Conference Agenda

Overview and details of the sessions of this online conference.

Please select a date to show only sessions at that day. Please select a single session for detailed view (with abstracts and downloads if available).

Activate "Show Presentations" and enter your name in the search field in order to find your function (s), like presenter, discussant, chair.

Some information on the session logistics:

The last speaker of each session is the session chair. The discussant is always the following speaker, with the first speaker being the discussant of the last paper. Each paper has a 22-minutes-block in all sessions. There should be 15 minutes and no more than 18 minutes for the presenter. The discussion is then started by the discussant. Please note that the role of the discussant is different compared to previous years: The discussant has only 1-2 minutes and s/he is not allowed to give a lengthy summary of the paper together with comprehensive comments. Instead, her/his task is to raise one single question/comment and, in doing so, start the general discussion! All participants are asked to be strict in timing to allow people to change sessions during the general discussion. For a (rare) session with less papers in the session than the time slot allows, stick to the congress schedule and use 22 minutes per presentation to allow listeners to smoothly change between sessions.

Only registered participants can attend this online conference. Further information available on the congress website .

Please note that all times are shown in the time zone of the conference. The current conference time is: 2nd Dec 2021, 01:38:43pm GMT

Session Overview
Date: Thursday, 19/Aug/2021
8:00am - 8:55amJunior Networking Sessions B.1: Health Economics
Session Chair: Meltem Daysal, University of Copenhagen
8:00am - 8:55amJunior Networking Sessions B.2: Optimal Tax and Theory
Session Chair: Etienne Lehmann, Université Paris II Panthéon-Assas
8:00am - 8:55amJunior Networking Sessions B.3: Publishing in ITAX
Session Chair: Nadine Riedel, University of Münster
8:00am - 8:55amJunior Networking Sessions B.4: Local Public Finance
Session Chair: Sebastian Siegloch, ZEW and Uni Mannheim
8:00am - 8:55amJunior Networking Sessions B.5: Public Policies and Children
Session Chair: Marianne Simonsen, Aarhus University
9:00am - 10:30amPlenary III: Keynote - Andrea Weber (Central European University) on "What Can We Learn from Temporary Layoffs and Recall Hires about Firm and Worker Expectations?"
Session Chair: Clara Martinez-Toledano, Imperial College London
10:45am - 12:15pmD01: Political Economy II
10:45am - 11:07am

Political Alignment and Project Funding

Luisa Schneider, Daniela Wech, Matthias Wrede

Friedrich-Alexander-Universität Erlangen-Nürnberg, Germany, School of Business and Economics

We analyze the relationship between the party affiliation of politicians at different levels of government and the spatial distribution of funding for research, development and innovation projects. In particular, we are investigating whether more federal grants are being granted in Germany for projects in federal states whose government is led by the same political party as the responsible ministry at federal level. Our dataset contains detailed information on publicly funded projects in Germany in the period 2010-2019. Using a fixed effects estimation approach, we find a link between grant allocation and party affiliation of funding for research, development and innovation projects, in particular smaller ones. For these projects, political alignment is associated with an average increase in public funding by almost 10,000 euro. Our results suggest that public funds for research, development and innovation projects could be used more efficiently than they are.

Schneider-Political Alignment and Project Funding-379.pdf

11:07am - 11:30am

Economic Deprivation and Radical Voting: Evidence from Germany

Florian Dorn, Clemens Fuest, Lea Immel, Florian Neumeier

ifo Institute Munich, Germany

Using a unique dataset covering different indicators of economic deprivation as well as federal election outcomes at the county-level in Germany for the period from 1998 to 2017, we examine whether economic deprivation affects the share of votes for radical parties using IV estimation. Our results suggest that an increase in economic deprivation has a sizeable effect on the support for radical parties at both ends of the political spectrum. The higher a county’s rate of relative poverty, the average shortfall from the national median income, and the poverty line, the higher the vote share of radical parties. We also provide evidence that regional variation in economic deprivation gave rise to the electoral success of the populist right-wing party AfD in the federal election of 2017. Our findings thus indicate that a rise in economic deprivation may undermine moderate political forces and be a threat to political stability.

Dorn-Economic Deprivation and Radical Voting-459.pdf

11:30am - 11:52am

Revisiting the Consequences of Civil Conflict

Tobias Korn

Leibniz University Hannover, Germany

This paper proposes a new way to account for subnational conflict exposure and provides new evidence on the longevity of conflict's detrimental effects. The literature disagrees whether civil conflicts have long-lasting negative effects on economic development. I trace this disagreement to different approaches in measuring conflict exposure. The common practice to use subnational aggregates of conflict intensity ignores essential intra-regional variation. As a more accurate measure, I propose the share of economic activity in proximity to conflict events. Estimating a Bartik-like IV model at the district level covering 70 countries, I provide causal evidence that conflict exposure significantly decreases economic activity up to four years after conflict, and that this effect aggravates over time.

Korn-Revisiting the Consequences of Civil Conflict-224.pdf

11:52am - 12:15pm

Corruption under Austerity

Gianmarco Daniele1, Tommaso Giommoni2

1Università di Milano; 2ETH Zurich, Switzerland

We study how policies limiting the spending capacity of local governments may reduce corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to small Italian municipalities. The DSP led to a decrease in both recorded corruption rates and corruption charges per euro spent. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures. The reduction in corruption is linked to accountability incentives as it emerges mostly in pre-electoral years and for re-eligible mayors. We then estimate the impact of the extension of the DSP on local welfare in the following years, finding a null effect. Overall, our findings suggest that budget constraints might induce local governments to curb expenditures in a way that dampens their exposure to corruption without depressing local welfare.

Daniele-Corruption under Austerity-486.pdf
10:45am - 12:15pmD02: Labor Market Inequality
10:45am - 11:07am

It's A Man's World: Culture Of Abuse, #MeToo And Worker Flows

Caroline Coly1,3, Cyprien Batut2, Sarah Schneider-Strawczynski1,4

1Paris School of Economics, France; 2Direction Générale du Trésor; 3Ecole des Hautes Etudes en Sciences Sociales; 4Paris 1 Panthéon Sorbonne University

Sexual harassment is a widespread issue in the workplace and can deter women from entering the labor market or lead them to quit toxic workplaces at their expense. This paper is one of the first papers to study the link between sexual harassment and worker flows. To do that, we use a representative survey of French employees and find that younger women working in low-paid jobs are the most exposed to sexual harassment from colleagues. We exploit that information and exhaustive administrative datasets to construct a measure of harassment risk available for all French establishments. Using a triple-difference strategy, we find that #Metoo led to an increase in the relative quit rate of women in more at risk establishments. Social movements can help raise awareness on toxic working conditions and push victims to escape those situations.

Coly-Its A Mans World-416.pdf

11:07am - 11:30am

(No) Effects Of Subsidizing The First Employee: Evidence Of A Low Take-up Puzzle Among Firms In Finland

Annika Nivala1,2,3

1Labour Institute for Economic Research, Finland; 2University of Turku; 3VATT Institute for Economic Research

This paper studies the effects of a large regional wage subsidy for hiring the first employee in Finland, using data on the universe of Finnish firms. By comparing firms in the eligible area to firms in the neighboring area, I find a precisely estimated zero effect on the probability of becoming an employer and other firm outcomes. As a reason for the zero effect, I document the low take-up of the subsidy by only 2% of the firms that became employers in the eligible area. The take-up is not completely explained by the low benefits of using the subsidy: The take-up increases to 12% at the most when focusing on firms with larger gains from the subsidy based on their ex post wage costs. Descriptive evidence suggests restricting the subsidy to full-time employment and a lack of awareness as potential reasons for the low take-up.

Nivala-(No) Effects Of Subsidizing The First Employee-256.pdf

11:30am - 11:52am

Does Pay Transparency Affect the Gender Wage Gap? Evidence from Austria

Sebastian Seitz1, Andreas Gulyas1, Sourav Sinha2

1Universität Mannheim; 2Yale University

We study the 2011 Austrian Pay Transparency Law, which requires firms above a size threshold to publish reports on the gender pay gap. Using an event-study design, we show that the policy had no discernible effects on male and female wages, and therefore no significant effects on the gender wage gap. The effects are precisely estimated and we can rule out that the policy narrowed the gender wage gap by more than half a percentage point. The policy led to an increase in the retention rate of workers, which points towards higher job satisfaction due to pay transparency.

Seitz-Does Pay Transparency Affect the Gender Wage Gap Evidence-168.pdf

11:52am - 12:15pm

What Are the Labor and Product Market Effects of Automation? New Evidence from France

Simon P Bunel1, Philippe Aghion2, Céline Antonin3, Xavier Jaravel4

1Banque de France & Paris School of Economics, France; 2Collège de France and London School of Economics, UK; 3Sciences Po - OFCE, France; 4London School of Economics, UK

We use comprehensive micro data in the French manufacturing sector between 1994 and 2015 to document the effects of automation technologies on employment, sales, prices, and the labor share. Causal effects are estimated with event studies and a shift-share IV design leveraging pre-determined supply linkages and productivity shocks across foreign suppliers of industrial equipment. At all levels of analysis — plant, firm, and industry — the estimated impact of automation on employment is positive. We also find that automation leads to higher sales and lower consumer prices. Consistent with the importance of business-stealing across countries, the industry-level employment response to automation appears to be stronger in industries that face international competition. In a globalized world, attempts to curb domestic automation in order to protect domestic employment may be self-defeating due to foreign competition.

Bunel-What Are the Labor and Product Market Effects of Automation New Evidence-546.pdf
10:45am - 12:15pmD03: Macro Public Finance and Labor Supply
10:45am - 11:07am

Progressive Pensions as an Incentive for Labor Force Participation

Fabian Kindermann, Veronika Pueschel

University of Regensburg, Germany

In this paper, we challenge the conventional idea that an increase in the progressivity of old-age pensions unanimously distorts the labor supply decision of households. So far, the literature has argued that higher pension progressivity leads to more redistribution and insurance provision on the one hand, but increases implicit taxes and therefore distorts labor supply choices on the other. In contrast, we show that a well-designed reform of the pension system has the potential to encourage labor force participation. We propose a progressive pension component linked to the employment decision of households, which implicitly subsidizes employment of the productivity poor. A simulation analysis in a quantitative stochastic overlapping generations model with productivity and longevity risk indicates that this positive employment effect can be sizable and welfare enhancing.

Kindermann-Progressive Pensions as an Incentive for Labor Force Participation-175.pdf

11:07am - 11:30am

Should We Revive PAYG? On The Optimal Pension System In View Of Current Economic Trends

Ed Westerhout1, Lex Meijdam2, Eduard Ponds2,3, Jan Bonenkamp3

1Fiscal Institute, Tilburg University, Netherlands, The; 2TiSEM, Tilburg University, Netherlands, The; 3APG, Netherlands, The

In many countries, both pay-as-you-go (PAYG) and funding are used to finance pensions, although the balance between the two principles differs a lot between countries. Over the last decades, many countries made a gradual transition to more funding. In this paper, we develop an analytical framework that includes three models of pension design, allowing us to study the role of efficiency aspects, redistributional aspects and political-economy aspects. We subsequently analyze the impact of several trends (a permanent decline in the rate of return on financial markets, a decline in the average rate of economic growth, decreased output volatility and increased capital market volatility) on the optimal balance between PAYG and funding. We argue that it may be optimal to revise the gradual transition to more funding and to revive PAYG.

Westerhout-Should We Revive PAYG On The Optimal Pension System-332.pdf

11:30am - 11:52am

Time to Say Goodbye: The Macroeconomic Implications of Termination Notice

Tomer Ifergane

Ben Gurion University of the Negev, Israel

Termination notice is a widely used form of labour market regulation that forces a delay upon the ending of employment relationships. I argue that termination notice and UI are complementary insurance devices which should be jointly designed and used. I describe analytically how termination notice can deliver valuable insurance for households at the cost of diminished job-creation. Termination notice also shifts a part of the burden of financing UI from households to firms and effectively acts as a subsidy for search effort to persons on the brink of job-loss. To account for these competing channels’ relative importance, I calibrate a general equilibrium model, which features both standard UI and termination notice. I decompose the different effects of termination notice on welfare, discuss the gains from using both UI and termination notice jointly, and show that welfare gains from termination notice will be larger if the worker’s bargaining power is small.

Ifergane-Time to Say Goodbye-162.pdf

11:52am - 12:15pm

Occupation-industry Mismatch in the Cross Section and the Aggregate

Saman Darougheh

Danmarks Nationalbank, Denmark

I define occupations that are employed in more industries as ``broader'' occupations. Workers in broader occupations can respond to adverse shocks to their industry by moving to better-faring sectors, and hence are less at risk of being mismatched across sectors. When they change sectors, they affect other workers in the destination sector negatively through a ``relocation externality''. I show empirically that workers in broader occupations were better insured against industry-specific shocks during the Great Recession. I then build a dynamic general equilibrium model that features broad and specialized occupations and can be used as a microfoundation of mismatch.

In the model, recessions that affect specialized occupations generate more mismatch. These recessions however do not lead to larger unemployment fluctuations. This is because the calibrated relocation externality is quite strong: roughly every job saved due to the direct effect of broadness translates to one job lost due to the relocation externality.

Darougheh-Occupation-industry Mismatch in the Cross Section and the Aggregate-418.pdf
10:45am - 12:15pmD04: Tax Theory
10:45am - 11:07am

A Proposal of Lifetime Income Taxation

Motohiro Sato

Hitotsubashi University, Japan

The spread of the Covid-19 has revealed the deficiencies of existing safety nets. Alongside with redistribution so as to reduce income gap, the role of income tax as insurance has become important than ever. This paper proposes to introduce a similar mechanism into personal income tax. To be concrete, the taxation on current year's income will be changed to the lifetime income taxation.

Sato-A Proposal of Lifetime Income Taxation-232.pdf

11:07am - 11:30am

The Costs Of Taxation In The Presence Of Inequality

Katinka Holtsmark, Bjart Holtsmark, Asmund Sunde Valseth

University of Oslo, Norway

This paper proposes an adjustment to the traditional theoretical definition of the marginal cost of public funds (MCF). The adjusted definition more precisely accounts for the distributional aspects of taxation than the standard MCF used in the current literature. Using the adjusted definition results in a higher MCF than using the standard definition in all allocations with income inequality. Moreover, due to its regressive distributional consequences, we show that the MCF of a uniform lump-sum tax is always greater than one when not combined with distortive taxes. With an optimal combination of a uniform lump-sum tax and a linear income tax, the MCF can also be greater than one. These findings are in contrast to the previous literature on the MCF using the standar definition which does not fully capture the distributional effects of taxation.

Holtsmark-The Costs Of Taxation In The Presence Of Inequality-417.pdf

11:30am - 11:52am

Optimal Taxation with Multiple Incomes and Types

Kevin Spiritus1, Lehmann Etienne2, Sander Renes1, Floris Zoutman3

1Erasmus University Rotterdam, The Netherlands; 2CRED (TEPP), Université Panthéon-Assas Paris II, France; 3NHH Norwegian School of Economics, Norway

We derive an optimal nonlinear income tax formula in the case where taxpayers have several incomes and can differ along multiple unobservable dimensions. We show that the tax perturbation approach of Golosov et al. (2014) and the mechanism design approach of Mirrlees (1976) lead to the same optimal tax formula. We decompose the design of the optimal tax system in two steps: which taxpayers are assigned to the same tax liability (design of isotax curves) and which tax liability is assigned to each isotax curve. The solution to the second step is characterized by an ABC formula as Diamond (1998) and Saez (2001), where welfare weights and behavioral elasticities are averaged among all taxpayers located on the same isotax curves. Applying our model to the optimal household tax problem, our numerical results display isotax curves that are almost linear and parallel, except close to the boundaries of the income domain.

Spiritus-Optimal Taxation with Multiple Incomes and Types-295.pdf

11:52am - 12:15pm

Inequality As An Externality: Consequences For Tax Design

Morten Nyborg Støstad1, Frank Cowell2

1Paris School of Economics; 2London School of Economics

This paper proposes to treat income inequality as an economic externality in order to introduce the societal effects of inequality into welfarist models. We introduce such effects in a simple and generalizable welfarist framework and show that they can have sizeable optimal policy consequences that cannot be captured by standard risk aversion or social welfare weights. Novel policy implications are illustrated through the classical optimal non-linear income taxation model, where the social planner must face a trade-off between collecting revenue and changing income inequality levels. Resulting policy consequences are disproportionately located at the top, where optimal marginal tax rates are strongly and robustly dependent on the magnitude of the inequality externality. We use several real-world examples to show that tax policy previously unsupported by optimal taxation theory can be explained in our framework. The findings indicate that the magnitude of the inequality externality could be considered a crucial economic variable.

Støstad-Inequality As An Externality-268.pdf
10:45am - 12:15pmD05: Wealth Inequality and Wealth Taxation
10:45am - 11:07am

Wealth Inequality in the US: the Role of Heterogeneous Returns

Ines Martins Xavier

Universitat Pompeu Fabra, Spain

Why is wealth so concentrated in the United States? In this paper, I investigate the role of return heterogeneity as a source of wealth inequality. Using household-level data from the Survey of Consumer Finances (1989-2019), I provide new empirical evidence on returns to wealth in the United States, and find that wealthier households earn, on average, higher returns: moving from the 20th to the 99th percentile of the wealth distribution raises the average yearly return from 3.6% to 8.3%. To understand how these return differences shape the distribution of wealth, I introduce realistic return heterogeneity in a partial equilibrium model of household saving behavior. This exercise suggests that considering both earnings and return heterogeneity can fully account for the top 10% wealth share observed in the data (76%), which cannot be explained by earnings differences alone.

Xavier-Wealth Inequality in the US-390.pdf

11:07am - 11:30am

Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway

Marius A. K. Ring1,2

1University of Texas at Austin, McCombs; 2Statistics Norway, Research Department

I use a quasi-experiment in Norway to examine how households respond to capital taxation. The introduction of a new wealth assessment methodology in 2010 led to geographic discontinuities in household exposure to wealth taxes, along both the extensive and intensive margins. I exploit this novel variation using a Boundary Discontinuity approach. I find that exposure to wealth taxes has a positive effect on both saving and labor earnings. These responses are the combination of small negative effects of increasing the marginal tax rates on wealth and relatively larger positive effects of increasing average tax rates. These results imply that income effects may dominate substitution effects in household responses to rate of return shocks, which has important implications for both optimal capital taxation and macroeconomic modeling.

Ring-Wealth Taxation and Household Saving-145.pdf

11:30am - 11:52am

Monetary Policy and Racial Inequality

Alina Kristin Bartscher1, Moritz Kuhn1, Moritz Schularick1, Paul Wachtel2

1University of Bonn, Germany; 2New York University Stern School of Business

This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than for white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own fewer financial assets that appreciate in value. Over a five-year horizon, the employment effects remain substantially smaller than the countervailing portfolio effects.

Bartscher-Monetary Policy and Racial Inequality-171.pdf

11:52am - 12:15pm

Distributional Financial Accounts in Europe, 1995-2018

Thomas Blanchet1, Clara Martinez-Toledano2

1Paris School of Economics, France; 2Imperial College Business School, United Kingdom

This study presents the first Europe-wide data set of distributional financial accounts from 1995 until 2018. Combining and harmonizing national accounts, individual tax records and wealth surveys, we build wealth distribution series and their asset decomposition ensuring 100% consistency with the UN System of National Accounts. Our estimates cover a longer time frame and are better at capturing the top of the wealth distribution than existing survey-based series. This new data set can be useful to better understand the drivers of wealth accumulation and wealth inequality, including the distributional implications of fiscal and monetary policy.

Blanchet-Distributional Financial Accounts in Europe, 1995-2018-308.pdf
10:45am - 12:15pmD06: Children
10:45am - 11:07am

Postnatal Maternal Mental Health and Family Outcomes

Miriam Wüst1, Jonas Hirani2

1University of Copenhagen; 2VIVE

Postnatal maternal mental health problems are wide-spread and understanding their impacts on health, parenting decisions and economic outcomes for mothers and fathers is instrumental for policy. This project explores the short-run impact of maternal postnatal mental health issues on family well-being. It exploits a new large data source linking administrative data on all births in Denmark to records from the universal nurse home visiting program. These records contain detailed information on postnatal mental health issues for mothers, breastfeeding behavior, and infant development in the first year of life. In preliminary analyses we exploit variation in maternal health issues across siblings to show that poor mental health at two months after birth increases uptake of both nurse care, GP care and specialist care for mothers but there are no spillovers to fathers. We document that poor maternal mental health impacts breastfeeding negatively. We discuss threats to identification and propose alleys for future research.

Wüst-Postnatal Maternal Mental Health and Family Outcomes-455.pdf

11:07am - 11:30am

Teen Antidepressant Use and Academic Achievement

Sonia Bhalotra1,5, N. Meltem Daysal2,5,6, Nis Lydiksen3,4, Mircea Trandafir3,5

1University of Essex; 2University of Copenhagen; 3University of Southern Denmark; 4VIVE; 5IZA; 6CEBI

We investigate the effects of antidepressant use during adolescence on the educational outcomes of treated children. Using the propensity of the first treating specialist to prescribe antidepressants to other children as instrument, we find large and statistically significant benefits from treatment with antidepressants on test scores, especially math. Although imprecise, our findings suggest that girls benefit more than boys from the pharmaceutical treatment of emotional disorders.

Bhalotra-Teen Antidepressant Use and Academic Achievement-506.pdf

11:30am - 11:52am

Welfare Reform: Consequences for the Children

Marianne Simonsen1, Lars Skipper1, Jeff Smith2

1Aarhus University, Denmark; 2University of Wisconsin-Madison

This paper uses register-based data to analyze the consequences of a recent major Danish welfare reform for child human capital and well-being. In addition to work requirements, the reform introduced an upper limit on welfare benefits. Our strategy compares individuals on welfare at the time of reform announcement before and after the implementation of the reform with the development in outcomes for the group of individuals on welfare exactly one year prior. Mothers’ propensity to receive welfare decreased only slightly as a consequence of the reform and the reform only caused a small increase in labor market participation. We then show small but negative effects on children’s school well-being, as measured by individual-level nationally administered well-being surveys and small increases in absence from school because of the reform. Short-run child academic performance, in contrast, was not affected by the reform.

Simonsen-Welfare Reform-458.pdf

11:52am - 12:15pm

Causes and Consequences of Early Childhood Infectious Disease

Meltem Daysal1,4,5, Hui Ding2, Maya Rossin-Slater2,5,6, Hannes Schwandt3,5,6,7

1University of Copenhagen; 2Stanford University; 3Northwestern University; 4CEBI; 5IZA; 6NBER; 7CEPR

Infectious diseases pose an important public health concern. This paper explores the causes and consequences of infectious diseases, focusing on a widely recognized “disease hub” in the population: families with young children. In the first part of the paper, we analyze sibling pairs in Danish register data and document substantially higher rates of respiratory diseases during the first year of life for second-born children than their first-born counterparts during the same stage of life. The patterns in the data suggest the older sibling brings the diseases home which then infect the younger sibling. In the second part of the paper, we construct a disease index at the municipality level to obtain exogenous variation in infectious disease exposure which allows to measure causal impacts on long-term outcomes. We find that higher rates of infectious diseases during infancy have negative impacts on educational and labor market outcomes in young adulthood.

Daysal-Causes and Consequences of Early Childhood Infectious Disease-500.pdf
10:45am - 12:15pmD07: Health Policy
10:45am - 11:07am

Prescription Behaviour of Doctors in the Public and Private Sector

Elina Jussila1, Kaisa Kotakorpi1,2, Jouko Verho2

1Tampere University, Finland; 2VATT Institute for Economic Research

We analyze differences in the prescription behaviour of doctors in the public and private sector. We conduct the analysis in the context of two case studies, treatment of high cholesterol and type 2 diabetes, which are both very important for both public health and healthcare costs. Both cases are characterised by the availability of an effective, widely accepted low-cost treatment and alternative, more expensive treatments for the same condition. We find that in both cases, doctors are more likely to prescribe the expensive alternative in the private sector. The result holds also after controlling for a wide variety of individual-level factors such as income and health indicators, as well as some physician-level factors.

Jussila-Prescription Behaviour of Doctors in the Public and Private Sector-424.pdf

11:07am - 11:30am

Estimating Marginal Internalities: a New Approach

Zarko Yordanov Kalamov

TU Berlin, Germany

Consumers of sin goods often do not take the full health costs of consumption into account. Thus, they impose an internality on their future selves. Hence, one of the main sufficient statistics for an optimal sin tax is the money-metric of the marginal internality. This paper develops a model where a sin good consumer may exert an internality because of both a self-control problem and biased beliefs about the future health harms. We exploit a relationship between the health insurance elasticity of sin good demand and the marginal internality to estimate the latter. We calibrate our estimation approach to sugary drinks consumption. Our estimates are within the range of measures, derived from surveys that elicit directly consumers' nutritional knowledge and self-control.

Kalamov-Estimating Marginal Internalities-384.pdf

11:30am - 11:52am

Contracted Labor Mobility and Migrant Self-selection on Job Match Quality

Juho Alasalmi1,2

1University of Konstanz, Germany; 2Pellervo Economic Research, Finland

Contracted migrants observe their wages in the source and destination locations before their migration choice. With wage dispersion, migration choices are not based on mean or variance of source and destination wage distributions but on specific realizations from these distributions. The deviations of wage realizations from their expectations, the job match qualities in the source and destination, become factors of selection. The Roy-Borjas model extended by wage dispersion in source and destination labor markets predicts negative selection on source and positive selection on destination job match quality. Mobility costs amplify selection on job match quality. I discuss how comparison of migrants and stayers is not helpful in identifying selection on job match quality and instead, using Finnish administrative data, compare contracted migrants to workers who similarly contract a job outside their region of residence but choose to commute. Comparison of groups facing different costs reveals selection on job match quality.

Alasalmi-Contracted Labor Mobility and Migrant Self-selection-290.pdf
12:30pm - 2:00pmE01: Education Policies
12:30pm - 12:52pm

Distraction or Teaching Tool: Do Smartphone Bans in Schools Help Students?

Sara Abrahamsson

Norwegian School of Economics, Norway

How smartphone usage affects learning and well-being among children and teenagers is a concern for schools, parents, and policymakers. However, causal evidence of the effect that new technology such as smartphones has on student outcomes remains scarce. This paper studies the effect of banning smartphones from the classroom on students' educational outcomes and incidents of bullying in Norwegian middle schools. Combining detailed administrative data with survey data on middle schools' smartphone policies, I show, through an event-study design that banning smartphones significantly increases girls' test scores in mathematics, increases their likelihood of attending an academic high school track, and decreases incidents of bullying. Hence, banning smartphones from school could potentially be a low-cost policy tool to improve educational outcomes and reduce bullying.

Abrahamsson-Distraction or Teaching Tool-130.pdf

12:52pm - 1:15pm

Modeling the Spending and Welfare Effects of School Finance Reforms

Aaron Saul Goodman

Massachusetts Institute of Technology, United States of America

The dual nature of American education funding complicates the analysis of school finance policy, since districts can adjust their local revenue collection in response to state funding changes and use accumulated savings buffers to divorce spending choices from current revenue levels. Focusing on the helpful institutional setting in the state of Ohio, I address this challenge and evaluate the long-run consequences of school finance reforms. I first build a dynamic model of school district behavior and validate its reduced-form predictions about levy-proposal and spending-saving decisions. Leveraging the variation induced by a statewide freeze on nominal property-tax revenue, I estimate the model and use the structural results to compute the spending and welfare effects of counterfactual policy reforms. By targeting districts with the most favorable behavioral responses and the highest valuations of marginal funds, budget-neutral reallocations of state aid can attain welfare increases equal to 4% of Ohio's current education expenditures.

Goodman-Modeling the Spending and Welfare Effects of School Finance Reforms-102.pdf

1:15pm - 1:37pm

The Effect of Studying with International Peers on Location Choices

Mirjam Bächli

University of St.Gallen, Switzerland

An established fact is that higher education attracts immigrants. How does this affect the intranational location choices of native graduates in their early careers? Using administrative Swiss data, I exploit idiosyncratic variation in the student composition across time within a study field and university. I show that a higher exposure to international students induces natives who grew up in rural places to work more often in urban areas, while I find no evidence for an effect on their residential choice. This implies that the economic activity of highly skilled individuals becomes more concentrated in urban locations. I also show that the response of natives is likely driven by changes in preferences rather than labor market conditions, despite relatively high stay rates of international students.

Bächli-The Effect of Studying with International Peers on Location Choices-329.pdf

1:37pm - 2:00pm

The Impact of Attending an Independent Upper Secondary School: Evidence from Sweden Using School Ranking Data

Karin Edmark1, Lovisa Persson2

1Stockholms universitet, Sweden; 2Kristianstad University College, Sweden

Since the 1990s, the Swedish education market has gone through a dramatic transformation due to the introduction of voucher-funded independent schools. We make use of data on school applications to condition on student preferences for independent versus public education, and estimate a positive relationship between independent upper secondary school attendance and grades, graduation rates, and several types of post-secondary educations. We however also find strong indications that grade inflation lies behind at least part of the above effects, especially in schools organized as for-profit entities and in schools with a low share of qualified teachers. Our results suggest that, although independent school attendance seems to benefit the individual students in terms of higher grades and increased transition to post-secondary studies, grade inflation in the Swedish upper secondary independent schools may be a serious problem.

Edmark-The Impact of Attending an Independent Upper Secondary School-191.pdf
12:30pm - 2:00pmE02: Optimal Taxation
12:30pm - 12:52pm

Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches

Thomas Aronsson1, Olof Johansson-Stenman2, Ronald Wendner3

1University of Umeå; 2University of Gothenburg, Sweden; 3University of Graz

Taxation of charitable giving to a public good is analyzed in a continuous-type framework where people care about social comparisons. Regardless of whether the government acknowledges the warm glow of giving, leisure separability together with zero transaction costs of giving imply that governmental contributions are completely crowded out. Stronger concerns for relative charitable giving as well as larger transaction costs tend to support lower marginal subsidies, whereas concerns for relative consumption work in the other direction. The paper also presents a dual screening approach where charitable giving constitutes an indicator of wealth. Extensive numerical simulations supplement the theoretical findings.

Aronsson-Charity, Status, and Optimal Taxation-316.pdf

12:52pm - 1:15pm

Inverse Fai Taxation: What do we compensate for in Europe and the United States?

Erwin Oooghe2, Andreas Peichl1

1LMU / ifo, Germany; 2KU Leuven

In this paper we bring together the inverse optimal tax literature and the fairness literature. We invert a fair tax formula and apply it to tax- benefit schemes in Europe and the United States to estimate the implicit degree of compensation for each factor that determines individual well-being.

Oooghe-Inverse Fai Taxation-463.pdf

1:15pm - 1:37pm

Optimal Capital Taxation Under Stochastic Returns To Wealth

Eddy Zanoutene

Université Paris II - Panthéon Assas, France

I present a model of optimal capital taxation with heterogeneous labor productivity and stochastic, scale dependent, returns to savings.

The optimal policy combines confiscatory capital income taxes with wealth transfers to perfectly insure agents against risky returns. However as soon as returns exhibit scale dependence, an access to the expected rate of return conditional on initial savings must be guaranteed at the optimum.

In settings where the government does not observe capital income but only savings, there is no capital taxation at the optimum. However, in environments where the government does not observe savings but only information on capital income, the optimum does feature positive capital taxation as it provides some form of insurance against risky returns. This positive capital taxation at the optimum extends to the case where the government only observes ex post wealth. These results are valid under any social welfare function.

Zanoutene-Optimal Capital Taxation Under Stochastic Returns-439.pdf

1:37pm - 2:00pm

Optimal Design of Asset-Tested Transfer Programs

Andreas Peichl1,2, Dominik Sachs1, Daniel Weishaar1

1University of Munich, Germany; 2ifo Munich, Germany

Asset means testing regulations are a recurring but controversial feature of transfer programs in modern welfare states. In this project, we derive conditions for the optimal design of asset-tested transfer programs which are based on reduced-form elasticities. The optimal level of asset testing trades-of the benefits from targeting redistribution to individuals in need against the tax revenue changes implied by labor supply and savings reactions. As an empirical application, we plan to provide a quantification of the German basic income support system and seek to outline avenues for welfare-improving reforms. In contrast to previous work, our study will discuss the potential of non-standard asset testing rules which depend on age, the employment history, the duration of unemployment and the asset type.

Peichl-Optimal Design of Asset-Tested Transfer Programs-528.pdf
12:30pm - 2:00pmE03: Banking
12:30pm - 12:52pm

Covid 19 Stimulus Package and Fiscal-Monetary Policy Linkages: Empirical Evidence from India

Lekha Chakraborty1, Harikrishnan S2

1NIPFP, India; 2Independent analyst

Against the backdrop of covid pandemic, there is a growing concern about the tendency of segregating the monetary and fiscal policy while assessing the financing of deficits on economic growth outcomes. This paper analyses the economic stimulus packages announced by the national government in the context of India and identify the plausible fiscal and monetary policy co-ordination. The shrinking fiscal space due to revenue uncertainties has led to a theoretical plausibility of a re-emergence of finite monetization of deficits in India. However, the empirical evidence confirms no direct monetization of deficit.

Chakraborty-Covid 19 Stimulus Package and Fiscal-Monetary Policy Linkages-526.pdf

12:52pm - 1:15pm

Welfare Effects in a Banking Union Without Centralized Regulation

Ulf Maier, Miriam Müting

University of Munich, Germany

We study the interaction between the capital regulation and supervision of multinational banks when the latter is centralized. Both, stricter regulation and stricter supervision have positive international externalities in that they reduce the intrabank cost of cross-subsidizing failing subsidiaries abroad. We show that stricter, centralized supervision leads to more lenient capital regulation at the national level. We identify the cases in which the too lenient regulation overcompensates the global welfare gain of stricter supervision. In these cases, moving towards a supervisory union reduces global welfare.

Maier-Welfare Effects in a Banking Union Without Centralized Regulation-545.pdf

1:15pm - 1:37pm

C and S Corporation Banks: Did Trump’s Tax Reform Lead to Differential Effects?

Hoang Ha Nguyen Thi1, Alfons Weichenrieder1,2,3

1Goethe University Frankfurt; 2Vienna University of Economics and Business; 3CESifo

The US Tax Cuts and Jobs Act (TCJA) led to a drastic reduction in the corporate tax and improved the treatment of C corporations compared to S corporations. We study the differential effect of the TCJA on these types of corporations using key economic variables of US banks, such as the number of employees, average salaries and benefits, profit/loss before taxes, and net income. Our analysis suggests that the TCJA increased the net-of-tax profits of C corporation banks compared to S corporations and, to a lesser extent, their pre-tax profits. At the same time, the reform triggered no significantly differential effect on the employment and average wages.

Nguyen Thi-C and S Corporation Banks-233.pdf

1:37pm - 2:00pm

Bailout And Regulatory Decisions In A Banking Union

Andreas Haufler

LMU Munich, Germany

We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory decision of which banks are to be shut down before they can go bankrupt, and (ii) a loss allocation -- or bailout -- decision of who pays for banks that have failed despite regulatory oversight. Each of these choices can either be taken in a centralized or in a decentralized way. In our benchmark model the two countries always agree on a centralized regulation policy. In contrast, bailout policies are centralized only when international spillovers from cross-border bank ownership are strong, and banking sectors are highly profitable.

Haufler-Bailout And Regulatory Decisions In A Banking Union-266.pdf
12:30pm - 2:00pmE04: Profit Shifting
12:30pm - 12:52pm

The Anti-Tax-Avoidance Directive: An Initiative To Successfully Curb Profit Shifting?

Nora Alice Paulus

IAAEU - University of Trier, Germany

On July 16th 2016 the Economic and Financial Council of the European Union adopted the Anti-Tax-Avoidance Directive. The proposed controlled-foreign-company rule in the ATAD requires a minimum tax rate in the host country of a multinational’s controlled foreign subsidiary in order to avoid the reattribution of the subsidiary’s income to the country of its parent company. The Directive allows member states to remain free to set the CFC threshold autonomously by laying down a minimum standard.

Against this background, the present paper analyzes the effect of CFC rules on tax competition for foreign direct investments. It appears that, although CFC rules are effective in curbing offshore profit shifting, they can induce non-havens to compete aggressively for mobile capital. In this context, CFC rules can exacerbate capital outflows from the large to the small country to a larger extent than in standard models of tax competition.

Paulus-The Anti-Tax-Avoidance Directive-164.pdf

12:52pm - 1:15pm

Profit Shifting of Multinational Corporations Worldwide

Javier Garcia-Bernardo, Petr Janský

Charles University, Czech Republic

We propose a logarithmic function to model the extremely non-linear relationship between the location of profits and the tax rates of multinational corporations. We apply this methodology to estimate profit shifting using the newly available country-by-country reporting data which provides unparalleled country coverage. We estimate that multinational corporations shifted one trillion USD of profits to tax havens in 2016, and that those headquartered in the United States and Bermuda did so most aggressively. We establish which countries gain and lose most from profit shifting: the Cayman Islands, Luxembourg, Bermuda, Hong Kong and the Netherlands are among the most important tax havens, whereas low and lower-middle income countries tend to lose more tax revenue relative to their total tax revenues.

Garcia-Bernardo-Profit Shifting of Multinational Corporations Worldwide-242.pdf

1:15pm - 1:37pm

Profit Shifting and Destination-Based Taxes

Manon Francois

Paris School of Economics, France

We study the choice between source-based and destination-based corporate taxes in a two-country model, allowing multinational fi rms to use transfer pricing to allocate profi ts across tax jurisdictions. We show that source-based taxation is a Nash equilibrium for tax revenue maximizing jurisdictions if domestic and/or foreign fi rms generate large revenues. We also show that destination-based taxes are a Nash equilibrium when fi rms generate low revenues, which implies the presence of multiple equilibria. Both the source and the destination principle coexist in equilibrium when domestic and foreign corporate revenues are intermediate. However, the source principle always tax-dominates the destination principle.

Francois-Profit Shifting and Destination-Based Taxes-264.pdf

1:37pm - 2:00pm

Attracting Profit Shifting Or Fostering Innovation? On Patent Boxes And R&D Subsidies

Andreas Haufler1, Dirk Schindler2

1University of Munich, Germany; 2Erasmus University Rotterdam, The Netherlands

Many countries offer a reduced tax rate to businesses for their IP-related income. Such patent boxes are supposed to increase innovative activity, but they are also suspected to aim at attracting inward profit shifting from multinational firms. We analyze the effects of patent box regimes when countries can simultaneously use patent boxes and R&D subsidies to promote innovation. We show that when countries set their tax policies non-cooperatively, innovation is fostered, at the margin, only by the R&D subsidy. The patent box tax rate instead targets international profit shifting, and is optimally set below the corporate tax rate. With cooperative tax setting, the optimal royalty tax rate is instead equal to, or even above, the statutory corporation tax. Hence, patent box regimes only emerge in the decentralized policy equilibrium. We also show that enforcing a nexus principle improves welfare. However, the best policy would be to eliminate patent boxes altogether.

Haufler-Attracting Profit Shifting Or Fostering Innovation-246.pdf
12:30pm - 2:00pmE05: Taxing Consumption and Sins
12:30pm - 12:52pm

Taxing the Sweet Tooth - Evidence on the Role of Substitution in Excess Burden

Tuomas Kosonen1, Sami Jysmä2, Riikka Savolainen3

1VATT Institute for Economic Research, Finland; 2Labour Institute for Economic Research, Finland; 3Newcastle University, UK

We lack definitive answers when excise taxes or VAT meet their goals. To provide novel answers to this question we study a sweets and soda tax scheme in Finland providing us quasi-experimental variation in excise taxes. The reforms we study create variation also in how close substitutes the closest non-taxed goods are to the taxed goods allowing us to examine the role of substitution as a mechanism explaining the main results. We utilize credible control groups not affected by the reforms and have access to unique product- and week-level data on sales containing hundreds of millions of observations. Intriguingly, we find that without very close non-taxed substitutes the sweets tax did not create any discernible demand responses, but do create large responses when very close non-taxed substitutes are available. We discuss the role of substitution further with data on substitutability between products and in theoretical consumption taxation models.

Kosonen-Taxing the Sweet Tooth-465.pdf

12:52pm - 1:15pm

The Effect of Sin Taxes - The Case of Sugar Taxes in Norway

Tyra Merker

University of Oslo, Norway

This paper examines the effects of a large 2018 increase in sugar taxes on prices and consumption in Norway. I use a novel data set of all individual itemized receipts, covering 99.9 percent of the Norwegian grocery market. It allows me to study effects and substitution patterns of sin taxes at greater detail than previous literature, overcoming its measurement and aggregation problems. Using an event study design with a control group, I limit the likelihood that unobserved incidents bias my estimates. Preliminary analyses show the puzzling result that, while there is a positive effect of the taxes on prices, a significant demand response is lacking. I will study two potential mechanisms that can explain this puzzle: limited demand leakage and intra-category substitution. I will formalize the latter mechanism in a theoretical model. The mechanisms have clear policy implications for the level and design of taxes.

Merker-The Effect of Sin Taxes-501.pdf

1:15pm - 1:37pm

Commodity Tax Pass-through With Incomplete Information

Felix Montag, Alina Sagimuldina, Monika Schnitzer

LMU Munich, Germany

We investigate how the pass-through rate of commodity taxes depends on competition in a setting where consumers have imperfect information about prices. We use a theoretical search model that has two key predictions: First, the larger the number of price sensitive consumers, the higher the pass-through rate. Second, there is a hump-shaped relationship between the average pass-through experienced by consumers and the number of sellers. We test our theoretical predictions by studying pass-through in the context of a tax decrease and increase in the German retail fuel market. We estimate pass-through of these tax changes to diesel and gasoline prices using a unique dataset containing the universe of price changes at fuel stations in Germany and France and a synthetic difference-in-differences strategy. Our empirical results are in line with our theoretical predictions. Finally, we show that our theoretical framework can encompass and reconcile a large number of empirical observations in previous studies.

Montag-Commodity Tax Pass-through With Incomplete Information-450.pdf

1:37pm - 2:00pm

Anticipation and Consumption

Neil Thakral1, Linh Tô2

1Brown University; 2Boston University

This paper introduces a model of how the timing of information affects consumption decisions and tests its predictions in both developed and developing contexts. In our model, consumers form intertemporal plans and experience utility from anticipating future consumption. The model predicts excess sensitivity of spending to receiving a windfall, with smaller spending responses when there is more time to anticipate receiving the payment. The prediction that waiting leads to more patient decisions does not depend on whether consumers are liquidity constrained. Using Nielsen Consumer Panel data, we find higher marginal propensities to spend for households scheduled to receive the 2008 Economic Stimulus Payments sooner. Using data from randomized experiments in Kenya and Malawi, we find higher savings and assets among households scheduled to wait longer before receiving lump-sum unconditional cash transfers. Finally, we discuss existing evidence on how consumption responds to gains, losses, and news in light of our model.

Thakral-Anticipation and Consumption-111.pdf
12:30pm - 2:00pmE06: Tax Evasion
12:30pm - 12:52pm

Tax Policies Design in a Hierarchical Two-Side Model with Occupational Decision

Sebastián Castillo

Pontificia Universidad Católica de Chile, Chile

This study incorporates the occupational decision, i.e. dependent and self-employed, into the hierarchical model of Sanchez and Sobel (1993) to investigate distortions in tax policies design. The optimal audit shows that audits are efficient below a cut-off level, and above this level, audits are equal to zero. The marginal tax rate is smaller than one, indicating that not considering occupational decisions produces an upward bias on taxes. The optimal IRS's budget does not allow auditing the entire self-employed sector but it is larger than the result from a cost-benefit analysis. Finally, differential taxation is optimal if the marginal tax rate in the self-employed sector is higher than the dependent sector. This result produces that the distortions in the optimal allocation of agents increase in comparison with an environment with only one marginal tax rate.

Castillo-Tax Policies Design in a Hierarchical Two-Side Model with Occupational Decision-105.pdf

12:52pm - 1:15pm

The Effect of Audit Threats and Moral Appeals on Tax Compliance of Small Firms: Evidence from a Randomized Experiment in Bulgaria

Philipp Doerrenberg1, Alina Pfrang1, Jan Schmitz2

1University of Mannheim, Germany; 2University of Nijmegen, Netherlands

We study tax compliance and enforcement of VAT and SSCs in a field experiment with SMEs in Bulgaria. By randomly allocating treatment mailings to taxpayers, the effectiveness of audit-threats and tax morale in raising tax compliance is investigated. A special interest lies on evaluating whether businesses react to moral appeals from the tax authority. Preliminary results suggest that the treatments are especially successful in raising compliance with SSCs among firms. The results show that both audit-threats and moral appeals are effective in increasing subsequent SSC reporting.

Doerrenberg-The Effect of Audit Threats and Moral Appeals on Tax Compliance of Small Firms-257.pdf

1:15pm - 1:37pm

Does Shaming Pay?: Evaluating California’s Top 500 Tax Delinquent Publication Program

Chad Angaretis1, Brian David Galle2, Paul Organ3, Allen Prohofsky1

1California Franchise Tax Board; 2Georgetown University, United States of America; 3University of Michigan

We present new evidence on the impact of shaming on tax compliance, drawing on non-public administrative data from the world’s fifth-largest economy. Taxpayers notified that they will be publicly identified as one of the jurisdiction's largest tax debtors respond dramatically to treatment, with large and significant changes in extensive-margin behaviors such as entering into a payment agreement. Intensive-margin effects are smaller, suggesting that liquidity constraints may explain a large portion of non-payment. We also explore the effects of professional license suspension on these outcomes.

Our results derive from real-world policy, not an experiment. But by exploiting bright-line cutoffs in treatment eligibility by dollar and ordinal ranking, we are able to argue that observed effects are very likely causal.

Angaretis-Does Shaming Pay-228.pdf
12:30pm - 2:00pmE07: Inequality, Progressivity, and Spatial Equity
12:30pm - 12:52pm

Social Construction and the Progressivity of Local Tax Relief

Momi Dahan

Hebrew University, Israel

This paper reveals a noticeable difference between a high degree of progressivity of income-related local property tax relief versus the proportional or regressive incidence of recognition tax relief. Recognition tax relief is tax relief given to family members of war-related casualties and holocaust survivors that recognizes either their contributions to society or their suffering. Following Schneider and Ingram, I suggest that certain social groups benefiting from positive image and political influence are more likely to receive favorable tax treatment regardless of their economic status. The contribution of this study is to show that tax progressivity is affected by social construction in addition to the standard economic considerations such as efficiency, inequality aversion and earning inequality. The unintended consequence of such tax design is a higher degree of progressivity in Arab municipalities compared to Jewish and Druze municipalities due to greater prevalence of “recognition tax reliefs” in Jewish and Druze residents.

Dahan-Social Construction and the Progressivity of Local Tax Relief-158.pdf

12:52pm - 1:15pm

When Capitalism Takes over Socialism: (Missing) Capital Income and East-West-German Income Inequality

Stefan Bach1, Charlotte Bartels1, Theresa Neef2,3

1DIW Berlin; 2Freie Universitaet Berlin; 3World Inequality Lab

This paper constructs Distributional National Accounts (DINA) for East and West Germany to study the distribution of pre- and post-tax national income since reunification in 1990. We complement the universe of individual income taxpayers with the non-taxpaying population recorded in SOEP survey data and then align incomes with national accounts aggregates.

We document substantial income differences between East and West Germans 30 years after the German reunification, which we relate to the lack of capital ownership in the East. We show that capital income generated in East Germany flowing to West German capital owners can explain structural differences between the income distributions in East and West Germany.

Bach-When Capitalism Takes over Socialism-258.pdf

1:15pm - 1:37pm

From Battlefield to Marketplace: Connectivity, Industrialization, and Spatial Convergence in the Greater Mekong Sub-Region

Manabu Nose1,2, Yasuyuki Sawada2,3, Nguyen Tung4

1International Monetary Fund; 2The University of Tokyo; 3Asian Development Bank; 4Hitotsubashi University

We evaluate heterogeneous impacts of the highway construction between the mountainous China-Vietnam border and industrial hubs in northeastern Vietnam. We apply the market access approach to granular geo-coded highway network data and estimate aggregate impacts of highways, accounting for their treatment spillovers. We exploit the variation in topological conditions as an instrument to estimate the causal impact of market potential growth on the agglomeration of firms and workers. We find that an expansion of market potential triggered the agglomeration of manufacturing firms in both core and peripheral cities. Firm productivity grew significantly faster in rural peripheries through labor reallocation from agriculture to manufacturing. We also estimate the program’s treatment effect separately from local externality, finding the consistent evidence of agglomeration economies and the shifts to manufacturing industries in the area near the highways. The overall findings suggest that the interregional highway facilitated the economy-wide industrialization and income convergence across space.

Nose-From Battlefield to Marketplace-377.pdf

1:37pm - 2:00pm

Wealth Inequality Dynamics in the United States: 1962–2100

Thomas Blanchet

Paris School of Economics, France

I decompose the dynamics of the wealth distribution using a simple dynamic stochastic model that separates the effects of consumption, labor income, rates of return, growth, demographics and inheritance. Based on two results of stochastic calculus, I show that this model is nonparametrically identified and can be estimated using only repeated cross-sections of the data. I estimate it using distributional national accounts for the United States since 1962. I find that, out of the 15 pp. increase in the top 1% wealth share observed since 1980, about 7 pp. can be attributed to rising labor income inequality, 6 pp. to rising returns on wealth (mostly in the form of capital gains), and 2 pp. to lower growth. I then use the model to analyze the effect of progressive wealth taxation at the top of the distribution.

Blanchet-Wealth Inequality Dynamics in the United States-311.pdf
2:15pm - 3:45pmF01: Tax Enforcement
2:15pm - 2:37pm

What Makes a Tax Evader?

Marcelo Bergolo1, Martin Leites1, Ricardo Perez-Truglia2, Matias Strehl1

1Instituto de Economia, Universidad de La Republica; 2Haas, UC Berkeley

Why do some individuals choose to evade taxes while others do not? One popular view is that some individuals cheat on their taxes because they are more dishonest, selfish, or perceive different social norms. There is, however, little direct evidence on this matter. In collaboration with the national tax agency in Uruguay, we address this question using a combination of surveys and administrative records. Leveraging a unique institutional setting, we measure individual-level evasion choices. We document significant variation in evasion decisions across individuals. For a subsample of 6,078 taxpayers, we use survey questions and incentivized laboratory games to measure traits such as honesty, selfishness, and perceived social norms. We find that these individual traits have some power to predict who evades taxes, but other factors, such as the environment, play a much bigger role.

2:37pm - 3:00pm

Compliance Effects of Risk-based Threshold Audits

Oddbjørn Raaum1, Knut Løyland2, Gaute Torsvik3, Arnstein Øvrum2

1Ragnar Frisch Centre for Economic Research, Norway; 2National Tax Administration Norway; 3Department of Economics, University of Oslo

While RCTs are increasingly used to study effects of tax audits, this paper identifies long-term effects of risk-based audits with a regression discontinuity design. The tax administration applied a machine learning algorithm to predict a binary classifier of noncompliance on data from an audit experiment among taxpayers with high selfreported income tax deductions. In subsequent years the model has been used to risk score the same group of taxpayers and audit those with a score above a threshold. We find substantial compliance effects of being audited. Compared to their non-audited “neighbors” the audited taxpayers reduced self-reported deductions by 19% the first year after the audit. At the current audit threshold level the total tax income generated by the audit is much higher than the audit costs. We use data from the machine learning experiment to estimate the risk score threshold that would maximize net public revenue from the audits.

3:00pm - 3:22pm

Forgiveness _Seems_ Divine: Tax Amnesties and Tax Compliance

Maximiliano Lauletta1, Felipe Montano Campos2

1University of California Berkeley; 2Duke University

This paper studies the effect of a tax amnesty on subsequent compliance with the property tax in Argentina. This tax is a monthly amount calculated and billed on property owners by the government, so we define compliance as the amount paid over the liability billed for the corresponding month. Using an administrative panel of individual-level tax data, we exploit that only one county implemented an amnesty and use taxpayers from nearby counties as a control group in a difference-in-differences approach. Results show that subsequent tax compliance improves after the amnesty relative to other counties by about 2 percentage points. This effect can be separated into two components: (i) a substantial increase in compliance from taxpayers who enroll in the amnesty, (ii) a minor increase in compliance from taxpayers who do not. Overall, results are consistent with tax amnesties serving as a tool to get some delinquents back on compliance.

3:22pm - 3:45pm

The Race Between Tax Enforcement and Tax Planning: Evidence From a Natural Experiment in Chile

Dina Pomeranz1, Sebastian Bustos4, Juan Carlos Suarez Serrato2, Jose Vila-Belda1, Gabriel Zucman3

1University of Zurich, Switzerland; 2Duke University; 3University of California Berkeley; 4University of Harvard

Using micro-level administrative tax and customs data covering the universe of internationally active Chilean firms, we study a reform that greatly increased information reporting by multinational firms, following Chile's accession to the OECD. We first document that multinationals conduct tax-motivated cross-border transactions: Payments to foreign subsidiaries decrease with the destination country’s tax rate, while there is no such relationship for payments to non-affiliated firms. We then use difference-in-differences regressions to estimate the impacts of the reform on taxes paid and intra-group flows of royalties, interest, goods, and services. The reform did not significantly raise taxes paid and we find no impact on the transactions that shift profits to low-tax places. In contrast, there was a strong increase in the demand for tax advisory services. Whenever the supply of tax-planning services is not regulated, devoting more resources to tax enforcement can lead to a wasteful expenditure of resources by both tax authorities and taxpayers.

2:15pm - 3:45pmF02: Social Safety Net
2:15pm - 2:37pm

COVID-19 Changed Tastes for Safety-Net Programs

Alex Rees-Jones1,2, John D'Attoma3, Amedeo Piolatto4,5,6,7, Luca Salvadori3,6

1University of Pennsylvania; 2National Bureau of Economic Research; 3University of Exeter; 4Autonomous University of Barcelona; 5Barcelona Graduate School of Economics; 6Barcelona Institute of Economics; 7MOVE

In June 2020, we surveyed 2,516 Americans regarding their preferences for both short- and long-term expansions to government-provided healthcare and unemployment insurance programs. We find that support for such programs is positively associated with (a) COVID-19 deaths and infections in the respondent’s county, (b) the pandemic-induced change in the unemployment rate in the respondent’s county, and (c) survey elicitations of the respondent’s perceptions of COVID-19’s consequences. These associations persist when controlling for pre-COVID-19 political ideology and demographics. These results suggest that real or perceived exposure to COVID-19’s consequences has influenced support for expansions to the U.S. safety-net system.

Rees-Jones-COVID-19 Changed Tastes for Safety-Net Programs-160.pdf

2:37pm - 3:00pm

The Response of the Social Safety Net to Recessions

Brad Hershbein1, Bryan Stuart2

1W.E. Upjohn Institute for Employment Research, United States of America; 2George Washington University, United States of America

This paper studies how the social safety net has responded to recessions over the last 50 years. Building on recent evidence that recessions cause hysteresis in local labor markets, we estimate event study models that quantify the response of government transfers in places that experience more versus less severe recessions. We find that while unemployment insurance benefits increase only temporarily during recessions, retirement and health benefits remain persistently elevated. The lasting increase in transfers only partially offsets the decrease in earnings, leading to long-term declines in per-capita income relative to less affected areas. We do not find significant differences in the responsiveness of overall transfers before and after welfare reform, largely because cash assistance is a small part of the overall transfer response. Long-term income losses disproportionately fall on lower-income individuals, and areas badly hit by recessions suffer persistent increases in poverty rates.

Hershbein-The Response of the Social Safety Net to Recessions-172.pdf

3:00pm - 3:22pm

Who Lost in Iceland’s Financial Collapse?

Gylfi Zoega1, Andri Scheving1, Axel Hall2

1University of Iceland, Iceland; 2Reykjavik University

The paper uses a unique data set of tax returns of all taxpayers in Iceland from 2000 to 2019 to gauge the allocation of losses. The results show that while high-income, jointly taxed households suffered the most in absolute terms, the picture was different when relative changes in net worth were considered. Urban, low education workers in the age group 36-44 suffered the greatest relative losses. This applies particularly to single individuals, who on average had lower net worth as a ratio to assets to start with. By 2019 all deciles in terms of net worth had recovered their 2007 level of net worth.

Zoega-Who Lost in Iceland’s Financial Collapse-428.pdf

3:22pm - 3:45pm

Public Insurance in Heterogeneous Fiscal Federations: Evidence from American Households

Johannes Fleck1, Chima Simpson-Bell2

1European University Institute, Italy; 2IMF

This paper explores how tax progressivity of low-income households varies across US states. We overcome limitations in survey data by approximating the lower tails of state income distributions and by building an imputation model which measures the response of federal and state income taxes and transfers to changes in pre-tax earnings. Our results account for the geographic uniformity of federal policies as well as regional variation in income distributions, price levels and net transfer policies of state governments. We find large geographic differences in cumulative marginal tax rates and show that these differences materialize as variation in public insurance against transitory earnings shocks; their pass-through to disposable income ranges from 30 to 90%. Adjusting for the purchasing power of tax credits and transfers exacerbates cross-state differences further. States which have higher shares of Black or African American household heads, more Republican leaning voters and lower average incomes provide less insurance.

Fleck-Public Insurance in Heterogeneous Fiscal Federations-470.pdf
2:15pm - 3:45pmF03: Fiscal Federalism and Open Economy Public Finance
2:15pm - 2:37pm

Fiscal equalization and tax-hikes: Evidence from a Swiss reform

Nicola Mauri

University of Lausanne, Switzerland

This paper investigates the magnitude of incentive of fiscal equalization on local tax rates. Using quasi-experimental evidence from a reform in a municipal equalization scheme, I propose three refinements to current empirical estimations of incentive effects of fiscal equalization. I firstly show that local policy-makers may conceive changes in equalization transfers as stemming from discrete rather than marginal changes in the tax base. Second, a measure of “effective" equalization rate which conditions on the current tax rate is introduced. Third, I test the existence of redistribution effects on tax rates and thereby challenge the benevolence assumption of local governments. My results show that past literature using marginal equalization rates may have underestimated incentive effects from fiscal equalization. Effective equalization rates are shown to have a small or negative impact on tax rates. No evidence of redistribution effects is found which suggests that jurisdictions are revenue maximizers rather than utility maximizers.

Mauri-Fiscal equalization and tax-hikes-194.pdf

2:37pm - 3:00pm

The Valuation of Local Government Spending: Gravity Approach and Aggregate Implications

Wookun Kim

Southern Methodist University, United States of America

How much do people value local government spending? What are the effects of fiscal transfers that finance this spending? I develop a spatial equilibrium framework where people’s simultaneous (internal) migration and commuting choices reveal preferences. I combine this framework with administrative data from South Korea and leverage the plausibly exogenous variation in local government spending across districts induced by national tax reforms in 2008 and 2012. The estimated mobility responses imply that workers value each additional dollar of per-capita local government spending by 75 cents of their after-tax income. The general-equilibrium counterfactuals imply that a fiscal arrangement with lower redistribution would result in aggregate gains. A key aspect of my analysis is that bilateral migration and commuting decisions are made jointly. Ignoring any one of these margins biases the estimates of preferences for public goods, distance elasticities of migration or commuting, and the aggregate effects of alternative fiscal arrangements.

Kim-The Valuation of Local Government Spending-108.pdf

3:00pm - 3:22pm

The Marginal Value of Public Funds as a Measure of Welfare in an Open Economy

David R Agrawal1, William H Hoyt1, Tidiane Ly2

1University of Kentucky Martin School, United States of America; 2Università della Svizzera italiana, Switzerland

Our objective is to establish and provide a framework for quantifying and calculating the welfare effects of taxation in an open economy, with an emphasis on state and local governments in a federalist system. We do so by developing a model of fiscal policy when there are spillovers in tax bases and expenditures among competing local jurisdictions. We then derive how open economy considerations influence the marginal value of public funds (Hendren 2016). We provide guidance on the additional components of the marginal value of public funds necessary to better understand the welfare effects of spending and taxes in federalist system.

Agrawal-The Marginal Value of Public Funds as a Measure of Welfare-521.pdf

3:22pm - 3:45pm

Random Policies in Federations

James R. Hines Jr.

University of Michigan

This paper compares outcomes in which centralized and decentralized governments adopt policies of random quality. With freely mobile populations, jurisdictions adopting superior policies experience population inflows. If uncorrected congestion costs are small, then policy diversity promotes higher welfare levels. With significant unpriced convex congestion costs, however, this welfare ordering is reversed: competition induces so great a concentration of population in jurisdictions adopting superior policies that consumer welfare is lower than with centralized (and harmonized) policies. If interjurisdictional mobility is sufficiently limited by rising costs of local fixed factors, diversity among decentralized governments again produces higher welfare than harmonization. Hence the welfare impact of centralization and accompanying policy harmonization depends critically on the nature of crowding costs.

Hines Jr.-Random Policies in Federations-359.pdf
2:15pm - 3:45pmF04: Firms in Public Economics
2:15pm - 2:37pm

Issuance and Valuation of Corporate Bonds with Quantitative Easing

Stefano Pegoraro1, Mattia Montagna2

1University of Notre Dame, United States of America; 2European Central Bank

After the announcement of the European Central Bank’s corporate quantitative easing program, non-financial corporations timed the bond market by shifting their issuance toward bonds eligible for the program. However, issuers of eligible bonds did not increase total issuance compared to other issuers; nor did they experience different economic outcomes. Instead, the announcement produced substantial spillover effects on risk premia. Credit risk premia declined, both in the corporate bond market and in the default swap market, whereas the valuation of eligible bonds did not change relative to comparable ineligible bonds. Firms took advantage of reduced risk premia by issuing riskier bond types. Using a novel and comprehensive dataset of corporate bonds in the euro area, we document how firms substituted across bond characteristics, and we find evidence of their intention to time the market. Our model indicates corporate market timing is instrumental in allowing quantitative easing to produce spillover effects.

Pegoraro-Issuance and Valuation of Corporate Bonds with Quantitative Easing-330.pdf

2:37pm - 3:00pm

Are Firms Fiscally Responsible?

Davud Rostam-Afschar, Laura Arnemann, Florian Buhlmann, Fabian Eble, Philipp Dörrenberg, Christopher Karlsson, Johannes Voget

University of Mannheim, Germany

We study attitudes of firm-decision makers towards taxes using unique large-scale survey experiments representative for Germany. Starting from the hypothesis that businesses desire to lower taxes, we test how attitudes towards a 130 billion Euro fiscal stimulus and desired tax rates change, when subjects are confronted with two treatments highlighting social responsibility, fiscal responsibility, compared to a control group. We find that highlighting fiscal responsibility increases opposition against the state intervention and that the desire to reduce taxes diminishes but find no such effect when highlighting social responsibility. Firm-decision makers want to reduce taxes their firm has to pay stronger compared to taxes their firm does not have to pay. Managers are more willing to pay higher taxes, when agreeing with the fiscal stimulus. The harder the firm was hit by the Covid-19 crisis, the stronger the desire to lower taxes.

Rostam-Afschar-Are Firms Fiscally Responsible-471.pdf

3:00pm - 3:22pm

Favoritism and Firms: Micro Evidence and Macro Implications

Zareh Asatryan1, Thushyanthan Baskaran2, Carlo Birkholz3, David Gomtsyan1

1ZEW - Leibniz Centre for European Economic Research; 2University of Siegen; 3ZEW - Leibniz Centre for European Economic Research and University of Mannheim

We study the economic implications of regional favoritism, a form of distributive politics that channels resources geographically within countries. We utilize enterprise surveys spanning many low and middle income countries, and exploit transitions of national political leaders for identification.

We document strong evidence for regional favouritism among firms located close to current leader's birthplace, but not in other regions, nor in home regions before a leader takes office. Firms in favored regions become substantially larger in terms of sales and employment. They also increase their sales per worker, pay higher wages, and have higher measured total factor productivity. Several mechanisms suggests that leaders divert public resources into their home regions by generating higher demand for firms operating in the non-tradable sector. A simple structural model of resource misallocation that is calibrated to match our empirical estimates implies that favoritism generates aggregate output losses of 0.5% annually.

Asatryan-Favoritism and Firms-393.pdf

3:22pm - 3:45pm

Internal Digitalization and Tax-efficient Decision Making

Daniel Klein2, Christopher Alexander Ludwig1,2, Katharina Nicolay1,2

1ZEW Mannheim; 2University of Mannheim

This paper investigates the effect of firms’ internal digitalization on the performance of business support functions such as the tax department. We put forward a novel, micro-level IT sophistication index based on a survey monitoring European firms’ digital infrastructure. Following the objective function of maximizing after-tax returns, we measure tax-efficient decisions in terms of minimizing the firm’s worldwide tax burden. We show that internal digitalization boosts firms’ ability to relocate income to tax-favored jurisdictions. We confirm this result using two plausibly exogenous shocks. First, we exploit a business software supply shock and provide evidence that the adoption of digital technologies enhances efficient cross-border tax planning. Second, using an event study design, we show that digitalized firms promptly adjust reported profits in response to income shifting incentive shocks. Overall, we show that digital infrastructure is a crucial foundation for timely, data-driven decision making and increases support functions’ performance.

Klein-Internal Digitalization and Tax-efficient Decision Making-209.pdf
2:15pm - 3:45pmF05: Income Taxes and Labor
2:15pm - 2:37pm

Do Taxes on the Top 1% Trickle Down? A Local Labor Markets Approach

Paul Kindsgrab

University of Michigan

This paper develops and implements an empirical test of the hypothesis that higher taxes on the rich (top 1%) trickle down and ultimately harm non-rich (bottom 99%) workers. The test examines whether the wages of bottom 99% workers in US local economies where top 1% workers account for a larger share of economic activity are more adversely affected by a tax increase for the rich. I develop a spatial equilibrium model to quantify the magnitude of trickle down effects implied by the reduced-form estimates. The results do not reveal statistically significant trickle down effects. An elasticity of bottom 99% wages with respect to the top 1% net-of-tax rate in excess of 0.066 can be rejected. The paper quantifies the implications of the estimates for optimal tax policy.

Kindsgrab-Do Taxes on the Top 1 Trickle Down A Local Labor Markets Approach-322.pdf

2:37pm - 3:00pm

Asset Bubbles In Explaining Top Income Shares

Saikat Sarkar1, Matti Tuomala2

1Mount Allison University; 2Tampere University

This paper considers the role of asset price bubbles (crashes) as an important determinant in seeking a further explanation for top income shares. The asset price bubbles caused at least in part by monetary policies, along with other determinants such as top tax rates and innovative ness are the important drivers to explain the surge in top income shares. The empirical results show that correlation between asset bubbles and top inequality is positive and significant. The regression co-efficient of stock and housing market bubbles have a positive effect on top income shares, while the stock and housing market crashes fail to reduce the surge in top income shares.

Sarkar-Asset Bubbles In Explaining Top Income Shares-167.pdf

3:00pm - 3:22pm

The Effects of Overtime Tax On Hours Worked: Evidence From France

Dora Tuda

ESRI Dublin, Trinity College Dublin, Ireland

Income from overtime work is subject to income tax in most European countries. However, the effect of higher overtime tax on hours worked has largely remained an unanswered question. This essay examines the re-introduction of French overtime tax in 2012, by comparing workers in large (treated) and small firms (control), before and after 2012. I find that overtime tax reduced actual hours worked, but increased reporting of overtime hours. The result is confirmed using synthetic control estimates for actual hours worked. On the other hand, after the reform, part-time and temporary workers increase their actual hours worked, but not overtime hours. This result suggests that firms adjusted hours of workers whose hours are more flexible, while avoiding the higher cost of overtime hours.

Tuda-The Effects of Overtime Tax On Hours Worked-110.pdf
2:15pm - 3:45pmF06: Payout Taxation
2:15pm - 2:37pm

Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

Adrien Matray

Princeton University, United States of America

This paper investigates how the 2013 three-fold increase in the dividend tax rate in France affected firms' investment and performance. Using administrative data covering the universe of firms over 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly when facing high demand and return on capital. For every euro of undistributed dividends, firms increase their investment by 0.3 euro, leading to higher sales growth. Heterogeneity analyses show that no group of firms cut their investment, thereby rejecting models in which higher dividend taxes increase the cost of capital. Overall, our results show that the tax-induced increase in liquidity relaxes credit constraints and can reduce capital misallocation.

Matray-Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs-328.pdf

2:37pm - 3:00pm

Follow the Money! Combining Household And Firm-level Evidence To Unravel The Tax Elasticity of Dividends

Clément Malgouyres

PSE IPP, France

We estimate the tax elasticity of dividends using two recent French reforms: a hike in the dividend tax rate followed, five years later, by a cut. To follow the cash movements within the balance sheets of households and firms caused by these reforms, we use newly-accessible personal and corporate tax registries. Following the tax increase, the elasticity of dividends equals four and there is no shifting towards other personal income categories. We find instead an increase in companies’ spending. After the tax decrease, payouts revert to their initial level, but not enough to offset the amounts received during the high-tax period.

Malgouyres-Follow the Money! Combining Household And Firm-level Evidence-302.pdf

3:00pm - 3:22pm

Capital Gains Taxes and Real Corporate Investment

Terry Moon

University of British Columbia, Canada

This paper assesses the effects of capital gains taxes on investment by exploiting a unique setting in Korea, where capital gains tax rates vary by firm size. Following a reform in 2014, firms with a tax cut increased investment by 35 log points, and issued more equity by 9 cents per dollar of lagged revenue, relative to unaffected firms. Additionally, the effects were larger for firms that appeared more cash-constrained or went public after the reform. Taken together, these findings are consistent with the “traditional view” predicting that lower payout taxes spur equity-financed investment by increasing marginal returns on investment.

Moon-Capital Gains Taxes and Real Corporate Investment-147.pdf

3:22pm - 3:45pm

Dividend Tax Reform: Evidence from Greek Administrative Data

Katarzyna Bilicka1, Irem Guceri2, Evangelos Koumanakos3

1Utah State University; 2University of Oxford; 3University of Ioannina

We analyse the effects of the introduction of a 10 percent flat tax on dividends in Greece on firm behaviour. We leverage a population of company tax return matched with detailed company accounts at the micro level. We use the exogenous variation in how the policy affected companies with different financial year-end dates in the same calendar year for identification. We compare firms with December closing dates which were immediately affected by the tax introduction to firms with June closing dates which could declare tax-free dividends in that year. We find that December closing firms reduce the amount that they distribute as dividends, both by decreasing the incidence of distributions at the extensive margin and by decreasing the amount distributed, relative to mid-year closing firms. As a consequence, we find that mid-year closing firms increase their reserves and investment in land and buildings in response to the reform.

Bilicka-Dividend Tax Reform-299.pdf
2:15pm - 3:45pmF07: Women in Public Economics: How to Thrive in Academia
Session Chair: Nadine Riedel, University of Münster
Discussant Paper 1: Miriam Wüst, University of Copenhagen
Discussant Paper 2: Marianne P. Bitler, University of California, Davis
Discussant Paper 3: Katarzyna Anna Bilicka, Utah State University
Discussant Paper 4: Kaisa Kotakorpi, Tampere University
This session will consist of the following contributions and chaired by Nadine Riedel: Miriam Wüst: Status of women in the profession, Marianne Bitler: Publishing, Katarzyna Bilicka: Networking, Kaisa Kotakorpi: Managing Services.
4:00pm - 5:30pmG01: Audits
4:00pm - 4:22pm

Optimal Taxes And Penalties When The IRS Cannot Commit To Its Audit Policy

Martin Besfamille1,2, Leandro Arozamena3,4, Pablo Sanguinetti5,3

1Pontificia Universidad Católica de Chile, Chile; 2CESifo, Germany; 3Universidad Torcuato Di Tella, Argentina; 4CONICET, Argentina; 5CAF Banco de Desarrollo de America Latina, Venezuela

We examine the problem of a utilitarian government that sets taxes and fines for evaders but cannot commit to any enforcement policy. Given the tax law, the government and taxpayers -some of whom are honest-play a report-audit game that, depending on taxes, fines and audit costs, generates either full evasion and no audits, or partial evasion and random auditing. We show that it may be optimal for the government not to fine evaders as a way to commit not to audit. Moreover, social welfare is nonmonotonic in the audit cost.

Besfamille-Optimal Taxes And Penalties When The IRS Cannot Commit-357.pdf

4:22pm - 4:45pm

The Deterrence Value of Tax Audit: Estimates from a Randomized Audit Program

Mazhar Waseem, Michael Best, Jawad Shah

University of Manchester, United Kingdom

In modern tax systems audit is the sole instrument through which the tax authority can detect noncompliance and create deterrence. We exploit a national program of randomized audits covering the entire population of VAT filers from Pakistan to study how much evasion audit uncovers and how much evasion it prevents by changing behavior. While audit uncovers a substantial amount of evasion (the evasion rate among firms in the bottom three size quartiles is more than 100%), it does not deter future cheating. Examining more than ten intensive and extensive margin outcomes, we detect no effect of audit on proximate or distant firm behavior. Our results suggest audits are suboptimally utilized in checking mechanical violations of law instead of creating deterrence against evasion.

Waseem-The Deterrence Value of Tax Audit-247.pdf

4:45pm - 5:07pm

Taxpayer Self-Inspections, Audits, and Optimal Tax Administration

Wei Cui

University of British Columbia, Canada

I document an important tax collection practice previously unknown to tax administration research: mandatory taxpayer self-inspections. The practice emerged spontaneously across China in the 1990s and persists despite having no basis in law. If taxpayers report additional liabilities after self-inspections, no penalties are imposed. Unlike tax amnesties, self-inspections are (i) backed up by the threat of government inspections with a high probability, and (ii) used as a routine revenue-generation technique. Self-inspections represent 50% of the activity in China’s “tax inspection” system and assume even greater importance in the larger “revenue management” system. They appear much more effective at generating revenue than costlier government inspections.

I offer a conceptual scheme clarifying the relation between self-inspections and other enforcement tools. Self-inspections show that the presumed centrality of audits rests not on its effectiveness in raising revenue, but rather on the importance of the social norm of truthful reporting.

Cui-Taxpayer Self-Inspections, Audits, and Optimal Tax Administration-204.pdf

5:07pm - 5:30pm

Do Tax Audits Deter CIT Non-Compliance? Evidence from administrative data

Christos Kotsogiannis1,2, Luca Salvadori1,3

1Tax Administration Research Centre (TARC), University of Exeter - Business School, United Kingdom; 2CESifo; 3Barcelona Institute of Economics (IEB)

What is the impact of risk-targeted tax audits on corporate income tax (CIT) filers’ future reporting behaviour? Do diverse types of examinations lead to different results in terms of their deterrence power? To the best of our knowledge, this is the first paper framed in the developing world addressing these research questions. We find evidence of significant pro-deterrence effect on CIT reporting one year after audit. The effect is lower in magnitude when time passes but not statistically significant and it is completely driven by the change in behaviour of audited taxpayers determined uncompliant. Our results suggest that the type of audit matters. Comprehensive audits drive the aggregate pro-deterrence result while desk-based audits tend to have a counter-deterrent effect after the second year.

Kotsogiannis-Do Tax Audits Deter CIT Non-Compliance Evidence from administrative data-443.pdf
4:00pm - 5:30pmG02: RCT in Education
4:00pm - 4:22pm

The Regulation of Competitive Pension Funds with Endogenous Financial Literacy

Luciano Greco2, Valentina Catapano1

1University of Padua, Italy & CRIEP; 2CRIEP

The long-run trend towards retirement schemes based on competitive, defined-contribution pension funds has motivated a growing interest in financial literacy as a tool to mitigate agency problems and myopic behaviors in pension investments. In this paper, we focus on the adverse selection problem affecting the industry of pension funds competing to attract households' savings, and we model the investment in financial literacy as a costly screening technology. Relying on such a theoretical framework, we show that the (optimal) level of financial literacy is affected by several policy parameters, particular the size of mandatory pension savings. Then, on the basis of a cost-benefit analysis, we assess alternative regulatory frameworks including policy tools such as the level of transparency that pension funds have to comply with and the public provision of investments in financial literacy.

Greco-The Regulation of Competitive Pension Funds with Endogenous Financial Literacy-456.pdf

4:22pm - 4:45pm

Can Mentoring Alleviate Family Disadvantage in Adolescence? A Field Experiment to Improve Labor-Market Prospects

Sven Resnjanskij1, Jens Ruhose2, Simon Wiederhold3, Ludger Woessmann4

1ifo Institut, Germany; 2Kiel University / Germany; 3Catholic University Eichstaett-Ingolstadt Ingolstadt / Germany; 4ifo Institut, Germany

We study a mentoring program that aims to improve the labor-market prospects of schoolattending adolescents from disadvantaged families by offering them a university-student mentor. Our RCT investigates program effectiveness on three outcome dimensions that are highlypredictive of adolescents’ later labor-market success: math grades, patience/social skills, and labor-market orientation. For low-SES adolescents, the one-to-one mentoring increases acombined index of the outcomes by half a standard deviation after one year, with significant increases in each dimension. Part of the treatment effect is mediated by establishing mentors as attachment figures who provide guidance for the future. The mentoring is not effective for higherSES adolescents. The results show that substituting lacking family support by other adults can help disadvantaged children at adolescent age.

Resnjanskij-Can Mentoring Alleviate Family Disadvantage in Adolescence A Field Experiment-434.pdf

4:45pm - 5:07pm

Can Peer Mentoring Improve Online Teaching Effectiveness? An RCT During The COVID-19 Pandemic

David Hardt1, Markus Nagler1,2,3, Johannes Rincke1,2

1Friedrich-Alexander University Erlangen-Nuremberg, Germany; 2CESifo; 3LASER

Online delivery of higher education has taken center stage but is fraught with issues of student self-organization. We conducted an RCT to study the effects of remote peer mentoring at a German university that switched to online teaching due to the COVID-19 pandemic. Mentors and mentees met one-on-one online and discussed topics like self-organization and study techniques. We find positive impacts on motivation, studying behavior, and exam registrations. The intervention did not shift earned credits on average, but we demonstrate strong positive effects on the most able students. In contrast to prior research, effects were more pronounced for male students.

Hardt-Can Peer Mentoring Improve Online Teaching Effectiveness An RCT During The COVID-19 Pandemic-289.pdf

5:07pm - 5:30pm

Zooming to Class?: Evidence from a Randomized Control Trial on the Effects of Online Learning on College Student Academic Achievement

Michael Stephens Kofoed1, Lucas Gebhart2, Dallas Gilmore3, Ryan Moschitto4

1United States Military Academy, United States of America, IZA; 2United States Military Academy, United States of America; 3United States Military Academy, United States of America; 4United States Military Academy, United States of America

The COVID-19 pandemic caused colleges and universities to offer many courses online. However, there is little causal evidence of the efficacy of online instruction; particularly when instructors have little time to prepare to teach online. During the Fall 2020 semester, we randomly assigned West Point cadets to either online or in-person class sections across multiple instructors. Instructors in our experiment taught uniform curriculum and agreed to teach half of their teaching load in each modality. This allows us to control for instructor attributes. We find that grades for online cadets dropped by 0.20 standard deviations (a reduction of around a half of a +/- grade): a result driven by those with below median academic ability. This negative result is present across graded events and commensurate with cadet reports of reduced concentration and connection with the instructor.

Kofoed-Zooming to Class-476.pdf
4:00pm - 5:30pmG03: Economics Consequences of COVID-19
4:00pm - 4:22pm

Information Revelation of Decentralized Crisis Management: Evidence From Natural Experiments on Mask Mandates

Nathan Seegert1, Maclean Gaulin2, Mu-Jeung Yang3, Francisco Navarro-Sanchez4

1University of Utah, United States of America; 2University of Utah, United States of America; 3University of Utah, United States of America; 4University of Utah, United States of America

We highlight the importance of signaling effects in determining whether public policy should be implemented at a decentralized or centralized level. For example, although a public policy may have the same direct effect if enacted at a state or county level, people may perceive these policies differently, leading to different indirect effects. We explore this mechanism using the patchwork of mask mandate orders in the U.S. from April to September 2020. State-wide mask mandates stimulate economic activity while also reducing COVID-19 case growth. Surprisingly, county-level mask mandates generally have the opposite effect, depressing economic activity. We argue that different unintended signaling effects can explain these differences in policy effects: households infer from county mask mandates that infection risks have increased in their local area and, therefore, socially distance more and spend less.

Seegert-Information Revelation of Decentralized Crisis Management-335.pdf

4:22pm - 4:45pm

The Impact Of COVID-19 On Formal Firms Micro Tax Data Simulations Across Countries

Pierre Jean Bachas1, Anne Brockmeyer2,3, Camille Marine Semelet1

1The World Bank; 2The Institute for Fiscal Studies; 3University College London

How is the COVID-19 pandemic affecting firm profits and tax payments in developing countries? This paper uses administrative corporate tax records from 10 low- and middle- income countries around the world to provide plausible estimates. Modeling the lockdown-triggered revenue shock with simple and transparent assumptions, the analysis predicts that less than half of all firms will remain profitable by the end of 2020, about 5–10 percent of the formal aggregate annual payroll will be lost, and firm exit rates will double. As a result, it is expected that tax revenue remitted by the corporate sector will fall by at least 1.5 percent of baseline gross domestic product. Differences in sectoral composition and firms’ cost structures generate heterogeneity in the results across countries: wage subsidies are less effective in low-income countries and government revenue losses are smaller.

Bachas-The Impact Of COVID-19 On Formal Firms Micro Tax Data Simulations Across Countries-243.pdf

4:45pm - 5:07pm

Optimal Case Detection and Social Distancing Policies to Suppress COVID-19

Stefan Pollinger

Toulouse School of Economics, France

This paper finds that the combination of case detection and social distancing is crucial for efficiently suppressing a new infectious disease. Theoretically, I characterize the optimal elimination strategy as a simple function of observables, which eases its implementation. Together with the number of infected, optimal social distancing decreases over time. The fundamental trade-off is between its intensity and its duration. Quantitatively, I calibrate the model to the COVID-19 pandemic in Italy at the end of the first lockdown on May 10, 2020. Given the observed prevalence and detection efficiency, eliminating the virus costs 11 % of annual GDP. Efficient digital contact tracing reduces the cost to 0.4 %. This cost is by one order of magnitude lower than the cost of optimal mitigation strategies.

Pollinger-Optimal Case Detection and Social Distancing Policies-337.pdf

5:07pm - 5:30pm

How Well-Targeted Are Payroll Tax Cuts as a Response to COVID-19? Evidence From China

Wei Cui1, Jeffrey Hicks2, Max Blair Norton2

1Allard Law School, University of British Columbia, Canada; 2Vancouver School of Economics, University of British Columbia, Canada

Numerous countries cut payroll taxes in response to COVID-19. This includes China, which completely exempted most firms from social insurance (SI) contributions--an average tax cut of 21 percentage points on formal labor costs and approximately 20% of total tax remittances by firms. We use novel data on 900,000 firms in one province to document new facts about the structure of SI in China and evaluate payroll tax cuts as a COVID-19 relief measure. We calculate that labor informality causes 54% of tax-registered firms--24% of aggregate economic activity--to receive no benefits. Labor formality also increases with firm size, further skewing the benefit of these cuts towards large firms. But despite these facts, the benefit of the cuts relative to firms' operating costs and liquidity is larger both for smaller firms and in industries most affected by the shock because these firms and industries are more labor-intensive.

Cui-How Well-Targeted Are Payroll Tax Cuts as a Response-355.pdf
4:00pm - 5:30pmG04: Behavioral Public Finance and Public Goods
4:00pm - 4:22pm

December Fever in Public Finance

Vera M. Eichenauer

ETH Zurich, Switzerland

Public spending often increases at the end of fiscal years. This is a dynamic inefficiency. The causes for year-end spending spikes are poorly understood. Our novel identification strategy relies on the historic variation in countries’ fiscal years. We show that the end of fiscal years rather than alternative explanations cause spending spikes at the end of fiscal years. Our accounting data includes discretionary daily contributions of 27 OECD countries to the World Bank from 2002-2013. As suggested by principal-agent theory, we find that high administrative quality reduces the end of year effect and analyze pertinent budget institutions as possible mechanisms.

Eichenauer-December Fever in Public Finance-149.pdf

4:22pm - 4:45pm

The Welfare Economics of Reference Dependence

Daniel Reck2, Arthur Seibold1

1University of Mannheim, Germany; 2London School of Economics, United Kingdom

Empirical evidence suggests that in many contexts, individuals evaluate options relative to a reference point, placing disproportionate weight on losses. In this paper, we analyze welfare under reference dependence. We explicitly model the central normative ambiguity over whether the influence of the reference point on choices reflects a bias or a normative preference, and we describe how judgments regarding this ambiguity affect welfare calculations. We find that policies that decrease the reference point generally improve welfare. In contrast, the welfare effect of price or tax changes in the presence of reference dependence depends strongly on normative judgments. We illustrate our findings with an empirical application to reference dependence exhibited in retirement decisions of German workers. Simulation results lend some support to increasing the Normal Retirement Age rather than using financial incentives in order to induce workers to postpone retirement.

Reck-The Welfare Economics of Reference Dependence-389.pdf

4:45pm - 5:07pm

Paternalism Attitudes And The Happiness Value Of Fundamental Freedoms

Kai Konrad, Sven Arne Simon

Max Planck Institute for Tax Law and Public Finance, Germany

The Governmental Paternalism Index is a new empirical index that measures individuals' attitudes towards governmental regulation and prescriptions that aim at preventing potentially self-harming behavior. Our results indicate considerable heterogeneity in how individuals support, or object to, such governmental prescriptions. We design and use this new index in a survey on life satisfaction during the covid-19 pandemic to assess how restrictions of personal freedom affect life satisfaction, and how the attitudes towards governmental paternalism affect this relationship. Our results indicate that losses in life satisfaction in the course of the Covid-19 pandemic are mainly attributed to restrictions in personal freedom and to a negative outlook on societal change, and that individuals' value in the Governmental Paternalism Index is a major determinant of the size of this effect.

Konrad-Paternalism Attitudes And The Happiness Value Of Fundamental Freedoms-425.pdf

5:07pm - 5:30pm

Navigating The Notches: Charity Responses To Ratings

Jennifer Mayo

University of Michigan, United States of America

This paper studies the effects of the star ratings system used by Charity Navigator. Using IRS Form 990 data from 2002 to 2019, I find an exogenous one-star increase in a charity's rating from 3 to 4 stars raises contributions by 6%, with even larger effects among smaller charities. Charities respond to these incentives by reporting less spending on administration and fundraising. Bunching analysis shows that some of the response is merely a misreporting of expenses in order to achieve a higher star rating. This suggests that a continuous measure of charity quality would be less distortionary and better inform potential donors about the charity's activities.

Mayo-Navigating The Notches-223.pdf
4:00pm - 5:30pmG05: Public Policy and the Family
4:00pm - 4:22pm

Wind of Change? Cultural Determinants of Maternal Labor Supply

Barbara Boelmann1,2, Anna Raute3, Uta Schönberg2

1University of Cologne, Germany; 2University College London, UK; 3Queen Mary University of London, UK

Does the culture in which a woman grows up influence her labor market decisions once she has a child? Does the culture of her present social environment shape maternal labor supply? To address this, we exploit the setting of the German reunification. A comparison of East and West German mothers on both sides of the former border shows that culture matters. Second, in exploiting migration across this old border, we document a strong asymmetry in the persistence of the childhood culture. While East German migrants return to work earlier and work longer hours, West German migrants adjust their post-birth labor supply nearly entirely to their East German colleagues. Last, taking advantage of differential inflows of East Germans across West German firms after reunification, we show that migration might be a catalyst for cultural change.

Boelmann-Wind of Change Cultural Determinants of Maternal Labor Supply-371.pdf

4:22pm - 4:45pm

Do Family Policies Reduce Gender Inequality? Evidence from 60 Years of Policy Experimentation

Henrik Kleven1, Camille Landais2, Johanna Posch3, Andreas Steinhauer4, Josef Zweimüller5

1Princeton University; 2London School of Economics; 3Analysis Group; 4The University of Edinburgh, United Kingdom; 5University of Zurich

Do family policies reduce gender inequality in the labor market? We contribute to this debate by investigating the joint impact of parental leave and child care, using administrative data covering the labor market and birth histories of Austrian workers over more than half a century. We start by quasi-experimentally identifying the causal effects of all family policy reforms since the 1950s on the full dynamics of male and female earnings. We then map these causal estimates into a decomposition framework building on Kleven et al. (2019) to compute counterfactual gender inequality series. Our results show that the enormous expansions of parental leave and child care subsidies have had virtually no impact on gender convergence.

Kleven-Do Family Policies Reduce Gender Inequality Evidence-409.pdf

4:45pm - 5:07pm

Unequal Use of Social Insurance Benefits: The Role of Employers

Sarah Bana1, Kelly Bedard2, Maya Rossin-Slater3, Jenna Stearns4

1Stanford University; 2University of California, Santa Barbara; 3Stanford University; 4University of California, Davis

Disability Insurance (DI) and Paid Family Leave (PFL) programs are important sources of social insurance, but there is considerable inequality in benefit take-up, and little is known about the role of firms in determining benefit use. Using administrative data from California, we find that higher quality firms—based on earnings premiums and other measures—have substantially higher public DI and PFL take-up rates, and that this relationship is particularly strong among the lowest-earning workers within the firm. Our results suggest that changes in firm behavior may impact social insurance use, thus reducing an important dimension of inequality in America.

Bana-Unequal Use of Social Insurance Benefits-263.pdf

5:07pm - 5:30pm

The EITC and Maternal Time Use: More Time Working and Less Time with Kids?

Jacob E Bastian1, Lance Lochner2

1Rutgers University, United States of America; 2University of Western Ontario, Canada

Parents spend considerable sums investing in their children's development, with their own time among the most important forms of investment. Given well-documented effects of the Earned Income Tax Credit (EITC) on maternal labor supply, it is natural to ask how the EITC affects other time allocation decisions, especially time with children. We use the American Time Use Surveys to study the effects of EITC expansions since 2003 on time devoted to a broad array of activities, with considerable attention to the amount and nature of time spent with children. Our results confirm prior evidence that increases in the maximum available EITC amount increase maternal work, reducing time devoted to home production and leisure, especially among unmarried mothers. More novel, we show that EITC expansions also reduce time spent with children; however, almost none of this reduction comes from time devoted to active investment-related activities.

Bastian-The EITC and Maternal Time Use-271.pdf
4:00pm - 5:30pmG06: Tax Theory
Session Chair: Thomas A. Gresik, University of Notre Dame
Discussant Paper 1: Simon Naitram, University of the West Indies
Discussant Paper 2: Eric Bond, Vanderbilt University
Discussant Paper 3: Mohammed Mardan, Norwegian School of Economics (NHH)
Discussant Paper 4: Shafik Hebous, IMF
4:00pm - 4:22pm

What is the Optimal Minimum Tax?

Shafik Hebous1, Michael Keen2

1IMF, United States of America; 2IMF, United States of America

What is the optimal level of a minimum tax in a multi-country world? We extend two seminal models of tax competition—Zodrow and Mieszkowski (1986) and Kanbur and Keen (1993)—to study two notions of an optimal minimum tax: i) the Pareto level in a Nash tax competition; and ii) the revenue maximizing level. We show that under general conditions, the efficient minimum tax rate is above the lower of the Nash taxes. Under specific functional forms, we express the optimal minimum tax rate as a function of the Nash tax rate.

4:22pm - 4:45pm

The Corporate Income Tax is Inherently Benefit-Based

Simon Naitram1, Matthew Weinzierl2,3

1University of the West Indies; 2Harvard Business School; 3NBER

In this paper we examine the benefit characteristics of the corporate income tax. We examine the extent to which the incidence of the corporate tax burden aligns with the incidence of the public input benefits. Our paper uncovers a simple result: the mechanisms that determine the incidence of the corporate income tax are the same mechanisms that determine who benefits from the public input. This result implies that the corporate tax is inherently benefit-based. In cases where the benefits of the public input do not exactly offset the burden of the corporate tax, we characterise the net incidence of a combined increase in the public input funded by an increase in the corporate tax.

Naitram-The Corporate Income Tax is Inherently Benefit-Based-345.pdf

4:45pm - 5:07pm

Can Destination-Based Cash Flow Taxes Arise in Equilibrium?

Eric Bond1, Thomas Gresik2

1Vanderbilt University, United States of America; 2Notre Dame, United States of America

We examine the effects of unilateral changes in a country's tax parameters in a two country model when both countries are part of a destination-based cash flow taxation (DBCFT) system. We consider deviations from a globally efficient DBCFT equilibrium by allowing each country to vary its corporate tax rate, degree of taxation of capital income, and level of border adjustment. We decompose the effect of policy changes into fiscal effects and price effects, and show that regardless of the similarity between the two countries, at least one country has an incentive to move toward taxation of capital income. If countries are identical, each has an incentive to move toward source-based taxation. In contrast, changes in corporate tax rates have neither fiscal or price effects, and thus can be set unilaterally. Our results shows the commitment mechanisms required to sustain multilateral DBCFT.

Bond-Can Destination-Based Cash Flow Taxes Arise in Equilibrium-115.pdf

5:07pm - 5:30pm

Playing Easy or Playing Hard To Get: When and How to Attract FDI

Thomas A. Gresik1, Dirk Schindler2, Guttorm Schjelderup3

1University of Notre Dame, United States of America; 2Erasmus School of Economics, The Netherlands; 3Norwegian School of Economics, Norway

We study the link between a country's institutional quality in tax collection and its optimal corporate tax policies in a model of heterogeneous multinationals that can shift income using both debt and transfer prices. Countries with weak institutional quality can be made worse off adopting policies that attract FDI as the benefits from higher wages and production are more than offset by tax base erosion. Countries with moderate institutional quality can gain from under-utilizing their ability to collect taxes, since the benefit of attracting more FDI outstrips the benefit of increased tax revenue. Countries with very strong institutions benefit from FDI and should utilize their full ability to collect taxes.

Gresik-Playing Easy or Playing Hard To Get-117.pdf
4:00pm - 5:30pmG07: Panel discussion: Learning from Tax History
Discussant Paper 1: Michael Keen, IMF
Discussant Paper 2: Joel Slemrod, University of Michigan
Discussant Paper 3: Chantal Stebbings, University of Exeter
Discussant Paper 4: Steven Bank, UCLA School of Law
Economists have not paid as much attention to tax history as have law and other disciplines. In this session MIchael Keen (IMF) and Joel Slemrod (University of Michigan), Chantal Stebbings (University of Exeter) and Steven Bank (UCLA) will draw on their work in the area to argue that tax history is a fertile and rewarding topic.

Rebellion, Rascals, and Revenue: Tax Follies and Wisdom through the Ages

Joel Slemrod

University of Michigan, United States of America

Governments have always struggled to tax in ways that are effective and tolerably fair. Sometimes they fail grotesquely, as when, in 1898, the British ignited a rebellion in Sierra Leone by imposing a tax on huts―and, in repressing it, ended up burning the very huts they intended to tax. Sometimes they succeed astonishingly, as when, in eighteenth-century Britain, a cut in the tax on tea massively increased revenue. In this entertaining book, two leading authorities on taxation, In this book, we provide a fascinating and informative tour through these and many other episodes in tax history, both preposterous and dramatic―from the plundering described by Herodotus and an Incan tax payable in lice to the (misremembered) Boston Tea Party and the scandals of the Panama Papers. Along the way, readers meet a colorful cast of tax rascals, and even a few tax heroes.

Slemrod-Rebellion, Rascals, and Revenue-281.pdf

Taxing Luxuries in Eighteenth-Century Britain: Old Perceptions and Modern Influences

Chantal Stebbings

University of Exeter, United Kingdom

This presentation examines the nature of the luxury taxes which lay at the heart of British fiscal orthodoxy in the eighteenth century. They used the range of available imposts, including the indirect duties of customs, excise and stamps, and the direct establishment taxes. (...) These taxes might be thought to be mere historical curiosities, but this presentation demonstrates that they are important in two principal ways. First, they reveal the values which legislators and taxpayers recognised as essential to effective and sustainable taxation; and secondly, they were of material significance in the introduction and shaping of an income tax, which came to dominate direct taxation in the following century and beyond. In that, they explain certain defining features of modern tax law.

Stebbings-Taxing Luxuries in Eighteenth-Century Britain-551.pdf

The Creation of an Expense Account Society

Steven Bank

UCLA School of Law, United States of America

Almost immediately after lockdowns were announced in response to the COVID-19 pandemic, President Donald Trump called for restoring the deduction for business meal and entertainment expenses that had been removed in 2017. Perhaps imagining that it would result in a return to the post-World War II era when lavish spending was common, Trump hoped it would rescue a sinking restaurant industry. In a sense, he was right to connect tax with business meals and entertainment. Expense accounts, and the industry that evolved to support it, were a creature of the high post-war tax rates that persisted through the 1950s and beyond. Understanding the rise of this phenomenon, and the forces that conspired to defeat President John F. Kennedy proposal to eliminate deductions for meals and entertainment, helps to explain how inextricably linked tax is with business spending on meals and entertainment and how it became entrenched in American society.

Bank-The Creation of an Expense Account Society-285.pdf
5:35pm - 6:30pmSocial Event A: Live Tour of the Reykjanes Peninsulas Volcanic Eruption, by Sævar Helgi Bragason

Contact and Legal Notice · Contact Address:
Privacy Statement · Conference: IIPF 2021
Conference Software - ConfTool Pro 2.6.142
© 2001 - 2021 by Dr. H. Weinreich, Hamburg, Germany