Conference Agenda

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Session Overview
Date: Friday, 20/Aug/2021
9:00am - 10:30amH01: Political Economy III
9:00am - 9:22am

Political Recruitment At Work

Linuz Aggeborn1, Henrik Andersson2

1Uppsala University, Sweden; 2Uppsala University, Sweden

We investigate whether there is recruitment into politics from workplace networks with

Swedish registry data from 2002–2018. Most politicians in Sweden are leisure-politician, meaning that they are employed at regular workplaces in addition of being politicians. In order to identify the causal effect, we restrict the analysis to small cells of individuals that work in close proximity at the same workplace and with the same profession. Our results indicate that an individual is more likely to become a politician if that person had a colleague that was a politician in the previous mandate period. Our mechanism analysis indicates that partisan recruitment may explain the main effect and we also find some evidences for the existence of inbreeding-bias in workplace networks.

Aggeborn-Political Recruitment At Work-313.pdf

9:22am - 9:45am

What Are the Priorities of Bureaucrats? Evidence from Conjoint Experiments with Procurement Officials

Sebastian Blesse1, Janne Tukiainen2,3, Albrecht Bohne1, Leonardo Giuffrida1, Jan Jääskeläinen4, Antti Sieppi5, Ari Luukinen5

1ZEW Mannheim, Germany; 2VATT; 3University of Turku; 4Aalto University; 5FCCA

How do bureaucrats form decisions when performing complex tasks? We address this question in the context of public procurement by surveying more than 950 real-life bureaucrats in Finland and Germany about decisions on tender outcomes. The survey includes experimental vignettes in order to study the relative importance of bid price, quality, degree of competition, past-performance reputation, litigation risks, and regional favoritism for tender decisions. First, bureaucrats state to have substantial discretion but no important incentives. Second, our experiment identifies that procurers value avoiding negative risks with respect to prices and supplier reputation higher than grasping related symmetric opportunities. Third, avoiding bidders with bad past performance appears most important. Fourth, buyers value a certain degree of competition while litigation concerns and regional favoritism are benign. Moreover, our findings point towards the role of intrinsic motivation among public buyers in countries with high public sector capacity.

Blesse-What Are the Priorities of Bureaucrats Evidence from Conjoint Experiments with Procurement.pdf

9:45am - 10:07am

The Effect of Lobbying Activity in Mixed Oligopoly at Free Entry Market

Tsuyoshi Shinozaki1, Isidoro Mazza2, Minoru Kunizaki3, Mitsuyoshi Yanagihara4

1Tohoku Gakuin University, Japan; 2Catania University, Italy; 3Aichi University, Japan; 4Nagoya University, Japan

This paper shows that whether socially optimal level of privatization can be achieved or not under competitive lobbying depends on market structure. We prove that (i) with an exogenous number of private firms, optimal degree of privatization becomes lower by the competitive lobbying compared with the socially optimal level, however, (ii) in free entry case, optimal degree of privatization is the same as with the socially optimal level. This result is in sharp contrast to the finding in the previous literatures that, in a non-mixed oligopoly market, competitive lobbying has no effect on the policy such as optimal tariff, optimal tax rates, and optimal regulations. Our finding means that if a country imposes entry regulation of private firms, social optimal level of privatization cannot be achieved but once a country allows free entry of private firms, socially optimal level of privatization Matsumura and Kanda (2005) found are naturally achieved.

Shinozaki-The Effect of Lobbying Activity in Mixed Oligopoly-457.pdf

10:07am - 10:30am

Are Overly Attractive Government Jobs Distorting the Labor Market? Evidence from Bangladesh

Shahida Pervin

National Graduate Institute for Policy Studies (GRIPS), Japan

Overly attractive government jobs may lead to labor market distortions with potential dampening effects on output and productivity. Exploiting an age ceiling policy that permits job aspirants' eligibility for government jobs until their 30th birthday, I estimate the impact of becoming ineligible for public service jobs on employment. Findings from population censuses and labor force surveys data over 25 years from 1991 to 2017 show that after age 30 the likelihood of employment increases by four to five percentage points over the whole period with little fluctuation across different years and levels of education. This suggests that young people are likely to wait and try for government jobs until they reach the age ceiling. This study provides the first microeconometric evidence on labor market impacts of the public sector premium. Whether this premium is distortionary depends on the opportunity cost of the time spent preparing for government jobs.

Pervin-Are Overly Attractive Government Jobs Distorting the Labor Market Evidence-432.pdf
9:00am - 10:30amH02: Immigration and Assimilation
9:00am - 9:22am

Hosting Refugees and Voting for the Far-Right: Evidence from France

Sarah Schneider-Strawczynski

Paris School of Economics, France

Does exposure to refugees change the political preferences of natives towards far-right parties, and how does this change in preferences occur? Using the opening of refugee centers in France between 1995 and 2017, I show that voting for far-right parties in cities with such opening between two presidential elections falls by about 2 percent. The drop in far-right voting is higher in municipalities with a small population, working in the primary and secondary sectors, with low educational levels, and few migrants. I show that this negative effect can not be explained by an economic channel, but rather by a composition channel, through natives' avoidance, and a contact channel, through natives' exposure to refugees. I provide suggestive evidence that too-disruptive exposure to refugees, as measured by the magnitude of the inflows, the cultural distance, and the media salience of refugees, can mitigate the beneficial effects of contact on reducing far-right support.

Schneider-Strawczynski-Hosting Refugees and Voting for the Far-Right-423.pdf

9:22am - 9:45am

Biased Beliefs about Immigration and Economic Concerns: Experimental Evidence

Patrick Bareinz1, Silke Uebelmesser1,2

1University of Jena; 2CESifo

We conduct an information provision experiment to investigate the relevance of statistical information for economic attitudes towards immigration. Our experimental design is embedded into a large-scale representative online survey in Germany. We randomize the provision of information on the share and the unemployment rate of immigrants, representing facts about the size and economic characteristics of the immigrant population. When exposed to factual information about immigration, individuals systematically update their prior beliefs. We further find that information provision decreases economic concerns related to welfare state and labor market effects as well as immigration policy preferences. These effects exert heterogeneity in terms of the specific information provided and are more pronounced for individuals with overestimation biases in beliefs about immigration.

Bareinz-Biased Beliefs about Immigration and Economic Concerns-394.pdf

9:45am - 10:07am

Did the Presence of Immigrants in Local Constituencies Affect the Vote Outcome in the Brexit Referendum?

Hisahiro Naito, Mizuho Asai

University of Tsukuba, Japan

This study examines the effect of the presence of immigrants in voters' constituencies on voters' behaviour, using a data set of the UK referendum on the exit from the EU and post-election survey data. We apply two-stage least squares (2SLS) estimation to control for the endogeneity of the ratio of immigrants by using information on industry composition 25 years ago (1991) as the instrumental variable. We find that contrary to popular media coverage, the presence of immigrants in a local constituency does not increase the share of the vote to leave the EU. Using post-election individual survey data, we find that voters are making systematic errors in perceiving the changes of the level of immigrants. The difference of the perception and the (true) rate of the inflow of immigrants is affected by several demographic factors such as education and age.

Naito-Did the Presence of Immigrants in Local Constituencies Affect the Vote Outcome in the Brexit.pdf

10:07am - 10:30am

The Cultural Assimilation of Individualism and Preferences for Redistribution

Olle Hammar

Uppsala University, Sweden

I analyze the relationship between individualism and preferences for redistribution, using variation in immigrants' countries of origin to capture the impact of cultural values and beliefs on personal attitudes towards income redistribution and equality. Using global individual-level survey data for more than one million individuals (including 65,000 migrants) in a large number of countries around the world, I find strong support for the hypothesis that more individualistic cultures are associated with lower preferences for redistribution. At the same time, cultural assimilation in this dimension seems to take place relatively fast, where the impact of the destination culture starts to dominate the origin culture when an individual has lived as long in the country of destination as she did in her country of origin. Moreover, I find no statistically significant effect of the origin culture on an individual's preferences for redistribution if migration took place before the age of 10.

Hammar-The Cultural Assimilation of Individualism and Preferences-106.pdf
9:00am - 10:30amH03: Inequality Perceptions
9:00am - 9:22am

Overconfidence, Income-Ability Gap, and Preferences for Income Equality

Daiki Kishishita1, Atsushi Yamagishi2, Tomoko Matsumoto1

1Tokyo University of Science, Japan; 2Princeton University, USA

Overconfident people who do not earn what they think they can may attribute this negative gap to the unfairness of the economy and thereby favor reducing income inequality when they realize their income-ability gap. We conducted an online survey experiment in the US in which we assigned the treatment emphasizing each respondent's self-perception of the income-ability gap randomly. We found that realizing the negative income-ability gap lowers respondents' perception of the fairness of the economy independently of political ideologies. However, its effect on the support for reducing income inequality was heterogeneous. Only left-wing people increased the support for reducing income inequality, but even left-wing people did not increase the support for government interventions in correcting inequality.

Kishishita-Overconfidence, Income-Ability Gap, and Preferences-135.pdf

9:22am - 9:45am

Rich vs Poor: Inequality Perceptions, Information and Redistributive Policy Support

Luna Bellani, Nona Bledow

University of Konstanz, Germany

This paper contributes to the study of how information on and perceptions of inequality matter for policy support. Using a survey experiment, we provide respondents with information on actual inequality. We have two separate treatments, one provides information on the share of income going to the richest 10% of all households, the other on the share going to the poorest 10%. Three main results emerge from our analyses: First, there is a priming effect of pointing people towards focusing on the rich vs. the poor. Second, information on the upper end of the distribution shifts policy support more than information on the lower end. Third, changes in inequality perceptions have an effect on concrete policy proposals, but do not affect general attitudes towards redistribution.

Bellani-Rich vs Poor-238.pdf

9:45am - 10:07am

Social Position and Fairness View

Kristoffer Balle Hvidberg1, Claus Thustrup Kreiner1, Stefanie Stantcheva2

1University of Copenhagen, Denmark; 2Harvard University, US

We link survey data containing Danish people’s perceptions of where they rank in various reference groups and fairness views with administrative records on their income history, life events, and reference groups. People know their income positions well, but believe others are closer to themselves than they really are. The perceived fairness of inequalities is strongly related to current social position, moves with shocks to social position (e.g. unemployment or promotions), and changes when people are experimentally shown their actual positions. People view inequalities within education group and co-workers as most unfair, but underestimate inequality the most exactly within these reference groups.

Hvidberg-Social Position and Fairness View-151.pdf

10:07am - 10:30am

Gender Norms and Income Misreporting Within Households

Anja Roth, Michaela Slotwinski

University of Basel, Switzerland

We demonstrate that individuals’ survey responses are prone to the influence ofgender norms. Drawing on Swiss and Austrian data combining survey and admin-istrative information for the same couple, we find that couples where the womanoutearns her partner misreport their incomes such that they comply with themalebreadwinner norm. This introduces a systematic bias into surveyed incomes andleads to a considerable overestimation of policy relevant measures like the genderwage gap, which is frequently based on survey data. Furthermore, surveyed incomeinformation can lead to false conclusions about individuals’ labor market behaviorif taken at face value.

Roth-Gender Norms and Income Misreporting Within Households-442.pdf
9:00am - 10:30amH04: VAT
9:00am - 9:22am

Using Administrative Data to Assess the Impact of the Pandemic in Low-income Countries: An Application with VAT Data in Rwanda

Giulia Mascagni, Adrienne Lees

IDS / ICTD, United Kingdom

This paper uses administrative data from VAT returns to provide insights on the impact of the pandemic in Rwanda. We show that the lockdown had a severe impact on the economy, which quickly rebounded after restrictions were lifted. The overall loss amounts to 5% of GDP. In absolute terms, losses are concentrated amongst the largest firms. In proportional terms, small firms suffered particularly hard. Firms in accommodation, food and transport, and those based in Kigali, were particularly affected by the crisis. This decline in economic activity translates in a 5.1% loss in VAT revenue. Our results offer policymakers evidence on the real impact of the crisis, both on aggregate and disaggregated by level of income, sector, and location. In a literature that has largely focused on higher-income countries, these results complement projections to inform appropriate policy responses in the specific context of low-income countries.

Mascagni-Using Administrative Data to Assess the Impact of the Pandemic-441.pdf

9:22am - 9:45am

VAT Fraud and Reverse Charge: Empirical Evidence from VAT Returns

Annalisa Tassi, Thiess Buettner

FAU, Germany

We explore the effects of a key anti-fraud measure on VAT returns. Exploiting the German VAT return data at industry level, we find that the total amount of input VAT claims were reduced significantly after the expansion of the scope of the so-called "reverse-charge'' mechanism. The introduction of reverse charge means that tax-liability is shifted from the seller to the buyer. Our results point to a significant volume of VAT fraud before the implementation of this measure. The effects on reported sales and EU exports point to a decline of transactions and support the existence of significant fraud. Based on our estimates we quantify the amount of VAT fraud stopped by reverse charge in the years between 2009 and 2018 to be around 2.9% of VAT revenues.

Tassi-VAT Fraud and Reverse Charge-396.pdf

9:45am - 10:07am

Up and Down the Value-Added Tax

Susana Peralta, João Pereira dos Santos, Pedro Tavares de Sousa

Nova School of Business and Economics, Portugal

This paper assesses the incidence of a large and temporary increase in value-added taxfor Portuguese restaurants and other catering services. In 2012 the tax increased from 13%to 23% and it was brought back down in July of 2016. Combining data on all non-financial firms in Portugal between 2006 and 2017 we estimate effects upon four agents: consumers,capital owners, and workers. We show that firm-owners pass on to consumers around 40%of the VAT increase while the pass-through after the repeal is zero. Through a Difference-in-Differences strategy we find that: the tax increase did not harm employees as severely asfirm’s margins, leading employers to later pocket most of the tax cut benefits

Peralta-Up and Down the Value-Added Tax-309.pdf

10:07am - 10:30am

VAT Invoice Information And Compliance Behavior: Evidence From Thailand

Athiphat Muthitacharoen1, Wonma Wanichthaworn2, Trongwut Burong2

1Chulalongkorn University, Thailand; 2Revenue Department, Thailand

How do firms respond to increased information available to tax authority? We employ a difference-in-difference approach to examine the effects of a policy that increases the amount of information on VAT invoice on firm behavior in an environment with large informality. We use a de-identified panel of VAT and corporate income tax returns that comprises the universe of Thai firms. Our finding indicates that increasing the information available to tax authority has a large and significant impact on compliance of both VAT and corporate income tax.

Muthitacharoen-VAT Invoice Information And Compliance Behavior-280.pdf
9:00am - 10:30amH05: Macro Public Finance, Budgets, and Banks
9:00am - 9:22am

Gauging the Effects of the German COVID-19 Fiscal Stimulus Package

Natascha Hinterlang, Stéphane Moyen, Oke Röhe, Nikolai Stähler

Deutsche Bundesbank, Germany

To alleviate the economic costs of the COVID-19 pandemic, the German government set up a huge fiscal stimulus package. Simulations in a dynamic New Keynesian multi-sector general equilibrium model indicate that it notably stabilizes output and consumption. Cumulated over 2020-2022, output can be stabilized by over 4 PP. On average, the welfare costs of the pandemic are reduced by around 5% and by 20% for liquidity-constrained households. The long-run present value output multiplier amounts to around 0.2. The reduction of consumption taxation and direct transfers to households notably back consumption by liquidity-constrained consumers and stabilize output. Subsidies for firms prevent defaults and stabilize the economy, but are quite costly, while public investment is the most cost-effective measure.The paper sheds light on the question as to which fiscal measures have so far helped to mitigate the impact of the crisis and may provide guidance for possible future fiscal stimulus packages.

Hinterlang-Gauging the Effects of the German COVID-19 Fiscal Stimulus Package-136.pdf

9:22am - 9:45am

Freeze! Financial Sanctions and Bank Responses

Matthias Efing1, Stefan Goldbach2, Volker Nitsch3

1HEC Paris; 2Deutsche Bundesbank; 3Technische Universität Darmstadt, Germany

When the UN or another political body impose financial sanctions on a country, banks are typically required to end business relations with targeted counterparties. Based on German regulatory data for years 2002-15, we show that parent institutions of multinational banking groups reduce their positions in sanctioned countries by -38%. However, their branches and subsidiaries in countries with weak policies against financial crime increase lending by +68% after sanctions are imposed. These branches and subsidiaries receive additional intra-group credit from their parent banks. The evidence suggests that credit is rerouted to sanctioned countries through bank branches and subsidiaries in offshore locations.

Efing-Freeze! Financial Sanctions and Bank Responses-323.pdf

9:45am - 10:07am

Regional and Sectoral Varieties of VAT Pass Through in Japan

Kazuki Hiraga

Tokai University, Japan

This paper investigates the contemporaneous (short-run) and dynamic (long-run) responses of regional and sectoral price level change in consumption tax rate (VAT) hike (i.e. pass through of VAT) in Japanese monthly, 10 regional and 10 sectoral (commodity category) data. We show the effects not only contemporaneous but also pre-reform (from 12 month ago to one month) and post-reform (from one month ahead to 12 month) similar to Benedek et al.(2019). We obtain some remarkable results. First, aggregate pass through is incomplete, but case in 5% in 1997 and 8% in 2014 increase are complete (or overshifting) pass-through. Second, sectoral difference is large (e.g. the long-run pass through range from -0.25 to 1.42), while regional difference is small.

Hiraga-Regional and Sectoral Varieties of VAT Pass Through-153.pdf

10:07am - 10:30am

Avoiding Unpleasant Surprises: An Analysis of German States' Budget Forecasts

Thiess Buettner1,2, Tobias Goerbert1

1FAU Erlangen-Nuremberg, Germany; 2CESifo

This paper explores budget forecasts over different forecast horizons. We argue that these forecasts tend to be pessimistic at a given forecast horizon if negative fiscal shocks are perceived to be more costly than positive fiscal shocks. We provide an empirical analysis of the German states' forecasts of the budget-balance over a period of fourty years. The results confirm the existence of a robust downward bias, supporting a strong negative perception of negative fiscal shocks over the short-term horizon. The bias increases in states with relatively large levels of public debt but is not associated with transfers, government ideology or election dates.

Buettner-Avoiding Unpleasant Surprises-431.pdf
9:00am - 10:30amH06: Policies and the Environment
9:00am - 9:22am

Contracting with Countries in a Walrasian World to Curb Coal

Lennart Stern


Existing international environmental institutions curb fossil fuels by rewarding countries for reducing demand and expanding substitutes. This paper argues that it would be beneficial to create new institutions that would reward countries for reducing their fossil fuel supply. Assuming complete information, I prove a Price Preservation Lemma: For any given budget, the optimal way to split the budget between the three approaches (rewarding supply reduction, demand reduction, and substitute expansion) leaves the world market price of the fossil fuel unchanged. In a dynamic setting, this result holds under full commitment for any given intertemporal budget. Using this Lemma, I show that the optimum cannot be implemented by relying on the supply side entirely on a deposit purchase fund. The results suggest that it would be valuable to also create funds rewarding countries for taxing fossil fuel extraction in addition to creating a deposit purchase fund.

Stern-Contracting with Countries in a Walrasian World to Curb Coal-499.pdf

9:22am - 9:45am

Green Protection for Sale: The Impact of Industrial Lobbying on International Cooperation in the Presence of Border Carbon Adjustment

Achim Hagen, Mark Schopf

University of Hagen, Germany

We study the influence of producer firm lobby groups on the choice of national emission reduction policies and the formation of a climate coalition if members of the coalition use border carbon adjustments (BCA). Coalition countries regulate emissions from commodity production with a carbon tax. The commodity is traded on an international market. We find that lobbying leads to a reduction of the price difference between coalition countries and outsiders and can thereby help to stabilize larger coalitions. We contribute to the literature by providing novel insights how, in the presence of BCA, industry lobbies can improve the prospects for climate cooperation. In this case, "green protection for sale" turns into environmental protection.

Hagen-Green Protection for Sale-514.pdf

9:45am - 10:07am

Environmental tax,Regulation intensity and Labor demand:evidence from China

Jinke liu, yueyun Wang

central university of finance and economics, China, People's Republic of

Environmental tax is an important market-based environmental protection instrument in many countries, but little research assesses the impact of the environmental tax on industrial labor demand in developing countries. Employing the pollutant discharge fees standard reform of SO2 in China as a quasi-natural experiment, the paper estimates the effects of the environmental tax on labor demand of manufacturing sector with a difference-in-differences design. Analyzing the most comprehensive firm-level dataset of China, we find the pollutant discharge fees standard reform had no significant negative impact on overall labor demand. However, it had heterogeneous impacts on different types of firms. The available evidence indicates that the negative effects were significant for firms in more heavily polluting industries, those of smaller size, and those firms in regions with poor fiscal capacity, respectively. The reform also decreased SO2 emissions significantly and had a positive effect on public health.

liu-Environmental tax,Regulation intensity and Labor demand-525.pdf

10:07am - 10:30am

Stimulating the Car Market at an Environmental Cost: Evidence from Fiscal Stimulus in China

Xuan Wang

University of Michigan, United States of America

Stimulating durable goods purchases is especially crucial during recessions and many stimulus policies target environmental-friendly products. However, there is little evidence on the consequences of these policies, both in terms of stimulus and environmental impact. We seek such evidence by evaluating important recent fiscal stimulus programs in the Chinese passenger car market: tax holidays and cash subsidies for the purchase of new small engine cars. This paper shows the impact of tax incentives using national administrative car registration data from the years 2005-2018. The results show that a one percentage point sales tax decrease increases the total sales of targeted small cars by about 3.2% and decreases sales of their substitutes, cars with slightly larger sized engines, by 3.9%. Overall, the stimulus effect dominates the substitution effect.

Wang-Stimulating the Car Market at an Environmental Cost-478.pdf
9:00am - 10:30amH07: Filing, Amnesties and Enforcement
9:00am - 9:22am

Tax Enforcement, Revenue and Informality

Prakriti Joshi1, Debasis Mondal2

1IIT Delhi, India; 2IIT Delhi, India

In this paper, we explore the relationship between informality, tax enforcement and tax revenue. Previous studies have explored the relationship between taxes and the size of the informal sector and have observed a monotonic relation between the two. However, on observing the data of developing countries, we find that the relationship between the size of the informal sector and the tax rate is non-monotonic, inverted-U shape in nature. In this paper, we build a theoretical framework involving government expenditure of tax revenue in the form of productive public services and tax enforcement which allows us to unravel the correlation between the size of the informal sector and taxes. Our numerical results suggest that as tax rates increase in a developing economy, the informal sector grows initially and then begins to shrink because of the interplay between tax enforcement and tax rates.

Joshi-Tax Enforcement, Revenue and Informality-527.pdf

9:22am - 9:45am

Optional (Non-)Filing and Effective Taxation

Tobias Hauck, Luisa Wallossek

LMU Munich, Germany

Tax non-filing is legal in more than thirty countries worldwide. Using German administrative tax data, we examine the effect of such optional (non-)filing systems: Low-income taxpayers are both more likely not to file and to over-remit taxes, aggregating to total over-remittances of 950 million € in 2014. Because low-income non-filers face higher effective average tax rates than foreseen by the schedule, this reduces the effective tax progressivity. Non-filing also increases effective marginal tax rates which imposes distortionary effects for non-filers with no effects on other taxpayers, leading to unexploited tax revenue potential. We use two reform proposals to quantify this potential.

Hauck-Optional (Non-)Filing and Effective Taxation-453.pdf

9:45am - 10:07am

Tax Evasion and Forgiveness

Himawan Saputro

University of Kentucky, United States of America

This paper studies the determinants of tax evasion and the compliance impacts of forgiving tax evaders using the 2016 Indonesian tax amnesty program where the government offers a set of discounted tax rates and penalties exemption on declaration of unreported net assets as an equivalent of unreported income. I document that intensity in withholding tax, level of reported income, and types of employment influence the decision to evade taxes. The result is consistent with the argument that external factors motivate tax compliance. I further compare reported income between wage earners and self-employed individuals in each of income percentile before and after the amnesty and find that the program provides no meaningful effect except limitedly to those in the very top of income distribution, e.g., around 6.1 percent increase in reported net income. This limited impact may be driven by the Indonesian size-based tax administration.

Saputro-Tax Evasion and Forgiveness-523.pdf

10:07am - 10:30am

How to Make Multinational Automatic Information Exchange on Financial Account Data Work

Elisa Casi-Eberhard1, Jakob Miethe2, Barbara Stage3

1Norwegian School of Economics (NHH), Norway; 2University of Munich (LMU), Germany; 3ZEW Mannheim & University of Mannheim, Germany

The last decade has seen an unprecedented surge in international cooperation to reduce international tax evasion via tax havens. The most recent initiatives to target individual tax evasion implement automatic exchange of financial accounts information across countries - with the introduction of FATCA and the CRS. We study whether these two existing systems lead to different tax evader reaction. Employing bilateral data on cross-border deposits, we find that tax evaders’ reaction to FATCA is significantly stronger than the CRS one. We hypothesize that a crucial difference between FATCA and the CRS, which determines the success of the former,

is how the two systems deal with an important agency problem that arises in the context of international tax evasion via financial intermediaries.

Casi-Eberhard-How to Make Multinational Automatic Information Exchange-421.pdf
10:45am - 12:15pmJ01: COVID-19 and Behavior
10:45am - 11:07am

Calamities, Common Interests, Shared Identity: What Shapes Altruism and Reciprocity?

Cevat Giray Aksoy1, Antonio Cabrales2, Mathias Dolls3, Ruben Durante4, Lisa Windsteiger5

1European Bank for Reconstruction and Development; 2Universidad Carlos III de Madrid; 3ifo Institute, Germany; 4ICREA, UPF, Barcelona School of Economics; 5Max Planck Institute for Tax Law and Public Finance

We conduct a large-scale survey experiment in nine European countries to study how priming a major crisis (COVID-19), common economic interests, and a shared identity influences altruism, reciprocity and trust of EU citizens. We find that priming the COVID-19 pandemic increases altruism and reciprocity towards compatriots, citizens of other EU countries, and non-EU citizens. Priming common European values also boosts altruism and reciprocity but only towards compatriots and fellow Europeans. Priming common economic interests has no tangible impact on behaviour. Trust in others is not affected by any treatment. Our results are consistent with the parochial altruism hypothesis, which asserts that because altruism arises out of inter-group conflict, humans show a tendency to favor members of their own groups.

Aksoy-Calamities, Common Interests, Shared Identity-221.pdf

11:07am - 11:30am

Economic Sentiment During the COVID Pandemic: Evidence from Search Behaviour in the EU

Wouter van der Wielen, Salvador Barrios

European Commission, Joint Research Centre, Spain

The COVID-19 pandemic has inflicted an economic hardship unprecedented for the modern age. In this paper, we show that the health crisis and ensuing lockdown, came with an unseen shift in households' economic sentiment. First, using a European dataset of country-level and regional internet searches, we document a substantial increase in people's business cycle related searches in the months following the coronavirus outbreak. People's unemployment concerns jumped to levels well-above those during the Great Recession. Second, we observe a significant, coinciding slowdown in labour markets and consumption. Third, our analysis shows that the ensuing shift in sentiment was significantly more outspoken in those EU countries hit hardest in economic terms. Finally, we show that unprecedented fiscal policy actions, such as the short-time work schemes implemented or reformed at the onset of the COVID-crisis, however, have not eased economic sentiment.

van der Wielen-Economic Sentiment During the COVID Pandemic-217.pdf

11:30am - 11:52am

News Framing and Policy Support During the COVID-19 Crisis: Evidence from a Survey Experiment

Patrick Bareinz, Fabian Koenings

University of Jena

We investigate the effect of how news outlets communicate macroeconomic information on policy support during the COVID-19 crisis. In our survey experiment based on a representative sample of 3000 individuals in Germany, respondents are exposed to an expert forecast of GDP growth. Individuals are randomly assigned to either receive no information, the baseline forecast information, or real-world frames of the same information used in newspaper articles. We find that in contrast to the baseline information, positive framing of forecasted economic growth by news outlets increases support for pandemic policy. This effect is especially pronounced for respondents with more pessimistic macroeconomic expectations. Further evidence suggests that negative economic news are perceived as more credible and hence less surprising in times of recession, not translating into a change in political opinion.

Bareinz-News Framing and Policy Support During the COVID-19 Crisis-415.pdf

11:52am - 12:15pm

The Impact of the COVID-19 on Japanese Firms: Mobility and Resilience via Remote Work

Daiji Kawaguchi1, Sagiri Kitao1, Manabu Nose1,2

1The University of Tokyo; 2The International Monetary Fund

Drawing on the original survey of Japanese firms during the COVID-19 pandemic, we estimate the impact of the crisis on firms' sales, employment and hours worked per employee and roles of Work-from-Home (WfH) arrangements in mitigating negative effects. We find that the lowered mobility significantly contracted firms' activities. On average, a 10% reduction in mobility reduced sales by 2.8% and hours worked by 2.1%, but did not affect employment. This muted employment response is consistent with limited changes in aggregate employment at the extensive margin during COVID-19 in Japan. We find that the adoption of WfH before COVID-19 mitigated the negative impact by 55% in terms of sales and by 35% in terms of hours worked. Adapting to the crisis environment by increasing the number of employees working from home is also found to moderately reduce the negative impact on sales and work hours.

Kawaguchi-The Impact of the COVID-19 on Japanese Firms-413.pdf
10:45am - 12:15pmJ02: Political Economy IV
10:45am - 11:07am

Read My Lips? Taxes and Elections

Clemens Fuest1,2,3, Klaus Gründler1,2,3, Niklas Potrafke1,2,3, Fabian Ruthardt1,2

1ifo Institute, Germany; 2University of Munich; 3CESifo

We examine how electoral motives influence tax reforms. We introduce a new quantitative harmonized index of tax reforms based on qualitative information of the IMF. Our sample includes 22 advanced and emerging market economies over the period 1960-2014. The results show that election-motivated politicians postponed tax rate increases to after elections. The increase in the overall tax rate index was around 0.24 standard deviations larger in post-election years than in other years. Politicians were especially active in increasing VAT tax rates and personal income tax rates after elections.

Fuest-Read My Lips Taxes and Elections-399.pdf

11:07am - 11:30am

The Effects of Public Disclosure by Politicians

Carina Neisser, Nils Wehrhöfer

University of Cologne, Germany

Starting in 2005, German federal MPs need to publish their outside earnings in a bracket system top-coded at 7,000 euro. In 2007, private was replaced by public disclosure (also retroactively to 2005) and these information can be accessed online. In 2013, more brackets were introduced such that earnings above 250,000 euro were now censored. First, we exploit both reforms to identify the causal effects of disclosure rules on politician’s earnings using administrative tax return data. It allows us to observe pre-reform income as well as using unaffected state MPs as a control group. Our results indicate that for the first reform the top-coding has the consequence of raising outside earnings, while the second reform (a higher degree of public disclosure) leads to a decrease in outside earnings. Second, we explicitly distinguish between the effects of private versus public disclosure and find no effect of private disclosure.

Neisser-The Effects of Public Disclosure by Politicians-378.pdf

11:30am - 11:52am

Electoral Commitment in Asymmetric Tax-competition Models

Yukihiro Nishimura1,2, Kimiko Terai3

1Osaka University, Japan; 2CESifo, Germany; 3Keio University, Japan

This study examines the political process of tax competition among asymmetric countries, highlighting the role of the commitment to the electoral promises. The median voters deliberately elect a delegate whose preferences differ from their own (strategic delegation), which is self-enforcing under symmetric countries. We first show that the outcome of strategic delegation is replicated when the candidates do not make binding campaign promises in both countries. We then amplify the model by adding the pre-election stage where the citizens choose whether the credibility of election promises is critical, through subscription numbers of newspapers and social media which determine the cost of betrayal of the proposed platforms (or the lack of the proposal). We then show that, depending on the type of asymmetries under consideration, sufficient asymmetry or sufficiently equal income distribution generates the commitment to the election campaign promises as the equilibrium outcome.

Nishimura-Electoral Commitment in Asymmetric Tax-competition Models-304.pdf

11:52am - 12:15pm

Incumbency and Expectations of Fiscal Rule Compliance: Evidence from Surveys of German Policy Makers

Friedrich Heinemann2, Eckhard Janeba1, Maximilian Todtenhaupt3

1University of Mannheim, Germany; 2ZEW Mannheim, Germany; 3Norwegian School of Economics (NHH), Norway

We analyze politicians’ expectations about compliance with a fiscal rule, and in particular the dependence of the expectations on their role in parliament (opposition vs. incumbent govern-ment coalition). We study these questions in the context of the German debt brake, which became a constitutional provision in 2009 but is binding for the sub-national states from 2020 onwards only. Via a unique survey, conducted in 2011/2012 and 2014/16, we observe compliance expectations of parliamentarians of all 16 German state parliaments, We find a strong incumbency effect, politicians from the governing coalition more optimistic than those from the opposition, and more so in the second survey. A theoretical model is developed to rational-ize the increasing incumbency effect, which is driven by assumptions on the cumulative repu-tation gain from fiscal rule compliance and on politicians’ subjective election winning chances (overoptimism).

Heinemann-Incumbency and Expectations of Fiscal Rule Compliance-461.pdf
10:45am - 12:15pmJ03: Local Government Expenditure
10:45am - 11:07am

Economies of Scope and Local Government Expenditure: Evidence from Creation of Specially Authorized Cities in Japan

Takeshi Miyazaki

Kyushu University, Japan

This study uses difference-in-differences (DID) analysis and the event study method to estimate the impact on expenditure of the designation of cities as either core cities or special case cities, thereby giving them the authority to undertake a wider range of activities, and identify the magnitude of the economies of scope in local governments using panel data for Japanese municipalities during the period 1996–2015. The findings of this research are summarized as follows. First, in the provision of public services by general-local governments, economies of scope do not occur in the short term (2–3 years), but do appear in the mid to long term (more than 5 years for core city status). After the delegation of duties, per capita expenditure for core cities increases by 2.8% immediately after the designation, but then decreases by 0.6% annually. Second, the wider the range of extra activities delegated, the greater the economies of scope.

Miyazaki-Economies of Scope and Local Government Expenditure-125.pdf

11:07am - 11:30am

Competition in Public Procurement: Evidence from Finland and Sweden

Kirsi-Maria Halonen1, Jan Jääskeläinen2, Janne Tukiainen3

1University of Lapland, Finland; 2Aalto University, Finland; 3University of Turku, Finland

We study the extent and determinants of competition and its role in determining prices in public procurement using uniquely comprehensive and rich data from Finland and Sweden. We supplement our study with qualitative interviews. Competition is extremely low in both countries. All regions and contracting authority types, and most industries face the issue. Moreover, bidders typically are heterogeneous in size, which likely limits competition further. Competition seems to work as expected as (standardized) prices decrease with the number of actual and potential bidders. The perceived reasons for lack of competition are many and vary across industries but are typically related to communication practices and professionalism in public procurement. Accordingly, we show using contracting authority office level norms as instrumental variables that the use of scoring auctions is detrimental to competition, especially in industries where their use is not typical. Bidder friendly dialog, strategies and practices are proposed as remedies.

Halonen-Competition in Public Procurement-210.pdf

11:30am - 11:52am

Ecological Fiscal Transfers And Local Government Spending: The Flypaper Effects In The Era Of Pandemic

Amandeep Kaur, Ranjan Kumar Mohanty, Lekha Chakraborty, Divy Rangan

NIPFP, India

Against the backdrop of covid pandemic, the paper explores the empirical evidence for flypaper effects in the ecological fiscal space in India. Using the panel data models, we analyse whether the impact of intergovernmental fiscal transfers or state’s own revenue determines the expenditure commitments on ecology at the State level. The econometric analysis shows that the aggregate intergovernmental fiscal transfers rather than state’s own income determines the ecological expenditure at subnational government levels. The evidence for efficacy of flypaper effects either stem from bureaucratic fiscal behaviour or the fiscal illusion of the economic agents about the exogeneity of ecological fiscal space. The results hold, when the models are controlled for ecological outcomes and demographic variables. However, at the disaggregated levels of intergovernmental fiscal transfers - grants and tax devolution - the evidence for flypaper effects, is mixed.

Kaur-Ecological Fiscal Transfers And Local Government Spending-481.pdf

11:52am - 12:15pm

Charitable Giving, Tax Reform, and Self-selection of Tax Relief: Evidence from South Korea

Hiroki Kato1, Tsuyoshi Goto2, Youngrok Kim3

1Osaka University, Japan; 2Chiba University, Japan; 3Kobe University, Japan

This paper investigates the price elasticity of charitable giving utilizing South Korean tax reform in 2014, when the tax relief on charitable giving changed from tax deduction to tax credit. Although many research on the price elasticity of charitable giving implicitly assume that all of tax payers declare their tax relief on charitable giving, this paper considers the existence of declaration cost for tax reliefs on charitable giving. By estimating the "intension-to-treat" effect (ITT) of tax reform. Furthermore, considering the declaration of charitable giving and exploiting the different declaration cost between wage earners and self-employed workers as instrument variable (IV), we estimate the effect of "effective" giving price on the donation. As a result, we find that the giving price elasticity is about -1 in terms of both intensive and extensive margins.

Kato-Charitable Giving, Tax Reform, and Self-selection-369.pdf
10:45am - 12:15pmJ04: The Super Rich
10:45am - 11:07am

Political Connections and the Super-Rich in Poland

Katarzyna Salach, Michal Brzezinski

University of Warsaw, Poland

We study the impact of political connections of the richest Poles on their wealth level, mobility among the rich and the risk of dropping off the rich list. We use newly collected original panel data (2002-2018) and we find that political connections are not associated with the wealth level of Polish multimillionaires, but that they are linked to the 20-30% lower probability of upward mobility in the ranking of the rich. Moreover, being a former member of the communist party or secret police informant increases the risk of dropping off the rich list by almost 80%. Our results show that, contrary to some other post-socialist countries such as Russia or Ukraine, there is little evidence that the Polish economy suffers from crony capitalism.

Salach-Political Connections and the Super-Rich in Poland-165.pdf

11:07am - 11:30am

Tracking the Super-Rich Using Rich Lists: First-Time Evidence from Switzerland

Enea Baselgia1, Isabel Z. Martinez2

1University of St.Gallen, Switzerland; 2ETH Zurich, Switzerland

We collect, digitize, and supplement the Swiss rich list for the years 1989-2020 published in the “Bilanz” magazine to gain new insights on the structure and dynamics of top wealth in Switzerland. We shed light on the characteristics of the super-rich in Switzerland, which was not possible in prior research based on tax data. We further provide new evidence on the wealth mobility of the super-rich in Switzerland, finding that mobility has declined significantly over the past decade. Inheritances are still the main factor in making it to the very top of wealth distribution. Finally, we estimate the top 0.01% wealth share. Our results suggest that in Switzerland wealth concentration at the top is likely somewhat higher than previously assumed, highlighting the central role of foreigners and, in particular, wealthy expenditure-based taxpayers at the very top of the distribution.

Baselgia-Tracking the Super-Rich Using Rich Lists-466.pdf

11:30am - 11:52am

On Top of the Top: Adjusting Wealth Distributions Using National Rich-Lists

Franziska Disslbacher1,2, Michael Ertl2, Emanuel List1,3, Patrick Mokre2,4, Matthias Schnetzer2

1Vienna University of Economics and Business, Austria; 2Vienna Chamber of Labour; 3Macroeconomic Policy Institute (IMK); 4New School for Social Research

The richest are missing in wealth surveys. Recent attempts to mitigate resulting troubles in the tail combine survey data with rich-lists and estimate a parametric model, most notably the Pareto distribution, for the tail. The literature until now would rely on ad-hoc assumptions or visual inspection for one or the other steps in parameter estimation. This paper combines the most recent contributions to the parametric estimation of heavy tailed distributions into a unified regression approach for the joint estimation of all parameters of the Pareto distribution, as well as the more flexible Generalized Pareto distribution. We apply this transparent and flexible quasi-algorithmic procedure to 14 Eurozone countries and estimate the wealth shares of the top percentiles. This is based on a combination of the most comprehensive collection of journalistic evidence on the richest households from national publications (“rich lists”) and survey data from the Household Finance and Consumption Survey (HFCS).

Disslbacher-On Top of the Top-504.pdf

11:52am - 12:15pm

How Wealthy Are the Rich?

Jan Schulz1,2, Mishael Milakovic1

1Economics Department, University of Bamberg, Germany; 2Bamberg Doctoral Research Group on Behavioral Macroeconomics (BaGBeM)

Underreporting and undersampling biases in top tail wealth, although widely acknowledged, have not been statistically quantified so far, essentially because they are not readily observable. Here we exploit the functional form of power law-like regimes in top tail wealth to derive analytical expressions for these biases, and employ German microdata from a popular survey and rich list to illustrate that tiny differences in non-response rates lead to tail wealth estimates that differ by an order of magnitude, in our case ranging from one to nine trillion euros. Underreporting seriously compounds the problem, and we find that the estimation of totals in scale-free systems oftentimes tends to be spurious. Our findings also suggest that recent debates on the existence of scale- or type-dependence in returns to wealth are ill-posed because the available data cannot discriminate between scale- or type-dependence on the one hand, and statistical biases on the other.

Schulz-How Wealthy Are the Rich-166.pdf
10:45am - 12:15pmJ05: Environmental Economics I
10:45am - 11:07am

The Effect of Weather on the Spread of SARS-CoV-2 and the Mediation Role of Social Behaviour

Simone Ferro1, Chiara Serra2

1University of Milan, Queen Mary University of London; 2European University Institute

We combine mobile locations, weather data, and COVID-19 confirmed cases in a two-way fixed effects mediation model to estimate the causal impact of weather on the COVID-19 infection rate in the United States, disentangling its direct impact from the indirect effect via the endogenous response of social activity. We show that, while temperature has a negative impact on viral infectiousness, it also increases the amount of time individuals spend out of home, which favouring the spread of the virus offsets half of the potential beneficial effect of temperature. Estimates are robust to an alternative definition of social activity based on the number of visits to indoor venues. This suggests that our results are not driven by reduced indoor activity on warmer days, leaving a biological effect of temperature on the virus as the most probable mechanism. Finally, our estimates show that school closures and lockdowns are effective in reducing infections.

Ferro-The Effect of Weather on the Spread of SARS-CoV-2 and the Mediation Role of Social Behaviour-388.pdf

11:07am - 11:30am

Toxic Heavy Metal Injustice? Early Life Conditions and Proximity to Contamination

Oscar Erixson1, Linuz Aggeborn2, Mattias Öhman3, Jenny Jans4

1Uppsala University, Sweden; 2Uppsala University, Sweden; 3Uppsala University, Sweden; 4Stockholm University, Sweden

We study toxic heavy metals and ask whether proximity to contamination is unequally distributed in the population at the time of birth. To answer this question, we employ registry data from Sweden together with air pollution data from moss samples for the years 1995–2015. We find that the overall level of toxic heavy metals in the environmenthas substantially decreased during these years. At the same time, economic inequalitieshave, in contrast, increased. Finally, we find that closeness to contamination is weaklycorrelated with socioeconomic status at birth and with perinatal health endowment. Weconclude that there are no clear evidences of substantial environmental injustice withregards to toxic heavy metal contamination.

Erixson-Toxic Heavy Metal Injustice Early Life Conditions and Proximity-513.pdf

11:30am - 11:52am

Climate Adaptation Policies and Infant Health: Evidence from a Water Policy in Brazil

Daniel Da Mata1, Lucas Emanuel2, Vitor Pereira3, Breno Sampaio2

1Sao Paulo School of Economics - FGV, Brazil; 2Universidade Federal de Pernambuco; 3National School of Public Administration - ENAP

This paper studies how in utero exposure to a large-size climate adaptation program affects birth outcomes. The program built about one million cisterns in Brazil's poorest and driest region to promote small-scale decentralized rainfall harvesting. Access to cisterns during early pregnancy increased birth weight, particularly for more educated women. Data suggest that more educated women complied more with the program's water disinfection training, highlighting that even simple, low-cost technologies require final users' compliance ("the last-mile") to be effective. In the context of growing water scarcity, our findings suggest that adaptation policies can foster a predictor of future individual outcomes.

Da Mata-Climate Adaptation Policies and Infant Health-516.pdf

11:52am - 12:15pm

Impact of Natural Disasters on the Income Distribution

Regina Pleninger

ETH Zurich, Switzerland

During the last decades, the United States experienced an increase in the number of natural disasters and their destructive capability. Several studies suggest a damaging effect of natural disasters on income. In this paper, I estimate the effects of natural disasters on the entire income distribution using county-level data in the United States. In particular, I determine the income fractions that are affected by natural disasters. The results suggest that in the short-term natural disasters primarily affect middle incomes, thereby leaving income inequality levels unchanged. In addition, the paper examines potential channels that intensify or mitigate the effects, such as unemployment insurance or the severity of natural disasters. The findings show that unemployment benefits and migration are important adaptation tools that reduce the effects of natural disasters. In contrast, the occurrence of multiple and severe disasters aggravate the effects. Finally, the analysis detects heterogeneous effects on incomes by disaster type.

Pleninger-Impact of Natural Disasters on the Income Distribution-259.pdf
10:45am - 12:15pmJ06: Gender Pay Gap
10:45am - 11:07am

The Smarter, the Richer? Distributional Analysis of Gender Gaps in Wages and Skills

Michele Battisti1, Alexandra Fedorets2, Lavinia Kinne3

1University of Glasgow; 2German Institute for Economic Research (DIW Berlin); 3ifo Institute, Germany

For many different definitions of skills, higher skill levels relate to higher wages. We study the gender-specific patterns in distributions of numeracy measured by standardized tests in the international PIAAC survey. We confirm that higher numeracy levels relate to higher wage returns. However, women with top-numeracy levels experience a skill penalty among the top earners, compared to men with same numeracy levels, which points at the existing glass ceiling. Factors that explain high numeracy levels are also gender-specific: in particular, child care and labor market attainment explain why women are underrepresented at the highest numeracy level.

Battisti-The Smarter, the Richer Distributional Analysis of Gender Gaps-408.pdf

11:07am - 11:30am

The Effect Of Childcare On Parental Earnings Trajectories

Matthias Krapf1, Anja Roth2, Michaela Slotwinski2

1University of Lausanne, Switzerland; 2University of Basel, Switzerland

We study the effect of institutional childcare on child penalties. Using Swiss administrative data, we exploit the staggered opening of childcare facilities across municipalities in the canton of Bern. We find that the presence of childcare facilities in the year of birth of the first child reduces the child penalty. The availability of childcare increases maternal earnings and decreases the compensating increase in fathers’ earnings in households with below median earnings, but not in households with above median earnings. Although childcare affects relative earnings contributions within the household, there is no effect on total household earnings.

Krapf-The Effect Of Childcare On Parental Earnings Trajectories-216.pdf

11:30am - 11:52am

Early Career, Life-Cycle Choices, and Gender

Frederik Plesner Lyngse1, Torben Heien Nielsen1, Itzik Fadlon2

1University of Copenhagen, Denmark; 2University of California, San Diego

Do early labor market experiences determine longer-run life and career outcomes, and do they operate differentially for males and females? We study this question in the context of the physician labor market by exploiting a randomized lottery that determines the sorting of Danish physicians into internships, where students with bad lottery numbers end up assigned to less desirable local labor markets and entry-level jobs. Using administrative data that span up to ten years after physicians’ graduations, we study key decisions that determine their longer-run life trajectories. We find causal effects of early-career labor market sorting on a range of life-cycle outcomes that cascade from longer-run labor market sorting, to human capital accumulation, to occupational choice, and even to fertility. Notably, we find that the persistent longer-run effects are entirely driven by females, whereas males experience only temporary career disruptions from unfavorable early-stage sorting.

Lyngse-Early Career, Life-Cycle Choices, and Gender-437.pdf
10:45am - 12:15pmJ07: OECD Base Erosion and Profit Shifting Report

Tax Challenges Arising from Digitalisation – Chapter 2: Revenue Effects Pillar One

David Bradbury1, Ana Cinta Gonzalez Cabral1, Tibor Paul Hanappi1, Asa Johansson1, Valentine Millot1, Pierce O'Reilly1, Stephane Sorbe2, Sebastien Turban1

1OECD, France; 2Direction générale du Trésor, France

This report analyses the economic and tax revenue implications of the Pillar One and Pillar Two proposals currently being discussed by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) as part of its work to address the tax challenges arising from the digitalisation of the economy.

The report focuses primarily on the impact of the proposals on tax revenues, MNE investment and economic activity. This chapter (Chapter 2) focusses on the tax revenue effects of Pillar One.

Bradbury-Tax Challenges Arising from Digitalisation – Chapter 2-536.pdf

Tax Challenges Arising from Digitalisation – Chapter 3: Revenue Effects Pillar Two

David Bradbury1, Ana Cinta Gonzalez Cabral1, Tibor Paul Hanappi1, Asa Johansson1, Valentine Millot1, Pierce O'Reilly1, Stephane Sorbe2, Sebastien Turban1

1OECD, France; 2Direction générale du Trésor, France

This report analyses the economic and tax revenue implications of the Pillar One and Pillar Two proposals currently being discussed by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) as part of its work to address the tax challenges arising from the digitalisation of the economy.

The report focuses primarily on the impact of the proposals on tax revenues, MNE investment and economic activity. This chapter (Chapter 3) focuses on the tax revenue effects of Pillar Two.

Bradbury-Tax Challenges Arising from Digitalisation – Chapter 3-538.pdf

Tax Challenges Arising from Digitalisation – Chapter 5: Construction of Underlying Datasets

David Bradbury1, Ana Cinta Gonzalez Cabral1, Tibor Paul Hanappi1, Asa Johansson1, Valentine Millot1, Pierce O'Reilly1, Stephane Sorbe2, Sebastien Turban1

1OECD, France; 2Direction générale du Trésor, France

This report analyses the economic and tax revenue implications of the Pillar One and Pillar Two proposals currently being discussed by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) as part of its work to address the tax challenges arising from the digitalisation of the economy.

The report focuses primarily on the impact of the proposals on tax revenues, MNE investment and economic activity. This chapter (Chapter 1) describes the construction of the data matrices underpinning the analyses presented in the other chapters.

Bradbury-Tax Challenges Arising from Digitalisation – Chapter 5-541.pdf

Tax Challenges Arising from Digitalisation – Chapter 4: Investment Effects of Pillar One and Pillar Two

David Bradbury1, Ana Cinta Gonzalez Cabral1, Tibor Paul Hanappi1, Asa Johansson1, Valentine Millot1, Pierce O'Reilly1, Stephane Sorbe2, Sebastien Turban1

1OECD, France; 2Direction générale du Trésor, France

This report analyses the economic and tax revenue implications of the Pillar One and Pillar Two proposals currently being discussed by the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) as part of its work to address the tax challenges arising from the digitalisation of the economy.

The report focuses primarily on the impact of the proposals on tax revenues, MNE investment and economic activity. This chapter (Chapter 4) discusses the effect of both pillars on investment and economic activity.

Bradbury-Tax Challenges Arising from Digitalisation – Chapter 4-540.pdf
12:30pm - 2:00pmK01: Environmental Economics II
12:30pm - 12:52pm

Regulating Conglomerates: Evidence from an Energy Conservation Program in China

Juan Carlos Suarez Serrato

Duke University, United States of America

How does energy regulation affect production and energy use within conglomerates? We study the effects of a prominent program aimed at reducing the energy use of large Chinese companies. Difference-in-differences analyses show that regulated firms significantly reduced their energy consumption and output but did not increase their energy efficiency. Using detailed business registration data, we link regulated firms to non-regulated firms that are part of the same conglomerate. We estimate large spillovers on cross-owned non-regulated firms, which increased both output and energy use. We then specify and calibrate a model of conglomerate production that fits our setting and the estimated effects of the regulation. The model quantifies the importance of conglomerate reallocation for aggregate outcomes, the shadow cost of the regulation, and the efficiency gains from using public information on business networks to improve the design of energy regulation.

Suarez Serrato-Regulating Conglomerates-365.pdf

12:52pm - 1:15pm

Minimum Quality Standards and Exports

Laura Birg2, Jan S. Voßwinkel1

1NGU | Nürtingen-Geislingen University, Germany; 2University of Bremen, Germany

This paper studies the interaction of a minimum quality standard and exports in a vertical product differentiation model when firms sell global products. If ex ante quality of foreign firms is lower (higher) than the quality of exporting firms, a mild minimum quality standard in the home market hinders (supports) exports. The minimum quality standard increases quality in both markets. A welfare maximizing minimum quality standard is always lower under trade than under autarky. A Minimum quality standard reduces profits for the exporting firm. It increases domestic welfare, but reduces welfare in the export market.

Birg-Minimum Quality Standards and Exports-403.pdf

1:15pm - 1:37pm

Optimal Carbon Taxation and Horizontal Equity: A welfare-theoretic approach with application to German household data

Martin C. Hänsel1, Max Franks1,3, Matthias Kalkuhl2,4, Ottmar Edenhofer1,2,3

1Potsdam Institute for Climate Impact Research, Germany; 2Mercator Institute on Global Commons and Climate Change (MCC), Germany; 3Technische Universität Berlin, Germany; 4Faculty of Economics and Social Sciences, University of Potsdam, Germany

We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns. Within each income decile, households are heterogeneous in terms of how efficient an exogenous technology allows them to convert carbon-intensive energy into individual well-being. We then investigate how horizontal equity is considered in the economy's welfare maximizing tax structure by deriving first- and second-best policy rules. Further, we characterize optimal non-linear carbon taxes, which the government can use when individual households' energy efficiency is not directly observable. Subsequently, we apply our finding to empirical data on energy consumption in Germany to quantify optimal policies.

Hänsel-Optimal Carbon Taxation and Horizontal Equity-448.pdf

1:37pm - 2:00pm

Does Media Coverage Affect Governments’ Preparation for Natural Disasters?

Pierre Magontier

University of Bern, Switzerland

To prepare for natural disasters, local governments can adopt mitigation measures. However, in doing so, there is a trade-off between risk reduction and risk disclosure as these initiatives may signal latent dangers of a place to unsuspecting homebuyers. Increased media coverage may ease this trade-off by revealing these dormant risks. I develop a measure of newspaper coverage of storms using data on newspapers’ circulation and occurrence of storms at the ZIP code level in the United States. Using the variation in this measure, I identify the effects of heightened media attention on local governments’ mitigation efforts under the Hazard Mitigation Grant program managed by FEMA. I find that when newspaper coverage is high, jurisdictions that have experienced severe storms tend to implement significantly more mitigation projects. This effect appears to be driven by property investors seeking to maximize their investment’s value.

Magontier-Does Media Coverage Affect Governments’ Preparation-185.pdf
12:30pm - 2:00pmK02: Politics and Elections
12:30pm - 12:52pm

Bayesian Persuasion in Tax Competition

Erkin Sagiev

University of Essex, United Kingdom

Multinational enterprises form long value chains linking subsidiaries in a large number of countries. The latter may provide tax preferences distorting a fair distribution of profit between the subsidiaries. Such a support of profit shifting is elusive for other countries, because no government has a complete view of the global business activity. Hence, truthful communication becomes a chief concern in counteraction to harmful tax competition. To investigate this issue we model intergovernmental information exchange as sequential Bayesian persuasion. We demonstrate how communication promotes tax avoidance through a chain structure and show how countries take their roles in profit shifting schemes. The key outcome is that formal information exchange agreements do not prevent profit shifting but change its beneficiaries. We also argue that, zero-tax rate is not a distinct feature of the countries assisting tax avoidance, as we reveal the reasons for the coexistence of offshore financial centres with tax harbours.

Sagiev-Bayesian Persuasion in Tax Competition-297.pdf

12:52pm - 1:15pm

Political Devaluation? Lessons from Emancipating Women in Politics

Anna Koukal1,2, Stephanie Fürer1,2, Jonathan Massonnets1,2

1University of Fribourg; 2Swiss Distance University Institut

In the last century, women conquered both many professions and the political sphere. However, research on the effects of feminization has mainly focused on labor market outcomes. According to the devaluation hypothesis, professions experiencing an inflow of female workers are devalued in pay and status because of the lower value attributed to women's work. Analyzing the staggered introduction of female enfranchisement in Switzerland, we find a similar pattern for the political sphere. Our results provides evidence that men attach less value to politics after women enter the political sphere, resulting in a drop of male voter turnout by around 2 percentage points in elections and around 4 percentage point in referendums. This effect is more pronounced under direct democracy and in an environment initially opposing female enfranchisement.

Koukal-Political Devaluation Lessons from Emancipating Women-412.pdf

1:15pm - 1:37pm

1 Political Cycles and Yardstick Competition in the Recycling of Waste. Evidence from Italian Provinces

Massimiliano Ferraresi1, Massimiliano Mazzanti2, Matteo Mazzarano2, Leonzio Rizzo2, Riccardo Secomandi2

1European Commission, Joint Research Centre (JRC); 2University of Ferrara

Recycling and the recovery of waste are crucial waste management strategies. In light of the new EU circular economy approach, these strategies remain core pillars of a competitive and sustainable waste value chain. Local governments have an important role in controlling and checking the implementation of waste management policies. We study the spatial determinants of waste recovery by using a dataset of 102 Italian provinces from the years 2001-2014. We exploit the political cycle of the provinces to isolate the effects of waste recovery in one province on neighboring provinces. We find that provinces mimic their own neighbors’ in the separate collection of waste aimed at recycling and recovery, with this effect being fully guided by provinces where the president can run for re-election but only when waste management policies become politically salient, that is, after the transposition of the 2008 EU Waste Framework Directive.

Ferraresi-1 Political Cycles and Yardstick Competition in the Recycling-400.pdf

1:37pm - 2:00pm

Blaming Migrants Doesn’t (Always) Pay: The Political Effects Of Immigration During A Pandemic

Boldrini Michela1, Pierluigi Conzo2, Roberto Zotti3

1University of Torino, Italy; 2University of Torino & Collegio Carlo Alberto, Italy; 3University of Torino, Italy

The paper studies the political effects of the Ebola outbreak in 2014 on local electoral competitions in Italy, exploiting the exogeneity of the virus to the Italian socio-political and economic context. Despite the very limited number of actual Ebola cases in Italy, the outbreak of Ebola caused a major public reaction. We exploit two sources of exogenous variation, i.e. refugee landings and the year of local elections. We create a measure of exposure that varies over time and across municipalities depending on the local share of immigrants having the same nationality as the refugees arrived at Italian ports in a given year and use it in a Difference-in-Differences approach with a continuous treatment. Consistent with ‘rally round the flag’ hypothesis, we find that risk-Ebola immigration reduced the political consensus to radical and populist parties, while it increased the likelihood that incumbents were re-elected.

Michela-Blaming Migrants Doesn’t-484.pdf
12:30pm - 2:00pmK03: Capital Taxes
12:30pm - 12:52pm

Permanent and Transitory Responses to Capital Gains Taxes: Evidence from a Lifetime Exemption in Canada

Adam Lavecchia1, Alisa Tazhitdinova2

1McMaster University; 2University of California, Santa Barbara

Using panel data on a 20% random sample of Canadian taxpayers, we study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. The unique setting allows us to distinguish between short-term avoidance responses and permanent responses to capital gains taxes. We show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. However, the exemption cancellation slightly increased capital gains realizations of the existing traders.

Lavecchia-Permanent and Transitory Responses to Capital Gains Taxes-206.pdf

12:52pm - 1:15pm

The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

Ole Agersnap, Owen Zidar

Princeton University, United States of America

This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the US state level, and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent.

Agersnap-The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates-200.pdf

1:15pm - 1:37pm

Estimating the Laffer Tax Rate on Capital Income: Cross-base Responses Matters

Marie-Noëlle Lefebvre1, Etienne Lehmann1, Michael Sicsic1,2

1CRED(TEPP), Université Paris II Panthéon-Assas, France; 2Insee

We derive a formula to estimate the Laffer tax rates on capital income. Our theory clarifies what sufficient statistics need to be estimated: the "direct" elasticity of capital income and the "cross" elasticity of labor income with respect to the net-of-tax rate on capital income. We estimate these elasticities using reforms between 2008 and 2017 in France. We obtain a direct elasticity around 0.66, wich alone, would lead to a Laffer rate around 60%. However, since labor incomes are much larger than capital incomes, the Laffer tax rate is especially sensitive to the cross elasticity. We estimate this cross elasticity to be positive in France, which contradicts micro-foundations of this cross elasticity that relies on income shifting but which is in line with micro-foundations from two-period labor and savings models. Our estimate for the cross base elasticity dramatically decreases the Laffer rate which can be reduced down to 20%.

Lefebvre-Estimating the Laffer Tax Rate on Capital Income-336.pdf

1:37pm - 2:00pm

The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule

Zachary Liscow1, Edward Fox2

1Yale University, United States of America; 2University of Michigan, United States of America

The realization rule is central to income taxation, but often decreases the efficiency, equity, and simplicity of taxation. So it is surprising that we do not have a good explanation for why the rule exists for liquid assets. Scholars have long speculated about the role of the public’s views here, but little is known empirically about them. We conduct the first survey experiment to understand the psychology of taxing gains on unsold assets. We have three main findings. First, respondents are far less supportive of taxing gains in unsold publicly-traded stock than sold stock. Second, informing people of the arguments on “both sides” of taxing unsold stock considerably decreases support (by 19 percentage points) for taxing unsold stock. And, third, addressing respondents’ stated reasons for opposing taxing unsold gains does not change their mind, suggesting that a deep intuition, perhaps driven by mental accounting, may be driving respondents’ opposition.

Liscow-The Psychology of Taxing Capital Income-548.pdf
12:30pm - 2:00pmK04: Wealth Tax
12:30pm - 12:52pm

Does a Wealth Tax Improve Equality of Opportunity?

Kristoffer Berg1, Shafik Hebous2

1University of Oslo, Norway; 2International Monetary Fund, USA

Does parental wealth inequality impact next generation \emph{wage} inequality? Does a tax on parental wealth affect the labor income distribution of the next generation? We tackle both questions empirically using detailed intergenerational data from Norway. Results suggest that a net wealth of NOK 1 million increases wages of the children by NOK 14,000---controlling for individual and parents' characteristics such as the level of education. Children of wealthy parents have a higher \emph{labor} income mobility. The estimated hypothetical wage distribution without the wealth tax is more unequal. Moreover, suggestive evidence indicates parental wealth is associated with higher returns to labor.

Berg-Does a Wealth Tax Improve Equality of Opportunity-292.pdf

12:52pm - 1:15pm

Joint Taxation of Income and Wealth

Mehmet Ayaz, Dominik Sachs

LMU Munich

Empirically, income and wealth are positively correlated. A ‘tagging’ logic implies that taxing wealth more strongly for individuals with high income would be desirable. However, wealth and income are both endogenous variables and the simple tagging logic needs to be extended to account for this. If e.g., wealth taxes are increased only for individuals that earn more than $100,000, this creates two distortions: not only the wealth accumulation margin gets distorted, but also the labor earnings margin for those that earn around $100,000. We derive formulas for the excess burden and the welfare effects of such joints reforms and calibrate them to the U.S. Our first preliminary findings indicate that taxing wealth more progressively for individuals with high income is desirable despite the ‘double distortion’ it implies.

Ayaz-Joint Taxation of Income and Wealth-515.pdf

1:15pm - 1:37pm

Public support for wealth tax policies in Covid-19 times: Evidence from Luxembourg

Javier Olivera1, Philippe Van Kerm2

1Luxembourg Institute of Socio-Economic Research, Luxembourg; 2University of Luxembourg

In the context of the current debate over how to finance the cost of the Covid-19 pandemic, we study the public support for the introduction of wealth taxes. We rely on data drawn from the Socio-Economic Impact Survey of Luxembourg taken in July 2020. The survey asks for the agreement of the individual over a one-time net wealth tax and an inheritance tax. For comparative reasons, the survey also inquires about the public support for a temporal solidarity income tax and a temporal increase in the VAT. All tax questions include different attributes randomly assigned to the individual. We find a clear divide about a favourable support for new wealth and inheritance taxes on the one hand and a low support for increases in VAT and earnings taxes on the other hand. Our results indicate that a one-time wealth tax could raise substantial revenues and still show public support.

Olivera-Public support for wealth tax policies in Covid-19 times-510.pdf
12:30pm - 2:00pmK05: Tax Incidence
12:30pm - 12:52pm

The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail

Clemens Fuest1,2, Florian Neumeier1,2, Daniel Stöhlker1

1ifo Institute, Germany; 2CESifo

On 1 July 2020, value added tax (VAT) rates were reduced in Germany to fight the economic consequences of the Corona pandemic. The VAT rate reduction is temporary, and rates will go up to their previous level on 1 January 2021. We study the price effects of the temporary VAT rate reduction in German supermarket retail using an extensive webscrapped data set covering the daily prices of roughly 190,000 products. To identify the causal price effects, we compare the development of prices in Germany to those in Austria.Our findings indicate a nearly full pass-through of the VAT rate reduction on prices. On average, prices in German supermarket retail decreased by 2% after the implementation of the VAT rate reduction. We also provide evidence that prices in more competitive product markets decreased to a larger extent.

Fuest-The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail-148.pdf

12:52pm - 1:15pm

Does VAT Remittance Invariance Hold? Evidence From E-Commerce

Giampaolo Arachi, Debora Assisi

University of Salento, Italy

This paper provides new evidence on the effect of tax remittance on tax incidence. We test whether the repeal of the reverse charge mechanism for a sample of items sold through has had any impact on their prices. The empirical analysis is performed using the Bayesian Structural time series method, as suggested by Brodersen et al. (2015) and extended by Schmitt et al. (2018). The causal impact of the policy change for each item in the dataset is computed by taking the difference between the treated series (observed) and the predicted counterfactual, which is the outcome that would have occurred had no intervention taken place. Finally, we infer the average effect of the repeal of the reverse charge using a fixed-effects meta-regression approach. The preliminary results shows that in the post-intervention period the prices applied by significantly increase.

Arachi-Does VAT Remittance Invariance Hold Evidence From E-Commerce-487.pdf

1:15pm - 1:37pm

Getting into the Weeds of Tax Invariance

Benjamin Hansen2, Kendall Houghton2, Keaton Miller2, Caroline Weber1

1University of Kentucky, United States of America; 2University of Oregon, United States of America

We provide the first general empirical test of tax invariance (TIV). When a 25 percent tax remitted by manufacturers was eliminated in Washington state and the retail cannabis excise tax was simultaneously increased from 25 to 37 percent---a shift intended to be revenue-neutral---TIV did not hold. Manufacturers kept two-thirds of their tax savings instead of passing all their savings through to retail firms via lower prices as predicted by TIV. One-third of the retail tax increase was passed on to consumers via higher retail prices -- TIV would have predicted constant or even declining tax-inclusive retail prices.

Hansen-Getting into the Weeds of Tax Invariance-361.pdf

1:37pm - 2:00pm

The Welfare Effects of Property Taxation

Max Löffler2, Sebastian Siegloch1

1ZEW and Uni Mannheim, Germany; 2Maastricht University

We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that welfare effects depend on a few estimable elasticities: the response of housing prices, labor and other types of incomes as well as public goods to property tax rates. Empirically, we exploit the unique institutional setting of municipal property taxation in Germany with and around 15,000~tax reforms in the years between 2000--2017. Our results shows that higher taxes are fully pass-though to rental prices after three years. The price pass-through is somewhat lower in municipalities with inelastic housing supply. Using these reduced form estimates and our theoretical framework, we simulate the welfare effects of property taxes and show that they are highly regressive with the tax burden decreasing in income.

Löffler-The Welfare Effects of Property Taxation-426.pdf
12:30pm - 2:00pmK06: Political Economy V
12:30pm - 12:52pm

Politicians’ Neighborhoods: Where do they Live and does it Matter?

Olle Folke1, Linna Martén2, Johanna Rickne2, Matz Dahlberg1

1Uppsala University, Sweden; 2Stockholm University, Sweden

We use detailed population-wide data on the location of politicians’ and citizens' homes as well as their socioeconomic traits. We combine this information with neighborhood-level data on building permits and proposals to close schools. A descriptive analysis uncovers two features of local politicians' home neighborhoods. First, they have larger shares of socio-economically advantaged people in terms of income, education, immigrant status, and homeownership. Second, they have more voters for their own party. Next, we analyze whether having politicians in a neighborhood reduces the likelihood that local public "bads'' are placed there. This analysis compares home neighborhoods for politicians with different degrees of political power (ruling majority or opposition) in elections that were close. We find negative effects on approved building permits for multifamily homes and proposals to close schools. This result is not explained by voters' residential patterns, which makes undue favoritism a more likely explanation.

Folke-Politicians’ Neighborhoods-537.pdf

12:52pm - 1:15pm

Pre-Electoral Coalitions: Insights into the Creation of Political Parties

Rafael Hortala-Vallve1, Jaakko Meriläinen2, Janne Tukiainen3,4

1London School of Economics and Political Science; 2Instituto Tecnológico Autónomo de México; 3University of Turku; 4VATT Institute for Economic Research

We evaluate the causes and consequences of pre-electoral coalitions (PECs). In Finland, local elections use a proportional representation system with open lists, and parties may form joint lists. We document that PECs are more common between parties of equal size and similar ideology, and when elections are more disproportional or involve more parties. Using both difference-in-differences and density discontinuity designs we document that voters punish coalescing parties, especially if they are ideologically diverse, and also respond to PECs by targeting personal votes strategically within the PECs. Moreover, small parties become more likely to acquire political leadership positions. Finally, PECs seem to be formed also with the particular purpose of influencing the overall distribution of political power: they lead to more dispersed seat distributions and prevent absolute majorities in close elections. Thus, voter ideology and electoral rules create natural boundaries for the parties, but the party formateurs also consider wider impacts.

Hortala-Vallve-Pre-Electoral Coalitions-234.pdf

1:15pm - 1:37pm

Term Limits: A New Political Scene or Business as Usual?

Catarina Alvarez1, Mariana Lopes da Fonseca2

1Nova School of Business and Economics, Portugal; 2University of St. Gallen

This study investigates empirically the selection effects of the introduction of term limits. That is, whether term limits, by creating more rotation in power, lead to the entry and selection of better politicians. Our contribution is twofold: we construct an extensive and unique dataset on Portuguese mayors' personal characteristics and we take advantage of a recent reform introducing mayoral term limits in Portugal to causally identify the impact on political selection. Our identification strategy relies on a difference-in-differences approach estimating how mayors' personal characteristics differ on average between municipalities with re-eligible and term-limited incumbents. The baseline results show that, after the reform, treated municipalities elected politicians older and with a past political career, on average. This suggests that before the implementation of term limits, being a mayor in Portugal could be considered as a career path, which one would start at a young age and with no previous political experience.

Alvarez-Term Limits-342.pdf

1:37pm - 2:00pm

Disastrous Discretion: Ambiguous Decision Situations Foster Political Favoritism

Stephan A. Schneider1, Sven Kunze2

1ETH Zürich, Switzerland; 2Heidelberg University

Allocation decisions are vulnerable to political influence, but it is unclear in which situations politicians use their discretionary power in a partisan manner. We analyze the allocation of presidential disaster declarations in the United States, exploiting the spatiotemporal randomness of all hurricane strikes from 1965-2018. We show that biased declaration behavior is not politically affordable if a disaster is either very strong or weak, when relief provision is clearly necessary or not. However, in ambiguous situations, after medium-intensity hurricanes, presidents favor areas governed by their co-partisans. Our nonlinear estimations demonstrate that this hump-shaped alignment bias exceeds average estimates up to eightfold.

Schneider-Disastrous Discretion-380.pdf
12:30pm - 2:00pmK07: Business Taxes
12:30pm - 12:52pm

Quantifying the OECD BEPS Indicators – An Update to BEPS Action 11

Daniel Klein2, Christopher Alexander Ludwig1,2, Katharina Nicolay1,2, Christoph Spengel2,1

1ZEW Mannheim; 2University of Mannheim

In 2015 the OECD introduced six indicators to quantify and evaluate base erosion and profit shifting (BEPS) activity over time. In this study, we revisit three selected indicators and point out potential pitfalls when interpreting the indicator results. First, we transparently replicate Indicator 1, which intends to assess the disconnect between financial and real economic activities, and show a moderately decreasing trend of the indicator estimates. Second, replicating Indicator 4, we find that multinational firms have, on average, lower effective tax rates than domestic firms. We confirm this result using a state-of-the-art propensity score matching approach. Third, the replication of Indicator 5, which intends to capture profit shifting through intangibles, shows a stable trend of the annual indicator estimates that extends beyond the OECD’s sample period. Overall, we conclude that the proposed indicators in the Final Report on BEPS Action 11 provide only limited information on the extent of BEPS.

Klein-Quantifying the OECD BEPS Indicators – An Update-208.pdf

12:52pm - 1:15pm

Tax Department Structure and Tax Avoidance

Henning Giese1,2, Reinald Koch1,2

1Catholic University Eichstaett-Ingolstadt, Germany; 2KU Research Institute for Taxation

Using a hand-collected data set for large European listed MNEs obtained from a major professional networking website, we investigate whether a centralized tax department leads to a more efficient tax management in terms of reducing tax liability and tax risk minimization. We report three key findings: (1) more centralized tax departments lead to an overall lower ETR but not to a lower tax risk; (2) employees working outside the home country are more frequently found in more tax complex countries; (3) the location of tax employees in tax complex countries reduces the overall tax risk. Our findings shed light on the internal working of the tax department and help explain variation in tax avoidance and tax risk behavior.

Giese-Tax Department Structure and Tax Avoidance-255.pdf

1:15pm - 1:37pm

Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates

Ben Lockwood1,2, Martin Simmler2, Eddy Tam2

1University of Warwick, United Kingdom; 2Oxford University, United Kingdom

We study the impact of commercial property taxation on vacancy rates in the UK using regression kink and regression discontinuity designs. We exploit exogenous variations in commercial property tax rates from three different reliefs in the UK business rates system: small business rate relief (SBRR), retail relief and empty property relief. A simple theoretical framework predicts: (i) relationships between rateable values and taxes, and vacancies; (ii) that SBRR has a sorting effect on the mix of businesses in small properties. Findings consistent with the theory suggest that SBRR increases the likelihood that a property is occupied by a small business, reduces the likelihood that it is occupied by a large business, and reduces the overall likelihood of being vacant. We estimate that the retail relief reduces vacancies by 48%, and SBRR relief by up to 44%.

Lockwood-Tax and Occupancy of Business Properties-343.pdf

1:37pm - 2:00pm

Does Nexus Pay Off? Quantitative Evaluation Of IP Box Regimes In Terms Of Location Attractiveness

Jessica Martina Mueller1, Daniela Steinbrenner2

1University of Mannheim, Germany; 2Centre for European Economic Research (ZEW), ZEW GmbH, Germany

In an international comparison, Germany's location attractiveness is low from the perspective of digital business models, whose core activities are the research and development of intangible assets. Our paper examines whether and in which form the introduction of an IP box into the German tax system is beneficial for the location attractiveness, especially comparing pre- and post-nexus perspectives. We describe the key features of IP box regimes and incorporate them into a forward-looking measure of the effective average tax rate, which is based on the Devereux and Griffith model. We show that introducing an IP box is a suitable instrument for reducing the effective tax burden in both the national and international case from a tax policy perspective. We find that even after the introduction of the modified nexus approach, there is considerable heterogeneity in the generosity of IP boxes based on the respective design features.

Mueller-Does Nexus Pay Off Quantitative Evaluation Of IP Box Regimes-279.pdf
2:15pm - 3:45pmL01: Optimal Taxation
2:15pm - 2:37pm

Tax Preferences and Optimal Income Taxation

Marcelo Arbex1, Enlinson Mattos2

1University of Windsor, Canada; 2São Paulo School of Economics, Fundacão Getulio Vargas

We develop a two-agent model where agents have preferences over consumption, leisure, and independent and interdependent tax preferences. We characterize the optimal labor income taxation under different assumptions regarding tax preferences (tax affinity, hostility, conformity and opposition). We find that tax preferences can either amplify or reduce the marginal tax increase of the low-ability type. When individuals can hide a fraction of their earnings at a resource cost, the link between consumption and tax payments is broken. Tax evasion affects the aggregate measure of taxes and what people take into account and care about when making their optimal decisions. We find that the trade-off associated with tax preferences and consumption have their effects intensified in the optimal low-ability income tax. With evasion, the marginal income tax of high-ability types is no longer zero - it is optimal to subsidize this type and avoid the mimicking of low-ability individuals.

Arbex-Tax Preferences and Optimal Income Taxation-201.pdf

2:37pm - 3:00pm

Sufficient Statistics for Nonlinear Tax Systems with Preference Heterogeneity

Antoine Ferey1, Benjamin Lockwood2, Dmitry Taubinsky3

1CREST, Ecole Polytechnique, France; 2Wharton & NBER; 3UC Berkeley & NBER

A prominent justification for taxation of capital income, capital income, savings, bequests, and certain commodities is that taxes on consumption categories preferred by those with higher earnings ability are efficient even in the presence of nonlinear earnings taxation. This paper provides a method for characterizing optimal nonlinear tax systems in the presence of correlated preference heterogeneity using sufficient statistics that can be estimated from behavioral responses to tax reforms. Our results encompass tax systems that implement the optimal mechanism, as well as simpler tax systems such as those that involve a nonlinear earnings tax and a separable nonlinear capital income tax, or those that involve a nonlinear earnings tax and an earnings- dependent but otherwise linear capital income tax. All optimal tax systems can be expressed using a simple sufficient statistic for preference heterogeneity. Our sufficient-statistic formulas for optimal differential commodity taxes produce empirically-implementable generalizations of the Atkinson-Stiglitz theorem.

Ferey-Sufficient Statistics for Nonlinear Tax Systems with Preference Heterogeneity-150.pdf

3:00pm - 3:22pm

Comprehensive or Schedular Income Taxation? A General Equilibrium Approach with Nonlinear Taxation

Laurence Jacquet1, Etienne Lehmann2

1CY Cergy Paris Université, CNRS, THEMA; 2CRED(TEPP), Université Paris II Panthéon-Assas, France

In a general equilibrium framework, we develop a model of income taxation spanning several types of incomes with multidimensional taxpayer heterogeneity. Starting from any tax schedule, our framework allows one to decide which, of a more comprehensive or a more schedular income tax, is more welfare- and efficiency -improving. We express the effects of any tax reform as well as optimal tax formulas in terms of the usual sufficient statistics plus some new ones including mean cross-base responses and general equilibrium effects. These formulas are taken to French data to simulate optimal taxes on labor and capital incomes.

Jacquet-Comprehensive or Schedular Income Taxation A General Equilibrium Approach with Nonlinear Taxation-333.pdf

3:22pm - 3:45pm

Optimal Redistribution or Predistribution? Minimum Wages vs Income Taxes when Workers Differ in Both Hourly Wages and Working Hours

Aart Gerritsen

Erasmus University Rotterdam

Most theoretical studies have a hard time finding a useful role for the minimum wage alongside the income tax. Virtually all of these studies assume a one-to-one correspondence between wages and income. I reconsider the case for the minimum wage when people differ in both wages and preferences for work, such that a given level of income may correspond to different wage rates. This renders the minimum wage unambiguously desirable in a discrete-type labor market à la Stiglitz (1982). But desirability of the minimum wage is ambiguous and subject to a policy trade-off in a continuous-type labor market à la Mirrlees (1971). Compared to the minimum wage, income taxes are less effective in affecting the wage distribution but more effective in redistributing income. The desirability of the minimum wage depends on this trade-off between the "predistributive" benefits of the minimum wage and the "redistributive" benefits of the income tax.

Gerritsen-Optimal Redistribution or Predistribution Minimum Wages vs Income Taxes when Workers Differ-267.pdf
2:15pm - 3:45pmL02: Family Leave Policies
2:15pm - 2:37pm

Family Culture and Childcare Policies

Francesca Carta3, Lorenzo De Masi2, Paola Profeta1

1Bocconi University; 2Universidad Carlos III; 3Bank of Italy

We study whether and how the family organization shapes individual references on public childcare provision. Then, we investigate whether politicians' incentives reflect the family organization that prevails among their voters. We proxy the current family organization with historical family principles: living arrangement based on cohabitation, that measures the possibility to rely on other family members to satisfy care needs, and the inheritance rule, that measures how much the offspring is dependent on parental financial help. We find that U.S. citizens whose background is based on large and cohabiting families rely less on the Government as provider for external childcare; on the contrary, traditional financial dependency on parents make individuals more prone to ask for the Government's intervention. Representatives of U.S. districts where these backgrounds are dominant, are respectively less and more prone to vote for childcare interventions.

Carta-Family Culture and Childcare Policies-284.pdf

2:37pm - 3:00pm

Gender Norms and Specialization in Household Production: Evidence from a Danish Parental Leave Reform

Anne Sophie Lassen

Copenhagen Business School, Denmark

The arrival of children implies a large reduction in women's earnings and labor supply while fathers' labor market trajectories are unaffected. To understand this specialization, I test theoretical predictions of both the standard model of intra-household specialization and the role of gender identity and prescriptions. For identification, I use variation from a Danish parental leave reform. Mothers increase their leave by 5 weeks while the average leave duration of fathers remains unchanged. Relative earnings have a negligible impact on both mothers' and fathers' leave duration, but mothers' response to the reform is negatively affected by maternal labor supply. These findings are consistent with the notion of pay-off from gender identity. In further support of the role of gender identity, I find peer effects among sisters and interpret this as a reform-induced change in prescriptions of extended leave.

Lassen-Gender Norms and Specialization in Household Production-240.pdf

3:00pm - 3:22pm

Do Family Policies Affect Births, Maternal Employment and Marital Stability?

Elizabeth Brainerd2, Olga Malkova1

1University of Kentucky, United States of America; 2Brandeis University, United States of America

This paper examines the effect of a maternity benefit program on childbearing, maternal employment and marital stability in the former Soviet republics. The program included one year of partially paid leave and a small cash payment. We use individual-level panel data on birth, employment and marital status histories and a difference-in-differences strategy to study the short- and long-term effects of the program. We find an increase in fertility rates, particularly for second births among married and older women, providing suggestive evidence of an increase in completed fertility. We find a small positive effect on overall female employment, especially among women not eligible for the benefits, who likely want to qualify. After the birth of a child, we find an increase in the length of maternity leave, but no effect on employment six years after birth. The program also increased marital stability for married couples after the birth of a child.

Brainerd-Do Family Policies Affect Births, Maternal Employment and Marital Stability-354.pdf
2:15pm - 3:45pmL03: Mobility and Migration
2:15pm - 2:37pm

Citizenship and Taxes: Evaluating the Effects of the U.S. Tax System on Individuals’ Citizenship Decisions

Paul R. Organ

University of Michigan, United States of America

The United States tax system applies to its citizens’ worldwide incomes and estates, whether those citizens live in the U.S. or abroad. Fully escaping the U.S. tax system requires dropping U.S. citizenship, and in recent years a growing number of individuals have done so. I use administrative tax microdata to answer three questions: Who is renouncing? Why are they renouncing? What are the policy consequences? I show that the recent increase in renunciations is mainly driven by those who have always lived abroad dropping citizenship, rather than by individuals leaving the U.S., and that these renunciations are a response to increased compliance costs, not tax liabilities. I then discuss how recent renunciations relate to U.S. tax policy, including the revenue impacts, policy spillovers, and the implied value of U.S. citizenship.

Organ-Citizenship and Taxes-340.pdf

2:37pm - 3:00pm

Taxation, Public Spending and Internal Migratory Responses in Switzerland: Who Votes with Her Feet?

Laura Fontana-Casellini1, Veronica Grassi2

1Università della Svizzera italiana; 2University of St. Gallen

This study investigates mobility reactions to tax rates and public goods in Switzerland. We match administrative data covering the whole population to income data from the social security earnings, and we analyze almost 1,500,000 households' relocations over eight years (2010-2017). We first show that migration profiles are similar across income groups and decrease in age. We then analyze migration responses to the net-of-tax rate and local spending by income groups using an aggregate model of migration flows between municipality pairs. We tackle policy endogeneity bias by including a set of geographical and time fixed effects. Our preliminary results show heterogeneous responses: the tax base elasticity to net-of-tax rate seems positive and predominantly driven by households without children in the highest quartile of the income distribution. The estimated elasticity is around 4 and stable across specifications. Elasticity estimates to schooling and non-schooling expenditures are unclear and more sensitive to dynamic effects.

Fontana-Casellini-Taxation, Public Spending and Internal Migratory Responses-236.pdf

3:00pm - 3:22pm

The Effect of Taxes on Where Superstars Work

David Agrawal1, Kenneth Tester2

1University of Kentucky, Department of Economics and Martin School of Public Policy & Administration; 2University of Kentucky, Department of Economics

Prior studies show that taxes matter for the residential locations of high-income earners. But, states raise a significant share of income taxes from nonresidents, especially superstars. Using superstar athletes and variation in state tax rates, we provide causal evidence on the effect of the net-of-participation tax rate on the location of labor supply. The elasticity of working in a state is 0.32, with larger effects at the top of the earnings distribution. Our results suggest a novel margin of labor supply responses for top-earners: the spatial relocation of labor supply by nonresidents.

Agrawal-The Effect of Taxes on Where Superstars Work-350.pdf

3:22pm - 3:45pm

The EITC and Migrating Out of Rural America

Jacob Bastian1, Dan Black2

1Rutgers University, United States of America; 2University of Chicago, United States of America

There is a strong and growing interest in helping families move to areas with higher economic opportunity. This paper is the first to examine whether the Earned Income Tax Credit (EITC) affects migration, with a focus on women from rural and economically distressed areas. We find that the EITC increases migration out of rural and distressed areas, with many of these moves occurring across counties or commuting zones. We also find decreases in living ``doubled up'' with another family, and reductions in commute length. Our results suggest that the EITC relaxes credit constraints and helps women move to economic opportunity.

Bastian-The EITC and Migrating Out of Rural America-344.pdf
2:15pm - 3:45pmL04: Labor Supply
2:15pm - 2:37pm

Labor Market And Health Effects Of An Activation Program For The Long-term Inactive

Mareen Bastiaans, Anne Gielen, Robert Dur

Erasmus University Rotterdam, Netherlands, The

Some active labor market programs have been shown to improve labor market outcomes, however they mostly target individuals relatively close to the labor market. Many long-term benefit recipients suffer from mental health issues, indicated by the high rate of mental health care use in this group. Activation strategies for this group may not improve labor market outcomes, but may benefit them by replacing some of the benefits that a job offers such as providing a routine or social network. We evaluate an activation program for individuals with a large distance to the labor market, at least five years out of employment and on general assistance. The staggered implementation of the program allows for a difference-in-difference design. We evaluate both labor market and mental health effects.

Bastiaans-Labor Market And Health Effects Of An Activation Program-327.pdf

2:37pm - 3:00pm

Inducing Labor: The Impact of Health Insurance on Post-Natal Labor Force Participation

Shanthi Ramnath1, Elena Patel2, Ithai Lurie3

1Federal Reserve Bank of Chicago; 2University of Utah; Eccles School of Business; 3US Department of Treasury; Office of Tax Analysis

In this paper we analyze the role of access to health insurance plays in the widely documented, sharp fall in mother’s labor supply following childbirth. Our analysis exploits variation created by the Affordable Care Act (ACA), which substantially expanded access to health insurance within the U.S., and richly detailed administrative tax data. We find that mother’s relative post-childbirth employment increases by 12% for births that occur after the insurance expansion. This labor supply response is pervasive across mother’s pre-birth characteristics, and across the varied impact of the ACA expansion. Our analysis suggests that this response is likely driven by a combination of improved access to maternal health care, increased participation by mothers who do not work before birth, reduced exits among mothers who do work before birth, and a compositional changes in who gives birth following the ACA health insurance expansion.

Ramnath-Inducing Labor-352.pdf

3:00pm - 3:22pm

Means-Tested Child Care Subsidies and Parental Labor Supply

Trine Engh Vattø1, Kjersti Misje Østbakken2

1Statistics Norway; 2Institute for Social Research

An important rationale for providing universal child care subsidies is to encourage maternal labor market participation. Often governments choose to prioritize means-tested child care subsidies, targeted at low-income families. In the present study we discuss the ambivalent effects of means-tested child care subsidies on parents’ labor supply both analytically and by microsimulations of a structural labor supply model. We then utilize the introduction of a national scheme of means-tested child care subsidies in Norway, which offers a natural experiment to isolate the price effect (positive effect of subsidized care) and the strategic effects (negative effect of means-testing) on parents’ labor supply. Surprisingly, we find no significant effect on neither of the two mechanisms. Effects close to zero are confirmed by the structural labor supply model, which helps us shed some light on the likely reasons for the small responses to means-tested child care subsidies in the Norwegian context.

Vattø-Means-Tested Child Care Subsidies and Parental Labor Supply-401.pdf

3:22pm - 3:45pm

Did the $660 Billion Paycheck Protection Program and $220 Billion Economic Injury Disaster Loan Program Get Disbursed to Minority Communities in the Early Stages of COVID-19?

Robert Fairlie1, Frank Fossen2

1University of California, Santa Cruz, USA; 2University of Nevada, Reno, USA

Social distancing restrictions and demand shifts from COVID-19 shut down many small businesses with especially negative impacts on minority owners. Was the unprecedented US federal government response to support small businesses, which had a stated goal of helping disadvantaged groups – the $659 billion Paycheck Protection Program and the $220 billion COVID-19 Economic Injury Disaster Loans – disbursed evenly to minority communities? From our analysis of the universe of loans from these programs, we generally find a slightly positive relationship between PPP loan receipt per business and the minority share of the population or businesses, although funds flowed to minority communities later than to communities with lower minority shares. PPP loan amounts, however, are negatively related to the minority share of the population. The EIDL program, in contrast, was distributed positively to minority communities.

Fairlie-Did the $660 Billion Paycheck Protection Program and $220 Billion Economic Injury Disaster Loan.pdf
2:15pm - 3:45pmL05: Housing
2:15pm - 2:37pm

Market Rate Housing Construction In Urban Neighborhoods

Erlend Eide Bø, Stefan Leknes

Statistics Norway, Norway

Many urban neighborhoods are characterized by soaring housing prices and gentrification. Can construction of market rate residential housing be a remedy? New housing increases local supply, and could lead to falling prices if local demand is limited. However, new housing generally has higher standard than older housing and may therefore attract wealthier residents, which could increase the prices of existing housing through positive neighborhood externalities. Using detailed housing data from Norway's capital Oslo, we study how housing prices and residential composition of existing housing are affected by market rate construction nearby. We deal with endogeneous location of new constructions by instrumenting with available space for development and controlling for micro neighborhoods. We find that the effects on housing prices and incomes of residents are negative, but small, suggesting that the supply effect is larger than any positive neighborhood effect.

Bø-Market Rate Housing Construction In Urban Neighborhoods-543.pdf

2:37pm - 3:00pm

Housing Affordability and Transaction Tax Subsidies

Anastasia Girshina2, Francois Koulischer1, Ulf von Lilienfeld1

1University of Luxembourg, Luxembourg; 2Stockholm School of Economics

House prices have increased faster than average income in many countries over the last decade, raising concerns on the affordability of housing. We study the impact of transaction taxes on the real estate market and the effectiveness of tax subsidies to make housing more affordable. We show how the demand and supply elasticities for housing determine the price impact of tax subsidies and the distribution of gains between buyers and sellers. We then use data on all real estate transactions in Luxembourg from 2007 to 2018 to estimate the elasticity of housing supply and demand. For identification, we exploit discontinuities in the transaction tax schedule as well as rules on tax subsidies for new constructions. Our estimates suggest that the elasticity of house prices to transaction taxes is 0.27, so buyers capture a large part of the surplus from the subsidies.

Girshina-Housing Affordability and Transaction Tax Subsidies-368.pdf

3:00pm - 3:22pm

The Virus That Devastated Tourism: the Impact of Covid-19 on the Housing Market

João Pereira dos Santos, Susana Peralta, Duarte Gonçalves, Mafalda Batalha

Nova School of Business and Economics, Portugal

We estimate the impact of the sudden and sharp decrease in tourism caused by the pandemic on housing rental and sales in Lisbon, a tourist-intensive capital with a high density of short-term rentals. We use a panel that spans the 24 civil parishes between the third quarter of 2018 and the third quarter of 2020. We estimate difference-in-differences specifications, with both a binary treatmentand a treatment intensity relying on the pre-pandemic intensity of short-term rentals in the civil parishes. Our results are robust to an IV that deals with selection into treatment concerns, and to the inclusion of the second largest city of the country. We show that in the long-term rental market, prices decrease 4.1%, while quantities increase 20% in the treated areas vis-à-vis comparison ones. We also find evidence of an incremental negative impact onsale prices of 4.8% in treated areas, with no effect on quantities.

Pereira dos Santos-The Virus That Devastated Tourism-440.pdf

3:22pm - 3:45pm

Intrinsic Real Option Value: Empirical Evidence from Commercial Real Estate Investors

Simon Camilo Büchler1, Alex van de Minne2, Olivier Schoeni3

1Massachusetts Institute of Technology; 2University of Connecticut; 3Laval University

We investigate how local information externalities affect investments in tangible durable assets via real options. Using geocoded transaction-level data on US commercial properties from 2000 to 2018, we find that investors have a higher propensity to invest in a property for immediate redevelopment when its capital intensity and type of commercial activity differ from those of recently built nearby properties. Information externalities affect 'buy-to-redevelop' investment strategies as much as the asset capital depreciation -- the main determinant of real option exercise highlighted in the literature -- and can increase up to 30 percent the investors' willingness to pay to invest in the property.

Büchler-Intrinsic Real Option Value-196.pdf
2:15pm - 3:45pmL06: The Corporate Tax
2:15pm - 2:37pm

Tax Avoidance with Hybrid Financial Instruments

Svea Holtmann1, Reinald Koch1, Dominika Langenmayr1,2

1Catholic University of Eichstaett-Ingolstadt, Germany; 2CESifo

Tax avoidance with hybrid financial instruments (HFIs) is difficult to study since financial statements do not disclose the tax treatment of financial instruments. We provide empirical evidence on this tax avoidance channel by studying the effect of implementing a linking rule in Germany in 2014. This rule links the tax treatment of a financial instrument to the tax treatment in the counterparty country, thereby making tax avoidance with HFIs impossible. Using a large panel on investment relations among affiliated companies for the period 2006-2016, we find that the introduction of the linking rule is associated with a change in the capital structure among companies where tax avoidance with HFIs was possible before.

Holtmann-Tax Avoidance with Hybrid Financial Instruments-134.pdf

2:37pm - 3:00pm

The Corporate Elasticity of Taxable Income: Event Study Evidence from Switzerland

David Staubli1, Matthias Krapf2

1Swiss Federal Tax Administration, Switzerland; 2University of Basel, Switzerland

We estimate the corporate elasticity of taxable income. Our analysis draws on panel variation in the decentralized system of corporate taxation in Switzerland. We find that an increase in a jurisdiction's corporate net-of-tax rate by 1% results in an increase in aggregate corporate income by about 3.5% over a time span of 4 years. The elasticity is larger in remote, non-central locations. Firm entry, exit, and mobility only account for a small share of the overall elasticity.

Staubli-The Corporate Elasticity of Taxable Income-324.pdf

3:00pm - 3:22pm

Corporate taxes and union wages in the United States

R. Alison Felix1, James R. Hines Jr.2

1Federal Reserve Bank of Kansas City; 2University of Michigan

This paper evaluates the effect of U.S. state corporate income taxes on union wage premiums. American workers who belong to unions are paid more than their non-union counterparts, and this difference is greater in low-tax locations, possibly reflecting that unions and employers share tax savings associated with low tax rates. In 2000 the difference between average union and non-union hourly wages was $1.88 greater in states with corporate tax rates below four percent than in states with tax rates of nine percent and above. Controlling for observable worker characteristics, a one percent lower state tax rate is associated with a 0.36 percent higher union wage premium, suggesting that workers in a fully unionized firm capture roughly 54 percent of the benefits of low tax rates.

Felix-Corporate taxes and union wages in the United States-358.pdf

3:22pm - 3:45pm

The German Business Panel: Insights on Corporate Taxation and Accounting during the Covid-19 Pandemic

Jannis Bischof, Philipp Dörrenberg, Davud Rostam-Afschar, Dirk Simons, Johannes Voget

University of Mannheim, Germany

We introduce the German Business Panel (GBP), a novel large-scale survey of German firms. The GBP periodically surveys executives and key decision-makers in a representative sample of German firms, taking stock of their perceptions, views, and expectations. A particular focus of the survey is on the role of accounting and tax regulation for companies. We present findings from the first wave of the GBP which was in the field over the summer 2020 and addressed the consequences of the Covid-19 pandemic for companies in Germany. Relying on more than 10,000 complete responses, we disentangle how the economic impact of Covid-19 hits industries with varying intensity. We also document that state aid was insufficient for the hardest-hit firms. As a consequence, firms systematically took additional measures like cost-cutting or reducing cash outflows. The state interventions did not lead to managers expecting a substantial increase in future tax rates.

Bischof-The German Business Panel-498.pdf
2:15pm - 3:45pmL07: Taxation in Developing Countries
2:15pm - 2:37pm

Limited Tax Capacity and the Optimal Taxation of Firms

Marcelo Arbex1, Enlinson Mattos2, Rebeca Regatieri3

1University of Windsor; 2FGV Fundacao Getulio Vargas, Brazil; 3FGV Fundacao Getulio Vargas and Brazilian Treasury

Limited tax capacity creates evasion opportunities that weakens the production efficiency argument. Motivated by the SIMPLES tax reform in Brazil that led to heterogeneous responses on revenues and production costs of upstream versus downstream informal firms, we characterize the optimal taxation of firms in a limited tax capacity economy to compare with the optimal value-added and turnover taxes. We show that the elasticities of misreported sales and purchase gaps to policy instruments are behavioral statistics that complement the traditional Diamond and Mirrlees (1971)’s mechanical effect of taxation. Numerical results suggest turnover taxes can be welfare enhancing vis-`a-vis a value-added system.

Arbex-Limited Tax Capacity and the Optimal Taxation of Firms-252.pdf

2:37pm - 3:00pm

Tax Policy and Household Businesses in Vietnam

Anh Pham

George Mason University, United States of America

Small and informal businesses constitute a large fraction of developing economies. This paper examines how a large increase in tax rates affects household businesses in Vietnam, which are a type of small businesses. We use balanced panel data of household businesses and exploit a drastic change in the tax code in 2013-2014 that varied tax rates by industry and locality. Surprisingly, on average, we do not find any evidence for changes in business registration, employment, revenue, and tax payments as a result of the large tax change. Plausibly, many household businesses lacked general understanding of the tax law. Testing this theory, we find that more-educated business owners responded more to the tax change than less-educated business owners. Specifically, when tax rates increased, more-educated owners were less likely to register their

business and reduced employment more than less-educated owners.

Pham-Tax Policy and Household Businesses in Vietnam-287.pdf

3:00pm - 3:22pm

Using Computerized Information to Enforce VAT: Evidence from Pakistan

Jawad Ali Shah

University of Kentucky, United States of America

I exploit quasi-experimental variation created by a Pakistani reform which switched audit and recovery of domestic input tax credits from manual to an algorithm-based computerized system which utilizes information beyond the in-built VAT information trail. I use administrative tax data for the universe of VAT returns filed in Pakistan from tax year 2009 to 2016 to estimate the impact of this reform on non-exporting firms. Using exporters as a comparison group, I find that claims fell by 2.36 million PKR per treated firm aggregating to 86 billion PKR. Firm heterogeneity analysis by business activity and firm structure shows a decline ranging from 30% to 90%. Surprisingly, the claims of corporations and partnerships also fell by 50-70%. This shows that VAT may only yield revenue gains when tax administration develops sufficient capability to implement an algorithm-based tracking system which goes beyond simple cross-verificationof invoices.

Shah-Using Computerized Information to Enforce VAT-519.pdf

3:22pm - 3:45pm

Electronic Payments and Tax Capacity: Evidence from Uruguay's Financial Inclusion Reform

Anne Brockmeyer1,2,3, Magaly Saenz Somarriba3

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

Can the digitization of transactions in an economy increase tax compliance? We study the effect of financial incentives on the adoption of electronic payment technology and on tax compliance by firms. Exploiting administrative data and policy variation from Uruguay, we show that i) consumer VAT rebates for debit card transactions trigger an immediate 50% increase in the number of card transactions, ii) firms' use of card machines increases only on the intensive margin, and iii) tax compliance is unaffected. Endogenous card machine adoption and a low share of card sales in total reported sales can rationalize the findings.

Brockmeyer-Electronic Payments and Tax Capacity-339.pdf
4:00pm - 5:30pmPlenary IV, Closing and Awards: Keynote - John N. Friedman (Brown University) on "The Economic Impacts of COVID-19: Evidence from a New Public Database Built Using Private Sector Data"
Session Chair: Wojciech Kopczuk, Columbia University
5:35pm - 6:30pmSocial Event B: Locals Insight to Iceland, by Sævar Helgi Bragason

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