Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Pestel, Nico; Sommer, Eric

doi:10.2139/ssrn.2622114

Cited by 11 publications

(11 citation statements)

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“…For example, micro-simulations of a tax shift from the personal income to the value added tax (VAT) confirm the regressive impact of this shift (e.g. Pestel and Sommer, 2013;Decoster et al, 2011). Some studies have found that after accounting for labour-supply adjustments, the adverse distributional impact is smaller due to increased work incentives.…”

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confidence: 98%

Public Finance, Economic Growth and Inequality

Johansson¹

2016

OECD Economics Department Working Papers

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JT03405922Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ECO/WKP(2016)70 Unclassified English -Or. English ECO/WKP(2016)70 2 OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).Working Papers describe preliminary results or research in progress by the author(s) and are published to stimulate discussion on a broad range of issues on which the OECD works.Comments on Working Papers are welcomed, and may be sent to OECD Economics Department, 2 rue André Pascal, 75775 Paris Cedex 16, France, or by e-mail to eco.contact@oecd.org. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.Latvia was not an OECD Member at the time of preparation of this publication. Accordingly, Latvia does not appear in the list of OECD Members and is not included in the zone aggregates. © OECD (2016)You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for commercial use and translation rights should be submitted to rights@oecd.org ECO/WKP(2016)70 3 ABSTRACT/RÉSUMÉPublic finance, economic growth and inequality: A survey of the evidence This paper reviews the key issues concerning the impact of public spending and taxation on long-run growth and inequality and takes stock of existing theoretical and empirical studies. Overall, the evidence highlights that the size of the government matters for long-term growth as a too large government may undermine growth through the cost of financing public spending. A reallocation of public spending towards infrastructure and education would raise income in the long run, whereas increasing social welfare spending can reduce inequality as such spending increases redistribution and risk sharing. Similarly, the available evidence also supports the hypothesis that some taxes are more distortionary than others, with income taxes found to be more harmful for growth than consumption and property taxes. However, a tax shift from income towards consumption taxes has equity implications, since income taxes are general...

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confidence: 98%

Public Finance, Economic Growth and Inequality

Johansson¹

2016

OECD Economics Department Working Papers

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“…In addition, our results speak to the literature analyzing the distributive effects of tax shifts from labor income toward other tax bases such as consumption (e.g., Pestel and Sommer 2017). So far, little empirical work has been dedicated to property tax related simulations, mostly driven by data limitations.…”

Section: Introductionmentioning

confidence: 52%

Distributional and revenue effects of a tax shift from labor to property

Paetzold

Tiefenbacher

2018

Int Tax Public Finance

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Contrary to frequent recommendations of the public finance literature and international institutions, a persistently high tax wedge on labor is observed in Europe. Simultaneously, the scope for shifting taxes to more growth-friendly revenue sources appears underused. This motivates our simulation of a tax shift from labor to property for Germany, a country where property tax revenues are particularly low and the tax wedge on labor income is among the highest in industrialized countries. We simulate a reform where property is no longer taxed by its (often) outdated cadastral value but by its market value, using the additional revenue to reduce social insurance contributions (SIC). To make such a simulation possible, we match property-related information with the input data of the tax-benefit microsimulation model EUROMOD. We find a considerable increase in property tax revenues, allowing to reduce the implicit tax rate on labor from 37.2 to 36.5%. Distributive effects tend to be modest and depend on the design of the SIC reduction. Overall, our results suggest that more households would gain than lose from the tax shift, with gainers mostly situated in the middle of the income distribution.

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“…In order to be able to handle them simultaneously, we imputed VAT and excise tax payments in EU-SILC. Similarly to other studies analysing the redistributive effect of indirect taxes, such as De Agostini et al (2017), Pestel and Sommer (2017) or Savage (2017), we used a regressionbased method for the imputation. We constructed a regression model of VAT payment in the Household Budget Survey based on overlapping socio-demographic variables 6 as explanatory variables and applied this model to predict VAT in EU-SILC.…”

Section: Data and Assumptionsmentioning

confidence: 99%

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Gál¹,

Medgyesi²

2017

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There seems to be a general consent in the expert community that Hungarian social policy provides poorly targeted benefits and services that are prone to Mattheweffects. Our results confirm this observation but we also find that the data offer an alternative interpretation of what the Hungarian welfare state is actually doing. Instead of supporting the poor it reallocates resources from the working age population to children and elderly people. It functions as an intermediary between overlapping generations that seek to finance their lifecycle by exploiting the opportunity offered by the very overlap, the fact that contemporaries are of different age.In a cross-sectional framework we analyse reallocations by age and income simultaneously and assess the relative importance of these two variables in explaining the access and contribution to public benefits. Our data from 2010 (based on EU-SILC and the Household Budget Survey) covers public transfers (cash and in-kind) and both direct and indirect taxes. We compare the importance of age and income in explaining transfers and taxes in a regression-analysis framework by studying causal importance (comparing coefficients) and dispersion importance of the variables (using Shapley-value decomposition). We find that income is irrelevant in explaining access to benefits and services but age is important. On the contribution side, income proves as important as age. This qualifies our description of the Hungarian welfare system: it serves as a channel through which affluent people in their working age support people in inactive age of all income groups.

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Shifting Taxes from Labor to Consumption: More Employment and More Inequality

Cited by 11 publications

References 47 publications

Public Finance, Economic Growth and Inequality

Public Finance, Economic Growth and Inequality

Distributional and revenue effects of a tax shift from labor to property

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