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on Public Finance |
| By: | Thomas Aronsson (University of Umea, Sweden and University of Graz, Austria); Olof Johansson-Stenman (University of Gothenburg, Sweden) |
| Abstract: | We analyze optimal redistributive income taxation within a Mirrleesian framework that incorporates other-regarding preferences, examining both a general model and four specific cases. Two of these reflect self-centered inequality aversion, based on models by Fehr & Schmidt and Bolton & Ockenfels, respectively, while the other two reflect non-self-centered inequality aversion, where individuals prefer a low Gini coefficient and a high minimum disposable income. We find that other-regarding preferences can substantially increase the income tax rates, including top income tax rates, and enhance the overall redistribution. Furthermore, different types of other-regarding preferences have markedly different implications for optimal taxation. |
| Keywords: | Optimal Taxation, Redistribution, Social Preferences, Inequality Aversion. |
| JEL: | D62 D90 H21 H23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-22 |
| By: | James Alm (Department of Economics, Tulane University, New Orleans, LA USA); Zehra Farooq (Federal Board of Revenue, Ministry of Finance, Federal Government of Pakistan, Islamabad, Pakistan) |
| Abstract: | When discussing local government taxation in developing countries, it is impossible to avoid the conclusion that most all local governments in most all developing countries around the world simply fail to collect taxes in amounts sufficient to provide desired and needed government services. What accounts for this failure? And what can be done to address this failure? It is these two basic questions what we seek to address Ð if not necessarily to answer Ð here. Our first conclusion is an obvious and well-known one: the main reason for low tax collections is that local governments in developing countries have been assigned largely unproductive tax sources, taxes that are often difficult to administer, lack buoyancy, and allow little discretion to local governments. Our second conclusion may seem less obvious and in fact is driven largely by results from the tax compliance literature: tax collections, especially property tax collections, can be increased by local government policy initiatives that increase tax compliance by improving citizen trust in government, and these initiatives can be implemented quickly and effectively in many if not all settings. In the process we also discuss several other dimensions of local taxation in developing countries. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2406 |
| By: | Anastasios G. Karantounias (University of Surrey) |
| Abstract: | This paper extends the dynamic theory of optimal fiscal policy with a representative agent in several environments by using a generalized version of recursive preferences. I allow markets to be complete or incomplete and study optimal policy under commitment or discretion. The resulting theories are interpreted through the excess burden of taxation, a multiplier, whose evolution gives rise to different notions of “tax-smoothing.” Variants of a law of motion in terms of the inverse excess burden emerge when we allow for richer asset pricing implications through recursive preferences. I highlight a common unifying principle of taxation and debt issuance in all environments that revolves around interest rate manipulation: issue new debt and tax more in the future if this can lead to lower interest rates today. |
| Keywords: | Excess burden, tax smoothing, recursive utility, commitment, discretion, statecontingent debt, incomplete markets, martingale, fiscal hedging |
| JEL: | D80 E62 H21 H63 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cfm:wpaper:2444 |
| By: | Herget, Anna (University of Erlangen-Nuremberg); Riphahn, Regina T. (University of Erlangen-Nuremberg) |
| Abstract: | Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German Minijob program subsidizes low-income jobs. It generates a 'Minijob trap' with substantial bunching along the earnings distribution. Since 2003, the newly introduced Midijob subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group. |
| Keywords: | Midijobs, Minijobs, payroll tax subsidy, causal effects, difference-in-differences, regression discontinuity, SOEP, SIAB |
| JEL: | J21 J38 H24 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17587 |
| By: | Enid Slack (University of Toronto); Joan Youngman (Lincoln Institute of Land Policy and the World Bank) |
| Abstract: | This paper begins with the basic "big picture, " focusing on the benefits the property tax offers as a tool for fiscal decentralization. We then look at property taxes "from the ground up" to determine what is needed to make the tax succeed today Ð the right tax base, workable valuation methods, the right tax rate, appropriate tax relief, and adequate responses to real-life challenges. We end with a discussion of how a well-functioning property tax can also serve other purposes besides supplying revenue for local governments -- as a value-capture instrument, as a form of wealth taxation, and as a way to reduce pressure on land transfer taxes. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2410 |
| By: | Vanessa Heinemann-Heile (Paderborn University) |
| Abstract: | I investigate whether a machine learning model can reliably predict firms’ tax rate perception. While standard models assume that decision-makers in firms are perfectly informed about firms’ tax rates and tax implications, also their tax rate perception influences the way in which they incorporate taxes into their decision-making processes. However, studies examining firms’ tax rate perception and its consequences remain scarce, mostly due to a lack of observations of firms’ tax rate perception. Using a dataset of German SMEs, I apply machine learning in the form of Extreme Gradient Boosting, to predict firms’ tax rate perception based on firm and personal characteristics of the decision-maker. The results show that Extreme Gradient Boosting outperforms traditional OLS regression. The model is highly accurate, as evidenced by a mean prediction error of less than one percentage point, produces reasonably precise predictions, as indicated by the root mean square error being comparable to the standard deviation, and explains up to 23.2% of the variance in firms’ tax rate perception. Even based on firm characteristics only, the model maintains high accuracy, albeit with some decline in precision and explained variance. Consistent with this finding, Shapley values highlight the importance of firm and personal characteristics such as tax compliance costs, tax literacy, and trust in government for the prediction. The results show that machine learning models can provide a time- and cost-effective way to fill the information gap created by the lack of observations on firms’ tax rate perception. This approach allows researchers and policymakers, to further analyze the impact of firms’ tax rate perception on tax reforms, tax compliance, or business decisions. |
| Keywords: | Tax Rate Perception, Business Taxation, Prediction, XGBoost, Shapley |
| JEL: | H25 D91 C8 C53 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:pdn:dispap:128 |
| By: | Michał Brzeziński (University of Warsaw, Faculty of Economic Sciences); Monika Kaczan (University of Warsaw) |
| Abstract: | This study investigates the distributional impacts of carbon taxes, traditionally examined through simulation studies on the regressivity of hypothetical tax scenarios. However, the dy-namic influence of actually implemented carbon taxes on consumption/income poverty and inequality in a cross-country setting has been less scrutinised. This paper assesses the effect of carbon taxes introduced in the past three decades in 15 European countries on consumption shares of the lowest decile groups, poverty rates and inequality indices. The analysis shows that a $40/ton CO2 tax covering 30% of emissions leads to a consumption share increase of up to 4% for the bottom 20% and 40% of the population, a trend that persisted for five years post-implementation, particularly in nations that efficiently redistribute carbon tax revenues. This resulted in a modest reduction in consumption inequality over three years. In contrast, the impact of carbon taxes on income poverty and inequality is not statistically significant. These findings suggest that concerns about poverty and inequality due to carbon taxes can be miti-gated by implementing a moderate tax combined with a strategically efficient revenue redis-tribution mechanism. |
| Keywords: | climate policy, carbon tax, poverty, inequality, consumption/income distribution, revenue re-cycling |
| JEL: | Q54 Q58 Q48 H23 D31 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2024-26 |
| By: | Luis Ayala |
| Abstract: | European tax-benefit systems play a crucial role in providing social insurance and mitigating economic risks, thereby reducing income inequality and fostering social cohesion. They also play a vital role in providing resilience during economic shocks. Despite their stabilizing impact, these systems face the challenge of addressing new social transitions, such as changes in economic activity locations and labour market transformations. This report aims to summarize some of these issues, paying special attention to the problems of income instability. We find that the tax-benefit systems in EU countries play a crucial role in stabilizing incomes during economic downturns, although their effectiveness varies across countries. Strengthening these systems is also necessary to support middle-income groups and enhance inter- and intragenerational income mobility. Tax benefit systems generally increase income mobility, but their impact has declined in many EU countries since the early 21st century, indicating a need for stronger and more consistent policy interventions. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139510 |
| By: | Anikó Bíró (Institute for Fiscal Studies); Péter Elek (Institute for Fiscal Studies); Dániel Prinz (Institute for Fiscal Studies); László Sándor (Institute for Fiscal Studies) |
| Date: | 2024–12–18 |
| URL: | https://d.repec.org/n?u=RePEc:ifs:ifsewp:24/57 |
| By: | François Vaillancourt |
| Abstract: | This paper presents evidence on the evolution of both the complexity of the personal income tax system and the compliance costs incurred by personal income tax filers(PIT) in Canada. The complexity is measured using three indicators: ;length of federal income tax code(1971-2018), number of federal PIT expenditures(1981-2014) and length of PIT forms (2000-2015) .All three indicators show an increase in complexity. The compliance costs of the PIT are calculated using survey information gathered from individual canadians on time expanded and amount spent the following year for the 1985, 2007, 2018 and 2022 tax filing /calendar years. Our results show a decrease in the PIT compliance costs in hours, in total value and as share of GDP and revenues collected. This drop compliance costs is most likely due to the increasing use of software by tax filers to prepare their tax returns; this allows them, amongst other things, to download information from the Revenue agencies. A tax pain index combining complexity and compliance costs is put forward ; its small growth over time may well explain why increasing tax complexity of the PIT in Canada is apparently well tolerated. Cet article présente des résultats sur l'évolution de la complexité du système d'impôt sur le revenu des particuliers et des coûts de conformité encourus par les déclarants de l'impôt sur le revenu des particuliers (IRP) au Canada. La complexité est mesurée à l'aide de trois indicateurs : la longueur du code fédéral des impôts sur le revenu (1971-2018), le nombre de dépenses fédérales PIT (1981-2014) et la longueur des formulaires PIT (2000-2015). Les trois indicateurs montrent une augmentation de la complexité. Les coûts d'observation de l'IRP sont calculés à l'aide de données d'enquête recueillies auprès de particuliers canadiens sur le temps passé et le montant dépensé l'année suivante pour les années civiles/de déclaration de revenus 1985, 2007, 2018 et 2022. Nos résultats montrent une diminution des coûts de conformité associés avec l’IRP en heures, en valeur totale et en part du PIB et des revenus collectés. Cette baisse des coûts de conformité est très probablement due à l'utilisation croissante de logiciels par les déclarants pour préparer leurs déclarations de revenus ; cela leur permet, entre autres, de télécharger des informations auprès des agences fiscales. Un indice de ‘’douleur’’ fiscale combinant complexité et coûts de conformité est proposé ; sa faible croissance au fil du temps pourrait bien expliquer pourquoi la complexité fiscale croissante de l’IRP au Canada est apparemment bien tolérée. |
| Keywords: | Tax complexity, compliance costs, personal income tax, Canada, Complexité fiscale, coûts de conformité, impôt sur le revenu personnel, Canada |
| JEL: | H20 H24 H29 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:cir:cirwor:2024s-13 |
| By: | Jodie Keane; Hazel Granger; Prachi Agarwal; Maximiliano Mendez-Parra |
| Abstract: | Nowadays, all policy makers must engage with direct and indirect carbon pricing issues. However, the implications of different types of tools and methods to price carbon and support decarbonization deserve further attention in view of their development implications. Two aspects—revenue recycling and complementary policies—are critical when it comes to ensuring that carbon pricing and taxation measures are supportive of broader sustainable structural economic transformation and help to avoid a 'green squeeze'. |
| Keywords: | Carbon pricing, Carbon tax, Revenue, Redistribution |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-85 |
| By: | Congressional Budget Office |
| Abstract: | The Congress faces an array of policy choices as it confronts large federal deficits and rising federal debt. To help inform lawmakers as they address budgetary challenges, CBO periodically issues a compendium of policy options and their estimated effects on the federal budget. This report presents 76 options for altering spending or revenues to reduce federal budget deficits over the next decade. |
| JEL: | H20 H50 H60 H61 H62 H63 |
| Date: | 2024–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:cbo:report:60557 |
| By: | Fadzayi Chingwere; Matthew Clance; Nicky Nicholls; Aimable Nsabimana; Eleni Yitbarek |
| Abstract: | This study examines the impact of tax incentives on charitable donations within South Africa, with a focus on donations declared on individuals' tax returns. Leveraging the universe of South African tax administrative data spanning over a decade (2011-21), we apply the bunching approach to assess how individual taxpayers respond to donation tax incentives. |
| Keywords: | Tax incentive, Tax policy, South Africa |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-72 |
| By: | Adjisse, Sossou; Blimpo, Moussa P.; Castañeda Dower, Paul |
| Abstract: | Balán et al. (2022) evaluate the impact of "local elites" involvement in local tax collection in a large city in the Democratic Republic of Congo. Using a randomized controlled trial to vary the identities of tax collectors, they find that local elites' involvement raises tax compliance and total revenue by 50 and 44 percent, respectively. The paper argues that the primary mechanism behind the results is better targeting made possible by local elites' superior information about property holders' willingness and ability to pay. In this replication comment, we first reproduce the paper's main results. Then, we assess the robustness of the results by (1) employing randomization inference for statistical tests; (2) controlling for baseline characteristics that are not balanced; and (3) using an alternative method to examine the claims supporting the preferred mechanism of better targeting. We find robust estimates in (1). However, the results are less robust both in terms of statistical significance and magnitude for (2) and (3). We conclude that the average treatment effect is robust, while the main claim about mechanisms, the information channel, is less robust to alternative estimation approaches. We contextualize and discuss the significance of these results, including the negligible revenue potential even under full compliance. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:191 |
| By: | Stanley L. Winer (Carleton University, Ottawa, and CESifo, Munich) |
| Abstract: | Although reassignment of policy instruments among governments in many federations is a recurring event, there is no widely accepted, positive model of the phenomenon. This stands in contrast to the well established body of work on the normative theory of the efficient federal assignment. In this paper, I study reassignment of the power to tax in the Canadian federation by considering three elements that are likely to be part of any complete, positive analysis. These are: the facts that characterize the fiscal history of reassignment in the Canadian federation; the logic behind the demand for tax and other instruments by provincial and national governments; and the analysis of intergovernmental trade in governing instruments, which adds the supply of instruments and closes the model. While the story I tell is constructed to deal with the Canadian case, I hope that some of the ideas and issues I raise will generalize. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ays:ispwps:paper2412 |
| By: | Jaylson Jair da Silveira; Gilberto Tadeu Lima; Leonardo Barros Torres |
| Abstract: | There is considerable empirical evidence that heterogeneity in tax compliance behavior is persistent and pervasive. This paper develops an evolutionary analytical framework in which taxpayers periodically choose between to comply or not to comply with their tax obligations. Aggregate demand formation arising from private and public expenditures depends on the frequency distribution of tax compliance behavior across taxpayers, so that the macrodynamic of the rates of capacity utilization and output growth is coevolutionarily coupled to the microdynamic of tax compliance across individuals. The analytical framework set forth here replicates several pieces of evidence on tax evasion. First, the proportion of non-complying taxpayers (and hence the volume of tax evasion) depends on the tax rate and the expected cost of tax evasion. Second, heterogeneity in tax compliance behavior is evolutionarily persistent instead of temporary. Third, the immediate impact of a change in the proportion of tax evading individuals on the rates of capacity utilization and output growth is non-linear. Fourth, the proportion of non-complying taxpayers and the rates of capacity utilization and output growth vary positively with the tax rate in the evolutionary equilibrium. |
| Keywords: | Tax evasion; evolutionary dynamics; heterogeneous behavior; capacity utilization; economic growth |
| JEL: | B52 C73 E12 E70 H26 |
| Date: | 2025–01–07 |
| URL: | https://d.repec.org/n?u=RePEc:spa:wpaper:2025wpecon1 |
| By: | Ciyata Coleman; Charles Hokayem; Sanghun (Eric) Kim; Ethan Krohn; Krishnan Patel; Dean Plueger |
| Abstract: | The Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC) offer assistance to help ease the financial burden of families with children. This paper provides taxpayer and dollar participation estimates for the CTC and ACTC covering tax year 2020. The estimates derive from an approach that relies on linking the 2021 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) to IRS administrative data. This approach, called the Exact Match, uses survey data to identify CTC/ACTC eligible taxpayers and IRS administrative data to indicate which eligible taxpayers claimed and received the credit. Overall in tax year 2020, eligible taxpayers participated in the CTC and ACTC program at a rate of 93 percent while dollar participation was 91 percent. |
| Keywords: | Child Tax Credit, Additional Child Tax Credit, Participation |
| JEL: | H24 H31 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-76 |
| By: | Ciyata Coleman; Charles Hokayem; Sanghun (Eric) Kim; Ethan Krohn; Krishnan Patel; Dean Plueger |
| Abstract: | The Earned Income Tax Credit (EITC), enacted in 1975, offers a refundable tax credit to low income working families. This paper provides taxpayer and dollar participation estimates for the EITC covering tax year 2021. The estimates derive from an approach that relies on linking the 2022 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) to IRS administrative data. This approach, called the Exact Match, uses survey data to identify EITC eligible taxpayers and IRS administrative data to indicate which eligible taxpayers claimed and received the credit. Overall in tax year 2021 eligible taxpayers participated in the EITC program at a rate of 78 percent while dollar participation was 81 percent. |
| Keywords: | Earned Income Tax Credit, Participation |
| JEL: | H24 H31 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cen:wpaper:24-75 |
| By: | Bulut, Hamid; Samuel, Robin |
| Abstract: | An increasing number of countries are considering implementing domestic carbon taxes to achieve the carbon-reduction targets set in the Paris Agreement. However, introducing such taxes presents significant challenges for policymakers worldwide. Despite their effectiveness, carbon taxes remain the least popular policy instrument. Furthermore, few studies focus on public support for carbon taxation in low- and middle-income countries, a crucial area of research given the global significance of their emissions. Therefore, we conducted a pre-registered full factorial survey experiment involving more than 13, 000 evaluations of policy designs in China, Germany, India, and the UK to address the most prevalent barriers to the popularity of carbon taxes, as discussed in academic research, policy analysis, and public discourse: perceived effectiveness, average household costs, the types of revenue recycling schemes implemented, and the extent of international cooperation. Our findings revealed striking differences in how the countries responded to carbon tax policies. The key findings included the following: cost transparency unexpectedly reduced support, whereas communicating the effectiveness of the policy increased it; preferences for revenue recycling schemes varied significantly across the four countries, highlighting the need for tailored approaches; and, surprisingly, international cooperation increased support only in Germany, challenging assumptions about global climate policy. These findings have profound implications for policymakers, suggesting that an effective carbon tax design must be carefully calibrated in the national context. This study provides a roadmap for designing carbon tax policies that are environmentally effective and politically viable for diverse global economies. |
| Date: | 2024–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:fq4tn |
| By: | Thomas Aronsson (University of Umea, Sweden and University of Graz, Austria); Olof Johansson-Stenman (University of Gothenburg, Sweden) |
| Abstract: | A substantial body of empirical and theoretical research suggests that individuals care about, and derive instrumental benefits from, their rank in society. This paper extends the Mirrleesian model of optimal income taxation to a framework where individuals derive utility from their perceived ability rank. Such concerns generate externalities that tend to increase the optimal marginal tax rates for both corrective and redistributive reasons. While empirical evidence on the magnitude of these concerns is limited, their potential impact on optimal income taxation could be substantial, with top marginal income tax rates potentially exceeding 90%. |
| Keywords: | Redistributive taxation, ability, ordinal comparisons, externalities. |
| JEL: | D62 D82 D90 H21 H23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-21 |