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on Public Finance |
| By: | Alexander Hansak (University of Graz, Austria) |
| Abstract: | This paper studies how endogenous tax compliance changes the incidence of capital taxation when households earn heterogeneous returns. I develop an incomplete-markets heterogeneous-agent model in which households save, invest in entrepreneurial activities, and can conceal capital-side tax liabilities. Disciplined by U.S. evidence, the model quantifies how concealment creates a wedge between statutory and effective capital taxation and how this wedge interacts with return heterogeneity, the statutory tax rate, and the choice of tax base. Changing the tax base generates a substantial endogenous compliance response: replacing the capital-income tax with a revenue-equivalent wealth tax reduces the liability-weighted concealment rate from 15.9% to 3.3% and raises long-run welfare. The difference between statutory and effective taxation also becomes increasingly important at high capital-income tax rates. At a 40% statutory rate, output is nearly 7% higher with endogenous evasion than under perfect compliance, while capital-tax revenue is about one third lower. Finally, transition dynamics under a balanced-budget fiscal closure reveal a distinct fiscal-timing margin. Abolishing capital-income taxation raises long-run welfare but lowers welfare of households alive at implementation, whereas the wealth-tax replacement raises welfare both at implementation and in the long run. The incidence of capital taxation therefore depends jointly on statutory tax policy, endogenous compliance, and the dynamics of fiscal adjustment. |
| Keywords: | Tax evasion, Tax enforcement, Capital income taxation, Wealth taxation, Heterogeneous returns, Wealth inequality |
| JEL: | H21 H22 H26 E21 E22 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-20 |
| By: | George-Marios Angeletos; Matias Bayas-Erazo |
| Abstract: | We study optimal commodity taxation when consumers are rationally inattentive and the planner internalizes their attention costs. In our setting, consumers may underreact to taxes, may allocate attention unevenly across goods, and may display sparse behavior or mental accounting. Our main result is that this need not change tax design: in a benchmark, optimal taxes satisfy the same sufficient-statistics formulas as in classical public finance, regardless of the extent and endogeneity of inattention. Away from this benchmark, we offer a dual rationale for state-dependent taxes and a new lens on tax salience; but we still find no room for the adjustments emphasized in recent work on behavioral public finance. |
| JEL: | D03 D90 E03 H21 H23 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35741 |
| By: | Jasper Boll (Paris School of Economics); Emmanuel Saez (University of California Berkeley); Gabriel Zucman (Paris School of Economics and UC Berkeley) |
| Abstract: | This paper documents the wealth of California’s billionaires and the taxes they pay. California billionaires’ wealth exceeds $2 trillion today, the equivalent of 50% of California’s GDP. It has grown 144% from 2023 to 2025, fueled by the AI boom. Over the longer run, the real wealth of California’s billionaire class—the 0.0002% richest households—has been multiplied by 38 from 1982 to 2026, while average real family income in California has about doubled. California billionaires pay about 0.2% of their wealth in California income tax ($3.2 billion/year), representing 2.4% of total California income tax revenue on average over 2023-2025. Using Securities and Exchange Commission data from Alphabet, Meta, Oracle, and Nvidia since 2004, we estimate the trajectory of wealth, income, and taxes paid by the top 4 California billionaires—Page, Brin, Zuckerberg, Ellison (through 2020), and Huang (since 2021)—focusing on their business wealth. This group alone holds nearly $1 trillion in business wealth, about 40% of total California billionaire wealth. For this group, wealth growth (+322% over 2023-2025) and low taxation (0.04% of wealth in annual California income tax) are more pronounced. The proposed one-off California billionaire tax of 5%, payable over 5 years, is both small relative to California billionaires’ wealth gains and large relative to the taxes they currently pay. We estimate that it could raise about $100 billion, with comparatively minor impacts on income tax revenue. Using empirical estimates of mobility responses to wealth taxation, we find that an annual wealth tax on California billionaires could raise substantial additional revenue even after accounting for income tax losses due to mobility. |
| Keywords: | Wealth taxation; Wealth inequality; Taxation of high-net-worth individuals; Effective tax rates; Tax migration; Wealth concentration |
| JEL: | D31 H24 H21 H26 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:dbp:wpaper:045 |
| By: | Henrik Kleven; Owen M. Zidar |
| Abstract: | We characterize optimal labor and capital income taxation in a task-based model of automation. Workers and machines are perfect substitutes in automatable tasks, which run from the bottom of the skill distribution up to a threshold. Workers supply labor on the extensive margin. Capitalists supply machines at a finite elasticity. In this general-equilibrium automation economy, optimal tax formulas take canonical partial-equilibrium forms. Yet automation substantially changes optimal tax rates because wages and capital returns are endogenous. We calibrate the model to the US wage distribution and automation exposure. In equilibrium, the middle class is the most automated, with machine intensity peaking around the 40th wage percentile. Relative to a no-automation benchmark, the optimal labor tax schedule is more progressive: a larger EITC subsidy at the bottom, lower taxes in the middle, and higher taxes at the top. The optimal capital tax is sizable but unaffected by automation. |
| JEL: | H21 H31 H32 J21 J31 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35747 |
| By: | Marius Ring (UT Austin); David Seim (Stockholm University); Gabriel Zucman (Paris School of Economics and UC Berkeley) |
| Abstract: | Tax avoidance through personal holding companies has long been viewed as a key challenge for progressive income taxation. We exploit twenty years of administrative micro-data linking firms to owners in Sweden and Norway to analyze how the use of personal holding companies varies across the income distribution and to quantify its implications in a quasiexperimental setting. About half of the income of the top 0.1% is retained in personal holding companies defined, as in US tax law, as firms for which five or fewer owners own more than 50% of the stock and that derive more than 60% of income from investment income. Event studies of shocks to operational firms’ value-added show that holding companies shield around half of dividend distributions from individual income taxation. Profits tend to remain in holding companies for long periods of time, with cumulative payout rates of 15%–20% over two decades for the highest income groups. Wealth taxes do not provide an effective backstop due to the low valuation (or exemption) of shares in private businesses. As a result, effective tax rates, all taxes included, fall from about 50% for the upper middle class to about 15%–20% among the highest-net-worth individuals. Accounting for income in holding companies erases half of the difference in the 1980–2020 rise of the top 1% fiscal income share between Nordic countries and the United States, where rules penalizing the use of holding companies have been in place since the 1930s. |
| Keywords: | tax avoidance, distributional tax analysis, inequality |
| JEL: | D31 H26 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:dbp:wpaper:047 |
| By: | Eren Gürer |
| Abstract: | This paper studies optimal taxation when marginal contributions to an externality differ between urban and rural regions (non-atmospheric externalities), and individuals can migrate from rural to urban regions to earn higher wages. I show that when the government is constrained to set a uniform commodity tax across regions, the presence of externalities alters the structure of optimal redistribution. In particular, if, for example, urban residents impose higher marginal external damages, the optimal policy features more redistribution, relative to a benchmark without externalities. This additional redistribution reduces the attractiveness of higher urban wages and thus discourages migration into the urban region. These findings highlight a potential role for redistributive policy in internalizing externalities. |
| Keywords: | taxation, redistribution, regional externality, migration |
| JEL: | H21 H23 R23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12987 |
| By: | Berman, Yonatan; Klor, Esteban F. |
| Abstract: | In this paper, we analyse the effects of dividend tax reforms on tax revenues, income shifting and earnings retention. We examine two significant policy changes in Israel during the 2010s. Using administrative tax records, we study a permanent increase of 5 percentage points in the dividend tax rate in 2012 and a temporary tax relief enacted in 2017. The permanent tax hike triggered an immediate surge of over 100 per cent in reported dividend income and tax revenues. It did not generate a lasting shift in dividend flows. In contrast, the temporary relief of 2017 led to a sharp decline in dividend payments upon its expiration. Notably, dividend payments remained depressed after the preferential rate ended, consistent with increased earnings retention and possibly with anticipation of similar future relief. Finally, our counterfactual estimates imply that post-2017 retention increased the downward bias in the reported top 1 per cent income share by 1–2 percentage points because income retained within firms is absent from personal tax records. |
| Keywords: | capital tax reform;income shifting;retained earnings |
| JEL: | J1 F3 G3 |
| Date: | 2026–09–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140934 |
| By: | Hoy, Christopher Alexander; Strehl-Pessina, Matias; Doino, Ruggero; Naidoo, Darian; Mambon, Kingtau; Kunda, Bobby |
| Abstract: | Tax exemptions for basic items exist worldwide, typically justified by governments as a way to reduce the cost of living for poorer households. This paper studies the unanticipated removal of consumption taxes on selected food items in Papua New Guinea. It conducts a difference-in-differences analysis using administrative data, a supermarket price census, web-scraped online prices, and a nationally representative household phone survey panel. The findings show complete pass-through in formal supermarkets in central urban districts, where retail competition is strong, but no pass-through in informal stores or rural areas, where poorer households mainly shop. Only 16 percent of the foregone revenue accrued to the poorest two quintiles, while the richest two quintiles and stores/wholesalers each captured almost 40 percent of the benefits. This degree of regressivity and variation in pass-through was unanticipated by 237 experts who participated in a prediction survey. Using a static marginal value of public funds–style comparison, the paper shows that universal cash transfers would generate roughly two and a half times as much quintile-weighted value per fiscal dollar as the tax exemption. The findings demonstrate that food tax exemptions are inherently regressive in lower-income settings, due to high informality, substantial market segmentation, and positive income elasticity of demand for basic food. |
| Date: | 2026–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11453 |
| By: | Congregado, Emilio; Esteve, Vicente; Prats, María A.; Rubino, Nicola |
| Abstract: | This paper tests the Tax-Smoothing Hypothesis (TSH) in Spain over a 174-year horizon (1850-2024). Using Dynamic OLS (DOLS) and a bivariate VAR framework, we examine the intertemporal relationship between public revenues and expenditures while accounting for structural instability. The results confirm a long-run cointegrating relationship, but with a tax-tilting parameter consistently between 0.85 and 0.91. This deviation reveals a structural “deficit bias”, where Spanish authorities have systematically postponed tax burdens through debt issuance. Multi-structural break analysis demonstrates that the TSH only becomes a robust framework following the institutional modernization of the mid- 20th century; earlier periods, marked by fiscal archaism and borrowing constraints, fail to conform to the model’s normative predictions. Furthermore, the VAR model confirms that while the budget balance responds rationally to expenditure shocks, its magnitude is heavily influenced by institutional shifts. We conclude that this persistent deficit bias is an embedded feature of the Spanish fiscal state, posing significant challenges for long-term sustainability within the Eurozone’s restrictive fiscal framework. |
| Keywords: | España;gestión de la deuda pública;optimal taxation;public debt management;sesgo impositivo (Tax-tilting);Spain;suavizamiento fiscal (Tax-smoothing);Tax-smoothing;Tax-tilting;tributación óptima |
| JEL: | F3 G3 J1 |
| Date: | 2026–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140957 |