Public Finance http://lists.repec.org/mailman/listinfo/nep-pub Public Finance 2026-06-29 What is the public's social welfare function? https://d.repec.org/n?u=RePEc:arx:papers:2606.13752&r=&r=pub Optimal public policy requires a social welfare function defined over individual utilities. While there is substantial research on income-based social welfare functions, no published study has directly elicited public preferences over utility when measured by subjective wellbeing. Using a novel survey instrument with a representative UK sample (N=2, 068), we estimate the public's social welfare function for life satisfaction. We find significant aversion to wellbeing inequality, with a median isoelastic parameter $\alpha$=0.48. This implies a social welfare function approximately equal to the sum of square roots of individual utilities. The median respondent values improving the wellbeing of the least satisfied by one unit roughly twice as much as improving the most satisfied by one unit. Our findings provide ethically grounded distributional weights for wellbeing policy evaluation and cost-benefit analysis. Richard Layard Ekaterina Oparina 2026-06 Distance functions and optimal taxation https://d.repec.org/n?u=RePEc:wat:wpaper:26004&r=&r=pub Governments use taxes to pay for some of their expenditures. Setting aside the benefits of the expenditures, the taxes economic agents have to pay reduce their well being. One objective of the optimal taxation literature is to find tax systems that minimize the loss of well being, given the government's revenue requirement. Thus one way to frame the optimization problem is to have the government choose tax rates (or prices) to maximize individual utility given the revenue requirement. Given the prevalence of price-times-quantity expressions in budget constraints, taking derivatives with respect to tax rates or prices yields rules expressed in terms of quantities. One of Terence Gorman's many insights was that if the objective is to find rules about prices, reframe the problem so that the government chooses quantities; derivatives of p times q with respect to q yield rules about p or tax rates. Below I show that some optimal tax problems are simplifi ed by assuming the government chooses quantities to maximize revenue subject to a fixed level of individual utility. The distance function, which is de nied as the number by which one must scale the arguments of the utility function to yield a particular level of utility, plays a central role. Burbidge, John Taxation, optimal tax problems 2026-01-08 Tax Salience: How Requiring Transparency Affects the Price of Equality https://d.repec.org/n?u=RePEc:ces:ceswps:_12712&r=&r=pub Less-salient taxes can ease the classic equality-efficiency trade-off by making people respond less to taxation. But deliberately obscuring taxes may be viewed as dishonest. This creates a three-way trade-off between equality, efficiency, and honesty. We analyze this trade-off in a simple setting with a linear income tax. We define and characterize the morally efficient frontier, trading off utilitarian welfare against honesty or transparency. Complete honesty is Pareto inefficient but not morally inefficient. More generally, any increase in honesty reduces utilitarian welfare. When utilitarian welfare is decomposed into equality and efficiency, the cost of honesty falls most robustly on equality: higher salience always reduces equality, while the effect on efficiency is ambiguous. This asymmetry is explained by the fact that salience increases the price of equality, which is the efficiency cost of a marginal increase in equality. Our approach could be applied to other settings in which utilitarian and procedural or deontological values conflict. Ashley C. Craig Itai Sher Ashley Craig optimal taxation, salience, normative economics, inequality, internalities 2026 Progressivity, Taxing for Growth, and Gender Differences in Tax Payment Patterns and Post-Tax Income https://d.repec.org/n?u=RePEc:lis:liswps:918&r=&r=pub Gender difference in taxation is generally understudied. However, existing scholarship, largely country case studies, suggests men pay higher tax rates where income tax progressivity is higher, due to their higher average income. Men’s higher rates should then increase gender equality in income post-tax, meaning progressive taxation can be gender equalizing. However, many rich countries (including over half of the high income countries included in this study) reduced income tax progressivity starting in the 1980s-90s during “taxing for economic growth” reforms. These changes have previously unexplored implications for the extent to which the current (versus past) tax systems of rich countries reduce, leave unaffected, or compound gender disparities in pre-tax income. Further, some literature suggests that the use of less progressive taxation might be preferable to support more generous and stable social welfare systems (Steinmo 1993; Wilensky 2002; Kato 2003; Lindert, 2004). However, we know little about whether or not changes in transfers from potentially more generous or stable welfare states compensated for any gendered effects related to tax progressivity reductions. This paper examines 1) how changes in levels of tax progressivity over time were associated with shifts in gender differences in tax rates and post-tax income and 2) whether the contribution of taxes to increasing gender income ratios (pre-to-post-tax) decreased where progressivity reduced, 3) whether transfers compensated for any reduction in this gender-equalizing role of taxes. Throughout, the primary data source is the Luxembourg Income Study (LIS) database, which I used to create an unbalanced panel of pooled country/year observations from 27 high income countries (total of 351 observations from 3-43 years per country). Using fixed effects regressions and a novel contribution analysis, I find that reductions in tax progressivity are associated with increases in women’s tax rates relative to men’s rates, as well as smaller post-tax-post-transfer gender income ratios (net of pre-tax gender income ratios). Similarly, tax payment contributed less to increasing gender income ratios (sometimes even yielding smaller ratios) in most countries where tax progressivity reduced over time. Transfers only compensated for the reduced contribution of taxes (meaning the combined gender equalizing effect of taxes and transfers remained the same or greater over time) in a third of the countries with tax progressivity reductions. Based on this evidence, progressivity changes have reduced the gender equalizing potential of the tax systems of a number of study countries, without consistent compensation from transfers. These findings raise concerns that growth-oriented tax policy decisions may be problematic from a gender equity lens. In examining changes in the distribution of burdens (tax payment) and benefits (transfers) between men and women and how they relate to tax progressivity, this research fills a gap in the literature on gender differences in taxation and generates a fuller understanding how tax policy changes can have gendered outcomes. Morgan Richards-Melamdir 2026-05 The Smarter State? Artificial Intelligence and Modern State and Local Public Finance https://d.repec.org/n?u=RePEc:ces:ceswps:_12716&r=&r=pub This paper examines how artificial intelligence (AI) reshapes subnational public finance, largely through familiar channels observed from prior technological change. Although some effects are novel, many issues surrounding the taxation of AI-related income and consumption parallel earlier challenges from e-commerce, digitalization, and remote work. AI shifts income from labor toward capital and reallocates tax bases toward consumption and market-based activity, raising questions such as the sales tax treatment of digital services. For governments, AI relaxes long-standing informational and administrative constraints in taxation, enforcement, budgeting, and service delivery, while strengthening scale economies. Cost reductions depend critically on labor-intensive sectors like K-12 education. However, government AI use may advantage larger jurisdictions with greater data access, raising equity and transparency concerns and increasing the value of interstate cooperation to harness scale economies from more data. Overall, AI reinforces—rather than overturns—the classic trade-offs emphasized in the fiscal federalism literature. David R. Agrawal William F. Fox artificial intelligence, state and local public finance, digital services, economies of scale, federalism 2026 Brain Drain, Education Subsidy and the Bhagwati Tax https://d.repec.org/n?u=RePEc:iza:izadps:dp18686&r=&r=pub An early view, related to the Bhagwati tax, is that skilled migration – a brain drain – has a negative impact on migrants’ source countries. A more recent view is that a brain drain generates a brain gain that can have a positive impact on source countries. This view is based on a model with education's positive externalities. I examine whether, despite opposite results, the two approaches are compatible. Some main findings are: i) Under an open economy and an optimal education subsidy (given education’s positive externality), with equal government weights for emigrants and residents, education is higher than under closed economy, with ambiguous impact on welfare; ii) Under a smaller government weight for emigrants than for residents, education and welfare are lower than under equal weights; iii) The Bhagwati tax benefit is related to political economy considerations, i.e., an optimal reduction in the education subsidy might be hard to achieve (as the education bureaucracy and parents’ and teachers’ organizations are likely to oppose it), so that an excessively high subsidy could be compensated by a higher tax. Thus, the two instruments are policy complements; and iv) Proposals for collecting the Bhagwati tax are presented. Schiff, Maurice brain drain, brain gain, Bhagwati tax, education subsidy, welfare 2026-05 Morals and the Political Economy of Corrective Taxes https://d.repec.org/n?u=RePEc:ajk:ajkdps:419&r=&r=pub We study the political economy of carbon taxes when neoclassical consumers take all other agents' emissions as given and socially responsible consumers internalize damages in a group-rule-utilitarian way, taking neoclassical consumers' behavior as given. We characterize political equilibrium taxes with a focus on deviations from first-best Pigouvian taxation. Welfare falls further if arguments on moral obligations to reduce carbon footprints polarize the debate in society. Finally, we present survey evidence that supports our theory: social responsibility correlates with lower consumption of brown goods, higher preferred carbon taxes, and support for moral arguments. Felix Bierbrauer Mattias Polborn Marten Ritterrath Georg Weizsäcker Political economy of taxation, carbon taxes, ethical behavior, moral dissent 2026-06 Gambling with State Budgets: Legalized Sports Betting and Lost Lottery Revenue https://d.repec.org/n?u=RePEc:iza:izadps:dp18724&r=&r=pub Legislators often justify legalizing controversial markets, such as sports betting, by citing the potential for new tax revenue to fund popular public programs. However, new revenue from sports betting may cannibalize existing revenue from state-run lotteries, undermining a key rationale for legalization. We study the staggered state-by-state legalization of sports betting following 2018 to examine these substitution effects. Using a difference-in-differences framework applied to state lottery data, we estimate the causal impact of legalization on lottery revenues. We find that sports betting and lotteries are substitutes, with legalization leading to a persistent 10–13% decline in lottery revenue. Because the state captures a much smaller share of each dollar spent on sports betting than on lottery purchases, we estimate a negative—though imprecise—effect on combined state revenue from these two sources. Coombs, Kyle Madonia, Greg Nencka, Peter Smith, Austin public economics, sports gambling, lottery, tax substitutes 2026-06 Nudging Tax Compliance: Evidence from a Laboratory Experiment https://d.repec.org/n?u=RePEc:ter:wpaper:00205&r=&r=pub We test whether minimal, non-informative messages can nudge tax compliance beyond standard deterrence. In a within-subjects lab experiment, we randomize exposure to either a reminder that leaves audit probability unchanged or an informative warning tied to higher audit probability, and estimate effects on both the probability of evasion and the share of income evaded. A short non-informative reminder, holding incentives fixed, lowers the probability of evasion by about 16 percentage points, with no detectable effect on the evaded share among evaders; informative messages add at most marginal effects once audit probability is controlled for. Giovanni Di Bartolomeo Silvia Fedeli Stefano Papa tax compliance, nudge, deterrence, audit, laboratory experiment 2026-05 Do Information-Based Interventions Influence Tax Compliance Differently across Men and Women ? Experimental Evidence from Ethiopia https://d.repec.org/n?u=RePEc:wbk:wbrwps:11409&r=&r=pub This study investigates taxpayer responses to tax compliance interventions undertaken in collaboration with Ethiopia’s revenue authority, focusing on gender differences among business owners. The research targeted a sample of 5, 408 business owners, and the interventions—letters highlighting tax obligations and civic responsibilities—were successfully implemented with 3, 551 participants. The interventions involved letters emphasizing tax obligations and civic duties and were evaluated through a randomized controlled trial across diverse economic sectors and sub-city locations. Data from quantitative surveys and administrative records provided information about reported tax declarations and compliance behaviors. The findings indicate a balance in key variables before the intervention, with notable impacts of the intervention on reported profit tax declarations. While examining gender differences in tax compliance, the study found no differential effects of the intervention based on business owners’ gender. Specifically, the result shows that the difference in tax compliance between male and female business owners is not statistically significant at both intensive and extensive margins. This indicates that gender did not play a meaningful role in influencing tax compliance as a result of the intervention. Ambel, Alemayehu A. Woldeyes, Firew Bekele 2026-06-08