This study assesses the impact of the reverse-charge mechanism (RCM) on VAT compliance proxied by the VAT gap, defined as the difference between expected and realized VAT revenues. Using annual information in 2000-2020 across 27 EU member states, we first exploit the staggered adoption of RCM by member states to compare VAT gap changes before and after RCM implementation and, additionally, consider variation in the size of economic activity targeted by RCM-adopting member states in the pre-implementation year. Our estimates indicate that RCM adoption does not lead to EU-wide VAT gap reductions and illustrate the mixed effectiveness of the RCM across goods and industries, suggesting its application on durable goods can be effective but not universally. These findings do not provide support for policy changes that cast the net of the RCM wider, although bilateral coordination in RCM adoption with top trading partners may assist in curbing VAT fraud relocation.

The Value-Added Tax (VAT) is widely recognized as being inherently self-enforcing because it features third-party reporting and spread withholding along the production chain. However, a growing literature documents significant VAT tax gaps, sparking interest in possible improvements to VAT design. Reverse Charge (RC) is among the main examples: recently adopted by multiple countries to a variety of industries, RC shifts the entire tax payment on retailers, which, however, remain subject to third-party reporting. Leveraging administrative firm-level data from Italy and a quasi-experimental variation, we show that RC leads to an increase of reported value added (+20 percent). The effect of RC is present across the distribution of firm size although it is stronger among small firms and companies that used to bunch around the zero-liability tax kink.

The Value-Added Tax (VAT) collection plays a role in achieving positive domestic revenue objectives through improved and reformed taxation, but VAT gap estimation is infrequently conducted in developing countries. This study uses novel tax declaration and audit data to estimate the VAT gap in Tanzania and its heterogeneity. We perform a machine learning approach to predict evasion assessment on unaudited firms and periods. We document evidence about the firm's strategic behavior to avoid forceful auditing and increased evasion. Those firms show the largest VAT gap in the data. By the machine learning approach, we estimate a VAT gap equal to 62%, and the Agricultural sector shows the largest VAT gap. Finally, we provide a cost-benefit ratio to indicate that it is cost-effective to redistribute resources to audit more intensive sectors with larger evasion and smaller audit probability.

Assessing tax gaps—the difference between the potential and actual taxes raised—plays a vital role in achieving positive domestic revenue objectives through improved and reformed taxation. This is particularly pertinent for growth outcomes in developing countries. This study uses a bottom-up approach based on micro-level audit information to estimate the extent of tax misreporting in Zambia. Our methods predict the extent of tax evasion using regression and a machine learning algorithm with a sample of audited firms, after which we estimate tax gaps using a standard approach. We estimate total tax gaps as 55% and 47% for the two approaches. This represents potential revenue with the least assumed tax evasion. These gaps are mainly driven by Corporate Income Taxes (CIT). Applying our gap to key industries shows that the extractives sector in Zambia records the highest gaps in terms of CIT and one of the lowest in terms of VAT.

This paper studies the effects of Finnish first-time homebuyer’s transfer tax exemption on the propensity to become a first-time home buyer. Under certain conditions a first-time buyer may be exempted from a transfer tax rate of 2% or 4% depending on the dwelling type. Using administrative data on housing company shareholdings, property taxes, and Finnish population, I exploit a discontinuity in the eligibility rules at an age threshold. My RD estimates suggest that the tax exemption may increase first-time housing company dwelling purchases by 16\% or more at age 40.

Using household survey data for South Korea, we examine heterogeneous impacts of recurrent property taxes on consumer spending. To identify unexpected changes in these taxes, we exploit the unique feature of the South Korean recurrent tax system. Specifically, while the government re-assesses the value of individual houses annually, their assessed value, which constitutes the tax base, deviates from the market value non-systematically, so that every year there is an element of surprise to individual house owners in the amount of recurrent taxes payable. Our main results are threefold. First, an increase in recurrent taxes reduces consumption of households with low liquid asset balances relative to disposable income in particular. Second, higher taxes reduce those households' spending on durable goods more than non-durables. Third, higher taxes lower the probability of multi-house owners buying an additional house for investment, helping curb excessive house price growth.

Beginning in 2018, the amount of state and local tax (SALT) that can be claimed as an itemized deduction is capped at $10,000. Previously, there was no cap on this deduction. The cap is expected to reduce the share of taxpayers who itemize deductions, and to raise the net-of-tax price of charitable giving. This effect is not uniform across geographic areas. In locations with initially low state and local taxes, the cap is not binding for many. This paper makes use of geographic variation to investigate whether the introduction of the SALT cap is associated with a reduction in gifts made to charitable organizations. Analysis of household-level data suggests that high-SALT households reduced their giving relative to low-SALT households. Analysis of organization-level data from IRS Form 990 suggests that charitable organizations located in counties with initially high SALT deductions experienced a relative decline in contributions after the tax change.

We take advantage of a unique experiment to study how saving responds to wealth shocks. Following the collapse of Iceland's banking system in 2008, authorities decided on a program of mortgage relief, financed by foreign creditors, that in effect lowered the principal of mortgages overnight in 2015, many years after the end of the economic crisis when household balance sheets had been repaired. Using administrative data on all taxpayers in the country, we measure the effect of the mortgage relief on the saving of every taxpayer in the country using households that were not eligible for debt relief as a control group. Although a negative effect of wealth on saving could have been expected, households amortized even more in response to the debt forgiveness. The increased amortization is not only due to lower interest costs, but also due to higher saving, mostly by highly leveraged and liquidity constrained households.

The U.S. federal debt-to-GDP ratio has doubled since the Great Recession, highlighting the importance of understanding the relationship between this debt and long term interest rates. Previous work finds empirically that a one percentage point increase in debt leads to a two-and-a-half basis point increase in interest rates. This paper revisits these estimates and finds they are particularly sensitive to the assumption for ongoing fiscal policy leading to a potentially even smaller relationship. Further, the relationship may vary with different types of debt financed fiscal policy so we estimate if the elasticity varies with respect to three dimensions (i) whether the change in debt is due to a legislative or macroeconomic shock, (ii) whether the change in debt is due to a change in discretionary outlays, mandatory outlays, or revenues, and (iii) how much wealth inequality exists in the economy. Overall, the results point to a fairly small elasticity.

We analyze public debt policies within a calibrated stochastic OLG model with distortionary taxation. The risk-free interest rate is realistically sensitive to public debt and lower than the growth rate. The risky rate is substantially higher due to convenience benefits of public debt, idiosyncratic return risk, and aggregate risk. To discern fiscal and welfare perspective, we define and compare deficit-maximizing debt (DMD) and welfare-maximizing debt (WMD). Although free-lunch deficits can reduce tax distortions, DMD tends to exceed WMD. Both rise if the risk-free rate falls due to increases in risk or convenience benefits, but not necessarily if it falls due to lower growth or government spending. Taking market power into account barely changes DMD yet substantially reduces WMD. When wealth inequality is included, the middle class favors debt lower than the WMD in the representative agent case, whereas the rich favor much higher debt-to-GDP ratios.

We study the link between the evolving age structure of the working population and

unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the considerable extent to which demographic changes over the last 30 years contribute to the decline of unemployment rate. Our findings have important policy implications given the expected aging of the working population in Europe. Furthermore, lowering inflation volatility is less costly in terms of higher unemployment volatility. It suggests that optimal monetary policy is more hawkish

in the older society. Our results hint also at a partial reversal of the European-US

unemployment puzzle due to the fact that in the US the share of young workers is

expected to remain robust.

After the Global Financial Crisis, productivity growth in many Euro Area countries fell behind non-Euro EU and other developed countries. While various explanations have been put forward, little has been said on the role of the Euro in decelerating recovery from exogenous shocks. Many prior applications of the synthetic control method (SCM), suitable to analyze the productivity impact of the Euro, have excluded crises altogether, made false assumptions or violated other underlying requirements. With a transparent and manipulation-free SCM application to Finland, results reveal the inability of this previously highly competitive economy to recover from exogenous shocks and restore prior productivity growth despite the implementation of various remaining available policy measures. Extensive robustness checks confirm a huge welfare loss.

We study the optimal recycling of carbon tax revenue in a Mirrleesian economy. Our starting point is a tax schedule that optimally trades-off equity and efficiency (for some welfare weights). If then the government has to implement a carbon tax (e.g. because of the Paris agreement or because suddenly it becomes aware of climate change), what should the government do with the additional tax revenue? We characterize reforms of the nonlinear labor income taxes that fully compensate for the individual utility losses from carbon taxes, neutralize the negative labor supply incentives due to Carbon taxes and are budget neutral. We label these reforms as compensating tax reforms. If Engel curves are linear, these tax reforms are also the optimal response. If Engel curves are nonlinear, they are no longer optimal because the fact that households differ in how easy they can substitute carbon consumption, affects the governments preference for redistribution.

We develop a quantitative growth model with directed technical change to study how material use and recycling rates respond to resource scarcity. In a static economy, scarcity naturally induces greater circularity, i.e. lower material shares and higher recycling rates. On the balanced growth path, circularity depends critically on technology parameters and policy. Indeed, short- and long-run policy implications can be quite different: taxes on virgin material extraction raise recycling in the short run and lower it in the long run. We quantify the model by combining data from U.S. material flow accounts, production (NIPA) accounts and U.S. Environmental Protection Agency (EPA) data on waste generation and recycling. Absent further policy, the recycling rate will peak at 48% around 2060 and then decline. Achieving the EPA target of 50% recycling rate by 2030 would require a 50% tax on virgin material use or a subsidy covering 66% of recycling costs.

Formulating and implementing climate policy requires a detailed understanding of likely pathways of future carbon emissions. However, most existing tools to provide forecasts for such emissions are limited. Projections are predominantly made for the long-term, lacking the necessary detail within the typical policy horizon of one to five years. Most short-term forecasting models are closed-source ‘black-boxes’ that do not reveal in detail how the obtained forecasts are generated. Here we develop a generalised framework for modelling climate and environmental policies within an empirical macroeconometric modelling approach. The resulting open source empirical macroeconomic (‘OSEM’) model is an econometric model builder that provides a platform to generate empirical forecasts of sectoral carbon emissions as well as the wider macroeconomy. The underlying estimated models are based on dynamic time series regressions matching a structural VAR allowing for model selection, outliers, insample structural breaks, and automatic forecast evaluation. We present an illustrative example providing

the first short run sectoral greenhouse gas emission forecasts for Austria. The resulting model builder is open source, easily portable across countries, can be updated in real time when new data is released, and aims to improve transparency and flexibility in policy forecasts.

This paper analyses the impact of intergovernmental transfers on economic development in Indian states from 1990 to 2020 using panel fixed effects models. Our analysis challenges the conventional belief that transfers promote economic growth. Instead, our findings reveal a counterintuitive result: transfers may hinder economic development, particularly in special category states. This suggests that rather than fostering economic convergence, transfers have a growth-depressing effect on these regions. There are differences between general and special category states, with transfers having no significant impact on economic growth in the former and adverse consequences in the latter. It emphasizes the importance of understanding the relationship between fiscal transfers and economic development, particularly in transfer-dependent regions. As India continues to evolve its policies, our findings call for a closer examination of how states utilize transfers. These insights are crucial for policymakers to foster balanced and sustainable growth and reduce regional disparities.

We estimate the impact of expenditure decentralization on economic activity and public service delivery in the context of a nationwide reform in Indonesia. The Village Law of 2014 empowered one type of villages (desa) to provide health, education, and infrastructure services while providing unconditional fiscal transfers to fund these services. The other type of villages (kelurahan) saw no change in responsibilities or resources. Using a semiparametric difference-in-differences design, we find that decentralization temporary disrupted economic activity but eventually led to modest gains, as measured by nighttime luminosity. Future drafts will examine the impacts on public service delivery, as well as heterogeneous effects according to local administrative capacity.