Taxing away inequality
Feb 2023
SNSF Consolidator Grants
Two research projects by UBS Foundation Professors on the topic of taxation are being funded by the Swiss National Science Foundation with CHF 1.7 million and CHF 1.2 million respectively. Taxes, sound boring? On the contrary, the multifaceted nature of the topic of taxation is reflected in the different focus of the projects. One is about strengthening tax capacity in lower-income countries while minimizing the burden on the poor. The other focuses on the opposite end of the distribution, analyzing the taxation of capital gains, which are known to be by far the most important source of income and wealth for the richest households.
UBS Foundation Professor Dina Pomeranz and UBS Foundation Professor Florian Scheuer each received a SNSF Consolidator Grant. These grants have replaced the ERC Consolidator Grants since Switzerland left the ERC and are awarded according to the same highly competitive selection procedure. The grants run for five years and are funded with CHF 1.75 million.
Two research projects by UBS Foundation Professors on the topic of taxation are being funded by the Swiss National Science Foundation with CHF 1.7 million and CHF 1.2 million respectively. Taxes, sound boring? On the contrary, the multifaceted nature of the topic of taxation is reflected in the different focus of the projects. One is about strengthening tax capacity in lower-income countries while minimizing the burden on the poor. The other focuses on the opposite end of the distribution, analyzing the taxation of capital gains, which are known to be by far the most important source of income and wealth for the richest households.
UBS Foundation Professor Dina Pomeranz and UBS Foundation Professor Florian Scheuer each received a SNSF Consolidator Grant. These grants have replaced the ERC Consolidator Grants since Switzerland left the ERC and are awarded according to the same highly competitive selection procedure. The grants run for five years and are funded with CHF 1.75 million.
Raising money for the state
Strengthening tax capacity in lower-income countries while minimizing the burden on the poor.
While raising public revenue is crucial for state capacity, governments in developing countries can face a trade-off between collecting more tax revenue and exacerbating poverty and hindering economic development. Despite the importance in solving this conundrum, evidence on strategies that can do so is extremely sparse. The proposed research addresses this gap in several ways. Combining large administrative data with field experiments, machine learning, and qualitative research methods, Prof. Pomeranz plans to test various interventions that can balance revenue mobilization with its distributional and productive implications, seeking to shift the “capacity-productivity” possibility frontier outwards.
Across four complementary subprojects, two notable strategies to alleviate this trade-off will be investigated: 1) improving the timing of taxation, by taking into account that taxpayers have time-varying liquidity constraints and 2) improving distributional aspects of tax enforcement, by redirecting enforcement efforts in ways that do not further exacerbate economic inequality. The study will take place in the two most populous countries in the East African Community (EAC) – the Democratic Republic of the Congo (DRC) and Tanzania – with one Subproject on dimensions 1) and 2) in each country, respectively.
Strengthening tax capacity in lower-income countries while minimizing the burden on the poor.
While raising public revenue is crucial for state capacity, governments in developing countries can face a trade-off between collecting more tax revenue and exacerbating poverty and hindering economic development. Despite the importance in solving this conundrum, evidence on strategies that can do so is extremely sparse. The proposed research addresses this gap in several ways. Combining large administrative data with field experiments, machine learning, and qualitative research methods, Prof. Pomeranz plans to test various interventions that can balance revenue mobilization with its distributional and productive implications, seeking to shift the “capacity-productivity” possibility frontier outwards.
Dina Pomeranz is UBS Foundation Assistant Professor of Applied Economics
Taxing capital gains
Analyzing the taxation of capital gains, which are known to be by far the most important source of income and wealth for the richest households.
Capital gains are by far the most important source of income and wealth for the richest households, and they have reached record levels in recent years. At the same time, they are treated favorably by many advanced countries’ tax systems relative to other forms of income. This has raised concerns about the overall progressivity of the tax system and put the question as to the optimal taxation of capital gains at the center of policy discussions.
This research program will inform this debate by providing new measures of the distribution of capital gains and how it has evolved over time, by developing novel models that capture these trends, and by analyzing their optimal policy implications, both theoretically and quantitatively. The goal is to bring together recent insights from household and corporate finance with new approaches in public economics to build novel theories of the origins of capital gains and to explore how they should shape redistributive policies.
Analyzing the taxation of capital gains, which are known to be by far the most important source of income and wealth for the richest households.
Capital gains are by far the most important source of income and wealth for the richest households, and they have reached record levels in recent years. At the same time, they are treated favorably by many advanced countries’ tax systems relative to other forms of income. This has raised concerns about the overall progressivity of the tax system and put the question as to the optimal taxation of capital gains at the center of policy discussions.
Florian Scheuer is UBS Foundation Professor of Economics of Institutions
Further reading
Sieben UZH-Forschende erhalten «SNFS Consolidator Grant» UZH News 8.2.2023 lesen
Taxing the superrich UBS Center Public Paper No.9 2020 download
Raising money for the state UBS Center Policy Brief 2019 download
Für Ökonomen ist die Erbschaftssteuer eine gute Steuer UBS Center Insight lesen
Taxing the superrich UBS Center Insight read
Die 99%-Initiative im Fokus UBS Center Insight lesen
Rising inequality in Switzerland UBS Center Insight read
Ghost firms and tax fraud UBS Center Insight read
Quotes
Raising tax collection capacity also allows countries to reduce their dependence on international aid.
Dina Pomeranz
Taking superstars at the top of the distribution into account lowers the revenue-maximizing top marginal tax rate substantially.
Florian Scheuer
Related videos
Contact
UBS Foundation Assistant Professor of Applied Economics
Dina Pomeranz's research focuses on public policies in developing countries, in particular in the areas of taxation, public procurement, firm development and the environment. Prior to joining the University of Zurich, she was an assistant professor at Harvard Business School, where she taught entrepreneurship for MBA students, and a Post-Doctoral Fellow at MIT's Poverty Action Lab.
Her work has been published in academic journals including the American Economic Review, the Quarterly Journal of Economics, the American Economic Journal: Applied Economics, the Journal of Economic Development and the Journal of Human Resources. In 2017, she was awarded one of the prestigious grants from the European Research Council (ERC) for her research on tax evasion and the role of firm networks.
She is an affiliate professor at the Abdul Latif Jameel Poverty Action Lab (J-PAL), the Bureau for Research and Economic Analysis of Development (BREAD) and the Center for Economic Policy Research (CEPR) and a member of the International Growth Centre (IGC). In 2018, she was elected to the Council of the European Economic Association (EEA), and in 2020 to the Board of Management of the International Institute of Public Finance (IIPF). She is a co-founder of the Graduate Applications International Network (GAIN), which supports prospective students from Africa in applying for graduate school in economics and related fields.
Professor Pomeranz also aims to contribute to the movement towards more evidence-based policy making, both in developing and economically more developed countries. With this goal in mind, she serves on the board or advisory board of a number of social enterprise ventures committed to translating research into practice, including Helvetas, Evidence Action, Policy Analytics, TamTam-Together Against Malaria and IDinsight. She has served as an expert witness to the Swiss parliament and is a member of the Federal Advisory Committee on International Cooperation.
UBS Foundation Professor of Economics of Institutions
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.
UBS Foundation Assistant Professor of Applied Economics
Dina Pomeranz's research focuses on public policies in developing countries, in particular in the areas of taxation, public procurement, firm development and the environment. Prior to joining the University of Zurich, she was an assistant professor at Harvard Business School, where she taught entrepreneurship for MBA students, and a Post-Doctoral Fellow at MIT's Poverty Action Lab.
Her work has been published in academic journals including the American Economic Review, the Quarterly Journal of Economics, the American Economic Journal: Applied Economics, the Journal of Economic Development and the Journal of Human Resources. In 2017, she was awarded one of the prestigious grants from the European Research Council (ERC) for her research on tax evasion and the role of firm networks.
She is an affiliate professor at the Abdul Latif Jameel Poverty Action Lab (J-PAL), the Bureau for Research and Economic Analysis of Development (BREAD) and the Center for Economic Policy Research (CEPR) and a member of the International Growth Centre (IGC). In 2018, she was elected to the Council of the European Economic Association (EEA), and in 2020 to the Board of Management of the International Institute of Public Finance (IIPF). She is a co-founder of the Graduate Applications International Network (GAIN), which supports prospective students from Africa in applying for graduate school in economics and related fields.
Professor Pomeranz also aims to contribute to the movement towards more evidence-based policy making, both in developing and economically more developed countries. With this goal in mind, she serves on the board or advisory board of a number of social enterprise ventures committed to translating research into practice, including Helvetas, Evidence Action, Policy Analytics, TamTam-Together Against Malaria and IDinsight. She has served as an expert witness to the Swiss parliament and is a member of the Federal Advisory Committee on International Cooperation.
UBS Foundation Professor of Economics of Institutions
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.