Taxation

We quantify behavioral responses to estate taxation by exploiting two large reforms in Taiwan. Using comprehensive administrative data and a difference-in-difference design, we show that the response of reported estates to the reforms is quick, persistent, and exhibits an asymmetry. We estimate elasticities of reported estates with respect to the net-of-tax rate of 2.76 (s.e. 0.39) for the tax increase and 1.31 (s.e. 0.16) for the tax cut. The asymmetry arises because liquid items such as financial assets, deposit savings, and charitable exemptions respond significantly more to a tax increase. The quick adjustments in reported estates, combined with a null effect on labor supply behavior among both donors and heirs, suggest the responses are likely driven by tax avoidance. The observed asymmetry can be explained by tax avoidance with sunk costs: taxpayers increase avoidance during a tax increase but are less responsive to a tax cut due to previously incurred avoidance costs. We set up a tax avoidance model and derive sufficient statistics, characterized by our estimated elasticities, to assess the welfare impact of tax reforms. Our analysis shows that using the tax cut elasticity, which is attenuated due to sunk costs, would underestimate the welfare cost and overestimate the net welfare effect of a tax increase by 61%.

We construct a series of posttax income for France over the 1900–2018 period and compare them with US series. We quantify the extent of redistribution—the reduction from pretax to posttax inequality—and estimate the contribution of redistribution in explaining differences in posttax inequality. We find that differences in pretax inequality drive most of the differences in posttax inequality between France and the United States, and that changes over time in both countries are mostly due to changes in pretax inequality. We highlight that the concept of redistribution can be empirically misleading for judging how policies reduce inequalities.

This paper uses a rich quantitative model with endogenous skill acquisition to show that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 67 percent, while it is 61 percent in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.84 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a redistributive government should take into account capital-skill complementarity when taxing capital.

This study measures spending power inequality within age cohorts and estimates fiscal progressivity via lifetime net tax rates. We find, first, that inequality in income and especially wealth dramatically overstates inequality in spending power. Second, inequality in current spending power differs from that in lifetime spending power because of credit constraints, in-kind government benefits, and other factors. Third, the US fiscal system is highly progressive once cohorts are old enough to have highly dispersed human wealth. Fourth, households’ rankings based on current income can differ substantially from their rankings based on lifetime resources. Fifth, current-year net tax rates substantially understate fiscal progressivity.

We study optimal capital income and wealth taxation in an economy that reproduces the importance of private businesses for output and inequality. If entrepreneurs are subject to collateral constraints, they face heterogeneous rates of return, which generate a meaningful distinction between capital income and wealth taxation. We find that taxing capital income is preferable to taxing wealth because the efficiency gains from wealth taxation are swamped by the redistributional benefits of taxing the profits of richer entrepreneurs. Consequently, the gains from taxing wealth are modest. This conclusion is robust to the planner's preference for redistribution and allowing for nonlinear taxes.

We quantitatively investigate the welfare costs of increasing tax revenues in low-income countries. We consider three tax instruments: consumption, labour income and capital income taxes. The analysis is based on a general equilibrium model featuring heterogeneous agents, incomplete financial markets, and rural and urban areas. We calibrate the model to Ethiopia and decompose the welfare costs into their aggregate and distributional components. We find that changing taxes alter the composition of demand. This, together with limited labour mobility, causes the incidence of higher taxes to fall disproportionately on the rural population, regardless of the instrument. Consumption taxes are the instrument with the largest welfare loss.

This paper investigates the effects of wealth taxes on wealth accumulation, combining administrative data on wealth data Denmark and a theoretical life-cycle model of wealth accumulation.

One of the most enduring political economy puzzles of the past 40 years in the United States is why so many ordinary Americans support tax cuts for the rich. This paper aims to unpack this puzzle by providing new experimental evidence on what drives Americans’ preferences for cutting the top rate of federal income tax.

This paper examines how tax incentives lower effective tax rates and how they vary with firm size. This is important because tax incentives generate a government revenue loss, can distort firms’ production, and may exacerbate inequality. We also use our estimates of effective tax rates to assess the potential impact of a Global Minimum Tax.

How has cross-border integration affected the relative taxation of labour and capital historically and globally? And which countries have been most affected by the erosion of effective capital taxation, and why? Answering these questions is critical to shed light on the macroeconomic effects and long-run social sustainability of globalisation.

The authors devise a method to simulate the impact of COVID-19 triggered lockdowns on the profits of formal-sector firms, using available corporate tax records. They focus on ten lower-income countries, for which data is typically scarcer.

The optimal tax system amplifies the redistributive effects of prices rather than offsetting them, and that this amplification is stronger when we consider the endogenous response of markets.