TaxFair

Make Taxation Fair

A five year study that investigates three understudied issues of taxation; the pros and cons of capital ancome vs. wealth taxation, the taxation of housing and the relationship between central and local taxation.

About the project

This project investigates three understudied issues of taxation, which recently emerged in the public and academic debate in light of the increasing concern for rising inequality.

First, the project studies the pros and cons of capital income vs. wealth taxation. Recent empirical research has highlighted the importance of heterogeneity and endogeneity of returns to investment and their difficult measurement. The project will construct a novel model to capture these facts, estimate the model with Norwegian register data, and study the optimal taxation of capital income and wealth for Norway.

Second, the project addresses the taxation of housing. Housing wealth is special in many dimensions, as reflected in their tax treatment. Standard approaches disregard these dimensions. The project proposes short-term and long-term models of the housing market to investigate how the market reacts to changes in house taxes. Estimation and calibration procedures will allow the model to represent the functioning of the Norwegian housing market. The main objective is to discuss how to set fair taxes on housing.

Third, the project addresses the relationship between central and local taxation. Differences across regions and migration costs provide local governments with some tax freedom. The project studies the mechanisms behind local tax setting and the design of central/local tax systems. The project empirically compares the tax systems in Norway, US, and other OECD countries and analyzes optimal tax systems.

Importantly, the project adopts a novel methodology—the mapping approach—which associates the optimal taxation policy to each ethical view. This mapping is fundamental for welfare analysis and policy design. It offers an ethical menu for policymakers, by identifying the optimal policy for each ethical view. Moreover, it provides an ethical identity of each policy proposal, by identifying the ethical views a policymaker endorses when proposing a specific policy.

Objectives

Primary objectives:

• advance the scientific knowledge on how to set optimally taxes (i) on capital income and wealth, (ii) on houses; and (iii) for central and local governments.

• investigate theoretically and empirically the mapping between ethical views and taxation policies, providing an ethical menu for policymakers and an ethical identity to policies.

Secondary objectives:

• inform the public debate of the cost and benefits of alternative taxation policies, while leaving open the ultimate choice about which ethical views to endorse.

• construct new models to accommodate stylized facts and characterize optimal taxation policies.

• develop new theories of distributive justice, to accommodate fairness considerations about undeserved rents, housing needs,responsibility for past choices, and assessment uncertainty.

• contribute to the establishment of an international team of world-class economists focusing on the analysis, evaluation, and design of redistribution policies.

Financing

The project is funded by the Research Council of Norway under the FRIPRO program with NOK 11.8 million over a five year period from July 2021 to June 2026.