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Tiebout sorting describes people moving to communities that most closely match people's preferences over taxes and public services. This Tiebout equilibrium is disturbed when cities vote to increase taxes and spending. We study the effect of increased taxes and public spending on population growth in growing and declining cities. Using regression discontinuity to compare otherwise similar cities, we find increasing local government taxes and spending by 15% can increase population growth rates. The increase is only evident the year after the vote. For the general sample, the increase is 0.4 percentage points, but it is 0.8 percentage points (25% of a standard deviation) for growing cities with below-median percentages of elderly residents. In cities with declining population, passing large tax levies increases population growth rates by 0.9 percentage points the year after the vote—33% of a standard deviation. Instead of cutting taxes and services, cities with declining population might instead consider providing additional public services to stem population declines. Most migration studies use a fairly large geographical unit like states, counties, and urban areas; our study contributes to the literature by studying migration at the local government level (cities, villages, and townships). [ABSTRACT FROM AUTHOR]

This paper provides an overview of the relationship between tax policy and gender equality, covering labor, capital and wealth, as well as consumption taxes. It considers implicit and explicit gender biases and corrective taxation. On labor taxes, we discuss the well-established findings on female labor supply and present new empirical work on the impact of household taxation. We also analyze the impact of progressivity on pay gaps and labor supply. On capital and wealth taxation, we discuss the implications of lower effective capital income taxation on the personal income tax burden gap across genders. We show that countries with relatively low female shares of capital income and wealth also tend to tax property and inheritances particularly lightly. On consumption taxes, we cover taxes on feminine hygiene products and excise taxes, which we assess in relation to externalities and differences in consumption patterns across genders. [ABSTRACT FROM AUTHOR]

Recent reports from climate scientists stress the urgency to implement more ambitious and stringent climate policies to stay below the 1.5 °C Paris Agreement target. These policies should simultaneously aim to ensure distributional justice throughout the process. A neglected yet potentially effective policy instrument in this context is rationing. However, the political feasibility of rationing, like any climate policy instrument, hinges to a large extent on the general public being sufficiently motivated to accept it. This study reports the first cross-country analysis of the public acceptability of rationing as a climate policy instrument by surveying 8654 individuals across five countries—Brazil, Germany, India, South Africa, and the US—on five continents. By comparing the public acceptability of rationing fossil fuels and high climate-impact foods with consumption taxes on these goods, the results reveal that the acceptability of fossil fuel rationing is on par with that of taxation, while food taxation is preferred over rationing across the countries. Respondents in low-and middle-income countries and those expressing a greater concern for climate change express the most favourable attitudes to rationing. As political leaders keep struggling to formulate effective and fair climate policies, these findings encourage a serious political and scientific dialogue about rationing as a means to address climate change and other sustainability-related challenges. [ABSTRACT FROM AUTHOR]

This study investigates the effects of environmental tax and environmental spending on CO2 emissions of 27 countries of the European Union EU27 countries using annual time series data from 1995 to 2022. The study used linear and non-linear autoregressive distributive lag (ARDL and NARDL) to examine the relationship. Estimates claim that the variables have a symmetric and asymmetric long-term and short-term relationship. The negative impacts of environmental taxes on CO2 emissions prove that emissions are reduced when polluting activities are taxed. Fiscal policy instrument such as taxation changes the behaviour of the private sector in the EU27 nations by disincentivizing polluting activities. On the other hand, government investment in environmental protection has encouraged the private sector in the EU27 nations to embrace and invest in green technologies, decreasing CO2 emissions. The ECM term is negative and statistically significant at a 1 percent significance level for ARDL and NARDL models, implying a stable long-run relationship between variables. It demonstrates that short-run disequilibrium converges to long-run equilibrium at a speed of 9.2% (in the ARDL model) and 22.7% (in the NARDL model). The study also sheds fresh light on the effectiveness of environmental taxes vs. expenditure, where taxes serve as a counter-incentive policy for CO2 emissions, and spending is a positive policy intervention. [ABSTRACT FROM AUTHOR]

Previous economic literature finds that race diversity is associated with increased tax collection and expenditure per capita, but relative under-provision of important public goods and services. Using a panel data set covering Census "Places" of over 25k population 1980–2010, I verify this conclusion in a cross section for the 2010 US Census data. I then show that the measure of racial heterogeneity commonly used throughout the literature is endogenous over time due to omitted variables, and potential reverse causality or simultaneity. As a result, cross section and pooled results are likely to be biased. Using predicted race composition from national trends as an instrumental variable, I show that the relationship between changes in race heterogeneity and both tax and spending per capita is negative. This result suggests a potential reversal of the findings following of the influential paper by Alesina et al. (Q J Econ 114:1243–1284, 1999). [ABSTRACT FROM AUTHOR]

This paper compares the effects of two different health taxes on soda consumption and the body mass index (BMI) of school children in Europe. Hungary imposed a comprehensive tax on several unhealthy products in 2011. In contrast, France introduced a tax on sodas with sugar or artificial sweeteners, in 2012. To evaluate these taxation designs, I use a flexible semi-parametric difference-in-differences (DID) approach. The results suggest a counter-intuitive increase in soda consumption caused by the tax in Hungary. The effect of the soda tax on soda consumption in France is insignificant. The BMI is not affected by any tax. [ABSTRACT FROM AUTHOR]

Consumption is an important source of greenhouse gas emissions. This study extends the footloose capital model to investigate consumption-generated emissions and consumption taxes in the presence of endogenous firm locations and different market sizes. We find that consumption taxes cause firm relocation and carbon leakage. That is, tax increase in one country induces firms to relocate to the other country; meanwhile, emissions decrease in that country but increase in the other country. We also show that when countries decide on their consumption taxes cooperatively to maximize the joint welfare, the optimal taxes are identical across them, regardless of different market sizes. However, under consumption tax competition, the larger country imposes a higher tax than the smaller country. [ABSTRACT FROM AUTHOR]

This paper examines the impact of foreign aid and taxes on government spending for 67 developing countries during 1980–2013 using dynamic heterogeneous (panel) time-series techniques. We find that spending, aid and tax ratios comprise an equilibrium (cointegrated) relation. On average, the aid coefficients (and marginal impacts) are positive but smaller than the tax coefficients, indicating that in the long-run and short-run taxes have a stronger association with expenditures than aid. Central to this heterogeneous relationship is the political calculus between aid and tax—measured according to accountability and bureaucratic costs—whereby recipients offset the political costs of raising taxes against the political costs of receiving more aid. Once measures of political costs are incorporated into the analysis, we find the political costs of aid to be higher than those of tax, reinforcing the primary assertion that for spending, taxes are more important than aid. Countries with higher political costs of aid typically show no aid-spending relationship, while those with lower political costs of aid tend to show an aid-spending relationship. The findings are largely when replicated once we split total spending into capital and consumption spending. [ABSTRACT FROM AUTHOR]

The limited microeconometric evidence on the efficacy of environmental Negotiated Agreements (NAs) is an obstacle to both their introduction and effective design. We help fill this gap by providing evidence on the impact of the second Climate Change Agreements (CCAs) on business electricity consumption and employment. The CCAs are NAs offering a reduction on the Climate Change Levy (CCL), an energy consumption tax, in exchange for commitments to improve energy efficiency. We use the novel changes-in-changes method to account for heterogeneity in treatment effects. Our results indicate that the second CCAs yielded improved outcomes compared to the counterfactual of full CCL with an average reduction of − 4.81% in electricity consumption. They also reveal the importance of allowing for heterogeneity, as the impact on electricity consumption at the identified deciles varied between − 9.33 and 12.54%. This is a marked difference from the first CCAs which were found to increase consumption. The heterogeneity in treatment response is corroborated when extending the study to two large industrial sectors in the sample and when studying firms selecting differing target reporting methods. Confirming the findings from earlier studies of the first scheme, our results indicate a non-statistically significant reduction in employment, about − 4.6% on average, for the second CCAs. [ABSTRACT FROM AUTHOR]

Policymakers were surprised to find increases in sales tax revenues in 2020 due to expectations that they would drop 8–20%. We investigate this puzzle and provide novel insights into consumption taxes based on this experience. Using a case study from the State of Utah, we document that shifts in the structure of consumption played a significant role in the robustness of sales tax revenue. Two factors stand out in our results. The first factor is the structure of the tax base for sales taxes in the USA. This tax base covers only a subset of personal consumption, excluding, for example, many services. During the pandemic, when services were restricted or shut down, this caused a shift in spending toward goods that are more likely to be in the sales tax base. The second factor is the boom in e-commerce during the pandemic, which boosted sales tax collections. This was catalyzed by recent legal changes that made the collection of sales taxes in e-commerce easier. Interestingly, this e-commerce boost also shifted the point of sale and related sales tax revenues away from urban areas toward suburban areas. Our case study of the pandemic's effect on sales taxes in the USA generally, and Utah's experience specifically, provides lessons for consumption taxes, such as the VAT more broadly, and lessons on the role of consumption taxes for tax revenue volatility. [ABSTRACT FROM AUTHOR]

In this paper, we analyse the passthrough from corporate taxes to investments by including two novel channels into a DSGE model for a small open economy. We capture both how foreign firms relocate and invest in the country when corporate taxes are reduced and how the inflow of FDI increases exports which spills over to domestic firms, that then increase their investment further. Our extended model allows us to study the importance of both transmission mechanisms and how they interact through crowding out effects. The corporate tax cut becomes self-financed when FDI-export spillovers are included, but only if other countries do not follow suit and lower their corporate tax rates. The largest self-financing contributions come from increases in various labor and consumption tax bases. A reduction in profit shifting further contributes to financing the tax cut. Our findings suggest that corporate tax levels internationally are not in equilibrium and that there are large fiscal incentives to further cut corporate taxes and reap the benefits from increased tax bases. [ABSTRACT FROM AUTHOR]

This paper studies whether Peru's excise tax refund of 30% for fuel purchases has had the effect of increasing formalization in the intercity passenger ground transport market and whether the resulting tax expenditure has been fruitful in increasing investment in vehicles. Based on a partial equilibrium market framework, transport operators are segmented among formal, informal and illegal operators, and a new methodology to measure how the tax refund makes these operators change their market shares is perfected. Evidence shows that the tax refund has worked by augmenting the market share of formal but not informal operators, thus increasing the overall formalization of the passenger transport market. This contradicts the Ministry of Finance impact evaluation asserting that market formalization has not occurred because informal operators did not take advantage of the tax refund and did not convert into formal operators. An epilogue challenges a 2020 government decree establishing a new tax refund no longer intended to reduce informality but rather to reduce accident rates. [ABSTRACT FROM AUTHOR]

Are budget deficits eliminated by tax increases or by spending cuts? This paper provides a new perspective on this issue by analyzing fiscal plan data, as they are closely related to budget decisions of the legislative branch and are less correlated with macroeconomic developments during the fiscal year. We examine a novel historical dataset on Switzerland from 1850 to 2018 using (nonlinear) cointegration tests and error correction models. First, our historical analysis indicates that realized budget adjustments usually occurred through revenues and that fiscal plans are specifically crucial for short-term budget dynamics. Second, a recursive estimation approach shows that the adjustment relationships vary over time. In addition, our dynamic analysis provides evidence that budgetary imbalances are addressed by adjusting expenditures in plans in the last decades in contrast to realized adjustments, which benefited from underestimated revenues. However, initial indications suggest that the debt containment rule counteracts this asymmetry. Finally, from a policy perspective, our results stress the importance of fiscal plans in budget adjustment processes and the design properties of fiscal rules. [ABSTRACT FROM AUTHOR]

Given the global ecological environment deteriorating, the ESG (environmental, social, and governance) concept advocates that economic growth and environmental protection must go hand in hand. Green taxations, in particular, are critical to economic development as they serve as a key lever for the government in regulating the national economy and improving environmental quality. This paper aims to examine the pollution reduction effect of green taxation in China. We constructed fixed effect model using provincial panel data from 2012 to 2017 to empirically examine the effect of green taxation—including environment protection tax, consumption tax, resource tax, and vehicle purchase tax—on pollution emissions. The findings show that environmental protection tax has a significant inhibitory effect on exhaust gas emissions but a poor inhibitory effect on wastewater and industrial solid waste emissions. Other green taxations—consumption tax, resource tax, and vehicle purchase tax—do not have an ideal inhibitory effect on pollution emissions. The paper concludes with policy recommendations organized around improving the environmental protection tax, actively promoting the ESG concept, and optimizing the top-level design of the green taxation system. [ABSTRACT FROM AUTHOR]

A structural VAR approach is used to examine the role of monetary and fiscal policies in explaining macroeconomic fluctuations in Ethiopia. The main results are that an increase in government spending has an expansionary effect on output, while shocks in net taxes have a contractionary effect, with relatively small and statistically significant spending and net tax multipliers; that fiscal shocks are shown to have no significant effect on the exchange rate and a statistically significant effects inflation; that contractionary monetary policy is associated with a fall in output; and that the contributions of fiscal policy shocks are larger than that of monetary policy shocks in explaining movements in output, with roughly equivalent contributions coming from shocks in fiscal policy components. Moreover, the effect of fiscal and monetary policy shocks on output improved qualitatively and quantitatively when both policy variables were jointly examined rather than estimating them separately, suggesting the importance of joint analysis. [ABSTRACT FROM AUTHOR]

The value-added tax (VAT) is meant to be an efficient and self-enforcing tax on consumption. Yet, being a rather sophisticated tax, the VAT can also be complex and costly to administer. By examining the case of Rwanda, this paper assesses the extent to which the VAT's potential materialises in the context of a lower-income countries. Using a mixed-methods approach, which combines qualitative information from focus group discussions with the analysis of administrative and survey data, this paper makes two contributions. First, it documents reporting inconsistencies in VAT data, providing new evidence on how weak capacity prevents tax administrations in lower-income countries from reaping the full benefits of the VAT. Second, it shows that the VAT, as applied in practice, differs substantially from its theoretical functioning. This generates differences in tax burdens across firms, despite a proportional tax rate, with important distributional implications. We also document that the VAT chain often breaks down, with implications on the VAT's efficiency. [ABSTRACT FROM AUTHOR]

Gifts to government might provide warm glow to some citizens, especially if they can be earmarked toward specific government activities. We develop a model in which such gifts may be privately worthwhile, even for those people who evade taxes, and describe the conditions under which this will be the case. The latter can occur when the warm glow of transferring money to the government via gifts is higher than the warm glow from transferring the money via paying taxes, and additionally, the marginal rate of substitution of warm glow from "donating" to the public good for private good is sufficiently high. We then conduct empirical analyses of explicit gifts to the US federal government over the last century. Although small compared to either federal taxes and expenditures or donations to charitable organizations, we show that they are systematically, although fairly weakly, related to measures of government fiscal activity. The war years and their immediate aftermath dominate the systematic relationships we uncover. This suggests that these gifts are not simply the random, and randomly timed, behavior of an unrepresentative sample of Americans and that this behavior might warrant further empirical analysis. [ABSTRACT FROM AUTHOR]

Continuous fiscal imbalances fuel the future increase of tax burdens with significant damping effects on household consumption. This paper investigates how the distribution of income tax and expenditure tax varies across population groups in South Africa using provincial level data spanning the period from 1995 to 2017. Empirical findings suggest that besides economic conditions, demographic changes exert a robust effect on tax composition and such association is not only subject to heterogeneity but also to spatial dependence. Results from spatial panel error models indicate that economic growth, trade openness and population ageing fuel spending taxes as they exhibit a negative impact on the income to expenditure tax ratio while output gap and population development help raise income taxes. This confirms that South African elderly population endures the tax load as population ages due to the excess demand for goods and services that spurs expenditure rather than income taxes. Therefore, a tax rebate policy on elderly purchase could be considered to minimise old age tax burden, which in turn, contributes to fiscal equity. [ABSTRACT FROM AUTHOR]

I assess the macroeconomic and redistributive effects of tax reforms aimed at increasing tax revenue in Spain. To this end, I develop a theory of entrepreneurship that mimics key facts on the wealth and income distribution in Spain. I find two reforms that raise fiscal pressure in Spain to the average value among countries in the Euro area. The first reform involves doubling the average effective tax rate on labor and business income for all individuals whose income is above a threshold level. I find that this reform reduces the inequality in after-tax income, wealth, and consumption. However, it implies a substantial GDP reduction. The second reform increases the flat tax rate on consumption by fifteen percentage points. While this reform does not reduce long-run output, it does not decrease household inequality. All in all, the desirability of the two reforms depends on the government's preferences for reducing inequality at the expense of aggregate output losses. [ABSTRACT FROM AUTHOR]

Value Added Taxes (VAT) constitute a major share of tax revenues in developing countries in which tax evasion is widespread. The literature on VAT evasion, however, is relatively scant. This paper develops a computable general equilibrium framework for analyzing endogenous VAT tax evasion. The analytical framework entails increasing enforcement through greater spending on the enforcement of tax revenue collection. We assume that there is an elasticity that connects the changes in enforcement to actual increases in VAT collection. We apply the model to Pakistan data and show the level of enforcement spending required to achieve certain VAT collection targets. We also examine the short-, medium-, and long-term macroeconomic outlooks, and real consumption distribution across household economic groups associated with higher enforcement spending. We calibrate the model using 2016 as the base year and then run the dynamic model forward for 20 years. We define the implicit VAT rate as that hypothetical statutory rate that, in the absence of evasion, would approximately generate the observed VAT collection. We assume zero additional spending on enforcement in the baseline and estimate two alternative scenarios of VAT revenue target of 8% and 15% of the GDP. The alternative scenarios require increase in enforcement spending by a compounded 46.4% and 322.4%, respectively. We find that the increased enforcement spending enhances the sustainability of the government's budget deficit without causing a decline in real GDP over the long-term. The interest and inflation rates are also lowered. However, there is a small regressive impact on households' real consumption. [ABSTRACT FROM AUTHOR]

This study examines the effects of tax policies in a dynamic model of a polluted small open economy with two sources of flow pollution—consumption and production—controlled by consumption and income taxes. In this setting, accumulated pollution negatively impacts households' utility. We show that in a decentralized dynamic competitive equilibrium under exogenous tax rates, whereas a permanent increase in consumption and income taxes unambiguously reduces the steady-state pollution stock, a temporary increase in these taxes may lead to more pollution in the long run. This outcome suggests that more stringent environmental policies might be ineffective if the regulation is only temporary. We also derive the socially optimal solution and examine the optimal tax paths to achieve the social optimum. If distaste and leisure effects are sufficiently strong, tax rates decrease along the optimal path as pollution increases over time, and vice versa. [ABSTRACT FROM AUTHOR]

We adopt a simple model of endogenous growth with polluting capital and a fixed budget for aggregate emissions. Pollution abatement efficiency is growing over time due to technical progress. We find that long-run capital and consumption are inversely related to the initial capital stock. Capital taxation does not harm the economy but actually raises long-run consumption and production, which we call the "capital tax paradox." The reason for this surprising result is that in an economy with a binding carbon policy, early abundance of polluting capital is not a blessing but a curse. It is preferable to have a large capital stock when abatement efficiency has grown sufficiently large. The paper also provides novel results on the impact of pollution intensity and the rate of technical progress on the greening of the economy and the pollution permit prices. In the quantitative part, we calibrate model and study economic growth under different assumptions on the basic model parameters. [ABSTRACT FROM AUTHOR]

The present empirical study sheds light on the role of socioeconomic characteristics toward circular economy, resulting in more sustainable production and consumption patterns. Using fixed-effects and instrumental variable fixed-effects panel approaches, we examine the role of social and economic determinants on materials recycling and circularity in the European Union (EU). Empirical results reveal that recycling and circularity rates are positively affected by factors such as economic wealth, fertility rate, the level of environmental taxes and R&D expenditures. Furthermore, urbanization also seems to have a positive, but nonlinear effect on recycling and circularity rates. Our results can be beneficial to decision makers and managers for implementing several policies aiming to increase recycling and circularity across the EU and beyond. [ABSTRACT FROM AUTHOR]

This paper studies the macroeconomic and welfare implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a dynamic general equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity and welfare. Whereas raising the employer's share increases the labor cost for firms and reduces the equilibrium gross wage, conversely, workers' net labor income increases, increasing employment, output, and welfare. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages' purchasing power. [ABSTRACT FROM AUTHOR]

This paper examines the cross-border effects of domestic fiscal shocks on foreign economic activities by constructing a two-country general equilibrium model. The model yields two main results by comparing four alternative fiscal shocks: government spending, the capital income tax rate, the labor income tax rate, and the consumption tax rate. First, domestic fiscal shocks can generate sizable spillovers abroad. Second, once the size of each fiscal shock is normalized to achieve an equal change in government revenue, the spillover effects of different fiscal shocks on the foreign economic variables are qualitatively similar. [ABSTRACT FROM AUTHOR]

Since its founding institutions the European Economic Community and Eratom, the European Union has paid great attention to energy issues. However, its powers have been updated in relatively recent times. Similarly, the EU has promoted in the post-Kyoto Protocol environmental issues with a leading by example approach and implementing an ambitious plan to decarbonize the economy with the energy transition and emission limitation through a market instrument, the emission trading system. The European emissions trading system has been the most ambitious management of negative externalities related to GHG set-up at the international level. The EU now considers that the costs of ecological industrial transition could limit the ability of European industries to compete in the globalized market with industries not subject to similar limits and costs. The EU intends to adopt a carbon adjustment tax at the border, to limit the phenomenon of reallocation and compensate for environmental costs. This paper analyses the various proposals and their advantages and disadvantages. The focus is on the charge on emissions mechanism, which is one of the three proposals the European Economic and Social Committee suggested to the European Commission for further investigation in view of the current competitive asymmetry now recognized by the EU Commission itself. The charge on emissions would value industrial emissions directly within the VAT and use the blockchain to track the emissive supply chain of products. [ABSTRACT FROM AUTHOR]

The complexity of the U.S. income tax system emerged in part from the differentiated fiscal treatment of specific investments and various sorts of business expenditures that, as Richard Wagner says, creates "a tax code so large that no one can read it and which creates nearly a unique tax liability for each taxpayer." While tax scholarship documents the costs of complexity, current scholarship lacks a normative legal theory that could inspire an alternative to this practice of targeted credits and deduction rules. This paper builds on Epstein's general Simple Rules framework to develop a radical simplification of income tax: the operationalization of a uniform expense rule, i.e., the application of a single deduction scheme across all expenses and investments. With regard to the trade-off between targeted rules and this general approach, this paper investigates the nature of a uniform expense rule and reveals its strengths with respect to political economy. First, a stable and universal expense rule would narrow the scope of politicians' ability to concentrate benefits on special-interest groups and would limit rent-seeking. The abolition of deviating rules for investments would restrict the scope of tax optimization, meaning that individual and corporate tax liabilities would be more determined by the ability to pay them. The same policy would save companies and government millions of dollars that they currently spend on tax compliance and administration of the tax system, respectively. Last, a deduction rule that applies across all businesses and industries would be less price distortive and thus would enhance the quality of the price signal. [ABSTRACT FROM AUTHOR]

We use a dynamic general equilibrium trade model with comparative advantage, heterogeneous firms, heterogeneous workers and endogenous firm entry to analyze economic policy meant to compensate the losers of trade liberalization and reduce the ensuing wage inequality. We consider wage taxes, consumption taxes, profit taxes, firm entry subsidies, worker sector-migration subsidies and training subsidies, and find that the re-distributional and distortionary effects of these instruments differ very much. The most potent instrument to reduce the wage inequality after trade liberalization are training subsidies. They increase the supply of skilled workers and thereby reduce the skill premium. [ABSTRACT FROM AUTHOR]

Existing research suggests that tax-reliant governments are more accountable to citizens. This pattern is consistent with micro-level evidence that citizens who are taxed are more willing and able to make demands on leaders. However, there is no evidence on whether elected officials themselves view citizen pressures to spend tax and non-earned incomes differently. Using survey experiments conducted on elected municipal officials in the US, we find that officials report that taxes are less likely to be misused, relative to outside grants, and more likely to be spent on citizens' preferences. This is driven by the perception that electoral penalties are higher when tax funds are misused. Officials believe citizens feel stronger ownership over local tax funds and seek more information about how they are used. [ABSTRACT FROM AUTHOR]

This paper analyzes the impact of the interaction between monetary policy and fiscal policy on the stability of an one-sector AK economy. The monetary authority pegs the money growth factor while the fiscal authority implements a progressive consumption tax. The demand of money is motivated by a fractional liquidity constraint on consumption expenditures. When only the monetary authority operates, the unique steady state is locally indeterminate if the intertemporal elasticity of substitution in consumption is low enough. When the fiscal authority is introduced, the interaction of fiscal policy and monetary policy modifies significantly the stability properties. In particular, the fiscal authority could either stabilize or destabilize the economy depending on the tax progressivity, the strength of the liquidity constraint and the intertemporal elasticity of substitution. Our numerical examples further verify those theoretical results. [ABSTRACT FROM AUTHOR]

Excise taxes on fuel consumption may serve an important role in the abatement of CO2 emissions. Fuel tax has been a significant revenue-raising tool in Turkey for years. The present paper investigates whether there is a relationship between carbon dioxide emissions and public revenues from excise taxes on fuel consumption in Turkey by employing an asymmetric nonlinear cointegration test and error correction model that is a novel methodology proposed by Hepsag Commun Stat-Simul Comp 50:400-412, (2021). We collect our sample that consists of annual data on CO2 emissions, GDP, and fuel tax in Turkey from 1985 to 2018. The empirical findings display that there exist relationships among economic growth, CO2 emissions, and fuel tax supporting the environmental Kuznets curve (EKC) hypothesis in the short and long run. However, we find out that fuel tax is statistically insignificant and has no impact on CO2 emissions. Because a significant carbon dioxide reduction is not possible by fuel taxation, by converting the excise tax on fuel consumption into a carbon tax, a considerable emission reduction can be provided efficiently. [ABSTRACT FROM AUTHOR]

An advice IMF often gives to its members that open up their markets to trade is to reduce the level of tariffs and to simultaneously increase consumption taxes so as not to lose government revenues. In this paper, we introduce a novel way of reducing tariff rates without losing revenues and without relying on consumption taxes. We propose that the home government imposes a per unit (or ad valorem) tariff τ and also auctions off a number of tariff exemptions. The foreign firms that submit the highest bids acquire the exemptions and sell their products in the home market without paying τ . The remaining foreign firms, i.e., those who do not acquire exemptions, remain subject to it. We identify market conditions under which this mechanism generates higher revenues for the home government (in comparison with traditional tariff policies) and also higher total home welfare. Among other things, our analysis implies that if the government wants to collect revenues of magnitude T (τ) , it can do so by announcing a lower tariff rate τ ′ < τ and by inviting the foreign firms to bid for tariff exemptions. [ABSTRACT FROM AUTHOR]

We use the 2007–2018 monthly data for five Western Balkan (WB) countries to estimate the impact of harmonisation of excise duties with the EU rules on the demand for cigarettes and tax revenues by taking into account the cross-border shopping effect. Both in time series and panel regressions we find strong evidence on cross-border arbitrage. The price elasticity of demand for cigarettes in WB countries is close to − 1, while the cross-border elasticity is 0.24. Full harmonisation of taxes with the EU directives would trigger a substantial decline in the demand for cigarettes on the legal market in the WB of 25.5% (approx. 931,000 smoker equivalents). In spite of a considerable behavioural reaction, harmonisation would still have positive effects on tax revenues of almost a half percent of GDP. The impact on cigarette consumption and tax revenues in a particular country depends on the relative magnitude of its own and cross-border price elasticity and the relative size of its tax rate gap compared to neighbouring countries. Failing to account for cross-border arbitrage in evaluating the impact of an increase in cigarette taxes leads to the results on demand effects being significantly overestimated and tax revenue effects underestimated. [ABSTRACT FROM AUTHOR]

Labor-income and consumption taxes are often referred to as the primary causes of the labor wedge and differences in hours worked across countries. While this can be potentially true in the long run, its premise for explaining the cyclical behavior of the labor wedge is questionable. Using US data over 1955–2019, this paper first studies whether taxation explains the cyclical behavior of the labor wedge. It is shown that the tax wedge, which combines both types of taxes, fails in accounting for the countercyclicality of the labor wedge. I then study other factors that may raise the labor wedge during recessions, such as credit frictions on the firms' side and price markups, and find that credit frictions are the primary reasons for this behavior. The empirical findings are consistent with the model-based results; the model with credit frictions successfully generates a countercyclical behavior of the labor wedge, whereas the model without credit frictions does not. [ABSTRACT FROM AUTHOR]

Governments settle their financial obligations and pay for the public expenditures largely through finances generated from taxes. For many developing countries like Pakistan, the state authorities are still having difficulty to achieve tax compliance. Existing literature has yet to traverse individual's tax compliance behavior on developing countries. The current study, however, explores the relationships among voluntary tax compliance behavior of individual taxpayers with selected economic, social, behavioral and institutional factors. This individual tax compliance behavior is studied through the multi-perspective lenses of the theory of attribution, equity theory, expected utility theory, and social exchange theory. Quantitative design using the survey method was employed to collect data from 435 individual taxpayers through questionnaire. For testing linkage between constructs, through mediation and moderation tests, structural equation modeling technique was used. The results suggest that tax compliance simplicity has a larger impact on tax filing than perception about Government Spending and tax morale. Furthermore, perception of fairness significantly mediates the strengths between morale, simplicity, government spending and compliance behavior. [ABSTRACT FROM AUTHOR]

The Japanese government plans to reduce greenhouse gas emissions by 80% by 2050. However, it is not yet clear which policy measures the government will adopt to achieve this goal. In this regard, environmental tax reform, which is the combination of carbon regulation and the reduction of existing distortionary taxes, has attracted much attention. This paper examines the effects of an environmental tax reform in Japan. Using a dynamic computable general equilibrium (CGE) model, we analyze the quantitative impacts of an environmental tax reform and clarify which types of environmental tax reform are the most desirable. In the simulation, we introduce a carbon tax and consider the following four scenarios for the use of the carbon tax revenue: (1) a lump-sum rebate to the household, (2) a cut in income taxes, (3) a cut in corporate taxes and (4) a cut in consumption taxes. The first scenario is a pure carbon tax, and the other three scenarios are types of environmental tax reform. Our CGE simulation shows that (1) environmental tax reform tends to generate more desirable impacts than the pure carbon tax and that (2) the strong double dividend is obtained in some cases. In particular, we show that a cut in corporate taxes leads to the most desirable policy in terms of GDP and national income. [ABSTRACT FROM AUTHOR]

Wasteful healthcare spending persists[1] but is concentrated and amenable to change: Hospital Referral Regions (HRRs) with higher per capita expenditures provide more low-value care,[2] and more wasteful Accountable Care Organizations reduce low-value care use after entering value-based payment plans.[3] We hypothesized that increasing adoption of value-based payment models - introduced by the Centers for Medicare and Medicaid Services (CMS) in 2010 and designed to reduce waste - might reduce geographic variation in per capita healthcare spending and slow per capita expenditure growth in higher spending areas. Table 1 For Hospital Referral Region Defined Quintiles of Per Capita Fee-for-Service Medicare Expenditures in 2007: Per Capita Expenditures on Total, Episodic Care, and Service Care and Their Components in 2007 (left), and Compound Annual Inflation Rates for 2007-2010, 2010-2014, and 2014-2017 (right). [Extracted from the article]

Can the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%. [ABSTRACT FROM AUTHOR]

This article empirically studies how fiscal policy affects the shadow economy through the two tools of taxation and government expenditure, and how this effect depends on the presence of corruption. By using a panel data for 24 developing Asian countries over the period of 2002–2015, we find that the shadow economy is negatively affected by expansionary fiscal policies and positively affected by contractionary fiscal policies, extending the Voluntarist school of thought on shadow economy; and corruption and shadow economy are complements. Specifically, the tax burden from both direct and indirect taxes increases the shadow economy and the increase in corruption intensifies this effect. Furthermore, the government expenditure reduces the size of the shadow economy and the increase in corruption attenuates this effect. In addition, we find a stronger impact of indirect taxes, compared to direct taxes; a stronger effect of government expenditure, in comparison with direct and indirect taxes; and a dominating impact of corruption on the shadow economy in developing countries. The findings indicate that governments can utilize expansionary fiscal policies through appropriate combination of direct taxes, indirect taxes and government expenditure to reduce the shadow economy, provided that corruption is controlled. [ABSTRACT FROM AUTHOR]

Asian developing countries face challenges of serious air pollution and large shadow economy. Fiscal policy is anticipated as a solution to cope with these obstacles. This paper empirically examines the impact of shadow economy on air pollution and the role of fiscal policy in moderating the impact through the two tools of government expenditure and taxation in 22 Asian developing countries during 2002–2015. The estimation results from the fixed effects and the system generalized method of moments show that air pollution is positively affected by the shadow economy; and expansionary fiscal policy can reduce air pollution through abating shadow economy, and can lessen the detrimental effect of shadow economy on the environmental quality. Specifically, the increase in government expenditure reduces the positive effect of shadow economy on air pollution, but a tax-hike intensifies it. It is also found a stronger negative impact of government expenditure, compared to positive impact of taxation, and a dominant impact of shadow economy on air pollution. The findings imply that policy-makers can use appropriate fiscal policies to control air pollution and to reduce the destructive effect of the informal economy on the environmental quality in developing countries. Especially, governments in developing countries should allocate more budgets on environmental projects in their fiscal reforms for the sake of moving to greener and more inclusive economies with low-carbon activities. [ABSTRACT FROM AUTHOR]

This paper draws inference on the effect of changes in indirect taxation on household spending on cinema and performing arts using data from the Spanish household expenditure survey. As of September 2012, value-added tax (VAT) on cinema and performing arts in Spain was raised 13 percent points, with the exception of the Canary Islands which are not part of the Spanish VAT territory. Indirect taxation levied on cinema and performing arts through the General Indirect Tax of Canary Islands (Impuesto General Indirecto de Canarias, IGIC) had changed in July 2012 by only 2 percent points. Such an uneven raise in the tax rates is the source of exogenous variation used for identification in this paper. As the sample of treated households (exposed to the VAT rise) is much larger than the sample of untreated households (exposed to the IGIC rise), we use causal inference methods to estimate the average treatment effect of the VAT rise on the untreated households. We find that the average household expenditure on cinema and performing arts of the untreated households would not have changed significantly, had untreated households been exposed to the VAT rise. However, this average treatment effect would not have been homogeneous, as we identify an average treatment effect conditional on participation of 52.37 euros. Thus, the tax rise would have increased the annual expenditure of those households that spend on cinema and performing arts regularly. [ABSTRACT FROM AUTHOR]

Nobel laureate James Buchanan was influenced substantially by Knut Wicksell's arguments in favor of unanimous consent or "qualified majorities" for approving or rejecting specific public spending programs. Buchanan thought of Wicksell's recommendation that spending proposals be tied to dedicated revenue sources as way of erecting a bridge between the two sides of the public budget, thereby forcing politicians to face the same tradeoffs as individuals do when formulating their spending plans. We examine the history of Buchanan's ideas on public finance and discuss how legislative processes have demolished the bridge between public expenditures and public revenues. In modern practice, tax "earmarking", whereby local, state and federal governments ostensibly finance specific spending programs with the revenues raised by targeted consumption taxes, often becomes a smokescreen hiding the opportunistic reallocation of taxpayers' monies to finance unrelated policies or programs. Taxes on sugar-sweetened beverages provide our main case study. Other examples from public finance, past and present, such as selective excise taxes on cigarettes, lottery tickets and motor fuels, along with Alexander Hamilton's tax on whiskey to pay Revolutionary War debts also are examined. [ABSTRACT FROM AUTHOR]

Unilateral actions to reduce CO2 emissions could lead to carbon leakage such as relocation of emission-intensive and trade-exposed industries (EITE). To mitigate such leakage, countries often supplement an emissions trading system (ETS) with free allocation of allowances to exposed industries, e.g. in the form of output-based allocation (OBA). This paper examines the welfare effects of supplementing OBA with a consumption tax on EITE goods. In particular, we investigate the case when only a subset of countries involved in a joint ETS introduces such a tax. The analytical results suggest that the consumption tax would have unambiguously global welfare improving effects, and have welfare improving effects for the tax introducing country as well unless there are strong unfavorable terms-of-trade effects. Numerical simulations in the context of the EU ETS support the analytical findings, including that the consumption tax is welfare improving for the single country that implements the tax. [ABSTRACT FROM AUTHOR]

In this study, we assess the relationship between several tax items and consumption and income inequality levels. For OECD countries between 1980 and 2015, we use panel data techniques and find tax threshold values regarding inequality levels and consumption. In particular, we obtain threshold values for social security contributions between 9.50 and 11.80% (of GDP), for long-run consumptions, while to promote a reduction in income inequalities we found a 15.51% share of social security contributions over GDP, in both short- and long-term perspectives. Lastly, our results would support higher taxes on firms, in GDP terms, to decrease income inequalities, although that might hamper aggregate consumption. [ABSTRACT FROM AUTHOR]

This paper contributes to the literature on majority voting over fiscal policies. We depart from the standard model in two dimensions. First, besides redistributing income, the government uses the net tax revenue to finance the provision of goods and services that become in-kind transfers to the citizens. By deciding on the composition of this expenditure (education, health, law-and-order, etc.), the government chooses the allocation of the benefits to the different income segments. This choice is a fundamental ingredient of fiscal policy. Second, we tackle the problem of choosing the income tax function and the composition of public expenditure by assuming that the political process selects one of these issues as the salient one. Political controversy and vote focus on this issue exclusively. The other dimension is determined in a way so as to minimize objections (obtain consensus) among the voters. We analyze the case where the salient policy is the composition of public expenditure. We show that for each voted expenditure policy, there is a unique income tax function that attains consensus. The political process we model yields that the progressiveness of the income tax schedule depends on income inequality interacted with the elasticity of substitution of the goods provided in the market and those publicly provided. This relationship is confirmed in our empirical test. [ABSTRACT FROM AUTHOR]

We examine the incidence on household consumption of the introduction of tax incentives to retirement saving. First, using data from a panel of tax returns we document that most contributions to pension funds are by older/high-income individuals. Then we use panel data from a consumption survey spanning the period 1985 and 1991 to find that there is substantial heterogeneity in the response of household saving to tax incentives. While the overall amount of new saving we estimate is limited (at most 19 cents per euro contributed on average), saving responses differ substantially across age groups: among the group of households between 56 and 65 years of age, the group that most actively contributed to the plan, there are very small consumption changes; among the group of households between 46 and 55 years of age, the decrease in (mostly durable) consumption expenditures is much larger. [ABSTRACT FROM AUTHOR]

We empirically show that the austerity packages implemented in some euro area countries during 2010–2014 were only partially successful in generating internal devaluations. Countries that cut spending indeed experienced a decline in nominal wages, a real exchange rate depreciation, a fall in the relative price of non-tradables and a shift of consumption toward non-tradables, whereas we find no such evidence for countries raising consumption taxes. We show that this asymmetric response is in line with a small open economy model with GHH preferences. Moreover, the output costs of correcting current accounts were higher than anticipated because neither policy was successful in raising exports through lower prices. Instead, current account improvements were solely driven by lower imports stemming from faltering domestic demand. We provide evidence that exporters absorbed lower wages through higher markups, and show in a model with pricing to market that, had firms kept their markups constant, output costs of correcting current account imbalances would have been cut by almost one half. [ABSTRACT FROM AUTHOR]

This paper considers the design of taxes on real money balances and bank payment services, when realistically, the household can use either cash or a bank payment account for the purchase of different varieties of goods. These taxes, plus a consumption tax, fund a government revenue requirement. We find that generally, real money balances and bank transaction fees should be taxed, and at different rates, i.e. the tax system should not leave the choice of payment services undistorted. For a wide class of time transactions cost technologies, including the Baumol-Tobin case, fees should be taxed at a lower rate than real money balances, and the tax on real money balances should be positive. However, it is possible that fees should be subsidized. The rate of tax on fees has no simple relationship to the optimal consumption tax, and can be higher or lower. A Corlett-Hague type intuition for these results is also developed, which relies on the concept of a virtual time endowment. [ABSTRACT FROM AUTHOR]

This paper investigates the welfare implications of tax policies in the economy with present-biased consumers. We show that consumption taxes, income subsidies, or capital subsidies can improve not only hyperbolically discounted intertemporal utilities, but also exponentially discounted commitment utilities. This finding implies that both consumers and the government can have incentives to adopt tax policies against present-biased decisions. All the results are shown in a three-period model with general utility and production functions. A steady-state analysis indicates that the proposed tax policy is effective in recovering the welfare/capital loss due to consumers' present bias. [ABSTRACT FROM AUTHOR]

We find that the Friedman rule is not optimal with real government transfers and distortionary taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. This result holds for heterogeneous agents, standard homogeneous preferences, and constant returns to scale production functions. The presence of real transfers changes the standard optimal taxation result of uniform taxation. Higher transfers imply higher optimal inflation rates. We calibrate a model with transfers to the US economy and obtain optimal values for inflation substantially above the Friedman rule. [ABSTRACT FROM AUTHOR]