Optimal income taxation in models with endogenous fertility

This paper studies the efficient taxation of factor income in infinite-lived models with elastic fertility choices. Two models are considered, one with physical capital only, and one with physical and human capital. In the model with physical capital only, capital income should be subsidized, while labor income taxed. In the model with two types of capital, instead, Ramsey optimality prescribes that the tax on physical capital is zero (negative), if effective labor is constant (decreasing) returns to scale in human capital and market goods, while the tax on human capital is negative and the tax on effective labor positive. Our findings depart from those obtained in immortal models with an endogenous labor supply and constant population growth, because physical and human capital affect the demand for fertility.     

Constrained Inefficiency and Optimal Taxation with Uninsurable Risks

When individuals' labor and capital income are subject to uninsurable idiosyncratic risks, should capital and labor be taxed, and if so how? In a two‐period general equilibrium model with production, we derive a decomposition formula of the welfare effects of these taxes into insurance and distribution effects. This allows us to determine how the sign of the optimal taxes on capital and labor depend on the nature of the shocks and the degree of heterogeneity among consumers' income, as well as on the way in which the tax revenue is used to provide lump‐sum transfers to consumers. When shocks affect primarily labor income and heterogeneity is small, the optimal tax on capital is positive. However, in other cases a negative tax on capital is welfare‐improving.     

Reexamination of Economic Growth, Tax Policy, and Distributive Politics

The paper examines the relationship between economic growth, tax policy, and distribution of capital and labor ownership in a one‐sector political‐economy model of endogenous growth with productive government spending financed by a proportional tax on capital income. The analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either environment, higher inequality leads to a lower after‐tax return to capital, thereby reducing the economy's growth rate.     

Optimal climate and fiscal policy in an OLG economy

This paper develops a climate–economy model to study the joint design of optimal climate and fiscal policies in economies with overlapping generations (OLGs). I demonstrate how capital taxation, if optimal, drives a wedge between the market costs of carbon (the net present value of marginal damages using the market interest rate) and the Pigouvian tax (the net present value of marginal damages using the consumption discount rate of successive OLGs). In contrast to deterministic infinitely lived representative agent models, at the optimum, the capital income tax is positive, the carbon price equals the market costs of carbon but it falls short of the Pigouvian tax when (i) preferences are not separable over consumption and leisure; and (ii) labor income taxes cannot be age-dependent. I also show that restrictions on climate change policy provide a novel rationale for positive capital income taxes.     

Social norms and economic growth in a model with labor and capital income tax evasion

Empirical evidence suggests that low-income countries are characterized by high levels of labor and capital income tax evasion while the opposite is true for high-income countries. This paper proposes a model to study the relationship between economic growth and both types of income tax evasion. We show that the existence of a social norm towards tax compliance generates a complementarity between capital and labor income tax evasion which explains the decline of both the share of evaders in the population and the amount of tax evasion when countries accumulate capital. The model predicts that the level of tax morale is positively correlated with both types of income tax evasion and the level of income per capita, consistent with recent empirical evidence. Finally, a higher tax rate increases the share of evaders in the population and aggregate tax evasion.     

Environmental capital flight and pollution tax

This paper analyzes the impacts of a production pollution tax on environmental capital flight and national product in a two-country static general equilibrium model with two-way foreign investment. It is assumed that the capital input in both countries is a composite good of domestic and imported capital. And pollution is assumed to originate in the production process. The productivity of capital in each country is negatively (or positively) related to the worldwide aggregate emissions.The analysis shows that when a domestic pollution tax is levied, domestic capital outflows increase and foreign capital inflows decrease for sufficiently high elasticities of substitution between labor (immobile input) and capital (mobile input) in both countries. Moreover, with negative transnational externalities, increases of a domestic pollution tax reduce domestic production and increase foreign production. The difficulty of substitution between immobile and mobile inputs hinders the optimal allocation of worldwide capital and national product. In this paper, the optimal pollution tax is based on global welfare maximization, not on global income maximization, taking into consideration the impact of income change on individual welfare. Therefore, an optimal pollution tax in the developing country should be lower for a given rate of pollution.     

Second-best optimal taxation of capital and labor in a developing economy

As commercial integration reduces the reliance on foreign trade taxation, raising tax revenue has become a major concern for the governments of developing economies. This paper examines how the tax burden in a developing economy should be distributed between capital income and labor income. We study a two-sector model, where the traditional sector is “informal” and consequently cannot be taxed by the government. In this setup, we find that the optimal (second-best) tax structure in order to raise a certain amount of revenue requires to tax capital income at least as much as labor income, and possibly more.     

Scale-dependent and risky returns to savings: Consequences for optimal capital taxation

I present a model of optimal capital taxation where agents with heterogeneous labor productivity randomly draw their rate of return to savings. Because of scale dependence, the distribution of rates of returns can depend on the amount saved. Uncertainty in returns to savings yields an insurance rationale for taxing capital on top of labor income. I first show that, because of scale dependence, agents making the same saving decision should access the same rate of return at the optimum. I then constrain the information set of the government and show that, as soon as return are uncertain, positive capital income taxation is needed at the optimum. The optimal linear tax on capital income trades off insurance with distortions to both savings and to the rate of return in a context of scale dependence. Eventually, I argue that scale dependence in and of itself is not sufficient to justify capital taxation on top of labor income taxes. These results are still valid when agents can optimize between a risk-free and a risky-asset that can both exhibit scale dependence.     

Generalized cash-flow taxation

We show the unique form that must be taken by a tax system based entirely on realization accounting to implement a uniform capital income tax, or, equivalently, a uniform wealth tax. This system combines elements of an accrual based capital income tax and a traditional cash-flow tax, having many of the attributes of the latter while still imposing a tax burden on marginal capital income. Like the traditional cash-flow tax, this system may be integrated with a tax on labor income. We also show how such a tax can be supplemented with an optional accounting for a segregated subset of actively traded securities, subjected separately to mark-to-market taxation at the uniform capital income tax rate, to permit a fully graduated tax system applicable to labor income.     

政府财政行为对劳动收入占比的影响——基于2004—2011年中国省级面板数据的实证分析

运用广义矩估计法(GMM)并利用2004—2011年中国省级面板数据,考察了中国政府的财政收支行为及其他相关因素对劳动收入占比的影响,并对实证结果进行了稳健性检验。研究结果表明:政府的财政支出行为与劳动收入占比的关系曲线呈显著的倒U型,在样本观察期内两者正相关,引入时间虚拟变量后政策效果更加明显;政府的财政收入行为对劳动收入占比的影响为负;第三产业占比、资本深化、劳动保护等因素对劳动收入占比具有正向影响,人力资本、对外贸易等因素对劳动收入占比具有负向作用。     

Who is afraid of capital mobility? on taxation of labor income and the level of public services in an open economy

This paper deals with the effects of international capital mobility on the taxation of labor income and on the size of the public sector. It employs a model of the labor market where national trade unions set the wage level in their country and national governments set the tax rate of a proportional labor-income tax. The tax revenues are used to finance a public good and unemployment benefits. In this model, competition between the national trade unions caused by international capital mobility leads to full employment, and the governments supply the public good on the first best level. As no unemployment benefits have to be financed, the tax on labor income may decline with the introduction of capital mobility. These tax cuts may even overcompensate the unions for the wage decline.     

Intergenerational Allocation of Government Expenditures: Externalities and Optimal Taxation

This paper studies optimal capital and labor income taxes when the benefits of public goods are age‐dependent. Provided the government can impose a consumption tax, it can attain the first‐best resource allocation. This involves the uniform taxation of the cohorts' labor income and a zero capital income tax. With no consumption tax and optimally chosen government spending, labor income should be taxed nonuniformly across cohorts and the capital income tax should be nonzero. Deviations of the public goods from their respective optima create distortions. These affect the labor supply decisions of both cohorts and capital accumulation, providing a further reason to tax (or subsidize) capital income.     

HUMAN CAPITAL FORMATION AND TAX EVASION

A strictly risk‐averse individual with an exogenous gross income in period one can acquire human capital in the same period and evade taxes. Period‐two income rises with educational investments in period one and can also be hidden from tax authorities. It is shown that a greater tax deductibility of educational investments and higher individual ability induce a positive correlation between tax evasion and educational investments in period two, whereas the relationship in period one is ambiguous. These theoretical predictions can explain diverse empirical findings on the correlation between education and tax evasion.     

Public capital,deficit financing,and economic growth in a stochastic economy

This paper examines the relationship among deficit-financing fiscal policy, risk and economic growth in a stochastic endogenous growth model with private and public capital. We show that there are positive balanced-growth rate and a debt-to-GDP ratio that depend on deep parameters such as the income tax rate and the standard deviation of the growth rate of private and public capital. Investment and fiscal shocks influence the mean and variance of the growth rate and the debt dependency rate through portfolio changes and capital accumulation. In particular, an increase in the risk of private investment destabilizes the economy and reduces the mean growth rate if the portfolio change is drastic, and this increase in risk increases the debt-to-GDP ratio. In contrast, an increase in the income tax rate stabilizes the economy, increases the mean growth rate, and has a positive or negative effect on the debt-to-GDP ratio according to the ratio of public to private capital if the income tax rate is sufficiently small.     

Capital income taxation when inherited wealth is not observable

This paper extends the Atkinson-Stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics: productive ability and inherited wealth. Bequests are motivated by the ‘joy of giving’. A child’s inheritance is a random variable with a probability distribution that depends on his parent’s investment in a ‘bequest technology’. Public borrowing is assumed and implies the modified golden rule. We study the optimal tax policy when two instruments are available: a non-linear (wage) income tax and a proportional tax on capital income. We show that the second instrument ought, in general, to be used but that the tax rate is not necessarily positive. However, a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability.     

Fiscal policy under loose commitment

Due to time-inconsistency or political turnover, policymakers' promises are not always fulfilled. We analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised. In this loose commitment setting, the properties of labor and capital income taxes are significantly different than under the full-commitment and no-commitment assumptions. Because of the occasional reoptimizations, the average capital income tax is positive even in the long-run. Also, the autocorrelation of taxes is lower, their volatility with respect to output increases and the correlation between capital income taxes and output changes sign. Our method can be used to analyze the plausibility and the importance of commitment in a wide-class of dynamic problems.     

Redistributive Tax and Growth in a Model with Discrete Occupational Choice

An optimal redistributive tax-subsidy formula is derived for a growth model where income inequality is endogenously driven by an adult's choice of occupation between work and management. Investment in human capital is the engine of growth. The world's stock of exploitable knowledge as well as the economy's average human capital determine the potential rate of return from investment in human capital in an economy. How much available knowledge would be exploited in the economy depends on the proportion of innovators in our model. A redistributive tax reform impacts growth as well as income inequality via its influence over the occupational choice. The optimal redistributive tax rate is path-dependent in the sense that it depends on the initial wealth distribution. The normative implication of the model is that the optimal capital income tax rate could very well be positive if the initial wealth inequality exceeds a threshold. The optimal capital income tax rate depends inversely on the initial wealth inequality.     

Household bargaining and the design of couples’ income taxation

This paper studies the design of couples’ income taxation when consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses’ utilities; bargaining weights are given but specific to each couple. Information structure and labor supply decisions follow the Mirrleesian tradition. However, while the household's total consumption is publicly observable, the consumption levels of the individual spouses are not observable. With a utilitarian social welfare function we show that the expression for a spouses’ marginal income tax rate includes a “Pigouvian” (paternalistic) and an incentive term. The Pigouvian term favors a marginal subsidy (tax) for the high-weight (low-weight) spouse, whose labor supply otherwise tends to be too low (high). The sign and the magnitude of the incentive term depends on the weight structure across couples. In some cases both terms have the same sign and imply a positive marginal tax for the low-weight spouse (who may be female) and a negative one for the high-weight spouse (possibly the male). This is at odds with the traditional Boskin and Sheshinski results. Our conclusions can easily be generalized to more egalitarian welfare functions. Finally, we present numerical simulations based on a calibrated specification of our model. The calculations confirm that the male spouse may well have the lower (and possibly even negative) marginal tax rate.     

生态赤字税：绿色发展与税制改革*

本文在量化生态占用并评估生态价值基础上,提出运用税收实现超额生态占用价值补偿的税收方案,也称生态赤字税。根据税制生态化的改革思路,本文运用CGE模型分析了征收生态赤字税和降低所得税的政策效应。本文研究发现：(1)在各税收方案中,生态赤字减少,就业增加,支持双重红利假说,全行业中间投入减少相对总产出减少更大,名义GDP保持增长;(2)实际GDP在生态赤字税基础上仅减少企业所得税的方案中下降,同时减少个人所得税则能实现增长,此时减税额低于生态赤字税收入;(3)在开征生态赤字税同时,降低个人所得税在保持经济增长方面较好,降低企业所得税在减少生态赤字方面较好,但降低企业所得税所减少的生态赤字价值低于降低个人所得税时劳动和资本增加值的提高。本文建议在完善生态占用核算基础上开征生态赤字税,并减轻所得税,促进经济增长由资源环境消耗转向劳动和资本投入的绿色发展。     

Optimal Tax Policy, Market Imperfections, and Environmental Externalities in a Dynamic Optimizing Macro Model

This paper develops a dynamic real business cycle model that highlights pollution externalities (on welfare and production) and market imperfections and uses it to determine the socially optimal tax policy that encompasses labor income, capital income, and emission taxes. We show that the optimal tax on capital and labor income only addresses the production inefficiency (and is time-invariant), while the tax on the environmental externalities affects both the production inefficiency and the environmental spillovers (and is time-varying). More interestingly, the socially optimal emission tax will be characterized by a Keynesian-like stabilizer that is designed to mitigate business cycle fluctuations, i.e., that will stimulate the economy with a lower emission tax during recessions. In a positive analysis, we show that the beneficial effects arising from pollution taxation will become larger the greater is the degree of the firms' monopoly power. In addition, a triple dividend in terms of improving environmental quality and increasing employment and firms' profit can be simultaneously realized if the environmental production externality is more significant and if the elasticity of intertemporal substitution in consumption is relatively small.