Tax Increase Research Articles

The role of emission disclosure for the low-carbon transition

We quantify the importance of emission disclosure for climate policies in a DSGE model for the euro area. A low-carbon energy and a fossil energy sector contribute to production and are financed by balance-sheet constrained intermediaries. We show that imperfect information on emissions by households (savers) is sufficient to create a palpable role for disclosure improvements. The underestimation of emissions from fossil energy firms (imperfect disclosure) provides these firms with too much funding. While improving disclosure in isolation has limited effects, it provides clear benefits in connection with higher carbon taxes: For a carbon tax increase by 50 euro/ton CO2, improving disclosure by 20 percentage points reduces the GDP costs by up to 14%. Over six years, this implies GDP benefits of 47 bn euro.

Corporate tax, R&D and export decisions: Evidence from European firms

AbstractThe paper presents a unified framework for analyzing the impact of corporate taxation on R&D and exporting, considering firm productivity heterogeneity and sunk costs. We empirically examine three hypotheses using data from 7819 European firms spanning 2001–2014. We propose that: (a) an increase in corporate tax reduces the likelihood of innovation, (b) an increase in corporate tax reduces the likelihood of exporting, and (c) firms that innovate are more likely to enter foreign markets. On average, a high Effective Average Tax Rate (EATR) lowers the probability of investing in R&D and exporting by 2.3% and 1.41%, respectively. For firms with low Total Factor Productivity (TFP), the adverse effect of taxation on R&D investment ranges from 3.71% in our baseline analysis to 12.9% in our sensitivity analysis. Interestingly, while EATR positively influences the export decisions of high‐TFP firms, a higher EATR can reduce the export probability by up to 25.5% for firms at the lower end of the TFP distribution. Our findings demonstrate a causal relationship between firm heterogeneity and their capacity to mitigate the distortions caused by higher taxes. From a policy perspective, our results suggest that fostering innovation is essential for firms aiming to expand into international markets.

Macroeconomic effects of carbon transition policies: An assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector

We assess the macroeconomic effects of carbon transition policies aimed at mitigating climate change in the euro area. To this end, we augment the ECB’s New Area-Wide Model (NAWM) with a framework of disaggregated energy production and use, which distinguishes between “dirty” and “clean” energy. Our central transition policy is that of a permanent increase in carbon taxes, which are levied as a surcharge on the price of dirty energy, combined with a price-preserving fall in fossil resource supply. Our findings suggest that increasing carbon taxes to an interim target level consistent with the transition to a net-zero economy entails a transitory rise in inflation and a lasting, albeit moderate decline in GDP. We show that the short and medium-term effects depend on the monetary policy reaction, the path of the carbon tax increase and its credibility, while expanding clean energy supply is key for containing the decline in GDP. Undesirable distributional effects can be addressed by appropriately redistributing the fiscal revenues from the carbon tax increase across households.

Public preferences and willingness to pay for a net zero NHS: a protocol for a discrete choice experiment in England and Scotland

IntroductionClimate change poses a major threat to our health, livelihoods and the planet. In 2020, the UK National Health Service (NHS) committed to reducing its Scope 1, 2 and 3...

Economic growth and Environmental Sustainability in Selected African countries: A panel investigation

This study examined the effect of economic growth on environmental sustainability among selected African countries. To achieve the objectives of this study economic growth was analysed alongside some control variables - foreign direct investment, credit to the private sector, population growth rate and trade openness to determine their impact on environmental performance index (proxy for environmental sustainability) in the six selected African countries namely: Angola, Algeria, Egypt Ghana, Libya, and Nigeria over the period 1990-2022 using panel analysis. Based on the analysis of the data trend analysis and econometric analysis of panel fixed effect regression econometric technique, some key empirical findings were made. Egypt had the highest environmental performance index (EPI), Direct relationship between the real GDP and environmental performance index (EPI) was visualised in Algeria, Egypt and Libya. Economic growth had a positive and significant impact on the environmental performance index. That FDI and trade openness had positive but marginal effect on environmental performance index while credit to the private sector and population growth rate had negative impact on environmental performance index in the selected countries. Based on the findings, the study recommended increase investment in the real sector and the increase in emission tax in order to sustain the environment in Africa.

What Forms of Redistribution Do Americans Want? Understanding Preferences for Policy Benefit-Cost Tradeoffs

Political scientists agree that most Americans are “operationally liberal.” However, economic preferences have traditionally been measured as opinions on public spending, independent from the “costs” of public policies. In reality, redistributive economic policies often impose costs on some actors while delivering benefits to others. When a policy’s costs and benefits are both apparent, what types of redistribution do Americans prefer? This paper’s novel survey evidence shows that preferences for policy benefits are indeed sensitive to which subgroups would bear the policy’s costs (and vice versa). American majorities do support a wide range of redistributive economic policy packages—as long as the wealthy are footing the bill or the costs are hidden. When the size of the group facing the policy cost (e.g., tax) increases, overall support declines. Preference differences between Republicans of varying economic statuses are large, while divisions within the Democratic coalition are subtler but still clear on certain policies. Overall, this paper shows that measuring preferences for a policy's costs (e.g., taxation) are crucial to truly understanding voters’ holistic economic policy demands. Further, the lack of enactment by political elites of the forms of redistribution consistently supported by the public casts research on democratic representation in new light.

Price elasticity of cigarette smoking in Bangladesh: evidence from the Global Adult Tobacco Surveys (GATS)

IntroductionThe overall prevalence of cigarette smoking has not changed significantly for over a decade in Bangladesh. Raising the price of cigarettes through taxation is an important policy instrument for reducing...

Welfare attitudes in Korean society: effects of cohort and social exclusion

Public awareness of social welfare policies, along with their increasing political influence, has led to growing interest in welfare attitudes. However, there has been insufficient consideration of the effects of different cohorts and social exclusion groups on attitudes to welfare in Korean society, as well as the dynamics of these effects. This article specifically examines changes in attitudes to welfare in South Korea with a focus on cohort and social exclusion perspectives. First, the study found that recent attitudes towards redistribution highlight generational perspectives on intergenerational conflict rather than a focus on social exclusion. Second, cohorts associated with democratisation and the information age displayed reluctance towards tax increases but held favourable views regarding redistributive policies and universal welfare. Third, socially excluded groups tended to favour selective welfare and tax increases. Finally, the current elderly generation, represented by the War-industrialisation cohort, exhibited relatively negative attitudes towards the welfare system compared to subsequent generations. These findings underscore the necessity for expanding government policies to enhance welfare understanding and experiences among the post-war generation and socially excluded groups. Additionally, it is crucial to address generational distributional justice and to broaden discussions on solidarity.

Macroeconomic impact of tobacco taxation in Indonesia

BackgroundA significant tobacco tax increase has long been advocated to reduce Indonesia’s high smoking prevalence. However, implementing such a policy remains challenging due to the tobacco industry’s argument that it...

The perils of fiscal feedback rules

This paper introduces a fiscal feedback rule (FFR) in an endogenous growth model with public debt dynamics. We assume that part of the debt burden is covered by tax increases (we name this “sterilization”), while the remaining part is financed by issuing new debt. We show that while low sterilization does not ensure the existence of a long-run steady state, high sterilization can lead to multiple steady states and aggregate instability in the form of local and global indeterminacy, potentially condemning the economy to a low-growth/high-debt trap steady state and long-lasting public debt cycles. By combining econometric estimations and a calibration exercise on developed economies, we highlight that these various perils can occur for empirically plausible values of the sterilization coefficient.

Spillovers from tax shocks to the Euro area

Abstract I study the spillover effects of legislated discretionary tax changes in the USA, Germany, and the UK to a panel of eleven Eurozone countries for the period 1980Q1–2018Q4 employing Local Projections. When considering aggregated tax shocks, I find little evidence for significant spillovers. When allowing for state-dependent effects, I find no effects of German or US tax cuts regardless of the state of the business cycle. When allowing for asymmetric effects, there is, in general, evidence for negative (positive) spillovers from US, German, and UK tax hikes (UK tax cuts). US tax hikes always cause adverse spillovers, whereas the effects for Germany and the UK are state dependent. When considering country-specific effects, the effects turn out as heterogeneous across the Eurozone countries. UK tax cuts are generally expansionary, whereas US (German) tax cuts cause positive spillovers mainly during recessionary (non-recessionary) times.

Can PM2.5 concentration reduced by China's environmental protection tax?

The responsibility of enhancing environmental quality is shouldered by China's Environmental Protection Tax (EPT), which constitutes a vital element of China's tax system greening initiative. Using the difference-in-differences (DID) method, the effects of the EPT on PM2.5 concentration were empirically examined in this study, through panel data of 218 cities in China from 2015 to 2021. The results indicate that the EPT can effectively reduce PM2.5 concentration by approximately 2.4 %, and this conclusion remained unchanged after a series of robustness tests. In the channel analysis, it can be found that the reduction of PM2.5 concentration by the EPT was achieved through the alleviation of financing constraints, technological advancements, and optimization of industrial structure. Heterogeneity analysis indicates that the negative impact of the EPT on PM2.5 concentration was more significant in northern cities, inland cities and non-national environmental protection model cities. Further analysis found that EPT has a stronger inhibitory effect on PM2.5 concentration within 100 % of tax increase. The conclusions remain consistent when spatial spillover effects of PM2.5 are taken into account. This paper provides important empirical evidence to support the effectiveness of emission reductions of EPT and provides valuable insights for the future improvement of EPT.

Austerity and elections

AbstractThis paper revisits the conventional but unproven wisdom that voters penalize governments for adopting fiscal austerity in a sample of advanced economies. We consider the composition of the austerity package and the economic manifesto of the implementing government, and find that austerity packages consisting mostly of tax hikes have a significant electoral cost, which is larger for government parties that campaigned on a free‐market manifesto. Conversely, expenditure‐based austerity is costlier for government parties that did not run on a small‐government platform, but may be beneficial for those that did.

Inequality of the crowding-out effect of tobacco expenditure in Colombia.

In recent decades, policy initiatives involving increases in the tobacco tax have increased pressure on budget allocations in poor households. In this study, we examine this issue in the context of the expansion of the social welfare state that has taken place over the last two decades in several emerging economies. This study explores the case of Colombia between 1997 and 2011. In this period, the budget share of the poorest expenditure quintile devoted to tobacco products of smokers' households doubled. We analyse the differences between the poorest and richest quintiles concerning the changes in budget shares, fixing a reference population over time to avoid demographic composition confounders. We find no evidence of crowding-out of education or healthcare expenditures. This is likely to be the result of free universal access to health insurance and basic education for the poor. For higher-income households, tobacco crowds out expenditures on entertainment, leisure activities, and luxury expenditures. This finding should reassure policymakers who are keen to impose tobacco taxes as an element of their public health policy.

Using Game Theory to Explore the Multinational Supply Chain Production Inventory Models of Various Carbon Emission Policy Combinations

This study uses Stackelberg game theory, considering different combinations of carbon emission reduction policies and that high-carbon-emission enterprises may face various carbon emission reduction regulations, to explore the production inventory problems in a multinational supply chain system. The purpose is to determine the manufacturer’s optimal production, shipping, carbon reduction investment, and the retailer’s replenishment under the equilibrium for different carbon emission policy combinations. To develop the production inventory models, this study first develops the total profit and carbon emission functions of the supply chain members, respectively, and then obtains the optimal solutions and total profits of the manufacturer and the retailer under different carbon emission policy combinations through the mathematical analysis method. Further, this study used several numerical examples to solve and compare the proposed models. The results of numerical analysis show that regardless of the increase in carbon price or carbon tax, the manufacturer and retailer will adjust their decisions to reduce carbon emissions. Specifically, an increase in the carbon price contributes to an increase in the total profit of manufacturers, while an increase in the carbon tax reduces the total profit of manufacturers. This study also explores a sensitivity analysis on the main parameters and has yielded meaningful management insights. For instance, in cases where low-carbonization strategies are required, the manufacturer or retailer can effectively reduce the carbon emissions resulting from production or purchasing activities, thereby significantly reducing overall carbon emissions. It is believed that the results of this study can provide enterprises/supply chains with reference to their respective production, transportation, carbon reduction investment, and inventory decisions under carbon emission policies, as well as information on partner selection and how to adjust decisions under environmental changes.

Tobacco control policies and respiratory conditions among children presenting in primary care

Tobacco control policies can protect child health. We hypothesised that the parallel introduction in 2008 of smoke-free restaurants and bars in the Netherlands, a tobacco tax increase and mass media campaign, would be associated with decreases in childhood wheezing/asthma, respiratory tract infections (RTIs), and otitis media with effusion (OME) presenting in primary care. We conducted an interrupted time series study using electronic medical records from the Dutch Integrated Primary Care Information database (2000–2016). We estimated step and slope changes in the incidence of each outcome with negative binomial regression analyses, adjusting for underlying time-trends, seasonality, age, sex, electronic medical record system, urbanisation, and social deprivation. Analysing 1,295,124 person-years among children aged 0–12 years, we found positive step changes immediately after the policies (incidence rate ratio (IRR): 1.07, 95% CI: 1.01–1.14 for wheezing/asthma; IRR: 1.16, 95% CI: 1.13–1.19 for RTIs; and IRR: 1.24, 95% CI: 1.14–1.36 for OME). These were followed by slope decreases for wheezing/asthma (IRR: 0.95/year, 95% CI: 0.93–0.97) and RTIs (IRR: 0.97/year, 95% CI: 0.96–0.98), but a slope increase in OME (IRR: 1.05/year, 95% CI: 1.01–1.09). We found no clear evidence of benefit of changes in tobacco control policies in the Netherlands for the outcomes of interest. Our findings need to be interpreted with caution due to substantial uncertainty in the pre-legislation outcome trends.

Fiscal consolidation and voting: on the electoral costs of budgetary stability

AbstractIn this paper, we analyse the potential impact of policies aimed at fostering fiscal sustainability on citizens’ preferences. A survey specifically designed for this purpose quantifies citizens’ knowledge and concern about fiscal imbalances and the institutional framework that addresses them in Spain, and their possible electoral reactions to public spending cuts and tax increases. Using both ordered and unordered multinomial probit models, we corroborate that citizens tend to disapprove of retrenchment policies. However, the effect on citizens’ voting intentions varies depending on their political ideology. We confirm that left‐wing voters supporting the incumbent coalition parties prefer austerity policies based on the revenue side of the budget, while right‐wing voters tend to approve retrenchments based on the expenditure side to a larger extent.

The Impact of Implementing a Carbon Tax on Welfare: Case Study of Indonesia and The Other ASEAN Member Countries

Green House Gases emitted into the atmosphere over decades cause global warming now. The aim of this research is the impact of implementing the carbon tax on welfare in Indonesia. The research method used is the CGE method using GTAP-E to evaluate energy policy in the economy. GTAP-E consists of 140 countries and 57 sectors combined into forty-two regions and eight sectors. Using carbon tax scenario (simulation 1 is 1.93 USD/ton CO 2, simulation 2 is 3.72 USD/ton CO 2, and simulation 3 is 4.83 USD/ton CO 2). The results of the Indonesian equivalent variation show a negative value. The higher the carbon tax is applied, the greater the decline in welfare. This is also felt by all research countries except the Philippines, Singapore, Thailand, Oceania, OtherSEAsia, East Asia, Argentina, Japan, Poland, Portugal, and Ukraine. The variable of the regional demand, it can be seen that the carbon tax causes Indonesia's regional income to increase, and Singapore's income to decrease, while other countries experience no change in income. The primary factor return ratio also shows that the increase in the carbon tax caused a decline in the Land, Unsklab, Sklab, Capital, and Natural Resources sectors. Indonesia's GDP also shows a decrease if a higher carbon tax is implemented, but other countries have no impact on GDP. The Carbon emissions show that it decreases to Indonesia. So, the implementation of the carbon tax causes a decrease in welfare as seen from the equivalent variation, Primary Return Ratio, and GDP in Indonesia. The government must have an alternative policy if a carbon tax is implemented in Indonesia.

Uniform agricultural tax abolition and differential household labor supply: Evidence from China's urban household survey

Uniform government public policy has steadily shaped the labor supply from households in the past few decades in China with possible differential impact on each parent. This paper investigates how uniform tax policy change plays differential roles in household's labor supply through government public education spending. Utilizing the exogenous shock from China's agricultural tax abolition in 2005, we find that the abolition results in a reduction in female employment but an increase in male employment. Specifically, a 1% increase of agricultural tax to public revenue ratio in the reference year leads to a 0.485% labor supply reduction and 1.50 fewer hours of work per month for married women, whereas the married men's labor supply increases by 0.191% and their working hours by 1.06 h in a typical urban family with school-going children. The effects are greater on married women with primary school-age children and married men from high-asset households. Our mechanism analysis indicates that public education spending works as a substitute for private education spending and affects the household labor supply through investment in children's human capital. Our findings offer a new perspective on the decreasing female labor supply and the widening employment gap between (married) women and (married) men in the Chinese labor market. The findings suggest that public tax policy could lead to unintended consequences on household's labor supply decisions, and thus exacerbate the gender employment gap in the labor market.

The role of environmental tax on the environmental quality in EU counties: evidence from panel vector autoregression approach

This study intends to analyze the influence of environmental taxes on pollution in EU-27 nations. Furthermore, energy from renewable sources consumption and urbanization are employed to clarify CO2 emissions in this study that tests the EKC hypothesis. According to the findings, an increase in environmental taxes reduces CO2 emissions by 0.14%. Also, the data supported the validity of the EKC concept. The findings of the causality test demonstrated that there is a bidirectional causal link between CO2 emissions and environmental taxes. These results reflect that environmental tax revenues contribute to sustainability as an effective policy tool in EU countries. Policies regarding environmental tax enforcement come to the fore in terms of both keeping the balance in economic activities and serving sustainability.