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on Public Finance |
| By: | Henrik Kleven |
| Abstract: | This paper characterizes the optimal taxation of top earners in a world with externalities. It takes a reduced-form approach that spans a broad class of models where top earners create externalities on the economy. The model allows for a flexible relationship between top earnings and the distribution of earnings capacities in the population, including positive externalities (such as innovation) and negative externalities (such as rent-extraction). The model allows for simple optimal tax formulas that clarify the role of different externality patterns. In general, externalities that run from top earners to bottom earners have much stronger tax implications than externalities within the top group. The results are expressed in terms of estimable sufficient statistics and linked to recent evidence on the externalities of top entrepreneurs. A calibration to the US economy suggests that the optimal top tax rate, while lower than the Mirrleesian optimum, remains higher than the current top tax rate. |
| JEL: | H21 H23 H24 H31 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33345 |
| By: | Papp, Tamás K.; Takáts, Előd |
| Abstract: | The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers – creating Laffer effects. Interestingly, cutting de facto tax rates imply increasing de facto or effective tax rates. The model is consistent with the consequences of Russian tax reform, and may provide basis for further thinking about tax rate cuts in other countries. |
| Keywords: | Laffer curve; tax compliance; tax evasion |
| JEL: | F3 G3 |
| Date: | 2024–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126682 |
| By: | Anna Herget; Regina T. Riphahn |
| Abstract: | Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German Minijob program subsidizes low-income jobs. It generates a 'Minijob trap' with substantial bunching along the earnings distribution. Since 2003, the newly introduced Midijob subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group. |
| Keywords: | Midijobs, Minijobs, payroll tax subsidy, causal effects, difference-in-differences, regression discontinuity, SOEP, SIAB |
| JEL: | J21 J38 H24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11605 |
| By: | Matthew R. Denes; Spyridon Lagaras; Margarita Tsoutsoura |
| Abstract: | Platform intermediation of goods and services has considerably transformed the U.S. economy. We use administrative data on U.S. tax returns to study the role of the gig economy on entrepreneurship. We find that gig workers are more likely to become entrepreneurs, particularly those who are lower income, younger, and benefit from flexibility. We track all newly created firms and show that gig workers start firms in similar industries as their gig experience, which are less likely to survive and demonstrate higher performance. Overall, our findings suggest on-the-job learning promotes entrepreneurial entry and shifts the types of firms started by entrepreneurs. |
| JEL: | G30 J21 J22 J24 L26 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33347 |
| By: | Ms. Lydia E Sofrona; Mr. Christophe J Waerzeggers; Brendan Crowley |
| Abstract: | Well-functioning tax systems anchor their governance arrangements in law. This paper develops an analytical framework from which the core legal principles for sound tax governance can be derived to inform the design of countries’ legal frameworks for administration and tax procedure. It then applies this analytical framework to derive key legal features that should be embedded in laws for tax administration—including additional considerations for semi-autonomous revenue authorities— and tax procedure, to ensure a balance between tax administration powers and adequate taxpayer protections. |
| Keywords: | Tax governance; tax law; tax administration; tax procedure; legal design; A. tax Governance; governance arrangement; design consideration; taxpayer relationship; Tax administration core functions; Taxpayer charter; Semi-autonomous revenue bodies |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/017 |
| By: | Deza, María Cecilia; Dondo, Mariana; Jara, H. Xavier; Rodríguez Guerrero, David Arturo; Torres, Javier |
| Abstract: | This paper aims to assess the extent to which cash transfers, direct taxes, and social contributions help to reduce gender income inequalities in seven Latin American countries: Argentina, Bolivia, Colombia, Ecuador, Mexico, Peru, and Uruguay. We apply microsimulation techniques to household survey data and allocate incomes within the household, assuming that each person retains the income they receive (e.g., earnings, benefits targeting mothers) and pays taxes and social insurance contributions on an individual basis according to each countrys rules. Then, we compare gender income ratios based on market (before taxes and benefits) and disposable (after taxes and benefits) income. Our results show that, at the bottom of the distribution, tax-benefit systems significantly reduce gender income disparities in most countries due to the effect of social assistance benefits received by mothers in poor households. Additionally, we find that women have substantially higher poverty rates than men based on individual disposable income. Gender differences in poverty fade away when income is pooled at the couple level and, even more so, at the household level. |
| Keywords: | taxes;benefits;microsimulation;gender gap |
| JEL: | D31 J16 H24 I32 I38 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13941 |
| By: | Santos Bila; Utkarsh Kumar; Alexis Meyer-Cirkel |
| Abstract: | This paper analyzes the use of tax policy as industrial policy in Mozambique. Despite significant foregone tax revenue due to industrial policy in the form of tax incentives, the effectiveness of Mozambique's tax policy remains questionable due to insufficient data and unclear public policy strategy. Through an examination of macro data, tax reports, and data from World Bank Enterprise Surveys, the note underscores the need for a thorough reassessment of existing tax measures. It advocates for a more strategic, targeted and evidence-based design of tax incentives that deliver on industrial policy goals. |
| Keywords: | Tax Policy; Industrial Policy; Mozambique; Tax Incentives; Foreign Direct Investment (FDI); Revenue Mobilization; Market Distortions; Fiscal Expenditure; Domestic Investment |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/010 |