Using third-party reports, we measure individual income under-reporting as an indicator of evasion. We then examine how three factors predict who evades: social preferences (e.g., honesty measured through incentivized laboratory games), peers (e.g., the behavior of current and former coworkers), and economic factors (e.g., the marginal tax rate). We find that social preferences have little power to predict evasion, while economic factors matter more and peer behavior is the strongest predictor. |
| Keywords: | tax evasion, social preferences, beliefs |
| JEL: | C93 H26 K34 K42 Z13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12432 |
| By: | David R. Agrawal |
| Abstract: | I survey the research on the last twenty-five years of subnational income tax policy and conclude that the defining feature of state and local income taxes is geography. Geographic boundaries limit the power of subnational governments to tax people and activities. The article discusses where income should be taxed and the behavioral effects of these tax rules on the interjurisdictional mobility of people and jobs. I then examine how this mobility can heighten tax competition, which in turn can limit the ability of state and local governments to engage in progressive redistribution. I include a discussion of how telework will influence the future of the income tax by decoupling the locations of the employee and employer. Important areas for future research for the coming decades are highlighted throughout the article. |
| Keywords: | income tax, state and local, telework, sourcing rules, tax competition, mobility, commuting |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12470 |
| By: | Jean-Marc B. Atsebi; Misha Chikviladze; Ms. Mitali Das; Elguja Loliashvili; Mona Wang |
| Abstract: | In 2021, the Republic of Georgia established a Large Taxpayer Office (LTO) to strengthen tax administration and improve compliance among firms that contribute a disproportionate share of revenue. This paper draws on that quasi-experiment to estimate the causal impact of intensive oversight, with no change in tax rates, on taxpayer behavior and revenue collection using administrative data from 2017–2024. Our study exploits both the 2021 introduction of the LTO and the revision of eligibility thresholds in 2024. Estimating a weighted difference-in-differences design, we find that LTO assignment raised annual tax assessments by about 0.4–0.7 percent of GDP, concentrated in VAT and withholding taxes. When we examine the channels, we find that the LTO raised compliance by combining targeted enforcement with improved taxpayer services, while audits became fewer but more selective. The impacts are largest in sectors with strong third-party reporting and high transaction traceability. Our findings underscore that reforms to tax administration can deliver significant gains in fiscal capacity, generate fiscal space, and support development. |
| Keywords: | Compliance; Enforcement; Large Taxpayer Office (LTO); Revenue Mobilization; Taxpayer Services |
| Date: | 2026–02–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/031 |
| By: | Yilin Hou; Michael Kumhof; Lei Shao |
| Abstract: | This paper develops an analytical framework for examining land taxation in the context of contemporary urban economies. We dissect the China case for simulation, comparing two model-based scenarios where revenue losses from consumption taxes are replaced by higher income taxes and land taxes. We calibrate the model to year-2015 data and find that higher income taxes cause large losses in output and income, while higher land taxes lead to substantive gains that increase with land share in net wealth. This paper offers empirical explorations in revitalizing the land tax, with simulation results at a large country level for generalization. |
| Keywords: | land value tax, consumption tax, capital income tax, labor income tax, balanced budget |
| JEL: | E62 H21 H61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12476 |