Rising income inequality and tight government budgets have spurred discussions in many developing nations regarding the taxation of high-income earners. We study taxpayer responses to an increase in the top marginal tax rate in South Africa drawing on exceptionally rich tax administrative data and a transparent empirical identification design. We establish that treated taxpayers strongly reduce their reported taxable income in response to the tax reform. Our preferred estimates suggest an elasticity of taxable income of around 1.2. Responses are driven by both reductions in broad income and increases in tax deductions. While regular, third-party reported earnings remain unaffected, we find significant decreases in fringe benefits, allowances, annual incentive and bonus payments. Consistent with the latter response reflecting less effort provision by leading workers in South African firms, we find that businesses which employ workers treated by the tax increase experience a significant decline in business output after the reform.

This study estimates the elasticity of income with regard to the net of tax rate using panel data from Japanese tax returns from 2014 to 2020. The following conclusions were drawn: First, in Japan, the elasticity of income with respect to the net of tax rate ranges from 0.25 to 0.52. These estimates are greater than or close to the ETIs for most OECD countries but are much greater than those provided by previous research for Japan. Second, income elasticities for business-income earners are larger than those for salary income earners. Third, the ETI estimates are much higher than the income elasticity estimates. This result probably reflects the fact that there was no large-scale reform in income tax rates during the sample period, thus making it difficult to precisely identify taxpayers’ behavioral responses to tax rates.

This paper estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top US income tax bracket in 2013 using a large panel of high-income taxpayers drawn from US administrative tax records. Taxpayers in the top tax bracket experience tremendous income volatility – more than one in four have year-on-year changes in broad income of more than 30 percent. This volatility shifts some across time and drives potential bias in all possible estimators. We propose a method for estimating this expected bias and use this information to select our estimator and bound any remaining bias. Our results have important policy implications for the optimal top marginal tax rate in the US.

Using administrative plant-level data I study how the taxation of the capital stock affects firms and workers. Before a reform in 1998, the German local business tax was levied on two bases: profits and the capital stock. I exploit this unique setting to identify the effects of capital stock taxation. Businesses that experienced a larger tax cut increased investment and wages. However, aggregate employment was not affected in the long run. More exposed firms also earned higher profits. Comparing the estimates to the literature on corporate income taxation, I find slightly larger investment effects and similar effects on wages. In line with theoretical predictions, the tax cut also triggered increased firm entry, in particular by lower productivity firms. This resulted in lower average productivity. In contrast, I find that lower profit taxes are associated with higher productivity. This highlights the differences between taxing profits and capital.

We exploit the unique German setting of tying preferential tax treatment of

gratuitous business transfers to employment requirements to analyze the effects

of employment protection measures on affected firms. To this end, we combine

three data sources. First, we employ a large company database to identify ownership transfers in German firms between 2007 and 2022. Second, we link these

firms to death events drawn from multiple publicly available data sources to

build a panel of firms experiencing inheritance-related ownership successions.

Third, we obtain detailed employee outcomes for these firms from administrative establishment data. Preliminary results suggest that tying tax benefits to

employment requirements affects employee outcomes both in the short run and

long run.

We quantify behavioral responses to estate taxation by leveraging a tax cut and raise in Taiwan. Using a difference-in-difference design combined with administrative data, we show that net estates respond quickly and persistently. We estimate elasticities of net estates w.r.t. net-of-tax-rate is 1.7 (se 0.2) from the tax cut and 2.8 (se 0.4) from the tax raise. We find a discrepancy between the behaviors of those whose taxes are repealed and those whose tax rates are decreased but not removed, with the former having a substantially higher elasticity. A breakdown of net estates reveals taxpayers adjust assets or deductions that have greater flexibility for adjustments. Finally, we develop a model to explain our findings and derive sufficient statistics to assess the welfare effect. It is shown that the tax rates are too low and exemption thresholds are too high in both the old and new regimes.

We analyze behavioral responses to wealth taxation, exploiting variation from a reform reducing the marginal tax rate in the northern Norwegian municipality of Bø from 0.85% to 0.35%, since 2021. Mimicking the behaviour of a tax haven, Bø represents the first municipality unilaterally reducing the tax rate since the establishment of wealth taxation in Norway in 1892. We document a 66.6% increase in taxable wealth in response to a 1 percentage point drop in the tax rate. Internal mobility appears as the major behavioral response, accounting for a large portion of the post-treatment total net wealth in the treated municipality.

The answer is: we should tax capital income. This conclusion is derived by analyzing taxes on capital income and wealth in a standard two-period portfolio model with safe and risky assets with either idiosyncratic, individual risk or systematic, aggregate risk. Compensated tax reforms are analyzed where taxes on capital income are increased, while taxes on wealth are decreased. Such tax reforms are found to be welfare improving because taxes on capital income impose a non-distorting tax on the risk-premium, whereas taxes on wealth do not. Hence, for the same distortions, taxes on capital income generate more revenue than taxes on wealth. Optimal taxes on capital income and wealth are derived.

We study how a wealth tax and a realization-based capital gains tax affect capital market efficiency. We develop a two-period model with investors that are heterogeneous in both the value of an initial investment, and the future return on the initial investment. We show that the realization-based capital gains tax reduces the required rate of return on existing investment below the required rate of return on new investments, resulting in lock-in. A comprehensive wealth tax can eliminate this lock-in effect. We then develop an optimal-tax model that trades of equity gains from the capital-gains and wealth tax to efficiency losses related to intertemporal choice, and lock-in. We derive a criterion for the desirability of a wealth tax based on elasticities that can be estimated empirically. In addition, we find an upper bound on the optimal wealth tax. Finally, we consider an extension where long-run capital gains partially escape taxation.

For the coming years, the government in the Netherlands has announced a reform of the capital tax scheme: from the current scheme that taxes financial wealth towards a scheme that taxes capital income. This paper explores the economic and welfare effects of such a reform. I adopt different assumptions on the use of tax revenues, on household heterogeneity and on access to capital markets. In representative-agent versions of the model, the reform is found to be welfare-improving. In those versions that distinguish low wealth households from high wealth households, the reform continues to benefit the latter. Low wealth households, however, may be worse off on account of increased income volatility.

This paper revisits the debate on the welfare impacts of capital taxation, particularly challenging the prevailing notion that such taxes are universally harmful. Our study concentrates on estate taxation and investigates its welfare effects in an overlapping-generations (OLG) model, which uniquely incorporates a bequest motive. We introduce an innovative segregated economy model, delineating households into two distinct categories: workers and capitalists. This distinction allows us to uncover that the implications of estate taxes vary significantly based on whether households primarily rely on labor income or on inherited wealth. Also, for both cases, the effects of age-dependent inheritance taxes are very sensitive to the substitutability of bequests to children and bequests to grandchildren. Our results indicate that the after-tax rate of return on capital is not solely determined by traditional discount rates but is also significantly influenced by estate tax rates and the nature of bequest motives.

This paper investigates to what extent multinational enterprises relocate jobs internationally in response to taxes. The analysis uses detailed data on employment and investments of foreign multinational enterprises within the United Kingdom combined with tax reform variation in the country of the MNE headquarter. Preliminary analysis shows that labour taxes are important for the international location of jobs within the MNE.

This study analyzes the implications of tax complexity for the structure of tax departments and tax risk. Using a hand-collected dataset of more than 7,500 tax department employees from 353 European listed multinational enterprises, we identify two potential sources of costs associated with tax complexity. First, we find that firms locate more tax department employees in countries with a high level of tax complexity. This association is particularly pronounced for high levels of complexity in the tax framework, such as tax filings, audits, and appeals. Second, we find that investments in high-tax complexity countries are associated with a higher tax risk than investments in low-tax complexity countries. However, this tax risk is lower for multinational firms with more tax department employees in these countries. Our results suggest that installing tax department employees in highly tax-complex countries is crucial in effectively managing tax risks.

The location choices of multinational enterprises (MNEs) can significantly impact economic outcomes and are therefore of significant relevance for policy makers and a frequent topic of public debate. At the same time, individual MNE affiliates can fulfil various functions. This paper explores the role of corporate taxation in the allocation of functions within the MNE value chain using new comparative cross-country data on MNE functions taken from the Country-by-Country reporting (CbCR) data. The paper first provides an extensive description of the distribution of functions within MNEs and reveals striking differences in the functions of affiliates located in investment hubs versus non-hub affiliates. Second, the paper explores the tax-responsiveness of different MNE functions.

We examine the benefits and challenges associated with recent advancements in automatic tax information exchange agreements to improve tax compliance at the top of the wealth distribution. Since 2016, Colombia has received information on foreign accounts held by its citizens in the United States and 103 other countries through the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). We merge FATCA and CRS reports with personal tax return microdata on domestic and foreign income and wealth from 2016 to 2021. First, we outline recent trends in the likelihood of Colombians voluntarily disclosing foreign assets to their authorities and the declared amounts. Second, we juxtapose self-reported wealth against data obtained from CRS and FATCA. Third, we investigate the role of CRS and FATCA in facilitating the enforcement of wealth and income taxes.

This paper uses account data leaked from an Isle of Man bank to study the effectiveness of automatic exchange of bank information agreements (AEOI). We establish three sets of results. First, we find that AEOI treaties do not legally cover a large share of assets held offshore. Second, we observe that banks in charge of reporting appear to correctly identify most reportable accounts and to communicate this information truthfully to tax authorities. The quality of reporting is better for individual accounts than for company accounts, either because of complexity or because of non-compliance by the bank. Third, we find evidence that clients of the bank who were more at risk of being reported on preemptively closed their accounts, potentially circumventing the AEOI reporting process. This paper sheds light on the design flaws of AEOI agreements, and provides new evidence on how sophisticated individuals ultimately avoided this new transparency shock.

Countries worldwide committed to automatically exchanging financial account information under the CRS, including many less developed countries (LDCs). It is still unclear if the scheme improved tax compliance, however, in particular in the weaker enforcement context of LDCs. In this project, we merge CRS reports received by the South African Revenue Service to income tax returns to shed light on this question. We show that foreign wealth by South African residents is concentrated at the top of the income distribution. The findings further indicate that CRS reporting lowers tax evasion - but a significant compliance gap prevails. This is consistent with incomplete enforcement: Misreporting of taxpayer identifiers often prevent successful matches of CRS reports to tax returns; and conditional on matching, discrepencies between taxpayers' self-reported and CRS-reported foreign income do not impact observed audit risk or audit adjustments - suggesting that CRS reports do not yet effectively inform audit processes.

This paper studies the effects of the 2017 multilateral automatic exchange of information (AEOI). Leveraging rich tax data and difference-in-differences designs, I document significant positive tax compliance behavior. The AEOI caused 107k taxpayers (2% of all) to participate in the Swiss amnesty. Together, they disclosed CHF 35.2 billion Swiss francs—more than 5% of GDP. This static macro effect persists at the micro level: Once an evader enters the amnesty, their wealth increases by around 55% on average and remains at this higher level. Lastly, I show that tax evasion is widespread in Switzerland and more evenly distributed than elsewhere.