Taxation

David Cashin, Takashi Unayama, 18 June 2016

Japan’s prime minister recently announced that a planned 2% VAT increase would be postponed from 2017 to 2019. This column explores how Japanese household consumption adjusted to a VAT increase that was announced in 2013 and implemented in 2014. Household consumption fell by around 4% upon announcement and 1% upon implementation, suggesting that most of the negative impact of a VAT rate increase occurs at the time of the announcement. 

Matteo M. Galizzi, George Loewenstein, 14 June 2016

Although not a nudge, the ‘soda tax’ in the UK can nonetheless be justified in part on behavioural grounds. This column analyses the potential effectiveness of the soda tax in reducing consumption. As a behavioural instrument, the tax does not go far enough, and is in fact regressive.  A comprehensive junk food tax should be introduced instead, accompanied by nudges, ‘healthy’ subsidies, and regulation of ‘super-sizing’ practices.

Peter Egger, Sergey Nigai, Nora Strecker, 21 May 2016

Increased globalisation since the mid-1990s has eroded some of the tax bases of many economies. At the same time, demand for public goods has risen and governments face the challenge of financing greater public expenditure with lower tax revenues. This column discusses tax policy responses to increasing globalisation, showing that since the mid-1990s governments in OECD countries have increasingly relied on revenues from employee-borne rather than firm-borne taxes. Due to the greater mobility of capital and high-skilled workers, who are able to escape higher taxes more easily, the middle classes have carried much of the additional tax burden.

Francesco D'Acunto, Daniel Hoang, Michael Weber, 27 April 2016

The Eurozone faces zero inflation paired with low economic growth. With monetary policy hobbled by the zero lower bound, it is time to think more broadly. This column discusses the theoretical and empirical evidence on ‘unconventional fiscal policy’.  Such policies aim to increase growth and inflation in a budget-neutral fashion, while keeping the tax burden on households constant.

Sagiri Kitao, 15 April 2016

Most countries with a generous pay-as-you-go social security system and ageing demographics will need to implement significant welfare reform, such as a major cut in benefits or a significant increase in distortionary taxation. Individuals’ uncertainty about when such a policy change will occur will cause precautionary saving and changes in factor prices, affecting aggregate welfare. This column uses evidence from Japan to show that delaying welfare reform will benefit the elderly, at a long-lasting cost to the young.

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