Optimal Income Taxation and International Labour Mobility

This paper considers how a linear income tax should be set optimally when individuals are internationally mobile. The optimum tax analysis is founded on a social welfare function where each individual counts in the social welfare according to residence time in the home country. The discussion of the optimal income tax is organized from two perspectives. The first relates to the optimum income tax when a uniform lump sum transfer is used, while the second concerns the optimal rate of tax when a transfer is used which depends on time of residence in the taxing jurisdiction.     

Unequal Longevities and Lifestyles Transmission

Whereas studies on the optimal taxation under endogenous longevity assume a fixed heterogeneity of lifestyles, this paper analyses the optimal tax policy in an economy where unequal longevities are the unintended outcome of differences in lifestyles, and where lifestyles are transmitted across generations. For that purpose, we develop a three-period OLG model where the population, who ignores the negative impact of excessive work on longevity, is partitioned in two groups with different tastes for leisure, and follows an adaptation/imitation process  à la   Bisin and Verdier (2001) . The optimal short- and long-run Pigouvian taxes on wages are shown to differ, because the latter correct agents' myopia, but also internalize intergenerational externalities due to the socialization process. The internalization of composition effects raises the Pigouvian tax on the wage of one type of agents, but reduces it on the other type, in such a way as to induce the optimal long-run partition of the population.     

Choice and design of regulatory instruments in the presence of green consumers

Using a vertically differentiated product model, this paper examines welfare implications of various government policies in a situation where consumers are environmentally discerning. It studies ad valorem taxes/subsidies and emission taxes. The optimal policy depends on the magnitude of damage parameter associated with environmental externality. For a given distribution of tastes and preferences, as the damage parameter increases from a low to a high value, the optimal policy shifts from an ad valorem tax to an ad valorem subsidy. It also shows that for a sufficiently low damage parameter, an ad valorem tax dominates an emission tax.     

The supply-of-immigrants function and taxation of immigrant's incomes: An econometric analysis

This paper considers the derivation of the commonly estimated macro supply-of-migrants equation from a discrete choice-of-location theory, in which tastes are stochastic. This approach highlights a number of economic and econometric problems inherent in popular forms of this equation. A logit specification of the supply function of U.S. immigrants is presented, using aggregated data on applications for labor certificates rather than observed movements. A modest simulation then follows, reporting the sensitivity of migration flows, hours worked by immigrants, and tax revenues, under alternative rates of Bhagwati's proposed tax on U.S. immigrant's incomes.     

Optimal labor income taxation in a two-sector dynamic general equilibrium model

This paper presents a new approach to the two-sector optimal taxation problem. We derive the optimal labor income tax rate which depends on factor intensity across sectors. It is the labor intensity that determines the initial wage rate, and therefore the optimal labor tax rate. We show that an increase in the initial relative price of consumption goods decreases the optimal tax rate on labor income in the case that the consumption goods sector is capital-intensive while it increases the optimal tax rate on labor income in the case that the investment goods sector is capital-intensive.     

The Optimal Asymptotic Income Tax Rate

This paper shows that a policy maker needs only two types of information to set the optimal income tax rate at the top: a measure of labor supply elasticity and the shape of skills distribution. We find that the asymptotic tax rate is not affected by the degree of inequality aversion as long as the marginal utility of consumption converges to zero. By using empirically plausible estimates for the compensated labor supply elasticity and the shape of skills distribution, we find that the optimal marginal tax rate at the top should be between 33% and 60%, which is in line with the existing rates in the real world.     

Capital income taxation,tax criteria,and intergenerational welfare

In a two-period overlapping-generations model, residence criteria are shown to be optimal with lump-sum transfers to the younger generation in a dynamically efficient open economy even if all wage income, corresponding to rent income under exogenous labor supply, is not taxed away. When tax revenues are also distributed to the older generation — which indeed may be desirable for short-term intergenerational welfare distribution reasons — a weighted average rule is derived for optimal international taxation. The taxation of domestic savings income follows the inverse elasticity rule in respect to savings and, surprisingly, higher investment elasticity increases the tax level. Finally, for a small open economy and for large identical economies, tax competition with a mixed scheme of residence-based taxes and source-based subsidies yields the same tax policy as tax cooperation with no restrictions on the domestic and international capital income tax instruments.     

The optimal treatment of tax expenditures

This paper analyzes the optimal treatment of tax expenditures. It develops an optimal tax model where individuals derive utility from spending on a “contribution” good such as charitable giving. The contribution good has also a public good effect on all individuals in the economy. The government imposes linear taxes on earnings and on the contribution good so as to maximize welfare. The government may also finance directly the contribution good out of tax revenue. Optimal tax and subsidy rates on earnings and the contribution good are expressed in terms of empirically estimable parameters and the redistributive tastes of the government. The optimal subsidy on the contribution good is increasing in the size of the price elasticity of contributions, the size of the crowding out effect of public contributions on private contributions, and the size of the public good effect of the contribution good. Numerical simulations show that the optimal subsidy on contributions is fairly sensitive to the size of these parameters but that, in most cases, it should be lower than the earnings tax rate.     

Social Comparisons and Optimal Taxation in a Small Open Economy

In this paper, we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption. The main results crucially depend on whether the government can tax returns on savings abroad. If the government can use flexible residence‐based capital income taxes, then the optimal policy rules from a closed economy largely carry over to the case of a small open economy. If it cannot, then capital income taxes become completely ineffective. The labor income taxes must then indirectly also reflect the corrective purpose that the absent capital income tax would have had.     

Flat tax? Maybe not a bad idea after all

This work studies the actual degree of progressivity in the Italian tax and transfer system and examines possible reforms towards the optimum. It analyzes the distribution of personal income and effective tax rates across the Italian population, computing income and tax liabilities from survey data, and studies the optimal level of progressivity. To this end, it uses a model developed in Heathcote et al. (2017) with heterogeneous agents where skill investment and labor supply are endogenous and the government provides a public good under a balanced budget. All the main tradeoffs that shape optimal progressivity appear: the presence of inequality in initial conditions and imperfect private insurance push for positive progressivity, whereas labor supply and skill investment call for regressivity. The model suggests a drastic reduction in progressivity under both the baseline and the alternative specifications. In particular, it calls for substantial reductions in marginal tax rates above approximately 0.25 times the mean income along with increased tax rates at the lower end of the income distribution. These reforms may be approximated by a flat tax at 29% under the baseline and at 32.5% under the alternative specification, holding the required positive level of progressivity constant.     

现行税制对劳动力供给影响的理论与实证分析

税收对劳动力供给的影响取决于征税后收入效应与替代效应的对比.然而,不同收入水平的国家以及不同税制结构下所产生的收入效应与替代效应存在一定差异.本文从理论与实证相结合的角度,运用OLS方法,分析了在以商品劳务税为主体的税制结构下,中国现行税制对劳动力供给的影响,认为对劳动所得征税会产生收入效应大于替代效应的结果,最后提出了缓解劳动供求结构性矛盾的税制改革取向.     

Optimal tax treatment of the family: Married couples

This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we drive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is nonoptimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.     

Is the Optimal Labor Income Tax Progressive in a Unionized Economy?*

This paper concerns optimal nonlinear labor income taxation in an economy with union wage setting and endogenous hours of work. The purpose is to study the determinants of tax progression. We show that the optimal degree of progression of the labor income tax depends on the extent to which the government can influence the wage rate via tax policy as well as on its ability to redistribute income across individuals. In addition, the argument for progressive labor income taxation depends on whether hours of work are chosen by the employed themselves or the union.     

On Optimal Commodity Taxes When Consumption Is Time Consuming

This paper studies the problem of optimal taxation of commodities when consumption is a time‐consuming activity. This is done under two distinct preference separability assumptions: between goods and labor supply, and between goods and leisure. It argues that with the labor separability, the traditional uniform taxation results of optimal tax theory continue to hold. With leisure separability, on the other hand, consumption time is a major ingredient of optimal tax rates. However, the relationship between consumption time and optimal tax rates depends crucially on the representation of the economy. In representative consumer economies, time differences determine the pattern of optimal tax rates so that goods whose consumption take more time are subjected to higher tax rates. When individuals have different earning abilities, redistributive, incentive, and efficiency considerations also come into play resulting in a complex relationship. The paper derives formulas for optimal commodity taxes in this case on the basis of three different tax structures: linear commodity taxes in combination with linear and nonlinear income taxes, and nonlinear commodity taxes in combination with nonlinear income taxes.     

Optimal redistribution with unobservable disability: Welfarist versus non-welfarist social objectives

This paper examines the optimal non-linear income and commodity tax when the same labor disutility can receive two alternative interpretations, taste for leisure or disability, but the disability is not readily observable. We compare the optimal policy under alternative social objectives, welfarist and non-welfarist, and conclude that the non-welfarist objective, in which the planner gives a higher weight to the disutility of labor of the disabled individuals, is the only reasonable specification. It has some foundation in the theory of responsibility; further, unlike the other specifications it yields an optimal solution that may involve a lower labor supply requirement from disabled individuals.     

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.     

The distribution of abilities and the progressive income tax

This paper develops a model of endogenous labor supply, where agents are uncertain about their future wages. Assuming risk aversion, some redistributive taxation is thus warranted. It is shown that, for a particular parameterization of the tax system, an optimally progressive income tax exists. Comparative ststics analysis demonstrates how this tax system is effected by changes in the wage distribution. The paper ends with a discussion of whether an optimally progressive income tax can be politically sustained. It is shown that generally this is not the case in a political system with majority voting.     

Tiebout with Politics: Capital Tax Competition and Constitutional Choices

This paper examines how capital tax competition affects jurisdiction formation. We describe a non-cooperative locational model of public goods provision choices, where the levels of taxation and the local public good varieties provided within jurisdictions are selected by majority voting, and where equilibrium jurisdictions consist of consumers with similar tastes. We show that interjurisdictional tax competition results in an enlargement of jurisdictional boundaries, and, even in the absence of intrajurisdictional transfers, can raise welfare for all members of a jurisdiction.