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on Public Finance |
| By: | Luca Micheletto; Dylan Moore; Daniel Reck; Joel Slemrod |
| Abstract: | Traditional optimal commodity tax analysis, dating back to Ramsey (1927), prescribes that to maximize welfare one should impose higher taxes on goods with lower demand elasticities. Yet policy makers do not stress minimizing efficiency costs as a desideratum. In this note we revisit the commodity tax problem, and show that the attractiveness of the Ramsey inverse-elasticity prescription can itself be inverted if the tax system is chosen -- or at least strongly influenced -- by taxpayers who are overly confident of their ability, relative to others, to substitute away from taxed goods. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.22852 |
| By: | Felix J. Bierbrauer; Pierre C. Boyer; Andreas Peichl; Daniel Weishaar; Felix Bierbrauer |
| Abstract: | Joint taxation of married couples represents a puzzle for welfare economics. We investigate whether political economy forces can explain its persistence. We develop sufficient statistics to determine whether a reform towards individual taxation would garner majority support and apply this framework to the U.S. tax system since the 1960s. Our findings indicate that support for individual taxation has increased over time. As of today, 50% of all married individuals would benefit from such a reform. Among those worse off are poor single-earner couples. A reform that reduces marriage bonuses also for them is rejected by a social welfare function that concentrates weights at the bottom of the distribution. |
| Keywords: | taxation of couples, tax reforms, optimal taxation, political economy, non-linear income taxation |
| JEL: | C72 D72 D82 H21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11728 |
| By: | Laurence Jacquet; Etienne Lehmann |
| Abstract: | We propose a new approach to assess the impact of regulatory changes on the production sector such as competition policies, taxing intermediate goods, robots or AI, trade regulation, production of public firms or environmental standards for firms. Our framework covers multidimensional nonlinear taxation with multiple income sources, General Equilibrium (GE) adjustments and market failures. We clarify under which conditions on the tax system the production sector should be regulated only to increase aggregate output, a recommendation we label the Production Regulation principle. Under these conditions, regulatory changes can be combined with adequate GE-neutralizing tax reforms to offset the GE effects on taxpayers’ utility levels. This ensures that changes in the production sector’s regulation that increases aggregate output do not deteriorate individual welfare, thereby resulting in a Pareto improvement. We also provide formulas that balance the effects of regulatory changes on aggregate production and their pre-distributive impact, when a GE-neutralizing tax reform is not feasible. These formulas introduce new GE-multipliers, which also appear in our calculations for the impact of tax reforms, optimal income tax systems and identifying Pareto-improving tax reforms. |
| Keywords: | production efficiency, market frictions, nonlinear income taxation, several income sources, endogenous prices |
| JEL: | H21 H22 H23 H24 L50 F13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11705 |
| By: | Richard Winter; Jan Zental |
| Abstract: | Wealth transfer taxes can be important instruments to counter increasing wealth inequality. Yet, inter-generational business transfers, whose distribution is particularly concentrated at the top, are inherently difficult to tax. Many countries treat this asset class preferentially to avoid overburdening family firms, and sophisticated tax avoidance strategies by business owners exploit this preferential treatment to erode the tax base. We analyse how business transfers react to anticipated changes in such preferential tax treatment using administrative data at the individual-transfer level from the universe of German gift tax assessments. We find strong and rapid timing responses of business transfers to expected tax changes. We show that the response is stronger for higher-valued transfers and find heterogeneity in transfer characteristics consistent with a tax avoidance motive. We further estimate that the amount of foregone gift tax revenue due to timing responses is up to 2.8 times the size of actual annual inheritance and gift tax revenue. |
| Keywords: | wealth transfer tax avoidance, business owners, tax uncertainty |
| JEL: | H00 H23 H25 H26 K34 D80 D81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11687 |
| By: | Bulut, Hamid; Samuel, Robin |
| Abstract: | An increasing number of countries are considering implementing domestic carbon taxes to achieve the carbon-reduction targets set in the Paris Agreement. However, introducing such taxes presents significant challenges for policymakers worldwide. Despite their effectiveness, carbon taxes remain the least popular policy instrument. Furthermore, few studies focus on public support for carbon taxation in low- and middle-income countries, a crucial area of research given the global significance of their emissions. Therefore, we conducted a pre-registered full factorial survey experiment involving more than 13, 000 evaluations of policy designs in China, Germany, India, and the UK to address the most prevalent barriers to the popularity of carbon taxes, as discussed in academic research, policy analysis, and public discourse: perceived effectiveness, average household costs, the types of revenue recycling schemes implemented, and the extent of international cooperation. Our findings revealed striking differences in how the countries responded to carbon tax policies. The key findings included the following: cost transparency unexpectedly reduced support, whereas communicating the effectiveness of the policy increased it; preferences for revenue recycling schemes varied significantly across the four countries, highlighting the need for tailored approaches; and, surprisingly, international cooperation increased support only in Germany, challenging assumptions about global climate policy. These findings have profound implications for policymakers, suggesting that an effective carbon tax design must be carefully calibrated in the national context. This study provides a roadmap for designing carbon tax policies that are environmentally effective and politically viable for diverse global economies. |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:fq4tn_v2 |
| By: | Alice Pizzo; Christina Gravert; Jan M. Bauer; Lucia Reisch |
| Abstract: | We examine the impact of a carbon tax on consumer choices via a large-scale online randomized controlled trial. Higher taxes generally reduce the demand for high-carbon goods. Compared to an import tax, a carbon tax reduces demand when the tax is zero (i.e., announced but not levied) but leads to relatively higher demand for high-carbon goods when a positive tax is introduced. This contradiction of basic price theory is entirely driven by climate-concerned consumers. Our findings suggest that carbon taxes can crowd out climate concerns, leading to important implications for policy. |
| Keywords: | behavioral response, carbon pricing, climate change, climate policy, experiment, moral licensing |
| JEL: | Q58 C90 D03 D90 Q50 Q51 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11719 |
| By: | Julia Cagé; Malka Guillot |
| Abstract: | Is charitable giving politically motivated? This article uses exhaustive administrative household panel data and a natural experiment to investigate the giving behavior of wealthy households and quantify their preferences for charitable and political donations. Our dataset includes all the households filing their income tax and/or wealth tax returns in France between 2006 and 2021. Both charitable and political donations benefit from a 66% income tax credit, but only the charitable ones are eligible for the 75% wealth tax credit. We exploit the 2017 wealth tax reform – a change in the taxable base that led to a drop of two thirds in the number of liable households and, as a result, an increase in the price of charitable giving – and show that charitable and political donations are substitute. According to our estimates, a ten-percent increase in the price of charitable giving leads to a 0:18 p.p. increase in the propensity to make a political donation, and to a large rise (corresponding to 3% of the mean) in the amount given conditional on giving. Next, using city-level information, we show that the increase in the price of charitable giving mostly benefits pro-business political parties. Finally, we document that the drop in charitable donations is mostly driven by politically involved nonprofit organizations, pointing toward political motivations behind charitable giving. |
| Keywords: | charitable giving, political donations, tax incentives for giving, wealth tax credit, cross-elasticity of donations, nonprofit organizations |
| JEL: | H24 H31 L38 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11731 |
| By: | Sebastian G. Kessing |
| Keywords: | global public goods, market power, climate policy, global warming, terms-of-trade, China, Inflation Reduction Act, Net-Zero Industry Act |
| JEL: | H41 D60 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:sie:siegen:198-25 |
| By: | Leonid V. Azarnert |
| Abstract: | I study the effect of educational policy in the host economy on human capital accumulation and growth. The analysis is performed in a two-country growth model with endogenous fertility. I show that providing additional free educational services for immigrant children can increase the attractiveness of migration for less skilled individuals, which can outweigh the positive effect of this policy on the acquisition of human capital. In contrast, imposing taxes on immigrants in the host country reduces low-skilled immigration flows and has the potential to promote human capital accumulation if the resulting revenues are channeled into educational subsidies. |
| Keywords: | migration, child education, fertility, human capital, growth, brain drain, brain dilution tax |
| JEL: | D30 F22 J10 J13 J24 O15 O40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11727 |
| By: | Othman Bouabdallah; Pascal Jacquinot; Ante Šterc |
| Abstract: | We develop a Heterogeneous Agents New Keynesian model with a detailed outline (block) of financial intermediation and plausible marginal propensities to consume (MPC). Accounting for heterogeneous MPCs allows plausible predictions of the effectiveness of fiscal policy in the short and long term. Using our model, calibrated to the U.S. economy, we show that government spending has the largest short- and long-term effect on output when financed by debt, with gradual repayment through lump-sum transfers/taxes. We find a novel, non-linear, and non-monotonic relationship between the effectiveness of the fiscal stimulus, income tax progressivity, and the debt-to-GDP ratio, absent in representative or two-agent models. Lastly, the model suggests limited effectiveness of the fiscal stimulus and higher inflationary pressure for highly indebted economies. |
| JEL: | D31 E21 G11 H31 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202508 |
| By: | Motta Café, Renata |
| Abstract: | This paper examines the fiscal and extra-fiscal effects of decentralizing the collection of Brazil's rural land tax from the federal level to local governments. Using a difference-in-differences research design, we assess the impact of local tax enforcement on revenue, land use, and environmental outcomes. Decentralization led to sustained revenue gains, increased agricultural production, expanded reported environmental protection areas, and slightly decreased land concentration. Our findings highlight the role of property taxation as a policy instrument for environmental conservation and sustainable development. |
| Keywords: | fiscal decentralization;extra-fiscality;Land use;sustainable develop-ment;rural property tax |
| JEL: | H23 H30 H77 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14081 |
| By: | Xipeng Gao (School of Economics and Finance, XiÕan Jiaotong University, XiÕan, Shaanxi, PR China); Xiangju Li (School of Economics and Finance, XiÕan Jiaotong University, XiÕan, Shaanxi, PR China); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, Atlanta, Georgia, United States) |
| Abstract: | A central tenet in the fiscal federalism literature posits that inter-jurisdictional tax competition can engender economic efficiency losses. However, diverse firms exhibit heterogeneous sensitivities to varying tax burdens. When firms strategically evaluate differential tax pressures across tax categories, tax competition evolves into competition over tax structure. This dynamic is particularly pronounced in the case of green taxes and fees, which aim to internalize negative externalities compared to conventional tax instruments. We identify a Òrace to the bottomÓ phenomenon in corporate green taxes and fees driven by structural distortions within the tax system in China. Based on the constructed theoretical model of energy factor allocation that includes a distortionary coefficient of green taxes and fees, we predict that the efficiency growth of firms will decrease as the intensity of their Òrace to the bottomÓ competition increases in response to the relative pressure of green taxes and fees. Using data from listed companies in China, we find a robust negative relation between the Òrace to the bottomÓ competitive intensity of green taxes and fees pressure and total factor productivity growth. Our findings indicate that increasing the intensity of fiscal and environmental decentralization exacerbates the problem of the intensity of competition in the corporate tax structure, generating significant efficiency losses. These findings provide new evidence on the economic disadvantages of unchecked tax competition in decentralized systems. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2507 |
| By: | Tommaso Giommoni; Gabriel Loumeau; Marco Tabellini; Gabriel Loumeau |
| Abstract: | We study the fiscal determinants of the French Revolution, exploiting plausibly exogenous variation in the salt tax - a large source of royal revenues and one of the most extractive forms of taxation of the Ancien Régime. Implementing a Regression Discontinuity design (RDD), we find that parts of France subject to a higher salt tax experienced more revolts against the monarchy between 1750 and 1789. These effects already appear in the 1760s, but become stronger over time and peak in the 1780s. Combining the RD model with variation in local weather conditions during the 1780s, we document that droughts amplify the effects of the salt tax on revolts by increasing wheat prices and activating latent discontent. Then, we connect the discontent generated by the salt tax to the French Revolution. First, we provide evidence that riots spread across space through a process of contagion that is stronger in high tax areas. Second, we show that areas burdened by a higher salt tax report more complaints against the salt tax in the list of grievances collected by the king in the spring of 1789. Third, we document that legislators representing areas with a higher salt tax are more likely to demand the end of the monarchy and to support the death penalty for the king. |
| Keywords: | extractive taxation, regime change, French Revolution, state capacity. |
| JEL: | D74 H20 H31 O23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11798 |