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on Public Finance |
| By: | Dustin L. Swonder; Damián Vergara |
| Abstract: | This paper characterizes the equity–efficiency tradeoff of corporate taxation using a stylized model that draws on the corporate investment and tax incidence literatures. We derive optimal corporate tax formulas in terms of estimable reduced-form elasticities and welfare weights on workers and firm owners. While much empirical work emphasizes investment responses, these elasticities do not feature in optimal tax formulas. The elasticity of taxable profits is a sufficient statistic for the efficiency costs of the corporate tax. Higher corporate tax rates are desirable when firm owners have low welfare weights, and less desirable when taxing profits reduces wages. These empirical objects remain central across extensions, including heterogeneous production technologies, tax sheltering, international capital mobility, monopsony, and linear labor income taxes. We survey the empirical literature and find that existing estimates can support a wide range of optimal tax rates. An inverse-optimum analysis provides combinations of welfare weights of workers and firm owners that would rationalize the post-2017 US corporate tax cut as optimal. |
| JEL: | H0 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34517 |
| By: | Foroogh Nazari Chamaki (Department of Economics, Queens University, Kingston, Ontario Canada); Glenn P. Jenkins (Department of Economics, Queens University, Kingston, Ontario, Canada and Cambridge Resources International Inc.); Frank Milne (Department of Economics, Queens University, Kingston, Canada) |
| Abstract: | Small and medium-sized enterprises incur disproportionately high compliance costs under the current Goods and Services Tax/Harmonized Sales Tax (GST/HST) reporting system. To reduce these costs, some EU and Latin American countries have successfully adopted prefilled tax return systems supported by national e-invoicing infrastructures. Canada has not yet adopted this innovation. This study estimates the economic welfare improvement that would result if Canada were to implement a system of prefilled GST/HST returns. An integrated financial, economic, and stakeholder cost-benefit analysis is used. Implementation of a prefilled GST/HST return system in Canada is estimated to generate a present value of compliance cost savings over 10 years for GST-/HST-registered businesses of CAD 14.3 billion. Over 99% of these savings would accrue to over 3.7 million medium, small, and self-employed businesses. After netting out the costs of implementing this intervention, the economic welfare improvement for the economy would be CAD 13.6 billion. The additional income taxes collected due to the reduction in business costs have a positive budgetary impact on both the federal and provincial governments. Hence, after deducting estimated costs, the government’s net gain would be CAD 2.6 billion. The net after-tax gain by Canadian businesses would be approximately CAD 11 billion. |
| Keywords: | Prefilling GST/HST Return, Digitalization of Tax System, E-invoicing, Compliance Cost of GST/HST in Canada, SMEs, GST/HST filers, Goods and Services Tax/Harmonized Sales Tax Filers by Jurisdiction. |
| JEL: | H25 H26 H83 D61 O38 |
| Date: | 2025–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:qed:dpaper:4639 |
| By: | Eduardo M. Azevedo; Florian Scheuer; Kent Smetters; Min Yang |
| Abstract: | Recent proposals to tax unrealized capital gains or wealth have sparked a debate about their impact on entrepreneurship. We show that accrual-based taxation creates two opposing effects: successful founders face greater dilution from advance tax payments, whereas unsuccessful founders receive tax credits that effectively provide insurance. Using comprehensive new data on U.S. venture capital deals, we find that founder returns remain extremely skewed, with 84% receiving zero exit value while the top 2% capture 80% of total value. Moving from current realization-based to accrual-based taxation would reduce founder ownership at exit by 25% on average but would also increase the fraction receiving positive payoffs from 16% to 47% when tax credits are refunded. Embedding these distributions in a dynamic career choice model, we find that founders with no or moderate risk aversion prefer the current realization-based tax system, while more risk-averse founders prefer accrual-based taxation. We estimate that a 2% annual wealth tax has a similar impact on dilution as taxing unrealized capital gains but produces no risk-sharing benefits due to the absence of tax credits in case of down rounds. |
| JEL: | D86 H2 H3 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34512 |
| By: | Sebastian Beer; Brian Erard; Tibor Hanappi |
| Abstract: | Corporate income tax (CIT) collections are among the most difficult revenues to forecast—even with adequate staffing, comprehensive data, and a stable tax design. In practice, forecasting units typically operate under less ideal conditions. As institutional constraints take time to ease, this Note sets out a practical toolkit of methods to strengthen forecasting capacity across a wide range of country contexts. It outlines techniques that provide unbiased forecasts even when the impact of past reforms is only partially known, introduces approaches to account for ongoing and prospective policy changes to leverage time-series approaches, and highlights the potential efficiency gains achievable through structural modeling. A simple empirical assessment of forecasting specifications shows that parsimonious regression models, when backed by sufficient data, can improve prediction accuracy, even though the benchmark of assuming CIT revenues grow in line with GDP remains difficult to beat. |
| Keywords: | Corporate Income Tax; Tax Revenue Forecasting; Fiscal Policy; Tax Policy Changes; Economic Forecasting; Tax Base Elasticity; Microsimulation Models |
| Date: | 2025–11–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfhtn:2025/010 |
| By: | Harashima, Taiji |
| Abstract: | In a heterogeneous population, a steady state cannot necessarily be guaranteed unless a government appropriately intervenes. I numerically simulate whether a steady state can be reached by means of progressive income taxes and public assistance in the case that households are heterogeneous in probabilities of obtaining persistent rent incomes. Simulation results indicate that, in many cases, a steady state can be reached, but at the same time a high level of economic inequality is generated. This occurs because progressive income taxes can “confiscate” persistent rent incomes, but they cannot compensate for the extracted economic resources resulting from rent incomes. Simulation results also indicate that large-scale public assistance is needed to reduce inequality, but it will be difficult to actually implement due to difficulties in distinguishing between persistent rent incomes and other types of income. As a result, a high level of economic inequality will remain even with progressive income taxes. |
| Keywords: | Economic rents; Income Tax; Public Assistance; Simulation; Steady state |
| JEL: | E17 H21 H24 H55 I38 |
| Date: | 2025–11–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126188 |
| By: | Ambec, Stefan; Andersson, Henrik; Cezera, Stéphane; Kanay, Ayşegül; Ouvrard, Benjamin; Panzone, Luca A.; Simon, Sebastian |
| Abstract: | What can be done to reduce the carbon footprint of consumption? To answer this, we conducted an online shopping experiment that tested the effects of two policy tools: a carbon tax (at two levels) and a behavioral nudge in the form of a traffic light-style label indicating a product’s carbon footprint (green for low, orange for medium, and red for high). To disentangle the tax’s substitution effect from its income effect, we held consumers’ purchasing power constant. We find that the tax alone significantly reduces the carbon footprint per euro spent but not per basket purchased, implying that the reduction is driven purely by the income effect. The label alone makes consumers buy fewer red products and more green products, although without reducing significantly their carbon footprint. We do find some substitution effect and a significant reduction of the carbon footprint per basket only when the tax is high enough and combined with the label. Next, we perform a welfare analysis grounded on a theoretical framework that accommodates for several assumptions about consumer’s preferences and motivations. We estimate the loss of consumer’s surplus from nudging consumers with the label. We also estimate the consumers’ valuation of a ton of CO2 avoided when they care about their climate impact. |
| Keywords: | Carbon tax; nudge; green label; carbon footprint; climate change; moral; behavior. |
| JEL: | D12 D90 H23 Q58 |
| Date: | 2025–12–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131148 |
| By: | Jacob Berman; Adam Bloomfield; Sita Slavov |
| Abstract: | We use comprehensive tax data to study how saving behavior responds to the Health Savings Account (HSA) “catch-up” contribution provision, which raises HSA contribution limits for individuals aged 55 and older. Using a regression discontinuity design, we find a sharp increase in contributions among those previously near the limit and smaller increases among unconstrained savers. Induced contributions are not immediately withdrawn and do not appear to crowd out retirement savings. Responses are strongest among payroll contributors and long-term savers. However, married couples do not appear to coordinate their HSA behavior to take advantage of the complex spousal rules governing catch-up contributions. Our findings highlight how tax incentives shape HSA saving and suggest that tax-advantaged account design meaningfully affects household financial behavior. |
| JEL: | G51 H31 I13 J26 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34499 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy) |
| Abstract: | The GST rates for numerous items were recently revised, with the updated rates coming into effect on 22 September 2025. In this paper, we aim to assess the impact of GST rate restructuring on consumers’ GST liability using the National Sample Survey Office’s Household Consumption Expenditure Survey (HCES) for 2022-23. Depending on how rate reductions translate into lower prices, consumer behaviour is expected to change. Variations in the price and income elasticities of demand for goods and services will influence the size and composition of the consumption basket. However, we employ a static framework in which the price and income elasticities of demand for goods and services are assumed to remain constant from HCES 2022-23. Under these assumptions, the findings of this study suggest that GST liability on household consumption expenditure will decrease by 10% to 16% under the new GST rate structure compared to the previous one. The average GST liability rate will fall from 5-7% under the old structure to 4-6% under the new structure. We observe a one percentage point decline in GST liability across all MPCE fractile classes under the new GST rate structure compared to the old one. |
| Keywords: | Goods and Services Tax (GST) ; Rate restructuring ; household consumption expenditure ; India |
| JEL: | H22 D30 E21 D63 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:25/440 |