Political Economy of Taxation Kiser, Edgar; Karceski, Steven M
Annual review of political science,
05/2017, Volume:
20, Issue:
1
Journal Article
Peer reviewed
Open access
This review uses theories of political economy to provide an analytical history of systems of taxation, focusing on the determinants of total tax revenue, tax structure, and tax administration. We ...show that most premodern states extracted very little revenue and that total revenue increased substantially in the nineteenth century, and we explore the possibility that tax revenues have hit a ceiling in the developed world. Our history of tax structure begins by discussing the highly regressive premodern tax systems, turns to the causes of the rise of progressive taxation in the twentieth century, and concludes by arguing that the short era of progressive taxation may be ending. The sections on tax administration discuss the many varieties of premodern patrimonialism, the determinants of the development and diffusion of bureaucratic administration, and the difficulty of taxing wealth in the modern world.
We investigate the role played by gender equality in redistributive policies through taxation and in preferences for redistribution. First, at the cross-country level, we study how the historical ...roots of gender equality –i.e., the time of women’s enfranchisement and the role of women in the family– are related with the level of redistribution through taxation. We find that in countries that are historically more gender equal the tax system today is more redistributive. Second, at the individual level, in order to shed light on the cross-country evidence, we investigate whether gender equality is related with overall and/or gender-specific differences in preferences about redistribution. We find that in more gender-equal countries gender differences in redistributive preferences are significantly larger, while their average level does not vary: when gender equality is stronger, women are systematically more favorable to redistribution, whereas there are no significant changes for men. In turn, the component of gender equality driving this result is –not surprisingly– the equality of women and men within the political sphere.
This paper documents and compares the redistributive performance of Latin American and Western European fiscal systems. Three main conclusions emerge: (i) taxes and transfers widen the difference in ...income inequality between the two country groups, because (ii) the redistributive impact of the fiscal system is very large in Europe and very small in Latin America; and (iii) where fiscal redistribution is significant, it is achieved mostly through transfers rather than taxes. While the priorities of pro-equity fiscal reforms vary across Latin American countries, overall the prospects for major fiscal redistribution lie mainly in raising the volume of resources available for transfers, and improving their targeting, rather than increasing the progressivity of Latin America’s tax systems.
We use 2‐year panels from the Current Population Survey to provide a detailed accounting of family income volatility from 1980 to 2009. Volatility doubled overall, and the increase was most ...pronounced among the top 1% of the income distribution, but in any given year the level of volatility among the bottom 10% exceeds that of the top. The increased volatility comes from higher instability of head and spouse earnings, other nonlabor income, and from reduced covariance between these income sources with the tax system. This suggests that current tax policy is less effective in mitigating income shocks than previous decades. (JEL J31, I30)
This paper provides estimates of federal tax rates by income groups in the United States since 1960, with special emphasis on very top income groups. We include individual and corporate income taxes, ...payroll taxes, and estate and gift taxes. The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s. This dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income. The sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity. International comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity, both for time trends and for cross-country comparisons. The pattern for the United Kingdom is similar to the U.S. pattern. France had less progressive taxes than the United States or the United Kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the United States or the United Kingdom.
We examine the effect of a permanent change to a country corporate income repatriation tax system on corporate financial policies. In 2009, Japan and the United Kingdom switched from a worldwide ...system to a territorial system for the taxation of repatriated foreign earnings, effectively reducing the tax liabilities of most multinational firms when repatriating earnings. We find that after the change firms accumulate less cash, pay out larger amounts through dividends and share repurchases, and invest less abroad. We do not find that the tax system change has significantly affected domestic investments even when controlling for capital constraints.
This paper derives optimal inheritance tax formulas that capture the key equity-efficiency trade-off, are expressed in terms of estimable sufficient statistics, and are robust to the underlying ...structure of preferences. We consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities. We limit ourselves to simple but realistic linear or two-bracket tax structures to obtain tractable formulas. We show that long-run optimal inheritance tax rates can always be expressed in terms of aggregate earnings and bequest elasticities with respect to tax rates, distributional parameters, and social preferences for redistribution. Those results carry over with tractable modifications to (a) the case with social discounting (instead of steady-state welfare maximization), (b) the case with partly accidental bequests, (c) the standard Barro—Becker dynastic model. The optimal tax rate is positive and quantitatively large if the elasticity of bequests to the tax rate is low, bequest concentration is high, and society cares mostly about those receiving little inheritance. We propose a calibration using micro-data for France and the United States. We find that, for realistic parameters, the optimal inheritance tax rate might be as large as 50%—60%—or even higher for top bequests, in line with historical experience.
This paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment, and a general constraint linking ...investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor. Unless the cost of adjustment is zero, the domestic tax on foreign-source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature; national optimality requires the deduction rule, and global optimality requires the credit rule. Only in the zero-cost case does exemption become optimal. Allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system: this requires a cash-flow tax on domestic investment in the greenfield case, and a cross-border cash flow tax on foreign investment in both cases. These basic results extend to various extensions of the model, notably: (i) when a profit-shifting motive is present; and (ii) to some extent, when a corporate income tax is in place. The introduction of tax administration costs into the model can explain the empirical trend towards the use of the exemption regime.
•We synthesize and extend the literature on the optimal taxation of foreign source income.•We incorporate greenfield and acquisition investment.•The classic rules for deduction or credit for foreign taxes generally apply•A cash flow tax is optimal in both cases.•Only if adjustment costs are zero is exemption optimal.
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