Taxation

Aroop Chatterjee, Léo Czajka, Amory Gethin, 24 April 2021

Many studies have investigated the dynamics of poverty and consumption in developing countries, but still little is known about the distribution of household net worth. This column documents the persistence of extreme wealth inequalities in South Africa since the end of the apartheid regime. Today, the top 10% own about 85% of total wealth and the top 0.1% own close to one third. A progressive wealth tax targeted at the richest 1% could collect the equivalent of between 1.5% and 3.5% of South Africa’s GDP, both tackling this legacy of extreme inequality and bringing additional government revenue in the wake of the COVID-19 crisis.

Ethan Ilzetzki, Jason Jia, 02 April 2021

In his Spring Budget, UK Chancellor Rishi Sunak announced a super-deduction that allows companies to deduct 130% of expenses on capital on most investments on plant and equipment. This column reveals that the majority of the CfM panel of experts on the UK economy think this super-deduction will moderately aid the UK’s recovery from the Covid recession, but that the announced corporate tax increases also announced in the Budget will do moderate harm. Most panellists believe that the government is moving too fast on deficit reduction. 

Odran Bonnet, Guillaume Chapelle, Alain Trannoy, Étienne Wasmer, 16 March 2021

Housing wealth is now between two and four times as large as GDP in many Western economies. This column reintroduces land and housing structures to the theory of optimal taxation, and finds that first-best taxation is achieved through a property tax on land and requires no tax on capital. Even absent land taxes, one can tax land indirectly and reach a Ramsey second best still with no tax on capital and positive housing rent taxes in the steady state. 

Roberto Iacono, Elisa Palagi, 27 February 2021

A crucial element in the study of wealth inequality is the difference between the rate of return and the growth rate of income. However, the focus on these measures at the aggregate level belies important heterogeneities along the wealth distribution. This column uses rich micro-data from Norway to show that wealthy households enjoy higher rates of return relative to growth, while the opposite is true for poorer household and the lower-middle-income class. It discusses policy implications of these findings for capital and wealth taxation in order to curb the rise of inequality. 

Francis Bloch, Gabrielle Demange, 17 December 2020

Tax avoidance by multinational firms presents a substantial challenge to policymakers and to international organisations. This column explores two possible policy regimes that could be introduced to target global firms focused on digital services: separate accounting and formula apportionment. The results of the study suggest that the separate accounting approach could be optimal, inducing lower efficiency costs and larger fiscal revenues. Such a policy regime would also make country-by-country reporting compulsory and reliable, which would induce additional outside benefits.

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