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on Public Finance |
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Issue of 2024‒07‒15
nine papers chosen by |
| 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: | 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: | 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: | 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: | 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: | 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: | 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: | L. Dary Beltran; Manuel Alejandro Cardenete; Ferran Sancho |
| Abstract: | In response to increased awareness of climate change, environmental sustainability has become a policy objective in Europe. Despite a decrease in greenhouse gas emissions, the European Commission deems current progress insufficient. Discussions on implementing environmental policies persist, with environmental taxation emerging as one of the most controversial yet potentially effective economic instruments for reducing emissions. However, the extent of its impact on the economy remains under debate, as improvements in welfare and environmental quality hinge on various economic, political, and public preference factors. Therefore, we analyse the economic impact of introducing an environmental tax to achieve emission reduction targets in Spain, while also testing two systems for recycling tax revenues. This allows us to assess the potential for a second dividend. We select Spain as the unit of analysis due to its minimal utilisation of environmental taxes, as it ranks among the European countries that are least active in combating climate change using taxation. |
| Keywords: | Environmental taxation; Emissions mitigation; Tax recycling. |
| JEL: | D57 E16 H21 H23 |
| Date: | 2024–06–19 |
| URL: | https://d.repec.org/n?u=RePEc:aub:autbar:975.24&r= |