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on Public Finance |
| By: | Rainer Niemann; Anna Rohlfing-Bastian |
| Abstract: | This paper analyzes how ESG-linked executive compensation interacts with carbon taxation in a multitask principal-agent framework. A risk-neutral principal with financial and environmental preferences incentivizes a risk-averse manager to exert productive and abatement effort while facing an exogenous carbon tax on emissions. We show that, in the absence of ESG incentives, carbon taxes reduce emissions mainly by lowering production. In contrast, ESG-linked compensation shifts emission reductions toward increased abatement, allowing the principal to raise expected payoff while simultaneously reducing emissions, both with and without carbon taxation. However, carbon taxes narrow the range of feasible ESG preferences and, at high levels, may induce excessive abatement, potentially leading to negative net emissions. Our results highlight the importance of aligning internal incentive design with external climate regulation. The interplay of ESG compensation and carbon taxes should also be considered from a regulatory perspective. |
| Keywords: | ESG-linked executive compensation, carbon taxation, environmental regulation, climate policy, managerial incentives |
| JEL: | D82 M52 Q58 Q54 H25 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12582 |
| By: | Jakub Growiec; Klaus Prettner; Maciej Szkr\'obka |
| Abstract: | We characterize the optimal tax policy in an economy with human manual and cognitive labor, physical capital, and artificial intelligence (AI). Extending the dynamic taxation setup of Slavik and Yazici (2014), we find that it is optimal to start taxing AI when cognitive workers start to consider switching to manual jobs. This threshold may be crossed once AI becomes sufficiently capable in substituting humans across cognitive tasks. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17898 |
| By: | Yukihiro Nishimura (Graduate School of Economics, Osaka University) |
| Abstract: | This paper extends the Atkinson‒Stiglitz Theorem by relaxing the assumption of weak separability of preferences. We show that, to supplement income taxation, the optimal commodity tax burden relative to disposable income is regressive. This regressivity reinforces the classic U-shaped pattern of optimal labor income taxation. Moreover, when goods are complementary to labor, e.g., child care, the overall marginal labor tax burden increases once commodity taxes are introduced; when they are substitutes, it decreases. Under the Rawlsian objective, these variations in marginal tax rates have stronger effects at lower income levels. |
| Keywords: | Commodity tax, Income tax, Marginal income tax rates |
| JEL: | H21 H24 D63 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2508r |
| By: | Brett Hemenway Falk; Gerry Tsoukalas |
| Abstract: | If AI displaces human workers faster than the economy can reabsorb them, it risks eroding the very consumer demand firms depend on. We show that knowing this is not enough for firms to stop it. In a competitive task-based model, demand externalities trap rational firms in an automation arms race, displacing workers well beyond what is collectively optimal. The resulting loss harms both workers and firm owners. More competition and "better" AI amplify the excess; wage adjustments and free entry cannot eliminate it. Neither can capital income taxes, worker equity participation, universal basic income, upskilling, or Coasian bargaining. Only a Pigouvian automation tax can. The results suggest that policy should address not only the aftermath of AI labor displacement but also the competitive incentives that drive it. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.20617 |
| By: | Meakin, Rory |
| Abstract: | Inheritance tax is levied on the estates of the deceased, including on lifetime gifts made up to seven years prior to death. Roman emperors levied taxes on inheritances, and the British history goes back to the Stamp Act 1694, later modernised by the Finance Act 1894 with the introduction of the estate duty. Rates were initially low with a top rate of 8% on estates worth over £1 million (£116 million in 2025 prices). But they rose precipitously over the 20th century to reach 85% before being renamed as capital transfer tax, applying to lifetime gifts, before reverting back to a tax on death estates only in the mid-1980s and being renamed again as today's inheritance tax at a single headline rate of 40%. Britain's top headline rate of 40% is only moderately above the median rate among OECD countries which levy a tax, Czechia's 35%. But 18 out of the 38 OECD countries, almost half, do not levy a tax on bequests to adult children of the deceased, and 10 charge preferential rates. Including these countries and those without a tax at all, Britain ranks fifth highest and is in a small group of high-tax outliers. Much policy-expert commentary on the question of inheritance tax being a 'double' tax is mistaken, and the general public are closer to the truth. It may strictly speaking not be a 'double' tax given all the others that apply, but it is arbitrary, additional and distortionary. The correct lens to consider the question is the value chain from creation to consumption; inheritance tax somewhat arbitrarily introduces an additional point of taxation into the chain. The only way to make an inheritance tax neutral would be to implement a retrospective matching tax rebate for taxed income originally received by the benefactor. Inheritance tax is particularly complex and costly to administer, but its effects on savings and investment and redistribution are more ambiguous, as is public opinion on the question of how to reform it. The public considers it to be unfair, and there is a large majority in favour of reducing it, and sometimes of abolishing it. But that opinion appears to weaken significantly when set against alternative taxes to cut instead. There is a good case for abolishing inheritance tax entirely due to its arbitrary and distortionary nature, its complexity, its effect on savings and investment, its effect on Britain's international competitiveness in attracting entrepreneurs and the very rich, and satisfying public opinion. But it is harder to make the case for abolition as a policy priority above other alternative tax cuts which might deliver greater effects on incentives when governments are unwilling to restrain spending enough to allow both. More incremental reforms offer significantly weaker tax simplification, neutrality and efficiency benefits but come with smaller foregone revenues for the exchequer and represent a smaller opportunity cost in terms of alternative potential tax reforms. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ieadps:339580 |
| By: | Anders G Fr{\o}seth |
| Abstract: | We extend the Fokker--Planck framework of Fr{\o}seth (2026, arXiv:2603.05283) to populations of investors with heterogeneous, persistent return-generating ability. When the drift coefficient in the Langevin equation for log-wealth varies across investors, the proportional wealth tax remains a uniform drift shift but ceases to be neutral in the economic sense: its real incidence differs across ability types, and the stationary wealth distribution changes shape. We derive the extended Fokker--Planck equation on the joint space of log-wealth and ability, characterise the conditions under which the drift-shift symmetry breaks, and identify the consequences for asset prices and portfolio allocations. The analysis connects the neutrality results of Fr{\o}seth (2026, arXiv:2603.05264) and the Fokker--Planck dynamics of Fr{\o}seth (2026, arXiv:2603.05283) to the heterogeneous-returns literature, notably the "use-it-or-lose-it" mechanism of Guvenen, Kambourov, Kuruscu, Ocampo-Diaz and Chen (2023). |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.16006 |
| By: | Valentino Larcinese; Alberto Parmigiani |
| Abstract: | Does higher income inequality increase political inequality by raising the political influence of rich donors? We attempt to answer this question by providing evidence of the effects of a policy-induced rise in income inequality on the concentration of campaign contributions in the US. Using a novel dataset at the Census tract level we show that the 1986 Tax Reform Act, which disproportionately benefited wealthy taxpayers, caused a spike in individual contributions, predominantly from donors at the top of the income distribution. The effect was similar for both parties and unrelated to the recipients' ideology or office sought. For members of Congress, the effect was larger for legislators that voted in favour of the tax bill and for candidates likely to be well-connected or from privileged backgrounds. We also find that an increase in disposable income is more likely to induce political donations when the donor and the recipient share a similar social background. Taken together, our results suggest that the effects of tax policy extend beyond the economic domain, with implications for the distribution of political influence through campaign contributions. |
| Keywords: | income inequality, political inequality, political influence, taxation, campaign finance |
| JEL: | D72 H24 D31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12574 |
| By: | Steve Cicala; David Hémous; Morten Olsen |
| Abstract: | We propose a new policy instrument that leverages adverse selection when Pigouvian poli- cies are infeasible or undesirable. Our policy gives firms the option to pay a tax on their voluntarily disclosed emissions, or an output tax based on the average emissions among undis- closed firms. We derive sufficient statistics formulas to calculate the welfare gains relative to an output tax, and an algorithm to implement the policy with minimal information. In an application to methane emissions from oil and gas fields, our policy generates significant welfare gains. Finally, we extend our analysis to the design of international carbon policy. |
| JEL: | D82 H2 Q54 L51 H87 K32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:491 |