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on Public Finance |
| By: | Magnus Eldrup (Department of Economics, University of Copenhagen) |
| Abstract: | Exemptions are a key feature of income tax systems in developing countries, yet standard optimal tax models cannot explain them. By assuming full compliance, these models ignore horizontal inequality between formal and informal workers, understating the social cost of taxing the former. Extending the optimal tax framework, I incorporate informality and horizontal inequality aversion. I conduct a survey experiment in Kenya, finding that respondents place substantially higher welfare weight on formal taxpayers than otherwise identical informal workers. Combining these empirical preferences with administrative tax data yields prescriptions of high exemption thresholds matching observed policy, a result alternative explanations cannot rationalize. |
| JEL: | H21 H26 D63 O17 C93 |
| Date: | 2026–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2619 |
| By: | Clemens, Michael (Johns Hopkins University) |
| Abstract: | The US government has proposed various taxes on high-skill immigration. The effects of such taxes hinge on price elasticities of demand and supply that the literature has rarely measured. I estimate key elasticities to evaluate a $100, 000 tax on Optional Practical Training (OPT) work permits for international graduates of US universities, the largest single channel of high-skill immigration to the US. Depending on the tax's incidence, evaluation requires the price elasticity of demand for US degrees with the OPT option, of universities' supply of OPT placements, or of employers' demand for OPT workers. In all incidence scenarios, OPT starts at a given level of international enrollment fall by roughly a third or more, and by four fifths under university or employer incidence in the central scenarios. The decline in OPT opportunities would cut international enrollment, costing universities hundreds of millions to over four billion dollars a year in net margin, before any compounding with taxes on work visas such as the H-1B. The need for better estimates will grow with the prevalence of immigration taxes. |
| Keywords: | Optional Practical Training, H-1B, immigration, immigrant, labor, tax, fee, payment, duty, tariff, skill, talent, foreign, student, graduate, college, higher ed, university, demand, supply, elasticity, STEM |
| JEL: | F22 H22 I23 J61 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18933 |
| By: | Xinru Chen; Mara Faccio; Stefano Manfredonia; Jin Xu |
| Abstract: | We investigate how limiting interest deductibility under the 2017 TCJA shapes corporate innovation. Using alternative identification strategies, we show that, relative to unaffected firms, affected firms experience significant declines in patenting and narrow the technological scope of their patent portfolios. This contraction is concentrated in exploitative patents, the type of innovation most naturally supported by debt financing. By weakening firms’ ability to finance innovation with long-term debt, interest limitations reveal a novel channel linking taxation to innovation, with the debt tax shield serving as an implicit subsidy. Cross-country evidence from the staggered implementation of interest limitation rules confirms negative effects. |
| JEL: | G3 G31 H25 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35775 |
| By: | Caterina Colombo; Roberto Censolo |
| Abstract: | This paper represents the very first attempt to employ the data of 5x1000 allocation of personal income tax for the purpose of studying the evolution of social preferences of Italian taxpayers. The 5x1000 initiative encourages voluntary contributions toward the support of public goods and collective resources, by allowing taxpayers to direct 0.5% of their personal income tax to nonprofit organizations and public institutions. Our results indicate a decline in moral universalism, accompanied by a gradual shift in social preferences away from solidaristic concerns, leading individuals to prioritize self-interest over empathy for distant others. In addition, universalistic preferences are predominantly found among middle-income taxpayers. In contrast, both lower- and higher-income groups display more particularistic tendencies. For low-income individuals, particularism often centres on immediate material needs. Among high-income taxpayers, it reflects preferences aligned with lifestyle values, such as the prioritization of leisure and quality of life. |
| Keywords: | 5x1000 scheme; social preferences; moral universalism |
| JEL: | H24 H31 D64 D10 |
| Date: | 2026–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:udf:wpaper:20260315 |
| By: | Charles Labrousse; Yann Perdereau |
| Abstract: | The distributive effects of carbon taxation are critical for its political acceptability and depend on both income and geographic factors. Using French administrative data, household surveys, and matched employer–employee records, we document that rural households spend 2.8 times more on fossil fuels than urban households and work in firms that emit 2.7 times more greenhouse gases. We incorporate these facts into a spatial heterogeneous-agent model with migration, housing and wealth accumulation, bridging spatial and macroeconomic approaches. Carbon taxes generate 56% larger welfare losses for rural households than for urban households, as the former may be trapped due to mobility frictions and homeownership. While uniform or income-based rebates reduce inequality along the income dimension, they leave large spatial disparities that must be offset through location-based transfers. These results suggest that carbon policies should account for spatial differences to improve political feasibility. |
| Keywords: | Carbon Tax, Inequalities, Revenue Recycling, Spatial and Macroeconomic Models, Migration |
| JEL: | C61 E62 H23 Q43 Q58 R13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1063 |
| By: | Christopher Hoy (Institute for Fiscal Studies); Matias Strehl-Pessina (UC Santa Barbara); Ruggero Doino (World Bank); Darian Naidoo (World Bank); Kingtau Mambon (University of Papua New Guinea); Bobby Kunda (University of Papua New Guinea) |
| Date: | 2026–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:26/55 |
| By: | Arapakis, K.; French, E.; McCauley, J. |
| Abstract: | Most health care for the US population aged 65 and older is publicly funded through Medicare and Medicaid. Despite the massive expenditures of these systems, little is known about how redistributive they are. Using data from the Health and Retirement Study, matched to administrative Medicare, Medicaid, and Social Security earnings records, we estimate the distribution of lifetime Medicare and Medicaid benefits received and the distribution of lifetime taxes paid to finance these benefits. We find that benefits are greatest among the high income, largely because higher-income households live longer. Nonetheless, high income people pay more in the way of taxes. In present discounted values at age 65, households at the bottom of the income distribution gain the most from these programs, driven by high Medicaid benefits and low tax burdens. All income groups gain from these programs for the cohort we study: the lifetime tax contributions did not cover the medical benefits they received. This deficit must be paid by younger cohorts. |
| Keywords: | Medicare, Medicaid, Social Security, Means-Testing, Lifecycle, Savings, House-Hold Finance |
| Date: | 2026–09–21 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2677 |