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on Public Finance |
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Issue of 2023‒12‒04
eight papers chosen by |
| By: | Brendan K. Beare; Alexis Akira Toda |
| Abstract: | This article concerns the optimal choice of flat taxes on labor and capital income, and on consumption, in a tractable economic model. Agents manage a portfolio of bonds and physical capital while subject to idiosyncratic investment risk and random mortality. We identify the tax rates which maximize welfare in stationary equilibrium while preserving tax revenue, finding that a very large increase in welfare can be achieved by only taxing capital income and consumption. The optimal rate of capital income taxation is zero if the natural borrowing constraint is strictly binding on entrepreneurs, but may otherwise be positive and potentially large. The Domar-Musgrave effect, whereby capital income taxation with full offset provisions encourages risky investment through loss sharing, explains cases where it is optimal to tax capital income. In further analysis we study the dynamic response to the substitution of consumption taxation for labor income taxation. We find that consumption immediately drops before rising rapidly to the new stationary equilibrium, which is higher on average than initial consumption for workers but lower for entrepreneurs. |
| Keywords: | consumption tax; income tax; optimal taxation |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2023-06&r=pub |
| By: | Felix Hugger; Ana Cinta González Cabral; Pierce O’Reilly |
| Abstract: | The effective taxation of corporate profits is at the centre of an active public and academic debate. This debate is often focused on the extent of low-taxed profit of multinational enterprises (MNEs) in jurisdictions with low statutory tax rates or low average effective tax rates (ETRs). However, some affiliates in high tax jurisdictions may also be subject to low ETRs, due to tax incentives or other provisions. To date, a global accounting of the ETRs paid by MNEs that incorporates within-country heterogeneity has been missing. Using a new dataset on the global activities of large MNEs, this paper provides new estimates of the distribution of effective tax rates of large MNEs across and within jurisdictions. The results show that low tax profit is common, and that substantial low-taxed profit exists outside low tax jurisdictions. We estimate that high tax jurisdictions (jurisdictions with average ETRs of above 15%) account for more than half (53.2%) of global profits taxed below 15%, much more than very low tax jurisdictions (those with average ETRs below 5%) which only account for 18.7% of low-taxed profits. This suggests that an assessment of global low-taxed profit that focuses only on jurisdictions with low average ETRs could potentially miss out on more than half of global low-taxed profit. |
| JEL: | H F |
| Date: | 2023–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ctpaaa:67-en&r=pub |
| By: | Baumgart, Eike; Blaufus, Kay; Hechtner, Frank |
| Abstract: | Amid global climate change concerns, policymakers worldwide are increasingly scrutinizing environmentally harmful subsidies. This study examines the tax-deductibility of job-related commuting expenses, which has faced criticism for promoting longer commutes and congestion. Through a controlled, randomized survey experiment, we confirm that the tax-deductibility of commuting expenses results in longer commutes but does so with minimal economic impact. Increasing the deduction rate by e0.10 leads to an average acceptance of 377-meter-longer commutes. Surprisingly, subjects are inattentive to changes in the tax deduction's size when such changes are presented as tax-deductible expenses rather than as direct cash effects. In contrast, abolishing the tax deductibility significantly reduces average commuting distances by nearly 9 percent. These findings highlight people's responsiveness to the mere presence of the commuter tax break while being less sensitive to its specific size. Policymakers should consider these findings when evaluating the effectiveness of such tax deductions in mitigating climate change or their economic efficiency effects. |
| Keywords: | Commuting Behavior, Commuting Subsidies, Tax Policy, Tax Complexity, Rational Inattention |
| JEL: | D90 H21 H24 J22 R23 R28 R41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:arqudp:279813&r=pub |
| By: | Montag, Felix; Mamrak, Robin; Sagimuldina, Alina; Schnitzer, Monika |
| Abstract: | Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, passthrough to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation. |
| Keywords: | pass-through, taxes, imperfect information, competition |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cbscwp:279798&r=pub |
| By: | Ilaria Piatti (Queen Mary University of London); Joel Shapiro (Said Business School, University of Oxford); Xuan Wang (SBE Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | We model investors that take into account the amount of public good that firms produce (e.g., by reducing carbon emissions) when making their portfolio allocation. In an equilibrium asset pricing model with production and public goods provision, we find that environmentally conscious investors invest more than others, invest more in clean firms, and may invest more in dirty firms. Whether clean firms exhibit CAPM alphas depends on the amount of systematic risk of the firm and its relative contribution to the public good. There is underprovision of the public good in equilibrium. Lower government provision may lead to a surge in investment and government provision may be dominated by green subsidies. Finally, we extend the model to analyze negative externalities, donations, and uncertainty regarding public good provision. |
| Keywords: | Sustainable finance, ESG investing, public good pro-vision, asset pricing |
| JEL: | G11 G12 H41 |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:969&r=pub |
| By: | Congressional Budget Office |
| Abstract: | In 2020, the coronavirus pandemic and the tax and transfer policies enacted by the federal government in response had significant effects on the distribution of household income. Average income before transfers and taxes decreased by 10 percent for households in the lowest quintile and increased by 6 percent for those in the highest quintile. By contrast, average income after transfers and taxes grew by 15 percent among households in the lowest quintile and by 7 percent among those in the highest quintile. |
| JEL: | H20 H24 H50 J30 |
| Date: | 2023–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:59509&r=pub |
| By: | Marius Brülhart; Marko Koethenbuerger; Matthias Krapf; Raphael Parchet; Kurt Schmidheiny; David Staubli |
| Abstract: | Switzerland could be considered as a test case for international corporate-tax policy coordination. It is a federation of 26 fiscally autonomous cantons that have been taxing corporate profits more or less independently for over a century. We document and discuss corporate taxation in Switzerland, with a focus on three aspects: (a) the evolving within-country geography of taxable profits and corporate tax rates, (b) the nature and historical emergence of formal tax-base harmonization, and (c) the functioning of fiscal equalization. Parallels are drawn and differences are discussed relative to ongoing efforts at international tax coordination. |
| JEL: | H25 H71 H77 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31830&r=pub |
| By: | Stefano Boscolo; Francesco Figari |
| Abstract: | We study the redistributive effect of inflation-induced revenue and expenditure variations in the Italian tax-benefit system in a context in which pensions and social transfers are indexed to inflation and nominal wage growth struggles to keep up. By means of the EUROMOD microsimulation model, we isolate the contribution of i ) fiscal drag through the personal income tax, ii ) indexation rules and policy changes regarding social insurance contributions and iii ) pension and social transfer indexation rules related to the overall redistributive effect of the tax-benefit system and its vertical and horizontal components. The findings suggest that benefit indexation rules contribute to a non-negligible extent to income redistribution, that fiscal drag has a small regressive effect and that the implicit redistribution favours pensioners over private-sector employees. |
| Keywords: | inflation; indexation; fiscal drag; redistribution; EUROMOD |
| JEL: | D31 H23 H24 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:mod:cappmo:0187&r=pub |