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on Public Finance |
| By: | Akcan S. Balkir; Emmanuel Saez; Danny Yagan; Gabriel Zucman |
| Abstract: | We estimate income and taxes for the wealthiest group of US households by matching Forbes 400 data to the individual, business, estate, and gift tax returns of the corresponding group in 2010–2020. In our benchmark estimate, the total effective tax rate—all taxes paid relative to economic income—of the top 0.0002% (approximately the “top 400”) averaged 24% in 2018–2020 compared with 30% for the full population and 45% for top labor income earners. This lower total effective tax rate on the wealthiest is substantially driven by low taxable individual income relative to economic income. First, the C-corporations owned by the wealthiest distributed relatively little in dividends, limiting their individual income tax unless they sell their stocks. Second, top-owned passthrough businesses reported negative taxable income on average in spite of positive book income, further limiting their individual income tax. The top-400 effective tax rate fell from 30% in 2010–2017 to 24% in 2018–2020, explained both by a smaller share of business income being taxed and by that income being subject to lower tax rates. Estate and gift taxes contributed relatively little to their effective tax rate. Top-400 decedents paid 0.8% of their wealth in estate tax when married and 7% when single. Annual charitable contributions equalled 0.6% of wealth and 11% of economic income in 2018–20. |
| JEL: | H2 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34170 |
| By: | Mr. Ruud de Mooij; Mr. Shafik Hebous; Mr. Michael Keen |
| Abstract: | This paper examines the efficiency of the Value Added Tax (VAT), focusing on its role as a revenue-raising tool and its use to achieve non-revenue objectives. The analysis highlights the VAT's potential ability to generate revenue with minimal distortions, emphasizing its advantages over alternative taxes, such as turnover taxes and tariffs, particularly in minimizing the cascading effects of input taxation. The paper also explores the VAT as a macroeconomic policy tool, especially in counter-cyclical fiscal policy, and its potential to address environmental and health objectives. It concludes that a well-designed and implemented VAT is a highly efficient revenue-raising tool, surpassing other forms of consumption taxation, but cautions against its misuse in industrial policy and other contexts for which it is ill-suited. |
| Keywords: | Value Added Tax; Efficiency; Welfare |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/165 |
| By: | David Gstrein; Florian Neumeier; Andreas Peichl; Pascal Zamorski |
| Abstract: | This paper presents novel estimates of the incidence of corporate taxes by measuring the effect of local business taxes on the welfare of commercial landowners, residential landowners, firm owners, and workers. We use unique data on real estate prices in Germany covering over 32 million properties offered for sale or rent between 2008 and 2019 in combination with administrative data on wages and firm profits. Empirically, we exploit the German institutional setting with over 17, 000 municipal tax changes using an event study design. The estimates suggest that a one percentage point business tax increase reduces commercial real estate prices by three percent after four years on average, while commercial rents decline by one percent. Wages decline by about one percent, profits by two percent. These results are robust to the inclusion of a large set of controls and to estimators that account for heterogeneous treatment effects. We use the reduced-form estimates to update current incidence measures and find that commercial landowners bear a significant share of the tax burden (≈ 16%) in the medium-run, while workers (≈ 10%) and residential landowners (≈ 10%) are likely to bear a smaller burden. Firm owners bear the largest share of the burden (≈ 64%). |
| Keywords: | corporate taxation, tax incidence, real estate markets |
| JEL: | H22 H25 H71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12062 |
| By: | Georgy Lukyanov; Emin Ablyatifov |
| Abstract: | This short note studies optimal taxation when the use of tax revenue for public consumption is uncertain. We consider a one-period general-equilibrium economy with a representative household and a competitive firm. The government may be honest, in which case revenue is converted one-for-one into public consumption, or opportunistic, in which case nothing is delivered. We treat trust as the prior probability that the government is honest and ask how it shapes both the overall scale of taxation and the choice between a labor tax and a broad commodity (output) tax. Three results emerge. First, there is a trust threshold below which any positive tax lowers welfare. Second, above that threshold there is an equivalence frontier: a continuum of tax mixes that implement the same allocation and welfare. Third, small instrument-specific administrative or salience costs uniquely select the revenue instrument, typically favoring the cheaper broad base. An isoelastic specialization yields closed-form expressions that make the threshold, optimal rates, delivered public consumption, and welfare transparent. The framework offers a compact policy map: build credibility before raising rates, keep the base broad, and let measured trust determine the scale. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.03085 |
| By: | Owen Kay |
| Abstract: | In open economies, the effectiveness of carbon taxes is diminished by “pollution leakage, ” where some polluting activity shifts abroad because of the tax. This paper shows that the same conditions that lead to pollution leakage enhance the efficacy of clean subsidies. As a result, the optimal policy in an open economy combines a pollution tax and a clean subsidy, the balance of which depends on the leakage rate. Furthermore, efficient policy sets the sum of the tax and subsidy rates, a measure of policy ambition, equal to the marginal damages from pollution, and does not depend on the leakage rate. |
| Keywords: | energy taxes; energy subsidies; clean subsidies; pollution leakage; optimal policy; open economy |
| JEL: | H23 H21 Q41 Q42 Q48 F18 |
| Date: | 2025–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101526 |
| By: | Andrew Blair-Stanek; Nils Holzenberger; Benjamin Van Durme |
| Abstract: | We investigate whether large language models can discover and analyze U.S. tax-minimization strategies. This real-world domain challenges even seasoned human experts, and progress can reduce tax revenue lost from well-advised, wealthy taxpayers. We evaluate the most advanced LLMs on their ability to (1) interpret and verify tax strategies, (2) fill in gaps in partially specified strategies, and (3) generate complete, end-to-end strategies from scratch. This domain should be of particular interest to the LLM reasoning community: unlike synthetic challenge problems or scientific reasoning tasks, U.S. tax law involves navigating hundreds of thousands of pages of statutes, case law, and administrative guidance, all updated regularly. Notably, LLM-based reasoning identified an entirely novel tax strategy, highlighting these models' potential to revolutionize tax agencies' fight against tax abuse. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.20097 |
| By: | Lea Fricke; Clemens Fuest; Dominik Sachs |
| Abstract: | We study optimal redistribution and carbon taxation in a Mirrlees framework. Households differ in their carbon footprint due to both (i) the overall level of spending and (ii) the composition of spending. Introducing a cap on carbon emissions reduces the social value of output, which lowers the efficiency costs of taxation and thereby strengthens the scope for redistribution. However, the optimal increase in redistribution is weaker than suggested by popular proposals for a carbon dividend. While the optimal rebate schedule overcompensates low-income households and undercompensates high-income households for their carbon tax burden, the rebate nevertheless rises with income. Quantifying the model for Germany, we find that the optimal rebate for the 90th income percentile is nearly three times that for the 10th percentile, whereas carbon tax payments are about seven times higher. This results in higher effective average tax rates at the top and lower ones at the bottom of the income distribution. |
| Keywords: | carbon tax, optimal taxation, carbon dividend |
| JEL: | H21 H23 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12085 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | The nature of optimal commodity taxes and tax reform are not well understood in the literature under the separability of subset of consumption goods. We show in this paper that, contrary to the claims of previous researches, under the combination of non-linear income tax and linear commodity taxes, a tax reform towards uniform taxes of the subset of commodities may not be welfare-improving. Furthermore, a distortion of production that alters the relative wages has additional benefit through mimickers’ consumption choices. We also newly characterize the optimal commodity taxes in this setting to show that, to quench possible heterogeneous impacts to the cross-substitution effects on the other commodities, optimally uniform tax towards the separated goods requires uniform income effects across income classes, so that the constraint on the Engel curves in the corresponding optimally linear income and commodity taxes cannot be fully omitted. |
| Keywords: | Uniform commodity taxes, Tax reform, Income tax |
| JEL: | H21 H24 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2509 |
| By: | Michele Bernasconi (Ca’ Foscari University of Venice); Irene Maria Buso (University of Bologna); Anna Marenzi (Ca’ Foscari University of Venice); Dino Rizzi (Ca’ Foscari University of Venice) |
| Abstract: | Several empirical studies find large behavioural responses to the incentives created by tax notches, highlighting the challenge of distinguishing between responses driven by real effects and by tax reporting. In a lab experiment, we find strong evidence of excessive bunching in a tax notch system, both with and without evasion possibilities. The effort adjustments are mainly from above the threshold, while the evasion adjustments are mainly from below the threshold. Both adjustments contribute to a reduction in the underreporting rate. We also confirm evidence of optimisation frictions. They are stronger when evasion is possible than when it is not. A gender breakdown highlights both the robustness of the effects found and the impact that heterogeneous preferences can have on the overall responses to tax notches. |
| Keywords: | Tax Evasion, Effort, Bunching, Lab Experiment |
| JEL: | H24 H26 C91 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:15 |
| By: | Kazuki Onji (The University of Osaka); Roger H. Gordon (University of California, San Diego); Tue Gørgens (Australian National University) |
| Abstract: | In assessing the influence of taxes on corporate takeovers, sorting among firms poses complications. We employ a recently developed matching model that explicitly accounts for sorting behaviors, applying it for the first time to analyze tax implications in corporate takeover markets. Examining Japanese M&A transactions (1999–2018) between publiclytraded corporations, our estimates reveal heterogeneous effects, where the role of acquirer information and control perceptibly moderates the value of loss carryforwards across different transaction types. However, the estimated value generated from loss carryforwards is modest, indicating the stringency of Japan’s anti-avoidance rules. |
| Keywords: | Corporate tax, corporate reorganization, M&As, matching estimator |
| JEL: | H25 H32 G34 L20 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2510 |
| By: | Fernandez Sierra, Manuel (Universidad de los Andes); Gonzalez-Navarro, Marco (University of California, Berkeley); Quintana-Domeque, Climent (University of Exeter) |
| Abstract: | Developing countries often face a cycle where weak tax compliance limits public goods, cutting incentives to pay taxes. We test whether improved local infrastructure can disrupt this cycle, using a randomized street paving experiment in Acayucan, Mexico. Of 56 eligible street projects, 28 were randomly selected. A model highlights two mechanisms: belief updating about government efficiency and reciprocity from direct benefits. Three implications follow: (1) belief updating occurs through exposure to paving anywhere in the network; (2) compliance rises with broader exposure; (3) reciprocity boosts compliance among directly treated owners. Survey data supports belief updating: among initially dissatisfied residents, a one-SD increase in exposure to assigned paving lowered dissatisfaction by 7.9 pp, while exposure to actual paving lowered it by 8.8 pp, with no effect among the satisfied. Property tax records show exposure to assigned paving raised compliance by 1.5 pp, and to actual paving by 2.6 pp (3% above baseline). Reciprocity mattered too: owners whose street was assigned paving (or actually paved) increased compliance by 3.2 pp (4.8 pp, or 5.5% above baseline). Belief updating yields four times as much revenue as reciprocity. |
| Keywords: | government efficiency, reciprocity, belief updating, infrastructure, roads, taxpayer behavior, public investment, satisfaction with local government |
| JEL: | C93 H26 H41 H54 O12 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18082 |
| By: | Susie McKenzie (The Treasury) |
| Abstract: | This paper explores the use of vector autoregressive (VAR) models to supplement the New Zealand Treasury’s tax forecasting models. The models are used to forecast both tax revenue and tax receipts. A suite of VAR models is developed for 20 different tax types with a focus on assessing the forecasting performance of six model specifications for each tax category. This paper shows that VAR models exhibit strong predictive performance for tax types with stable trends, such as total tax and source deductions. By contrast, models for corporate tax and other persons tax exhibit higher volatility and larger discrepancies. Several challenges were identified with these models. One challenge is that it is difficult to accommodate changes in tax rates through the sample period. A second challenge is that large shocks, such as the COVID-19 pandemic, introduce significant volatility and affect the accuracy of forecasts, particularly for tax receipts. Some model specifications also exhibit biases in their predictions for certain tax types. Comparing the forecasts to the official data release for 2024Q3, the VAR models for 13 out of 20 tax types produced forecasts within the range of the official tax release, while 7 tax types had discrepancies between $0.7 billion and $3.2 billion, with the largest discrepancies arising in tax receipts forecasts for total, indirect, and GST taxes. |
| JEL: | C53 E62 H20 C22 |
| Date: | 2025–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztans:an25/03 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | Given that the incentive consideration reduces the scope for redistribution, Mirrlees (1976, Optimal tax theory: a synthesis. Journal of Public Economics 6, 327‒358) emphasized the redistributive effects of commodity taxes (which include capital income tax), which reduces the effective tax wedge on labor income. We revert to the unidimensional case to show that the optimal labor wedge can become higher after the introduction of the optimal commodity taxes/subsidies when labor complements are subsidized. This is partly because supplementary commodity taxes are not increasing in ability as Mirrlees (1976) thought. Among the classic results, decreasing marginal taxes on the middle class, including the mode of the income distribution, remains valid with commodity taxes and without separability in the utility function. |
| Keywords: | Commodity tax, Income tax, Marginal income tax rates |
| JEL: | H21 H24 D63 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2508 |
| By: | Saki Bigio; Diego R. Känzig; Pablo Sánchez; Conor Walsh |
| Abstract: | Despite broad acceptance among economists, carbon taxes face persistent public resistance. We measure the sources and distribution of welfare losses from unexpected European carbon price changes by estimating their impact on consumer prices, labor income, financial wealth, and government transfers. A 1% carbon-policy-induced increase in energy prices yields an average welfare loss of about 1.5% of a year’s consumption, primarily driven by indirect labor-income effects. Younger, poorer, and less educated households, especially in Southern and Eastern Europe, bear a disproportionate burden. These findings suggest public opposition to carbon taxes stems from legitimate distributional concerns. |
| JEL: | D31 H23 Q58 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34125 |