Taxation of Reusable Goods
Vidar Christiansen
July 2025
Abstract
The paper analyses commodity taxation in an economy where a good can be recycled. Consumers deliver units of a used good to a reuse operator, who sells the good in a second-hand market after some processing. Two regimes are considered. One is a pure market setting where the reuse operator pays consumers for the used good. The alternative is a regime where the supply of used goods to the reuse operator is based solely on charitable donations. Taxes are set to achieve social efficiency. In the market regime the recycled good should be taxed at a reduced rate, which is increasing in the marginal processing cost of the operator. In the charity regime there is no case for deviating from uniform taxation.
Income Inequality In the Nordic Countries: Myths, Facts, and Lessons
Magne Mogstad, Kjell G. Salvanes, & Gaute Torsvik
February 2025
Abstract
Policymakers, public commentators, and researchers often cite the Nordic countries as examples of a social and economic model that successfully combines low income inequality with prosperity and growth. This article aims to critically assess this claim by integrating theoretical perspectives and empirical evidence to illustrate how the Nordic model functions and why these countries experience low inequality. Our analysis suggests that income equality in the Nordics is primarily driven by a significant compression of hourly wages, reducing the returns to labor market skills and education. This appears to be achieved through a wage bargaining system characterized by strong coordination both within and across industries. This finding contrasts with other commonly cited explanations for Nordic income equality, such as redistribution through the tax-transfer system, public spending on goods that complement employment, and public policies aimed at equalizing skills and human capital distribution. We consider the potential lessons for other economies that seek to reduce income equality. We conclude by discussing several underexplored or unresolved questions and issues.
Shock Therapy for Clean Innovation: Within-firm Reallocation of R&D Investments
Esther Ann Bøler, Katinka Holtsmark, & Karen Helene Ulltveit-Moe
December 2024
Abstract
We analyze how a negative shock to the profitability of oil-extracting firms may lead to a shift from dirty to clean R&D along the supply chain. First, we develop a theoretical framework, showing that adjustment costs in R&D give firms in the fossil energy supply chain an additional incentive to shift R&D activity towards clean innovation as a consequence of a negative shock. Next, we leverage the 2014 oil price drop to empirically investigate the impact of reduced profitability in the fossil energy supply chain on clean R&D. We propose a novel method to identify firms’ exposure to the shock. In line with the predictions from the model, we find that more exposed firms increased their clean R&D more than other firms. Our findings imply that carbon pricing will nduce clean innovation not only by increasing demand for clean technologies, but also by lowering profitability in the fossil energy supply chain.
How much and how fast do investors respond to equity premium changes? Evidence from wealth taxation
Andreas Fagereng, Luigi Guiso, & Marius Ring
November 2024
Abstract
Using administrative panel data on Norwegian investors’ portfolios, we document strong but slow portfolio allocation responses to a persistent wealth-tax-induced shock to the equity premium. Short-run responses resemble the modest sensitivity documented using surveys. The longer-run responses are much larger and can be rationalized by moderate risk aversion. We document that equity premium shocks affect stock market entry but not exits, suggesting that entry costs dominate participation costs. Our finding of slow responses supports the asset-pricing literature that uses adjustment frictions to explain important asset-pricing puzzles, and have implications for optimal capital taxation when tax rates differ across assets.
How Business Income Measures Affect Income Inequality and the Tax Burden
Rolf Aaberge, Marco Francesconi, Jørgen Modalsli, & Ola Vestad
November 2024
Abstract
This paper presents estimates of income concentration and inequality for Norway using a new comprehensive measure of income, which identifies business income as it is earned by companies rather than when it is paid out as dividends to owners. We assemble several sources of high quality register data that allow us to account for multiple layers of business ownership across all companies between 2001 and 2018. Compared to official statistics, the new measure implies that the share of income attributable to the top 1% of the distribution more than doubles and the Gini coefficient estimates increase by about 40%. Our new measure identifies substantial tax regressivity for individuals in the top percentile, a feature that cannot be detected by standard income measures. For instance, while the share of gross income paid in taxes by individuals at the 99th percentile is about 36% in 2016, the corresponding share paid by individuals in the top 1% is 19%.
Optimal Delayed Taxation in the Presence of Financial Frictions
Marius A. K. Ring & Spencer Bastani
October 2024
Abstract
In the presence of financial frictions, the timing of cash flows matters. We apply this insight to optimal income taxation by proposing a new policy: delayed taxation. Introducing a delay between the accrual and payment of income taxes provides two sources of welfare gains when some agents are borrowing constrained. First, it improves consumption smoothing by allowing constrained agents to borrow at a lower rate. Second, it reduces the present-value tax rate from the perspective of constrained agents, thereby reducing the distortionary effects of income taxation. We study marginally delayed taxation in a dynamic optimal tax model, decompose its welfare gains, and compare them to those of age-dependent taxation and low-interest government loans. We then characterize optimal delayed taxation in a simple calibrated model, which reveals substantial welfare gains from delayed taxation. When limiting the amount the government can borrow to finance tax reforms, delayed taxation significantly outperforms age-dependent taxation and government loans. Finally, we empirically test the hypothesis that delayed taxation reduces income tax distortions in the context of young workers in Norway, where a kinked income-contingent debt conversion scheme replicates delayed taxation. Bunching analyses reveal elasticities that are considerably lower than those we find for a regular income tax threshold. Consistent with our theory, proxies for financial constraints are associated with lower sensitivities to the de facto delayed tax, but not to the regular tax. Taken together, our results underscore the potential for delayed taxation to be a powerful new component of optimal tax policy.
Equity and Efficiency When Needs Differ
Kristoffer Berg, Morten Håvarstein and Paolo Piacquadio
August 2024
Abstract
There is no consensus on how to measure social welfare and inequality when households have different needs. As we show, a dilemma emerges between holding households responsible for their needs or compensating them. This dilemma is of first-order importance for social welfare, but generally plays a minor role in the measurement of inequality. To address this impasse, we introduce partial compensation. Our axiomatic characterizations reveal novel families of welfare criteria and, with the extension to multidimensional commodity spaces, provide ready-to-use criteria for the analysis of redistributive policies.
Crypto Tax Evasion
Tom G. Meling, Magne Mogstad and Arnstein Vestre
August 2024
Abstract
We quantify the extent of crypto tax noncompliance and evasion, and assess the efficacy of alternative tax enforcement interventions. The context of the study is Norway. This context allows us to address key measurement challenges by combining de-anonymized crypto trading data with individual tax returns, survey data, and information from tax enforcement interventions. We find that crypto tax non-compliance is pervasive, even among investors trading on exchanges that share identifiable trading data with tax authorities. However, since most crypto investors owe little in crypto-related taxes, enforcement strategies need to be well-targeted or cheap for benefits to outweigh costs.
The Gas Trap: Outcompeting Coal vs. Renewables
Bård Harstad & Katinka Holtsmark
July 2024
We analyze a fundamental dilemma and time-inconsistency problem facing a climate coalition producing natural gas. In the short term, it is tempting to export more to outcompete coal. When this policy is anticipated, however, investments in renewables fall and emissions ultimately increase. When the coalition cannot pre-commit, its policies will be counterproductive. We discuss the robustness of this result and possible solutions. If the coalition can invest directly in renewables, for instance, the incentive to maintain a high price on exports can mitigate the temptation to reduce the price to outcompete coal. Under certain conditions, the commitment outcome can be implemented.
Estimating the Elasticity of Intertemporal Substitution using Dividend Tax News Shocks
Martin B. Holm, Rustam Jamilov, Marek Jasinski and Plamen Nenov
July 2024
Abstract
This paper studies the spending response to news about a dividend tax reform to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, and implemented in 2006, raising the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households to a control group with no dividend income. Exposed households increased spending after the news and reduced spending after implementation. We show that this behavior is only consistent with an EIS above one. Using a capitalist-worker framework, we estimate the EIS to be around 1.6.
Saving after Retirement and Preferences for Residual Wealth
Giulio Fella, Martin B. Holm and Thomas M. Pugh
May 2024
Abstract
We use administrative data for Norway to estimate an incomplete-market life-cycle model of retired singles and couples with a bequest motive, health-dependent utility, and uncertain longevity and health. We allow the parameters of the bequest utility to differ between households with and without offspring. Our estimates imply a very strong utility of residual wealth (bequest motive), in line with the estimates by Lockwood (2018). The bequest motive accounts for approximately three-quarters of aggregate wealth at age 85. More surprisingly, we estimate similar utility of residual wealth for households with and without offspring. We interpret this as, prima facie, evidence that the utility of residual wealth represents forces beyond an altruistic bequest motive.
Tax Treatment of Commuter Cost
Vidar Christiansen & Odd E. Nygård
April 2024
Abstract
The paper discusses the tax treatment of commuting where wages and housing cost vary across locations. An income tax distorts the locational choices of agents, who dislike commuting and have preferences for place of residence Wages, housing cost and commuting cost determine how subsidising or taxing commuting affects behaviour and social efficiency. A subsidy encourages commuting and induces agents to choose a more favourable living place. The analysis clarifies the circumstances in which the subsidy alleviates or exacerbates the tax distortions, also where housing is tax favoured, as is often the case. The distributional impact depends on the effects of wages on commuting. An empirical illustration based on Norwegian data shows how one can infer efficiency effects of responses to subsidies on commuting.
Meritocratic Labor Income Taxation
Kristoffer Berg, Morten Håvarstein and Magnus E. Stubhaug
April 2024
Abstract
Surveys and experiments suggest that people hold workers more responsible for income gains stemming from merit, such as education, than circumstances, such as parental education. This paper shows how to design income taxes that account for merits. First, we introduce social welfare functions that accommodate individual preferences and hold workers responsible for their merits. Second, we show how to map social welfare function primitives into empirically measurable statistics and exploit long-run Norwegian income and family relations register data to examine the relationship between merit and income. Third, we simulate optimal income tax implications of our meritocratic social welfare functions. The result is that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends, but the difference is smaller when workers are not held responsible for merits that are explained by circumstances.
Asset-Price Redistribution
Andreas Fagereng, Matthieu Gomez, Émilien Gouin-Bonenfant, Martin B. Holm, Benjamin Moll and Gisle Natvik
May 2023
Abstract
Over the last several decades, there has been a large increase in asset valuations across many asset classes. These rising valuations had important effects on the distribution of wealth. However, little is known regarding their effect on the distribution of welfare. To make progress on this question, we derive a sufficient statistic for the (money metric) welfare effect of a change in asset valuations, which depends on the present value of an individual’s net asset sales: rising asset prices benefit prospective sellers and harm prospective buyers. We estimate this quantity using panel microdata covering the universe of financial transactions in Norway from 1994 to 2019. We find that rising asset valuations had large redistributive effects: they redistributed from the young towards the old and from the poor towards the wealthy.