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on Public Finance |
| By: | Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Nishimura, Yukihiro (Osaka University) |
| Abstract: | To tackle profit shifting, the OECD/G20 Inclusive Framework proposes a Global Minimum Tax. The general presumption is that high-tax countries will gain and low-tax countries will lose because the minimum tax will reduce their inward profit shifting. Recent papers have shown that the minimum tax can be welfare improving for all countries even if the welfare of the firm owners are taken into account (Johannesen 2022, Hebous and Keen 2023). The purpose of this paper is to extent that analysis to endogenous enforcement choices. By means of a formal model of international tax competition with heterogeneous countries, we study explicitely how the minimum tax will change the dynamics of tax competition, profit allocation and enforcement incentives. We show that in this broader framework, there exists a critical threshold for the minimum tax beyond which the low-tax country will defect from international enforcement cooperation, making the high-tax country worse off. We also show that our analysis is robust to the presence of tax haven. |
| Keywords: | Profit shifting ; Tax competition ; Tax enforcement |
| JEL: | C72 F23 F68 H25 H87 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2025003 |
| By: | Michael Graber; Morten Håvarstein; Magne Mogstad; Gaute Torsvik; Ola L. Vestad |
| Abstract: | The elasticity of taxable income (ETI) parameter is a key quantity in empirical analysis of tax policy and labor supply. We examine when a commonly applied class of ETI estimands can be used to learn about individuals’ ETI parameters and their (un)compensated elasticities of labor supply. We begin by providing necessary and sufficient conditions for these estimands to be given a causal interpretation as a positively weighted average of heterogeneous ETI parameters. We then apply these results to empirically analyze a reform of the Norwegian tax system that reduced the marginal tax rates on middle and high incomes. The estimated ETI parameters increase steadily with income, meaning high-income individuals are more responsive to tax changes than middle-income individuals. Next, we show how (un)compensated elasticities of labor supply can be bounded directly from the ETI estimands, or point identified by combining these estimands with estimates of earnings responses to lottery winnings. The results suggest an (un)compensated elasticity of 0.1 (0.0) for middle-income individuals. The (un)compensated elasticity estimates increase steadily with income to around 0.45 (0.3) for high-income individuals. These findings imply a substantial excess burden of taxation, and that reducing top-income tax rates would increase tax revenue. Our findings are also informative about how the intertemporal elasticity of substitution and the Frisch elasticity vary across the income distribution. |
| JEL: | C26 C36 H20 J22 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34987 |
| By: | Pablo Garcia Sanchez (Banque centrale du Luxembourg, Département Economie et Recherche); Olivier Pierrard (Banque centrale du Luxembourg, Département Economie et Recherche) |
| Abstract: | Recent empirical evidence reveals an income gradient in support for climate action: individuals in wealthier countries are less willing to pay than those in poorer ones. What explains this gradient, and what does it imply for international cooperation to protect the Earth’s climate? We answer these questions using a heterogeneous-country integrated assessment model formulated as a mean field game and calibrated to historical economic and climate data. Poorer countries, facing higher marginal utility of consumption, cut consumption less to cushion the decline in capital accumulation caused by climate damages. As a result, they suffer larger relative losses from climate change and gain more from mitigation, making them more inclined to accept a global carbon tax. This gradient has stark implications for cooperation: even when a carbon tax large enough to contain temperature increases benefits most countries, the richest might oppose. Redistributing global carbon tax proceeds uniformly across countries or recycling them as green investment subsidies need not overcome this reluctance. |
| Keywords: | Neoclassical Growth Model; Mean Field Game; Climate Policy |
| JEL: | C61 H23 Q50 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:ctl:louvir:2026006 |
| By: | Anders G. Froeseth |
| Abstract: | We analyse the effect of a proportional wealth tax on asset returns, portfolio choice, and asset pricing. The tax is levied annually on the market value of all holdings at a uniform rate. We show that such a tax is economically equivalent to the government acquiring a proportional stake in the investor's portfolio each period, a form of risk sharing in which expected wealth and risk are reduced by the same factor, while the return per share is unaffected. This multiplicative separability drives four main results: (i) the coefficient of variation of wealth is invariant to the tax rate; (ii) optimal portfolio weights are independent of the tax rate; (iii) the wealth tax is orthogonal to portfolio choice, inducing a homothetic contraction of the opportunity set that preserves the Sharpe ratio of every portfolio; (iv) taxed and untaxed investors price assets identically. Results are derived under geometric Brownian motion and generalised to the location-scale family. A Modigliani-Miller analysis confirms pricing neutrality and identifies an inconsistency in the literature regarding the discount rate for after-tax cash flows. Under CAPM with CRRA preferences, after-tax betas equal pre-tax betas and the security market line contracts by the tax factor; general-equilibrium prices are unchanged. This resolves an error in Fama (2021). The neutrality results depend on three conditions commonly violated in practice: universal taxation at market value, frictionless markets, and dividend consumption. We formalise three channels through which relaxing these conditions breaks neutrality: book-value taxation, liquidity frictions, and dividend extraction, and show they have opposing effects on asset prices. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.05264 |
| By: | Eiji Yamamura; Fumio Ohtake |
| Abstract: | This study explored the association between sleep duration and redistribution preferences. Using an online survey, we propose a hypothetical situation in which the tax paid directly by respondents is redistributed to those earning less than one-fifth of the respondents' income. Next, we asked about the allowable tax rates. We found the following through Tobit and ordered logit regression estimations: (1) The relationship between sleep hours and the allowable tax rate showed an inverted U-shape, where the optimal amount of sleep led to the highest allowable tax rate. (2) High-quality sleep was more positively correlated with the allowable tax rate than was low-quality sleep when the sleep quantity was the same. (3) Sleep hours were more significantly and positively correlated with the allowable tax rate in the high-income group than in the low-income group. (4) Assuming that twice the amount of tax paid goes to those with lower income, individuals who previously preferred a higher tax rate were more likely to increase the allowable tax rate. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.06118 |
| By: | Anienwe, Prince; Bhattarai, Keshab |
| Abstract: | This paper examines the comparative effectiveness of carbon taxation policies in Sweden and Norway using the Vector Autoregression (VAR) methodology, spanning the period from 1995 to 2023. Employing impulse responses in VAR analysis, this study confirms the effectiveness of the carbon tax in Sweden, with significant lagged effects, but finds weaker policy transmission mechanisms in Norway, identifying systematic relationships between policy changes and environmental outcomes. This study contributes to the literature on climate policy design by comparing empirical evidence on optimal carbon pricing mechanisms across these two economies. In addition, the study shows how carbon tax design and implementation contexts critically determine policy effectiveness in temporal response patterns of emissions to carbon tax policies. |
| Keywords: | Carbon tax; Emission reduction; VAR analysis; Climate policy; Cross-country comparison. |
| JEL: | H2 O5 Q5 |
| Date: | 2026–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127740 |
| By: | Giulia Rossello; Domenico Buccella; Nicola Meccheri; Marcella Scrimitore |
| Abstract: | This paper investigates three different port air emissions abatement measures– i) emission taxes, ii) subsidies on abatement technology investments and iii) emission standard–in a reciprocal trade model, where two firms (one firm located in each country) compete choosing the quantity to export and the quantity of domestic market. To export, firms need two ports, one located in each country, and each country’s government chooses a policy to regulate pollution produced by its port. We aim at investigating how shipping costs and the port ownership shape the incentives towards exports and abatement of both the port and government in each country. The analysis points out the relative effectiveness of alternative policies in achieving environmental sustainability and society’s welfare objectives. Specifically, the environmental damage is minimized under emission standard regardless of any degree of port privatization. However, emission standards turn out to never dominate the other policies in the perspective of consumer surplus and overall domestic welfare. Depending on the degree of port privatization, either environmental taxes or abatement subsidies result as the domesticwelfare-maximizing policy, but only environmental taxes emerge as endogenous choice by governments. |
| Keywords: | international oligopoly, port privatization, emission tax, abatement subsidy, environmental standard, welfare |
| JEL: | D43 F18 H23 L33 R48 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2026/329 |
| By: | Anders G Fr{\o}seth |
| Abstract: | A proportional wealth tax -- a levy on the stock of wealth -- preserves portfolio neutrality by acting as a uniform drift shift in the Fokker-Planck equation for wealth dynamics. We extend this result to the full system of ownership taxes (eierkostnader) that a shareholder faces: a corporate tax on gross profits, a capital income tax on the risk-free return, a dividend and capital gains tax on the excess return, and a wealth tax on net assets. Each tax modifies the drift of the wealth process in a distinct way -- multiplicative rescaling, constant shift, or regime-dependent compression -- while leaving the diffusion coefficient unchanged. We show that the combined system preserves portfolio neutrality under three conditions: (i) the capital income tax rate equals the corporate tax rate, (ii) the shielding rate equals the risk-free rate, and (iii) the wealth tax assessment is uniform across assets. When these conditions hold, the after-tax excess return is a uniform rescaling of the pre-tax excess return by the factor (1-tau_c)(1-tau_d), and the drift-shift symmetry of the wealth-tax-only case generalises to a drift-shift-and-rescale symmetry. We classify the distortions that arise when each condition fails and show that flow-tax distortions and stock-tax distortions are additively separable: they do not interact. The shielding deduction -- a feature of several real-world tax systems, including the Norwegian aksjonaermodellen -- emerges as the mechanism that restores the symmetry between equity and debt taxation within this framework. Calibrated to the Norwegian dual income tax, conditions (i) and (ii) hold by institutional design; the only binding distortion is non-uniform wealth tax assessment, which generates portfolio tilts roughly 300 times larger than any residual flow-tax channel. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.15974 |
| By: | Anienwe, Prince; Bhattarai, Keshab |
| Abstract: | This study investigates the long-term equilibrium relationships between Norway's carbon tax policy and key macroeconomic indicators using Johansen cointegration analysis and the Vector Error Correction Model (VECM). The findings show that Norway's carbon tax raises inflation and lowers investment over time, but does not impact GDP. These findings, based on cointegration and VECM analysis of carbon tax, GDP, investment, and inflation from 1995 to 2023, enhance understanding of how carbon taxes affect Norway's macroeconomy. |
| Keywords: | Carbon Tax, Cointegration, Vector Error Correction Model, GDP, Inflation, Investment. |
| JEL: | C22 E22 Q54 Q58 |
| Date: | 2026–01–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127742 |
| By: | Thomas Webb; Arthur Apostel; Milena B\"uchs; Richard B\"arnthaler |
| Abstract: | Wealth taxes are a frequently proposed policy within the post-growth literature, but evaluations of their alignment with post-growth goals, and empirical estimates of their potential effects, are lacking. We contribute to this literature by examining the extent to which different wealth-tax designs can contribute to four goals of a post-growth transition: redistributing wealth; eradicating extreme wealth; curbing rent-seeking; and reducing CO2 emissions. The analysis is based on microsimulation modelling, using household-level data from 18 countries of the 2017 EU Household Finance and Consumption Survey. Our analysis finds that taxes on net wealth are the most progressive and redistributive, while taxes on financial and investment property wealth tend to be more effective at addressing rent-seeking. However, we also identify trade-offs and conflicts between different tax designs and goals. As a result, a broader package of policies will be necessary to navigate these conflicts and mitigate the limitations inherent in any single wealth-tax design. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.17786 |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy); Badola, Shivani (National Institute of Public Finance and Policy) |
| Abstract: | The recent restructuring of GST rates (also known as GST 2.0) results in reductions in tax rates for many commodities. It is expected that the benefits of lower tax rates will be passed on to consumers through lower retail prices. In this paper, we examine movements in the average Consumer Price Index (CPI) for selected commodities over four months before the GST rate restructuring (pre-GST 2.0 period) and four months after the restructuring (post-GST 2.0 period). The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities. Most food items, household, and personal care products recorded increases in the CPI during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group. Conversely, several consumer durables, such as motor vehicles, bicycles, tyres and tubes, air conditioners, and some selected household appliances, experienced a decline in CPI values, suggesting relatively effective price transmission in discretionary and high-value goods. |
| Keywords: | Goods and Services Tax (GST) ; Rate Restructuring ; Consumer Price Index ; India |
| JEL: | H22 H25 E31 D12 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:26/444 |
| By: | Eiji Yamamura; Fumio Ohtake |
| Abstract: | This study investigates shifts in acceptable tax rate for reducing inequality during the COVID-19 pandemic using Japanese data. We find a transition from norm-based, unconditional support for redistribution to conditional altruism. Before the pandemic, support remained high and independent of institutional trust. The pandemic generated an overall decline in altruistic attitudes while increasing their dependence on trust in government, particularly among high-income individuals. This "widening gap" implies that in post-crisis societies, the social contract is no longer anchored in stable social norms but increasingly relies on institutional trust to sustain income redistribution from the rich to the poor. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.06098 |
| By: | Abhishek Seth (Indian Institute of Technology Roorkee); Manish K. Singh (Indian Institute of Technology Roorkee); Diya Uday (xKDR Forum) |
| Abstract: | Property taxes (PTs) are the primary own-source revenue for Indian urban local bodies (ULBs), yet actual collections fall short of potential, constraining service delivery. Existing studies have documented this gap but have been limited to state or district-level analysis due to the absence of reliable municipal data. This paper exploits new geospatial datasets-ULB boundary maps, nighttime lights, and building volume to estimate PT demand at the ULB level in Karnataka. Using cross-sectional data for 268 ULBs in 2019-20, we show that the sum of building volume (SoBV) within a ULB boundary alone can explain over 80% of the variation in PT demand across ULBs, with a 1% increase in SoBV predicting a 1.09% rise in demand. Benchmarking exercises reveal stark regional disparities aligned with historical administrative boundaries. These findings demonstrate how non-government spatial data can measure fiscal capacity, verify self-reported statistics, and highlight institutional legacies that shape urban tax performance. |
| JEL: | H71 H72 R51 C21 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:anf:wpaper:47 |
| By: | Kuusi, Tero; Kotamäki, Mauri; Kirkko-Jaakkola, Mikael |
| Abstract: | Abstract We examine the effects of Finland’s highest marginal income tax rates by integrating traditional analytical frameworks, recent empirical evidence, and dynamic macroeconomic mechanisms that shape income formation and the economy’s growth potential. Based on our comprehensive assessment, the decision to lower marginal tax rates in spring 2025 appears justified. Our calculations, grounded in the traditional framework (Saez, 2001; Saez et al., 2012; Piketty et al., 2014), indicate that within the top percent of the earnings distribution—where the most recent evidence of behavioral responses to taxation among high-income groups is clearest—the revenue-maximizing marginal tax rate remains below the current level over the long term. Dynamic behavioral effects play a central role when evaluating the economic impacts of high marginal tax rates. While the traditional approach provides a useful starting point for estimating the tax rate that maximizes revenue, it relies on assumptions that may underestimate the adverse effects of taxation. In this report, we broaden the analysis by reviewing modern macroeconomic literature, which emphasizes career-long effort, accumulation of human capital, and mechanisms and externalities related to business dynamics. |
| Keywords: | Taxation, Marginal tax rate, Economic impact, Externalities, Intangible capital |
| JEL: | D6 E6 H2 H3 J2 J3 |
| Date: | 2026–03–17 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:175 |