Labor Tax Research Articles

Tax systems and public borrowing limits in a fiscal union.

This paper compares the implications of tax system and public borrowing limit asymmetries for the welfare cost of business cycles and interregional consumption risk sharing in a two-region fiscal union. We identify the welfare-improving and risk-sharing-improving designs of the regional tax systems and borrowing limits. We find that the choice of public borrowing limits is more consequential than is the choice of a tax regime for union welfare. It also serves as an argument for the harmonization of fiscal policies adopted in the fiscal union, as it would internalize fiscal externalities and improve consumption risk-sharing across the union regions. The key parameter determining the merits of alternative regional tax systems and possible limits to public borrowing in the fiscal union is the productivity of public good. Other aspects of the economy, such as the type of technology process, or the nature of the productivity shock do not affect the union public finance system design significantly. Extensive simulations suggest that if the productivity of public capital lies within the range of plausible empirical estimates, allowing both regions to have flexible borrowing limits and to choose whatever tax system they prefer will reduce the overall welfare costs of business fluctuations. However, for very low productivity of public capital, the welfare-improving regional public finance reforms that would prohibit public borrowing and tax labor income can produce limited benefits.

Labor Taxation in the European Union- A Case Study

Labor Taxation in the European Union- A Case Study

Rising skill premium and the dynamics of optimal capital and labor taxation

With capital‐skill complementarity, the secular decline in the price of capital equipment due to equipment‐specific technological progress (ESTP) keeps pushing up the demand for skilled relative to unskilled labor and raising the skill premium. This paper quantitatively characterizes the dynamics of optimal taxation in response. Two main results emerge, regardless of whether the Ramsey (1927) or the Mirrlees (1971) approach is adopted. First, a tax on capital equipment corrects the “pecuniary externalities” caused by ESTP. The correction prescribes a downward or an upward adjustment of tax rates over time, depending on whether ESTP takes place at an accelerated or a decelerated pace. Second, both Ramsey and Mirrlees approaches prescribe an increasing marginal tax rate on labor income over time. Interestingly, we find that the prescribed pattern of optimal taxation resembles the empirical decline in capital taxes and the increase in labor taxes observed in the United States. In particular, despite the significant rise in the skill premium, the welfare gains of tax reform toward optimal Ramsey taxes are modest and small.

Capital and Labor Taxes with Costly State Contingency

Capital and Labor Taxes with Costly State Contingency

Reforma poreske politike za održivi privredni rast u Srbiji

In the last two decades, the Serbian economy posted an average growth rate of 3.8 percent, which was above the average growth rate in the EU, Central and Eastern Europe (CEE) 1 and the Western Balkans 2 . Together with sharp decline in population, this has led to some economic convergence in terms of the GDP per capita, although the gap to the EU and CEE countries remains significant (57 and 42 percent respectively). To achieve full economic convergence with the European countries, Serbian economy needs to post long run growth rates of 4-6 percent per year, in a sustainable manner, which primarily refers to a more fair distribution of growth dividend (reduction of economic inequality) and limiting negative environmental footprint. In this sense, the reform of tax policy can make a contribution to the sustainable growth of the Serbian economy, through: i) a slight reduction in the overall tax burden, primarily through a significant cut in labour taxes, which may be financed by means of broadening the environmental taxes base, increase in consumption taxes and reducing unproductive public expenditures, ii) moderately increasing the progressivity of the personal income tax, recurring property tax and inheritance tax, and iii) broadening the environmental taxes base (with the focus on energy and pollution taxes) and introducing the tax incentives for households to switch to green energy sources.

Using Energy and Emissions Taxation to Finance Labor Tax Reductions in a Multi-Sector Economy

Using Energy and Emissions Taxation to Finance Labor Tax Reductions in a Multi-Sector Economy

Progressing Towards Efficiency: The Role for Labor Tax Progression in Reforming Social Security

Progressing Towards Efficiency: The Role for Labor Tax Progression in Reforming Social Security

Tax Policy in the Slovak and Czech Economies

Today, society is struggling with the uncertainty caused by the pandemic of coronavirus disease 2019 (covid-19). Government budgets will face a real challenge in the coming years. This paper provides an overview of public finances and their condition over the past 20 years in the Slovak and Czech Republics. It investigates the possible effects of different tax type changes and also the option to cover budget losses. A simple dynamic stochastic general equilibrium (DSGE) model with three sectors was calibrated using data from 2018 and a stochastic analysis was performed. It was shown that the economy was more sensitive to shocks on social security contributions than to those on other taxes. The results may help support a reform of decreasing labour taxes, for which both Slovakia and Czechia have been waiting for a long time.

Labor Taxation and the Uneven Growth of Wage Inequality

Abstract Wage inequality has risen in some rich countries but not others, and where it has risen, the divergence has been mainly between middle and high earners. I argue that taxation is an important factor driving this uneven growth of pretax wage inequality. In some countries, marginal tax rates on upper-middle incomes are high and stable, reducing the income that workers receive relative to the costs borne by employers. In others, marginal taxes on upper-middle incomes have been reduced, in some instances considerably, which incentivizes pretax income growth. I show that marginal tax rates are strongly correlated with pretax 90/10 and 90/50 wage ratios. The results are robust to alternative estimators that control for unobserved heterogeneity and other statistical issues. The findings suggest that, in an era of liberalized wage bargaining and decreased economic coordination, taxation may have taken on a greater role as an inequality-reducing institution.

Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.

Economic, Environmental and Social Impact of Carbon Tax for Iran: A Computable General Equilibrium Analysis

AbstractThe environmental taxes, such as carbon tax, also affect other economic variables in a different way in addition to the main goal of politicians. The carbon tax aims to reduce energy consumption and pollutant emissions, while it can also reduce labor tax and labor costs which are incentives to create new jobs. It is necessary to evaluate the carbon taxation policy in Iran due to the special circumstances of the budget deficit mainly caused by the decline of exports and oil revenues. The present study is based on a general equilibrium model in the form of a nonlinear equations system. The model has been calibrated for the 2017 reference year using the data table adopted from Iran's economy. It has been shown that if the carbon tax revenue is employed to decrease the labor income tax, the environmental quality will be improved by reducing pollutant emissions on the one hand, and it will lead to positive effects on the welfare and employment on the other hand. In the present paper, the effect of applying this tax on two policies with redistribution (compensation) and without redistribution (no compensation) of income tax among the households is examined. Maximum, minimum, and optimal values of pollutant emissions reduction under the influence of carbon tax policies were calculated in both scenarios. The simulation results show that the taxation without redistribution of tax revenues decreases the welfare and household's actual consumed budget by 6.2%, but in policy with compensation of tax revenue, these indices will increase by 0.8%. The gross domestic product (GDP) decreases by about 1.7% and 2.1% in both policies, respectively, while the consumer price index (CPI) in both scenarios will increase by about 6.4% and 8%, respectively. According to this research findings, carbon taxation with the redistribution of revenue is a suitable policy to reduce greenhouse gas emissions and adhere to international commitments at the same time.

Distributional effects of emission pricing in a carbon-intensive economy: The case of Poland

We assess the distributional impact of introducing a carbon tax in a small open economy, using the case of Poland. We use a dynamic general equilibrium model with a search mechanism in the labour market, soft-linked to a microsimulation model based on household budget survey data. We evaluate the impact on various income groups and on inequality. We account for four key channels: the direct (energy) and indirect (other goods) price effects, behavioural adjustment of consumption, and changes in labour income. We consider three of ways to recycle the carbon tax revenue: lump-sum transfer, energy price subsidies, and labour tax reduction. We find that the distributional effects depend on the recycling of revenues. Using them to reduce labor taxation attenuates the negative effect of carbon tax on GDP and employment but increases inequality compared to a lump-sum transfer to households. This finding highlights the trade-off between efficiency and equity. Our results could be relevant for other countries producing fossil fuels, such as South Africa, Germany, or Australia.

North and South: A Regional Model of the UK

We set up a two-region model to study the policy challenge of bringing the North’s income up to the level of the South in the UK. The model focuses on labour costs as the driver of output gains through the international competitiveness channel; and on tax/regulative costs to entrepreneurs as the driver of productivity growth. The empirical results show that the regional model behaviour fits the regional UK data behaviour over the period of 1986Q1 and 2019Q4, using the demanding Indirect Inference method. We also carry out a Monte Carlo power test, which shows the empirical results we obtain are trustworthy and can provide us a reliable guide for policy reform. The results suggest that in response to tax cuts and labour market reforms GDP in the North increases almost twice as much as GDP in the South. Given that a broad programme of tax cuts and regulatory reform would more than pay for itself in the long run, it must be considered as a highly attractive political agenda.

Is carbon pricing regressive? Insights from a recursive-dynamic CGE analysis with heterogeneous households for Austria

We explore the macroeconomic and distributional impacts of unilateral carbon pricing in Austrian economic sectors, which are not covered by the EU emission trading scheme ETS, under various assumptions of revenue usage. We use a recursive-dynamic computable general equilibrium model with twelve groups of private households, differentiated by income quartile and location of residence. Pricing of non-ETS CO2 emissions without any targeted compensation of households turns out to be progressive (when measured in equivalent variation, or welfare) with households living in the periphery being affected the most. This outcome is explained by the dominating progressive factor income effect, which works against regressive consumer price impacts. Considering the positive contribution to welfare from increased public goods provision, low-income households are even better off than without carbon pricing. We compare the revenue usage options ‘no targeted compensation’ with either unconditional or revenue-neutral ‘eco-bonus per capita payments’ as well as revenue-neutral cuts in either ‘labor tax rates’ or ‘value added tax rates.’ We discuss our results from a Utilitarian, Rawlsian and polarization-averse equity perspective. Applying equal weights to the criteria ‘environmental effectiveness’, ‘cost effectiveness’, ‘public budget’ and ‘welfare’, Rawlsian decision makers would prefer the no targeted compensation option. Otherwise, the revenue usage option of revenue-neutral cuts in labor tax rates balance best investigated multiple criteria.

Kewenangan Kurator Dalam Pengurusan Dan Pemberesan Harta Pailit Dalam Hal Negara Sebagai Kreditor Preferen

In handling and settling of bankruptcy debtor wealth is carried out by the curator under the supervision of a judge with the main objective of using the sale of these assets to pay all debts of the bankrupt debtor proportionally (prorate parta) and based on the structure. The existence of a state towards a bankrupt company in collecting tax which is a state right. With the Constitutional Court Verdict No. 67 / PUU-XI / 2013 results in uncertainty. Which should be paid first, tax debt or labor wages. Therefore a problem arises namely what is the responsibility of the curator in handling and settlement of bankrupt assets, how Law Number 37 of 2004 Concerning Bankruptcy and Delaying Obligations of Debt Payment in protecting the duties of the curator in terms of handling and settlement bankrupt assets, how is the State's position as the preferred creditor after the Constitutional Court's verdict No. 67 / PUU-XI / 2013. The type of writing method applied in this research is normative legal research. The method of approach used is the method of legislation approach using primary, secondary and tertiary legal materials. The data needed is collected by means of library research and field research by conducting interviews and then analyzed by qualitative deductive analysis methods to produce descriptive data. Based on the results of the study it can be concluded that the. The curator cannot be punished if he has carried out his duties according to the Judge's provisions. The dispute over the right to precede only arises when there are bills for labor wages and tax debts all at once.

Time-inconsistent optimal quantity of debt

A key property of the Aiyagari-type heterogeneous-agent models is that the equilibrium interest rate of public debt lies below the time discount rate. This fundamental property, however, implies that the Ramsey planner’s fiscal policy may be time-inconsistent because the forward-looking planner would have a dominant incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk. But such a full self-insurance allocation may be paradoxical because, to achieve it, the optimal labor tax rate may approach 100% and aggregate consumption may approach zero. This is puzzling from an intuitive perspective because near the point of full self-insurance the marginal gains of increasing debt should be less than the marginal costs of financing the debt under distortionary taxes. We show that this puzzling behavior originates from the assumption that the planner must commit to future plans at time zero. Under such a full commitment, the Ramsey planner opts to exploit the low interest cost of borrowing to front-load consumption by sacrificing future consumption in the long run because future utilities are heavily discounted compared to the inverse of the interest rate on government bonds. We demonstrate our points analytically using a tractable heterogeneous-agents model featuring non-linear preferences and a well-defined distribution of household wealth.

Are unconditional lump-sum transfers a good idea?

The role of unconditional lump-sum transfers in improving social welfare in heterogenous agent models has not been thoroughly understood in the literature. We adopt an analytically tractable Aiyagari-type model to study the distinctive role of unconditional lump-sum transfers in reducing consumption inequality due to ex-post uninsurable income risk under borrowing constraints. Our results show that in the presence of ex-post heterogeneity and in the absence of wealth inequality, unconditional lump-sum transfers are not a desirable tool for reducing consumption inequality—the Ramsey planner opts to rely solely on public debt and a linear labor tax (in the absence of a lump-sum tax) to mitigate income risk without the need for lump-sum transfers, in contrast to the result obtained by Werning (2007), Azzimonti and Yared (2017), and Bhandari et al. (2017) in models with ex-ante heterogeneity.

Inequality and growth in the twenty‐first century

AbstractThis paper analyzes how economic growth can be caused by changes in the income distribution. Persson and Tabellini (1994, The American Economic Review, 84, 600‐621) argue that productivity‐induced income inequality leads to lower growth since distortionary taxes increase and harm capital accumulation. However, this prediction is often challenged empirically. This paper distinguishes between capital income inequality and inequality induced by differences in labor productivity. Greater capital income inequality leads to lower labor tax rates, leading to higher growth. Using data for OECD countries, subsequent growth is found to be positively related to capital income inequality, and negatively related to labor income inequality, as originally conjectured.

FOREIGN DIRECT INVESTMENT IN THE KINGDOM OF SAUDI ARABIA: A DIAGNOSTIC ANALYSIS

This study aims to identify the status of Saudi Arabia as a destination for FDI, the factors that attract FDI into Saudi Arabia, and the factors that hinder the flow of FDI into Saudi Arabia. The study covers a period of five years from 2015 to 2019. The study analysis various determinants of FDI: market size, infrastructure, technology adoption, innovation friendliness, productive and diversified labor force, financial infrastructure, taxation, political risk, corruption, and ease of doing business. The study finds that several factors like market size, well-developed infrastructure, a higher degree of technology adoption, innovation-friendliness, the banking system that is well-capitalized and liquid, low corporate taxes, political stability, low transfer risk, low expropriation risk, low levels of corruption, and a stable currency make Saudi Arabia an attractive destination for FDI. At the same time, the low labor market efficiency and the low ranking in ease of doing business makes it less attractive to FDI.

Cross-country differences in preferences for leisure

The starting point of this paper is to document considerable cross-country variation in the “labor wedge”, a common measure of labor market frictions. Its variation is theoretically isomorphic to differences in a preference-for-leisure parameter. The paper proceeds to investigate what might explain the variation. It presents three separate empirical exercises supportive of the view that, to a substantial extent, cross-sectional labor-wedge differences are capturing systematic differences in leisure preferences. Firstly, in cross-country regressions, a cultural measure of preferences for leisure, elicited from the World Values Survey, contains economically larger and statistically more robust explanatory power than do traditional measures of labor market frictions. Secondly, following the epidemiological approach, individual-level data on labor-supply choices of descendants of immigrants in the United States and Sweden line up with what an “inherited” preference for leisure would predict. Thirdly, in the spirit of an out-of-sample test, the paper looks at the implication of differences in preferences for cross-country differences in optimal labor taxation. Economic theory suggests a negative association between preferences for leisure and labor taxes; empirical data verify the theoretical prediction.