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on Public Economics |
| By: | Ivan T. Ivanov; Luke Pettit; Toni Whited |
| Abstract: | We use variation in state corporate income tax rates to re-examine the relation between taxes and corporate leverage. Contrary to prior research, we find that corporate leverage rises after tax cuts for small private firms. An estimated dynamic equilibrium model shows that tax cuts make capital more productive and spur borrowing. Tax cuts also produce more distant default thresholds and lower credit spreads. These effects outweigh the lower interest tax deduction and lead to higher optimal leverage choices, especially for firms with flexible investment policies. The presence of the interest tax deduction raises consumer welfare in equilibrium. |
| JEL: | G31 G32 H25 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32398&r= |
| By: | Paula C. Pereda; Taina Portela; Patricia Ravaioli |
| Abstract: | The need for a tax reform in Brazil stems from the country's complex tax system, which has contributed to decreased productivity and hindered investments. The Brazilian Tax Reform, approved in December 2023, introduces a Value-Added Tax (VAT) system comprising a federal VAT (CBS), a local VAT (IBS), and a selective tax (IS) on products with negative health and environmental externalities. This study explores the potential impacts of various scenarios of the reform on consumption, using data from the latest Household Budget Survey (POF 2017-2018). Our findings indicate that a broader tax reform (in terms of food basket exemptions and selective taxes on ultraprocessed products) could result in a decrease in 6.92% of government tax collection on consumption. However, consumption patterns would shift significantly, with a sharp increase in healthy food consumption and decrease in ultra-processed food. The scenario considering the newest tax rate proposal (more conservative in terms of the exemptions and considering the selective tax only on one type of ultraprocessed product, sweetened drinks) suggests an increase in government revenue but highlights reductions in in natura and ultra-processed product consumption. These results underscore the reform's potential to influence consumption patterns and the balance between generating tax revenue and ensuring affordability of essential goods. |
| Keywords: | tax reform; ultraprocessed foods; impacts on consumption |
| JEL: | H51 I18 R28 |
| Date: | 2024–06–07 |
| URL: | https://d.repec.org/n?u=RePEc:spa:wpaper:2024wpecon17&r= |
| By: | Ludovic A. Julien; Gagnie Pascal Yebarth |
| Abstract: | This paper explores the possibility that a taxation mechanism always implements a Pareto-optimal allocation in bilateral exchange when the market participants behave strategically and noncooperatively. To this end, we reconsider the taxation mechanism, namely the endowment taxation with transfers, implemented in the strategic bilateral exchange models by Gabszewicz and Grazzini (JPET, 1999). In this framework of strategic bilateral exchange, we consider a general class of smooth utility functions, and we determine the conditions under which the taxation mechanism is Pareto-optimal, i.e., whether there exists an equilibrium tax such that endowment taxation with transfers always implements a Pareto-optimal allocation. Furthermore, we explain why this taxation mechanism could implement a Pareto-optimal allocation. |
| Keywords: | Cournot-Nash equilibrium, Pareto-optimality, taxation |
| JEL: | C72 D41 H21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-19&r= |
| By: | Tayibov, Khayyam (Department of Economics and Statistics) |
| Abstract: | This paper studies the question of how place of birth affects the design of effective tax policies. Using Swedish population-wide register data, I investigate the relationship between regional origin and economic outcomes. Using a numerical simulation approach, I explore the implications of tagging individuals based on their place of birth for optimal tax policy and income redistribution. The numerical simulations show that under optimal tax policy, individuals from more populous regions are consistently assigned higher marginal and average tax rates, implying that the government redistributes from these regions to less populous ones. Moreover, I find that such policies can lead to significant welfare improvements. |
| Keywords: | Optimal taxation; tagging; regional heterogeneity |
| JEL: | H21 H24 |
| Date: | 2024–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:vxesta:2024_009&r= |
| By: | Donna, Javier |
| Abstract: | The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfac- tual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income in- equality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire). |
| Keywords: | Redistributive Politics, Taxes, Ambiguity, Beliefs, Effort, Luck, Multiple Equi- libria. |
| JEL: | D80 H10 H30 P16 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:121046&r= |
| By: | Claudio Ferraz; Dirk Foremny; Juan Francisco Santini |
| Abstract: | This paper investigates how non-tax revenues impact tax collection in Brazilian municipalities, focusing on shifts in intergovernmental transfers due to population updates. Our analysis reveals asymmetric effects of shocks: revenue gains lead to increased spending without tax reductions, while losses in transfers prompt investments in fiscal capacity and boost tax revenues. Enhancing fiscal capacity entails adjusting tax bureaucrat payments, improving property registries, and cracking down on delinquency, with heterogeneous responses based on political competition and the educational levels of local leaders and the bureaucracy. These findings emphasize the importance of rules that reduce the reliance on non-tax revenues and promote effective tax collection. |
| JEL: | H71 H72 H83 P11 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32440&r= |
| By: | de Padua, David (Asian Development Bank); Kiocho, Mae Hyacinth (Asian Development Bank); Park, Donghyun (Asian Development Bank) |
| Abstract: | We investigate the conditions under which tax revenues can enhance economic growth. Using a newly constructed dataset consisting of 135 economies and spanning the period 1990–2019, we study how changes in tax revenues impact economic growth using a panel vector autoregression (PVAR) model. Tax revenues have a persistent positive impact on growth, and the association is especially pronounced in emerging economies. Strict inflation targeting, low-inflation, flexible exchange rates, a more developed financial sector, higher investment rates, and strong governance reinforce the growth-enhancing effect of taxes, but these results are conditional on the income level of the economy. Our findings imply that the effect of taxes on growth should be evaluated within macroeconomic and structural constraints. |
| Keywords: | taxes; growth |
| JEL: | H20 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0727&r= |
| By: | Michael J. Boskin; Kareem Elnahal; Adam Zhang |
| Abstract: | Using data on U.S. state and federal taxes and transfers over a quarter century, we estimate a regression model that yields the marginal effect of any shift of market income share from one quintile to another on the entire post tax, post-transfer income distribution. We identify exogenous income distribution changes and account for reverse causality using instruments based on exposure to international trade shocks, international commodity price shocks and national industry demand shocks, as well as lagged endogenous variables, with controls for the level of income, the business cycle and demographics. We find the degree of attenuation of market income shifts initially increases in quintile rank, peaks at the middle quintile and then falls for higher income quintiles, consistent with median voter political economy theory and what Stigler called Director’s Law. We also provide evidence of considerable and systematic spillover effects on quintiles neither gaining nor losing in the “experiments, ” also favoring the middle quintile, what we label the greedy median voter. “Voting” and “income insurance” coalition analyses are presented. We find a strong negative relationship between average real income and redistribution and a modest effect of two year led inequality. |
| JEL: | H10 H2 H20 H30 H5 H50 H51 H53 H7 H70 H71 H72 H75 H77 P0 P00 P1 P10 P16 P46 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32492&r= |
| By: | Jason B. Cook; Chloe N. East |
| Abstract: | We provide the first evidence on the disenrollment impacts of SNAP's General Work Requirements, which apply to 28% of SNAP households, including many with young children. We leverage a regression discontinuity design based on the age of the youngest child in the household relative to the date of eligibility recertification---once the youngest child turns six, many heads of household become subject to General Work Requirements. We use novel administrative SNAP data, linked with state Unemployment Insurance earnings records, and find these requirements have important SNAP disenrollment effects, negative spillover effects to other members of the household, and no large impacts on labor supply. Additionally, the main mechanism through which these disenrollment effects occur is through referrals to the mandatory state Employment and Training program. |
| JEL: | H75 I38 J22 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32441&r= |
| By: | Nakazawa, Katsuyoshi |
| Abstract: | This study adopts a quasi-experimental approach to empirically identify the discretion exercised by municipalities in conducting eligibility assessments for Japan’s Long-Term Care Insurance (LTCI) program. It leverages the municipal merger phenomenon in the first half of the 2000s as a significant factor in creating an extrapolation shock. Prior to the merger, municipalities had a clear incentive to enhance their eligibility ratios as they could transfer eligible recipients to the merged municipalities. This study’s difference-in-difference regression analysis provides concrete evidence that pre-merger municipalities did, indeed, escalate their eligibility ratios immediately before the merger, underscoring discretionary conduct in eligibility assessments. Moreover, it suggests that pre-merger municipalities tended to upgrade the eligibility status of insured residents from “Support needs” to “Long-term care needs I.” These findings not only highlight the deviation of the Japanese LTCI system from its institutional design but also point towards potential mismanagement within the system. Understanding these dynamics is crucial for improving the efficacy and fairness of LTCI programs. |
| Keywords: | Long-term care insurance; Eligibility assessment; Municipal merger; Free-rider behavior; Difference-in-difference |
| JEL: | H51 H73 H75 I13 I18 R51 |
| Date: | 2024–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120911&r= |