Intra-family wealth transmission has been shown to reinforce inequality and dynastic privilege. So far, researchers have focused exclusively on taxation as the policy tool for dispersing private wealth. We instead consider inheritance law. Many countries force testators to leave certain minimal estate shares to direct descendants. Relaxing such constraints could allow wealth to be spread more widely. We explore this possibility in a unique dataset on 16,933 wills established online before and after a reform of inheritance law in Switzerland. Applying a difference-in-differences estimation strategy, we find that lower minimum shares for direct descendants were used primarily for increasing the shares given to spouses and life partners. Estate shares flowing to heirs outside of the core family barely increased. We infer that intra-family bequest motives remain so strong that greater testator freedoms are an ineffective tool for increasing the dispersion of wealth at the time of transmission.

I examine behavioral responses to inheritance and gift taxes in a setting where individuals knew the tax would increase three months before the new tax code took effect. Using tax microdata from Brazil, I employ bunching and difference-in-differences (DD) methods and find that individuals significantly retime their wealth transfers to avoid taxes. Retimed gifts resulted in smaller inheritances for nearly three years. Moreover, I find that responses are sensitive to changes in top gift marginal tax rates and tax design (flat rates vs progressive brackets). Finally, the number of declared bequests decreased in the medium run in reform states, particularly among small inheritances.

We study the impact of the UK house price boom on the intergenerational persistence of homeownership, housing wealth, location and earnings. Increases in local house prices have a negative effect on homeownership and increase the intergenerational persistence of housing wealth. We show that by age 28 to 27 around 10\% to 20\% of parental housing wealth gains are passed through to children's housing wealth. This effect on housing wealth inequality is explained not by higher homeownership rates but by the children of wealthier parents being more likely to move to and own a home in London. Moving to this high house price and high earning part of the country comes alongside an effect of parental wealth on occupation choice and earnings.

We study individual earnings responses to positive wealth shocks from bequests and lotteries. In a life-cycle model, we show how responses may differ depending on the age of the recipient. Tracking earnings responses to 269,000 positive wealth shocks in Swiss individual-level tax records, we confirm the qualitative predic- tions of the model: irrespective of the source of the wealth shock, average earn- ings responses are consistently negative. The strongest responses are found for older workers – partly through early retirement –, and for women. Conditional on age, inheritance triggers weaker earnings responses than lottery winnings, which is consistent with anticipation effects. We use the calibrated model to simulate the effects of inheritance taxation and of shifting the age distribution of intergenera- tional transfers, e.g. via incentivizing inter-vivos gifts.

This paper provides evidence on the strategic use of owner-controlled firms as a means of tax avoidance under dual personal income taxation. Taxpayers with sufficiently high income levels have incentives to shift income toward corporations, as the combined tax burden of corporate and capital income taxes is lower than that of labor income taxation. We exploit linked micro-data from personal income tax returns and various other sources, leveraging multiple tax reforms in Spain that introduced variation in these incentives across taxpayers and over time. This approach allows us to causally identify the magnitude of income shifting behavior. We find significant tax-motivated responses among business owners, with a semi-elasticity of 0.26 with respect to potential tax savings from incorporating. However, this number varies significantly between types of tax reforms and across tax payers, showing that substantial change of the tax code are more relevant than simple rate changes.

This paper examines how capital gains tax legislation shapes business sales in Germany. Using detailed income tax data on a representative sample of German business owners, the paper documents the characteristics of sellers and analyzes their post-sale behavior. A regression discontinuity design provides evidence of a substantial jump in the number of transactions around a discontinuity in the capital gains tax rate, suggesting that lock-in effects play a significant role. Entrepreneurs with larger capital gains and worse outside options respond particularly strongly to the discontinuity. The results have implications for our understanding of how capital gains tax provisions affect entrepreneurial decisions and broader economic outcomes.

Inheritance and gift taxes may induce liquidity-constrained family-owned businesses to discontinue, as meeting tax liabilities potentially worsens performance. Thus, preferential tax treatment for intra-family transfers is often considered appealing policy. This paper studies the impact of such treatment using a 2004 Finnish reform that sharply reduced gift and inheritance taxes for family business transfers. We construct a repeated cross-section of firms from 1999 to 2010 and classify them as dynastic or non-dynastic based on the presence of the owner’s child on the board prior to succession. We compare trends before and after the reform to assess whether it influenced firms’ decisions to sell, retain ownership within the family, or liquidate. We also examine precautionary behavior prior to succession and key indicators of firm performance. Our estimates show that family succession rises immediately after the reform, with clear anticipatory behavior, but we detect no significant effects on behavioral or financial outcomes.

We assess tax and real economic implications of facilitating the option to incorporate by physicians in Canada, by exploiting the 2006 reform in Ontario which allowed family members to own shares in these businesses. The administrative tax data allows us to trace individual and businesses incomes, both corporate and unincorporated, and taxes for as many as 12 years after the reform. We use a triple-differences design, comparing the outcomes of physicians in Ontario with other high-income professionals and other provinces. The reform stimulated incorporation. Pre-tax personal income and taxes paid (aggregated at the family level) significantly decrease, while their pre-tax business income and corporate taxes substantially increase. The overall income (personal and corporate combined) increases while the average effective tax rate decreases after the reform. Taken together, these results are consistent with both tax avoidance through a corporation and real response via business expansion after incorporation.

We present new evidence showing that fiscal austerity strengthens support for redistribution, especially for the relatively well-off. Our theoretical model proposes two mechanisms to explain this heterogeneity in support for redistribution: ‘altruism’ and ‘appreciation’. We test our theoretical model’s predictions by matching attitudes reported in the British Social Attitudes Survey with local area-level spending cuts in England over the period 2010 to 2015. We exploit the spatial and temporal variation in spending cuts at the Local Authority level to compute a plausibly exogenous measure of the austerity shock. We find evidence for these two channels.

Public debt sustainability has garnered importance in the macroeconomic policy making of India, especially since the 1980s. This paper discusses the effectiveness of macroeconomic policies, viz. fiscal policy and monetary policy, to tackle the issue of debt sustainability considering the inter-dependencies between various macroeconomic indicators under the four sectors of the economy. To this end, we estimate a structural equation model with 14 equations which is further incorporated into the debt sustainability analysis using an indicator-based approach. The structural equations are estimated using the Generalised Method of Moments and the data covers annual samples for central government finances from 1981-82 through 2019-20. The simulation exercises reveal that fiscal policy is more effective than monetary policy in improving the debt sustainability indicators of India. Further, fiscal policy through changes in capital expenditure is found to outperform policy action through changes in revenue expenditure.

Tax compliance is vital for public revenue, especially in developing countries under IMF austerity programs. This study investigates how these programs influence voluntary tax compliance, analyzing data from the World Values Survey and IMF Monitoring of Fund Arrangements from 1980 to 2020. Using treatment effects and a difference-in-differences strategy, we find that IMF interventions negatively affect tax morale when cultural and trust factors are included. These programs may erode public trust and perceptions of fairness, reducing intrinsic motivations for compliance. The study emphasizes the need for IMF policies that consider socio-psychological elements and adapt to specific cultural contexts to improve tax compliance. Recommendations include tailoring IMF measures to enhance social development alongside economic stability, thus fostering sustainable growth. This approach could mitigate the negative impacts on tax morale and strengthen fiscal sustainability in developing nations.

This paper investigates the macroeconomic implications of a proposed tax reform that shifts the burden from labor income to capital income taxation within developed economies. As social insurance systems face sustainability challenges, this reform aims to broaden the tax base while enhancing economic efficiency and international competitiveness. Utilizing a two-region general-equilibrium model with overlapping generations, we analyze both short-term and long-term effects of this tax shift. Our findings indicate that reducing labor taxes can stimulate employment and increase net wage income, while simultaneously altering household savings behavior and capital accumulation dynamics. The model reveals a significant increase in domestic savings and a notable rise in net foreign assets, leading to a decrease in global interest rates. However, the transition may adversely affect retirees reliant on savings income, highlighting critical distributional consequences. Overall, the study underscores the complex interplay between tax policy, labor market dynamics, and household welfare.

In this paper, I analyze the effects of government tenure on public investments. Particularly, long term investments incur short-term costs and the benefits will be reaped in the future. Who will politically benefit from these investments is often not clear apriori. When politicians stay longer in office the likliohood is higher that benefits start to pay-off during their term in office. Hence, the tenure length of politicians might affect public investment activities. To test this hypothesis, I examine a reform in the German state of Lower-Saxony where mayors tenure length was reduced from 8 to 5 years. Exploiting exogenous variation generated by asynchronous elections, I apply a Difference-in-Difference approach to compare treated and not yet treated municipalities. I find preliminary evidence that shorter term periods reduce the level of public investments. Reform induced changes in political selection are unlikely to be the driver of the reform.

The COVID-19 pandemic presented governments with unprecedented challenges, requiring decisions that balanced public health measures against substantial social and economic impacts. This study examines the strategic and opportunistic behaviors of regional officials in Germany during the pandemic. Using a comprehensive empirical analysis based on hundreds of statements from state incumbents, we shed light on the dynamics of state level political behavior.

Our findings reveal that German regional leaders emphasized their autonomy when performance metrics were favorable but strategically shifted responsibility when outcomes were less favorable. This behavior underscores the dual potential of federal systems as both laboratories of democracy and breeding grounds for responsibility-avoiding (opportunistic) behavior.

Building durable fiscal capacity requires that the state obtains compliance with its tax demands, a struggle for weak states that lack enforcement capacity. One potential option for governments in weak states is to enhance their legitimacy and thereby foster voluntary compliance. In this study, we report results from a participatory budgeting policy experiment in Sierra Leone that attempted to increase legitimacy and tax compliance by inviting public participation in local policy decision-making. In phone based town halls, participants shared policy preferences with neighbors and local politicians and then voted for local public services that were subsequently implemented. We find that the intervention durably increased participants’ perceptions of government legitimacy. However, against influential models of tax compliance, we find a robust null effect on tax compliance behavior. In exploratory analyses, we document that partisan affiliation strongly conditions the interventions’ effects on tax compliance and attitudes towards paying taxes.

This paper analyses how partisan alignment shapes the allocation of intergovernmental grants. Two-Way Fixed-Effects (TWFE) and Regression Discontinuity (RD) estimations are applied to a sample comprising all 308 Portuguese municipalities from 1998-2022. TWFE results indicate that municipalities led by mayors politically aligned with the national government receive more national non-formula-determined grants, on average, and in local and national election years. Preliminary RD results are consistent with those of TWFE estimations, being also suggestive of partisan effects. Further tests are necessary to more thoroughly check for a causal effect of partisan alignment on the allocation of intergovernmental grants to Portuguese municipalities.

Redistributive policies are crucial in tax design but often overlooked when examining optimal tax administrative policies to fight tax evasion. This paper extends the Keen and Slemrod (2017) framework to analyze how redistributive concerns and inequality aversion affect tax administration. The rule for the optimal redistributive tax has the same structure as in a model without tax evasion, but the efficiency concerns depend on the elasticity of reported incomes, not solely on the elasticity of labour supply. Optimal tax enforcement strategies depend on the connection between private compliance costs and inequality aversion. With social marginal welfare weights falling in income, society chooses less strict enforcement and larger implied optimal tax gap if compliance costs are relatively high among low-income individuals. The results highlight an efficiency-equity trade-off in optimal tax administration policies.

I develop a model of optimal income taxation that incorporates a hybrid employment structure, where formally employed workers receive both recorded wages and payments under the table (PUT). When firms’ choices are not considered, the optimal tax rate depends on two sufficient statistics—the PUT elasticity and the ratio of PUT to reported wages. Higher absolute values of the PUT elasticity and the ratio of PUT to reported wages lower the optimal tax rate. When firms are introduced, the corporate tax creates an additional distortion because PUT wages cannot be deducted from taxable income. As higher PUT wages reduce income tax revenue, they simultaneously increase corporate tax payments, partially offsetting the revenue loss and affecting redistribution. I apply this model to the Peruvian context. To estimate PUT, I perform optimal transport matching between two datasets that most governments already collect—payroll administrative records and household survey data.

Abstract This paper revisits classic results in optimal income taxation by incorporating non-filers, whose undermining the efficacy of income tax-based redistribution. Under Atkinson-Stiglitz preference assumption, the addition of non-filers rationalizes commodity subsidies as an alternative approach to achieving redistribution. The imperfection of this approach may also rationalize differential commodity taxation/subsidization. Moreover, when filing is an endogenous choice—affected by demogrant incentives—the optimal income tax follows a modified ABC rule, with social marginal utility adjusted to reflect imperfect takeup. These findings reveal that accounting for non-filers can increase or decrease optimal redistribution.

We integrate tax enforcement into the Mirrlesian optimal income tax framework, derive sufficient statistics formulas for the jointly optimal tax and enforcement schemes, and establish the following properties: (i) Taxation and enforcement are complementary. (ii) Tax exemptions can be optimal under variable enforcement. (iii) Cost-benefit enforcement is optimal if the marginal social value on consumption of evaders is zero. We calibrate the model using US audit data and find that even a conservative re-alignment of audit intensity at high incomes could lead to a significant increase in optimal top tax rates.

This paper establishes a connection between labor market reforms and an increase in the reforming country's net foreign asset position through a precautionary savings channel. We use data from the German Socioeconomic Panel to document significant changes in the savings behavior of the most affected groups in response to the reform. We then construct a heterogeneous agent model of a small open economy with labor market frictions to assess the current account effects of the major German unemployment benefit reform (Hartz IV). Our findings show that the reduction in the generosity of the unemployment insurance scheme leads to a significant increase in precautionary savings. As a result, since not all of these additional savings can be absorbed domestically, the net foreign asset position and the current account rise. Furthermore, welfare gains and losses are distributed unequally among agents. Compared to a closed economy, the reform is more detrimental.

In recent years the debate on the state's role has shifted towards the empirical assessments of technical efficiency of public spending. This paper analyses the efficiency of public expenditure across 28 states in India from 2000 to 2019 and similarly for 19 major states, using a composite public sector performance (PSP) index and data envelopment analysis. A single input-oriented variable returns to Scale DEA, a non-parametric analysis is done to analyze the efficiency and total revenue expenditure as a share of GDP is taken as the input and the outputs are various socioeconomic indicators as a proxy for outcome. The DEA analysis suggests that Indian states could reduce their public spending by 64% and 58% for all states and 19 states analysis respectively and still achieve similar output. This study adds to the literature by conducting an inter-temporal analysis of public expenditure efficiency across Indian states by identifying the trends.

This article provides evidence that increased salience of public service provision can strengthen the social contract and increase tax compliance in a low-capacity setting. I conduct a field experiment randomizing information about public service provision across 5,494 property owners and tenants in Freetown, Sierra Leone. Receiving information increases property tax payments by 20% on average. The effect is driven by increases in tax compliance on both the extensive and intensive margin. Residents of low-value properties are 7–16 percentage points more likely to pay taxes when informed about public services that are both geographically accessible and respond to the citizens’ most urgent needs, suggesting a benefit-based approach to taxation. Revenue effects are largely driven by residents of high-value properties, who depend less on the public provision of services, and for whom the treatment seems to act as a more general signal of government performance.

Governments provide many goods and services without charge, making it impossible to use market prices to assess their values or significance. This paper proposes that government size be measured by the opportunity cost of government activity, as reflected in the value of foregone private output. Properly applied, this entails two important changes to the current national income accounting treatment of government product: exclusion of expenditures on intermediate goods and services provided to businesses, and replacement of the government price deflator with an appropriately modified private sector price deflator. The price deflator adjustment alone implies that average annual government output growth is 1.0 percent higher than currently measured, and that average annual GDP growth is 0.13 percent higher.