Public Economics http://lists.repec.org/mailman/listinfo/nep-pbe Public Economics 2026-10-05 HORIZONTAL INEQUALITY IN OPTIMALTAXATION: EVIDENCE FROM A DEVELOPMENT CONTEXT https://d.repec.org/n?u=RePEc:kud:kucebi:2619&r=&r=pbe Exemptions are a key feature of income tax systems in developing countries, yet standard optimal tax models cannot explain them. By assuming full compliance, these models ignore horizontal inequality between formal and informal workers, understating the social cost of taxing the former. Extending the optimal tax framework, I incorporate informality and horizontal inequality aversion. I conduct a survey experiment in Kenya, finding that respondents place substantially higher welfare weight on formal taxpayers than otherwise identical informal workers. Combining these empirical preferences with administrative tax data yields prescriptions of high exemption thresholds matching observed policy, a result alternative explanations cannot rationalize. Magnus Eldrup 2026-09-25 Geography versus Income: The Heterogeneous Effects of Carbon Taxation https://d.repec.org/n?u=RePEc:bfr:banfra:1063&r=&r=pbe The distributive effects of carbon taxation are critical for its political acceptability and depend on both income and geographic factors. Using French administrative data, household surveys, and matched employer–employee records, we document that rural households spend 2.8 times more on fossil fuels than urban households and work in firms that emit 2.7 times more greenhouse gases. We incorporate these facts into a spatial heterogeneous-agent model with migration, housing and wealth accumulation, bridging spatial and macroeconomic approaches. Carbon taxes generate 56% larger welfare losses for rural households than for urban households, as the former may be trapped due to mobility frictions and homeownership. While uniform or income-based rebates reduce inequality along the income dimension, they leave large spatial disparities that must be offset through location-based transfers. These results suggest that carbon policies should account for spatial differences to improve political feasibility. Charles Labrousse Yann Perdereau Carbon Tax, Inequalities, Revenue Recycling, Spatial and Macroeconomic Models, Migration 2026 When Tax Shields Shrink: Interest Deductibility Limitations and Corporate Innovation https://d.repec.org/n?u=RePEc:nbr:nberwo:35775&r=&r=pbe We investigate how limiting interest deductibility under the 2017 TCJA shapes corporate innovation. Using alternative identification strategies, we show that, relative to unaffected firms, affected firms experience significant declines in patenting and narrow the technological scope of their patent portfolios. This contraction is concentrated in exploitative patents, the type of innovation most naturally supported by debt financing. By weakening firms’ ability to finance innovation with long-term debt, interest limitations reveal a novel channel linking taxation to innovation, with the debt tax shield serving as an implicit subsidy. Cross-country evidence from the staggered implementation of interest limitation rules confirms negative effects. Xinru Chen Mara Faccio Stefano Manfredonia Jin Xu 2026-09 The Budget Credibility Gap: An Integrated Data-Driven Fiscal Contingency Framework for Managing Macroeconomic Shocks https://d.repec.org/n?u=RePEc:pid:pviewp:2026:75&r=&r=pbe Key Highlights Pakistan's annually budgets are immediately destroyed by external commodities shocks. This occurs as a result of policymakers setting fiscal targets based on extremely optimistic tax estimates and strict deficit limitations without allowing for any margin of error. To meet its revenue goals, the government depends on the petroleum charge and SBP profit transfers. It is incorrect to refer to this as a planned policy since it just serves to emphasize how flawed traditional tax collection is. Mehwish Mumtaz Ahsan ul Haq 2026 Labor Supply and Wages over the Life Cycle: Human Capital and Disability Benefits* https://d.repec.org/n?u=RePEc:bri:uobdis:26/851&r=&r=pbe Work experience has been found to be a key determinant of work and wages for educated women, but it seems to play a smaller role for the less educated. For them, welfare, tax credits and family composition matter more, and increasingly so does participation in disability programmes. Here we document how labor supply, wages, health, and disability claims have evolved in the UK over the last three decades, and examine how reforms to tax credits, disability benefits and other welfare programs have changed work incentives over this period. We then introduce these features into an empirical dynamic structural model of life-cycle labor supply, human capital and disability benefit application, in which human capital combines health capital, experience accumulated in work, and education. Estimating the model on a panel of working-age women in the UK, we examine the interactions between experience capital and health capital in driving life-cycle earnings across different education groups. Our results highlight the importance of interactions in the disability benefit, welfare and tax credit systems for understanding the life cycle pattern of hours, employment, earnings, and disability claims, and for evaluating policy counterfactuals. Richard Blundell Monica Costa-Dias Graham Mazeine Costas Meghir Tom Waters 2026-01-30 Taxes on International Students: Demand and Supply Response for Post-Graduation Foreign Workers on Optional Practical Training https://d.repec.org/n?u=RePEc:iza:izadps:dp18933&r=&r=pbe The US government has proposed various taxes on high-skill immigration. The effects of such taxes hinge on price elasticities of demand and supply that the literature has rarely measured. I estimate key elasticities to evaluate a $100, 000 tax on Optional Practical Training (OPT) work permits for international graduates of US universities, the largest single channel of high-skill immigration to the US. Depending on the tax's incidence, evaluation requires the price elasticity of demand for US degrees with the OPT option, of universities' supply of OPT placements, or of employers' demand for OPT workers. In all incidence scenarios, OPT starts at a given level of international enrollment fall by roughly a third or more, and by four fifths under university or employer incidence in the central scenarios. The decline in OPT opportunities would cut international enrollment, costing universities hundreds of millions to over four billion dollars a year in net margin, before any compounding with taxes on work visas such as the H-1B. The need for better estimates will grow with the prevalence of immigration taxes. Clemens, Michael Optional Practical Training, H-1B, immigration, immigrant, labor, tax, fee, payment, duty, tariff, skill, talent, foreign, student, graduate, college, higher ed, university, demand, supply, elasticity, STEM 2026-09 How Redistributive are Public Health Care Schemes? Evidence from Medicare and Medicaid in Old Age https://d.repec.org/n?u=RePEc:cam:camdae:2677&r=&r=pbe Most health care for the US population aged 65 and older is publicly funded through Medicare and Medicaid. Despite the massive expenditures of these systems, little is known about how redistributive they are. Using data from the Health and Retirement Study, matched to administrative Medicare, Medicaid, and Social Security earnings records, we estimate the distribution of lifetime Medicare and Medicaid benefits received and the distribution of lifetime taxes paid to finance these benefits. We find that benefits are greatest among the high income, largely because higher-income households live longer. Nonetheless, high income people pay more in the way of taxes. In present discounted values at age 65, households at the bottom of the income distribution gain the most from these programs, driven by high Medicaid benefits and low tax burdens. All income groups gain from these programs for the cohort we study: the lifetime tax contributions did not cover the medical benefits they received. This deficit must be paid by younger cohorts. Arapakis, K. French, E. McCauley, J. Medicare, Medicaid, Social Security, Means-Testing, Lifecycle, Savings, House-Hold Finance 2026-09-21 Who benefits from food tax exemptions in lower-income settings? https://d.repec.org/n?u=RePEc:ifs:ifsewp:26/55&r=&r=pbe Christopher Hoy Matias Strehl-Pessina Ruggero Doino Darian Naidoo Kingtau Mambon Bobby Kunda 2026-09-22 Assessing Hypothetical Scenarios for Estimating Labor Supply Responses: Evidence from a Pension Reform https://d.repec.org/n?u=RePEc:ces:ceswps:_12993&r=&r=pbe We assess whether survey responses to hypothetical policy scenarios can recover actual labor supply responses from policy variation. We study the German Mütterrente, a pension benefit crediting parents for child-rearing, benchmarking against Artmann et al. (forthcoming). Surveying mothers and fathers about a hypothetical reform modeled on that expansion, we find that mothers expect to reduce their labor supply, with an implied marginal propensity to earn of −0.65—close to the quasi-experimental estimate of −0.54. The response is sensible across subgroups, falls mainly on the extensive margin, and spills over to fathers. In the aggregate, spousal predictions match partners’ own reports. Nicola Fuchs-Schündeln Jonas Jessen Pinchuan Ong Jessica Pan marginal propensity to earn, pension reform, hypothetical scenarios 2026 The Gender Pay Gap and the Child Tax Credit: Credit Eligibility and Unexplained Differences in Mothers’ and Fathers’ Earnings (Working Paper) https://d.repec.org/n?u=RePEc:osf:socarx:szjg8_v1&r=&r=pbe One of the most striking differences in eligibility for the full Child Tax Credit (CTC) is by family type (female and male heads of household and two-parent, married households). Differences in the wages of working mothers and fathers unexplained by key wage predictors can help explain these disparities. This paper explores the interactions between unexplained gender wage gaps and full CTC eligibility using data from the 2025 Current Population Survey Annual Social and Economic Supplement (CPS-ASEC). We examine CTC eligibility across the earned income distribution by family type, estimate how much of the wage gap is unexplained by key wage predictors, simulate counterfactual wages and earnings for all working mothers absent this unexplained gap, and recalculate their families’ CTC. Findings suggest that unexplained differences in the wages of working mothers and fathers leave roughly 1.7 million mothers and 2.9 million children ineligible for the full CTC. Collyer, Sophie Yera, Christopher 2026-09-07 Illustrating long-run fiscal challenges using the Long-Term Model https://d.repec.org/n?u=RePEc:oec:ecoaaa:1877-en&r=&r=pbe This paper presents updated estimates of long-run fiscal gaps for 35 OECD and accession candidate countries using the OECD Global Long-Term Model. The long-run fiscal gap measures the fiscal adjustment required at the 2060 horizon to keep public debt ratios stable near current levels while maintaining current service standards and benefit entitlements. The methodology incorporates several refinements, including projected increases in defence spending and a more detailed treatment of primary expenditure. In the absence of additional policy action, the median country would require a fiscal adjustment of 4.7 percentage points of GDP between 2027 and 2060 to stabilise debt, with substantially larger adjustments in some countries. Population ageing is the main driver of long-run fiscal pressures through higher pension, health and long-term care spending, compounded in many cases by weak initial fiscal positions. The paper also assesses the sensitivity of fiscal gaps to key assumptions and policy scenarios. Yvan Guillemette fiscal pressure, fiscal sustainability, long-run fiscal gap, long-term projection 2026-09-30 AI subsidies as a tool for redistribution https://d.repec.org/n?u=RePEc:hal:journl:hal-05748060&r=&r=pbe I study the optimal taxation of artificial intelligence (AI). My analysis highlights a wage-compression effect that provides a rationale for subsidizing AI, as AI adoption may reduce rather than increase wage inequality. When this effect outweighs AI's social costs, AI should be subsidized instead of taxed. I treat AI as a productive input distinct from robots, as the two technologies perform different ranges of tasks. Using numerical simulations, I demonstrate that the optimal policy for AI may differ sharply from that for robots. Under the benchmark calibration, AI is subsidized, whereas robots are taxed. Therefore, the case for taxing AI is weaker than is commonly assumed. When AI lowers the skill premium, fiscal policy may need to encourage, rather than slow, adoption. Lucas Parmentier Artificial intelligence, Optimal taxation, Redistribution, Wage inequality, Technological change, Inégalités salariales, Progrès technique, Taxation optimale, Intelligence artificielle 2026-11 Inequality, Fiscal Policy and Satisfaction with the Government: Decomposition and Simulation https://d.repec.org/n?u=RePEc:iza:izadps:dp18958&r=&r=pbe Government satisfaction rose sharply in Ecuador between 2007 and 2014, a period marked by declining inequality and substantial changes in fiscal and social policy. We examine how far this increase is associated with changes in individual economic circumstances, the wider income distribution, and the tax–benefit system. Using nationally representative household survey data, we combine distributional Fairlie decompositions with a tax–benefit microsimulation counterfactual. Changes in observed socioeconomic characteristics explain around one fifth of the increase in satisfaction in the middle of the distribution. Within this explained component, the decline in provincial income inequality is more important than changes in individual disposable income. The tax–benefit counterfactual points in the same direction: predicted satisfaction would generally have been lower had the 2014 population faced the 2007 tax–benefit rules. The results reveal substantial heterogeneity across income groups, with the counterfactual differences more pronounced among the poor. Overall, the findings highlight the importance of distinguishing individual economic resources from broader distributional conditions when examining evaluations of government. Fiorani, Federico Sologon, Denisa Jara, Xavier satisfaction with government, income inequality, tax-benefit policy, political support, tax-benefit microsimulation, Ecuador 2026-09 Applying but not Receiving: Longer Working Lives and Institutionalized Health Investment https://d.repec.org/n?u=RePEc:bdp:dpaper:0110&r=&r=pbe Rising life expectancy and demographic change have increased the share of older workers, making their health and productivity central to aging societies. We study whether longer working lives translate into investments in work-related health before retirement. Exploiting a pension reform in Germany in a Regression Discontinuity Design, we show that women facing longer careers are more likely to apply for work-related rehabilitation, particularly those in poorer health or with weaker labor market attachment. Despite higher application and approval rates, this demand does not translate into higher rehabilitation completion. Together with intermediate outcomes, our findings are most consistent with capacity constraints in program delivery. Johannes Geyer Peter Haan Mia Teschner-Hofmann Felix Weinhardt Rehabilitation, Aging Societies, Health Investments, Pension Reform 2026-09-22