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on Public Finance |
| By: | Leslie Shiell (Department of Economics, University of Ottawa, Canada) |
| Abstract: | In March 2015, the Canadian Prime Minister terminated the federal carbon price and rebate system, in response to widespread belief that the carbon price was a major factor in the ongoing affordability crisis. The previous autumn, the Parliamentary Budget Officer (PBO 2024) released a report indicating that, including both cash and economics effects, approximately 60% of households paid more on the carbon price than they received in the rebate, and therefore the average household across the eight affected provinces (all but BC and Quebec) was made worse off by the policy. However, there are several features of PBO (2024) which were apt to create confusion and lead to misunderstanding of the results, including: (i) vagueness about income levels, (ii) disproportionate emphasis on 2030 results, (iii) use of after-tax (disposable) income as the basis of analysis, (iv) use of average income, rather than median income, to summarize typical impact, and (v) lack of information on greenhouse gas (GHG) emissions at different income levels. We address these issues and provide a clearer picture of the distributional impacts of the carbon price and rebate system. In 2024-2025, the policy made 50% or more of households, in four of the eight affected provinces, better off financially, and all households were forecast to be better off by the final year of the policy, 2030-2031, than they were in 2024-2025, as standard growth factors were forecast to outweigh the modest costs associated with the policy. We conclude that, far from making most households worse off, the federal carbon price and rebate policy was an effective policy to counteract the affordability crisis among those who needed help the most, and of course it was forecast to result in important environmental benefits as well. |
| Keywords: | Canada’s carbon tax and rebate; distributional impact. |
| JEL: | H23 Q52 Q58 D31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ott:wpaper:2505e |
| By: | Lundberg, Jacob (Research Institute of Industrial Economics (IFN)); Massenz, Gabriella (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We use a natural experiment and administrative data to study the effect of corporate tax cuts on business activity. For identification, we exploit the abolition of municipal corporate income taxation in Sweden in 1985, which created variation in corporate tax changes faced by different municipalities. Our findings indicate an expansion of business activity and employment in large firms following a tax cut. However, we find no significant impact on these outcomes for small firms. In addition, firm entry rates increase in municipalities experiencing the largest tax cuts. |
| Keywords: | Corporate taxation; Business activity; Employment; Firm entry |
| JEL: | G31 G38 H21 H25 |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1531 |
| By: | Blaufus, Kay; Maiterth, Ralf; Milde, Michael; Sureth, Caren |
| Abstract: | We examine behavioral frictions in entrepreneurs' tax planning when choosing between corporate and partnership taxation under a check-the-box rule. Using German tax return data, we show that only a small fraction of entrepreneurs opt for corporate taxation, despite substantial potential tax savings. A pre-registered incentivized online experiment demonstrates that complexity aversion, status quo bias, and misperception about the corporate tax burden-arising from the interaction of corporate and deferred dividend taxation-help explain the preference for partnership taxation. We further find that these behavioral frictions heighten liquidity risk under the corporate system, particularly in the face of unexpected cash flow needs. Finally, a survey of German tax advisors indicates that tax advice only partially mitigates these frictions. Some advisors misperceive the benefits of corporate taxation, while others anticipate client biases and therefore refrain from recommending the corporate tax system. |
| Keywords: | Check-the-box, Legal Form, Tax Complexity, Tax Misperception, Behavioral Taxation, Tax Advice |
| JEL: | H25 D91 D22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323941 |
| By: | Braun, Anna-Sophie; Koch, Reinald; Sureth, Caren |
| Abstract: | This study examines the effect of tax complexity on the market value of publicly traded firms. Using firm-level measures of tax complexity, we find that a one standard deviation increase in tax complexity-comparable in magnitude to the rise following the U.S. Tax Cuts and Jobs Act-is associated with a 2.6% decline in Tobin's Q. The effect is particularly pronounced for complexity arising from anti-avoidance regulations and post-filing procedures. The negative valuation effect is more substantial for firms with limited opportunities for international profit shifting, weak governance, or low internal information quality. Further analyses reveal that tax system complexity is associated with a reduced growth potential of firms and less R&D and thus negative real responses that go beyond negative investment effects. Overall, our findings provide novel evidence of the economic costs of tax complexity and contribute to the debate on the design of efficient and equitable tax systems. |
| Keywords: | tax complexity, tax avoidance, firm value, tax code complexity, tax framework complexity, cost of complexity |
| JEL: | M12 H26 H25 H32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:arqudp:323938 |
| By: | Felix K\"ubler; Simon Scheidegger; Oliver Surbek |
| Abstract: | We develop a computational framework for deriving Pareto-improving and constrained optimal carbon tax rules in a stochastic overlapping generations (OLG) model with climate change. By integrating Deep Equilibrium Networks for fast policy evaluation and Gaussian process surrogate modeling with Bayesian active learning, the framework systematically locates optimal carbon tax schedules for heterogeneous agents exposed to climate risk. We apply our method to a 12-period OLG model in which exogenous shocks affect the carbon intensity of energy production, as well as the damage function. Constrained optimal carbon taxes consist of tax rates that are simple functions of observables and revenue-sharing rules that guarantee that the introduction of the taxes is Pareto improving. This reveals that a straightforward policy is highly effective: a Pareto-improving linear tax on cumulative emissions alone yields a 0.42% aggregate welfare gain in consumption-equivalent terms while adding further complexity to the tax provides only a marginal increase to 0.45%. The application demonstrates that the proposed approach produces scalable tools for macro-policy design in complex stochastic settings. Beyond climate economics, the framework offers a template for systematically analyzing welfare-improving policies in various heterogeneous-agent problems. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.01704 |
| By: | Deza, María Cecilia; Dondo, Mariana; Jara, H. Xavier; Rodríguez, David; Torres, Javier |
| Abstract: | This paper aims to assess the extent to which cash transfers, direct taxes, and social insurance contributions help to reduce gender income inequalities in seven Latin American countries: Argentina, Bolivia, Colombia, Ecuador, Mexico, Peru, and Uruguay. We apply microsimulation techniques to household survey data and allocate incomes within the household, assuming that each person retains the income they receive (e.g., earnings, benefits targeting mothers) and pays taxes and social insurance contributions on an individual basis according to each country’s rules. Then, we compare gender income ratios based on market (before taxes and benefits) and disposable (after taxes and benefits) income. Our results show that, at the bottom of the distribution, tax-benefit systems significantly reduce gender income disparities in most countries due to the effect of social assistance benefits received by mothers in poor households. Additionally, we find that women have substantially higher poverty rates than men based on individual disposable income. Gender differences in poverty fade away when income is pooled at the nuclear family level and, even more so, at the household level. |
| Keywords: | taxes; benefits; microsimulation; gender gap; Latin America |
| JEL: | D31 J16 J70 H24 I32 I38 |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129049 |
| By: | Doorley, Karina (Economic and Social Research Institute, Dublin); Simon, Agathe (ESRI, Dublin); Tuda, Dora (ESRI, Dublin) |
| Abstract: | This paper evaluates the redistributive and labour supply effects of transitioning from a joint to a fully individualised income tax system in Ireland. The current Irish tax system, which remains partially joint since the early 2000’s, provides a financial advantage to married couples by allowing them to to share tax bands and credits. However, it also creates a financial disincentive for secondary earners (who are typically women) to work. Using the microsimulation model, SWITCH, we estimate the distributional effect of moving to a fully individualised tax system in Ireland. We find that this would result in income losses, which increase with the level of income. Linking SWITCH to a discrete choice labour supply model, we then estimate the behavioural response of married couples to a fully individualised tax regime. We find that a shift to individualised taxation would result in increased labour supply of married women, and a reduction in the hours worked by married men due to intra-household labour substitution effects. We explore the implications of this for a range of outcomes linked to womens’ financial independence. |
| Keywords: | labour supply, taxation of couples, tax-benefit system |
| JEL: | E24 E32 J22 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18035 |