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on Public Economics |
| By: | Støstad, Morten Nyborg; Cowell, Frank |
| Abstract: | Economic inequality may affect a wide range of societal outcomes, for example crime rates, economic growth, and political polarization. In this paper we discuss how to model such effects in welfarist frameworks. Our main suggestion is to treat economic inequality itself as an externality, which has wide-ranging implications for classical economic theory. We show this through the Mirrlees (1971) optimal non-linear income taxation model, where we focus on a post-tax income inequality externality. Optimal top marginal tax rates are particularly affected by the externality, implying a novel equality dimension to optimal top tax rate design. We propose that inequality's externality properties may have larger optimal top tax rate implications than standard revenue concerns; our model thus provides a theoretical basis for real-world governmental tax choices that seem irrational under standard optimal taxation models. We also show that the total inequality aversion implied by the current U.S. tax system is insufficient to accommodate both social welfare weights that are decreasing in income and a significant concern for inequality's externality effects. |
| Keywords: | externalities; inequality; optimal income taxation; welfare |
| JEL: | H21 H23 D62 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123752&r= |
| By: | Motta Café, Renata; Yarygina, Anastasiya; Escalante, Lisseth |
| Abstract: | A large body of research has estimated the effects on tax collection of informing taxpayers of their obligations. This paper examines the effects on voluntary tax payments of providing taxpayers with information on their obligations that is collected through massive information cross-checking rather than traditional auditing. This information is inexpensive to collect, but may not be sufficiently accurate to promote taxpayer compliance. We conducted a randomized controlled trial to evaluate the effectiveness of self-regularization interventions on tax compliance among simplified tax regime firms. We examine the treatments that use this information in three different ways: messaging, providing tax compliance manuals, and assisted regularization, in which tax auditors assist taxpayers in the self-regularization process. We find that assisted regularization increased the reported monthly income by 20 percent (US$1, 160), which also nearly closed the tax evasion gap and reduced inconsistencies in tax declarations by 67 percent (37-point reduction). The manual and message interventions had positive, albeit smaller, effects. While the assisted regularization intervention had the largest effects, a cost-effectiveness analysis reveals that this intervention is not optimal for smaller firms because of the costs incurred by the tax authority. No effects were observed on firms' tax compliance in declarations filed in the post- intervention periods. |
| Keywords: | public finance;State capacity;Tax evasion;electronic tax audit;tax self-regularization;Simples Nacional |
| JEL: | H26 H32 H71 H83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13603&r= |
| By: | Zanoni, Wladimir; Carrillo-Maldonado, Paul; Pantano, Juan; Chuquimarca, Nicolás |
| Abstract: | In this study, we examine the behavior of self-employed taxpayers who “bunch" at an income level just below a critical threshold, which triggers a transition from a simple tax regime to a more complex one. Under the simple regime, individuals complete their tax forms independently, while the complex regime mandates the use of a public accountant for maintaining accounting records. Utilizing data from the Ecuadorian tax authority from 2011 to 2014, we initially observed and documented the bunching behavior prompted by the shift between regimes. Subsequently, we assess the impact of this regime transition on the amount of taxes paid by those self-employed taxpayers who choose to fill taxes in the complex regime. Our methodology employs both parametric and semi-parametric “donut” estimators to evaluate these effects. We find that the regime shift indeed prompts taxpayers to bunch below the income threshold, opting to remain within the simpler regime. Interestingly, those who transition into the complex regime tend to pay less in taxes. This pattern holds across various bunching windows and is consistent across several estimators used. Our results suggest that accountants are the key mechanism behind the effects, for they help taxpayers better navigate tax deductions and benefits, leading individuals to pay zero taxes. |
| Keywords: | Tax Regimes;Progressive Taxes;Personal Income Tax;Bunching |
| JEL: | H24 H26 D12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13582&r= |
| By: | Josh Martin (King's College London, ESCoE, TPI) |
| Keywords: | Public service productivity, government output, tax collection, economic measurement |
| JEL: | D24 H11 H21 |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:anj:wpaper:043&r= |
| By: | Bellani, Luna; Berriochoa, Kattalina; Kapteina, Mark; Schwerdt, Guido |
| Abstract: | We study the effects of information on attitudes towards inheritance taxation using survey experiments fielded in Germany. We show that information about tax allowances increases demand for higher taxes and shifts public opinion from favoring abolition to supporting the tax. Effects are primarily due to a prevalent underestimation of tax allowances and the alteration of people's expectations of being affected by such taxes. In contrast, information highlighting the increasing proportion of inherited wealth only negligibly affects policy demand. Our results suggest that pocketbook motives and misinformation may contribute to explaining the paradox of limited demand for inheritance taxation despite growing inequality concerns. |
| Keywords: | capital taxation, equality of opportunity, inheritance tax, information, randomized experiment |
| JEL: | H52 I22 D72 D83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cexwps:299225&r= |
| By: | Philipp Krug; Dominika Langenmayr |
| Abstract: | In many OECD countries, family firms face lower or no succession taxes if they fulfill continuation requirements. We study the effects of such preferential treat- ment in a two-generation model. Preferential treatment of continued firms leads to more entrepreneurship and higher wages, as entrepreneurs invest more as they value passing on a larger firm. However, more low-ability heirs continue the firm, leading to efficiency losses. In the presence of financial frictions, richer (but less able) heirs may invest more than buyers from outside. |
| Keywords: | Inheritance taxation, family firms, preferential tax treatment, estate taxation |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:233_krug_langenmayr&r= |
| By: | Marion Dupoux; Benjamin Ouvrard |
| Abstract: | Pigouvian taxes are often unpopular among the general public. We test the effectiveness of social information provision to improve support for such taxes. In a lab experiment that involves a market game with externalities, we provide subjects with information about other participants’ personal opinions about the “right thing to do” (voting, or not, for tax implementation). To gain insight into the causal mechanism by which social information impacts subjects’ votes, we also elicit personal, normative, and positive beliefs. Our findings demonstrate a causal effect of social information provision on subjects’ support for the tax, and that subjects’ changes in beliefs is a causal mechanism through which this increased support for the tax is made possible. We also show that subjects who experience the tax are more likely to support it, and that the tax significantly reduces externalities in the game. We therefore highlight the pivotal role of beliefs in voting behaviors and the acceptability of Pigouvian taxes. |
| Keywords: | Beliefs, Externality Game, Pigouvian Taxes, Social Information, Voting Behavior |
| JEL: | C92 D91 H23 |
| Date: | 2023–05 |
| URL: | https://d.repec.org/n?u=RePEc:gbl:wpaper:2024-05&r= |
| By: | Naruki Notsu (Osaka School of International Public Policy, Osaka University); Haruaki Hirota (Faculty of Economics, Musashi University); Nobuo Akai (Osaka School of International Public Policy, Osaka University) |
| Abstract: | This study examines the effects of enhancing the tax enforcement of administration on the tax gap, focusing on inter-municipal cooperation (IMC). IMC refers to collaborative tax collection efforts among multiple municipalities and promotes the aggregation of tax collection resources and expertise, improving tax enforcement. Using the time variation in IMC creation across municipalities, we show that IMC substantially improves the tax gap measurement by reinforcing tax enforcement in local governments. The effects also appear to be driven at both the inter-municipal organization and municipal official levels. Our findings suggest that enhanced administrative capability in tax enforcement can be an effective tool against noncompliance in ways other than facilitating voluntary compliance. |
| Keywords: | Inter-municipal cooperation, Tax enforcement, Tax compliance |
| JEL: | H71 H77 H83 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:osp:wpaper:24e004&r= |
| By: | Neumärker, Bernhard; Weinel, Jette Leonie |
| Abstract: | Economic modeling of Universal Basic Income (UBI) often fails to consider how individuals' utility calculations shift with unconditional transfers. In this paper we further develop the model of our previous paper - The Implications of UBI on Utility Functions and Tax Revenue (Neumärker, B., Weinel, J., 2022). We contend that, while traditional fiscal models rely on an additively separable relationship between consumption and labor, the utility calculation for individuals influenced by UBI is better represented by a multiplicative relationship. This shift arises from the time sovereignty afforded by UBI, empowering individuals to become selfdetermined, creative, and intrinsically motivated. We explore the implications of the UBIadapted utility function on tax revenue. Specifically, we analyze the consumption tax revenue curve under UBI (multiplicative preferences) versus a means-tested welfare system (additive separable preferences). |
| Keywords: | Basic Income, Laffer Curve, Utility Function, Consumption Tax, Time sovereignty, Intrinsic Motivation |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fribis:297983&r= |
| By: | Nicolás Forteza (Banco de España); Elvira Prades (Banco de España); Marc Roca (Banco de España) |
| Abstract: | On 28 December 2022, the Spanish government announced a temporary Value Added Tax (VAT) rate reduction for selected products. VAT rates were cut on 1 January 2023 and are expected to go back to their previous level by mid-2024. Using a web-scraped dataset, we leverage machine learning techniques to classify each product. Then we study the price effects of the temporary VAT rate reduction, covering the daily prices of roughly 10, 000 food products sold online by a Spanish supermarket. To identify the causal price effects, we compare the evolution of prices for treated items (that is, subject to the tax policy) against a control group (food items outside the policy’s scope). Our findings indicate that, at the supermarket level, the pass-through was almost complete. We observe differences in the speed of pass-through across different product types. |
| Keywords: | price rigidity, inflation, consumer prices, heterogeneity, microdata, VAT pass-through |
| JEL: | E31 H22 H25 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2417&r= |
| By: | Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Marie-Louise Leroux (UQAM - Université du Québec à Montréal = University of Québec in Montréal); Paolo Melindi-Ghidi (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Willem Sas (University of Stirling) |
| Abstract: | This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a ‘comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society. |
| Keywords: | Curative Health Investments, PAYG Pension System, Disability, Overlapping Generations, Long-term Care |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04612468&r= |
| By: | Svetlana Pashchenko (University of Georgia, Athens, USA); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | Social Security benefit claiming is highly concentrated at two ages, 62 and the full retirementage, which is hard to explain by the program’s incentives. We study claiming and labor supply decisions in a structural framework and provide three main findings. First, we show that claiming behavior can be well explained by a parsimonious life- cycle model with fully rational agents. The two key mechanisms are(i) the strong unwillingness to hold annuities, (ii) the effects of the earnings test. Second, we show that current rules distort claiming and labor supply decisions, and eliminating these distortions results in large welfare gains. Finally, we show that claiming decisions can be used to sharpen the identification of important preference parameters. |
| Keywords: | SocialSecurity, Retirement, Annuities, ConsumptionandSaving, Life-Cycle Model |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:23-05&r= |
| By: | Van-Quy Nguyen (Faculty of Mathematical Economics, National Economics University, Hanoi, Vietnam); Jean-Marc Bonnisseau (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, Paris School of Economics); Elena L. Del Mercato (Université Paris 1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, Paris School of Economics) |
| Abstract: | We consider a pure exchange economy with consumption externalities in preferences. We study commodity taxes and lump-sum transfers schemes, which lead to equilibrium allocations where all individuals are strictly better off. We extend the result of Geanakoplos and Polemarchakis (2008) on the generic existence of Pareto improving policies with uniform taxes and equal transfers to general non-separable preferences, when the number of individuals is strictly smaller than the number of commodities. We also overcome this limitation by considering either uniform taxes with personalized lump-sum transfers, or personalized taxes with uniform lump-sum transfers. As in Geanakoplos and Polemarchakis (2008), we mainly use utility perturbations but we also provide a sufficient condition for ensuring the existence of Pareto improving policies without perturbing utilities |
| Keywords: | Consumption externalities; commodity taxes; lump-sum transfers; Pareto improvement |
| JEL: | D50 D60 D62 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:24007&r= |
| By: | Demetrio Guzzardi; Salvatore Morelli |
| Abstract: | Detailed distributional estimates at finer geographical levels remain scarce, despite their critical relevance for household well being and policy intervention. This paper leverages Italian income tax records dating back to 1976 focusing on top income concentration and inequality across the country’s regions, macro-areas, and the recently introduced classification of the National Strategy for Inner Areas (SNAI). Our analysis reveals a persistent rise in income concentration over the past few decades, particularly among the top earners, while also highlighting nuanced regional and sub-regional dynamics. Notably, city size plays a crucial role, with larger cities experiencing a more pronounced level of income concentration compared to smaller ones. Southern regions exhibit lower income concentration levels among the top income groups, emphasizing the need for disaggregated analyses to capture these complexities accurately. |
| Keywords: | Income Inequality; Top Income Shares; Italy; Inner Areas; Spatial Inequality; Income Tax Data; National Accounts |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:ssa:lemwps:2024/16&r= |
| By: | Federica De Pace |
| Abstract: | Housing affordability has deteriorated in the past decade. There is scope for eliminating barriers to expand housing supply by reforming land use policy and streamlining the administration of building permits. Measures can be taken to promote the expansion of the rental market and reform housing taxation to reduce the bias in favour of owner-occupied housing. Ensuring adequate supply and funding for construction and operation of social housing is crucial to improve living conditions for the most vulnerable. Accelerating the formalisation of property rights in Roma settlements would help to provide basic infrastructures for adequate access to water and sanitation. Implementing stricter regulation and targeted financial assistance to households most in need would help incentivise housing renovations, reduce energy poverty and advance environmental objectives. |
| Keywords: | building permits, environmentally sustainable housing, housing affordability, housing conditions for Roma, housing taxation, rental market, Slovak Republic, social housing |
| JEL: | H20 H23 R21 R31 R38 Q58 |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1806-en&r= |