Optimal Tax Rate Research Articles

The economic effects of tax structure transformation: A study based on the tax reform of China's hainan free trade port

Many developing countries use tax reform as a strategy to support national or regional development. China's tax reform of the Hainan Free Trade Port in 2025 serves this purpose. The reform replaces the existing VAT, consumption tax, vehicle purchase tax, urban maintenance and construction tax, and education fee ("four taxes and one fee") with a sales tax. Previous studies of tax structure reform have rarely addressed the economic impact of such a transition, and few sales tax studies have discussed the issue of optimal tax rates. To study the economic effects of the introduction of sales tax and to find the optimal tax rate, this paper uses the computable general equilibrium (CGE) model to conduct simulation analyses. It is found that the sales tax rate should be 17.16 % to keep the fiscal revenue of Hainan Province more or less unchanged after the ‘four taxes and one fee’ are simplified into sales tax. The total economic volume and sales tax rate show an inverted ‘U’ type relationship, the optimal sales tax rate is about 9.79 %, and the tax rate of GDP, investment, employment growth of 3.82 %, 0.35 %, 3.41 %, respectively, the manufacturing industry and other industries in most of the different degrees of growth. Therefore, we suggest that the average sales tax rate of Hainan Free Trade Port should be around 9.79 %.

Optimal fiscal policy in small open economies with habit persistence

Abstract This paper sets up a small open economy model with habit persistence in consumption in which distortionary taxation is available in a flexible price environment. In open economy, the habit persistence in consumption aggravates the terms of trade externality, absent in closed economy, calling for more aggressive fiscal policy. While optimal labor income taxes are time-invariant in a closed economy with internal habit, they should be time-varying in an open economy to alleviate the terms of trade externality, even if the intertemporal elasticity of substitution equals the intratemporal elasticity of substitution. In a small open economy composed of households with habit persistence in consumption, households’ decision to gradually adjust their consumption and labor hours intensifies the undesirable terms of trade externality or the terms of trade channel. This generates a time-varying wedge between the efficiency conditions of the Ramsey planner and the market equilibrium conditions, calling for a time-varying taxation which takes into account the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between home and foreign goods, in addition to the degree of habit and goods market distortion. The volatility of optimal tax rate increases with the degree of habit, whether households have external or internal habit. The volatility of tax rate shows an inverted U-shape in the degree of openness in the small open economy with habit. Finally, the optimal labor income tax rate moves countercyclically for low degree of intratemporal elasticity of substitution, while it moves procyclically for high degree of intratemporal elasticity of substitution.

Optimization of shipping freight forwarding services considering consumer rebates under the impact of carbon tax policy

Maritime carbon emissions, contributing to approximately 2.89% of global anthropogenic CO2 emissions, have prompted governments to actively promote a low-carbon shift in the freight forwarding sector. The effect of carbon tax implementation on guiding freight forwarders towards offering more eco-friendly freight forwarding services and facilitating a low-carbon transition remains unclear. This study categorizes freight forwarding services models based on delivery speed, ranging from fast to slow, and environmental friendliness, from low to high. It examines scenarios involving a singular carbon tax and consumer rebates, establishing a freight forwarder model without carbon tax constraints (N-T model), a singular carbon tax model for freight forwarders (C-T model), and a combined carbon tax-consumer rebate model (C-C model). The findings suggest that carbon tax pressures from regulatory bodies ultimately affect consumers; thus, under tax cost pressures, freight forwarders must adapt their shipping strategies. A shift towards more eco-friendly freight forwarding services occurs if the rate of demand growth is less than the increase in fixed delivery costs, and an optimal tax rate can drive this shift. Conversely, when the perceived rebate difference between any two services surpasses a certain threshold, eco-friendly freight forwarding services are consistently favored. In the absence of such conditions, a well-designed carbon tax policy is essential to steer freight forwarders toward reducing carbon emissions.

Measuring the harm of sugar sweetened beverages and internalities associated with it.

Obesity, which is partly driven by the consumption of sugar-sweetened beverages (SSBs), significantly increases the risk of type-2 diabetes and cardiovascular diseases, leading to substantial health and economic burdens. This study aims to quantify the monetary value of health harms caused by SSB consumption, along with the associated internalities, through a contingent valuation survey. The results are crucial for determining the socially optimal tax rate. We surveyed 293 residents of Wellington, New Zealand, to assess their willingness to pay (WTP) for reductions in the risks of diabetes, stroke, and heart disease associated with SSB intake. Logistic regression analysis revealed the marginal WTP for a 1% risk reduction in diabetes, stroke, and heart disease to be NZ$404.86, NZ$809.04, and NZ$1,236.84, respectively. Based on these values, we estimate the marginal harm from SSB consumption to be approximately NZ$17.37 per liter in New Zealand, with internalities amounting to NZ$6.43 per liter, suggesting an optimal tax rate of NZ$6.49 per liter. Implementing such a tax is feasible and would likely double or triple the price of SSBs in New Zealand.

Corporate taxation in Spain: analyzing efficiency and revenue potential

This paper offers a comprehensive analysis of Spain’s corporate tax system through the lens of the Laffer curve and Buoyancy index, assessing its efficiency in generating revenue. The study finds that Spain is nearing the Laffer curve’s optimal tax rate, beyond which tax revenue may decrease with rate hikes. The Buoyancy index reveals a fluctuating response of tax revenues to economic shifts, indicating vulnerability in economic downturns. We trace Spain’s corporate tax evolution, examining current structures and recent policy reforms, and explore how corporate taxation influences economic activities and investment. The paper proposes policy recommendations, including reassessing the corporate tax rate, advocating structural reforms for a wider tax base, and policies promoting economic growth. Emphasis is placed on counter-cyclical fiscal policies, regular evaluation of tax incentives, improving tax compliance, and Spain’s role in global tax coordination. This research contributes to fiscal policy discussions, advocating a balanced tax approach for sustainable economic development and guiding policymakers toward resilient fiscal strategies in a dynamic economic environment.

An Extensive Examination of Taxation as an Accelerator for Economic Growth in Nigeria

This study looks at how taxes affect Nigeria's economic development. A time series dataset from 1996 to 2021 was estimated using a short run Autoregressive Distributed Lag [ARDL(2,1,0,0,0)]. The dataset was collected from FIRS. The impacts of Value Added Tax (VAT), Company Income Tax (CIT), Personal Income Tax (PIT), and Petroleum Profit Tax (PPT) on Nigeria's Gross Domestic Product were particularly examined in this study. The findings showed that while personal income tax and value added tax have a short-term negative impact on economic growth, corporation income had a considerable beneficial impact on Nigeria's economic expansion. In addition, petroleum profit tax has positive but insignificant effect on economic growth in the long run. Therefore, striking the right balance between tax rates, economic incentives and compliance is crucial. The Laffer curve theory provides valuable insights into finding the optimal tax rate that maximizes revenue. This can be done balancing the incentives for economic activity against the burden of taxation, finding the optimal rate varies depending on various economic factors and the taxpayer behaviour. The study suggests that offering targeted tax incentive for investments, innovation, and entrepreneurship. These incentives can include tax breaks for specific sectors, research and development activities, and job creation initiatives.

Political Language in Economics

Abstract Does academic writing in economics reflect the political orientation of economists? We use machine learning to measure partisanship in academic economics articles. We predict the observed political behaviour of a subset of economists using phrases from their academic articles, show good out-of-sample predictive accuracy and then predict partisanship for all economists. We then use these predictions to examine patterns of political language in economics. We estimate journal-specific effects on predicted ideology, controlling for author and year fixed effects, that accord with existing survey-based measures. We show considerable sorting of economists into fields of research by predicted partisanship. We also show that partisanship is detectable even within fields, even across those estimating the same theoretical parameter. Using policy-relevant parameters collected from previous meta-analyses, we then show that imputed partisanship is correlated with estimated parameters, such that the implied policy prescription is consistent with partisan leaning. For example, we find that going from the most left-wing authored estimate of the taxable top income elasticity to the most right-wing authored estimate decreases the optimal tax rate from 77% to 60%.

Correlation Between Tax Rates and Tax Revenues in the Ottoman Empire in Respect to Laffer Theorem as Applied to Raki and Wine Figures (1792-1839)

This study aims to calculate the relationship between tax rates and revenues of wine and raki coming to Istanbul for consumption from different regions of the Ottoman Empire in the period 1792-1839 with the T Test and interpret it according to the Laffer theorem. The main question of the study can be formulated as what kind of change did the increases in the tax rates of wine and raki in 1810, 1822 and 1831 cause in the tax revenue of these goods. This question can also be expressed as whether the Ottoman Empire should or should not increase the tax rates of wine and raki in order to increase tax revenue. In order to achieve this goal and resolve the question, the tax revenues of the period 1792-1839 were obtained from the financial records in various funds of the Presidential Ottoman Archives (BOA) and the changes in these revenues with the change in tax rates were calculated with the T Test. The results of the test will show, according to the Laffer Theorem, whether the Ottoman Empire increased the tax rates of wine and raki, causing an increase or decrease in the tax revenues of these goods, that is, whether the tax rates were above or below the optimum tax rate. The possible result expected to be obtained from this study is that the increase in the tax rates of raki and wine in the Ottoman Empire did not cause an increase in tax revenue, but on the contrary, a decrease. In other words, it can be said that the tax rate increases in these two goods in the Ottoman Empire fell behind the price increases.

Can we design food taxes to reduce agricultural greenhouse gas emissions in China? A perspective from animal protein intake of low-income populations

PurposeStudies on developed economies showed that imposing taxes on animal-based foods could effectively reduce agricultural greenhouse gas emissions (AGHGEs), while this taxation may not be appropriate in developing countries due to the complex nutritional status across income classes. Hence, this study aims to explore optimal tax rate levels considering both emission reduction and nutrient intake, and examine the heterogenous effects of taxation across various income classes in urban and rural China.Design/methodology/approachThe authors estimated the Quadratic Almost Ideal Demand System model to calculate the price elasticities for eight food groups, and performed three simulations to explore the relative optimal tax regions via the relationships between effective animal protein intake loss and AGHGE reduction by taxes.FindingsThe results showed that the optimal tax rate bands can be found, depending on the reference levels of animal protein intake. Designing taxes on beef, mutton and pork could be a preliminary option for reducing AGHGEs in China, but subsidy policy should be designed for low-income populations at the same time. Generally, urban residents have more potential to reduce AGHGEs than rural residents, and higher income classes reduce more AGHGEs than lower income classes.Originality/valueThis study fills the gap in the literature by developing the methods to design taxes on animal-based foods from the perspectives of both nutrient intake and emission reduction. This methodology can also be applied to analyze food taxes and GHGE issues in other developing countries.

The Optimal Tax Rate: An Empirical Assessment in Congo

The Optimal Tax Rate: An Empirical Assessment in Congo

Understanding the Optimal Tax Rate: Balancing Work Incentives and Revenue Needs

Understanding the Optimal Tax Rate: Balancing Work Incentives and Revenue Needs

Big Data Simulation Analysis of the Impact of China’s Carbon Tax Levy on Carbon Emission Behavior under the Background of “Dual Carbon”

Abstract This study focuses on the impact of China’s carbon tax on carbon emission behavior under the background of “double carbon”, using big data simulation analysis. The study utilizes the DICE model, combined with general equilibrium theory, to conduct in-depth theoretical analysis and numerical simulation of the carbon tax policy. It is found that the optimal carbon tax rate should be flexibly adjusted in combination with social and economic development and technological progress, and the optimal tax rate gradually rises from RMB 2.83/tonne of carbon dioxide to RMB 17.62/tonne from 1997 to 2023. Simulation results show that increasing the carbon tax rate can effectively promote the low-carbon emission reduction behavior of enterprises and thus achieve the emission reduction target. Under the fixed carbon tax policy, a 50% tax rate can significantly improve environmental quality and economic output. In contrast, steady-state values of output and carbon emissions decrease with the increase of tax rates. At the same time, the combination of carbon trading and carbon tax can more effectively incentivize enterprises to reduce carbon emissions. The results of the study show that a flexible and reasonable carbon tax policy can significantly affect carbon emission behavior, which is of great significance for realizing China’s “double carbon” goal.

Herding, taxpayer's rent seeking and endemic corruption

In an environment with extensive corruption where much of the population evades paying their full taxes due, we tackle the question of optimal taxation when constituencies with conflicting objectives (the poor and the rich) push tax policy in different directions. We think in terms of a government policy maker here called the tax administrator (TA) and rent-seeking lobbying efforts by poor and rich constituencies. We recognize the taxpayers’ inter-dependency as reflected in increased evasion likelihood when others are thought to be evading. Thus our modeling incorporates elements from the theory of information cascades (herding) into a standard model of tax evasion. The poor and rich undergo a rent-seeking contest seeking to influence the TA in setting policy so that their constituency is favored. The TA maximizes an objective function that is a weighted average of expected social welfare, their own interests, and investment in better tax administration. With these building blocks we examine the functioning of the economy. Our results include those that are expected, counterintuitive and surprising. For example, we learn that lower taxes on the rich does not mean the TA cares more about the public interest. Instead, it may result from the TA caring less about the public welfare of others in society, i.e., less about both the poor and the rich. Furthermore, with an increase in perceived inequality society's optimal tax rate rises. On the other hand, high tax levels lead to high herding and greater herding decreases investment by the poor and the rich attempting to affect the tax level set by the TA. Thus, a TA who only cares about their own self will enact lower tax levels than if they cared about others in the society.

Unilateral tax policy in the open economy

This paper examines the effects of a unilateral reform of a redistributive tax-transfer system in an open economy. Compared to autarky, a tax increase leads to a smaller decline in aggregate income in the open economy, and it is also more effective at reducing income inequality, provided the tax rates are sufficiently low. Aggregating effects on income and income inequality using an Atkinson social welfare function, we find that optimal tax rates are positive in the open economy and higher than under autarky. The key mechanism is a tax-induced reduction in the market size of the reforming country relative to its trading partner, resulting in a firm selection effect towards exporting in line with a terms-of-trade improvement. From the perspective of a non-reforming trading partner, this resembles a unilateral increase in trade costs leading to a deterioration of terms of trade and a decline in aggregate real income and inequality.

The optimal specific or ad valorem tax when the other tax is exogenously imposed in a free‐entry Cournot oligopoly market

AbstractThis study examines how optimal specific or ad valorem taxation in a free‐entry Cournot oligopoly market is affected by a change in another exogenously given tax. We derive the sufficient conditions for the uniqueness of the optimal tax rate, which are related to the concavity of the marginal revenue and the log‐concavity of the first derivative of the average cost function. By guaranteeing the uniqueness, we can conduct a comparative statics analysis on the optimal tax rate. We show that a marginal increase in another tax can paradoxically reduce prices and decrease the optimal tax rate.

Optimal income taxation: An urban economics perspective

We derive an optimal labor income tax rate formula for urban models that nests the Mirrlees model as a limiting case. Optimal tax rates are determined by traditional forces plus a new term arising from urban forces: house price, migration and agglomeration effects. Based on the earnings distribution, housing costs and housing tenure in large and small US cities, we find that in a benchmark model (i) the optimal income tax rate schedule is U-shaped, (ii) urban forces raise the optimal tax rate schedule at all income levels and (iii) adopting an optimal tax system induces agents with low skill levels to leave large, productive cities.

Asteroid Mining Tax as a Tool to Keep Peace in Outer Space

At first glance, taxing mining in outer space may seem like a marginal issue. However, based on the experience of taxation on Earth, it will be a prerequisite for ensuring peace in outer space.The aim of this study is therefore to propose a way of taxing asteroid mining to eliminate economic inequalities between states on Earth and to reduce the future threat of space colonies and extra-terrestrials claiming asset-based benefits.The study proposes the institution of a tax administrator to oversee taxation as appropriate. At the same time, a procedure has been proposed for determining the tax base using normal prices for specific commodities.An important prerequisite for fair and sustainable taxation is the determination of the optimal tax rate. A progressive tax rate has been proposed that takes into account future developments in space mining. The proposal is divided into three stages to take into account potential collaboration with space colonies and possible clashes with alien civilizations.

Cost Benefit Analysis and Determination of Liquid Waste Tax Rates Commercial Buildings in DKI Jakarta

This study aims to analyze the cost benefits of wastewater treatment and the determination of liquid waste tax rates on commercial buildings in the DKI Jakarta area. The variables used are (i) positive externalities that are proxied through labor and the benefits of wastewater treatment, (ii) concentration of liquid waste which includes Biological Oxygen Demand (BOD), Chemical Oxygen Demand (COD), Organic (KMnO4), and Total Suspended Solid (TSS), (iii) Liquid waste processing costs, (iv) Costs incurred by the community due to pollution. This research was conducted using an explanatory research approach and descriptive research. The samples used were commercial buildings X, Y and Z and communit affected liquid waste in central Jakarta. The analytical method used is Extended Cost and Benefit Analysis, Marginal Abatement Cost (MAC), Marginal Damage Cost (MDC) and Pigovian Tax. For marginal damage costs using economic valuation and determining the optimum tax rate using the Pigovian Tax approach. The results of the dissertation analysis show that buildings that have Liquid Waste Treatment Plants produce positive externalities, namely employment and the reuse of liquid waste processing results in the form of gardening, car wash, cooling tower, and reverse osmosis. In addition, commercial buildings that carry out liquid waste treatment have economic feasibility due to cost efficiency and are also environmentally feasible with the allocation of liquid waste treatment costs. For buildings that haven’t implemented WWTP and only use the services of PAL Jaya DKI Jakarta, directly shows that it is feasible from an environmental aspect because there is an allocation of costs for wastewater treatment and the benefits obtained are that operational activities can run Liquid waste processing by companies that have WWTPs have not reached usage standards drinking water so that it has an impact on additional damage costs incurred by the community (Marginal Damage Cost/MDC). Used the Marginal Abatement Cost (MAC) and Marginal Damage Cost (MDC) equilibrium, the determination of the waste tax rate on commercial buildings produces the optimum tax value to be paid by pplluters and the optimum concentration of liquid waste that can be discharged into rivers.

Threshold analysis regarding the optimal tax rate and tax evasion. Empirical evidence from Taiwan.

For a long time, governments of all countries have attached great importance to the development of underground economic activities. The reason is that the characteristics of the underground economy are hidden and the information disclosure is not sufficient, which not only distorts the economic data indicators, but more importantly, the existence of the underground economy has led to the loss of a large amount of tax base, affecting the long-term economic development of the country. Whether raising the tax burden rate boosts the tax revenue or expand the scale of the underground economy. In this paper, we use Kuznet Tax Curve (KTC) method to analyze the relationship between GDP and TTR/DTR/ITR. We find that the tax base erosion rate of indirect tax is lower than that of direct tax. In addition, we explore the relationship among economic growth, tax rate and tax revenue and adopt SUR-OLS method and Threshold approach to estimate the response of economic growth on total tax revenue(TTR), direct tax revenue(DTR) and indirect tax revenue (ITR) in Taiwan from 1991-2020. Our empirical research shows that when DTR tax rates are between 12.59% and 13%, an increase in income leads to a decrease, not an increase, in DTR, leading to severe tax base erosion. That is, the relationship between GDP and DTR presents a N-shaped relationship. However, ITR does not exist any tax rate threshold effect. Obviously, with the increase of GDP, ITR also increases. This reflects that the difference of tax structure between direct tax and indirect tax plays a key role in the relationship between tax rate and tax base erosion.

Optimal redistribution with a shadow economy

We extend the theory of optimal redistributive taxation to economies with an informal sector. In particular, in our model, workers can supply labor simultaneously to the formal and the informal sectors, which we call moonlighting. The optimal tax formula contains two novel terms capturing informality responses on an intensive and an extensive margin. Both terms decrease the optimal tax rates. We estimate the model with Colombian data and find that informality strongly reduces tax rates at all income levels. The possibility to migrate to entirely informal employment restricts tax rates at low and medium income levels, while the possibility of moonlighting is relevant at higher earnings.