Progressivity in the Portuguese personal income tax system

This Work Project analyzes the evolution of the Portuguese personal income tax system’s progressivity over the period of 2005 through 2013. It presents the first computation of cardinal progressivity measures using administrative tax data for Portugal. We compute several progressivity indices and find that progressivity has had very modest variations from 2005 to 2012, whilst from 2012 to 2013 there has been a relatively stronger decrease, excluding the impact of the income tax surcharge of the years 2012 and 2013. When this latter is included, progressivity of 2012 and 2013 decreases considerably. Analyzing the effective average tax rates of the top income percentiles in the income scale, we find that these rates have increased over the period 2010–2013, suggesting that an analysis of effective tax rates is insufficient to assess progressivity in the whole tax scheme.

The Progressivity of Equalization Payments in Federations

We investigate the conditions under which an inequality averse and additively separable welfarist constitution maker would always choose to set up a progressive equalization payments scheme in a federation with local public goods. A progressive equalization payments scheme is defined as a list of per capita net (possibly negative) subsidies - one such net subsidy for every jurisdiction - that are decreasing with respect to jurisdictions per capita wealth. We examine these questions in a setting in which the case for progressivity is a priori the strongest, namely, all citizens have the same utility function for the private and the public goods, inhabitants of a given jurisdiction are all identical, and they are not able to move across jurisdictions. We show that the constitution maker favors a progressive equalization payments scheme for all distributions of wealth and all population sizes if and only if its objective function is additively separable between each jurisdiction’s per capita wealth and number of inhabitants. When interpreted as a mean of order r social welfare function, this condition is shown to be equivalent to additive separability of the individual’s indirect utility function with respect to wealth and the price of the public good. Some implications of this restriction to the case where the individual’s direct utility function is additively separable are also derived.

The paradox of progressivity in low-tax countries: income tax in Guatemala

Includes bibliography

The Determinants of Personal Income Tax Progressivity Around the Globe

This paper utilizes a novel database collected by the authors to document features of the progressivity of personal income tax systems across 209 countries for the years 1980-2009. We measure progressivity in several ways. First, we associate it with the increase in effective average (marginal) tax rates between a wage of zero and ten times the average wage in a country. Second, we consider the curvature of the tax schedule expressed as the difference between the effective average (marginal) tax schedule from a wage of zero to ten times the average wage and a linear average tax schedule and, alternatively, the diference between the effective average (marginal) tax schedule from the minimum positive taxable income, to ten times the average wage as opposed to a linear average tax schedule. Moreover, the paper assesses patterns regarding the conditional correlation of country-specifc tax progressivity measures with a host of economic and political country-specific characteristics and find the labor supply elasticity and the income replacement rates for the unemployed to be key determinants of progressivity around the globe, in line with economic theory.

Equity in the fiscal benefits associated with private health expenditures in Portugal: 2000 - 2010

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Economics from the NOVA – School of Business and Economics

Derechos de participación e información en programas dirigidos a adolescentes en escuelas secundarias de la Ciudad de Córdoba: cumplimiento progresivo y estrategias de promoción. Participation and information rights in programs for adolescents in secondary schools in Cordoba City: progressive implementation and promotion strategies.

Abordar la infancia desde el enfoque de derechos (ED) implica una lectura de los derechos de los cuales los niños, niñas y adolescentes (NNA) son titulares y de las acciones estatales que se implementan para viabilizar el ejercicio concreto de ellos. Esta perspectiva exige comprender los contenidos de las políticas púb,el grado de participación que se les asigna y los sentidos que ellas toman en términos de progresividad de los derechos. Los cambios de concepción de la infancia desde la Convención Internacional de los Derechos del Niño (CIDN) y los cambios legislativos interpelan al Estado y la sociedad a modificar la visión hegemónica. Nuestra hipótesis gira alrededor de las siguientes considerac.: se han producido algunas modificaciones en las políticas y acciones estatales, aún no se dan las transformaciones necesarias de las lógicas institucionales y de los operadores que estimulen la participación de NNA en el ámbito escolar. Esto se visualiza en la ausencia de análisis cuali de los contenidos de las acc. y la falta de ftes estadísticas específicas, que muestren la orientac.de los contenidos en los principios de la protecc.integral. Estos presupuestos plantean interrogantes que delimitan el problema de investigación: ¿cómo se construye y reconstruye el ejercicio de la ciudadanía a través de la participación de los NNA, en su paso por la escuela, y cuáles son las lógicas institucionales que habilitan u obstaculizan ese ejercicio? Y ¿cuáles son los recursos institucionales que permitan que los programas y acciones redunden en el ejercicio efectivo de los derechos?.Obj.gral: Describir, analizar e interpretar la progresividad en el ejercicio de los derechos de participación e informacióin que tienen los adolescentes en escuelas secundarias de la cd de Cba, durante 2005 / 2010, para promover espacios públicos de construcción de ciudadanía. Se analizarán tres escuelas de Córdoba, escuela pública provincial, púb. nacional y privada. Obj. Espec.: Analizar las prácticas participativas formales e informales en las escuelas seleccionadas.- Aplicar indicadores cuanti y cualitativos del “Sistema de Indicadores para los derechos de la Infancia” Describir y analizar los recursos materiales y humanos. Elaborar y proponer procedim. para la confec. de registros de datos estadísticos - Elaborar y proponer lineamientos para la elaborac.e implementac.de acciones. Diseñar herramientas de difusión sobre los ds de participación e información.Esta investigac. es de carácter descriptivo e interpretativo, analizará diferentes ftes de informac.con técnicas cuanti y cualitativas, durante período la promulgación de la Ley 26061/05 y la adhesión prov. 9396/07. Se tomarán del Sistema de Indicadores, el derecho a la educación, el tema transversal “Acceso a la información y participación”, y las categorías de análisis “Recepción del Derecho y Capacidades estatales”. Se trabajaran indicadores cuanti y señales de progreso (cualitativos): estructurales, proceso y resultados. Serán analizados los Programas implementados durante el período de estudio. Estrategias cuali observac. participante, entrevistas, grupos focales, talleres de sensibilización, etc .Otras ftes de info: doc. institucionales, registros, evaluac, contenidos de programas y campañas y de difusión, prensa escrita, legislaciones, etc. La info se analizará a través Programa Atlas Ti, y del análisis estadístico. Algunos resultados esperados: Evaluac.y ajuste del Sistema de indicadores, la sensibilizac. desde el EF de autorid. escol. para la formulac. de planes y programas para el monitoreo adecuado de los mismos y para la rendic. de ctas de su gestión. Estimular la participac. de NNA en la escuela. Realizac.de documental. Brindar herramientas al Edo para superv de la aplicación progresiva del ejercicio de los derechos de participación e información de NNA Promov la continua evaluac. de los programas y acc.desde el ED para estimular el reconoc. de la nec.de ajuste de la política. The issue of children from the rights focus implies a reading of the rights in which children and adolescents are the holders and the state actions that are implemented to enable the exercise of them. This perspective requires understanding the contents of the public policies, the participation level that is assigned, and the senses that they take in terms of rights progressivity of. The conception changes about children since the International Convention on the Rights of the Child and legislative changes challenge to the State and society to modify hegemony vision. Our hypothesis revolves around the following considerations: there have been some public policies and state actions changes, but they not turn out, yet, transformations in logical institutional and actors whose are encourages children participation in school. This could be reflects in the absence of qualitative analysis in the actions contents and the lack of sources specific statistics, that will be showing the control of the principal contents of integral protection. These, raise the questions that delimit our problem research: how is built citizenship exercise through children and adolescent’s participation in the school, and what are the institutional logical that empowers or turns difficult that exercise? And What are the institutional resources that make possible the effective exercise of the rights, through different programs and actions?. General Objective: To describe, analyze and interpret exercise progressivity participation and information rights that have the adolescents in secondary schools in Córdoba City during 2005 / 2010, in order to promote public spaces for the construction of citizenship. It will analyze three schools in Cordoba, provincial public school, national public school and private school. . Obj. Specifics: To analyze the formal and informal participative practices in the schools selected. - To apply quantitative and qualitative indicators of the “Indicators System for Infa

A theoretical and practical study on linear reforms of dual taxes

We extend the linear reforms introduced by Pf¨ahler (1984) to the case of dual taxes. We study the relative effect that linear dual tax cuts have on the inequality of income distribution -a symmetrical study can be made for dual linear tax hikes-. We also introduce measures of the degree of progressivity for dual taxes and show that they can be connected to the Lorenz dominance criterion. Additionally, we study the tax liability elasticity of each of the reforms proposed. Finally, by means of a microsimulation model and a considerably large data set of taxpayers drawn from 2004 Spanish Income Tax Return population, 1) we compare different yield-equivalent tax cuts applied to the Spanish dual income tax and 2) we investigate how much income redistribution the dual tax reform (Act ‘35/2006’) introduced with respect to the previous tax.

Optimal taxation and the skill premium

The stylized facts suggest a negative relationship between tax progressivity and the skill premium from the early 1960s until the early 1990s, and a positive one thereafter. They also generally imply rising tax progressivity, except for the 1980s. In this paper, we ask whether optimal tax policy is consistent with these observations, taking into account the demographic and technological factors that have also affected the skill premium. To this end, we construct a dynamic general equilibrium model in which the skill premium and the progressivity of the tax system are endogenously determined, with the latter being optimally chosen by a benevolent government. We find that optimal policy delivers both a progressive tax system and model predictions which are generally consistent, except for the 1980s, with the stylized facts relating to the skill premium and progressivity. To capture the patterns in the data over the 1980s requires that we adopt a government policy which is biased towards the interests of skilled agents. Thus, in addition to demographic and technological factors, changes in the preferences of policy-makers appear to be a potentially important factor in determining the evolution of the observed skill premium.

The Optimal Distribution of the Tax Burden over the Business Cycle

This paper analyses optimal income taxes over the business cycle under a balanced-budget restriction, for low, middle and high income households. A model incorporating capital-skill complementarity in production and differential access to capital and labour markets is developed to capture the cyclical characteristics of the US economy, as well as the empirical observations on wage (skill premium) and wealth inequality. We .nd that the tax rate for high income agents is optimally the least volatile and the tax rate for low income agents the least countercyclical. In contrast, the path of optimal taxes for the middle income group is found to be very volatile and counter-cyclical. We further find that the optimal response to output-enhancing capital equipment technology and spending cuts is to increase the progressivity of income taxes. Finally, in response to positive TFP shocks, taxation becomes more progressive after about two years.

Three Essays on the Formation and Impact of Economic Policy

Introduction In my thesis I argue that economic policy is all about economics and politics. Consequently, analysing and understanding economic policy ideally has at least two parts. The economics part, which is centered around the expected impact of a specific policy on the real economy both in terms of efficiency and equity. The insights of this part point into which direction the fine-tuning of economic policies should go. However, fine-tuning of economic policies will be most likely subject to political constraints. That is why, in the politics part, a much better understanding can be gained by taking into account how the incentives of politicians and special interest groups as well as the role played by different institutional features affect the formation of economic policies. The first part and chapter of my thesis concentrates on the efficiency-related impact of economic policies: how does corporate income taxation in general, and corporate income tax progressivity in specific, affect the creation of new firms? Reduced progressivity and flat-rate taxes are in vogue. By 2009, 22 countries are operating flat-rate income tax systems, as do 7 US states and 14 Swiss cantons (for corporate income only). Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. In joint work, Marius Brülhart and I explore the implications of changes in these three parameters on entrepreneurial activity, measured by counts of firm births in a panel of Swiss municipalities. Our results show that lower average tax rates and reduced complexity of the tax code promote firm births. Controlling for these effects, reduced progressivity inhibits firm births. Our reading of these results is that tax progressivity has an insurance effect that facilitates entrepreneurial risk taking. The positive effects of lower tax levels and reduced complexity are estimated to be significantly stronger than the negative effect of reduced progressivity. To the extent that firm births reflect desirable entrepreneurial dynamism, it is not the flattening of tax schedules that is key to successful tax reforms, but the lowering of average tax burdens and the simplification of tax codes. Flatness per se is of secondary importance and even appears to be detrimental to firm births. The second part of my thesis, which corresponds to the second and third chapter, concentrates on how economic policies are formed. By the nature of the analysis, these two chapters draw on a broader literature than the first chapter. Both economists and political scientists have done extensive research on how economic policies are formed. Thereby, researchers in both disciplines have recognised the importance of special interest groups trying to influence policy-making through various channels. In general, economists base their analysis on a formal and microeconomically founded approach, while abstracting from institutional details. In contrast, political scientists' frameworks are generally richer in terms of institutional features but lack the theoretical rigour of economists' approaches. I start from the economist's point of view. However, I try to borrow as much as possible from the findings of political science to gain a better understanding of how economic policies are formed in reality. In the second chapter, I take a theoretical approach and focus on the institutional policy framework to explore how interactions between different political institutions affect the outcome of trade policy in presence of special interest groups' lobbying. Standard political economy theory treats the government as a single institutional actor which sets tariffs by trading off social welfare against contributions from special interest groups seeking industry-specific protection from imports. However, these models lack important (institutional) features of reality. That is why, in my model, I split up the government into a legislative and executive branch which can both be lobbied by special interest groups. Furthermore, the legislative has the option to delegate its trade policy authority to the executive. I allow the executive to compensate the legislative in exchange for delegation. Despite ample anecdotal evidence, bargaining over delegation of trade policy authority has not yet been formally modelled in the literature. I show that delegation has an impact on policy formation in that it leads to lower equilibrium tariffs compared to a standard model without delegation. I also show that delegation will only take place if the lobby is not strong enough to prevent it. Furthermore, the option to delegate increases the bargaining power of the legislative at the expense of the lobbies. Therefore, the findings of this model can shed a light on why the U.S. Congress often practices delegation to the executive. In the final chapter of my thesis, my coauthor, Antonio Fidalgo, and I take a narrower approach and focus on the individual politician level of policy-making to explore how connections to private firms and networks within parliament affect individual politicians' decision-making. Theories in the spirit of the model of the second chapter show how campaign contributions from lobbies to politicians can influence economic policies. There exists an abundant empirical literature that analyses ties between firms and politicians based on campaign contributions. However, the evidence on the impact of campaign contributions is mixed, at best. In our paper, we analyse an alternative channel of influence in the shape of personal connections between politicians and firms through board membership. We identify a direct effect of board membership on individual politicians' voting behaviour and an indirect leverage effect when politicians with board connections influence non-connected peers. We assess the importance of these two effects using a vote in the Swiss parliament on a government bailout of the national airline, Swissair, in 2001, which serves as a natural experiment. We find that both the direct effect of connections to firms and the indirect leverage effect had a strong and positive impact on the probability that a politician supported the government bailout.

Effects of differential taxation on factor accumulation and growth

In this paper we try to analyze the role of fiscal policy in fostering a higher participation of the different production factors in the human capital production sector in the long-run. Introducing a tax on physical capital and differentiating both a tax on raw labor wage and a tax on skills or human capital we also attempt to present a way to influence inequality as measured by the skill premium, thus trying to relate the increase in human capital with the decrease in income inequality. We will do that in the context of a non-scale growth model.The model here is capable to alter the shares of private factors devoted to each of the two production sectors, final output and human capital, and affect inequality in a different way according to the different tax changes. The simulation results derived in the paper show how a human capital (skills) tax cut, which could be interpreted as a reduction in progressivity, ends up increasing both the shares of labor and physical capital devoted to the production of knowledge and decreasing inequality. Moreover, a raw labor wage tax decrease, which could also be interpreted as an increase in the progressivity of the system, increases the share of labor devoted to the production of final output and increases inequality. Finally, a physical capital tax decrease reduces the share of physical capital devoted to the production of knowledge and allows for a lower inequality value. Nevertheless, none of the various types of taxes ends up changing the share of human capital in the knowledge production, which will deserve our future attention

Effects of differential taxation on factor accumulation and growth

In this paper we try to analyze the role of fiscal policy in fostering a higher participation of the different production factors in the human capital production sector in the long-run. Introducing a tax on physical capital and differentiating both a tax on raw labor wage and a tax on skills or human capital we also attempt to present a way to influence inequality as measured by the skill premium, thus trying to relate the increase in human capital with the decrease in income inequality. We will do that in the context of a non-scale growth model.The model here is capable to alter the shares of private factors devoted to each of the two production sectors, final output and human capital, and affect inequality in a different way according to the different tax changes. The simulation results derived in the paper show how a human capital (skills) tax cut, which could be interpreted as a reduction in progressivity, ends up increasing both the shares of labor and physical capital devoted to the production of knowledge and decreasing inequality. Moreover, a raw labor wage tax decrease, which could also be interpreted as an increase in the progressivity of the system, increases the share of labor devoted to the production of final output and increases inequality. Finally, a physical capital tax decrease reduces the share of physical capital devoted to the production of knowledge and allows for a lower inequality value. Nevertheless, none of the various types of taxes ends up changing the share of human capital in the knowledge production, which will deserve our future attention

A theoretical and practical study on linear reforms of dual taxes

[cat] En aquest treball extenem les reformes lineals introduïdes per Pfähler (1984) al cas d’impostos duals. Estudiem l’efecte relatiu que els retalls lineals duals d’un impost dual tenen sobre la distribució de la desigualtat -es pot fer un estudi simètric per al cas d’augments d’impostos-. Tambe introduïm mesures del grau de progressivitat d’impostos duals i mostrem que estan connectades amb el criteri de dominació de Lorenz. Addicionalment, estudiem l’elasticitat de la càrrega fiscal de cadascuna de les reformes proposades. Finalment, gràcies a un model de microsimulació i una gran base de dades que conté informació sobre l’IRPF espanyol de l’any 2004, 1) comparem l’efecte que diferents reformes tindrien sobre l’impost dual espanyol i 2) estudiem quina redistribució de la riquesa va suposar la reforma dual de l’IRPF (Llei ’35/2006’) respecte l’anterior impost.

A theoretical and practical study on linear reforms of dual taxes

[cat] En aquest treball extenem les reformes lineals introduïdes per Pfähler (1984) al cas d’impostos duals. Estudiem l’efecte relatiu que els retalls lineals duals d’un impost dual tenen sobre la distribució de la desigualtat -es pot fer un estudi simètric per al cas d’augments d’impostos-. Tambe introduïm mesures del grau de progressivitat d’impostos duals i mostrem que estan connectades amb el criteri de dominació de Lorenz. Addicionalment, estudiem l’elasticitat de la càrrega fiscal de cadascuna de les reformes proposades. Finalment, gràcies a un model de microsimulació i una gran base de dades que conté informació sobre l’IRPF espanyol de l’any 2004, 1) comparem l’efecte que diferents reformes tindrien sobre l’impost dual espanyol i 2) estudiem quina redistribució de la riquesa va suposar la reforma dual de l’IRPF (Llei ’35/2006’) respecte l’anterior impost.

Progressive Taxes and Firm Births

Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these three parameters for entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate such effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk averse entrepreneurs. However, implied elasticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules.