Financial Frictions and the Non-Distortionary Effects of Delayed Taxation

28 Pages Posted: 25 Feb 2021 Last revised: 17 Mar 2022

See all articles by Andreas Fagereng

Andreas Fagereng

BI Norwegian Business School; Statistics Norway

Marius Alexander Kalleberg Ring

University of Texas at Austin - Department of Finance; Statistics Norway - Research Department

Date Written: February 23, 2021

Abstract

Financially constrained agents discount future cash flows at above-market rates. In this paper, we present the hypothesis that delaying tax payments can materially reduce distortions when agents are credit constrained. We test this hypothesis in the context of the labor supply decisions of young workers in Norway, where a kinked income-contingent student-debt conversion scheme replicates an income tax with delayed payments. Bunching analyses reveal elasticities that are an order of magnitude below those we find at a regular income tax threshold, and which are increasing in ex-ante financial resources. These findings underline the potential for delayed taxation to be a powerful new component of optimal tax policy.

Keywords: deferred taxation, delayed taxation, credit constraints, income taxation, household finance

JEL Classification: H21, G51, D15

Suggested Citation

Fagereng, Andreas and Ring, Marius Alexander Kalleberg, Financial Frictions and the Non-Distortionary Effects of Delayed Taxation (February 23, 2021). Available at SSRN: https://ssrn.com/abstract=3791384 or http://dx.doi.org/10.2139/ssrn.3791384

Andreas Fagereng

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Marius Alexander Kalleberg Ring (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
199
Abstract Views
718
Rank
272,286
PlumX Metrics