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on Public Finance |
| By: | Andrey Timofeev (International Center for Public Policy, Georgia State University) |
| Abstract: | In this paper, I discuss the implications of changing tax structures for the trade-off between long-run revenue growth and short-run volatility of revenues produced by tax portfolios utilized in different countries. I argue that the issue of uneven growth over years is methodologically similar to the one of uneven distribution of resources among economic units in any given year. Therefore, one can utilize the Generalized Entropy (Theil) family of inequality indices in order to quantify relative contribution of economic and noneconomic factors to revenue instability. While it is important to understand the resistance of tax systems to economic shocks, the latter might not be the main source of revenue instability, at least in OECD countries. Rather than the prevalence of unstable tax sources, the resistance of tax systems to economic shocks appears to be determined by correlation (or lack thereof) among constituent tax sources. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2517 |
| By: | Haufler, Andreas; Kato, Hayato |
| Abstract: | The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. We analyse tax competition among multiple tax havens and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT. Upon the introduction of a moderately low GMT rate, the havens commit to the single uniform GMT rate for all multinationals. However, gradual increases in the GMT rate induce the havens, and subsequently the non-haven, to adopt discriminatory, lower tax rates for small multinationals. Our calibration exercise shows that introducing a GMT rate of 15\% results in a regime where only the havens adopt split tax rates. Welfare and tax revenues fall in the havens but rise in the non-haven, yielding a positive net gain worldwide. |
| Keywords: | Tax avoidance; Global minimum tax; Profit shifting; Multinational firms |
| JEL: | F23 H25 H87 |
| Date: | 2025–10–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127558 |
| By: | Etsusaku Shimada (Faculty of Policy Studies, Iwate Prefectural University) |
| Abstract: | Fiscal sustainability is commonly evaluated using aggregate indicators such as GDP growth and tax revenue elasticity, yet this paper shows that such indicators can be fundamentally insufficient once fiscal capacity depends on the evolving structure of underlying tax bases. When tax revenue is generated by heterogeneous tax bases whose growth rates and revenue weights evolve over time, aggregation induces an intrinsic informational loss that cannot be resolved by refining elasticity estimates. To establish this result, tax revenue is modeled as the aggregation of industry-specific tax bases subject to heterogeneous growth dynamics and institutional features of corporate taxation. Within this framework, we show that tax revenue growth cannot, in general, be characterized by a single, time-invariant elasticity with respect to aggregate output. The analysis clarifies the structural conditions under which conventional benchmarks, including the Domar condition, remain valid. When tax bases evolve proportionally with aggregate output and industrial composition is stable, the Domar condition emerges as a special case of a more general stability condition. Once these restrictive assumptions are relaxed, changes in tax base composition and sectoral profit dynamics can generate systematic divergences between output growth and tax revenue growth. The paper derives a structural fiscal stability condition in which debt sustainability depends on the weighted growth dynamics of underlying tax bases rather than on aggregate output alone. Stylized facts from Japan and the United States illustrate how differences in industrial structure and tax institutions shape revenue dynamics in practice. More fundamentally, the analysis highlights the structural limitations of aggregate-indicator–based fiscal evaluation: fiscal sustainability is a property of how fiscal capacity is generated through the composition and dynamics of underlying tax bases. |
| Keywords: | Fiscal sustainability, Tax revenue elasticity, Aggregation-induced informational loss, Reweighting, Domar condition, Tax base heterogeneity |
| JEL: | H20 H63 E62 O40 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1123 |
| By: | Kanwal, Zainab; Audi, Marc; Alam, Mehboob |
| Abstract: | This study quantifies the impact of corporate tax policies on shareholder equity with a particular focus on the role of effective tax planning, potential violations, and the overall value of firm operations. A descriptive–correlational research design was adopted, drawing on the theoretical foundations of agency theory, stakeholder theory, and legitimacy theory. The analysis was conducted on 150 multinational corporations operating in the technology, pharmaceutical, and manufacturing sectors over the period 2018 to 2023. Panel data regression results demonstrate a significant negative association between the effective tax rate and firm value. This finding explains that tax-minimizing strategies contribute positively to firm valuation. However, the study further reveals that the benefits of stratified effective tax rate strategies can only be sustained in the long run under conditions of strong governance structures. Firms with well-developed governance systems, including independent boards of directors and robust audit and control mechanisms, were able to mitigate the reputational and regulatory risks typically associated with aggressive tax minimization. An industry-level analysis highlights that the technology sector, which relies heavily on intangible assets, faces stricter regulatory scrutiny and correspondingly higher risk exposure. The evidence indicates that while tax relocations and planning strategies may enhance short-term shareholder value, unethical practices or deviations from regulatory standards compromise long-term sustainability. The study concludes that there is a pressing need for transparent, stakeholder-oriented, and well-regulated taxation practices. By embedding such practices into corporate governance frameworks, firms can achieve a balance between maximizing shareholder value and ensuring compliance with ethical and legal expectations. That would present a sustainable value creation that is suitable for the managers and policymakers. |
| Keywords: | Corporate Tax Policies, Effective Tax Rate, Shareholder Value, Corporate Governance |
| JEL: | H2 M10 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127563 |
| By: | Ropponen, Olli |
| Abstract: | Abstract This brief examines the societal costs of taxation using international economic research literature and the Marginal Value of Public Funds (MVPF) framework. The analysis covers major tax categories that account for the majority of Finnish central government tax revenues. The results show that economic agents respond to taxation through behavioral changes, but the magnitude of these responses varies substantially across tax bases. Taxes on highest labor incomes generate particularly large welfare losses and depending on the initial level of taxation a decrease in these tax rates are self-financing in many cases. In contrast, value-added taxation, for instance, appears, on average, less distortionary. Regarding policy work, the fiscal adjustment should avoid increasing the most harmful taxes and instead emphasize less distortionary revenue sources. |
| Keywords: | Welfare Costs of Taxation, Optimal Taxation, Behavioral Responses to Taxation, Marginal Value of Public Finds (MVPF) |
| JEL: | H21 H24 H25 D61 H30 |
| Date: | 2026–01–19 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:172 |
| By: | Hirofumi Takikawa (Graduate School of Economics, Kobe University and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), JAPAN) |
| Abstract: | Standard optimal tax models typically ignore reference-dependent behavior induced by institutional thresholds. This paper incorporates loss aversion into a Mirrlees op timal income tax framework to analyze how such exogenous reference points, unlike social comparisons, alter optimal redistribution. I show that institutional loss aversion calls for globally higher marginal tax rates and a quantitatively large expansion of the lump-sum transfer. To accommodate behavioral bunching at the reference point, I em ploy an ironing approach and derive a modified optimal tax formula that remains valid in the presence of a mass point. Simulations calibrated to the U.S. economy imply that the optimal lump-sum transfer increases by 19–32% and yield welfare gains equivalent to 5.8–7.5% of consumption. These results are robust under both paternalistic and non-paternalistic welfare criteria. |
| Keywords: | Reference dependent preferences; Optimal income taxation; Redistribution |
| JEL: | D03 H21 H24 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-03 |
| By: | Gert Bijnens (National Bank of Belgium, Research Department); Sam Desiere (Ghent University, Belgium); Rigas Oikonomou (IRES/LIDAM, UCLouvain, Belgium); Tiziano Toniolo (IRES/LIDAM, Uclouvain, Belgium); Bruno Van der Linden (IRES/LIDAM, UCLouvain, Belgium and IZA, CESifo, Germany) |
| Abstract: | Belgium’s 2016 payroll tax exemption for first-time employers triggered a sharp increase in firms hiring their first worker but little growth among larger firms. To account for this pattern, we develop and estimate a directed search model—with discrete hiring, firm heterogeneity, and endogenous entry— using Belgian microdata. The exemption reduces the high marginal cost of the first hire, enabling many previously non-hiring entrepreneurs to become employers, but most lack the productivity needed to expand beyond one worker. The model matches the post-reform size distribution and identifies the conditions under which size-dependent hiring subsidies can foster sustained firm growth. |
| Keywords: | payroll taxes; size-dependent policies; hiring frictions; wage subsidies; competitive search theory. |
| JEL: | H25 J08 J23 J38 L25 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202601-487 |
| By: | Agrawal, David R.; Chen, Xinyu |
| 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:zbw:glodps:1708 |