|
on Public Finance |
| By: | Pierre Bachas (World Bank Group); Christopher Hoy (Melbourne Institute of Applied Economic and Social Research); Anders Jensen (Harvard Kennedy School); Mahvish Shaukat (World Bank Group) |
| Abstract: | Horizontal inequity occurs when employees and self-employed with the same income end up with different effective tax burdens, due to the difficulty of enforcing taxes on self-employed. Based on detailed micro-tax simulations models integrated with house hold surveys in 29 developing countries, we show that tax systems incur large horizontal inequities in practice and that reforms which improve vertical equity worsen horizontal equity by a comparable amount. An in-person survey in Pakistan and online surveys across multiple countries reveal widespread concern about horizontal equity. Randomized information treatments heighten this concern but do not shift tax preferences toward addressing horizontal inequity. |
| Keywords: | Horizontal inequity, vertical equity, personal income tax, citizen beliefs |
| JEL: | D72 H22 H24 H26 C93 |
| URL: | https://d.repec.org/n?u=RePEc:iae:iaewps:wp2026n08 |
| By: | Bergeaud, Antonin; Brouillette, Jean-Félix; de Lachapelle, Louis; Malgouyres, Clément |
| Abstract: | We study the repeal of France’s Taxe Professionnelle, a large and spatially dispersed local capital tax whose rates were set by nearly 35, 000 municipalities. Combining administrative data with a dynamic spatial general equilibrium model disciplined by reduced-form estimates of firms’ investment responses, we find that the reform raises real income per worker by 5.1% in the long run and worker welfare by 2.6% in consumption-equivalent terms, accounting for transition dynamics. Counterfactuals isolating the level and spatial dispersion of taxes reveal that reducing the level, which triggers capital deepening, drives the bulk of income gains. Removing spatial dispersion alone reduces income per worker but raises welfare, as spatial frictions and compensating differentials redirect activity from productive locations toward high-amenity destinations. |
| JEL: | H25 H71 E22 R58 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21367 |
| By: | Antoine Belgodere (LISA - Laboratoire « Lieux, Identités, eSpaces, Activités » (UMR CNRS 6240 LISA) - CNRS - Centre National de la Recherche Scientifique - Università di Corsica Pasquale Paoli [Université de Corse Pascal Paoli]); Georges Casamatta (LISA - Laboratoire « Lieux, Identités, eSpaces, Activités » (UMR CNRS 6240 LISA) - CNRS - Centre National de la Recherche Scientifique - Università di Corsica Pasquale Paoli [Université de Corse Pascal Paoli], TSE-R - TSE-R Toulouse School of Economics – Recherche - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Since 2015, French municipalities facing high housing market pressures have been allowed to levy a surcharge on the housing tax applied to second homes. Using a synthetic differencein-differences design, we find a substantial decline in the declared number of second homes and a significant increase in housing tax revenues in treated municipalities, but no evidence of a decrease in housing prices. Drawing on dwelling-level transition microdata, we show that most of the apparent reduction in second homes is driven by strategic reclassification for tax purposes rather than genuine changes in occupancy. |
| Keywords: | Synthetic difference-in-differences, Tax reform, Housing taxation, Second homes |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05663707 |
| By: | Janjala Chirakijja; Pinchuan Ong |
| Abstract: | Economists typically treat labor supply responses to wages and taxes as equivalent. We show that social preferences towards tax-funded government expenditures induce differences between the wage and net-of-tax rate elasticities of labor supply in canonical models. We use a large-scale vignette experiment to show that wage elasticities of labor supply are meaningfully larger than their net-of-tax rate counterparts, consistent with social preferences affecting labor supply. We show relevance for real labor market decisions by leveraging an existing elasticity of taxable income meta-analysis. Hence, models calibrated using net-of-tax rate elasticities when wage elasticities are more suitable understate individuals’ labor supply responses. |
| Keywords: | Labor Supply Elasticity; Taxation; Social Preferences |
| JEL: | J22 H24 H41 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:259 |
| By: | Tomoyuki Nakajima (Faculty of Economics, The University of Tokyo) |
| Abstract: | I study optimal taxation in a directed–search economy with moral hazard, in which firms post output–contingent wage contracts that provide workers with insurance and incentives. Because the market prices these margins, the income tax is freed to redistribute alone: it is lump sum under a utilitarian planner, and under a non–utilitarian planner its marginal rate takes the transparent form τ′(ω)/[1 − τ′(ω)] = −κ κγ′(c (ω)), proportional to the slope of the social welfare weight at realized consumption and free of the skill distribution and labor–supply elasticities that dominate the Mirrleesian formula. A subsidy to vacancy creation corrects a fiscal externality on job creation, and an unemployment benefit handles the extensive margin. I then let productivity be unobservable. Single–crossing survives the moral hazard, so the downward incentive constraint binds and the high type retains an information rent; the resulting screening distortion is borne by the market’s wage schedule rather than by the tax, and the optimal anonymous income tax keeps the transparent form with the redistributive coefficient replaced by a composition–weighted average across types. A calibrated example gives the mechanism quantitative content. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2026cf1275 |
| By: | Ricardo Fenochietto; Carola Pessino; Nicole Fenochietto |
| Abstract: | Using Stochastic Frontier Analysis, this paper updates, for 123 countries, the estimates of tax capacity—defined as the maximum level of revenue a country can feasibly achieve— and tax effort —measured as the ratio of actual tax revenue to tax capacity. It also introduces two novel models that decompose the frontier tax gap —the difference between actual tax revenues and tax capacity— into tax policy and tax administration components. Assessing tax effort is essential before introducing new taxes or raising existing ones, as it helps determine the scope for additional revenue mobilization within the current system. The frontier tax gap decomposition thus provides a rigorous diagnostic framework for identifying where reform efforts should be initiated and where they should be most effectively targeted. |
| Keywords: | Tax Capacity; Tax Effort; Tax Revenue; Revenue Mobilization; Taxation and growth. |
| JEL: | C23 C51 H11 H21 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cem:doctra:919 |
| By: | Agostini, Claudio; Asatryan, Zareh; Bach, Laurent; Bernier, Govindadeva; Berthana, Marinho; Bilicka, Katarzyna; Brockmeyer, Anne; Bukovina, Jaroslav; Falcone, Guillermo; Garriga, Pablo; He, Yuxuan; Janskı, Petr; Koumanakos, Evangelos; Lichard, Tomas; Palguta, Jan; Patel, Elena; Pereira dos Santos, João; Perrault, Louis; Schwab, Thomas; Seegert, Nathan; Skultety, Oliver; Strohmaier, Kristina; Todtenhaupt, Maximilian; Vuletin, Guillermo; Zudel, Branislav |
| Abstract: | Do firms respond similarly to corporate tax incentives across countries? We provide globally comparable estimates of the corporate elasticity of taxable income using administrative tax return data from sixteen countries and a unified empirical framework. Exploiting bunching at a common kink, zero taxable income, we estimate elasticities ranging from 0.08 to 1.9, with an average of 0.79. To explain this heterogeneity, we link elasticities to tax policy, firm characteristics, and country fundamentals. These differences imply that identical corporate tax reforms can generate sharply different revenue effects across countries, leading to substantial heterogeneity in the efficiency costs of corporate taxation. |
| Keywords: | Corporate taxation; Elasticity; Bunching |
| JEL: | C14 H25 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21274 |
| By: | Petter Bjerksund; Guttorm Schjelderup |
| Abstract: | This paper analyzes the valuation of publicly traded stocks subject to capital income and wealth taxation when expected returns are time-varying. We show that, in an efficient capital market, investor valuation coincides with the market price under a broad class of tax systems, including accrued and realized capital gains taxation. The result holds for arbitrary holding periods provided that tax shields are set equal to the investor's after-tax risk-free rate. The key mechanism is that taxation introduces a deterministic payoff component that can be replicated using traded assets, leaving the pricing of the stochastic return component unaffected. |
| Keywords: | wealth tax, capital income tax, assets valuation, time varying expected returns |
| JEL: | G11 G15 H24 H30 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12737 |
| By: | Bruno Bosco; Paolo Maranzano |
| Abstract: | Mean reversion, the tendency for taxpayers with unusually high or low income in one period to move towards their long-run average, is a key challenge for estimating the elasticity of taxable income (ETI), as it generates bias. We show that this bias can be characterised through the variance of the tax treatment and its covariance with windfall gains in an autoregressive model of taxable income dynamics. We further show that the bias decreases when the tax reaction of marginal treated taxpayers is weaker than that of average treated taxpayers. The paper provides analytical derivations and interpretation for these results. |
| Keywords: | Elasticity of Taxable Income (ETI); Mean reversion and estimation bias; Variancecovariance between tax treatment assignment and windfall income shocks; Magnitude and persistence. |
| JEL: | H30 H24 C22 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:578 |
| By: | Niels Johannesen; Lauge Larsen; Nadine Riedel |
| Abstract: | In a coordinated effort to curb tax evasion, governments systematically exchange information about bank accounts with foreign owners. We study the compliance effects of the policy in the context of South Africa using information reports on 1 million foreign bank accounts linked to income and audit data. We find that self-reported foreign income increased sharply and persistently at the onset of information exchange, but remained much below the true foreign income implied by the information reports. We explain the partial compliance response by showing that, contrary to standard theory of third-party reporting, the detection risk associated with non-compliance was modest. |
| Keywords: | tax compliance, tax evasion, tax enforcement, international taxation, information exchange |
| JEL: | H26 H31 H87 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12747 |
| By: | Dominika Langenmayr; Rohit Reddy Muddasani |
| Abstract: | Firms in the digital economy often pay little tax in the countries where their customers are based. In response, market countries have introduced digital service taxes on the revenue of these firms to indirectly tax their profits. We study the incidence of these taxes using data on Amazon, the largest online retailer. We find that in most countries, Amazon increased its fees by roughly the amount of the digital service tax. Firms using Amazon as a platform have largely passed these increased fees on to consumers. Large digital firms thus bear only a small part of the tax burden, but the tax may nevertheless succeed in making them less competitive relative to brick-and-mortar retailers. |
| Keywords: | tax incidence, digital service taxes, two-sided markets, platforms |
| JEL: | H22 D40 L50 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12713 |
| By: | Gökhan Ider; Malte Rieth |
| Abstract: | We examine the aggregate effects of government spending and tax changes in a monetary union. We show theoretically that government consumption and government investment shocks have multipliers above 1, and consumption tax and income tax shocks have multipliers below 1. We test the predictions on quarterly euro area data, identifying the four fiscal shocks in a panel structural vector autoregression through time fixed effects and cross-country heteroskedasticity. Both spending shocks have multipliers above 1, and both tax shocks have multipliers below 1. The analysis suggests that spending policy stabilizes output more efficiently than tax policy in a monetary union. |
| Keywords: | Fiscal policy, general equilibrium model, structural vector autoregressions, government spending, taxes, panel data, euro area |
| JEL: | C32 E32 E62 F45 H20 H50 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2170 |
| By: | Bibler, Andrew; Gao, Yuting; Grigolon, Laura; Tremblay, Mark |
| Abstract: | Statutory tariff rates may overstate the tariffs actually paid due to evasion and avoidance. We develop a novel method to estimate tariff compliance and apply it to the 2018 trade war, when several countries imposed retaliatory tariffs on U.S. exports. Estimated compliance falls by 25 percentage points after tariff increases; a one percentage point tariff increase reduces compliance by 1 to 2 percentage points. Compliance is lower for intermediate goods, which often qualify for duty-free treatment, and for differentiated products, whose valuation is more difficult to verify. The decline accounted for approximately $3.5 billion in foregone tariff revenue in 2019. |
| Keywords: | Trade war |
| JEL: | F13 H20 H22 H26 L10 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21463 |
| By: | Kiarsi, Mehrab; Rendahl, Pontus |
| Abstract: | This paper studies optimal fiscal policy in an economy with frictional labor markets. We show that, under standard efficiency conditions, a suitable combination of constant taxes implements the first-best allocation, with public debt absorbing government spending shocks. Labor market frictions therefore do not overturn the basic tax smoothing principle: taxes remain stable while debt adjusts to fiscal disturbances. We then assess the robustness of this result in a quantitative environment where the Ramsey planner lacks sufficient tax instruments to implement the first best. Even in this case, optimal taxes remain highly stable and fiscal adjustment operates primarily through public debt. Allowing taxes to vary over the business cycle delivers negligible additional welfare gains relative to constant taxes. Overall, fiscal policy in frictional labor markets operates by smoothing taxes and using debt to absorb fiscal shocks, rather than by relying on time-varying distortionary taxation. |
| Keywords: | Ramsey taxation |
| JEL: | E26 H21 J64 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21497 |
| By: | Denise DiPasquale; Edward Ludwig Glaeser; Adam M. Guren; Paul S. Willen |
| Abstract: | What information do policymakers need to design Pigouvian taxes or subsidies? Standard logic suggests that it is sufficient to know the size of the externality and unnecessary to know about quantities. Yet this logic is incorrect if interventions have fixed costs, taxes create deadweight losses, or there are distributional concerns. We present a model in which these considerations can make it more valuable for policymakers to learn about equilibrium quantities. We apply the model to congestion pricing, which has high fixed costs, and to a proposed housing subsidy in Boston that features deadweight losses and distributional concerns. |
| Keywords: | Pigouvian taxes; externalities; congestion pricing; Housing subsidies; tax abatement |
| JEL: | H23 H21 R52 |
| Date: | 2026–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbwp:103475 |
| By: | Junghun Kim |
| Abstract: | This paper asks how local tax revenues should be attributed when tax rates, tax bases or tax-sharing arrangements are shaped by higher-level governments. To address this question, it combines tax attribution criteria from the System of National Accounts (SNA) with a historical and institutional analysis of key country cases that exemplify tax sharing and centrally determined local taxation, notably Germany and Japan. This framework contrasts with approaches that apply standard fiscal federalism models without fully accounting for country-specific legal and institutional arrangements. Applying it suggests that, in some countries, revenues reported as local taxes may instead reflect centrally determined tax-sharing arrangements or centrally determined local taxes as defined under SNA 2008 criteria. Where such revenues are reported as local taxes, reported figures may diverge from international attribution criteria, including in national accounts and submissions to international organisations. These findings suggest that local tax shares should be interpreted in light of institutional context, including the degree of central-local integration of public finance in unitary countries and cooperative federal systems, rather than as a simple measure of local fiscal autonomy in empirical studies of fiscal decentralisation and economic growth. They also indicate that, in many countries, local tax shares are relatively small, reinforcing the need to distinguish between revenue attribution and effective local taxing power. |
| Keywords: | centrally determined local taxes, fiscal decentralisation, local tax autonomy, tax attribution, tax-sharing arrangements |
| JEL: | H71 H77 H20 |
| Date: | 2026–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ctpaab:55-en |
| By: | Murillo Campello; Guilherme Junqueira |
| Abstract: | Do tax subsidies prompt investors to take on risk? We address this question by looking at investors' responses to changes to the Qualified Small Business Stock (QSBS) program, which reduces capital gains taxes on startup investing. We do so under a framework in which some startup investors — venture capitalists (VCs) — combine outside funding with incentive-based compensation, while others invest their own funds. Using bunching, triple-differences, and matching designs that exploit industry eligibility, investment vintage, and holding-period requirements, we analyze data from 158 thousand investor–firm pairings over two decades. We identify strategic investment timing, with subsidies prompting bunching at tax-eligible holding-period thresholds. Most notably, when and where tax subsidies apply, VCs shift their project selection toward riskier ventures: they invest more in pre-commercial stage startups, become more likely to provide startups with their initial capital, and invest more in startups with pre-existing debt, while becoming less likely to co-syndicate their investments. Tax-subsidized VC-backed ventures show higher failure rates, but on the flip side, attain higher valuations at exit and are more likely to reach "unicorn status." None of these patterns are observed for comparable non-VC investors in startups exposed to the same tax subsidies. Our tests further show that tax incentives lead to reallocation toward more innovative industries, yielding more impactful patents. Our study is the first to show that tax policy can shift entrepreneurial financing toward riskier, more innovative, and valuable startups. |
| JEL: | G23 G24 H25 O31 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35418 |
| By: | Felix Hugger; Pierce O’Reilly; Lucía Contreras |
| Abstract: | This paper provides an early empirical, ex post assessment of how MNEs have responded to the introduction of the Global Minimum Tax (GMT). The GMT, implemented in 2024, represents a fundamental change in international taxation. The paper analyses the realised responses of MNEs exploiting the EUR 750 million threshold to identify causal effects. Specifically, the paper uses group level financial and ownership data from the Orbis database and implements a difference in differences strategy that compares MNEs just above and below the scope defining revenue threshold. The paper evaluates whether the GMT has affected MNE effective tax rates, investment, and employment, and whether firms adjusted their behaviour in anticipation of the reform. The paper includes heterogeneity analysis to assess which company types and sectors drive the results. Finally, the paper uses the analysis on the impact of ETRs to estimate the potential revenues raised by the GMT in its first year of introduction. |
| Keywords: | business functions, corporate tax, Global Minimum Tax, international taxation, MNE, multinational enterprises |
| JEL: | F23 H25 H26 |
| Date: | 2026–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ctpaaa:77-en |
| By: | Holter, Hans; Krueger, Dirk; Stepanchuk, Serhiy |
| Abstract: | This paper argues that a progressive tax system combined with individual taxation of married couples can generate more revenue than the current household-based U.S. system, especially when the extra revenues do not induce negative labor supply effects through increased government transfers. A progressive system that taxes individuals rather than couples jointly leads to larger labor force participation and higher average human capital, creates more fiscal space, Laffer curves shift up and social welfare potentially rises. In our model with one- and two-earner households, human capital and an extensive margin labor supply decision, the peak of the Laffer curve is 18 percentage points higher with an individual-based, progressive tax system than with the current U.S. tax system. The maximum revenue is attained with 100% more progressivity than the current system, and at an average tax rate of 42%. Progressive taxation, when imposed on individuals rather than households, lowers the average tax rate for individuals with modest potential income that are close to the participation margin. At the same time it creates a positive income effect on the labor supply of these individuals by reducing the net income of their higher earning spouses and limiting their net earnings potential in the case of a high temporary labor productivity. Steady state social welfare is larger with individual taxation. The optimal progressivity is higher than the current U.S. status quo, and results in welfare gains of 0.8% in consumption-equivalent variation. Cohorts born during the transition also experience significant welfare gains from this reform. |
| Keywords: | Laffer curve |
| JEL: | E62 H20 H60 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21415 |
| By: | Jose René Orozco; Luisa Dressler; Clara Gascon; Laura Gutiérrez Cadena |
| Abstract: | This paper analyses corporate income tax incentives for investment in ten Latin American and Caribbean (LAC) countries. It finds that incentives are often tax exemptions, but expenditure-based incentives are more common than in other developing regions. Tax incentives tend to involve multiple eligibility criteria and are implemented through fragmented legal and institutional frameworks. The paper quantifies the impact of incentives on effective tax rates (ETRs), finding that they vary widely across countries and sectors. Similar projects can face different tax treatment within the same country when multiple incentives apply. On average, incentives reduce ETRs by 47% for tourism investments (including hotel activities and infrastructure), 55% for renewable energy generation, and 85% in special economic zones, relative to standard tax treatment. The findings suggest that the ten LAC countries covered in the paper could reassess whether incentives are the most appropriate policy tool, favour expenditure-based measures, streamline eligibility conditions, consolidate incentives in core legislation, and institutionalise regular monitoring and evaluation to improve value for money. |
| Keywords: | corporate income tax, effective tax rates, FDI, Latin America and the Caribean, tax incentives |
| JEL: | F21 H25 H32 O14 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ctpaaa:76-en |
| By: | Maike Roth (Johannes Gutenberg University, Germany); Prof. Dr. Friedrich Schneider (Johannes Kepler University, Germany) |
| Abstract: | Using a survey for Germany, we evaluate access to illicit tobacco products and the propensity to engage in illicit purchasing. By separating realized opportunities from stated openness toward future illicit purchases, the analysis provides insight into the behavioral foundations of illicit tobacco markets. This is relevant for current policy. If illicit demand responds not only to prices but also to attitudes toward taxation and regulation, tax increases may have heterogeneous effects across groups. Overall, the findings suggest that effective tobacco tax policy should not rely solely on price incentives, as perceived restrictions of freedom may increase openness to illicit markets. |
| Keywords: | Tobacco tax noncompliance, conducted survey, illicit tobacco products and markets, price incentive, regulation |
| JEL: | K42 M38 H26 O17 |
| Date: | 2026–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:jgu:wpaper:2606 |