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on Public Finance |
| By: | Sergio Ocampo; Guttorm Schjelderup; Floris Zoutman |
| Abstract: | Realization-based capital income taxation generates capital lock-in because investors have an incentive to delay tax payments. This generates inefficiency as investors forgo investment opportunities that require them to realize capital gains. We show that wealth taxation can unlock capital, eliminating the distortion on investors’ portfolio choice. Moreover, wealth taxes do not distort this choice in the absence of capital income taxation. This provides an efficiency rationale for wealth taxation independent of equity: shifting revenues from capital income to wealth taxes reduces distortions on portfolio choice. We provide conditions for the optimal tax mix between capital income and wealth taxes that balance the equity gains from both taxes against efficiency losses related to savings and portfolio choices. These conditions hinge on the cross-base elasticity of capital income to wealth taxes which captures lock-in responses. |
| Keywords: | wealth tax, capital-gains tax, capital lock-in and efficiency |
| JEL: | H24 D14 G51 H21 M21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12830 |
| By: | Jo Ellery; Matthew C. Weinzierl |
| Abstract: | Contrary to a long-standing concern, we present evidence that classical benefit-based labor income taxation in the tradition of Smith (1776) is consistent with income redistribution through transfers and negative average tax rates both theoretically and---in plausibly-specified simulations---quantitatively at levels which reflect U.S. policy over the past several decades. As redistribution is widespread in practice, our results remove an obstacle to the benefit principle’s plausibility as a prevailing normative foundation of tax policy. |
| JEL: | H20 H21 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35429 |
| By: | Best, Michael; Caloi, Luigi; Gerard, Francois; Kresch, Evan; Naritomi, Joana; Zoratto, Laura |
| Abstract: | Governments frequently use proxies for deservingness—tags—to implement progressive tax and transfer policies. These proxies are often imperfect, leading to misclassification and inequities among equally deserving individuals. This paper studies the efficiency effects of such misclassification in the context of the property tax system in Manaus, Brazil. We leverage quasi-experimental variation in inequity generated by the boundaries of geographic sectors used to compute tax liabilities and a large tax reform in a series of augmented boundary discontinuity designs. We find that inequities significantly reduce tax compliance. The elasticity of compliance with respect to inequity is between 0.12 and 0.25, accounting for half of the overall change in compliance at the boundaries. A simple model of presumptive property taxation shows how mistagging affects the optimal tax schedule, highlighting the opposite implications of responses to the level of taxation and to inequity for optimal tax progressivity. Interpreting our findings through the lens of the model implies that optimal progressivity is around 50% lower than it would be absent inequity responses. These results underscore the importance of inequity for public policy design, especially in contexts with low fiscal capacity. |
| Keywords: | Tax evasion; Property taxation |
| JEL: | H21 H26 H71 O17 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20510 |
| By: | Arezki, Rabah; van der Ploeg, Frederick; Rota-Graziosi, Grégoire; Dao Le, Van |
| Abstract: | The introduction of the Value Added Tax (VAT) has been widely perceived as a successful instrument, boosting government revenue and stimulating industrialization. However, in countries that are heavily dependent on exports of natural resources the introduction of the VAT has led on average to lower tax revenues and did not stimulate industrialization. The VAT thus did not help these countries to diversify away from the natural resource sector contrary to its promise. This suggests that the VAT in those countries has failed and should be redesigned. The results indicate a novel channel for the resource curse hinging on the interaction between economic structure and the design of tax systems. |
| Keywords: | Natural resource |
| JEL: | H25 O13 O14 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20346 |
| By: | Giovanni Di Bartolomeo; Silvia Fedeli; Stefano Papa |
| Abstract: | We test whether minimal, non-informative messages can nudge tax compliance beyond standard deterrence. In a within-subjects lab experiment, we randomize exposure to either a reminder that leaves audit probability unchanged or an informative warningtied to higher audit probability, and estimate e¤ects on both the probability of evasion and the share of income evaded. A short non-informative reminder, holding incentives fixed, lowers the probability of evasion by about 16 percentage points, with no detectable effect on the evaded share among evaders; informative messages add at most marginal effects once audit probability is controlled for. |
| Keywords: | tax compliance; nudge; deterrence; audit; laboratory experiment |
| JEL: | H26 C91 D91 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp281 |
| By: | Felix Bierbrauer; Mattias Polborn; Marten Ritterrath; Georg Weizsäcker |
| Abstract: | We study the political economy of carbon taxes when neoclassical consumers take all other agents' emissions as given and socially responsible consumers internalize damages in a group-rule-utilitarian way, taking neoclassical consumers' behavior as given. We characterize political equilibrium taxes with a focus on deviations from first-best Pigouvian taxation. Welfare falls further if arguments on moral obligations to reduce carbon footprints polarize the debate in society. Finally, we present survey evidence that supports our theory: social responsibility correlates with lower consumption of brown goods, higher preferred carbon taxes, and support for moral arguments. |
| Keywords: | political economy of taxation, carbon taxes, ethical behavior |
| JEL: | C9 D11 D72 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12758 |
| By: | Joshua Greubel; Fabian Herweg |
| Abstract: | We study polluting firms that require loans from a monopolistic bank to invest in abatement technology. Firms differ in the effectiveness of abatement investment, and this effectiveness is private information. The bank offers a screening contract under which high-cost firms receive too little capital and therefore emit excessively. A regulator restricted to tax policy responds by setting an environmental tax above marginal environmental damage, i.e., above the Pigouvian level. The first-best allocation can be restored by combining the Pigouvian tax, which ensures efficient abatement, with tailored, type-specific loan subsidies that correct the credit-market distortion. |
| Keywords: | abatement investment, asymmetric information, environmental taxation, financial frictions, screening |
| JEL: | D82 G21 H23 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12828 |