Redistributive Taxation Research Articles

The marginal value of public funds: a brief guide and application to tax policy

AbstractThis paper provides a brief and accessible guide to the Marginal Value of Public Funds (MVPF) and offers some new perspectives on its application to the evaluation of tax policy. Specifically, the paper aims to: (i) bridge the gap between traditional uses of the Marginal Cost of Public Funds and the growing interest in the MVPF approach, (ii) highlight the crucial link between the MVPF and tax policy, (iii) critically discuss empirical quantification, particularly with respect to tax elasticities, and (iv) explore distributional considerations and their connection to the literature on optimal redistributive taxation.

Tax redistribution offset? Effect of marital choices on income inequality

Tax redistribution offset? Effect of marital choices on income inequality

Redistribution and selfishness

Abstract One of the disadvantages of redistributive taxation is that it reduces people’s financial incentives to increase national wealth and benefit others by engaging in productive activities. It is natural to suppose that the severity of this disadvantage will be proportional to the socially prevailing level of human selfishness. Thus several advocates of redistribution (G.A. Cohen, Ha-Joon Chang among others) have argued that this disadvantage of redistribution need not be as severe as critics often suggest, because human beings need not be so selfish. My aim in this paper is to argue that, even in a society entirely composed of unselfish and impartially beneficent individuals, redistributive taxation would still discourage activities that contribute to national wealth, because differing individuals have different views about what counts as benefiting themselves and others. I also relate my discussion to G.A. Cohen’s influential ‘camping trip’ argument for socialism (from Why Not Socialism?).

The Role of Preference Formation and Perception in Unequal Representation. Combined Evidence From Elite Interviews and Focus Groups in Germany

Unequal representation can result from politicians’ biased perception of public opinion. Existing research has focused on the numerical accuracy with which politicians estimate preferences distributions in surveys. This method ignores politicians’ broader assumptions about public preferences; e.g. regarding their crystallization, salience, malleability, and measurability in surveys. We address these assumptions in a novel two-stage research design using redistributive tax policy in Germany as a case. Interviews with parliamentarians show that voters are perceived as uninformed, disinterested, and susceptible to anti-tax mobilization by business representatives. Support for taxing the rich in polls is dismissed as superficial and irrelevant for political behavior. In a second step, we verify these assumptions in twelve focus groups with high- or low-educated citizens. They largely confirm the assumed indifference and anti-tax attitudes. An education gap in tax preferences cannot be identified. Support expressed in previous surveys tends to disappear in conversations, which aligns with politicians’ experiences.

The understructure of market production

ABSTRACT This paper argues that the mainstream economics view of production based on the conventional factors of production is socially and empirically inaccurate, giving a distorted view of the nature of the production process and the agents responsible for it. Although the factors of production are essential, just as important are the various social, cultural, and political enabling conditions, or what is termed the ‘understructure’ of market production (the complex of infrastructures which underlie and enable market production). We gain an enriched understanding of what the economy truly is by studying the functioning of the understructure and the ancestral labour and care encompassed in it. If this revised view is correct, it has radical ethical implications. In particular, it implies that individuals do not morally deserve the bulk of the income (90% or more) that they receive in the market. High levels of redistributive taxation may therefore be legitimatea.

Plugging the Tax Leak: An Analysis of North Carolina’s Local Sales Tax Redistribution Policy

Amid rising concerns over the urban-rural divide, taxation equity, revenue generation, and local tax leakage, several states are contemplating measures to support jurisdictions perceived as bearing the brunt of evolving economic landscapes. In 2015, North Carolina introduced a system for local sales tax revenue sharing, wherein each county contributed to a pool of local sales tax revenue, subsequently redistributed among 79 of the 100 counties. This policy aimed to address tax leakage by ensuring that half of the base local sales tax remained at the point of sale, with the other half distributed on a per capita basis. In this analysis, we evaluate the policy’s effectiveness in achieving this equilibrium and identify limitations and shortcomings.

Распределение дотаций на выравнивание по субъектам Российской Федерации и их роль в изменении межрегионального бюджетного неравенства

The article presents an analysis of the distribution of equalizing grants across the subjects of the Russian Federation in 2008–2023 and assesses their role in reducing the level of interregional budgetary inequality, measured by various methods (using coefficients of variation and Gini, Theil and Atkinson indices). The study was carried out on the basis of open data from the Treasury, the Ministry of Finance and the Federal Tax Service of Russia, as well as information of the official web portal of the budget system of Russian Federation. It was revealed that most regions continuously received equalization grants during the period, and only 5 subjects were never among the recipients. An increase in the concentration of these grants in the regions which are the main recipients is observed, as well as a nominal increase of grants during the period in most regions, which is offset by the price inflation. It was also revealed that with the current configuration of the methodology for allocating equalizing grants, regions with identical budget situations show a different increase in the level of budgetary capacity after grants are provided, thus a number of regions receive poorly justified advantages over others. Despite this, it has been proven that equalization grants reduce interregional differences in indicators of fiscal capacity while measured by all metrics of interregional inequality, however, their contribution to reducing inequality is significantly lower than the contribution of tax redistribution and is comparable to the contribution of subsidies. At the same time, the leveling role of these grants remain unchanged during the whole period under review.

A dynamic partial equilibrium model of capital gains taxation

We analyze a multi-period model of capital gains taxation with endogenous prices. Relative to an economy without taxation, a capital gains tax tends to lower prices and increase returns. Abstracting from tax redistribution policies, we find that a taxable investor's welfare falls, a nontaxable investor's welfare rises, and, depending on the tax rate, social welfare may either rise or fall. The taxable investor's tax-timing option increases social welfare but may either increase or decrease tax revenue. Tax rebates for capital losses have little effect on welfare or tax revenue. Implications for empirical asset pricing are identified.

Progressive income taxation and consumption baskets of rich and poor

In this paper, I analyze the implications of differences in consumption baskets across income groups to evaluate the effects of redistributive taxation on efficiency and inequality. To this end, I develop a static multi-sector general equilibrium model incorporating a parametric tax function, non-homothetic consumption preferences, and endogenous labor supply, with varying compositions of skilled and unskilled labor in production across sectors. A calibrated version of the model captures the cross-sectional differences in the compositions of households' consumption baskets in the United States. I find that considering the differences in consumption baskets between high- and low-income households leads to a lower optimal choice of income tax progressivity compared to the conventional approach that ignores this feature of the data.

The São Paulo State (Brazil) Ecological Fiscal Transfer: Distributive and environmental effects

To restore 12 million hectares of native vegetation in Brazil by 2030, aligning environmental policies with incentive measures is crucial. The Ecological Fiscal Transfer (known as Ecological ICMS in Brazil) allows states to redistribute the ICMS tax (similar to the Value Added Tax) revenue based on environmental criteria, likely motivating municipalities to take environmental action. São Paulo recently modified its ecological ICMS legislation, increasing the ICMS revenue distributed according to environmental criteria and introducing a new criterion for native vegetation cover. We assessed the impact of these changes on tax redistribution, considering three scenarios: the former rules (2021), the new rules (2025), and the new rules with 1.5 million hectares of vegetation restored (2042). While the pattern of ICMS distribution remained mostly unchanged, there were distributional effects. Some municipalities lost up to 5% of their initial revenue, while others with high socio-environmental importance doubled their revenues. Existing environmental criteria still lack incentives for local environmental policies. However, the new criterion for native vegetation cover could, with practical limitations, boost municipal revenue after restoring 1.5 million hectares. São Paulo's initiative to incorporate native vegetation cover into an Ecological Fiscal Transfer policy holds the potential to inspire similar tax-based environmental incentives worldwide. However, it must be adapted to motivate local governments to embrace restoration actions rather than serving primarily as a compensatory measure.

Taxed fairly? How differences in perception shape attitudes towards progressive taxation

Abstract Empirically, the poor are more likely to support increases in the level of tax progressivity than the rich. Such income-stratified tax preferences can result from differences in preferences of what should be taxed as argued by previous literature. However, it may also result from income-stratified perceptions of what is taxed. This paper argues that the rich perceive higher levels of tax progressivity than the poor and that tax perceptions affect individuals’ support for progressive taxation. Using data from an Austrian survey experiment, we test this argument in three steps: First, in line with past research, we show that individuals’ income positions are connected to individuals’ tax preferences as a self-interest rationale would predict. However, second, we show that this variation is mainly driven by income-stratified tax perceptions. Third, randomly informing a subset of the sample about actual tax rates, we find that changing tax perceptions causally affects support for redistributive taxation among those who initially overestimated the level of tax progressivity. Our results indicate that tax perceptions are relevant for forming tax preferences and suggest that individuals are more polarized in their perceptions of who pays how much taxes than in their support for who should pay how much tax.

Public good provision with redistributive taxation

AbstractA government sets the level of taxation to provide a public good valued by consumers. There are two groups of consumers, the rich and the poor. The government has redistributive preferences, but is initially constrained to use lump‐sum taxation. This potentially leads the government to provide a very low level of the public good out of concern for not reducing private good consumption of the poor. In this context, allowing a small amount of redistribution from the rich to the poor may be Pareto improving. The loss in private consumption by the rich may be more than offset by the added utility from increased public good provision. I also analyze the extent to which a flat income tax can induce the government to choose a level of public good consistent with the Samuelson condition. When consumers have a survival constraint on private consumption, a progressive tax code is required to induce the government to choose the efficient level of the public good. Generally speaking, there is a trade‐off between a desire to restrain the government's ability to redistribute income and a desire to induce it to choose the level of the public good implied by the Samuelson condition.

Kinetic Models of Wealth Distribution with Extreme Inequality: Numerical Study of Their Stability against Random Exchanges.

In view of some recent reports on global wealth inequality, where a small number (often a handful) of people own more wealth than 50% of the world's population, we explored if kinetic exchange models of markets could ever capture features where a significant fraction of wealth can concentrate in the hands of a few as the market size N approaches infinity. One existing example of such a kinetic exchange model is the Chakraborti or Yard-Sale model; in the absence of tax redistribution, etc., all wealth ultimately condenses into the hands of a single individual (for any value of N), and the market dynamics stop. With tax redistribution, etc., steady-state dynamics are shown to have remarkable applicability in many cases in our extremely unequal world. We show that another kinetic exchange model (called the Banerjee model) has intriguing intrinsic dynamics, where only ten rich traders or agents possess about 99.98% of the total wealth in the steady state (without any tax, etc., like external manipulation) for any large N value. We will discuss the statistical features of this model using Monte Carlo simulations. We will also demonstrate that if each trader has a non-zero probability f of engaging in random exchanges, then these condensations of wealth (e.g., 100% in the hand of one agent in the Chakraborti model, or about 99.98% in the hands of ten agents in the Banerjee model) disappear in the large N limit. Moreover, due to the built-in possibility of random exchange dynamics in the earlier proposed Goswami-Sen model, where the exchange probability decreases with the inverse power of the wealth difference between trading pairs, one does not see any wealth condensation phenomena. In this paper, we explore these aspects of statistics of these intriguing models.

A market for citizenships: Should citizenship be commodified?

AbstractStarting from the assumption that citizenship is property that would be more valuable if it were transferable, the paper explores the idea of commodification of citizenship. The paper provides arguments in favor of commodification and recommendations to how the market for citizenships should be designed. A market for citizenships could result in an improved matching between employer and employee when citizens swap citizenship with each other. Successful States could issue new citizenships and thus make it possible for a greater share of the world population to live and work within the countries with the best institutions. The combined effect would be a higher global productivity. Additionally, market prices on citizenships would provide information on institutional quality and thus provide politicians with information on voters' preferences as well as voters with information on the quality of the work of the government. The market value of a tradable citizenship is also found to be a candidate as tax base for a redistributive tax on a global level that could address some of the inherent inequality with birthright citizenships. Those potential benefits aside, several problems with a market for citizenship are also found and discussed, among those the age‐dependent value of citizenships.

Calculating Optimal Nonlinear Taxes Using Censored Income Data

Approximating the skill distribution via observed incomes is a central aspect of estimating the optimal redistributive taxes. Emerging economies may exhibit high minimum wage take-up rates, hiding some of the heterogeneity in skill distribution. This paper shows in the context of Turkey that accounting for the minimum wage policy when approximating skills considerably alters the estimates of optimal redistributive income taxes. Once the mass around the minimum wage is treated as left censored, the optimal tax scheme is significantly more redistributive in comparison to assuming no censoring. This is because allocating some of the mass around the minimum wage towards the lower parts of the skill distribution reduces the total skill stock and increases the standard deviation of the distribution. Consequently, the optimal marginal income taxes become higher, especially for the middle-skill group.

Partisanship and Property Tax Redistribution: Evidence From Repealing Colorado's Gallagher Amendment

In November 2020, Colorado voters were asked to repeal the state's Gallagher Amendment, a constitutional redistributive policy in effect since 1983 that shifted the local property tax burden away from residential property on to nonresidential property. This study explores how partisanship predicts support for repealing Gallagher. Republican and Democrat platforms both entail sociotropic messages to support repeal, but following through on these political ideals carries a salient and nontrivial pocketbook cost to residential property owners. If voters aligned with one party or another are more likely to support repeal, it follows that these voters are more willing to put their money where their mouth is, so to speak. Using election precinct voting data, I find that Democrat-leaning voters were more likely to support repeal than otherwise similar Republican-leaning voters.

‘Kids, these YouTubers are stealing from you’: influencers and online discussions about taxes

ABSTRACT This article's main aim is to analyse public discourses about tax avoidance in Spain by studying the scandal stirred up by the announcement by ElRubius (the most popular YouTuber in Spain, with 40.3 million subscribers) that he was moving to Andorra to pay lower taxes. To fulfil this aim, we use thematic analysis to study the most viewed and commented videos posted on YouTube by both YouTubers and the traditional media, as well as their comments sections, to identify how taxes are defined, how YouTubers and their audiences are portrayed and what forms of identification these stories offer. Our results show that ElRubius’ announcement sparked a polarised debate. On the one hand, traditional media framed the debate as a moral one, attacked ElRubius using a ‘naming and shaming’ strategy and defended redistributive taxes as a means of financing public services and achieving wealth redistribution. On the other hand, YouTubers defended a neoliberal agenda by portraying taxes as a burden, promoting self-interest and denouncing the Spanish state as too big, inefficient and corrupt. The analysis of the comments shows how the traditional media strategy of shaming ElRubius failed, as audiences mostly identified with him and endorsed the discourse of YouTubers who defended him. Thus, although the welfare state is still very much legitimised in Spain, we can see how new hegemonies are being created and promoted in the context of social media.

Самодостатність територіальних громад в умовах реформи місцевого самоврядування: невирішені проблеми та шляхи їх вирішення

The reform of local self-government in Ukraine led to the expansion of the powers of territorial communities and an increase in their financial resources. There was a problem of correspondence of powers and financial resources. The methodology for assessing the capacity of territorial communities was not developed during the years of the decentralization reform. The article proposes a set of measures aimed at increasing the self-sufficiency of territorial communities in terms of determining their powers and size, improving the mechanism of horizontal budget equalization, redistribution of taxes between the central government and local self-government, taking into account European experience, increasing the share of non-targeted transfers, developing standards for the provision of public services.

Հարկային քաղաքականության հիմնախնդիրները լեռնահանքային արդյունաբերության կայուն զարգացման համատեքստում / Issues of Fiscal Policy in the Context of Sustainable Development of the Mining Industry

The mining industry is distinguished by the special fiscal policy applied. The range of taxes applied in the sector is wider, and in addition to traditional taxes, it also includes natural resource levies, royalties, and environmental taxes. By fulfilling tax obligations to the state, the mining industry has expectations from the state itself in terms of fair redistribution of taxes. Studies show that the fiscal policy applied in the RA does not contribute to the sustainable development of mining organizations, as their expectations for state financial support are much higher than what actually happens. Tax organizations seek state financial support for the implementation of new mining technologies, investments in waste management with modern methods, as their implementation is costly and requires external financial support. On the other hand, effective redistribution of taxes is also required by the communities formed around the mining organizations, as they are the ones, who first feel the harmful impact of the sector on environmental protection. Therefore, when developing a tax policy in the mining industry, there is a need to solve not only the problems of tax collection, but also the fair redistribution of taxes. The paper focuses on the issues related to improving the fiscal policy applied in the field of mining industry, proposing potential solutions that can foster sustainable development of the sector. In particular, it is proposed to establish an information feedback mechanism between external and internal stakeholders of the mining industry. This mechanism will provide an opportunity to assess the degree of realization of the goals of the stakeholders of the sector in the context of the interaction between the ongoing fiscal policy and the sustainable development of organizations.

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.