Conference Agenda

Overview and details of the sessions of this conference.

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The last speaker of each session is the session chair. The discussant is always the following speaker, with the first speaker being the discussant of the last paper.

For a session with 4 papers in 2 hour time slots or 3 papers in 1.5 hour slot, we suggest the following time allocation, based on a 30-minute block per paper: No more than 20 minutes for the presenter; no more than 5 minutes for the discussant; the remaining time should be devoted to audience questions and the presenter’s responses. For a (rare) session with 3 papers in a 2 hour slot, we suggest a 40-minute block per paper, with the time for the presenter and discussant each increased by up to 5 minutes (to 25 minutes and 10 minutes, respectively). We recommend that discussants avoid summarizing the paper. By focusing their (short) remarks on a few questions and comments, the discussants can help start the general discussion with audience members. .

Only registered participants can attend this conference. Further information available on the congress website https://www.iipf.org/cng.htm/ .

Please note that all times are shown in the time zone of the conference. The current conference time is: 7th Dec 2022, 05:13:09am CET

 
 
Session Overview
Date: Tuesday, 09/Aug/2022
2:00pmRegistration, 9 August: Registration desk at JKU open from 2.00 p.m. to 5.30 p.m.
Location: Kepler Building, Altenberger Str. 69, Linz
3:00pm - 6:00pmBoard I: IIPF Board of Management meeting I (on invitation and registration only)
Location: MZ 208 B (Management Building)
6:30pm - 9:00pmBoard Dinner: IIPF Board of Management Dinner (on invitation and registration only)
Date: Wednesday, 10/Aug/2022
8:30amRegistration, 10 August: Registration desk at JKU open from 8.30 a.m. to 5.30 p.m.
Location: Kepler Building, Altenberger Str. 69, Linz
9:00am - 9:30amOpening: Opening (directly followed by Plenary I)
Location: Room HS 1
9:30am - 10:30amPlenary I: Carol Propper, Imperial College London/UK: "Team Production in Healthcare: The Value of Human Capital"
Location: Room HS 1
Session Chair: Wojciech Kopczuk, Columbia University
10:30am - 11:00amCoffee Break I: Coffee Break
Location: Hall B and C, right outside HS 1
11:00am - 1:00pmA01: Labor Supply I
Location: Room HS 7
 

Labor Market Effects of EU Enlargement: Municipal Level Evidence from the German-Polish Border

Maximilian Pöhnlein

Friedrich-Alexander-Universität Erlangen-Nürnberg, Germany

This paper explores the effects of a reduction in mobility and transaction costs in Polish border regions close to Germany following the EU Eastern enlargement in 2004. I use a spatial difference-in-difference approach and take advantage of Polish municipal level data. I study three separate steps in the integration process of EU enlargement, and evaluate the effects of each reduction in border impediments on the labor market situation in the Polish communities closest to the German border. This includes exploring changes in employment patterns, local population and the number of private-sector entities. My results indicate that the decrease in mobility and transaction costs had a substantial effect on labor mobility in the Polish border region. I document a reduction in employment and unemployment in Polish regions close to the German border. Moreover, I find evidence for an outflow of self-employed individuals.

Pöhnlein-Labor Market Effects of EU Enlargement-429.pdf


Understanding Changes in Labor Supply Behavior over Time

Zhiyang Jia, Thor Olav Thoresen, Trine Engh Vattø

Statistics Norway

The response of labor supply to changes in financial incentives plays a key role in the measurement of tax efficiency losses. Although there for a long time has been a consensus of married females being more responsive than married males, it has been reported that the response of married women converges towards that of males. This is what we find for Norway over the period 1997–2015 too. In this paper we explain why female labor supply responses are approaching male responses. By using simulation results from a structural discrete choice labor supply model, we point to several factors that have contributed to this, as changes in net wages, demographic changes, altered preferences and labor market opportunities.

Jia-Understanding Changes in Labor Supply Behavior over Time-340.pdf


Do Commuting Subsidies Drive Workers to Better Jobs?

David Agrawal3, Elke Jahn2, Eckhard Janeba1

1University of Mannheim, Germany; 2University of Bayreuth and IAB; 3University of Kentucky

An unappreciated possible benefit of commuting subsidies is that they can increase the choice set of workers in a way that facilitates better job match quality. Variation in wages and initial commuting distances, combined with major reforms to the commuting subsidy formula in Germany, generates worker-specific variation in commuting subsidies that we use to study the effect on job match quality. Increases in the generosity of commuting subsidies induce longer commutes. More generous subsidies increase the wages of workers. Finally, increases in commuting subsidies induce workers to switch to better quality employers.

Agrawal-Do Commuting Subsidies Drive Workers to Better Jobs-371.pdf
 
11:00am - 1:00pmA02: International and Corporate Tax I
Location: Room HS 2
 

Sources Of Tax Uncertainty: Evidence From Three Phases Of A Cross-Country Survey

Michael P Devereux

University of Oxford, United Kingdom

This paper presents the results of three waves of a survey of large multinational businesses on the sources and effects of uncertainty about business taxation. The results indicate that tax uncertainty plays an important role in investment and location decisions. There is huge variation in tax uncertainty amongst countries, suggesting an important role for country-specific factors in creatin uncertainty. The most important sources of uncertainty in high income countries reflect the tax system itself: complexity and frequent changes to the statutory system. By contrast, the most important sources in lower, and upper, middle income countries reflect problems of administration: for example, unpredictable or inconsistent treatment by tax authorities and courts, and an inability to achieve clarity either proactively or retroactively.

Devereux-Sources Of Tax Uncertainty-415.pdf


Granting Market Countries the Right to Tax Profit without Physical Nexus

Wolfram F Richter

TU Dortmund University, Germany

More than 130 countries have accepted the OECD invitation to reform the taxation of multinational enterprises (MNEs). One of two reform pillars aims at granting market countries the right to tax supernormal (“residual”) profit without requiring physical nexus. This paper examines the method of implementation proposed by the OECD and compares it with various discarded options. It concludes that intercountry tax equity, allocative efficiency, and practicality of negotiation speak against the OECD proposal to use a sales-based formula for allocating an MNE’s group profit. Simply splitting each market country’s residual profit contribution by an MNE-independent key is to be preferred.

Richter-Granting Market Countries the Right to Tax Profit without Physical Nexus-160.pdf


A Price Discrimination model of Digital Taxation

Shigeki Kunieda

Chuo University, Japan

In this paper, we introduce a simple price discrimination model of digital taxation. New features of our analysis are the introduction of price discrimination based on personal data as a source of profit of platform firms, the coexistence of rational and behavioral consumers and the evaluation of alternative tax policies in international setting.

We evaluate alternative tax policies in our model. We find it is desirable to have the combination of (a) positive tax on the profit of paltform firms from converting consumer surplus of behavioral consumers into producer surplus by price discrimination and (b) zero extra tax on the profit from providing new consumption opportunity to consumer with low reservation prices. The first pillar of international agreement of October 2021 can be considered as a second-best policy against price discrimination based on personal data in the digitalized world.

Kunieda-A Price Discrimination model of Digital Taxation-399.pdf
 
11:00am - 1:00pmA03: The Economics of New Tobacco Products
Location: Room HS 6
 

Are Heated Tobacco Products Substitutes or Complement to Cigarettes? Empirical Evidence across Countries

Estelle Dauchy1, Ce Shang2

1Campaign for Tobacco Free Kids, United States of America; 2The Ohio State University Wexner Medical Center

Heated Tobacco Products (HTPs) are a new form of tobacco products that heat raw tobacco sticks to generate an aerosol containing tobacco flavor, nicotine, and other chemicals. Because the tobacco is not combusted for HTPs, in contrast to traditional cigarettes, companies have aggressively promoted them as "reduced-risk" products that could help consumers quit cigarette use. HTPs have rapidly gained market shares over cigarettes in several countries. Despite the lack of evidence on their impact on health of demand, most countries have heavily subsidized these products though lower excise taxes than cigarettes. We construct a unique database on HTPs and cigarettes quarterly demand and prices from 2014 to 2022 obtained from PMI, and combine it this database with a unique database on HTP and cigarettes excise taxes developed by CTFK across countries, and estimate own- and cross- price elasticity of cigarette and HTP demand using a variety of models.

Dauchy-Are Heated Tobacco Products Substitutes or Complement-511.pdf


The Pass-Through of Excise Taxes to Market Prices of Heated Tobacco Products (HTPs) and Cigarettes: A Cross-Country Analysis

Estelle Dauchy1, Ce Shang2

1Campaign for Tobacco Free Kids, United States of America; 2The Ohio State University Wexner Medical Center.

The market for heated tobacco products (HTPs) has grown exponentially in recent years and many governments have started to tax HTPs to regulate their use. To evaluate the impacts of HTP taxes on tobacco use behaviors and health consequences, we first need to evaluate if they effectively raise HTP prices. This study evaluates the combined pass-through of taxes to prices of HTPs and cigarettes. We use a unique database on statutory HTP and cigarette taxes and retail prices of both products from 2014 to 2021, developed by the Campaign for Tobacco Free Kids. To estimate the pass-through of taxes to prices we employ a SUR model. We also use an event study to test the impact of introducing HTPs to cigarette markets, as well as amending tax codes to include HTPs. The pass-through rate of HTP taxes to prices is several times smaller than that of cigarettes.

Dauchy-The Pass-Through of Excise Taxes to Market Prices of Heated Tobacco Products-515.pdf


Excise Taxes and Pricing Activities of E-liquid Products Sold in Online Vape Shops

Shaoying Ma, Shuning Jiang, Ling Meng, Bo Lu, Jian Chen, Ce Shang

the Ohio State University, United States of America

Background: Although e-cigarette excise taxes have great potential to prevent e-cigarette use, little information is available on pricing activities of online vape shops, and how well taxation is implemented during web based sales remains unclear.

Objectives: We examine e-liquid pricing activities in popular online vape shops that sell nationwide in the U.S. and present how those stores charge excise taxes based on shipping addresses in states and local jurisdictions that have e-cigarette taxation in place.

Methods: We collect e-liquid sales prices from five online vape shops using web data extraction.

Results: We collected data of 14,477 e-liquid products from five stores. The average price of e-liquids is $0.25/ml, In addition, online stores charge state excise taxes inconsistently and fail to comply with county or city level excise taxes.

Conclusion: E-liquid products sold online are priced low and stricter enforcement of e-cigarette excise tax is needed in online purchasing channels.

Ma-Excise Taxes and Pricing Activities of E-liquid Products Sold-513.pdf


On Optimal Taxes for Cigarettes and E-cigarettes: Does the Objective Matter?

James E. Prieger

Pepperdine University, United States of America

As the tax base for traditional tobacco excise taxes erodes, policymakers have growing interest to expand taxation to novel and reduced-risk tobacco products. Chief among the latter are electronic nicotine delivery systems (ENDS, or e-cigarettes), although other reduced-risk tobacco products such as heated tobacco and smokeless tobacco products are also being considered for taxation. Rationales for taxing such products include: to raise revenue, to correct for health externalities, to improve public health, to correct for internalities caused by irrationality or misinformation, and to redistribute income. Although each rationale leads to a different objective function, the conclusions regarding relative tax rates are the same. The relatively higher demand elasticity for e-cigarettes than cigarettes and the lower marginal harms from use imply in each case that taxes on ENDS should be lower, and likely much lower, than those on cigarettes. Discouraging use of any tobacco products by youth is discussed as well.

Prieger-On Optimal Taxes for Cigarettes and E-cigarettes-519.pdf
 
11:00am - 1:00pmA04: Inequality I
Location: Room K 153 C
 

Top-End Inequality and Growth: Empirical Exploration of Nonlinearities and the Time Dimension

Elina Tuominen

Tampere University, Finland

Using the series of the top 1% income shares in 137 countries, I investigate the relationship between top-end inequality and subsequent economic growth from the 1920s to the 2010s. The data allow a versatile investigation of different time horizons, and I also exploit penalized spline methods to allow for nonlinearities. Empirical evidence suggests that the relationship between top-end inequality and subsequent growth is complex: it depends on the investigated time horizon and the level of economic development. I find some evidence for a positive link at medium levels of economic development, and that the positive relation is more evident in short- to medium-run associations. I also find that the positive medium-run correlation weakens with economic development. Advanced economies show a negative (or nonpositive) medium- to long-term relationship between top 1% share and growth in many settings. Moreover, my preliminary results illustrate that the link may be different in longer-run associations.

Tuominen-Top-End Inequality and Growth-278.pdf


On The Macroeconomic And Distributional Effects Of Federal Estate Tax Reforms In The United States

Pieter Van Rymenant1,2, Freddy Heylen1, Dirk Van de gaer1

1Ghent University, Belgium; 2Research Foundation (FWO) Flanders

This paper studies the effects of the sharp decline since 1980 in U.S. federal estate taxes on the past and future evolution of per capita growth, labor supply, the wealth-to-GDP (capital-output) ratio, the real interest rate, and cross-sectional wealth inequality. To do so, we construct, calibrate, and simulate a dynamic general equilibrium model featuring firms, a fiscal government, and overlapping generations of heterogeneous households. The model includes crucial elements in the debate on the effects of estate tax changes and accounts for structural developments in recent decades, such as demographic change and ‘skill-biased’ technological progress. We find that the studied estate tax reforms have not generated the desired positive effects on labor supply, private capital formation, and economic activity. Rather, they have contributed considerably to rising after-tax wealth inequality and concentration. We also find that the foregone estate tax revenues are large.

Van Rymenant-On The Macroeconomic And Distributional Effects Of Federal Estate Tax Reforms-249.pdf


The Impact of Inequality on Property Taxation in Norway

Lars-Erik Borge1, Lana Krehic2

1Norwegian University of Science and Technology, Norway; 2NTNU Social Resarch

In most western countries inequality in income and wealth has increased during the last decades. We study the impact of increased inequality on property taxes in Norwegian municipalities. The analysis utilises detailed data from households' tax returns that allows for calculation of several inequality measures. Moreover, we analyse the impact of two types of inequality, income inequality and housing wealth inequality. In contrast to earlier studies using local level data, income inequality does not affect property tax in our preferred fixed effects specifi cation. However, increased housing wealth inequality has a significant positive impact on the property tax. Our analysis has two implications. First, the type of inequality seems to matter. Second, the effect of property tax inequality is most likely interpreted as a tax price effect since inequality in housing wealth reflects inequality in the property tax base.

Borge-The Impact of Inequality on Property Taxation in Norway-197.pdf


Can Redistribution Keep Up with Inequality? Evidence from South Africa, 1993-2019

Amory Gethin1, Léo Czajka2, Aroop Chatterjee3

1Paris School of Economics, France; 2Université catholique de Louvain; 3Southern Centre for Inequality Studies – University of Witwatersrand

Can government redistribution foster inclusive growth in emerging economies? This article sheds new light on this question by combining survey, tax, and budget data to measure the incidence of taxes and transfers on the distribution of growth in South Africa since 1993. Our new database is fully consistent with national accounts and allocates all government revenue and expenditure to individuals, including indirect taxes and in-kind transfers. We document a dramatic rise of inequality: from 1993 to 2019, the top 1% average pretax income rose by 50%, while that of the poorest 50% fell by a third. However, the widening of pretax income gaps has been almost fully compensated by the growing size and progressivity of the tax-and-transfer system, effectively mirroring a “chase between inequality and redistribution”. We discuss the implications of our findings for fiscal policy, the measurement of poverty, and the analysis of the link between inequality and growth.

Gethin-Can Redistribution Keep Up with Inequality Evidence-111.pdf
 
11:00am - 1:00pmA05: Environmental I
Location: Room HS 5
 

Rewarding Countries For Taxing Fossil Fuel Combustion: Optimal Mechanisms Under Exogenous Budgets

Lennart Stern

Paris School of Economics, France

Global environmental institutions have historically rewarded projects to reduce carbon emissions that they assess as otherwise unprofitable. This paper compares this approach to a simple alternative based on policies, where new global institutions would each year reward countries based on their current tax rate on the combustion of coal/oil. I develop a model in which countries differ in the co-benefits that they derive from reducing coal/oil use and in their aversion to taxing it. Ex post it is optimal for the global institution to reward countries on the basis of their changes in tax rates relative to the rates before its creation. However, such a mechanism creates perverse incentives during the time before the global institution's creation. To avoid these perverse incentives, it might be beneficial for the world to adopt a norm requiring newly created global institutions to abstain from conditioning their reward payments on countries' past actions.

Stern-Rewarding Countries For Taxing Fossil Fuel Combustion-460.pdf


Driving Innovation? Carbon Tax Effects In The Swedish Transport Sector

Nils aus dem Moore1,2, Johannes Brehm1, Henri Gruhl1

1RWI - Leibniz-Institute for Economic Research; 2Hertie School

We contribute to the understanding of the link between carbon pricing and the invention of clean technologies by providing the first empirical estimate in the transport sector using patent data and applying the synthetic control method. We estimate the local effect on clean technologies of the Swedish tax reform in 1990/91 which introduced a carbon tax and expanded the VAT on the sale of motor fuels. Across various specifications and robustness checks, the tax reform had positive and economically significant effects on clean innovation. By disentangling the two components of the reform package, we provide indicative evidence that the salience of the carbon price is larger than that of the pure fuel price. These results suggest that a salient carbon price can be an effective instrument to foster the technological transition to a decarbonized transport sector and may be more effective than previous estimates using fuel price elasticities have suggested.

aus dem Moore-Driving Innovation Carbon Tax Effects In The Swedish Transport Sector-395.pdf


Fiscal Policy And Environmental Kuznet’s Curve: Evidence From An Emerging Economy, India

Amandeep Kaur1, Lekha Chakraborty2, Ranjan Kumar Mohanty3, Divy Rangan4, Sanjana Das5

1NIPFP; 2NIPFP; 3NIPFP; 4NIPFP; 5NIPFP

Against the backdrop of environmental federalism, this paper analyses the link between federal transfers and environmental quality within the analytical framework of environmental Kuznets’s curve at the level of subnational governments in India. India has designed the world’s first ever largest ecological fiscal transfers. Controlling for economic growth, the empirical evidence from the panel data models suggest that the consistency of ecological criteria in intergovernmental fiscal transfers in India has positive and significant impact on net forest cover across States. The models also confirm that environmental Kuznet’s U operates in Indian context

Kaur-Fiscal Policy And Environmental Kuznet’s Curve-364.pdf


Sustainable Finance And Climate Change: Wasteful But A Political Commitment Device?

Clemens Fuest, Volker Meier

ifo Institute for Economic Reasearch, Germany

We analyze the economic impact of subsidizing investment in “clean” industries in a stylized two-sector small open economy model. Such a reform increases gross wages, but reduces national income due to the distortion of capital. At given national emissions cap, worldwide emissions rise because imports of the high-carbon good will increase. When adapting the emissions cap, the environmental policy becomes laxer if it is dominated by income effects or by mitigating losses arising from the distortion of the allocation of capital. At the same time, the shrinking high carbon sector reduces income gains from a higher cap and thus works toward a stricter policy. Though sustainable finance policies do seem wasteful, we provide a rationalization in a setting with irreversible investment, where a “green” government” uses such a policy to induce stricter environmental measures after a possible switch to a “conservative” government.

Fuest-Sustainable Finance And Climate Change-113.pdf
 
11:00am - 1:00pmA06: Insurance
Location: Room HS 4
 

The Cost of Health Insurance and Entry into Entrepreneurship

Frank M. Fossen, Md Mobarak Hossain, Sankar Mukhopadhyay, Peter Toth

University of Nevada, Reno

Unavailable or expensive health insurance may hinder the transition of individuals from paid employment to entrepreneurship. The literature argues that the guaranteed availability of health insurance introduced by the Affordable Care Act (ACA) of 2010 could reduce this barrier to entrepreneurship and thereby increase entrepreneurial activity. In this paper, we investigate how much the cost of health insurance when leaving paid employment - given availability of health insurance - matters for the decision to become an entrepreneur. We use individual-level data from the Current Population Survey (CPS-ASEC) combined with county-level panel data on health insurance costs in local Health Insurance Exchanges (HIX) introduced by the ACA to estimate county-treatment fixed-effects regressions. The results indicate that increasing the premium of the benchmark HIX plan by $100 per month decreases the annual probability of entry into self-employment by 0.25 percentage points, which corresponds to 18% of the average annual entry rate.

Fossen-The Cost of Health Insurance and Entry into Entrepreneurship-265.pdf


Substitution Policy and Generic Competition

Laura Birg

University of Bremen, Germany

I study the effect of generic substitution on drug prices and both the extensive and intensive margin of generic competition. Therefore, I model of a market for an active ingredient with a brand-name drug and n differentiated generic versions. Either patients or physicians may oppose substitution. Generic substitution decreases the brand-name price and increases the generic market share. Generic substitution with a physician (patient) veto increases (decreases) generic prices and the number of generics.

Birg-Substitution Policy and Generic Competition-484.pdf
 
11:00am - 1:00pmA07: Effects of Tax Reforms
Location: Room K 269 D
 

No Incidence Left Behind – Towards a Complete Understanding of Tax Incidence

Richard Alexander Winter, Philipp Dörrenberg, Fabian Eble, Davud Rostam-Afschar, Johannes Voget

University of Mannheim, Germany

This paper provides evidence on the incidence of taxes on the profits of companies using data from a novel large-scale survey of German firms. We document that workers bear between 17 and 31%, capital owners between 9 and 25% and customers between 3 and 18% of the incidence. By exploiting experimental variation in the assignment of hypothetical permanent tax increases and decreases, we find that profit tax incidence is highly asymmetric and sensitive to the size of the tax change. Our use of survey data and randomized treatment assignment allow us to consider the incidence on all economic agents simultaneously.

Winter-No Incidence Left Behind – Towards a Complete Understanding-473.pdf


Tax Reforms and Inter-temporal Shifting of Corporate Income: Evidence from Tax Records in Slovakia

Tomas Lichard1, Jaroslav Bukovina2, Jan Palguta3, Branislav Zudel2

1Prague University of Economics and Business, Czech Republic; 2Institute for Financial Policy, Ministry of Finance of the Slovak Republic; 3Carlos III University of Madrid, Spain

We examine how the introduction of tax loss carry-forwards increases the elasticity of corporate taxable income. Using variation from corporate tax reforms and data from administrative tax returns, we estimate corporate ETI from the amount of companies bunching at the minimum corporation tax kinks in Slovakia. We find that bunching sharply increases once companies gain the option to offset tax lia- bility above the kinks by prior tax losses. The implied efficiency cost of raising an additional euro in corporate tax revenue drops 2-36 cents across corporate size categories once corporate ETI is adjusted for tax loss carry-forwards.

Lichard-Tax Reforms and Inter-temporal Shifting of Corporate Income-387.pdf


The Incidence of Payroll Taxation

Felipe Lobel

University of California, Berkeley, United States of America

I study a corporate tax reform targeted at the sector and product level, in Brazil. Difference-in-differences estimates instrumented by sector eligibility show that a 20 percentage point cut on payroll tax rates caused a 9% employment increase at the firm level, mostly driven by small firms. This expansion is not driven by formalization of existing workers, and it is explained by reduction on separations rather than additional hires. In terms of earnings, it takes time for workers to benefit from a pass-through. On average there is a 1.8% (indistinguishable from zero) earnings increase. However, the event study estimates show a sharp zero earnings effect in the short run, and a significant 4% increase in the long run. Merging tax and labor data with the universe of collective bargaining agreements (CBAs) in Brazil, I provide suggestive evidence that the pass-through to earnings is augmented for unionized workers.

Lobel-The Incidence of Payroll Taxation-167.pdf


Investment Revisions after Corporate Tax Hikes

Sebastian Link, Manuel Menkhoff, Andreas Peichl, Paul Schüle

ifo Institute / LMU Munich, Germany

This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1,400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how tax hikes induce firms to revise their investment decisions. On average, the share of firms that invest less than previously planned increases by three percentage points after a tax hike. This effect is twice as large during recessions.

Link-Investment Revisions after Corporate Tax Hikes-206.pdf
 
11:00am - 1:00pmA08: Political Economy I
Location: Room HS 3
 

Young Vs. Old Politicians and Public Spending Priorities

Thushyanthan Baskaran1,2, Zohal Hessami1,3, Sebastian Schirner1

1Ruhr-University Bochum; 2ZEW Mannheim; 3CESifo Munich, IZA Bonn

Can young politicians influence policy choices in political bodies dominated by old politicians? We study this question using hand-collected candidate-level data on municipal elections (1996-2014) and detailed administrative data on municipal spending from Bavaria. Our identification strategy is based on within-party candidate-level races for marginal seats. We find that municipalities with a higher share of young councilors spend more on public goods valued by young inhabitants: child care and schools. Thus, the underrepresentation of the young in the political class is detrimental to their interests. We further show that this effect is conditional on the age structure of constituencies, i.e. electoral incentives remain important even in contexts where political selection considerably affects policy choices.

Baskaran-Young Vs Old Politicians and Public Spending Priorities-183.pdf


When Women Take All: Direct Election and Female Leadership

Davide Cipullo

Università Cattolica del Sacro Cuore, Italy

This paper investigates whether direct election regimes (à la presidential democracy) affect the selection of women into political offices compared to indirect appointment (à la parliamentary). I exploit the staggered introduction of a reform that introduced direct election of mayors in Italy. I find that the introduction of direct elections increased substantially the fraction of female mayors. The results are stronger in cities with an high pre-reform share of female politicians and driven by newly elected female officials replacing undereducated incumbents. The results of this paper inform that voters are more open to elect female leaders than party representatives.

Cipullo-When Women Take All-203.pdf


Young Voters and Budget Deficits

Bjarne Strøm1, Ole Henning Nyhus2

1Norwegian University of Science and Technology, Norway; 2NTNU Social Research, Norway

This paper exploits a novel trial in Norwegian local elections in 2011 to provide empirical evidence on fiscal performance from lowering the minimum voting age from 18 to 16 years old. Using a difference in differences research strategy, we find that this voting age change reduced the net operating surplus by around 600NOK (60euro) per capita. This finding is consistent with other micro evidence that young individuals have higher discount rates and are more likely to take risk than older ones, although evidence from other countries and institutional setting are needed to confirm this interpretation.

Strøm-Young Voters and Budget Deficits-359.pdf


Cultural Norms And Attitudes Toward Immigration: Evidence From German University Students

Björn Kauder1,4, Lukas Mergele2,3,4, Niklas Potrafke2,3,4

1German Economic Institute, Germany; 2LMU Munich; 3Ifo Institute; 4CESifo

We examine how cultural norms influence attitudes towards immigration. We exploit the stark historical differences between East and West Germany to study whether migration to another region influences these attitudes. Using representative survey data on German university students, the results show that students’ attitudes towards immigration are shaped by the culture they were socialized in. Students who migrated from East to West Germany were around 30 percent more likely to support immigration than students who stayed in East Germany. We address the endogeneity of the migration decision by comparing students who moved across the East-West border with students who moved within East Germany. We also exploit plausibly exogenous variation in the decisions of the German Central Agency (ZVS) that assigned students to German universities. Exploring potential mechanisms, we find evidence for horizontal transmission of cultural norms when migrants were often interacting with fellow students in West Germany.

Kauder-Cultural Norms And Attitudes Toward Immigration-407.pdf
 
11:00am - 1:00pmA09: Optimal Taxation I
Location: Room K 001 A
 

Tax curvature

Albert Jan Hummel

University of Amsterdam, Netherlands, The

In a Mirrleesian environment, a monopsonist sets hourly wages and individuals choose how many hours to work. Labor market outcomes do not only depend on the level and slope of the income tax function, but also on its curvature. A more concave tax schedule raises the elasticity of labor supply, which boosts wages. Consequently, optimal marginal tax rates for low-skilled workers are declining in income. I derive an optimal tax formula in terms of sufficient statistics that accounts for the impact of tax curvature on labor market outcomes.

Hummel-Tax curvature-367.pdf


Pareto Efficient Income Taxation: Tax Cuts, Poverty Alleviation and the Direct-Indirect Tax Mix

Thomas Gaube

University of Osnabrueck, Germany

A nonlinear (Mirrleesian) income tax is Pareto efficient iff no tax cut exists that pays for itself (Laroque, 2005a; Werning, 2007). I point out that this result extends to multiple tax bases, behavorial reactions and dimensions of behavioral heterogeneity, and to tax cuts within a single income bracket if the single-crossing assumption holds. These findings are used for showing (1) that efficiency gains from indirect taxes can only occur if conditional consumption demand and earnings are statistically dependent and (2) that any tax policy that maximizes statutory disposable income below the poverty line implements an allocation that is Pareto efficient and optimal for the poor.

Gaube-Pareto Efficient Income Taxation-397.pdf


Housing and Pecuniary Externalities

Christopher Krause, Luca Pegorari

Karlsruhe Institute of Technology (KIT), Germany

We analyze the efficiency properties of a general equilibrium model that puts front and center the interplay of housing and credit markets. In a setting with heterogeneous households, idiosyncratic risk and incomplete markets, we study the impact of the inherent illiquidity of housing and its collateralizable nature on the optimal corrective taxation of financial assets. We characterize constrained efficiency by sufficient statistics and find that Pareto improvements can be achieved by taxing borrowings and savings to different degrees, such that both capital and the housing price are reduced. Illiquidity limits the way in which insurance can be implemented and determines that the socially efficient level of aggregate capital is lower than at the laissez-faire outcome. Collateralizability introduces a trade-off in alleviating the social costs of the two frictions at play: We find that the socially more important margin is to improve households’ insurance instead of enlarging their credit possibilities.

Krause-Housing and Pecuniary Externalities-260.pdf


Equity and Efficiency of Childcare Subsidies: A Dynamic Structural Approach

Dominik Sachs2, David Koll1, Hélène Turon4, Fabian Stürmer-Heiber3

1University of St. Gallen, Switzerland; 2University of Mannheim; 3Bristol University; 4Allianz

Childcare policies improve the compatibility of family & career and can increase maternal life cycle earnings & tax payments. How much should childcare be subsidized given this fiscal externality? How should subsidies vary with income? We estimate a dynamic discrete choice model of labour supply and childcare decisions of heterogeneous families with German panel data. We evaluate a recent expansion of public childcare slots and find that this program paid for itself through the fiscal externality. Increasing subsidies further by marginally lowering fees per slot would only be 6% self-financing.

We then turn to the question how subsidies should vary with income. We compare the dynamic marginal excess burden (MEB) from making the childcare fee schedule marginally more progressive to the dynamic MEB from making the tax schedule marginally more progressive.

Sachs-Equity and Efficiency of Childcare Subsidies-452.pdf
 
11:00am - 1:00pmA10: Macro Public Finance I
Location: Room K 034 D
 

Rising Earnings Inequality and Optimal Income Tax And Social Security Policies

Pavel Brendler

University of Bonn, Germany

How did the US government preferences over income redistribution across generations and within generations change between 1970 and 2010? To answer this question, I set up a rich quantitative model in which a Ramsey government optimally chooses the income tax policy and Social Security. I apply the model to decompose the total change in the actual policies during 1970--2010 into the impact of economic and demographic changes and the impact of a shift in government preferences. In response to economic and demographic developments, the government should optimally raise income taxes and reduce the pension system's size. But a shift in government preferences toward more educated and older households reverses the direction of the policy adjustment and dominates quantitatively.

Brendler-Rising Earnings Inequality and Optimal Income Tax And Social Security Policies-361.pdf


Fiscal Policy Advice of Economic Experts: Facts or Preferences?

Klaus Gründler, Niklas Potrafke

ifo Institute, Munich, Germany

Is fiscal policy advice of economic experts based on facts or preferences? We conduct a global randomized experiment among 1,224 influential economic experts across 109 countries with two treatments that represent drastic changes of facts. The first treatment is the variation in the initial spread of Covid-19 across the globe during March 2020. The second treatment informs experts about their countries' past macroeconomic performance. Both treatments substantially change experts' fiscal policy recommendations. Machine learning techniques for sentiment analyses applied to open-ended questions suggest that changes in policy recommendations are caused by information updating and not by changes in preferences.

Gründler-Fiscal Policy Advice of Economic Experts-130.pdf


Revisiting Retirement and Social Security Claiming Decisions

Neha Bairoliya1, Kathleen McKiernan2

1University of Southern California, United States of America; 2Vanderbilt University, United States of America

Why do individuals retire and claim their Social Security benefits at the age they do? We revisit this crucial question by exploring new sources of heterogeneity in these decisions as well as novel mechanisms governing these trade-offs. Using data from the Health and Retirement Study and the Understanding America Survey, we first document data fact related to claiming behavior. We then build a life-cycle model of consumption, savings, labor supply, and Social Security application decisions as well as heterogeneity in education, marital status and SS program knowledge. The model includes uncertainty in health, subjective survival, wages, and job separation as well as rich details of the U.S. Social Security program to understand claiming decisions. We show that the estimated model can closely match the claiming behavior as seen in the data and also produce differences in SS claims along the dimensions of heterogeneity considered.

Bairoliya-Revisiting Retirement and Social Security Claiming Decisions-251.pdf


Behavioral Responses to a Pension Savings Mandate: Quasi-experimental Evidence from Swiss Tax Data

David Burgherr

London School of Economics, United Kingdom

A straightforward policy tool to boost retirement savings is requiring workers to contribute some fraction of their earnings to a pension account. Drawing on detailed administrative tax data on income, wealth, and savings, I study the savings response to the occupational pension savings mandate in Switzerland using regression discontinuity and difference-in-differences designs. I find that being obliged to contribute to an occupational pension account leads individuals to raise other forms of retirement savings such as preferentially taxed private pension savings and occupational pension buy-ins. The crowding-in effect on private pension savings is driven by reduced information frictions and increased salience of retirement savings and facilitated by having another earner in the household. The additional retirement savings appear to be funded by reduced private savings rather than lower current consumption, so total savings remain unaffected by the mandate.

Burgherr-Behavioral Responses to a Pension Savings Mandate-487.pdf
 
11:00am - 1:00pmA11: Pensions I
Location: Room K 033 C
 

Fundamentally Reforming the Public DI System: Evidence from German Notch Cohorts

Nicolas Ziebarth1,3, Johannes Geyer2

1Cornell University, United States of America; 2DIW Berlin; 3ZEW Mannheim

This paper comprehensively evaluates a fundamental reform of the public Disability Insurance (DI) system in Germany. Effective 2001, cohorts born after 1960 are no longer eligible for “occupational DI.” Occupational DI (ODI) implies benefit eligibility if employees are no longer able to work in their previous occupation. For notch cohorts, the new general DI eligibility rules require that their reduced work capacity must prevent them from working in any job. Using administrative statutory pension insurance data, we first show that the reform significantly reduced the inflow of new DI beneficiaries by 20% for males and 10% for females. Using representative data on old-age saving motives and health, we find no evidence that the notch cohorts purchased individual private ODI policies at higher rates to compensate for the reduced generosity in the public DI system. Finally, we categorize privately uninsured ODI households.

Ziebarth-Fundamentally Reforming the Public DI System-180.pdf


Pre-retirement Employment Protection: No Harm When Times Are Good

Paweł Chrostek1, Krzysztof Karbownik2, Michal Myck3

1Ministry of Finance, Poland; 2Department of Economics, Emory University; 3Centre for Economic Analysis, CenEA, Poland

Employees in Poland with less than four years before they reach statutory retirement age are covered by strict labour protection. Such regulations may have unintended negative implications for employment among those who are nearing the age when the legislation becomes binding for their employers. We examine this issue using population-level administrative data and identify the role of employment protection with reference to a reform which lowered statutory retirement age to 60 (women) and 65 (men). An unintentional consequence of this reform was extension of employment protection to younger cohorts of employees. Preliminary results show no economically or statistically significant negative effects of the legislation on employment of either men or women nearing the age of eligibility for protection. This suggests either that these effects are absent or any potential concerns of employers related to prospective employment protection were counteracted by strong labour demand at the time.

Chrostek-Pre-retirement Employment Protection-440.pdf


Can Pensions Save Lives? Evidence from the Introduction of Old-Age Assistance in the UK

Philipp Jäger

RWI-Leibniz Institute for Economic Research, Germany

I study the impact of old-age assistance on mortality using the introduction of public pensions in the UK in 1909 as a quasi-natural experiment. Exploiting the newly created pension eligibility age through a difference-in-difference event-time design, I show that elderly mortality in England and Wales declined after the pension was introduced. The estimated mortality decline is economically relevant, more pronounced in counties with a higher treatment intensity and is driven by fewer deaths from infectious as well as non-infectious diseases. An analysis of individual level census data using a regression discontinuity design, points to a reduction in crowding and retirement, especially from hazardous work spaces, as likely channels.

Jäger-Can Pensions Save Lives Evidence from the Introduction-163.pdf


Joint Retirement of Couples: Evidence from Discontinuities in Denmark

Esteban Garcia-Miralles1, Jonathan Leganza2

1Banco de España; 2John E. Walker Department of Economics, Clemson University

We study joint retirement and its underlying determinants. First, we use full-population data from Denmark and a discontinuity design to document joint retirement at the early pension eligibility age. For every 100 individuals who retire when they reach pension eligibility, around 8 of their spouses adjust their behavior to retire at the same time. Next, we investigate mechanisms. We begin by showing that our estimates are explained primarily by leisure complementarities, and not other channels. We then explore pathways couples take to retire together and find that age differences are a fundamental determinant of joint retirement, which is driven by older spouses waiting until their younger partners reach pension eligibility as well. Accounting for age differences and relative earnings reveals a gender gap; females are more likely to adjust their retirement to coincide with their partner’s retirement. Finally, we show that a reform increasing eligibility ages induced similar retirement spillovers.

Garcia-Miralles-Joint Retirement of Couples-493.pdf
 
11:00am - 1:00pmA12: Welfare Programs I
Location: Room K 224 B
 

Microsimulation Approaches To Studying Shocks And Social Protection In Selected Developing Economies

Kwabena Adu-Ababio

University of Helsinki, Finland

This paper calculates automatic stabilization in Ghana, South Africa and Ecuador to explain income cushioning amid income and demand shocks. Fiscal policies within these countries are also stress tested to gauge welfare contingencies and insurance. A discretionary action approach is adopted for Ghana as it fails shock resistance tests by introducing additional safety nets that improve welfare. For the three countries income stabilization ranges from 1% to 22% whiles demand stabilization ranges from 4% to 25%. Ranging from 12% to 92%, a new concept of poverty stabilization is formalized to measure vulnerability. Fiscal stress tests conclude on the social policy structure protecting households.

Adu-Ababio-Microsimulation Approaches To Studying Shocks And Social Protection-213.pdf


The Macroeconomic Effects of Universal Basic Income Programs

Andre Victor Doherty Luduvice

Federal Reserve Bank of Cleveland, United States of America

I develop a heterogeneous agents overlapping generations model to assess the welfare effects of substituting the US income security system with a UBI policy. I find that an expenditure-neutral reform has moderate impacts on agents' labor supply but induces aggregate capital and output to grow due to larger precautionary savings. A UBI of $1,000 monthly generates an increase in the tax rate of consumption and an overall decrease in the aggregates. In both cases, disposable income is more equally distributed. The UBI economy constitutes a welfare loss if it is expenditure-neutral and results in a gain in the second scenario.

Doherty Luduvice-The Macroeconomic Effects of Universal Basic Income Programs-375.pdf


Risk And Vulnerability For Entering Poverty: The Role Of Earnings Shocks For Young Adults

A. Abigail Payne, Maxim Ananyev, Roger Wilkins, Federico Zilio

University of Melbourne, Australia

A household’s vulnerability to poverty at any point in time depends on the evolution of livelihood prospects and well-being. This in turn will depend on income volatility due to macroeconomic and other shocks, behavioural reactions to such shocks, and a set of complex dynamic interlinkages that relate to individual, household, and community factors. There can be scarring effects from just a single year of not working. This paper focuses on a critical feature that can be used to identify vulnerability, namely negative shocks to labour earnings to explore the impact of such shocks on young male and female wage earners. We observe a 5 percentage point difference in shock rates for women (higher) and that women take longer to recover from these shocks. Only part of these differences can be explained by family composition and having children. We explore several factors that can explain earnings shocks and recoveries.

Payne-Risk And Vulnerability For Entering Poverty-152.pdf


To the Rescue? The Mitigating Role of Tax and Benefit Rescue Packages for Poverty and Inequality in Africa Amid the COVID-19 Pandemic

Jesse Lastunen1, Pia Rattenhuber1, Kwabena Adu-Ababio1, Katrin Gasior2, H. Xavier Jara5, Maria Jouste1, David McLennan2, Enrico Nichelatti1, Rodrigo Oliveira1, Jukka Pirttilä3, Matteo Richiardi4, Gemma Wright2

1UNU-WIDER, Finland; 2Southern African Social Policy Research Insights (SASPRI); 3University of Helsinki, Helsinki, Finland; 4University of Essex, Colchester, UK; 5London School of Economics and Political Science, UK

This paper analyses the distributional effects of the COVID-19 pandemic and related tax-benefit measures in 2020 in a cross-country comparative perspective for five African countries: Ghana, Mozambique, Tanzania, Uganda, and Zambia. We first estimate the impact of the crisis on disposable incomes, how effects vary across the income distribution, and in how far tax-benefit policies stabilized earnings losses. We then evaluate the impact on income-based poverty and inequality and the contribution of discretionary tax-benefit policies in alleviating the shock. Our analysis shows modest increases in headcount poverty rates and inequality, and somewhat larger effects on the poverty gap due to lower relative earnings losses of the poor population at the early stage of the pandemic analysed here. We find very limited stabilizing power of tax-benefit policies overall and automatic stabilizers in particular. This illustrates gaps in coverage for the large informal sector and a general lack of income-related means-tested benefits.

Lastunen-To the Rescue The Mitigating Role of Tax and Benefit Rescue Packages-286.pdf
 
11:00am - 1:00pmA13: Tax Administration I
Location: Room K 009 D
 

The Effects of a Risk-Based Approach to Tax Examinations: Evidence from Tanzania

Amina Ebrahim2, Elineema Kisanga3, Ezekiel Swema4, Vincent Leyaro3, Edwin P. Mhede4, Heikki Palviainen5, Jukka Olavi Pirttilä1

1University of Helsinki, Finland; 2UNU-WIDER; 3University of Dar es Salaam; 4Tanzania Revenue Authority; 5Tampere University

While technical assistance and increased use of ICT in the area of tax administration have been regarded to hold considerable promise for greater revenue collection, the evidence on how these activities work in the real-world circumstances of developing countries is scant. The paper attempts to fill this gap by evaluating an intervention undertaken jointly by the Finnish and Tanzanian revenue administrations. In this pilot programme, a risk-based method for enhancing firm tax examinations in Tanzania was developed. The results, which are based on a difference-in-differences strategy and administrative data from the Tanzanian Revenue Authority, demonstrate that the intervention increased adjusted taxable income by approximately 15 per cent during the first year of the new approach.

Ebrahim-The Effects of a Risk-Based Approach to Tax Examinations-281.pdf


VAT Refunds and Firms’ Performance: Evidence from a Withholding Reform in Honduras

Thiago Scot1, David Pineda Pinto2

1The World Bank, United States of America; 2Servicio de Administración de Rentas de Honduras

Value-added taxes (VAT) have been widely adopted across the world. One key issue in the effective administration of VAT are refunds: late or unreliable refund of credits undermine the best traits of VAT systems. In this paper we use administrative data on the universe of VAT filers in Honduras with two goals. First, we document the substantial expansion of unrefunded credits in the period 2011-2019 and characterize which firms are most affected by unrefunded credits. Second, we study a reform that substantially decreased the withholding rate by digital payment providers, document that the reform causally decreased the unrefunded credits of a subset of firms and use a differences-in- differences approach to estimate the impacts of this reform on the economic performance of these firms.

Scot-VAT Refunds and Firms’ Performance-479.pdf


E-government and Tax Compliance: Evidence from Indian Firms

Prakriti Joshi

Indian Institute of Technology, Delhi, India

Does e-filing of tax returns in an economy increase tax compliance? We assess the impact of mandatory e-filing of tax returns on the tax compliance of firms in India. Using micro-data of Indian companies from 2003 to 2011, we employ the difference-in-differences method to find the impact e-filing has had on tax avoidance of private firms. We find that mandatory e-filing of tax returns has decreased tax avoidance levels for private companies in India.

Joshi-E-government and Tax Compliance-516.pdf


When Should Governments Audit?

Martina Cuneo1, Jetson Leder-Luis2, Silvia Vannutelli1

1Northwestern University, United States of America; 2Boston University, United States of America

Internal audits are a costly mechanism used by governments for detection and deterrence of corruption among their employees. Despite being widely used across the world, the effectiveness of audits has only been studied in circumstances of moderate government capacity and in countries of moderate wealth. In this paper, we develop a new model of optimal government auditing. The effectiveness of audits depends on two factors: it is increasing in the state's ability to respond to audit findings, but also increasing in the underlying level of bad behavior it can detector deter. Consistently with theoretical predictions, we review the existing empirical literature on government audits and show that they are most effective in middle-state capacity countries. Lastly, we present evidence from the American context, a high-capacity and low-corruption environment.

Cuneo-When Should Governments Audit-529.pdf
 
11:00am - 1:00pmA14 (hybrid): Emerging Economies
Location: MZ 208 B (Management Building)
 

Shine a (Night)light: The Unequal Impact of Decentralisation on Development in Burkina Faso

Rose Camille Vincent1, Olivier Bargain2, Émilie Caldeira3

1Chair of Public Economics, ETH Zürich, Switzerland; 2Bordeaux School of Economics, Université de Bordeaux, France; 3CERDI-CNRS, Université Clermont-Auvergne, France

Decentralization has been one of the most prominent public reforms of the last decades, particularly in sub-Saharan Africa. Yet, few studies propose an ex-post causal evaluation of its effectiveness. We attempt to fill the gap by exploiting the gradual implementation of the decentralization agenda across different communes in Burkina Faso from 1995 onwards. We use satellite information on night-time light density throughout 1992-2010 as a proxy for local development. Using a difference-in-difference approach, we find a strong impact of the early phase of the reform. We also explore factors that may have enhanced its impact, such as the ability to raise local resources and attract central government funding. Compared to communes decentralized at a later stage, more rapid development is observed in the larger communes. Yet, such development is not necessarily related to their internal or external access to resources, nor their political influence as regional or provincial capitals.

Vincent-Shine a (Night)light-384.pdf


Detecting Envelope Wages with E-billing Information

Andrea Lopez-Luzuriaga1, Monica Calijuri2, Carola Pessino2, Simeon Schächtele2, Carla Chamorro3

1Universidad del Rosario, Colombia; 2Inter-American Development Bank; 3Servicio de Rentas Internas Ecuador

We use information from the electronic billing system to estimate the under-reporting of income of private sector employees using the Pissarides and Weber (1989) expenditure-based methodology. We find that in Ecuador, private sector employees under-report between 7\% and 9\% of their income, with significant heterogeneous effects by firm size. The size of the gap is negatively correlated with the number of employees at the firm.

Lopez-Luzuriaga-Detecting Envelope Wages with E-billing Information-504.pdf


Public Debt, Tax and Economic Growth in Sub-Saharan African Countries

Abdulfatai & Adekunle Adedeji, Mutiu & Abimbola Oyinlola, Oluwatosin Adeniyi

University of Ibadan, Nigeria

This study examined the effect of public debt on tax-growth nexus using 23 SSA countries over the period 1990-2020. It employed a dynamic fixed-effects model for linear and non-linear approaches. Additionally, different countries’ classifications were also considered. Under full sample, the results show that public debt enhances the effectiveness of only indirect taxes while it largely enhances the effects of different tax measures on growth when four highly in debt countries were excluded using linear approach. However, the effect of public debt on tax-growth relationship varies with different tax measures under nonlinear approach. Exploring different countries’ classifications, we established evidence for public debt reducing the effectiveness of some tax measures while public debt enhances the efficacy of indirect taxes in middle-income countries. Under nonlinear approach, mixed results were obtained. Further analysis shows that public debt has different effects on tax-growth nexus in other classifications using both linear and nonlinear approaches.

Adedeji-Public Debt, Tax and Economic Growth in Sub-Saharan African Countries-506.pdf


Debt Sustainability: Empirical Evidence from BRICS Countries

Magulsha George, Shanmugam K R

Madras School of Economics, India

This study attempts to analyze public debt sustainability in BRICS countries from 1993 to 2020, using the model-based Bohn framework and the penalized spline estimation. The debt is said to be sustainable when the lagged debt coefficient in the primary balance equation is positive. The results indicate that the public debt is sustainable in China and South Africa and it is unsustainable in Brazil, India and Russia. Estimation of external debt sustainability shows that the external debt is sustainable in China alone and is unsustainable in other BRICS countries. Also, an attempt has been made to estimate the threshold level of debt beyond which it could exert an adverse impact on the economy. Interestingly, for all BRICS nations, the reaction coefficient has not stayed constant over time, i.e., it is time-varying.

George-Debt Sustainability-520.pdf
 
1:00pm - 2:00pmLunch I: Lunch
Location: Mensa
2:00pm - 4:00pmB01: International Tax III
Location: Room HS 7
 

Tax Induced Transfer Pricing Under Universal Adoption of the Destination-based Cash-flow Tax

Thomas A. Gresik1, Guttorm Schjelderup2

1University of Notre Dame, United States of America; 2Norwegian School of Economics, Norway

The view that the transfer pricing problem vanishes under universal destination-based cash flow taxation (DBCFT) is based on how firms behave in perfectly competitive markets. We show that the neutralizing effect DBCFT has on transfer price incentives fails once multinational firms are multi-market oligopolists. Under imperfect competition, a multinational will delegate output decisions to its affliates. The transfer price then takes on a strategic role because it influences competitors' actions. Even if all countries adopt DBCFT, transfer prices will not equal arm's length prices, and the global effciency implications attributed to DBCFT are lost.

Gresik-Tax Induced Transfer Pricing Under Universal Adoption-309.pdf


International Taxation And Bilateral Royalty Flows

Arjan Lejour1,3, Maarten van 't Riet2,3

1Tilburg University, the Netherlands; 2Leiden University, the Netherlands; 3CPB Netherlands Bureau for Economic Policy Analysis

Shifting intellectual property rights is one of the strategies to lower corporate income taxation. The reimbursements of IP-licenses can be used by multinationals to allocate profits over their holdings in various regions. We investigate to what extent bilateral royalty flows are affected by differences in corporate income and withholding taxes. Using OECD data between 2014 and 2018, we try to isolate the influence of effective tax rates on the IP-location. These rates are derived from a network analysis where we discriminate between direct planning gains and treaty shopping gains. The latter are gains from exploiting lower bilateral withholding taxes in conduit countries. We employ PPML estimators and conclude that direct planning gains increase the size of bilateral royalty flows and that higher withholding taxes on royalty flows decrease its size. Based on our regression outcomes we estimate that about 20% of the royalty flows is motivated by tax panning reasons.

Lejour-International Taxation And Bilateral Royalty Flows-243.pdf


Reducing Tax Uncertainty - The Effect of Advanced Pricing Agreements on Firms' Profits

Kristina Strohmaier1, Julia Neidhart2

1University of Tübingen, Germany; 2University of Zürich

While efforts to decrease tax avoidance by multinational firms have led to tighter and more complex tax rules, the number of tax disputes have steadily increased. This paper studies the effect of advance pricing agreements (APAs) programs by which firms and tax authorities mutually agree on transfer pricing practices related to intra-firm transactions in advance of tax return filing. Using a novel data set on APAs, we show that the number of agreements has steadily since the beginning of 2010s.Linking this data with panel data form multinational firms, the study investigates whether these programs are instrumental in reducing tax uncertainty and increase firm profits. The analysis finds a significantly positive effect of APAs on firms' profits and indicates that this is intensified if the APA is bi- or multilateral. Firms that especially benefit from APAs are large, located in low-income countries and have many intangibles.

Strohmaier-Reducing Tax Uncertainty-492.pdf


Leveling the Playing Field: Constraints on Multinational Profit Shifting and the Performance of National Firms

Nadine Riedel1, Patrick Gauß1, Michael Kortenhaus1, Martin Simmler2

1University of Münster, Germany; 2Oxford University CBT

A flourishing literature quantifies the corporate tax revenue losses from multina- tional profit shifting to low-tax countries. Other consequences of international tax avoidance are less researched. In this paper, we assess the notion that tax avoidance impacts product market outcomes and may put national com- petitors of multinational firms "at a competitive disadvantage" (OECD, 2013). Empirical identification relies on changes in transfer pricing regulations that inhibit multinational profit shifting by strategic mis-pricing of intra-firm trade. Based on rich data on firms in Europe, we show that tighter transfer pricing provisions raise multinational firms’ effective tax costs and significantly increase the observed sales and profits of affected firms’ national competitors; national firms’ mark-ups, in turn, remain largely unchanged. We discuss implications of our findings.

Riedel-Leveling the Playing Field-476.pdf
 
2:00pm - 4:00pmB02: Pensions II
Location: Room HS 2
 

The Impact Of Pension Systems In Labor Markets With Informality

Carla Moreno

Emory University, United States of America

This paper examines the impact of pension systems in economies with large informal labor markets using Peru as a case study. Here, contributions to a pension system can only be enforced on formal-sector workers.

I develop a heterogeneous agent life-cycle, overlapping generations model where informality arises endogenously as workers choose their optimal working sector each period. Formal workers choose between a pay-as-you-go and an individual-account pension system, while the government finances a non-contributory means-tested pension. The contributions formal workers make to the pension system impose a liquidity constraint, making workers more likely to choose informal jobs. I show that both types of pension systems present in the model affect labor decisions and that removing them increases formality and yields higher welfare. Finally, in comparison to having both types of pension system or only an individual-account system, I find that an economy with a PAYG-only system has the highest ex-ante welfare.

Moreno-The Impact Of Pension Systems In Labor Markets With Informality-468.pdf


Public Pensions and Private Savings

Esteban Garcia-Miralles1, Jonathan M. Leganza2

1Banco de España; 2John E. Walker Department of Economics, Clemson University

How does the provision of public pension benefits impact private savings? We answer this question in the context of a Danish reform that increased social security eligibility ages. Using administrative data and a regression discontinuity design, we identify the causal effects of the policy on savings throughout the financial portfolio. We find a lack of anticipatory responses after the reform is announced, whereas we find large increases in savings after the reform is implemented. Specifically, we find increased contributions to personal and employer-sponsored retirement accounts when delayed benefit eligibility induces extended employment. We argue that inertia is a key mechanism.

Garcia-Miralles-Public Pensions and Private Savings-402.pdf


Labor Supply and the Pension Contribution-Benefit

Tomasz Zawisza1,4, Eric French2,4, Attila Lindner1,4, Cormac O'Dea3,4

1UCL; 2University of Cambridge; 3Yale University; 4IFS

We estimate the impact of public pension systems on labor supply far from the normal retirement age by exploiting Poland's switch from a Defined Benefit to a Notional Defined Contribution scheme for those born after 1948. Using the universe of taxpayers and this sharp cohort-based discontinuity in the link between current contributions and future benefits, we estimate an employment elasticity with respect to the return to work of 0.44 for ages 51-54. Matching these results, we estimate a lifecycle model which highlights how changing the contribution-benefit link of public pensions impacts labor supply at all ages.

Zawisza-Labor Supply and the Pension Contribution-Benefit-498.pdf


Gender Pension Gaps in a Private Retirement Accounts System

Clement Joubert1, Petra Todd2

1World Bank; 2University of Pennsylvania

This paper develops and estimates a dynamic model of individuals' and couples' labor supply, savings, and retirement decisions to analyze how the design of Chile's privatized pension system and a reform undertaken in 2008 affect gender pension gaps and old-age poverty. The paper estimates the dynamic model using pre-reform data and compares the model's short-term forecasts with reduced form estimates of the reform's causal impacts. Three features significantly reduce gender gaps: expanding minimum pension benefit eligibility, providing a per-child pension bonus, and increasing women's retirement age to be equal to men's. Overall, the 2008 pension reform largely achieved its goals of reducing gender gaps and old age poverty, although the new system costs double that of the old system.

Joubert-Gender Pension Gaps in a Private Retirement Accounts System-426.pdf
 
2:00pm - 4:00pmB03: Wealth Inequality
Location: Room HS 6
 

Generational Wealth Inequality Across the Distribution: Trends in the U.S. since 1949

Philipp Jäger, Philip Schacht

RWI-Leibniz Institute for Economic Research, Germany

We document two novel empirical facts about generational wealth inequality in the U.S. using recently collected long-run micro data (SCF+). First, among all cohorts born in the 20th century, median household wealth was highest for people born in the 1940s and has been declining ever since. Second, wealth inequality within birth cohorts has also increased substantially for all generations born after the 1940s. While average wealth of the richest 10% continued to rise from cohort to cohort, performance at the bottom of the wealth distribution was even more dire than at the median. Shifts in observable household characteristics, life expectancy or length of educational paths cannot fully explain these trends. The growing wealth gap across and within cohorts is to a large extent driven by diverging saving patterns, which are likely caused by changes in income levels and saving rates.

Jäger-Generational Wealth Inequality Across the Distribution-164.pdf


Wealth Survey Calibration: Imposing Consistency with Income Tax Data

Daniel Kolar

Charles University in Prague, Czech Republic

Wealth surveys tend to underestimate wealth concentration at the top due to the ”missing rich” problem. We propose a new way of improving the credibility of wealth surveys: We impose their consistency with tabulated income tax data. This is possible with the HFCS survey that collects data on both income and wealth. Consistency is achieved by calibrating survey weights using the income part of HFCS. Calibrated weights are then used with HFCS wealth values. We test the method on Austrian data and find that calibration increases the top 1 % wealth share in 2014 and 2017. The effect is small and negative in the 2011 HFCS wave, even though the net worth of the top 1 % is increased. We also highlight a strong downward bias in the Austrian HFCS income distribution that starts as early as before the 80th percentile. After the calibration, we test other top tail adjustments.

Kolar-Wealth Survey Calibration-196.pdf


A Simplified Mortality Multiplier Method: New Estimates of Wealth Concentration

Facundo Alvaredo1, Yonatan Berman2, Salvatore Morelli3

1Paris School of Economics, IIEP-Conicet, and INET at Oxford; 2King's College London; 3The Graduate Center and Stone Center on Socio-Economic Inequality, City University of New York, and Università Roma Tre

The distribution of estates has commonly served for the estimation of the distribution of wealth among the living via the estate multiplier method. Applying detailed multipliers can increase or decrease top wealth shares relative to estate shares. This depends on the evolution of mortality rates by age, gender, income and wealth. In this paper, we make use of a simplified multiplier method - using only average mortality rates and aggregate tabulations by estate size - to produce novel long-run historical series of the distribution of wealth for several developed and developing countries, where data have not been exploited yet. We make use of basic statistical information from the administration of inheritance taxes to make well-grounded inferences about the concentration of wealth in those country-years where there is no information to apply the detailed mortality multiplier method. This allows us to estimate new series of the wealth distribution for a number of countries.

Alvaredo-A Simplified Mortality Multiplier Method-214.pdf


The Wealth of Generations

Luis Bauluz1,2, Timothy Meyer2

1University of Bonn; 2WID

We study the wealth accumulation of US birth cohorts in the last six decades to shed light on the evolution of aggregate wealth, saving and inequality. We uncover a new set of stylized facts, showing a steepening of the age-wealth profile, leading to a stark wealth divergence between the old and the young since 1980. Wealth accumulation has been unequal within birth cohorts, with the poor holding less and the rich holding more wealth over time. We study drivers by decomposing wealth growth into saving, inheritances and capital gains. While saving was the single most important source of wealth old cohorts, capital gains play a prominent role for more recent generations and account for the steeper wealth profile. Turning to aggregates, we show that the rise in income inequality and the steepening of life-cycle wealth explain most of the increase in the aggregate wealth-to-income ratio.

Bauluz-The Wealth of Generations-482.pdf
 
2:00pm - 4:00pmB04: Health Policy and Public Goods
Location: Room K 153 C
 

Crisis Experience and the Deep Roots of COVID-19 Vaccination Preferences

Ekaterina Borisova1,5, Klaus Gründler2,3,4, Armin Hackenberger3, Anina Harter3, Niklas Potrafke2,3,4, Koen Schoors5,1

1HSE University; 2CESifo; 3ifo Institute; 4University of Munich (LMU); 5Ghent University

We examine the deep roots of preferences for vaccination against COVID-19, moving beyond proximate factors which can only account for part of the observable heterogeneity in the willingness to get vaccinated. Our model on experience-based learning predicts that exposure to past disruptive crises increases individuals' willingness to acquire and take a promising remedy when new crises occur. Using micro-level data on vaccination preferences for individuals from 19 countries, we find strong evidence for our prediction. We investigate the role of competing vaccines exploiting original geocoded survey data from Russia. Consistent with our theory, past crisis experience decreases vaccination willingness when individuals have learned to distrust the effectiveness of government administered remedies.

Borisova-Crisis Experience and the Deep Roots of COVID-19 Vaccination Preferences-208.pdf


Years of Life Lost to Revolution and War in Iran

Mohammad Reza Farzanegan

Philipps-Universität Marburg, Germany

This study examines the causal joint effect of a new political regime and war against Iraq on life expectancy of Iranians for the period 1978–88 during the revolution and war. I use a synthetic control approach to construct a synthetic Iran based on a weighted average of other Middle East and North Africa and Organization of the Petroleum Exporting countries. The synthetic Iran matches the average level of key pre-revolution life expectancy correlates and the evolution of the factual Iranian life expectancy during the post-revolution period through the end of the war. The average annual years of life lost is approximately six years. In other words, in the absence of the revolution and war, an average Iranian’s life expectancy could be approximately six years longer.

Farzanegan-Years of Life Lost to Revolution and War in Iran-303.pdf


Do Women Really Comply More? Experimental Evidence from a Representative Sample

Müge Süer1, Anna Balleyer2, Nicola Cerutti3, Jana Friedrichsen4, Gyula Seres1

1Humboldt-Universität zu Berlin; 2University of Groningen; 3Mercator Research Institute on Global Commons and Climate Change (MCC); 4Freie Universität Berlin

Throughout the COVID-19 pandemic, most countries heavily rely on individual compliance with new behavior recommendations. Previous survey-based studies revealed gender differences in compliance with COVID-19 recommendations. We developed a compliance game that allows us to study compliance in a controlled environment. Our study consists of two online experiments run with separate samples that are representative of the German adult population. The main experiment (N=1600) directly measures compliance behavior. In the second experiment (N=500), participants are confronted with a vignette of the main experiment in order to study potential explanations for the behavior observed in the main experiment. We obtain three main results: First, compliance does not vary between women and men but with perceived risk and beliefs. Second, men and women equally adjust their compliance decision to new information. Third, women are expected to be more compliant than men whereas perceived social appropriateness of compliance does not differ by gender.

Süer-Do Women Really Comply More Experimental Evidence-526.pdf
 
2:00pm - 4:00pmB05: Political Economy II
Location: Room HS 5
 

Oil Wealth and Property Rights

Indra de Soysa1, Tim Krieger2, Daniel Meierrieks3

1Norwegian University of Science and Technology, Norway; 2University of Freiburg, Germany; 3WZB Berlin, Germany

We investigate the role of oil wealth in economic institutions for a sample of 150 countries between 1960 and 2014. We find that higher levels of oil wealth result in weak economic institutions in the form of low levels of private property rights protection. This result is robust to alternative instrumental-variable approaches as well as different operationalizations of oil wealth and economic institutions. We argue that our finding is indicative of oil interest groups using their economic power to achieve weaker property rights to curtail innovation and competition which are anathema to the mature and monopolistic or oligopolistic oil sector. Indeed, we also provide evidence that oil wealth induces clientelism, corruption and the repression of dissenting political voices. We argue that oil interest groups translate their outsized economic into political power through these transmission channels to enforce lower levels of property rights protection.

de Soysa-Oil Wealth and Property Rights-107.pdf


Regional Redistribution of Mineral Resource Wealth in Africa

Thushyanthan Baskaran1, Zareh Asatryan2, Carlo Birkholz3, Patrick Hufschmidt4

1Ruhr University Bochum, Germany; 2ZEW Mannheim; 3ZEW Mainnheim; 4University of Siegen

We study the economic implications of mineral resource activity on non-mining regions at the grid-level across the African continent. While the local economic effects of mineral resource activity within mining regions have been studied by previous literature, we know little about how mineral resource activity affects non-mining regions. We find that capital cities benefit from increased mineral resource activity. Leaders' birth regions also benefit, but only in autocratic regimes. Generic non-mining regions, on the other hand, are on average worse off. These results suggest that regional redistribution of resource rents in Africa is primarily undertaken to the benefit of capital cities and leaders' birth regions. In contrast, non-mining regions do not appear to be sufficiently compensated for the negative spillovers they may face due to mining activity elsewhere in the country.

Baskaran-Regional Redistribution of Mineral Resource Wealth-193.pdf


The Unintended Consequences of Post-Disaster Policies for Spatial Sorting

Marcel Henkel1, Eunjee Kwon2, Pierre Magontier3

1University of Bern; 2University of Cincinnati; 3University of Bern & IEB

Redistributing public resources across spaces affects the spatial distribution of economic activity. We provide new empirical and theoretical evidence on post-disaster policies' spatial consequences in relation to political motives. Using the exogenous variations of the timing of hurricanes relative to Election Day in the US, we show that hurricanes close to Election Day lead to oversized post-disaster grants and, consequently, attract large shares of the population to the impacted areas. We document that this effect has sizable implications for the spatial distribution of economic activity. We then introduce the relationship between political cycles and post-disaster grants as a new feature in a dynamic spatial general equilibrium model and quantify its importance for the aggregate economy.

Henkel-The Unintended Consequences of Post-Disaster Policies-333.pdf


Blaming Your Predecessor: Government Turnover and External Financial Assistance

José María Abad1, Vicente Bermejo2, Felipe Carozzi3, Andrés Gago4

1IMF; 2IESE; 3London School of Economics, United Kingdom; 4Torcuato Di Tella

We study the decision of a government to request assistance to a third party financial institution in the event of a credit shock. Using a dynamic model of electoral competition with asymmetric information, we show the incentives to request assistance are different for ongoing incumbents and for newly elected governments. Continuing governments are responsible for previous fiscal decisions and, therefore, may be reluctant to publicly accept the need for assistance. To evaluate the empirical relevance of this hypothesis, we first provide cross-country descriptive evidence using data on IMF programs. Next, we report quasi-experimental estimates obtained by studying a Spanish policy that offered indebted local governments a smoother re-payment profile of outstanding short-term debt in exchange for presenting a fiscal adjustment plan. Using a close election-regression discontinuity design, we show that newly elected governments were 25 percentage points more likely to agree on an adjustment program with the national government.

Abad-Blaming Your Predecessor-205.pdf
 
2:00pm - 4:00pmB06: International and Corporate Tax II
Location: Room HS 4
 

Evaluating Tax Harmonization

James Hines

University of Michigan, United States of America

A second order Taylor approximation implies that tax harmonization advances government objectives only if tax competition reduces average tax rates by more than the standard deviation of observed rates. In 2020 the mean world corporate tax rate was 25.9%, and the standard deviation 4.5%, so if there is an efficient harmonized tax rate, it must exceed 30.4%. An efficient minimum tax rate equals the average tax rate among those constrained by the minimum plus the average effect of tax competition. Hence there are dominated regions: in the 2020 data, there is no effect of tax competition for which a world minimum corporate tax rate between 4% and 27% would efficiently advance collective objectives.

Hines-Evaluating Tax Harmonization-315.pdf


Fiscal Consequences of Corporate Tax Avoidance

Evgeniya Dubinina1, Katarzyna Bilicka2, Petr Janský1

1Institute of Economic Studies, Faculty of Social Sciences, Charles University, Czech Republic; 2Utah State University, NBER, CEPR & Oxford Centre for Business Taxation; Jon M Huntsman School of Business, Logan, UT

Multinational corporations shift a large share of their foreign profits to tax havens and, due to this corporate tax avoidance, governments worldwide lose a portion of their tax revenue. In this paper, we analyze the consequences of tax avoidance for the structure of government tax revenues. First, we show that, at the country level, there is a strong negative correlation between the proportion of corporate tax revenues and the size of multinationals’ profit shifting. At the same time, countries with large revenue losses due to profit shifting raise a larger share from personal and indirect taxes. Second, to establish causality, we use German municipal data and analyse the effects of changes in municipal tax rates levied on corporate profits on local tax revenue structure. We show that municipalities with a large presence of aggressive multinational firms following a tax rate increase have a significant decline in that tax revenue share.

Dubinina-Fiscal Consequences of Corporate Tax Avoidance-307.pdf


Take-Up of Investment Incentives in the Euro-Area: Evidence from Finland

Elina Berghäll

VATT Institute for Economic Research, Finland

To reinvigorate sluggish economic growth in Finland and revert the decline in manufacturing machinery and equipment investment crucial to aggregate technological change, productivity growth and export competitiveness, accelerated depreciation allowances (ADA) were made available in 2009 – 2010 and in 2013 – 2016. Did the ADA succeed in raising investment? With detailed comprehensive tax return data on Finnish firms, i.e., the YRTTI database, and instrumental variables regressions, I show that the ADA significantly raised investment among those that used it. However, underutilization of the allowances was high, declining rapidly with firm size. On average, take-up reached about 5 % of the number of machinery and equipment investments exceeding 850 euros, ranging from about 1% among micro-firms to 15% for large firms. Negligible benefits, high compliance costs and window-dressing are found as primary causes to low take-up.

Berghäll-Take-Up of Investment Incentives in the Euro-Area-370.pdf


Taxation and Investment of Multinational Enterprises: An Empirical Analysis of Tax Sensitivities within and across Jurisdictions

Tibor Paul Hanappi, David Whyman

OECD, France

This document presents an analysis of the relationship between corporate income taxation and multinational enterprise investment. This paper aims to investigate two closely related questions concerning the responses of investment to taxation using unconsolidated firm-level and consolidated MNE group-level data from Bureau van Dijk ORBIS database. First, the paper provides new evidence on the heterogeneity of investment responses to taxation across multinational firms. Second, a new empirical approach is used to investigate how tax changes at host jurisdiction level affect investment at the MNE group level and whether there are propagation effects to other subsidiaries within the same MNE group.

Hanappi-Taxation and Investment of Multinational Enterprises-424.pdf
 
2:00pm - 4:00pmB07: Optimal Taxation II
Location: Room K 269 D
 

A Robust Theory of Optimal Capital Taxation

Lukas Mayr

University of Essex, United Kingdom

I derive a robust condition for the optimality of capital income tax rates that holds across a battery of benchmark macroeconomic models. In general equilibrium, endogenous factor price responses to tax changes cause strong discrepancies to the policy prescriptions previously derived in settings with exogenous factor prices. Applying my theoretical results to US data and disciplining the tax elasticity of wealth with recent quasi-experimental evidence, I find high optimal Rawlsian tax rates of about 90%, because capital tax increases raise the gross return on capital, mitigating the excess burden. At the same time, captial tax hikes depress wages, resulting in lower optimal tax rates from the perspective of households with substantial labor income, the status quo being optimal for households around the 70th income percentile. By contrast, the exogenous factor price framework suggests that most US households, who have little of no capital income, find the status quo about optimal.

Mayr-A Robust Theory of Optimal Capital Taxation-204.pdf


The Distortive Costs Of Income Taxation

Laurent Simula1, Aart Gerritsen2, Soren Blomquist3

1Ens de Lyon, France; 2Erasmus university Rotterdam; 3Uppsala university

We determine the marginal deadweight loss of marginal income taxes, allowing for both intensive and extensive responses in taxable income. Contrary to earlier literature, we provide these costs for marginal tax rates at every point in the income distribution. Our results allow for three distinct insights as they help identify the distortive costs of raising any marginal tax rate, opportunities for Pareto-improving reductions in marginal tax rates, and opportunities to redistribute from rich to poor without imposing additional distortions on the economy. We present empirical evidence

on the marginal deadweight loss of the United States income tax;

Simula-The Distortive Costs Of Income Taxation-523.pdf


Taxing Batman or Wayne Enterprises? The Optimal Combination of Corporate and Personal Income Tax

Etienne Lehmann, Eddy Zanoutene

CRED(TEPP) University Paris 2 Pantheon-Assas, France

We investigate the optimal combination of corporate and personal capital income tax rates in a closed economy with heterogeneous taxpayers, endogenous labor and capital supply and imperfect capital-labor substitution. Under the old view where investment is financed through equity issuance, both forms of capital income taxation are equivalent. Alternatively, we also consider the new view case where investment is financed by reinvesting previous profits. Personal capital income tax then affects neither profits nor wages. We eventually assume that after corporate income tax profits can be reinvested in tax-exempted assets (retained earnings) for avoidance purposes. We compute the optimal capital and personal capital income tax rate in such a case. We numerically exhibit a case where avoidance responses are so large that the optimal corporate income tax rate becomes higher than the optimal personal income tax rate, despite the fact that the latter yields no real responses.

Lehmann-Taxing Batman or Wayne Enterprises The Optimal Combination-226.pdf


Optimal Taxation of Capital Income with Heterogeneous Rates of Return

Aart Gerritsen1, Bas Jacobs2, Alexandra Rusu3, Kevin Spiritus1

1Erasmus University Rotterdam, The Netherlands; 2Free University Amsterdam, The Netherlands; 3OECD, Paris

There is increasing empirical evidence that people systematically differ in their rates of return on capital. We derive optimal non-linear taxes on labor and capital income in the presence of such return heterogeneity. We allow for two distinct reasons why returns are heterogeneous: because individuals with higher ability obtain higher returns on their savings, and because wealthier individuals achieve higher returns due to scale effects in wealth management. In both cases, a strictly positive tax on capital income is part of a Pareto-efficient dual income tax structure. We write optimal tax rates on capital income in terms of sufficient statistics and find that they are increasing in the degree of return heterogeneity. Numerical simulations for empirically plausible return heterogeneity suggest that optimal marginal tax rates on capital income are positive, substantial, and increasing in capital income.

Gerritsen-Optimal Taxation of Capital Income with Heterogeneous Rates of Return-432.pdf
 
2:00pm - 4:00pmB08: Macro Public Finance II
Location: Room HS 3
 

Scarring Effects of Major Economic Downturns: The Role of Fiscal Policy and Government Investment

Martin Larch1, Peter Claeys2, Wouter van der Wielen3

1European Commission,European Fiscal Board (EFB); 2College of Europe, Economics Department; 3European Investment Bank (EIB), Economics Department

There is ample evidence that major economic downturns produce lasting effects on real GDP in spite of active fiscal policy interventions. This paper takes a fresh look at economic scarring in 26 OECD countries since 1970 and examines the role played by fiscal policy including government investment. We find that fiscal expansions mitigate the lasting impact of major economic downturns on real GDP. However, scarring effects remain significant confronting governments with higher debt levels. While automatic stabilisers help, the limited impact of fiscal expansions on scarring goes along with the tendency to rely on discretionary increases in current expenditure rather than boosting public investment. In sum, fiscal policy makers face two difficulties in the event of a major economic downturn: (i) adopt the right type of fiscal expansion, and (ii) find the right time to pivot from short-term stabilisation to fiscal consolidation. Both challenges are fraught with political economy issues.

Larch-Scarring Effects of Major Economic Downturns-155.pdf


"Modern Money Theory" as the Ricardian Equivalence with Seigniorage in a Liquidity Trap

Shigeki Kunieda

Chuo University, Japan

In this paper, we show that the key claims of “modern money theory (MMT)” hold only when MMT is interpreted as the Ricardian equivalence with seigniorage in a liquidity trap. Under this interpretation, budget deficit financed by issuing domestic currency should be followed by the offsetting tax increase in future. Individuals realizing the future tax increase will keep holding money in a liquidity trap. The budget deficit causes the corresponding amount of savings and does not cause high inflation as MMT advocates claim. We show that this interpretation of MMT clarifies some fundamental contradictions of the claims of MMT. In conclusion, interpreting MMT as the Ricardian equivalence with seigniorage is useful to understand fundamental flaws of MMT.

Kunieda-Modern Money Theory as the Ricardian Equivalence with Seigniorage-401.pdf


Monetary Policy & Anchored Expectations - An Endogenous Gain Learning Model

Laura Gati

European Central Bank, Germany

This paper analyzes monetary policy in a model that accounts for the potential unanchoring of inflation expectations. The extent to which expectations are anchored is determined by an adaptive learning mechanism in which the sensitivity of the public’s expectations varies endogenously. Within the context of an otherwise standard macro model with nominal rigidities and natural-rate and cost-push shocks, I find that optimal policy involves an aggressive interest rate response to any threat of expectations unanchoring. This stabilizes both inflation expectations and inflation, allowing the central bank to accommodate inflation fluctuations when expectations are well anchored. Furthermore, I estimate the model-implied relationship that determines the extent of unanchoring. The data suggest that the expectations process is nonlinear and asymmetric: expectations exhibit a higher sensitivity to large surprises than to smaller ones, and to downside surprises than to upside ones.

Gati-Monetary Policy & Anchored Expectations-150.pdf
 
2:00pm - 4:00pmB09: Public Goods I
Location: Room K 001 A
 

Government Funding of Indigenous Charities

Rose Anne Devlin, Michela Planatscher

University of Ottawa

This pioneering study on the financing of Indigenous charities contributes to our understanding of government funding. We differentiate between charities that serve the Indigenous population and those that do not, and separate Indigenous charities into those located on reserve and those located off reserve. We investigate how and why government funding patterns are different for ‘Indigenous’ charities versus other registered charities. Using the T3010 - Registered Charity Information Return data from the Canada Revenue Agency spanning 2003 to 2017, four main factors influence public funding: being Indigenous is one of them. We find a 24% increase in the predicted probability of receiving government support for Indigenous charities as compared to non-Indigenous charities; Indigenous charities on reserve are 17% less likely to receive public funding relative to those off reserve. The federal government supports Indigenous charities more than non-Indigenous charities if the former does not receive other public funds.

Devlin-Government Funding of Indigenous Charities-298.pdf


Social Contractarianism and Essential Public Deliverables — How Diversity and Regime Type Inhibit Development

Andre Gerrit Lourens, Sansia Blackmore, Renee van Eyden

University of Pretoria, South Africa

This paper investigates the role of ethnolinguistic fractionalisation and regime type as fundamental determinants of social-contract formation within countries. We propose that countries' relative success in delivering three essential public goods - protection, participation and provision - captures the state-society interactions that may either drive progress, or veer towards state fragility. We employ an ordered logistics regression methodology for a sample of 133 countries over the period of 1990 to 2019 to establish the (de)stabilising effect of ethnolinguistic fractionalisation and regime type on social-contract formation. Our key findings are that ethnolinguistic fractionalisation is significant in determining the relative stability of state-society relations with more diverse countries prone to experience more unstable state-society relations. Additionally, we also find that parliamentary democracies far outperform non-democratic and presidential democracies in terms of state stability and that the type of regime matters for the continued stability and economic prosperity of a country.

Lourens-Social Contractarianism and Essential Public Deliverables — How Diversity and Regime Type Inhibit D.pdf


Growth of Public Consumption in Austria: Testing Wagner’s Law and Baumol’s Cost Disease

Monika Köppl-Turyna1, Dénes Kucsera2, Reinhard Neck3

1ECO Austria, Vienna, Austria; 2Agenda Austria, Vienna, Austria; 3University of Klagenfurt, Austria

In this paper, we analyze the development of public consumption expenditure in Austria starting in the 1940s. We focus our attention on two hypotheses as to why public consumption expenditure has been constantly increasing: Wagner’s law and Baumol’s cost disease. The estimated income elasticity of demand for public consumption expenditure of 0.85 suggests that Wagner’s law is not confirmed. In contrast, price-inelastic demand combined with a strong increase in the prices of public services relative to private goods suggest that Baumol’s cost disease is at work. A counterfactual exercise shows that in the absence of the rise in the relative price of publicly provided goods, current public consumption would equal 15.98% of GDP instead of the actually observed 19.92%. We further confirm the main observations using a cointegration model.

Köppl-Turyna-Growth of Public Consumption in Austria-126.pdf


Funding For Performance? Competitive Public Funding And The Performance Of Basic Research

Yaniv Reingewertz1, Adi Shany2, Nir Eilam3

1University of Haifa; 2Tel Aviv University; 3University of North Carolina at Greensboro

This study examines the effectiveness of competitive public funding in boosting the performance of academic researchers. We examine whether recipients of research grants from the Israel Science Foundation (ISF) increase their research productivity after they receive a grant. We construct a 10-year panel of research output and grant data for 1,582 Israeli researchers in the Exact and life Sciences and estimate a distributed leads-and-lags regression model, while controlling for the researchers' grant receipt profiles. Importantly, our model includes researcher fixed effects. We find that a research grant increases the yearly number of publications by 4.7% two years after grants receipt – an estimated effect of 0.38 million dollars per article. At the same time, the total impact of the articles written by the grant recipients is unchanged and we find evidence that the citations to these articles in the academic literature decreases.

Reingewertz-Funding For Performance Competitive Public Funding And The Performance-507.pdf
 
2:00pm - 4:00pmB10: Local Public Finance I
Location: Room K 034 D
 

Government Fragmentation and Economic Growth

Traviss Cassidy1, Tejaswi Velayudhan2

1University of Alabama; 2University of California, Irvine

How does the fragmentation of local governments affect economic activity? We examine this question in the context of a major period of decentralization in Indonesia in which the number of local governments increased by 50 percent within a decade. Exploiting idiosyncratic variation in the timing of district splits, we find that fragmentation reduces district GDP in the short run---despite large increases in central transfers. The downsides of fragmentation due to economies of scale and the inexperience of new government personnel outweigh the potential upsides of increased accountability and competition. The GDP decline is larger in "child" districts that acquire a new capital and government. Furthermore, splitting districts spend more on administration and show no improvement in the areas of public good provision, red tape, and corruption.

Cassidy-Government Fragmentation and Economic Growth-217.pdf


Linkage between Income and Government Expenditure at Indian Sub-nationals: A Second-Generation Panel Co-integration Techniques

Dinesh Kumar Nayak, Bhabesh Hazarika

National Institute of Public Finance and Policy, India

The paper covers 21 Indian States and a time-period of 40 years from 1980-81 to 2019-20. Unlike first-generation panel techniques which fails to account the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner’s law at the subnational level in India using the second-generation panel unit root method and cointegration approach. The PDOLS estimates reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner’s law, there is a mixed validity of the law at different panels across income categories and regions. In addition, it is observed that the validity of Wagner’s law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric.

Nayak-Linkage between Income and Government Expenditure-368.pdf


Migration and Tax Policy: Evidence from Finnish Full Population Data

Kaisa Kotakorpi1, Salla Kalin2, Ilpo Kaupinen3, Jukka Pirttilä2,3

1Tampere University, Finland; 2University of Helsinki; 3VATT Institute for Economic Research

While evidence on the impact of taxation on international migration of certain special groups of workers has expanded, evidence on the links between taxes and migration of the general population is extremely limited. We aim to fill this gap by estimating the impact of taxation on the migration decisions of the general working population in a high-tax source country, Finland. We find that the average domestic elasticity of migration with respect to the domestic tax rate is very small. We also provide a first empirical implementation of the theoretical results of Lehmann et al. (2014), who show that if a fully non-linear income tax schedule at the top is used, the key sufficient statistic for the optimal tax is a semi-elasticity of migration. Our estimates indicate that migration responses are increasing for top earners, but remain very small at least up to the top per mille of income earners.

Kotakorpi-Migration and Tax Policy-530.pdf
 
2:00pm - 4:00pmB11: Welfare Programs II
Location: Room K 033 C
 

The Non Take-Up To Means-Tested Transfers: Evidence From French In-Work Benefits

Claire Leroy

CREST - Ecole Polytechnique, France

Welfare programs often take the form of means-tested cash transfers in order to target directly those who need it the most. But evidence show that a significant fraction of eligible households do not benefit from such programs. In this paper, I use new administrative data to measure the non take-up rate to a French in-work benefit (``prime d'activité''). I show that between 20 and 30% of eligible households did not take up the benefit but that this share decreased significantly following a recent reform of the schedule. I also exploit the quasi-experimental setting provided by this reform to identify the relative importance of two possible mechanisms behind non take-up: high transaction costs and low information. Building on these results, I derive insights on the implications of imperfect take-up for the optimal design of transfers by constructing a model for optimal taxation with endogenous labor supply and take-up decision.

Leroy-The Non Take-Up To Means-Tested Transfers-454.pdf


Who Benefits? - Assessing the Distributional Impact of Universal and Targeted Child Benefits Accounting for Labour Supply and Benefit Take-up

Kerstin Bruckmeier, Diego d'Andria, Jürgen Wiemers

Institute for Employment Research (IAB), Germany

We study a set of hypothetical reforms of child benefits in Germany using a static tax-benefit microsimulation model augmented with endogenous labour supply and take-up choices. Since the reforms are associated with different fiscal costs, we consider two different budget closures: an increase in the income tax or the consumption tax. The model simulates the impacts of the reforms on household income, poverty and labour supply.

We find that a higher means-tested child benefit is well-targeted: It provides a high level of poverty reduction with a low fiscal impact at the cost of reduced labour supply incentives for low-income families.

When unconditional benefits are increased, the effect on overall income inequality is more pronounced at the cost of reduced labour supply incentives for middle- and high-income families.

Finally, when combined, the two approaches show synergies, particularly in the form of improved poverty reduction.

Bruckmeier-Who Benefits - Assessing the Distributional Impact-392.pdf


Static and Dynamic responses to Welfare Programs: evidence for low-income households in Uruguay

Joan Vila1, Marcelo Bergolo1, Guillermo Cruces2,3

1Universidad de la República, UDELAR, Uruguay; 2CEDLAS Universidad Nacional de La Plata; 3University of Nottingham's School of Economics

Recover the behavioural responses to conditional transfer programs provide a key tool for dimension the potential efficiency costs. Although mean-tested mechanisms are considered an important standard for CCT targeting, their high informational requirements make their use almost exclusive to developed countries. The atypical design of the main CCT program in Uruguay (which incorporates an income threshold with continuous verification of compliance) allows us to derive the static and dynamic responses of the lower-income households. We derived these responses from two complementary empirical strategies: bunching methodology (static responses) and an panel event study strategy for the dynamic case. Despite the limited static effect, there is evidence of important dynamic responses in the income reported. These effects are large when the income condition is binding and the policy salient. In turn, we find significant effects in different margins: participation in labour market, hours worked and reported income.

Vila-Static and Dynamic responses to Welfare Programs-275.pdf


Pareto-Improving Tax Reforms and the Earned Income Tax Credit

Felix Bierbrauer2, Pierre Boyer1, Emanuel Hansen2

1CREST, France; 2University of Cologne

This paper provides necessary and sufficient conditions for the existence of Pareto-improving tax reforms. The conditions can be expressed as sufficient statistics and have a wide range of potential applications in public finance. We discuss one such application in detail: the introduction of the Earned Income Tax Credit (EITC) in the US. We find that the EITC can be viewed as a response to an inefficiency in the tax and transfer system prevailing at the time. This adds a new perspective to the literature on why the EITC is a good idea, emphasizing Pareto improvements rather than equity-efficiency trade-offs.

Bierbrauer-Pareto-Improving Tax Reforms and the Earned Income Tax Credit-159.pdf
 
2:00pm - 4:00pmB12: Tax Administration II
Location: Room K 224 B
 

Taxi Market Deregulation: Effects on Prices, Demand and Tax Evasion

Jarkko Harju, Ida Kankaanranta, Kaisa Kotakorpi

Tampere University, Finland

Taxi markets are characterized by various informational asymmetries, and have traditionally been subject to extensive regulation in many countries. We analyze the effects of taxi market deregulation in Finland, using exceptionally rich administrative data covering information on prices, sales, payroll and other costs, tax payments, and mileage. The reform involved a removal of price controls, combined with various measures to lower barriers to entry. We find that deregulation led to higher prices, while at the same time reported sales declined markedly. However, we also find a negligible effect on operating costs or mileage. This suggests that the decline in sales was not due to a decline in real activity, but rather an indication of increased tax evasion, enabled by less intensive monitoring in the new regulatory regime.

Harju-Taxi Market Deregulation-235.pdf


Non-Tariff Barriers, Trading Companies and Customs Duties Evasion

Enlinson Mattos1, Rafael Bressan2

1FGV Fundacao Getulio Vargas, Brazil; 2Brazilian Revenue Service and FGV Fundacao Getulio Vargas, Brazil

This paper explores a tariff shock in Brazil with rich administrative data to document the elasticity of customs duties evasion (ECDE) for the universe of importers in Brazil. We focus on the role of two modulators of ECDE: (i) Non-Tariff Barrier (NTB) and (ii) Trading companies. Our findings are threefold. First, we estimate the elasticity of misreported imports to be larger than comparable literature. Controlling for misclassification, our results suggest a response of 2.43% increase in evasion for each percentage point increase in tariff rate for missing value and 1.45% for missing quantities. Second, NTB reduces the elasticity of evasion to 0.91 and -0.06, for value and quantity, respectively, reinforcing its stricter enforcement role. Third, we find no evidence that trading companies evade differently than other importers. Auditing policies and reputation concerns are investigated.

Mattos-Non-Tariff Barriers, Trading Companies and Customs Duties Evasion-259.pdf


Large-Scale Social Experiments with Uncertain Take-Up and Budget Constraint

Annika Nivala1,2, Elias Einiö1

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

We describe an experimental design to study the effects of a treatment where the treatment group is eligible for a subsidy, receiving the subsidy is conditional on individual behavior, and the total spending depends on the number of individuals that take the subsidy. Many public policies have this feature, for example, a wage subsidy for individuals that become employed. We discuss problems that arise from uncertainty in take-up and a binding budget constraint: take-up higher than expected results in an attenuated treatment effect due to oversubscription but lower than expected unnecessarily reduces the precision of the experiment. We propose running the experiment in stages and using the information from previous stages to update the expected take-up as a solution. Then, we develop statistical decision rules for the updating and provide simulations to demonstrate the advantages of this approach.

Nivala-Large-Scale Social Experiments with Uncertain Take-Up and Budget Constraint-323.pdf
 
2:00pm - 4:00pmB13: Taxing Consumption I
Location: Room K 009 D
 

VAT Pass-Through: The Large and Permanent Reduction in the Market for Menstrual Products

Alisa Frey, Justus Haucap

Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität Düsseldorf, Germany

This paper is about the price effects caused by a VAT (Value Added Tax) reduction for menstrual hygiene products in Germany. Several aspects make this VAT reduction particularly interesting: Exogeneity of the reduction under otherwise constant economic conditions, the reduction was substantial and permanent, demand for the products is inelastic and in many cases, pass-through rates are more than 100 percent. We find that the VAT reduction is completely forwarded to consumers. Despite this complete pass-through, we still detect a significant effect of retailer competition: When more retailers offer a product, the price reduction is bigger.

Frey-VAT Pass-Through-343.pdf


Are Consumers Paying The Bill? How International Tax Competition Affects Consumption Taxation

Georg Thunecke

University of Tübingen, Germany

This paper empirically investigates the relationship between corporate and consumption tax rates and revenues to analyze, whether governments are shifting the burden of tax competition to consumption. First, I estimate the slope of the tax policy reaction function between corporate and consumption tax rates, by exploiting the cross-sectional interdependence of corporate tax rates for an unbiased identification. Second, I analyze the revenue effects of both consumption and corporate tax rate changes. Third, I combine these results to evaluate the overall revenue implications corporate tax changes. I find that on average a one percentage point decrease in the corporate tax rate leads to a 0.35 percentage point increase in the consumption tax rate. The rate-revenue relationship of the STR follows an inverted U-shape, while consumption tax revenue only linearly depends on the tax rate. Governments are able to fully compensate for revenue losses from tax competition by substituting to consumption taxation.

Thunecke-Are Consumers Paying The Bill How International Tax Competition Affects Consumption Taxation-447.pdf


Asymmetric Pass-Through of VAT Changes: Evidence from the Austrian Hotel Industry

Simon Loretz, Oliver Fritz

Austrian Institute of Economic Research, Austria

Recent empirical estimated of price pass-through of VAT rate changes suggest that asymmetry is possible with tax increases resulting in stronger price effects. At the same time, some countries resorted to temporary VAT cuts as fiscal stimulus in response to the COVID-19 crisis. To address whether these temporary VAT reductions contribute to inflationary pressure we use two recent tax reforms which changed the VAT rates for accommodation services in Austria to assess whether i) the asymmetry result also holds for these particular reforms and ii) wether can be applied to the recent temporary VAT rate changes. Our results suggests that the pass-through for recent tax reform was indeed asymmetric. However, the price effects of the recent temporary VAT rate reductions are dominated by the general economic consequences of the COVID-19 crisis and the resulting difficulties of measuring inflation for accommodation services during lock down periods.

Loretz-Asymmetric Pass-Through of VAT Changes-373.pdf
 
4:00pm - 4:30pmCoffee Break II: Coffee Break
Location: Hall B and C, right outside HS 1
4:30pm - 5:30pmPlenary II: Hanming Fang, University of Pennsylvania/USA: "Understanding the Resurgence of the SOEs in China: Evidence from the Real Estate Sector"
Location: Room HS 1
Session Chair: Juan Carlos Suarez Serrato, Duke University
5:30pm - 6:30pmGeneral Assembly: IIPF General Assembly of Members
Location: Room HS 1
6:30pm - 8:00pmSocial Program I: Welcome Drink
Location: Schloss Auhof
Date: Thursday, 11/Aug/2022
8:00amRegistration, 11 August: Registration desk at JKU open from 8.00 a.m. to 4.00 p.m.
Location: Kepler Building, Altenberger Str. 69, Linz
8:30am - 9:30amM 1 - 1: Mentoring Session on: Navigating the Job Market (for registered participants)
Location: Room HS 7
Session Chair: Wojciech Kopczuk, Columbia University
8:30am - 9:30amM 1 - 2: Mentoring Session on: Navigating the Publication Process (for registered participants)
Location: Room HS 2
Session Chair: Juan Carlos Suarez Serrato, Duke University
8:30am - 9:30amM 1 - 3: Mentoring Session on: Career Management (for registered participants)
Location: Room HS 6
Session Chair: James Hines, University of Michigan
8:30am - 9:30amM 1 - 4: Mentoring Session on: Development Economics (for registered participants)
Location: Room HS 5
Session Chair: Dina Pomeranz, University of Zurich
8:30am - 9:30amM 1 - 5: Mentoring Session on: International Taxation and Corporate Tax (Empirics) (for registered participants)
Location: Room HS 4
Session Chair: Nadine Riedel, University of Münster
8:30am - 9:30amM 1 - 6: Mentoring Session on: Optimal Taxation (for registered participants)
Location: Room HS 3
Session Chair: Etienne Lehmann, University Paris 2 Pantheon-Assas
8:30am - 9:30amM 1 - 7: Mentoring Session on: Political Economy (for registered participants)
Location: Room K 033 C
Session Chair: Eva Mörk, Uppsala University
8:30am - 9:30amM 1 - 8: Mentoring Session on: International Taxation and Corporate Tax (Theory) (for registered participants)
Location: Room K 269 D
Session Chair: Dirk Schindler, Erasmus University Rotterdam
8:30am - 9:30amM 1 - 9: Mentoring Session on: Local Public Finance and Local Fiscal Competition (for registered participants)
Location: Room K 153 C
Session Chair: Martin Besfamille, Pontificia Universidad Católica de Chile
9:30am - 10:00amCoffee Break III: Coffee Break
Location: Hall B and C, right outside HS 1
10:00am - 11:30amC01: Tax Perceptions: Incidence, Diversity, and Outer Space
Location: Room HS 7
 

The Impact of Diversity on Distributive Perceptions and Preferences for Redistribution

Juliana Londono-Velez

UCLA, United States of America

Does socioeconomic diversity affect people’s perceptions of the income distribution and their preferences for redistribution? I exploit a financial aid reform that drastically raised the share of low-income students at an elite university in Colombia and leverage variation in exposure to low-income peers across cohorts and majors using difference- in-differences. Using original survey data and administrative records, I study how exposure to low-income peers affects high-income students’ social networks, perceptions, and preferences. The policy caused high-income students to interact more with low- income students, giving them more accurate perceptions of the income distribution and boosting their support for progressive redistribution.

Londono-Velez-The Impact of Diversity on Distributive Perceptions and Preferences-461.pdf


Payroll Tax Incidence: Evidence from Unemployment Insurance

Audrey Guo

Santa Clara University, United States of America

Economic models assume that payroll tax burdens fall fully on workers, but where does tax incidence fall when taxes are firm-specific and time-varying? Unemployment insurance in the United States has the key feature of varying both across employers and over time, creating the potential for labor demand responses if tax costs cannot be fully passed on to worker wages. Using state tax changes and matched employer-employee job spells from the LEHD, I study how employment and earnings respond to payroll tax increases for high-exposure employers. I find significant drops in employment growth that is driven by lower hiring, and minimal evidence of pass-through to earnings. The negative employment effects are driven by single-establishment firms, and are strongest for young workers.

Guo-Payroll Tax Incidence-318.pdf


Measuring Firm Activity from Outer Space

Katarzyna Bilicka1,2, Andre Seidel3

1Utah State University, United States of America; 2NBER; 3University of Bergen

How much do we know about firm activities around the world? To understand global firm networks and how they operate, we need consistent information about their activities that is not biased by firm reporting choices. In this paper, we collect a novel dataset on factory land consumption and the light these factories produce at night for a large sample of car manufacturing plants to provide such data. We show that we can measure firm activity with this data, using annual firm financial data and high-frequency data related to COVID-19 pandemic production shocks. We use this data to quantify the extent of unreported and misallocated global turnover and show the asset allocation across subsidiaries of multinational firms (MNCs) that is not biased by profit shifting.

Bilicka-Measuring Firm Activity from Outer Space-257.pdf
 
10:00am - 11:30amC02: Inequality II
Location: Room HS 2
 

Capital Gains and Inequality

Arun Advani1, Andy Summers2

1University of Warwick, United Kingdom; 2London School of Economics, United Kingdom

Aggregate taxable capital gains in UK have tripled in past decade. Using confidential administrative data on the universe of UK taxpayers, we show that including gains changes the picture of UK inequality over the past two decades. These taxable gains are largely repackaged income, so their exclusion biases the picture of inequality. Including them changes who is at the top of the distribution, adding more business owners and older people. The share of income plus gains (both pre- and post-tax) going to the top 1% is 3pp higher than for income only, and this gap has been steadily rising.

Advani-Capital Gains and Inequality-358.pdf


How Much Should We Trust Two-Sample Two-Stage Least Squares Estimates of Intergenerational Mobility? Evidence from a Developing Country

Pablo Troncoso1, Javier Cortes2, Juan Diaz3, Pablo Gutierrez4, Gabriel Villarroel5

1University of Georgia, United States of America; 2University of British Columbia; 3University of Chile; 4University of British Columbia; 5Direccion de Presupuesto (DIPRES)

We estimate intergenerational mobility for Chile using an administrative dataset that links parents’ and their sons’ earnings. We compare our intergenerational earnings elasticity (IGE) and rank-rank correlation estimates with approximations from the Two-Sample Two-Stage Least Squares (TSTSLS) literature. We decompose the TST- SLS IGE estimator into the linked administrative data estimate, a projection bias, and a variance bias, where both biases come from having to impute parental earnings. For rank-rank correlations, we show that only the projection bias is present. Our findings suggest that TSTSLS biases may affect the empirical correlation between intergenerational mobility and inequality, overstating Gatsby curve’s steepness.

Troncoso-How Much Should We Trust Two-Sample Two-Stage Least Squares Estimates-200.pdf


Is Inequality In Subjective Well-being Meritocratic? Danish Evidence From Linked Survey And Administrative Data

Isabel Skak Olufsen, Claus Thustrup Kreiner

University of Copenhagen, Denmark

This paper decomposes inequality in subjective well-being of people into inequality due to socioeconomic background (SEB) and inequality due to differences in individual merits such as school performance. We measure the meritocratic share of well-being, which is the share associated with merits unrelated to SEB. We focus on Denmark where we can link survey data on well-being with administrative data on individual characteristics and where estimates likely represent upper bounds on the role of merits because of the meritocratic institutional setting. We find systematic differences in well-being already in early adulthood, where differences in economic opportunities of people are not yet visible. At age 18-19, about 40% of the inequality in well-being is meritocratic. The role of merits rises to 75 percent in midlife, where it is also higher than the role of merits in income inequality. With a more broad definition of meritocratic inequality, the midlife estimate becomes 85%.

Olufsen-Is Inequality In Subjective Well-being Meritocratic Danish Evidence-403.pdf
 
10:00am - 11:30amC03: Local Public Finance II
Location: Room HS 6
 

How Do Subnational Governments React to Shocks to Different Revenue Sources? Evidence from Hydrocarbon-Producing Provinces in Argentina

Martin Besfamille1,2, Diego Jorrat3, Osmel Manzano4,5, Pablo Sanguinetti6,7

1Instituto de Economía, Pontificia Universidad Católica de Chile; 2CESifo; 3Departamento de Economía, Universidad Loyola Andalucía; 4Inter-American Development Bank; 5McCourt School of Public Policy, Georgetown University; 6CAF-Development Bank of Latin America; 7Departamento de Economía, Universidad Torcuato Di Tella

Based on the fiscal regime that prevailed in Argentina from 1988 to 2003, we estimate the effects that changes in intergovernmental transfers and hydrocarbon royalties had on provincial public consumption and debt. From a one-peso increase in intergovernmental transfers, all provinces spent 76 centavos on public consumption and decreased their debt by 22 centavos. However, when hydrocarbon-producing provinces faced a one-peso increase in royalties, they saved 95 centavos. We provide evidence that the exhaustible nature of royalties may explain this saving reaction in hydrocarbon-producing provinces.

Besfamille-How Do Subnational Governments React to Shocks to Different Revenue Sources Evidence-313.pdf


Can Data Disclosure Improve Local Government Performance? Evidence Fom Italian Municipalities

Ben Lockwood2, Francesco Porcelli1, Michela Redoano2, Antonio Schiavone3

1Università degli Studi di Bari, Italy; 2University of Warwick, UK; 3Università degli studi di Bologna, Italy

We exploit the introduction of an open data online platform - part of the transparency program initiated by the Italian Government in late 2014 - as a natural experiment to analyse the effect of data disclosure on expenditure on mayors' expenditure and output decisions. First, we analyse the effect of the program, by comparing municipalities on the border between ordinary and special regions, exploiting the fact that the latter regions did not participate in the program. Second, we investigate the effect of mayors' attention to data disclosure within treated regions using daily data on their access to the platform, which we instrument with the daily publication of newspaper articles mentioning the program. Overall, local mayors seem to target variables that are measured in the program at the expense of variables that are not measured. Our results indicate that the details of the design of data disclosure are important in achieving benefits from such programs.

Lockwood-Can Data Disclosure Improve Local Government Performance Evidence Fom Italian Municipalities-179.pdf


Coping With Extreme Events: On Solving Decentralized Budgetary Crises

Timothy Goodspeed

Hunter College and Graduate Center CUNY, United States of America

Extreme events create both macroeconomic and budgetary problems for decentralized governments. At a practical level there are three options to replace lost funding from an extreme event: decentralized governments can anticipate and save for these budgetary rainy days themselves, they can issue debt, or the central government can step in and provide aid when such extreme events occur. In this paper we examine the impact of these options on macroeconomic outcomes, in particular on the unemployment rate. Using the financial crisis as our extreme event and employing a difference in difference approach, we find that both grants and rainy day funds during the crisis reduced future unemployment on the margin relative to periods outside of the crisis; the same is not true of debt. We also find that grants and rainy day funds are substitutes: greater grant funding implies a somewhat smaller effect of own savings on future unemployment.

Goodspeed-Coping With Extreme Events-264.pdf
 
10:00am - 11:30amC04: Behavioral Public Finance I
Location: Room K 153 C
 

Taxing Moral Agents

Esteban Muñoz Sobrado

Toulouse School of Economics, France

Experimental and empirical findings suggest that non-pecuniary motivations play a significant role as determinants of taxpayers’ decision to comply with the tax authority and shape their perceptions and assessment of the tax code. By contrast, the canonical optimal income taxation model focuses on material sanctions as the primary motive for compliance. This paper shows how taxpayers equipped with evolutionary Kantian preferences can account for both these non-pecuniary and material motivations. It builds a general model of income taxation in the presence of a public good, which agents value morally, and solves for the optimal linear and non-linear taxation problems.

Muñoz Sobrado-Taxing Moral Agents-446.pdf


Why Is Support For Rent Control So High? Evidence From A Survey Experiment

Mathias Dolls1, Paul Schüle1, Lisa Windsteiger2

1ifo Munich; 2Max Planck Institute for Tax Law and Public Finance, Munich

We conduct a survey experiment among 18,000 respondents in Germany to examine the determinants of support for rent control policies. We find that highlighting undesirable price and supply effects lowers respondents’ agreement with the rent cap, while pointing out that it can prevent displacement of low-income tenants increases agreement. However, though our treatments shift support for the policy into the hypothesized direction on average, the effects generally diminish for individuals with (large) misperceptions. Our results suggest that respondent’s responsiveness to information provision depends largely on their prior beliefs, which affect perceived credibility and political neutrality of the received information. Mere information provision about the effects of a policy is thus not sufficient to effectively alter views on the policy.

Dolls-Why Is Support For Rent Control So High Evidence-292.pdf


Rank And Individual Welfare: Experimental Evidence

Michael Kirchler7, Kaisa Kotakorpi2,8, Peter Hans Matthews3,6,4, Satu Maria Kristiina Metsälampi1, Topi Miettinen5,4, Xu Xiaogeng5,4

1University of Turku; 2Tampere University; 3Middlebury College; 4Helsinki Graduate School of Economics; 5Hanken School of Economics; 6Aalto University School of Business; 7University of Innsbruck; 8VATT Institute for Economic Research

The Easterlin Paradox shows correlational evidence that income rank among all citizens in society is positively related to life satisfaction. However, literature is lacking causal evidence and the roles of other reference groups are poorly investigated. In a pre-registrered survey experiment on a Finnish general population sample we investigate how relative income position and respondents’ (mis)perceptions about their position in different reference groups – defined by e.g., education, municipality, age - causally affect views on life satisfaction and various other measures of individual welfare. By complementing the survey responses with register data, we find correlational evidence in accordance with the Easterlin Paradox. We show that respondents hold the least accurate beliefs about their position in the national income distribution and most accurate beliefs about their position in their occupational group. Those positively surprised by the relative income information show higher perceptions on fairness, wage satisfaction, more pleased feelings about their income.

Kirchler-Rank And Individual Welfare-158.pdf
 
10:00am - 11:30amC05: Labor Supply II
Location: Room HS 5
 

Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy

Enrico Rubolino

University of Lausanne, Switzerland

This paper studies the labor market effects of a large employer-borne payroll tax cut for unemployed women, introduced in Italy since 2013. I combine social security data with several empirical approaches, leveraging the time-limited application of the tax scheme and discontinuities in eligibility criteria across municipalities, cohorts, and occupations. I find that the payroll tax cut generates long-lasting growth in female employment, reduces the time spent on welfare, and spurs business growth, without crowding out male employment. By contrast, the tax cut does not raise net wages, suggesting that tax incidence is mostly on firms. A cost-benefit analysis implies that the net cost of the policy is nearly half of the budgetary cost. These findings suggest that employer-borne payroll tax cuts are an efficient strategy to raise demand for female labor and tackle the gender employment gap, but they are not sufficient for reducing the gender pay gap.

Rubolino-Taxing the Gender Gap-178.pdf


Dynamic Causal Forests: Application to the Payroll Tax in Norway

Evelina Gavrilova-Zoutman1, Audun Langørgen2, Floris T. Zoutman1

1NHH Norwegian School of Economics, Norway; 2Statistics Norway

This paper studies the anatomy of payroll tax incidence focusing on a regional tax reform in Norway that affects the payroll tax employers pay on behalf of their workers. We combine difference-in-difference analysis with causal machine-learning methods that allow us to robustly identify treatment heterogeneity. We develop the methodology to use the causal forest algorithm for evaluating the heterogeneous treatment effect due to a quasi-experiment on panel data. The main dependent variable in our analysis is the total wage. We look for treatment heterogeneity with two types of variables - first, personal level variables such as gender and household status. Second, at the firm level with accounting variables such as liquid assets and characteristics of the work force such as average age. We find that the incidence of the tax lies mainly with the firm, contrary to previous results in the literature.

Gavrilova-Zoutman-Dynamic Causal Forests-374.pdf


The Effects of Shortening Potential Benefit Duration: Evidence from Regional Cut-offs and a Policy Reform

Ewa Galecke-Burdziak, Marek Gora, Jonas Jessen, Robin Jessen, Jochen Kluve

European University Viadrina, Germany

We quantify labour market effects of changes in the potential benefit duration (PBD) in Poland. Individual workers’ PBD depends on the county unemployment rate relative to the national average—12 months of PBD above a cut-off of 125 per cent and 6 months below. This cut-off shifted from 125 to 150 per cent in a 2009 reform. We utilize i) the natural experiment of the reform, and ii) the sharp discontinuity generated by the cut-offs to estimate effects of shortening the PBD. Our administrative data cover unemployment spells for prime age workers during the years 2006-2018. A one-month shorter PBD decreases average benefit duration by 0.5 months and average unemployment duration by 0.4 months. The PBD reduction by six months increased the job finding rate within the first 9 months by 6 percentage points. Using the stock of unemployed per county, we find evidence for positive aggregate employment effects.

Galecke-Burdziak-The Effects of Shortening Potential Benefit Duration-363.pdf
 
10:00am - 11:30amC06: Tax Administration III
Location: Room HS 4
 

Managing and Recovering Tax Debt in Poland and Selected European Union Member States

Malgorzata Magdalena Hybka

Poznan University of Economics and Business, Poland

Such phenomena as tax evasion and tax avoidance are not the only factors that may have a damaging effect on tax collection. Depending on coexistence of additional determinants efficiency in revenue raising may also be negatively influenced by rapidly growing tax debt. Some of the countries of the European Union are continuously coping with the problem of tax arrears accumulation while others are relatively successful on that field. The first is particularly manifesting itself in the case of some post transformation, emerging economies like Poland where the ratio of tax debt to tax collection is relatively high. The paper attempts to envisage the problem of tax debt formation and investigate into its structure in Poland. It also provides for a comparative analysis among the European Union member states, considers some factors behind tax debt accumulation and presents the measures taken by the Polish government in order to manage tax debt.

Hybka-Managing and Recovering Tax Debt in Poland and Selected European Union Member States-383.pdf


Where Do My Tax Dollars Go? Tax Morale Effects of Perceived Government Spending

Matias Giaccobasso1, Brad Nathan2, Ricardo Perez-Truglia3, Alejandro Zentner4

1UCLA, United States of America; 2UT Dallas; 3UC Berkeley; 4UT Dallas

Do perceptions about how the government spends tax dollars affect the willingness to pay taxes? We designed a field experiment to test this hypothesis in a natural, high stakes context and via revealed-preferences. We measure perceptions about the share of property tax revenues that fund public schools, and the share of property taxes that are redistributed to more disadvantaged districts. We find that even though the information on where the tax dollars go is publicly available and easily accessible, taxpayers still have significant misperceptions. Using an information-provision experiment, we induced exogenous shocks to measure the causal effects of these perceptions on the willingness to pay taxes. By linking the information provision experiment to its effects on administrative data, we find that some perceptions about government spending have a significant effect on the probability of filing a tax appeal, consistent with the classical theory of benefit-based taxation.

Giaccobasso-Where Do My Tax Dollars Go Tax Morale Effects of Perceived Government Spending-308.pdf


Design of Two-Stage Experiments with an Application to Spillovers in Tax Compliance

Guillermo Cruces1,2, Dario Tortarolo2, Gonzalo Vazquez Bare3, Julian Amendolaggine1, Juan Luis Schiavonni1

1CEDLAS-UNLP Argentina; 2University of Nottingham; 3UCSB

We set up a framework to conduct experiments for estimating spillover effects when units are grouped into mutually exclusive clusters. We improve upon existing methods by allowing for heteroskedasticity, intra-cluster correlation and cluster size heterogeneity, which are typically ignored when designing experiments. We show that ignoring these factors can severely overestimate power and underestimate minimum detectable effects. We derive formulas for optimal group-level assignment probabilities and the power function used to calculate power, sample size, and minimum detectable effects. We apply our methods to the design of a largescale randomized communication campaign in a municipality of Argentina to estimate total and neighborhood spillover effects on property tax compliance. Besides the increase in tax compliance of individuals directly targeted with our mailing, we find evidence of spillover effects on untreated individuals in street blocks where a high proportion of taxpayers were notified.

Cruces-Design of Two-Stage Experiments with an Application-255.pdf
 
10:00am - 11:30amC07: Taxing Personal Income I
Location: Room K 269 D
 

The Components Of Earnings Growth Risk And Income Insurance: The German Case

Niklas Isaak, Robin Jessen

RWI - Leibniz Institute for Economic Research

We document risk in earnings growth and pre- and post-government income growth in Germany. We quantify the contributions of wage risk, hours risk, and unemployment risk to total earnings risk. The cohort born between 1980 and 1990 faces larger income risk than cohorts born earlier. The increase is driven by an increase in the variability of months worked per year. Both households and the tax-transfer system play an important role in insuring earnings risk. Joint taxation of couples implies no significant improvement in income insurance relative to individual taxation. We find no evidence of an added-worker effect. Thus insurance through the household is entirely due to income pooling.

Isaak-The Components Of Earnings Growth Risk And Income Insurance-222.pdf


The Distributional Effects of the German Personal Income Tax from 1998 to 2019 - Combining Survey Data with Administrative Tax Data

Martin Beznoska

German Economic Institute, Germany

Measuring the effective tax progressivity of the personal income tax over the whole income distribution and consistently defined over time is an important tool to evaluate tax reforms. Survey data fundamentally provides the representative income distribution but measures the tax liabilities imprecisely and lacks representativity at the top. However, administrative tax data overcomes these disadvantages but does not reflect the overall income distribution, as persons that do not pay the tax as well as tax-free incomes are excluded. In this paper, I provide a matching strategy, which is easy to implement, combining these two types of data to exploit their advantages. This approach can be applied to different years of repeated cross-sections, which results in a representative and time-consistent data base for distributional analysis.

Beznoska-The Distributional Effects of the German Personal Income Tax-417.pdf


Monetary Compensation Schemes During the COVID-19 Pandemic: Implications for Household Incomes and Demand Across the EU

Silvia De Poli1, Michael Christl1, Francesco Figari2, Alberto Tumino1, Tine Hufkens1, Chrysa Leventi3, Andrea Papini1

1JRC - European Commission, Spain; 2University of Insubria; 3Athens University of Economics and Business

This paper analyses the effect of the COVID-19 pandemic on household disposable incomes and household demand in the EU, by using micro-simulation techniques and detailed labour market statistics. We show that the impact of the COVID-19 pandemic on the labour markets of the EU Member States was very diverse, with some countries hit substantially harder than others. Most EU Member States experienced a large drop in market incomes in 2020, with poorer households hit hardest. However, the tax-benefit systems absorbed a significant share of the COVID-19 shock. We find that monetary compensation schemes played a major role in alleviating the negative labour market impact of the COVID-19 pandemic. Additionally, we show that monetary compensation schemes substantially limited the increase in liquidity constrained households due to the COVID-19 pandemic by diminishing the income loss of liquidity constrained households.

De Poli-Monetary Compensation Schemes During the COVID-19 Pandemic-438.pdf
 
10:00am - 11:30amC08: Environmental II
Location: Room HS 3
 

Advertising Campaigns and Emission Taxes in a Green Market

Laura Birg

University of Bremen, Germany

This paper studies the effect of advertising on environmental quality in a duopoly with vertical product differentiation when the government introduces an emission tax. The paper shows that an advertising campaign that stresses the quality differences increases profits and environmental quality of products. The more effective an advertising campaign is that highlights price differences, the higher are emission levels if the government sets a welfare-maximizing tax rate.

Birg-Advertising Campaigns and Emission Taxes in a Green Market-485.pdf


Free-riding On Scrappage Subsidies: Evidence From A Vehicle Retirement Acceleration Programme In The Netherlands

Hendrik Vrijburg1, Alexandros Dimitropoulos2

1Leiden University, Netherlands, The; 2PBL Netherlands Bureau of Environmental Assessment

Scrappage subsidies are often implemented with the objective to both stimulate economic activity in an economic downturn and to replace dirty technologies by cleaner ones. The effectiveness of such subsidies is frequently reduced by adverse selection. We study Dutch vehicle owners’ behavioural responses to a scrappage subsidy that requires participants to replace their old vehicle with a cleaner one. Using a unique dataset on all vehicle registrations and retirements in a six-year period and a triple-difference approach, we estimate the effects of the policy. We find that the policy caused old vehicles to be scrapped earlier, stimulated vehicle replacements and accelerated the greening of the vehicle fleet. Our estimates show only very limited free-riding on the joint scrappage and purchase decision. On the other hand, the environmental effects of the policy were likely hampered by self-selection into the programme.  

Vrijburg-Free-riding On Scrappage Subsidies-465.pdf


The Slow Demographic Transition In Regions Vulnerable To Climate Change

Thang Dao

Osaka University, Japan

We consider the persistent effects of climate change on the speed of demographic transition, and hence on the size of the population in regions that are the least developed and the most vulnerable to climate change. These effects are transmitted through interactions between the gender gap within families, fertility, and the local resources, through which the demographic transition is delayed. Climate change damages local resources, offsetting the role of technological progress and infrastructure investment in saving time that women spend for their housework duties. Hence, the gender inequality in education is upheld, delaying declines in fertility and creating population momentum. The bigger population, in turn, degrades local resources and the environment through expanded production. The interplay between local resources, gender inequality and population, under the persistent effect of climate change, may thus generate a slow demographic transition and stagnation of the least developed regions.

Dao-The Slow Demographic Transition In Regions Vulnerable-406.pdf
 
10:00am - 11:30amC09: Taxing Consumption II
Location: Room K 001 A
 

Preferences Over Sin Taxes

Tobias König1, Renke Schmacker2

1Linnaeus University, Sweden; 2Université de Lausanne, Switzerland

Sin taxes have recently become a widely suggested policy instrument to discourage the consumption of goods deemed harmful to society and individuals. Using a survey experiment with a representative sample of the US population, we provide evidence on individuals’ preferences over sin taxes and how they reason about such corrective policies. We reveal that preferences over taxes on sugary beverages are more driven by normative considerations than self-interested pocketbook concerns. People place large weight on efficiency reasoning, in particular on Pigouvian ideas. But also anti-paternalism and regressivity concerns are prevalent, which may explain the relatively low support for sugary beverage taxes that we observe in the data. However, preferences over sugary beverage taxes are malleable and can be causally shifted by information interventions: Explaining individuals the ideas of corrective taxation yields significant increases in the support for sugary beverage taxes and the general openness to corrective policies.

König-Preferences Over Sin Taxes-350.pdf


Excise Taxation To Improve Health And To Protect The Environment

Sijbren Cnossen

Erasmus University Rotterdam, Netherlands, The

Excise duties are still coveted sources of revenue but increasingly they are also being considered as useful instruments in enhancing social and market outcomes by internalizing the external and internal costs of production and consumption.

Excise duties on tobacco, alcohol, sugar, and gambling can induce consumers to improve the quality of their health by confronting them with the true cost of their consumption. Similarly, excise duties on carbon, transport, cement, and plastics can correct for the degradation of the environment.

This contribution identifies the revenue and correcting features of excise duties, and, against this background, examines various main developments and issues encountered in subjecting selected goods and services to excise taxation.

Cnossen-Excise Taxation To Improve Health And To Protect The Environment-282.pdf


Identifying Effective Tax Policies to Reduce Cigarette Consumption: Cross Country Empirical Evidence

Vid Adrison1, Estelle Dauchy2, Ce Shang3

1University of Indonesia; 2Campaign for Tobacco Free Kids; 3the Ohio State University, United States of America

Increasing cigarette prices with tax policy is the most effective way to reduce consumption. We develop a methodology to construct scores that summarize the combined performance of several aspects of tax systems in 160 countries, based on the methodology developed by Tobacconomics, University of Chicago. Scores rank from 0 to 5 with criteria including price and tax trend, affordability, and the strength of tax structures. We apply the model to 160 countries over 2008-2020, and evaluate their impacts on several measures of demand.

We find that tax and price policies are more effective at reducing cigarette demand when combined with strong, simple, and well-deigned tax systems. A one point increase in scores leads to a -0.3 to -0.8 percentage points reduction in smoking prevalence. A one point increase in scores leads to a -2% to -7% percent reduction in sales volume.

Adrison-Identifying Effective Tax Policies to Reduce Cigarette Consumption-518.pdf
 
10:00am - 11:30amC10: Political Economy III
Location: Room K 034 D
 

Political Leader Selection: A Theory and Empirical Evidence

Niklas Potrafke1,2,3, Marcel Schlepper1,2, Timo Wochner1,2

1ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München e. V., Germany; 2University of Munich (LMU); 3CESifo, Munich

We examine the selection of political leaders within parties. We propose a theory on individual decision-making in an intraparty leadership competition. The key predictions derived from the theoretical model are that re-election and reward motives explain heterogeneous decisions of MPs when selecting political leaders. We test the theoretical predictions empirically. Our empirical setting allows to observe MPs’ individual choices. Exploiting Germany's personalized voting system, new data on local opinion polls and a fierce intraparty competition before the 2021 German general election, we provide empirical support for the theoretical predictions. MPs were more likely to support the more popular opponent when local opinion polls predicted them to be at higher risk to lose the personalized vote in their constituency. In contrast, MPs were more likely to support the incumbent when their expected reward was high. We investigate for the first time how local opinion polls at the constituency-level influence MPs' behavior.

Potrafke-Political Leader Selection-470.pdf


Topic Salience and Political Polarization: Evidence from the German “PISA-Shock”

Pietro Sancassani

ifo Institut, Germany

Does topic salience affect political polarization? On the one hand, parties might converge towards the median voter platform when a topic becomes more relevant for voters. On the other hand, parties might drift apart from each other to realign with their voters, thus following a cleavage pattern. In this paper, I investigate the impact of topic salience on the polarization of political debates about education in Germany. I exploit the exogenous increase in the salience of education induced by the “PISA-Shock”, the release of the first results of the PISA study in December 2001. Using parliamentary debates of all German state parliaments, I provide evidence of an increase in polarization due to the PISA shock, in line with parties following a cleavage pattern to gain electoral consensus.

Sancassani-Topic Salience and Political Polarization-469.pdf


Public And Private Provision Of Public Goods In Democracy

Christoph Luelfesmann

Simon Fraser University, Canada

I study the provision of public goods in institutions with dual characteristics: the provision level (the `policy') is democratically chosen by majority vote, but individual agents can top up their consumption levels before or after the collective decision is made. Examples include policy making in federal states, charities, education, and health care. I show that regardless of the timing of private and public actions, and regardless of the degree of externalities, the results of the median voter theorem apply. Moving from a pure public system into a dual system with ex-ante private contributions gains unanimous support in society, while adopting an ex-post contribution regime is at least majority preferred. I also show that dual regimes with ex-post contributions are also majority preferred over a market-based private system.

Luelfesmann-Public And Private Provision Of Public Goods In Democracy-174.pdf
 
10:00am - 11:30amC11: Optimal Taxation III
Location: Room K 033 C
 

Optimal Taxation with Multiple Incomes and Types

Kevin Spiritus1, Etienne Lehmann2, Sander Renes3, Floris Zoutman4

1Erasmus University Rotterdam, The Netherlands; 2CRED, Université Panthéon-Assas Paris II; 3TU Delft, Netherlands; 4NHH Norwegian School of Economics

We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple incomes and differ along many unobserved dimensions. We derive the necessary conditions for the government's optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government's necessary conditions are sufficient and the solution to the problem is unique.

Spiritus-Optimal Taxation with Multiple Incomes and Types-192.pdf


The Taxation of Couples

Felix Bierbrauer1, Pierre Boyer2, Andreas Peichl3, Daniel Weishaar4

1University of Cologne, Germany; 2CREST, France; 3LMU / ifo, Germany; 4LMU, University of Munich, Germany

We present an analysis of the tax treatment of couples. We first investigate how marriage bonuses and penalties evolved in the US federal income tax since the 1960s. We then develop sufficient statistics for an analysis of Pareto-improving, welfare-improving and political feasible reforms of tax systems that treat singles and couples differently, and interpret the development in the US through the lens of this framework.

We also analyze reforms that depart from the status quo tax treatment of couples in the direction of individual taxation. With such a reform marginal tax rates are lowered for secondary earners and increased for primary earners. To be clear, such reforms have not taken place but they are a recurrent theme in the debate about the tax treatment of couples. Again, we derive sufficient statistics formulas that can be used to check whether such reforms would have been Pareto-improving, welfare-improving or politically feasible.

Bierbrauer-The Taxation of Couples-302.pdf


How to Tax Different Sources of Incomes?

Laurence Jacquet1,4, Etienne Lehmann2,3

1CY Cergy Paris Université; 2Université Paris II Panthéon-Assas; 3CRED; 4THEMA

We study the optimal tax system when taxpayers earn different kinds of income by supplying different inputs. Imperfect substitution between inputs allows for general equilibrium effects. We consider any type of cross-base responses to tax changes such as income-shifting. We express optimal marginal tax rate on any kind of income in terms of sufficient statistics, including new ones for cross-base responses and general equilibrium effects. Using a new algorithm on French tax return data, we characterize the optimal combination of a nonlinear tax schedule on personal income and a linear tax rate on capital income. We find that one should include, without any deduction, all income sources in the personal income base and subsidize the source of income which is more elastic. We find that cross-base responses increases by 5.9 to 6.9 ppt the capital tax rate. General equilibrium effects also increase this tax rate by around 4.5 ppt.

Jacquet-How to Tax Different Sources of Incomes-480.pdf
 
10:00am - 11:30amC12: International Tax I
Location: Room K 224 B
 

International Trade and Tax-Motivated Transfer Pricing

Ansgar Franziskus Quint, Jonas Rudsinske

Georg-August-University, Germany

We study the welfare and distributional effects of corporate taxation and tax-motivated transfer pricing in an asymmetric general oligopolistic equilibrium trade model. Asymmetric tax rates favor the high-tax country as it skims a larger proportion of global profit income. All firms react to the resulting demand increase in the high-tax country by shifting some supply from the low- to the high-tax country. Once we introduce tax-motivated transfer pricing, income and consumption shift to the low-tax country, where welfare improves on the other country’s expense. Firms can further reduce their tax payments by exporting more. This incentivizes them to expand production such that real wages rise. The labor-profit ratio increases in the low-tax country.

Quint-International Trade and Tax-Motivated Transfer Pricing-132.pdf


Pennies from Haven: Wages and Profit Shifting

Johannes Scheuerer1, Annette Alstadsæter2, Julie Brun Bjørkheim2, Ronald B. Davies1

1University College Dublin, Ireland; 2Norwegian University of Life Sciences, Norway

The ability of some multinationals to reduce their tax burdens by shifting profits to tax havens has drawn increasing criticism both because of the lost revenues to high-tax countries and the perceived inequality this creates in the tax burden across firms. We demonstrate that such concerns are not the only impacts of profit shifting by using rich matched employer-employee data to show that profit-shifting firms pay higher wages. This is particularly apparent among service firms where the wage premium is approximately 2%. Further, there is substantial within-firm heterogeneity with high-skill occupations earning higher profit-shifting wage premiums. CEOs gain the most, with their wages rising nearly 10%. Finally, our back-of-the envelope calculations indicate that higher wages lead to higher income tax revenues that offset around 12% of the fall in Norway’s corporate tax revenues due to profit shifting.

Scheuerer-Pennies from Haven-165.pdf


Transfer Pricing and Investment - How OECD Transfer Pricing Rules Affect Investment Decisions

Søren Bo Nielsen3, Dirk Schindler1, Guttom Schjelderup2

1Erasmus University Rotterdam, Netherlands, The; 2NHH Norwegian School of Economics; 3Copenhagen Business School

This paper studies how costs of tax planning related to tax-induced transfer pricing affect investments. We embed the different methods used by the OECD to curb abusive transfer pricing into a cost function for tax planning by multinationals. We show that transfer pricing affects capital investment only indirectly via the use of intermediate inputs. Two main results then emerge. First, when the OECD's comparable uncontrolled price method or the resale price method are used to determine arm's-length prices, tax-induced transfer pricing has positive investment effects. Second, when the OECD transactional net margin method is used, tax-induced transfer pricing does not affect investment on the intensive margin.

Nielsen-Transfer Pricing and Investment-227.pdf
 
10:00am - 11:30amC13: Inequality III
Location: Room K 009 D
 

Inheritances, Expectations and Intergenerational Mobility

Robert Joyce1, David Sturrock1,2

1Institute for Fiscal Studies, United Kingdom; 2University College London

Over the past 40 years, inheritances have grown as a share of national income in many advanced economies and looks likely to grow further in the coming decades. Inheritances are both highly unequally distributed across individuals and, for a given individual, uncertain in both their size and timing. What are the implications of this source of lifetime income risk for the distributions of consumption and wealth over the lifecycle and for the consumption and wealth mobility? This paper gives a quantitative answer to these questions. We estimate a model of wealth accumulation over the lifecycle in the presence of a parental wealth and inheritance process and us it to decompose the impact of inheritances on consumption and wealth inequality. Inheritances have a minor impact on wealth inequality but are of growing importance for several measures of intergenerational mobility.

Joyce-Inheritances, Expectations and Intergenerational Mobility-517.pdf


Consumption Inequality And Poverty In Greece: Evidence And Lessons From A Decade-long Crisis

Georgia Kaplanoglou

National and Kapodistrian University of Athens, Greece

The paper assesses evolutions in consumption inequality and poverty in Greece from the onset of the economic crisis in 2009 until the completion of the last structural adjustment program in 2019. Using microsimulation analysis on several waves of Household Budget Survey data, this study finds that the left-led government elected in 2015 reversed trends of steeply escalating inequality and poverty of the 2009-2014 period. By adopting policies with Rawlsian characteristics, primarily the least well-off and partly the middle class gained some lost ground. However, distributional changes were mostly marginal, when compared to the massive adverse developments of the 2009-2014 period. The disequalising effect of indirect taxation became stronger as further tax hikes were employed to achieve fiscal consolidation targets. Our results suggest that even well-targeted redistributive policies, unless sufficiently generous, have limited capacity to lift people out of poverty and multilevel policies affecting the distribution of market incomes are necessary.

Kaplanoglou-Consumption Inequality And Poverty In Greece-234.pdf


Stairway to Heaven? Selection to Entrepreneurship and Income Mobility

Toni Kristian Juuti1,2, Jarkko Harju2,3,4, Tuomas Matikka2,4

1Labour Institute for Economic Research LABORE; 2VATT Institute for Economic Research; 3Tampere University; 4CESifo

Using firm-, owner- and individual-level panel data from Finland, we examine the income trajectories of entrepreneurs before and after they start their business. We show six stylized facts. First, there is huge selection to incorporated entrepreneurship by individuals at the very top of the income distribution. Second, the income levels of entrepreneurs sharply drop at the time of the start of business but then quickly bounce back. Third, after 10 years entrepreneurs earn on average 35% more than individuals who remained as wage earners. Fourth, controlling for both personal income ranks prior to starting a business and parental income ranks reduces this income gain to 20%. Five, the largest relative increases in incomes come for those at the bottom half of the distribution prior to starting their business. Sixth, intergenerational mobility is higher among entrepreneurs than among wage earners. We also examine how earnings retained in firms affect these findings.

Juuti-Stairway to Heaven Selection to Entrepreneurship and Income Mobility-231.pdf
 
10:00am - 11:30amC14 (hybrid): Miscellaneous
Location: MZ 208 B (Management Building)
 

Regime Switching Fiscal Policy and Growth Cycles; The Case for Countercyclical Fiscal Policy.

Mathew Koshy Odasseril, Shanmugam K R

Madras School of Economics, Chennai

The devastating impact of the COVID-19 pandemic on the economy is a matter of utmost importance. In this paper, a Markov Regime Switching AR model is estimated for the Indian economy using the quarterly data for the period 1983Q1 - 2020Q4. The MS (2) AR (4) model output indicates that the average growth rate of real GDP during expansions is 8.04 % and during recessions is 4.04 %, with each state being persistent. Thirteen growth cycles with an average duration of 11 quarters have been identified. The dynamic predictions of real GDP growth compare well with the forecasts of IMF and World Bank. Regime switching fiscal policy rule shows that the passive fiscal policy regime is more persistent than the active fiscal policy regime for India and that the government responded to the pandemic swiftly, but it was not something without bothering the alarming debt levels.

Odasseril-Regime Switching Fiscal Policy and Growth Cycles The Case-521.pdf


Research on Fiscal Policy of Green Economy Transition in China

Qin Fengqin

Chinese Academy of fiscal Sciences, China, People's Republic of

In response to climate change and in search of new sources of economic growth in the post epidemic era, the 2021, the world's major economies, have stepped up the pace of economic green transition, and governments have actively increased investment in green and low carbon sectors, green economy has become the focus of global industrial competition. China has made outstanding achievements in economic recovery and green economy transition. In particular, the government has actively increased its support for green economy transition,during the 13th five-year plan, the government has adopted a series of policy measures, such as increasing fiscal expenditure, improving tax policy, and reforming relevant mechanisms and systems. Next, fiscal policy will take the "Two-carbon" goal as a major national strategy, china's ecological civilization to provide better policy protection, and also for the global climate governance to contribute to the ultimate realization of the global green economy.

Fengqin-Research on Fiscal Policy of Green Economy Transition-400.pdf


Investment Risk-taking and Benefit Adequacy under Automatic Balancing Mechanism in Public Pension System in Japan

Shin Kimura1, Tomoki Kitamura2, Kunio Nakashima3

1University of Hyogo, Japan; 2Tohoku Gakuin University, Japan; 3NLI Research Institute

The automatic balancing mechanism introduced in 2004 aims to re-establish the financial equilibrium of Japanese public pension systems. The non-linear functions for benefits embedded in the automatic balancing mechanism make it difficult to analyze the effect of market fluctuations on the sustainability of the pension system. Using a stochastic simulation model applying the government’s public pension verification programs, we examine the risk of benefit level and financial stability according to the risk-taking in pension reserve funds for the Japanese public pension system. We find that, for high risk-taking, the risk of benefit level increases because the automatic balancing mechanism continues to decrease benefits. Furthermore, the risk of reserve funds also increases because of the possibility of large negative investment returns. By contrast, for low risk-taking, the benefit level is locked in at a low level because the investment returns are insufficient. Therefore, the risk-taking of reserve funds should be adequate.

Kimura-Investment Risk-taking and Benefit Adequacy under Automatic Balancing Mechanism-314.pdf


Mandating Digital Tax Tools As A Response To Covid: Evidence From Eswatini

Fabrizio Santoro1, Razan Amine1, Tanele Magongo2

1International Centre for Tax and Development; 2Eswatini Revenue Authority

What are the implications of imposing an e-filing mandate on tax compliance? This paper offers an impact evaluation of the e-Tax mandate, coupled with a “zero cash handling” policy for tax payments, imposed on all income taxpayers in Eswatini. We use a difference-in-difference strategy, reinforced by a propensity score matching (PSM) approach to evaluate the impact of e-Tax on filing and payment behaviors. First, the paper describes which firms have the highest likelihood for e-Tax registration. Second, e-Tax significantly causes an enhanced filing and payment behaviours, where treated taxpayers are less likely to file nil (60%) and declare significantly more turnover and taxable income and are 70% more likely to pay conditional on filing. Third, we highlight the mechanisms behind our causal estimates, where treated taxpayers are more likely to file on-time, to file VAT conditional on income tax filing, to make a full payment and to report more accurately.

Santoro-Mandating Digital Tax Tools As A Response To Covid-295.pdf
 
11:30am - 12:00pmCoffee Break IV: Coffee Break
Location: Hall B and C, right outside HS 1
12:00pm - 1:00pmPlenary III: Lucie Gadenne, University of Warwick/UK: "Public Finance in Developing Countries"
Location: Room HS 1
Session Chair: Anne Brockmeyer, Institute for Fiscal Studies
1:00pm - 2:00pmLunch II: Lunch
Location: Mensa
1:00pm - 2:00pmM 2 - 1: Mentoring Session on: Gender Equality in Academia (for registered participants)
Location: Room HS 7
Session Chair: Katherine Cuff, McMaster University
1:00pm - 2:00pmM 2 - 2: Mentoring Session on: Academia Outside the US and Europe (for registered participants)
Location: Room HS 2
Session Chair: Enlinson Mattos, FGV Fundacao Getulio Vargas
1:00pm - 2:00pmM 2 - 3: Mentoring Session on: Inequality & Intergenerational Mobility (for registered participants)
Location: Room HS 6
Session Chair: Andreas Peichl, LMU / ifo
2:00pm - 4:00pmD01: Tax Enforcement
Location: Room HS 7
 

Tax Evasion at the Top of the Income Distribution: Theory and Evidence

Max Risch1, John Guyton2, Pat Langetieg2, Daniel Reck3, Gabriel Zucman4

1Carnegie Mellon University, United States of America; 2Internal Revenue Service, Unites States of America; 3London School of Economics, UK; 4University of California Berkeley, United States of America

This paper studies tax evasion at the top of the U.S. income distribution using micro-data from random audits, targeted enforcement activities, and operational audits. Drawing on these data, we demonstrate that random audits underestimate tax evasion at the top of the income distribution. Specifically, individual random audits do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top. We provide a theoretical explanation for this phenomenon, and we construct new estimates of the size and distribution of tax noncompliance in the United States.

Risch-Tax Evasion at the Top of the Income Distribution-421.pdf


Audit Selection With Weak Fiscal Capacity: Evidence From Senegal

Pierre Bachas1, Anne Brockmeyer2, Alipio Fereira3, Bassirou Sarr4

1The World Bank; 2IFS, UCL, World Bank; 3Toulouse School of Economics; 4Ministry of Finance, Senegal

Developing economies are characterized by limited compliance with government regulation, such as taxation. Resources for enforcement are scarce, but the increasing availability of digitized data and data processing technologies have the potential to improve the targeting of enforcement. Leveraging an experiment at scale in Senegal, we compare the yield of tax audit cases selected by a risk-scoring algorithm to cases selected by tax inspectors based on a traditional discretionary procedure. The algorithm computed indicators of inconsistencies and anomalies based on available information about firms, including their own tax declarations and third-party data. Discretionary methods select larger firms than the algorithm, and uncover equivalent evasion rates, thus outperforming it in absolute values of fines.

Bachas-Audit Selection With Weak Fiscal Capacity-349.pdf
 
2:00pm - 4:00pmD02: Wealth Dynamics
Location: Room HS 2
 

Heterogeneous Risk Exposure and the Dynamics of Wealth Inequality

Riccardo Antonio Cioffi

Princeton University

In this paper I argue that the dynamics of wealth inequality are largely driven by heterogeneous exposure to aggregate risk in asset returns. I propose a quantitative model of households' optimal portfolio choice that builds on evidence that housing is a necessary good. The model replicates households' portfolio heterogeneity along the wealth distribution: just like in the data, as households get wealthier they shift their portfolios away from safe assets, first towards housing, and then towards equity. Because households in different parts of the wealth distribution are exposed to different sources of aggregate risk, the model has strong implications for the evolution of inequality. In particular, temporary shocks in equity returns have large and persistent effects on top wealth shares. A key implication is that the observed rise in U.S. wealth inequality was mostly due to abnormal equity returns and it is therefore expected to revert back to lower levels.

Cioffi-Heterogeneous Risk Exposure and the Dynamics of Wealth Inequality-356.pdf


Global Wealth Dynamics: Understanding the Determinants

Luis Bauluz1,5, Clara Martínez-Toledano2,5, Thomas Blanchet3,5, Alice Sodano4,5

1University of Bonn; 2Imperial College London; 3UC Berkeley; 4PSE; 5WID

This paper studies the dynamics of global wealth and its determinants across the five continents. We build the first Global Wealth Accounts using official balance sheets combined with other external sources such as surveys or censuses. Our new database includes assets, liabilities and investment flows by sector (i.e., households, government, corporations, rest of the world) and asset class for most countries in the world since 1995. We find substantial heterogeneities in both the level and trajectory of wealth across world regions. In particular, the level of private wealth relative to income has been much larger in Europe, North America, Oceania and South East Asia since the 1990s than in the rest of world and it has also risen more. Using standard counterfactual simulations, we show that both differences in volume effects and capital gains are behind the steeper rise in private wealth to income ratios in these regions

Bauluz-Global Wealth Dynamics-478.pdf


Where Does Wealth Come From?

Sandra E. Black1, Paul J. Devereux2, Fanny Landaud3, Kjell G. Salvanes3

1Columbia University; 2University College Dublin; 3Norwegian School of Economics, Norway

In this paper, we use comprehensive administrative data on the population of Norway to create a measure of lifetime resources, which generates several stylized facts. First, lifetime resources are highly correlated with net wealth, but net wealth is more unequally distributed. Second, labor income is the most important component of lifetime resources, except among the top 1% where capital income and capital gains on financial assets become important. Lastly, lifetime resources are a better predictor of child human capital outcomes than net wealth, suggesting that, in some cases, inequality in lifetime resources may be more relevant than inequality in wealth.

Black-Where Does Wealth Come From-285.pdf


Portfolio Changes and Wealth Inequality Dynamics

Daniel Albuquerque

London School of Economics, United Kingdom

This paper investigates the role of changes in households’ portfolios on the evolution of wealth inequality. First, I show that US households’ portfolio composition has changed between 1989 and 2019. Using an accounting exercise, I quantify that these changes account for 2.9 p.p. of the 7.7 p.p. increase in the wealth share of the top 1%. Second, I analyse whether these changes in portfolios at the top can be caused by changes in income taxation. With an analytical model I show that when taxes fall households shift their portfolio towards high-risk, high-return assets, magnifying the impact of tax rates on wealth inequality. Third, I develop a quantitative model of households’ savings and portfolio choice and analyse the decrease in US tax rate progressivity since 1975. Allowing households to react by changing their portfolio composition amplifies the impact of taxes on the top 1% wealth share by approximately 20 to 25%.

Albuquerque-Portfolio Changes and Wealth Inequality Dynamics-301.pdf
 
2:00pm - 4:00pmD03: Optimal Taxation IV - Capital and Wealth Taxes: Mixing Evidence and Theory
Location: Room HS 6
 

Behavioral Responses to Wealth Taxation: Evidence from Colombia

Juliana Londono-Velez

UCLA, United States of America

We study behavioral responses to personal wealth taxes in Colombia using tax microdata (1993-2016) linked with the leaked Panama Papers, which shed light on offshoring to Colombia’s most relevant tax havens. We leverage variation from four reforms that modified the wealth tax design—tax duration and rate schedule—and introduced discrete jumps in the tax liability. Using bunching and difference-in-difference techniques, we obtain four key results. First, we find salient and compelling evidence that wealth tax hikes cause taxpayers to lower their reported wealth instantly—a reporting response that slashes, at most, one-fifth of tax revenue. Second, this response can persist even after the wealth tax no longer applies—i.e., “hysteresis"—reflecting taxpayers’ strategic avoidance behavior. Third, taxpayers misreport what authorities cannot cross-verify: they inflate (interpersonal) debt and underreport non-third-party-reported business assets. Lastly, the wealthiest taxpayers also respond to wealth tax hikes by hiding assets in hard-to-track entities in tax havens.

Londono-Velez-Behavioral Responses to Wealth Taxation-434.pdf


A Fair Day’s Pay for a Fair Day’s Work: Optimal Tax Design as Redistributional Arbitrage

Christian Hellwig1, Nicolas Werquin2

1Toulouse School of Economics; 2Federal Reserve Bank of Chicago

We study optimal tax design based on the idea that policy-makers face trade-offs between multiple margins of redistribution. Within a Mirrleesian economy with earnings, consumption and retirement savings, we derive a novel formula for optimal income and savings distortions based on redistributional arbitrage. We establish a sufficient statistics representation of the labor income and capital tax rates on top income earners in dynamic environments, which relies on the observed distributions of both income and consumption. Because consumption has a thinner Pareto tail than income, our quantitative results suggest that it is optimal to shift a substantial fraction of the top earners' tax burden from income to savings.

Hellwig-A Fair Day’s Pay for a Fair Day’s Work-109.pdf


Sufficient Statistics for Nonlinear Tax Systems with Preference Heterogeneity

Antoine Ferey1, Benjamin Lockwood2, Dmitry Taubinsky3

1LMU Munich; 2Wharton; 3UC Berkeley

This paper provides general and empirically implementable sufficient statistics formulas for optimal nonlinear tax systems in the presence of preference heterogeneity. We study unrestricted tax systems on income and savings (or other commodities) that implement the optimal direct-revelation mechanism, as well as simpler tax systems that impose common restrictions like separability between earnings and savings taxes. We characterize the optimum using familiar elasticity concepts and a sufficient statistic for across-income preference heterogeneity: the difference between the cross-sectional variation of savings with income, and the causal effect of income on savings. Our formulas also apply to other sources of across-income heterogeneity, including heterogeneity in rates of return on savings or in inheritances. We provide tractable extensions that include multidimensional heterogeneity, additional efficiency rationales, and corrective motives. Applying these formulas in a calibrated model of the U.S. economy, we find that the optimal savings tax is positive and progressive.

Ferey-Sufficient Statistics for Nonlinear Tax Systems with Preference Heterogeneity-118.pdf
 
2:00pm - 4:00pmD04: International Tax II
Location: Room K 153 C
 

Internal Capital Markets of Multinationals: Efficiency & Real Profit Shifting under Limited Centralisation

Anna Abate Bessomo

European University Institute, Italy

Multinational Enterprises (MNEs) have often been accused of exploiting cross-country differences in policies, but little is still know about how this is achieved.

Focusing on internal capital markets, I show that pricing internal transactions as if they were market-based has adverse consequences if the actual decisions are taken in a centralised manner based on authority. If the accounting cost of internally reallocated capital differs from the external cost of capital, this presents an arbitrage opportunity for the MNE to exploit. This leads to lower worldwide tax receipts and increases the tax elasticity of MNEs' investment and output choices. In this internal reallocation, the MNE may be limited by outside investors co-owning subsidiaries, if these local partners have adequate authority. If feasible, the MNE thus prefers to always be the majority owner in any joint

venture.

Abate Bessomo-Internal Capital Markets of Multinationals-436.pdf


Hide-Seek-Hide? The Effects of Financial Secrecy on Cross-Border Financial Assets

Petr Janský, Tereza Palanská, Miroslav Palanský

Charles University, Czech Republic

We estimate the semi-elasticity of cross-border financial assets to changes in financial secrecy and how it differs for countries at various income levels. We develop a new financial secrecy dataset for the 2011--2020 period, which covers many specific policies in addition to the previously studied automatic information exchange. We then combine it with data on cross-border financial assets and find that investors do indeed react to changes in financial secrecy by relocating their assets to jurisdictions that remain, or have recently become, more financially secretive than other countries. Consistently with our theoretical predictions, we document that this effect is highly non-linear and stronger for portfolio investment than for bank deposits. Overall, we find a much stronger relocation effect for assets originating from lower-income countries.

Janský-Hide-Seek-Hide The Effects of Financial Secrecy on Cross-Border Financial Assets-229.pdf


On the Incentive Compatibility of Universal Adoption of Destination Based Tax Flow Taxation

Eric Bond1, Thomas Gresik2

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

We analyze the incentives for an individual country to adopt destination-based cash flow taxation (DBCFT) in a two-country model. A change in a country's corporate tax rate, degree of taxation of capital income, and/or level of border adjustment generates welfare effects that can be decomposed into fiscal effects, price level effect, and relative price effects. We establish that at least one country will have an incentive to deviate from a universal DBCFT by reducing the deduction for capital investments. For the deviations involving reduction in border adjustments, we show that both countries will have an incentive to deviate in the symmetric case, and we establish conditions for deviations to be desirable in the asymmetric case. Universal DBCFT will not be incentive compatible in a one shot tariff setting game, so commitment mechanisms will be required to sustain it as an equilibrium.

Bond-On the Incentive Compatibility of Universal Adoption of Destination Based Tax Flow Taxation-317.pdf


Do Tax Incentives Affect Investment Quality?

Kerstin Schneider1, Martin Jacob2, Sebastian Eichfelder3

1University of Wuppertal, Germany; 2WHU; 3Otto-vonGuericke-Universität Magdeburg

This paper examines the effect of tax incentives in the form of bonus depreciation on the quality of investment. Using the expiration of tax incentives via bonus depreciation in East Germany and a representative panel of West German establishments, we show that bonus depreciation significantly lowers the quality of investment. The average quality of investments, measured by the responsiveness of future sales to current investment, reduces by 22.6–34.6%. This adverse effect of tax subsidies is greater for jurisdictions with higher tax rates as well as for large or low-productivity establishments. Overall, while increasing investment quantity, as shown by prior literature, tax incentives such as bonus depreciation substantially reduce the quality of investments.

Schneider-Do Tax Incentives Affect Investment Quality-190.pdf
 
2:00pm - 4:00pmD05: Tax Distortions
Location: Room HS 5
 

Corporate Dividend Payments Along The Ownership Chain: On Repatriation Taxes, Owner Outcomes, And The Role Of Conduit Entities

Valeria Merlo1, Johanna Paraknewitz2, Georg Wamser3

1University of Tuebingen, Germany; RSIT; CESifo; 2University of Tuebingen, Germany; RSIT; 3University of Tuebingen, Germany; RSIT; CESifo

This paper investigates multinational corporations’ (MNCs) dividend policy and contributes to a better understanding of within-firm profit repatriation behavior. Based on a multi-country, multi-industry, parent-affiliate level dataset, we find that taxes significantly affect within-firm dividend distributions. Our data allow us to further examine dividend payments along the ownership chain of MNCs. Estimation results consistently indicate that those firm entities that receive higher levels of dividends are also the ones that pay more dividends to their respective shareholders. This effect is particularly relevant when focusing on intermediate entities. It appears that these primarily serve as conduits and pass on dividends to global ultimate owners – only for those to distribute dividends to their investors. Additional evidence, consistent with this behavior, suggests that while dividend repatriations have an effect on long-term debt and own dividend payments, they do not affect real outcomes of intermediate entities (such as assets, employment, or wages).

Merlo-Corporate Dividend Payments Along The Ownership Chain-457.pdf


The Distorting Effects of Imputation Systems on Tax Competition in the EU

Leonie Fischer1,2, Jessica M. Müller1, Christoph Spengel1,2

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

The design of corporate income tax systems and the taxation of (cross-border) dividends fall under the sovereignty of the EU Member States. However, these rules are restricted by the EU regulatory framework and the ECJ's case law, which prohibit discrimination of foreign against domestic dividends. Five EU Member States abolished discriminatory imputation systems in favour of shareholder relief systems between 1999 and 2019, which had not only legal but also economic implications. In our analysis, we assess how and to what extent the abolishment of these systems affected a country’s tax location attractiveness for capital investments and tax competition. We apply the Devereux/Griffith methodology using the CoC and EATR. Overall, we find that from an individual, qualified shareholder’s perspective, the discriminatory imputation systems positively affected the investment volume and location attractiveness of the shareholder’s residence country compared to foreign investments. The advantageousness is, on average, reversed after the switch.

Fischer-The Distorting Effects of Imputation Systems on Tax Competition-435.pdf


Hidden in plain sight – Offshore ownership of Norwegian real estate

Annette Alstadsæter, Andreas Økland

Norwegian University of Life Sciences, Norway

The influx of foreign capital in real estate markets are well documented, but the full extent of foreign ownership in real estate markets is still unknown. We document that foreign ownership of Norwegian real estate is substantial and increasing, by utilising unique administrative micro data. The foreign ownership is especially concentrated among corporations, while directly owned real estate has a much smaller subdivision of foreign ownership. We also show that the relative share of real estate held by owners registered in tax havens is increasing, with owners registered in Luxembourg driving this development. The offshore ownership seems to have increased in anticipation to the introduction of the Common Reporting Standard, which increased bilateral information exchange of financial assets, but not real estate.

Alstadsæter-Hidden in plain sight – Offshore ownership of Norwegian real estate-372.pdf


Effective Tax Rates and Firm Size

Pierre Bachas1, Anne Brockmeyer1,2,3,4, Roel Dom1, Camille Marine Semelet1,5,6

1the World Bank; 2IFS; 3UCL; 4CEPR; 5ifo institute; 6LMU

How much taxes do firms effectively pay, and how does the tax burden vary across firm-size? Using corporate tax returns from 14 countries at different income levels, we develop a methodology to measure firms’ effective tax rates (ETRs) and uncover three novel patterns. First, the gap in revenue collection created by tax exemptions is substantial: ETRs are 25.9% lower than statutory tax rates on average. Second, ETRs increase with firm-size, such that firms at size percentile 80 pay a 5.2 ppt higher tax rate than firms at size percentile 20. Third, the ETR often falls at the very top: the top 1% pays on average a 3.3 percentage points lower tax rate than other firms in the top 10%. This inverse U-shaped pattern of tax rates by firm-size implies that medium-sized firms bear a disproportionate tax burden, which reduces the efficiency and equity of the corporate tax system.

Bachas-Effective Tax Rates and Firm Size-247.pdf
 
2:00pm - 4:00pmD06: Effects of Profit Shifting I
Location: Room HS 4
 

Preferential Tax Treatment to Intangible Assets: Using Forward-looking Effective Tax Rates to Quantify Tax Benefits

Ana Cinta Gonzalez Cabral, Tibor Paul Hanappi, Silvia Appelt

OECD, France

Tax incentives providing relief to the income from R&D and innovation are becoming increasingly used among OECD countries. Despite increased uptake, evidence on the level of implied subsidy they offer to firms is lacking. Following the recent introduction of development requirements, the link between the way in which firms acquire IP and their commercialisation has become more salient. This paper proposes a forward-looking framework that allows the distinction between the acquisition and commercialisation phase of intangible investments and can serve to analyse the tax policy implications of standard and preferential tax provisions for different types of intangible asset investments.

Gonzalez Cabral-Preferential Tax Treatment to Intangible Assets-423.pdf


Taxes, Profit Shifting, and the Real Activities of MNEs: Evidence from 159 Corporate Tax Notches

Jaqueline Hansen, Valeria Merlo, Georg Wamser

University of Tübingen, Germany

This paper exploits exogenous variation in tax notches created by controlled foreign corporation (CFC) rules to better understand the profit-shifting behavior of multinationals. Using new data on CFC rules and bilateral parent-affiliate ownership

data, we estimate a profit-shifting semi-elasticity of about 0.32. Furthermore, we provide evidence that the unilateral implementation of anti-tax-avoidance regulation at the parent location leads to profit relocations consistent with tax-minimizing behavior. We do not find any evidence that parent countries benefit from this regulation (in terms of repatriated tax base) or that parent firms bear the economic costs (real outcomes of parents remain unaffected).

Hansen-Taxes, Profit Shifting, and the Real Activities of MNEs-210.pdf


Did the Tax Cuts and Jobs Act Reduce Profit Shifting by US Multinational Companies?

Javier Garcia-Bernardo1, Petr Janský2, Gabriel Zucman3

1Utrecht University; 2Charles University; 3UC Berkeley

The 2017 Tax Cut and Jobs Act reduced the US corporate tax rate and introduced provisions to curb profit shifting. We combine survey data, tax data, and firm financial statements to study the evolution of the geographical allocation of US firms’ profits after the reform. The share of profits booked abroad by US multinationals fell 3–5 percentage points, driven by repatriations of intellectual property to the US. The share of foreign profits booked in tax havens remained stable around 50% between 2015 and 2020. Changes in the global allocation of profits are small overall, but some firms responded strongly.

Garcia-Bernardo-Did the Tax Cuts and Jobs Act Reduce Profit Shifting-182.pdf


Corporate Income Tax, IP Boxes and the Location of R&D

Pranvera Shehaj2, Alfons Weichenrieder1

1Goethe University Frankfurt, Germany; 2Vienna University of Econmics and Business, Austria

We discuss corporate tax effects on multinationals’ R&D. Theoretically, we find that a host country’s tax increase may boost local R&D expenditure: while R&D becomes deductible at a higher rate, this higher rate may not apply to all R&D returns. First, as R&D creates a public good within the MNE, some R&D returns are taxed at other countries’ tax rates. Second, some of the R&D returns are taxed at a lower IP regime tax rate. The positive tax rate effect is empirically supported by country-by-country R&D data of U.S.-owned subsidiaries for countries that have an IP regime.

Shehaj-Corporate Income Tax, IP Boxes and the Location of R&D-148.pdf
 
2:00pm - 4:00pmD07: Political Economy IV
Location: Room K 269 D
 

Paying Them to Hate US: The Effect of U.S. Military Aid on Anti-American Terrorism, 1968-2018

Eugen Dimant1, Tim Krieger2, Daniel Meierrieks3

1University of Pennsylvania; 2University of Freiburg, Germany; 3WZB Berlin

Does U.S. military aid make the United States safer? We provide causal estimates of the effect of U.S. military aid on anti-American terrorism for 174 countries between 1968–2018 by exploiting plausibly exogenous time variation in global levels of U.S. military aid associated with distinct aid programs and cross-national time-series variation in the relative importance of the various military aid programs for recipient countries. Higher levels of military aid lead to an increased likelihood of the recipient country to produce anti-American terrorism. For our preferred specification, doubling U.S.military aid increases the terrorism risk by 2.7 percentage points. Examining potential transmission channels, we find that more U.S. military aid leads to more corruption and exclusionary policies in recipient countries. We argue that U.S. military aid results in anti-American terrorism by undermining institutions in recipient countries and creating anti-American resentment among those who do not have access to benefits arising from aid.

Dimant-Paying Them to Hate US-106.pdf


The Popularity Function: A Spurious Regression? The Case of Austria

Reinhard Neck1, Friedrich Schneider2

1University of Klagenfurt, Austria; 2Johannes Kepler Universität Linz

In this paper we apply the unit root and cointegration methodology of modern econometric time series analysis to estimated popularity functions for the Austrian parties in power since the mid-1970s. We find no evidence for and rather strong evidence against the influences of unemployment or inflation on the popularity of the political parties in the federal government, thereby challenging previous studies that claimed to have established such influences. The usefulness of the applied methodology to clarify such issues is demonstrated by this example.

Neck-The Popularity Function-127.pdf


The Political Consequences of Technological Change that Increases Demand for Low-Skilled Jobs

Henning Finseraas1, Ole Henning Nyhus2

1Norwegian University of Science and Technology, Norway; 2NTNU Social Research, Norway

Recent technological changes have increased the demand for high-skilled jobs. Papers on the political effects of these changes argue that losers have turned to the populist right. However, we know less about the impact of technological changes creating more demand for low-skilled workers. We document positive labour market effects for low-skilled workers from the growth of the salmon fish farming industry in Norway and explore whether the positive development has impacted the local support for parties such as the Progress Party. To study this, we use an Instrumental Variables approach, leveraging that geographic characteristics determine the local feasibility of salmon fish farming. Despite a positive development for low-skilled workers, we find political effects that are quite similar to those in the "left-behind" literature, as support for the Progress Party increased. Our results show that this is due to a right-wing shift on the economic, not the cultural, dimension.

Finseraas-The Political Consequences of Technological Change that Increases Demand-354.pdf


Infrastructure For Votes? Experimental And Quasi-Experimental Evidence From Mexico

Francisco Garfias2, Bruno Lopez-Videla3, Wayne Aaron Sandholtz1

1Nova School of Business and Economics, Portugal; 2University of California, San Diego; 3Amazon

Many theories of political accountability assume that voters reward incumbents for policy, but empirical evidence is mixed. We examine the electoral returns to a randomly allocated federal program in Mexico that spent USD $68 million on neighborhood infrastructure improvements between 2009-2011 and raised property values. We find that the program increased voter turnout, but had a precise zero effect on precinct-level vote share for municipal or federal incumbents. We then examine electoral returns to the program in its subsequent non-experimental scale-up phase. Using difference-in-differences, we find that the program increased the municipality-level vote share of incumbents from the party in federal office. This divergence between precinct- and municipal-level effects may suggest that the program provided irregular campaign funds for ruling-party municipal candidates. Close-municipal-election regression discontinuity analysis shows that partisan alignment increased allocation of the program, and increased misuse of federal funds in municipalities receiving the program.

Garfias-Infrastructure For Votes Experimental And Quasi-Experimental Evidence-355.pdf
 
2:00pm - 4:00pmD08: Macro Public Finance III
Location: Room HS 3
 

Consolidating the Covid Debt

Christian Keuschnigg, Julian Johs, Jacob Stevens

University of St. Gallen, Switzerland

One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.

Keuschnigg-Consolidating the Covid Debt-176.pdf


Fiscal Opacity and Hidden Debt: An Indian Experience

Himadri Shekhar Chakrabarty

INDIAN INSTITUTE OF MANAGEMENT CALCUTTA, India

This study makes an attempt to unfurl why India’s fiscal position must be assessed beyond what appears on the annual financial statements. The study argues that off-budget exposure, which poses sizeable fiscal risks as and when they materialize, is an off-shoot of the on-budget constraints that governments either inherit or get involved in. These not only include procedural or rule-driven inefficiencies but also combine asymmetrical nature of growth episodes both at the national and sub-national level.We employ the Nonlinear Autoregressive Distributed Lag Model (NARDL) to account for this relationship between the off-budget and on-budget indicators both at the national and sub- national level. This carries significant policy implications for a federal nation like India where lack of uniformity in fiscal rules coupled with responsibility of bailing out state governments lying with the national government, entails a clear mandate for fiscal transparency at all level of the Government.

Chakrabarty-Fiscal Opacity and Hidden Debt-319.pdf


30 Years Of Generational Accounting: A Critical Review

Ed Westerhout1,2

1Fiscal Institute, Tilburg University, The Netherlands; 2CPB Netherlands Bureau for Economic Policy Analysis, The Netherlands

Throughout the world, public debt ratios have been high already since the Great Recession. The COVID-19 crisis has worsened this situation dramatically by pushing up public debt ratios to sky-high levels. This calls into question whether public debt policies are still sustainable. And, if not, to what levels should these ratios have to be reduced in order to achieve fiscal sustainability? One approach to assess sustainability, which dates back to the nineties of the last century but which is still applied on a regular basis nowadays is that of generational accounting (GA). This paper reviews GA. It argues that GA is a powerful instrument, but suffers from some weaknesses. This might explain the birth of alternative approaches like debt sustainability analysis. We conclude that we need to renew GA in order to keep it sustainable.

Westerhout-30 Years Of Generational Accounting-294.pdf


Sovereign Debt Maturity Structure and its Costs

Flavia Corneli

Bank of Italy, Italy

I propose a theoretical model of a debt contract between a sovereign and its international lenders that determines the optimal debt maturity structure and related costs. It is shaped by two financial frictions: limited liability (the country cannot guarantee that it will not dilute its obligations or default on them) and market incompleteness. In equilibrium, debt dilution constrains the amount of long-term debt issuance. I use of this framework to evaluate the impact of two policy interventions: the possibility of sovereign debt restructuring with private creditors and international official lending in the event of exclusion from the international capital markets. The possibility of restructuring after default stimulates long-term debt issuance; however, in equilibrium, those tools are unable to loosen the constraint on long-term debt issuance. Consistently with the empirical literature, I find that even when these policy options are available, the country tends to issue mainly short-term debt.

Corneli-Sovereign Debt Maturity Structure and its Costs-145.pdf
 
2:00pm - 4:00pmD09: Education I
Location: Room K 001 A
 

The Effect Of Education On Charitable Giving

Mikael Elinder1,2, Per Engström1, Oscar Erixson3, Erik Lundberg1

1Department of Economics, Uppsala University, Sweden; 2Research Institute of Industrial Economics, Sweden; 3Institute of Housing and Urban Research, Uppsala University, Sweden

This article studies the causal effect of attaining more education on charitable giving. We exploit the Swedish compulsory schooling reform to obtain exogenous variation in years of schooling. The analyses are based on almost all Swedes born between 1943 and 1954, more than 1 million individuals. We begin by documenting a strong positive association between years of schooling and charitable giving and show that positive associations of similar magnitudes are present in most OECD countries. However, in contrast to the strong gradient, the estimated causal effects show that education has a negligible impact on charitable giving. The 95 % confidence interval for the effect of an additional year of schooling is -1.7 – 0.3 percentage points change in the likelihood of giving to a charity. The corresponding raw gradient (i.e. the OLS estimate) is 3.6 percentage points higher likelihood of giving from an additional year of schooling.

Elinder-The Effect Of Education On Charitable Giving-209.pdf


The Effects Of Parental Education On Children's Cognitive And Non-Cognitive Skills

Regina Dirnberger

LMU Munich, Germany

This paper estimates the causal impact of parental education on children’s (cognitive and non-cognitive) skills. To this end, I use an Instrumental Variable approach with multiple instruments, namely a distance to university measurement, the average, mean weekly earnings, and the regional unemployment rate. I examine the effect using the 1970 British Cohort Study combined with data from other sources. Preliminary results show heterogeneous effects of parental education on children’s cognitive and non-cognitive skills, varying significantly in child characteristics. Pre-school children, age 3 to 6, experience positive effects on their cognitive skills, whereas school children’s cognitive skills are negatively influenced. For school children, parental education seems to positively influence non-cognitive abilities more strongly.

Dirnberger-The Effects Of Parental Education On Childrens Cognitive And Non-Cognitive Skills-284.pdf


Perceptions of Luck Vs. Effort in Education and the Demand for Redistribution: Evidence from a Survey Experiment

Elisabeth Grewenig2, Katharina Wedel1, Katharina Werner1

1ifo Institute, Germany; 2ZEW - Leibniz Centre for European Economic Research, Germany

We investigate how information about educational inequality affects fairness views and demand for redistribution in Germany. Using a survey experiment in a sample of the voting-age population, we find that information about the extent of educational inequality strongly increases the view that circumstances rather than effort determine educational success. These effects persist into a follow-up survey conducted two weeks later. Information also significantly increases donations to charities who aim at increasing equality of opportunity among students from different socioeconomic backgrounds (preferences for private redistribution), but does not affect public support for equity-enhancing educational policies (preferences for governmental redistribution). We further discuss several explanations for the heterogeneity of treatment effects between private and governmental redistribution.

Grewenig-Perceptions of Luck Vs Effort in Education and the Demand-339.pdf


All Together Now? The Expansion of Comprehensive Schooling in Germany

Kristina Strohmaier, Henri Pfleiderer

University of Tübingen, Germany

While Germany has historically relied on a rather strict ability tracking of students after four years of primary school, there has been an expansion of comprehensive schooling which varies significantly among the German states. In this paper, we exploit school reforms in two federal states between 2006 and 2010 to assess the impact of comprehensive learning from a multi-facetted perspective. We first analyze the effects of comprehensive schooling on student achievement and educational attainment. Second, we examine the effect of comprehensive schooling on non-cognitive skills and pro-social behavior. Third, we look at the question whether comprehensive schooling increases inter-generational mobility. The results suggest that students in comprehensive schools performed better in math tests in grade nine. In addition, comprehensive schooling increases educational attainment by 0.2 school years, while lowering the correlation of educational attainment between students and their parents. The effects on pro-social behavior are less clear though.

Strohmaier-All Together Now The Expansion of Comprehensive Schooling-420.pdf
 
2:00pm - 4:00pmD10: Taxing Personal Income II
Location: Room K 034 D
 

Bunching as the Tip of the Iceberg

Zareh Asatryan1, Andreas Peichl2, Paul Schüle2, Thomas Schwab3, Johannes Voget4

1ZEW Mannheim; 2ifo Institute and LMU Munich; 3LMU Munich; 4University of Mannheim

We analyze the earnings response of self-employed taxpayers to kinks in the Austrian income tax schedule and find that standard bunching methods do not capture the full behavioral response to the kink point. Exploiting a tax reform that shifted the kink to the right, we show behavioral reactions well beyond the region where a bunching pattern is directly visible in the cross-sectional income distribution. Combining income tax and VAT return micro data allows us to identify potential causes why reported taxable income is adjusted to values far below the income tax threshold. We provide evidence that the distribution of the excess mass is predominantly explained by discrete deductions and reduced business activity towards the end of the year.

Asatryan-Bunching as the Tip of the Iceberg-396.pdf


Tax by Design for the Netherlands

Sijbren Cnossen1, Bas Jacobs2

1Erasmus University Rotterdam, The Netherlands; 2Free University Amsterdam, The Netherlands

In this paper, we summarize the book Tax by Design for the Netherlands, which has been edited by us and published by Oxford University Press in 2022. In this book, tax experts offer their detailed views on directions for tax reform in the Netherlands, including recommendations for the taxation of capital income, corporate income tax, the taxation of labour income, corrective taxation to deal with climate change and congestion, and the taxation of consumption, particularly financial services, and the use of excise duties.

Cnossen-Tax by Design for the Netherlands-444.pdf


Tax Deduction Matters: Elasticities of the Laffer Curve, Taxable Income, and the Tax Revenue

Hiroshi Gunji1, Kazuki Hiraga2, Kenji Miyazaki3

1Daito Bunka University; 2Nagoya City University; 3Hosei University

In this study, we use a simple dynamic general equilibrium model to demonstrate that the tax deductions affect the three elasticities: that of the Laffer curve (the Laffer elasticity, hereafter), taxable income, and the tax revenue. We first decompose the Laffer elasticity, which consists of the elasticity of taxable income (ETI) and the tax revenue elasticity. To quantitatively evaluate the importance of tax deductions, we calculate the analytical solutions of these elasticities with respect to labor and capital income under the steady state in the general equilibrium model with exogenous deduction and a social security tax. Using Japanese data, we conduct a numerical simulation with plausible parameter values. The simulation yields results that are consistent with empirical literature on public finance: an unstable peak of the Laffer curve, wide range of estimates for ETI, and the tax revenue elasticity greater than 1.

Gunji-Tax Deduction Matters-310.pdf


Evaluating Tax Reforms without Elasticities: What Bunching Can Identify

Dylan T. Moore

University of Michigan, United States of America

I present a new method for evaluating proposed reforms of progressive piecewise linear tax schedules. Typically, estimates of the elasticity of taxable income (ETI) are used to predict taxpayer responses to changes in tax rates and/or tax bracket thresholds. I show that elasticities are not always needed for this task; the “bunching mass” at a bracket threshold is a sufficient statistic for the revenue effect of behavioral responses to small changes of the threshold. Building on this finding, revenue forecasting and welfare analysis of threshold changes can be conducted using the pre-reform distribution of taxable income alone. I apply these results in an analysis of the EITC, an exercise which motivates extensions addressing taxpayer optimization errors, tax rate heterogeneity, large reforms, and income and participation effects. My approach complements existing bunching methods: it avoids key limitations of bunching-based ETI estimation, but addresses a relatively narrower set of policy questions.

Moore-Evaluating Tax Reforms without Elasticities-455.pdf
 
2:00pm - 4:00pmD11: Local Public Finance III
Location: Room K 033 C
 

Do Business Tax Rates Affect Investment? Evidence from the Local Business Tax in Germany

Charlotte Bartels1, Sebastian Eichfelder2, Carla Pöschel3, Jonas Knaisch2

1German Institute for Economic Research (DIW), Germany; 2Otto-von-Guericke-Universität Magdeburg; 3Freie Universitaet Berlin

We investigate the effect of local business tax (LBT) rates on real business investment at the extensive and intensive margin. Unlike most prior studies using aggregate country or accounting data, we rely on a detailed, mandatory investment survey at the establishment level collected for an administrative panel of all German manufacturing firms (ca. 40,000 per year). We adopt a generalized difference-in-differences approach drawing on 10,702 LBT rate changes from 1995 to 2016. In the aggregate, we cannot provide significant empirical evidence that changes in LBT rates affect business investment of German manufacturing firms, neither at the extensive nor at the intensive margin. Taking account of firm and investment type heterogeneity reveals that LBT rates exert a significant impact on the probability of investments (extensive margin) (a) with long depreciation periods (buildings), (b) of large establishments (>= 250 employees or > 40 Euro million turnover), (c) of multi-establishment firms, and (d) of high-productivity establishments.

Bartels-Do Business Tax Rates Affect Investment Evidence-419.pdf


Place-Based Policies and the Geography of Corporate Investment

Cameron LaPoint1, Shogo Sakabe2

1Yale University, School of Management; 2Columbia University, Department of Economics

Growing spatial inequality has led policymakers to enact tax breaks to attract corporate investment and jobs to economically peripheral regions. We demonstrate the importance of multi-plant firms’ physical capital structure for the efficacy of place-based policies by studying a bonus depreciation scheme in Japan which altered the relative cost of capital across locations, offering high-tech manufacturers immediate cost deductions against corporate income taxes. Combining corporate balance sheets with a registry containing investment by plant location and asset type, we find the policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites, with a fiscal cost per job created of $16,000. For eligible firms, plant-level hiring in ineligible areas outstripped that in eligible areas, suggesting reallocation of resources within firms’ internal capital and labor markets mitigates the spatial misallocation inherent in subsidizing low productivity areas.

LaPoint-Place-Based Policies and the Geography of Corporate Investment-168.pdf


The Effects of Corporate Taxes on Business Entry and Exit

Paul Michael Kindsgrab, James Hines

University of Michigan, United States of America

This paper studies the effects of corporate taxes on business entry and exit by com- bining administrative data on the universe of German establishments from 2002-2012 with more than 10,000 municipal corporate tax reforms. Comparing municipalities which change their tax rate to ones that don’t, we find that corporate taxes reduce the entry of corporate businesses. Five years after a one percentage point increase in the municipal tax rate, corporate business entry is 5.9% lower than otherwise. In contrast, we find zero detectable impact of corporate taxes on corporate business exit.

Kindsgrab-The Effects of Corporate Taxes on Business Entry and Exit-262.pdf
 
2:00pm - 4:00pmD12: Pensions III
Location: Room K 224 B
 

Household Savings: A Cross-Country Analysis in Times of Negative Interest Rates

Klaas Staal

Karlstad University, Sweden

This paper analyses determinants of household savings in a model based on an extension of the disequilibrium savings theory. These extensions follow from the life-cycle and permanent-income theories. Based on a panel data from the period 2000-2021, fixed-effect least squares and two-stage least squares estimation procedures are used. In line with previous studies, there is also strong and robust evidence for the hypotheses of the disequilibrium savings theory: positive effects of unanticipated income changes, unanticipated inflation and the lagged savings rate. There is also robust evidence for the income uncertainty hypothesis: a positive effect of uncertainty on savings. The analysis presents some evidence that social security suppresses savings, but no significant effects of the interest rate or the old-age dependency ratio.

Staal-Household Savings-289.pdf


Do Tax Subsidies For Retirement Saving Impact Total Private Saving? New Evidence On Middle-income Workers

Camilla Skovbo Christensen, Bastian Emil Ellegaard

University of Copenhagen, Denmark

We exploit exogenous variation from a pension reform in Denmark to estimate the effect of tax subsidies on total private saving. We present new evidence on individuals in the middle of the income distribution and show that a reduction in tax subsidies for retirement saving reduces total private saving. The reform changed the tax incentives for saving in the pension scheme that holds the highest tax advantage for middle-income workers in Denmark. We find that for each unit of reduced saving in this pension scheme, only 63 percent is substituted to other types of saving.

Christensen-Do Tax Subsidies For Retirement Saving Impact Total Private Saving New Evidence-386.pdf


Incentives for Early Retirement and Pension Reform

Kathleen McKiernan

Vanderbilt University, United States of America

Many countries are currently dealing with how to fund consumption for retirees as populations age. Increasing the age at which a worker can claim a pension is a popular policy proposal meant to decrease the burden of aging populations on the pension system. However, such an increase in the statutory retirement age has two effects on the government budget. First, it lowers pension costs as workers spend fewer years in retirement. Second, it has an unclear impact on pension costs as longer working lives may lead to higher or lower average earnings and, therefore, pensions. I build an overlapping generations model with age and productivity heterogeneity, a decision of when to retire, and a method for the pension to endogenously depend upon the earnings of the worker. This paper considers a Brazilian reform passed in February 2019 as well as a counterfactual reform to isolate the mechanisms discussed.

McKiernan-Incentives for Early Retirement and Pension Reform-252.pdf
 
2:00pm - 4:00pmD13: Public Finance and Emerging Economies I
Location: Room K 009 D
 

Special Economic Zones And Local Economic Development: Evidence From Indian Municipalities

Daniel Overbeck1, Johannes Gallé2, Nadine Riedel3, Tobias Seidel4

1University of Mannheim, Germany; 2Ruhr University Bochum, Germany; 3University of Münster, Germany; 4Unviersity of Duisburg-Essen, Germany

This paper quantifies the local economic effects of 147 Special Economic Zones (SEZs) that were established in India between 2005 and 2013. Combining census data on the universe of Indian firms with georeferenced data on SEZs, we find that SEZ establishment increases manufacturing and service employment in SEZ-hosting municipalities and neighboring localities (up to 10 km). We provide suggestive evidence that the local increase in manufacturing and service work reflects new economic activity rather than relocation of jobs from neighboring jurisdictions. SEZs trigger structural change, in turn: Agricultural employment, especially by marginally employed workers, drops in SEZ areas after SEZ establishment. Additional analyses show that employment shifts are unequally distributed across gender: Females, who are a particularly vulnerable group in the Indian labor market, hardly benefit. Moreover, jobs in small and informal firms account for a large share of the estimated increase.

Overbeck-Special Economic Zones And Local Economic Development-246.pdf


Regional Favoritism and Human Capital Accumulation in Africa

Zareh Asatryan1, Thushyanthan Baskaran2, Patrick Hufschmidt2, Alexander Stöcker3

1ZEW, Germany; 2Ruhr University Bochum, Germany; 3University of Siegen, Germany

We study the long-run implications of regional and ethnic favoritism in Africa. Combining geocoded individual-level survey data from the Demographic and Health Survey (DHS) with data on national leaders' birthplaces across 41 African countries, we explore the educational attainment of adults who were exposed to favoritism at various points during their life. We find that generic male respondents exposed to regional favoritism during their adolescence have higher educational attainment later in life.

This higher human capital accumulated by men leads to more stable employment later in life. For generic women, we observe no beneficial effects of regional favoritism. However, those women who belong to the same ethnic group as their national leader witness an increase in their educational attainment. These results indicate that regular inhabitants rather than only a narrow elite benefit from regional favoritism.

Asatryan-Regional Favoritism and Human Capital Accumulation-408.pdf


Should Developing Countries Phase Out Tax Incentives for Investment?: Lessons from Thailand

Céline Azémar1, Saowalak Boonaiem2

1Rennes School of Business, France; 2University of Glasgow, United Kingdom

This paper assesses the effect of tax incentives granted by the Thai Board of Investment (BOI) on investment and innovation in Thailand. Using confidential data on BOI promoted companies between 2009 and 2015, we show that tax holidays granted to multinational and Thai firms have a positive effect on their tangible and intangible assets up to two or three years after being promoted. MNEs invest more in intangible assets than comparable firms when they benefit from both a tax holiday and a tax sparing provision. We distinguish MNEs from developing countries from MNEs from developed countries, as there is a clear trend for developing countries to have a worldwide tax system when most developed countries have a territorial tax system, leading thus to a tax burden disadvantage for the former firms. Once this disadvantage is mitigated by tax sparing, MNEs from developing countries seem to invest more in physical investment.

Azémar-Should Developing Countries Phase Out Tax Incentives-474.pdf


Special Economic Zones in Vietnam

Anh Pham, Brian McCaig, Margaret McMillan, Marina Ngoma

george mason university, United States of America

We study the impact of special economic zones on local economic development in Vietnam. Between 2000 and 2017, the number of zones grew rapidly, from 73 to 450, and they spread across Vietnamese localities. We match the location and timing of zones to measures of local economic development. Our identification strategy relies on matching cohorts of localities treated in a particular year with cohorts that will be treated in the future. We find suggestive evidence of increases in employment, the number of firms, and revenue in response to opening a zone. This seems to be particularly true for industrial zones opened in locations with no formal-sector economic activity at the beginning of our analysis. In contrast, the establishment of industrial zones had little effect where formal sector activity was higher initially. We find no stark differences between the effects of the zones on domestic and foreign firms.

Pham-Special Economic Zones in Vietnam-499.pdf
 
4:00pm - 9:00pmSocial Program II: Excursion: boat trip on the Danube river, incl. Dinner
Location: meeting point: Kepler Hall
Date: Friday, 12/Aug/2022
8:30amRegistration, 12 August: Registration desk at JKU open from 8.30 a.m. to 5.30 p.m.
Location: Kepler Building, Altenberger Str. 69, Linz
9:00am - 10:30amBoard II: IIPF Board of Management meeting II (on invitation and registration only)
Location: MZ 208 B (Management Building)
9:00am - 10:30amE01: Local Public Finance IV
Location: Room HS 7
 

The Role Of Local Public Goods For Gender Gaps In The Spatial Economy

Fabian Bald1,2, Marcel Henkel3,4

1University Duisburg-Essen, Germany; 2Ruhr Graduate School; 3University of Bern; 4CRED

Governments often lack sufficient financial resources for investments in the provision of public goods at the local level. We exploit exogenous variation in the size of public funds and interregional fiscal transfers to assess the role of public goods provision for local employment. Analysing the heterogeneous labour market responses to a quasi-random shock, we find that decreasing fiscal revenues of local governments are associated with increases in gender employment gaps in German labour markets. We show that this comes from the fact that females react more sensitive to fiscal shocks in their extensive labour supply decisions than male workers. To assess the equilibrium effect of local fiscal budgets on local employment, we quantify a spatial general equilibrium model with multiple types of workers. In our model, workers are differently affected by local fiscal budgets and local public goods provision in their labour supply decisions.

Bald-The Role Of Local Public Goods For Gender Gaps In The Spatial Economy-330.pdf


Free to Spend? The Effect of Fiscal Autonomy on Local Governments

Andrea Tulli1, Maggie Shi2

1University of Tubingen, Germany; 2Columbia University, USA

This paper considers whether the decentralization of tax revenue authority to local governments affects their budgetary decisions. We study a 2012 Italian decentralization reform which (1) expanded municipalities' discretion in setting property tax rates, and (2) increased the share of the budget a municipality is responsible for raising through taxes. We exploit the unexpected nature and differential impact of the reform to document three findings. First, we use novel data on the tax rate the national government would have chosen in a centralized setting and compare it to the actual local tax rates municipalities chose. We document heterogeneity in how municipalities with different characteristics used their newfound discretion in choosing tax rates. Second, we find that municipalities responsible for raising a greater share of their budget raise more revenue and spend the additional resources on public services. Third, we show that political competition shapes the response to decentralization.

Tulli-Free to Spend The Effect of Fiscal Autonomy on Local Governments-274.pdf


Fiscal and Economic Effects of Local Austerity

Melinda Fremerey1, Andreas Lichter1, Max Löffler2

1DICE and HHU Düsseldorf; 2Maastricht University

We study the consequences of a large-scale austerity program targeting financially-constrained municipalities in Germany. For identification, we exploit the quasi-random assignment of treatment among equally-distressed municipalities using a difference-in-differences design. The policy helped targeted municipalities to consolidate budgets. Whereas the amount of fiscal consolidation was homogeneous among treated municipalities, strategies of consolidation differed between smaller and larger municipalities. The former primarily cut spending on local public services, whereas the latter predominantly relied on tax increases. We detect no adverse economic effects but sizable negative effects on population levels and house prices in municipalities reducing local amenities.

Fremerey-Fiscal and Economic Effects of Local Austerity-146.pdf
 
9:00am - 10:30amE02: Behavioral Public Finance II
Location: Room HS 2
 

Do Risk And Time Preference Explain Household’s Demand For Microinsurance? A Lab In The Field Approach

Anustup Kundu1,2

1University of Helsinki, Finland; 2UNU-WIDER, Finland

Microinsurance is one of the key instruments in addressing the risk and vulnerability of economic shocks for the low-income households in the global south. However, microinsurance take-up globally is puzzlingly low. The question is why? Using incentivized lab-in-the-field data from India, the paper examines the nature of risk and time preference and then its effect on microinsurance take-up. First, I find that majority of the individuals are not only risk averse, but they are loss averse and overweight small probability events but underweight large probability events, and are present biased. Second, I find that impatient individuals are less likely to buy any insurance while risk seeking individuals and individuals who experienced a prior shock such as death in the family are more likely to buy any insurance. Finally, I find that individuals who are loss averse and underweight large probability incidents are less likely to take up any microinsurance.

Kundu-Do Risk And Time Preference Explain Household’s Demand-211.pdf


Costly Attention and Retirement

Jamie Hentall MacCuish

UCL, United Kingdom

Most people hold mistaken beliefs about their pension provision implying significant informational frictions. This paper introduces such frictions, a cost of attention to an uncertain pension policy, into a life-cycle model of retirement. Solving this dynamic rational inattention model with endogenous heterogeneous beliefs represents a significant methodological contribution in itself. Resulting endogenous mistaken beliefs help explain a puzzle: labour market exits concentrate at official retirement ages despite weak incentives to do so. The UK female state pension age (SPA) reform provides the context studied. I estimate the model using simulated method of moments. Costly attention significantly improves model predictions of the labour supply response to the SPA whilst accommodating the observed learning about the SPA. An extension addresses another retirement puzzle, the extremely low take-up of actuarially advantageous deferral options. Costly attention significantly increases the number of people claiming early.

Hentall MacCuish-Costly Attention and Retirement-110.pdf


Kinking at Kink Points: Estimating the Elasticities of Ironing Agents

Dylan T. Moore

University of Michigan, United States of America

Standard theory predicts that agents facing a convex budget constraint will "bunch" at kink points, but empirical evidence is often at odds with this prediction. One explanation is that agents may employ the "ironing" heuristic: making decisions as if they believed their marginal price were equal to their average price. The distribution of choices induced by a population of ironing agents is shown to feature a density discontinuity at budget constraint kinks: that is, the CDF of the choice variable is kinked at kink points. The magnitude of this discontinuity nonparametrically identifies the local average price elasticity at the kink point. Using simulations, I explore what the choice distribution in the vicinity a kink of looks like in the presence of optimization error. Under certain circumstances, the distribution may appear to feature a diffuse bunching mass near the kink, even when all agents employ the ironing heuristic, a phenomenon I call pseudo-bunching.

Moore-Kinking at Kink Points-456.pdf
 
9:00am - 10:30amE03: Labor Supply III
Location: Room HS 6
 

Universal Childcare Subsidy Expansion and Maternal Labor Supply: Evidence from South Korea

Jaehee Choi

Duke Kunshan University, China, People's Republic of

Does universal childcare improve women’s position in the labor market? South Korea is among a handful of countries that have implemented universal childcare, but no previous studies have examined the causal impact of its recent reform. This paper presents the first causal evidence on the maternal employment effect. Between 2009 and 2013, the government introduced a staged expansion of childcare subsidies across all income groups. By leveraging rich nationally representative panel data, I am able to determine each household’s eligibility for childcare subsidies. Because the tuition coverage rates varied by children’s birth cohorts and eligibility thresholds, I adopt a difference-in-differences research design applying these two dimensions. My findings suggest that employment increased by four to five percentage points for mothers whereas the effect was statistically zero for fathers.

Choi-Universal Childcare Subsidy Expansion and Maternal Labor Supply-527.pdf


Quality Institutional Framework and Female Vulnerable Employment in Selected Africa Countries

Oseghale Baryl Ihayere

Covenant University, Nigeria

The attainment of decent employment is the goal of every economy and a template for the right ways to achieve inclusive labour markets has been desired and debated by many scholars and practitioners. Female Vulnerable employment in Africa has been established to be relatively low and furthermore, the role of quality institutions curbing female vulnerable employment literature has not sufficiently been explored in the African context. Thus, this study empirically fills that gap in Africa utilising data within the period 1996 – 2019 via the System General method of moments (S-GMM). The broad objective was to examine the impact of Institutions in curbing female vulnerable employment in Africa.

The study expects the results to help in suggesting the need for the acceleration of development and efficient delivery of Institutional frameworks in African economies, given the universal communal mission which entails curbed female vulnerable employment.

Ihayere-Quality Institutional Framework and Female Vulnerable Employment-528.pdf


Mandatory Wage Posting And The Gender Wage Gap

Wolfgang Frimmel1,2, Bernhard Schmidtpeter1,2,3,6, Rene Wiesinger1,2, Rudolf Winter-Ebmer1,2,3,4,5

1Johannes Kepler University Linz; 2Christian Doppler Laboratory Aging, Health and the Labor Market; 3IZA, Institute for the Study of Labor, Bonn; 4IHS, Institute for Advanced Studies, Vienna; 5CEPR, Centre for Economic Policy Research, London; 6RWI - Leibniz Institute for Economic Research, Essen

In this paper, we evaluate whether revealing wage information in job vacancies is able to change the gender wage gap. In 2011, the Austrian Equal Treatment Law was changed: every vacancy posted with private or public employment agencies after March 1, has to include a minimum wage offer. Our general results show a small effect of the provision of wage information, reducing the gender gap somewhat. Taking up the bargaining argumentation, we split the sample into vacancies where a higher or a lower bargaining power of firms is to be expected and find a strong and significant reduction of the gender wage gap for jobs which are immediately available and need to be filled urgently. The effect is driven by an increase in female wages. There is no effect for not urgently vacant positions. We do not find evidence for changes in vacancy characteristics, the composition of employees and firms.

Frimmel-Mandatory Wage Posting And The Gender Wage Gap-188.pdf
 
9:00am - 10:30amE04: Tax Administration IV
Location: Room K 153 C
 

Modeling Tax Evasion of Small And Medium Enterprises In Low-income Countries

Zuzana Brixiova, Martina Necadova

Prague University of Economics and Business, Czech Republic

This paper develops a model of informality and tax evasion by small and medium enterprises (SMEs). In the model, SMEs in the informal sector avoid tax payments, but risk penalties and face weaker business environment than firms in the formal sector. While high tax rates, complex tax rules, and the lack of their knowledge drive firms into the informal sector, a sufficiently high tax break can incentivize them to operate in the formal sector. In contrast, training programs are effective only if they raise participants’ tax awareness. The second part of the paper examines correlation between the percentage of shadow economy in official GDP with tax revenue and unemployment rate. The highest correlation of the shadow economy with tax revenue is in the low-income countries (with correlation coefficient 0.25) and the highest correlation of the shadow economy with unemployment rate is in the high-income countries (with correlation coefficient 0.35).

Brixiova-Modeling Tax Evasion of Small And Medium Enterprises-459.pdf


Hard Versus Soft Intervention: Tax Compliance Effects Among Firms

Thomas Lange

Norwegian School of Economics, Norway

Audits and letters are different compliance enforcement strategies in many respects. A major concern for the modern tax administration is that audits are expensive, whereas letters are cheap. We use data from 1,974 randomized audits and 8,000 information letters. We find immediate and significant changes in the firm’s payment of Payroll tax from audits, but less strong effects from letters. There appears to be two “learning effects” from audits. First, updated, perceived audit probability seems to eliminate adjustments in reporting just two years post treatment. Second, firms receiving the information letters seem to adjust their reporting procedures according to the information in the letters, and more so when the letters are actually read. Our findings in this paper suggest that resources could be saved by tax administration’s partial switch to cheaper enforcement strategies, like information letters.

Lange-Hard Versus Soft Intervention-268.pdf


Firms as Tax Collectors

Pablo Garriga1, Dario Tortarolo2

1Brown University, United States of America; 2University of Nottingham, United Kingdom

We study the implications of delegating tax collection duties to firms. We exploit a major reform to the withholding regime of the turnover tax in the City of Buenos Aires, where several large firms were appointed to act as collection agents (CAs) based on a predetermined revenue threshold. Combining rich firm-to-firm administrative data with quasi-experimental methods, we show that: (i) firms newly appointed as CAs do not change their reported business activity, (ii) firms with preexisting commercial ties to CAs increase their reported sales, and (iii) the government collects more tax revenue. The analysis of a subsequent reform that reduced third-party tax collection shows that firms respond symmetrically by reducing their reported sales. Our findings suggest that reforms to tax administrations can have a considerable impact when it comes to raising revenue and building tax capacity.

Garriga-Firms as Tax Collectors-172.pdf
 
9:00am - 10:30amE05: Taxing Personal Income III
Location: Room HS 5
 

Till Taxes Keep Us Apart? The Impact Of The Marriage Tax On The Marriage Rate

Nadia Myohl

University of St. Gallen, Switzerland

Married couples often face a different tax burden than cohabitating couples with the same income. I study the effect of joint income taxation of married couples on the marriage rate in Switzerland, where tax differentials between married and cohabitating couples vary considerably across cantons. I construct a dataset containing sociodemographic and -economic variables on every individual living in Switzerland, and use household-level information to identify cohabitating couples. Using a simulated instrumental variable approach, I find a negative impact of joint income taxation on the marriage rate for couples married between 2012 and 2019. The effect is driven by households without children, younger couples and those in the middle of the income distribution.

Myohl-Till Taxes Keep Us Apart The Impact Of The Marriage Tax-134.pdf


Intra-Household Inequality and Tax Planning of Same-Sex Couples

Johannes Köckeis

Fraunhofer Institute for Applied Information Technology, Germany

In this paper, I present differences in income, intra-household inequality and tax planning between mixed and same-sex couples. By using unique administrative tax data, I find that household incomes of same-sex couples are significantly higher than those of heterosexual couples. While there is no difference in intra-household inequality between heterosexual couples and male same-sex couples, lesbian couples have significantly lower intra-couple income inequality. This is in line with previous research. When it comes to tax planning, there are major differences between heterosexual couples and homosexual couples. While tax planning in heterosexual couples often leads to a high marginal tax burden for the secondary earner, this is not the case for same-sex couples.

Köckeis-Intra-Household Inequality and Tax Planning of Same-Sex Couples-194.pdf


Wealth and Income Responses to Dividend Taxation : Evidence from France

Eddy Zanoutene, Marie-Noëlle Lefebvre

Université Paris II - Panthéon Assas, France

This paper analyzes the responses of wealthy taxpayers to an important increase in dividend taxation in France in 2013. Using an exhaustive panel of French households liable for wealth taxation, we use a difference-in-difference strategy to elicit responses of both incomes and wealth to changes in dividend taxation. Unsurprisingly we observe a decline in dividends payments due to the rise in dividend taxation. This drop is severe enough for the tax hike to actually result in a loss of government revenue. We show that this direct response of dividend is not sufficient to account for the total impact of the reform. Indeed, we document a significant increase in wealth in response to the tax hike on dividends, especially when we focus on financial wealth. This rise in taxable wealth mitigates the impact of the decline in dividends, although it does not completely offset the loss in government revenue

Zanoutene-Wealth and Income Responses to Dividend Taxation-215.pdf
 
9:00am - 10:30amE06: Environmental III
Location: Room HS 4
 

Do International Climate Agreements Affect Tax and Environmental Competition Among Asymmetric Countries?

Emmanuelle Taugourdeau1, Thierry Madies2, Tarola Ornella3

1CNRS, CREST, UMR 9194, France; 2Universite de Fribourg; 3University of Rome La Sapienza

Developed and developing countries compete using various instruments including corporate taxes and environmental regulations in order to attract firms. They also commit to international environmental agreements with "common but differentiated responsibilities" (CBDR). We investigate how the principles of CBDR and of "in a position to do so" embedded in global climate agreements affect optimal corporate taxes and environmental standards. We find that the latter depend only on the mitigation burdens imposed by international agreements. In other words, the burden of competition between countries is carried by corporate taxes, which depend among others on the level of firms' mobility costs and on production cost differentials. Interestingly, we find that developed countries are not

necessarily worse-off in terms of payoffs under CBDR, while emerging countries "in a position to do so" are not necessarily harmed by assuming responsibilities.

Taugourdeau-Do International Climate Agreements Affect Tax and Environmental Competition Among Asymmetric.pdf


Optimal Fiscal Policy in a Second-Best Climate Economy Model with Heterogeneous Agents

Thomas Douenne, Albert Jan Hummel, Marcelo Pedroni

University of Amsterdam, Netherlands, The

This paper studies optimal fiscal policy in a climate economy model with heterogeneous agents and distortionary taxes on labor and capital income. We derive optimal tax rules and show how they are modified relative to first-best and relative to the case without heterogeneity. We also explore quantitatively the role of heterogeneity for optimal carbon taxation in a version of the model that is calibrated to the US economy.

Douenne-Optimal Fiscal Policy in a Second-Best Climate Economy Model with Heterogeneous Agents-369.pdf


Climate Change Mitigation: How Effective Is Green Quantitative Easing?

Raphael Abiry2, Marien Ferdinandusse1, Alexander Ludwig2, Carolin Nerlich1

1European Central Bank, Germany; 2Goethe University Frankfurt

The paper looks at the effectiveness of a carbon tax, green quantitative easing and a combination of the two policies in reducing emissions, compared to a baseline with no policy action. We model green quantitative easing through a given outstanding stock of bonds held by a monetary authority with initially a portfolio allocation between the clean and dirty production sectors production.

We find that green quantitative easing does not lead to a perfect crowding out of capital and thus has real effects in the long run. Since green quantitative easing only indirectly affects the allocation of production to dirty and clean technologies and given the limited corporate sector holdings of the monetary authority, we find it a less effective tool in mitigating climate change than carbon taxes. However, green quantitative easing might be a quantitatively important complement to fiscal policies if governments only insufficiently coordinate on implementing green fiscal policies.

Abiry-Climate Change Mitigation-228.pdf
 
9:00am - 10:30amE07: Public Finance and Emerging Economies II
Location: Room K 269 D
 

Does Going Cashless Make You Tax-rich? Evidence From India’s Demonetization Experiment

Ross Warwick1, Lucie Gadenne1,2,3, Satadru Das4, Tushar Nandi5

1Institute for Fiscal Studies; 2University of Warwick; 3CEPR; 4Reserve Bank of India; 5Indian Institute of Science Education and Research (IISER), Kolkata

This paper investigates the effect of electronic payments technology on firms’ tax compliance in a large developing economy. We consider India’s demonetization policy which, by limiting the availability of cash, led to a large increase in the use of electronic forms of payments. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, we find that greater use of electronic payments leads to firms reporting more sales to the tax authorities. This effect is strong enough to explain roughly half of the large (11%) increase in reported sales observed during demonetization.

Warwick-Does Going Cashless Make You Tax-rich Evidence From India’s Demonetization Experiment-156.pdf


Does Taxation Contribute to Growth in Emerging Economies?

Mustafa Besim

Eastern Mediterranean University, Cyprus

Optimal tax systems with a diversity of policy objectives are different across economies. In the strand of literature that focuses on the effects of taxation on growth, some researchers claim that raising indirect taxes while simultaneously lowering direct taxes can support economic growth. However, there is still no compelling evidence that this is the case for emerging economies, which produce more than 50 percent of world output. In this respect, this paper investigates the impact of taxation on growth in 18 selected emerging economies for the period of 2000–2019. Taxation, in total, is found to have a significant and positive effect on growth under pooled OLS and random effect. However, when tax structure is studied in which taxation is decomposed into direct and indirect, impacts differ. The results indicate that indirect taxes have significant and positive effect on economic growth, while direct taxes have mixed but insignificant impact.

Besim-Does Taxation Contribute to Growth in Emerging Economies-414.pdf
 
9:00am - 10:30amE08: Taxing Consumption III
Location: Room HS 3
 

Does the Informal Sector Escape the VAT?

Giacomo Brusco1, Tejaswi Velayudhan2

1University of Tuebingen, Germany; 2University of California, Irvine

This paper investigates theoretically and empirically the pass-through of taxes to the informal sector in a Value Added Tax (VAT) system. We show that the extent of VAT pass-through to the informal sector depends on (1) the cross-price elasticities of demand between formal and informal varieties of the same product and (2) the degree to which firms switch between the production of each variety. We use establishment-level production data to estimate pass-through of VAT to unregistered firms in India. We find evidence of pass-through at the final stage, suggesting that consumers in the informal sector share in the tax burden. Our results imply that a positive correlation between share of expenditure in the informal sector and income is not sufficient to conclude that a VAT is progressive.

Brusco-Does the Informal Sector Escape the VAT-445.pdf


Value-Added Tax: Theory vs. Practice

Vedanth Nair1, Miguel Almunia2, Anne Brockmeyer1, Giulia Mascagni3, Mazhar Waseem4

1Institute for Fiscal Studies, United Kingdom; 2CUNEF, Spain; 3International Centre for Tax and Development, UK; 4University of Manchester, UK

The VAT is a cornerstone of the modern tax system. The VAT has many desirable properties in theory: it does not distort firms’ production decisions, it is difficult to evade, and it generates a substantial amount of revenue. Yet, in many countries, there are discrepancies between the textbook model of the VAT and its practical implementation. Where the VAT implementation diverges from the theoretical model of the tax, the tax may lose many of its desirable properties. To examine the implementation of the VAT and identify key shortcomings, we developed a methodology that can be implemented in a large set of countries, drawing on publicly available data, firm-level VAT records, and a set of simple statistics. We document widespread discrepancies between the textbook VAT model and its implementation, discuss their effects on VAT performance, and compare the VAT to alternatives, including a retail sales tax and a turnover tax.

Nair-Value-Added Tax-248.pdf
 
9:00am - 10:30amE09: Political Economy V
Location: Room K 001 A
 

Pennies, Presence, and Parliamentary Activities

Klaus Gründler1,2,3, Niklas Potrafke1,2,3, Timo Wochner1,2

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

Outside earnings of MPs are often believed to reduce their effort in parliament. We collect new data for German MPs over the period 2014-2017 when a major and unexpected reform in disclosure rules restricted MPs’ leeway to mask outside activities. Accounting for unobserved heterogeneity across MPs, conditional correlations suggest that outside earnings are associated with greater absence in parliament. These results are in line with ex ante predictions that we elicit in a unique survey among economics professors at German universities. We use two instrumental variable settings to examine whether the correlations reflect causality, addressing both the intensive and the extensive margin of outside activities. Both strategies suggest that outside earnings increased MPs’ absence in parliament.

Gründler-Pennies, Presence, and Parliamentary Activities-236.pdf


Political Selection at the Dawn of a Global Pandemic

Temurbek Khasanboev1, Zohal Hessami2, Thushyanthan Baskaran3

1Ruhr-University Bochum, Germany; 2Ruhr-University Bochum, CESifo Munich, IZA Bonn; 3Ruhr-University Bochum, ZEW Mannheim

Do voters place their trust in tried and tested leaders at the dawn of a pandemic crisis or do they prefer a new slate of leaders with specific characteristics suited to the job at hand? To study this question, we rely on hand-collected data on 402,385 candidates who competed in open-list local council elections (1996-2020) in Bavaria. The 2020 elections took place at the dawn of the Covid-19 pandemic when outbreaks and related school/daycare closures occurred only in a subset of treated municipalities. Using this heterogeneity in pandemic exposure, we show within a difference-in-differences framework that councilors’ incumbency advantage was reduced in more exposed municipalities. Male and non-university educated incumbents were particularly affected by the declining incumbency advantage, resulting in shifted patterns of political selection.

Khasanboev-Political Selection at the Dawn of a Global Pandemic-187.pdf
 
9:00am - 10:30amE10: Optimal Taxation V
Location: Room K 034 D
 

The Excess Burden of Income-Contingent Student Loans

Dominik Sachs1, Lea Fricke1, Sebastian Findeisen2

1University of St. Gallen, Switzerland; 2University of Konstanz

A disadvantage of income-contingent student loans is that they imply an additional distortion on labor supply for college graduates. We show that the implied marginal excess burden of income-contingent repayment is lower than the marginal excess burden of the income tax. The income tax distorts individuals of all education groups, whereas income-contingent loans only distort labor supply of college graduates. Under very mild and empirically plausible conditions on education specific income distributions, the marginal excess burden is significantly lower for college graduates than for high school graduates, except for very high incomes. In other words, a hypothetical social planer that is allowed to set an education-dependent tax schedule, would set higher marginal tax rates for college graduates than for high school graduates. We show our results for the US and the UK as the benchmark case but find that results are very similar for Western European countries.

Sachs-The Excess Burden of Income-Contingent Student Loans-472.pdf


Using a Structural Labor Supply Model to Calculate Inverse-Optimum Social Marginal Welfare Weights

Niklas Isaak1,2, Robin Jessen1,2

1RWI, Germany; 2Freie Universität Berlin, Germany

We calculate the implied marginal social welfare weights if the current German tax-transfer system is optimal. At the optimum, the cost of providing one Euro to a specific group must equal its weighted benefit. For every percentile of the income distribution, we calculate the cost of transferring 100 Euro to individuals in the percentile. A structural labor supply model allows us to simulate labor supply reactions to small local tax reductions. The advantage of this simulation approach is that we do not need to restrict labor supply in any way to obtain analytical solutions. We find that the tax-transfer system is optimal if the society values one Euro for households at the 10th percentile twice as much as one Euro for households at the median. Weights for people at the 20th percentile are slightly lower than for the middle class. This result is driven by couples with children.

Isaak-Using a Structural Labor Supply Model to Calculate Inverse-Optimum Social Marginal Welfare Weights-216.pdf


Inverse Fair Taxation: What do we compensate for in Europe?

Erwin Ooghe1, Andreas Peichl2, Jelena Todorovic Bojovic2

1KU Leuven; 2Ludwig Maximilian University, Germany

In this paper, we bring together the inverse optimal taxation literature and the fairness literature. We invert a fair tax formula and apply it to tax-benefit schemes in Europe to estimate the implicit degree of compensation for each factor that determines individual well-being. Our paper provides a new way to formalize the old intuition that, in a fair society, people should be allowed to benefit more from their own efforts than from exogenous characteristics. We provide the first estimates of implicit tax rates for different characteristics in 31 European countries using EU-SILC data for the years 2007 - 2018. We find a robust tendency in all countries to compensate more for uncontrollable characteristics compared to the partially controllable ones. We then attempt to calculate which countries currently have fair tax systems. Only the Continental countries France and Luxembourg pass the fairness test, whereas the Baltic and Anglo-Saxon countries perform worst.

Ooghe-Inverse Fair Taxation-269.pdf
 
9:00am - 10:30amE11: Effects of Profit Shifting II
Location: Room K 033 C
 

Bilateral Tax Competition in Double Tax Treaties - The Case for Developed and Developing Countries

Kunka Petkova1, Andrzej Stasio2, Zagler Martin3

1German Federal Ministry of Finance; 2European Commission Joint Research Centre; 3U Vienna University of Economics and Business, UPO University of Eastern Piedmont

This paper investigates tax competition in withholding tax rates signed under double tax treaties (DTTs) between developed and developing countries. We document a decline in average withholding tax rates since 1990 and attribute this trend to tax competition. As opposed to traditional tax competition, where every foreign investor benefits from lower tax rates, DTTs allow countries to compete bilaterally, cutting tax rates for investors from a specific country and leaving taxes for everyone else unaffected. We test our predictions empirically for four different types of withholding tax rates on passive income in around 900 DTTs. We find strong support for a positive relationship in withholding tax rates in tax treaties signed by developing countries in relation to the same home country of investment, supporting the notion of tax competition.

Petkova-Bilateral Tax Competition in Double Tax Treaties-514.pdf


Tax Treaty Aggressiveness: Who is Undermining Taxing Rights in Africa?

Lucas Uriel Millán Narotzky1, Javier García-Bernardo2, Maïmouna Diakité3, Markus Meinzer1

1Tax Justice Network; 2Utrecht University; 3World Bank Group

Tax avoidance strategies by multinational companies rely heavily on tax treaties. Multinational companies can relocate financial activities across countries to ensure the applicability of the most beneficial tax treaties. This ‘treaty shopping’ can be particularly harmful to African countries, impairing their efforts for domestic resource mobilisation and achieving sustainable development goals. In this paper, we analyse the aggressiveness of tax treaties towards African countries – the extent to which signing tax treaties reduces the taxing rights of African governments. We find that treaties signed with France, Mauritius and the United Arab Emirates reduce withholding tax rates the most, while treaties signed with European countries – and, in particular, the United Kingdom and France – greatly limit other taxing rights, for example, by restricting the scope of permanent establishment definition.

Millán Narotzky-Tax Treaty Aggressiveness-166.pdf


The Indirect Costs Of Corporate Tax Avoidance Exacerbate Inequality Between Developed And Developing Countries

Valeria Secchini1, Javier Garcia Bernardo2, Daniel Haberly3, Petr Janský1, Miroslav Palanský1

1Charles University, Czech Republic; 2Utrecht University, Netherlands; 3University of Sussex, United Kingdom

While a wide range of studies have shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. We hypothesise that developed countries tend to recover a larger part of corporate tax revenue losses (direct costs) via capital gains and dividend taxes on corporate investors. Furthermore, developed countries can offset tax losses by borrowing in financial markets at very low interest rates (phenomenon that is part of the indirect costs, together with capital gains and dividend taxes). We introduce a dynamical model that includes not only corporate tax revenue losses, but also tax revenue collected from capital gains and dividend taxes and government borrowing costs. Our results show that including indirect costs, the total cost of profit shifting for developing countries increases significantly, while some developed countries can often offset or recover the majority of the direct costs of profit shifting.

Secchini-The Indirect Costs Of Corporate Tax Avoidance Exacerbate Inequality Between Developed And Developing.pdf
 
9:00am - 10:30amE12: Inequality: Perceptions and Preferences
Location: Room K 224 B
 

Revealing Inequality Aversion from Tax Policy: The Role of Non-Discrimination

Kristoffer Berg

University of Oxford, United Kingdom

Governments have increasing access to information about individuals, but they exploit little of it when setting taxes. This paper shows how to reveal inequality aversion from observed tax policy choices of such governments. First, I map governments’ marginal priorities into concerns for vertical and horizontal equity. While vertical equity underlies inequality aversion, horizontal equity introduces a restriction against tax discrimination. This restriction affects the measurement of inequality aversion. Second, I apply the model to a hypothetical gender tax using Norwegian tax return data. The main result is that inequality aversion is overestimated when the horizontal equity restriction is ignored.

Berg-Revealing Inequality Aversion from Tax Policy-139.pdf


Inequality Externality Beliefs and Redistributive Preferences

Morten Nyborg Støstad1, Max Lobeck2

1Paris School of Economics, France; 2University of Konstanz, Germany

This paper explores beliefs about how economic inequality changes society, and establishes a causal link between such inequality externality beliefs and redistributive preferences. Using a representative survey of 4,371 U.S. citizens, we show that essentially every individual believes that inequality affects society in one way or another. A large and consistent majority believes that inequality leads to negative societal outcomes through channels such as increased crime or worsening economic factors. These beliefs are widespread across incomes and party lines. We establish a causal link from externality views to individuals' redistributive preferences by using exogenously provided video information treatments, and estimate the importance of externality beliefs for redistributive preferences to be roughly two-thirds that of classical fairness views. Our results also indicate that inequality externality-based arguments are less polarized and polarizing than classical fairness-based arguments, showing that these two motives behind preferences for redistribution are structurally distinct.

Støstad-Inequality Externality Beliefs and Redistributive Preferences-151.pdf


What Drives the Preferences for Redistribution of Richest? A Survey-Experiment Evidence

Marcelo Bergolo, Martin Leites, Matias Strehl

IECON-UDELAR

Do wealthy individuals have different redistributive preferences compared to the

rest of the society? If so, what drives such differences? We address these questions

using a novel dataset that combines administrative tax records with a unique survey in Uruguay. We document a sharp decline in support for redistribution at the top 1% of the income distribution. By comparing the top 1% and the top 50-99% groups, we find that differences in redistributive preferences are not just due to differences in socio-economic characteristics. We also find that behavioral parameters measured by adaptations of a series of incentivized laboratory games, such as altruism, make a low contribution to explaining the gap in preferences. In turn, a set of beliefs, perceptions, and fairness views, such as political ideology, views about the government, and meritocratic beliefs, appear to be significant drivers of the observed difference across income groups in support for redistribution.

Bergolo-What Drives the Preferences for Redistribution of Richest A Survey-Experiment Evidence-360.pdf
 
9:00am - 10:30amE13: Taxing Consumption IV
Location: Room K 009 D
 

Alcohol and Tobacco Policy: The Issue of Unrecorded Consumption and Excise Tax Avoidance

Odd Erik Nygård1, Eivind Bjørkås2

1Statistics Norway, Norway; 2Vista Analyse; Norway

High excise taxes on alcohol and tobacco can lead to substantial excise tax avoidance through both legal and illegal unrecorded consumption, such as duty-free shopping, cross-border shopping and smuggling. Here we present an empirical demand model that can keep track of all the different types of consumption effects and address the implications of different policy proposals. The tax avoidance effects of high tax rates call for directing attention to other policy measures. By introducing restrictions with respect to duty-free shopping and personal allowances for different types of alcoholic beverages and tobacco products, we demonstrate how to reduce the total consumption, increase tax revenue, and shift from unrecorded to recorded consumption in Norway. However, we are reminded of the fact that smuggling is likely to increase somewhat.

Nygård-Alcohol and Tobacco Policy-305.pdf


A Generalization Of The Deaton-Hellwig Results On Uniform Commodity Taxation

Robin Boadway1, Katherine Cuff2

1Queen's University, Canada; 2McMaster University, Canada

Deaton (1979) showed that with an optimal linear progressive tax, commodity taxes are redundant if preferences are weakly separable between goods and labour and quasi-homothetic in goods. Hellwig (2009) later showed that any allocation with differential commodity taxes and an arbitrary linear progressive income tax is Pareto-dominated by one with uniform commodity taxes and a reformed linear progressive tax. We show that Deaton's theorem and Hellwig's extension apply a) with a piecewise linear income tax and tax credits, b) when some individuals earn no income either by choice or involuntarily, and c) when individual preferences for leisure differ.

Boadway-A Generalization Of The Deaton-Hellwig Results On Uniform Commodity Taxation-170.pdf


Tax Base Uncertainty and Optimal Tax System

Maria Luisa Ratto1, Simon Vicary2

1University Paris-Daphine PSL, France; 2Newcastle University, United Kingdom

Suppose for both taxpayers and the tax authorities there is uncertainty about the tax base. This may stem from the widely recognised difficulty of defining variables such as income or wealth for tax purposes. Furthermore, to add to the authorities' difficulties, assume that individual can practise tax avoidance and/or tax evasion. Under such circumstances we assume a simple economy in which a utilitarian government chooses tax rates on two fixed sources of income: one whose tax status is certain; and the other where this is not so. The latter is exclusive to the rich. In this world the degree of progression is, intuitively, related to the degree of risk aversion on the part of the rich, but estimates suggest that this has to be quite low for the tax system not to be progressive. Otherwise there is a parallel with Edgeworth's old proposition on equal marginal sacrifice. Our analysis also suggests that introducing government uncertainty about the tax base will in many cases, and somewhat paradoxically, benefit the poor and at the same time raise social welfare.

Ratto-Tax Base Uncertainty and Optimal Tax System-242.pdf
 
10:30am - 11:00amCoffee Break V: Coffee Break
Location: Hall B and C, right outside HS 1
11:00am - 1:00pmF01: Tracking Offshore Wealth and Tax Evasion
Location: Room HS 7
 

Will We Ever Be Able To Track Offshore Wealth? Evidence From The Offshore Real Estate Market In The UK

Ségal Le Guern Herry1, Jeanne Bomare2

1Sciences Po Paris; 2Paris School of Economics

We study the implementation of the first multilateral automatic exchange of information norm, the Common Reporting Standard (CRS), which introduces cross-border reporting requirements for financial but not for real estate assets. Exploiting administrative data on property purchases made by foreign companies in the UK, we show that the implementation of the CRS led to a significant increase of real estate investments from companies incorporated in the tax havens that were the most exposed to the policy. We confirm that this increase comes from investors effectively affected by the CRS by identifying the residence country of a sub-sample of buyers using the Panama Papers and other leaked datasets. We estimate that £16-£19 billion have been invested in UK real estate between 2013 and 2016 in reaction to the CRS, suggesting that at the global scale, 24%-27% of the money that fled tax havens following this policy were ultimately invested in properties.

Le Guern Herry-Will We Ever Be Able To Track Offshore Wealth Evidence-490.pdf


The Offshore World According to FATCA

Max Risch1, John Guyton2, Niels Johannesen3, Pat Langetieg2, Daniel Reck4, Joel Slemrod5

1Carnegie Mellon University, United States of America; 2Internal Revenue Service, Unites States of America; 3University of Copenhagen, Denmark; 4London School of Economics, UK; 5University of Michigan, United States of America

Since 2015, foreign financial institutions from all countries in the world have provided information to U.S. tax authorities about all financial accounts controlled by U.S. taxpayers under the Foreign Account Tax Compliance Act (FATCA). This policy innovation effectively gives third-party reporting a global reach. We offer the first assessment of FATCA based on the reports from financial institutions it mandates. We analyze these data, linked with data from individual income tax reports, business entity returns and domestic information reports. We detail the income and wealth reported, along with information on where this wealth is held, whether it is held directly or through a U.S. business, and the income rank of the direct or indirect individual owner. This analysis helps us understand how U.S. taxpayers hold offshore wealth, informs the potential magnitude of any tax compliance effects of the reform, and helps inform the administration of the program going forward.

Risch-The Offshore World According to FATCA-376.pdf


Tax Enforcement in a Globalized Economy

Lauge Truels Larsen1, Hjalte Fejerskov Boas1, Niels Johannesen1, Claus Thustrup Kreiner1, Gabriel Zucman2

1University of Copenhagen, Denmark; 2University of California, Berkeley

To combat offshore tax evasion, a large number of countries have agreed to exchange bank information about financial assets and income. In collaboration with the tax authorities, we conduct a study of this enforcement policy. We approach this in three ways. First, we use data on cross-border money transfers to estimate anticipatory repatriation responses. Second, we use data on foreign income reported on tax returns to estimate reporting responses. Third, we conduct a randomized audit effort in collaboration with the Danish tax authorities. Consistent with repatriation by offshore tax evaders, our preliminary analysis shows a sharp increase in large bank transfers from own accounts in tax havens following the adoption of the information exchange policy. Looking at reporting responses, we find a large increase in the number of taxpayers reporting foreign income, but little effect on the aggregate amount of foreign income being reported.

Larsen-Tax Enforcement in a Globalized Economy-381.pdf


How to Reveal 21% of GDP in Hidden Assets: Evidence from Argentina's Tax Amnesties

Juliana Londoño Vélez1, Dario Tortarolo2

1UCLA; 2University of Nottingham, United Kingdom

Tax amnesties are a controversial and widely-used policy tool to encourage evaders to disclose income or wealth in exchange for reduced penalties and no prosecution. We investigate the effectiveness of tax amnesties leveraging variation from Argentina, where left- and right-wing governments implemented different schemes with varying success. After a history of failed programs, the government recently reported that its 2016 scheme disclosed assets worth 21% of GDP, dubbed the world’s most successful tax amnesty. Using administrative tax data, we first produce new insights into the nature and prevalence of tax evasion. Second, we examine the distributional effects of these amnesties and their fiscal externalities on wealth and income taxation and public spending. Lastly, we discuss the factors leading to amnesty programs’ success (or failure), including tax incentives, the threat of detection, the program salience, and the political economy surrounding each scheme.

Londoño Vélez-How to Reveal 21 of GDP in Hidden Assets-453.pdf
 
11:00am - 1:00pmF02: Taxation in Emerging Economies
Location: Room HS 2
 

Profit Shifting by Multinational Corporations: Evidence from Transaction-Level Data in Nigeria

Bathusi Gabanatlhong1, Miroslav Palansky2, Javier García-Bernardo3, Paulinus Iyika4

1Charles University, Czechia; 2Charles University, Czechia; 3Tax Justice Network, London, UK; 4International Tax Department of the Federal Inland Revenue Service of Nigeria, Lagos, Nigeria

In this paper, we use, for the first time, novel administrative data on the transactions of multinational corporations operating in Nigeria vis-à-vis related parties in other jurisdictions. The data provide a breakdown of these intra-group transactions into seven categories: (i) tangible goods, (ii) services and fees, (iii) royalties, (iv) interest, (v) dividends, (vi) reimbursements, and (vii) other. We develop a methodology that uses this data to identify which transactions are most often used by multinationals to shift profits out of Nigeria and estimate their relative importance. We find that profits reported in Nigeria are highly sensitive to the hypothetical tax that would be paid on a transaction's value in the partner jurisdiction. Payments for services and fees, royalties, and interest going from Nigerian companies to affiliates in low-tax countries are the most important channels of profit shifting in Nigeria.

Gabanatlhong-Profit Shifting by Multinational Corporations-201.pdf


Tax Effort Revisited: New Evidence from the Government Revenue Dataset

Kyle McNabb1, Michael Danquah2, Abrams M.E. Tagem2

1ODI, Uganda; 2UNU-WIDER, Helsinki

Whilst there is a recognition that many low- and middle-income countries could be collecting more in tax revenues, the answer to the question of just how much more is unclear. "Tax effort" studies have attempted to shed light on this question and recent estimates suggest that many countries are not performing anywhere near potential (i.e. exerting enough effort). This study makes two significant contributions to the literature. First, we find that the stochastic frontier approaches used in many recent studies are sensitive to empirical specification and the resulting tax effort scores are strongly influenced by outlying input observations. We employ the True Random Effects approach, finding that tax effort scores are, on average, higher and more tightly distributed than previous studies suggest. Second, we enjoy improved data coverage due to using the most recent version of the UNU- WIDER Government Revenue Dataset, alongside governance indicators from the V-Dem dataset.

McNabb-Tax Effort Revisited-162.pdf
 
11:00am - 1:00pmF03: Profit Shifting
Location: Room HS 6
 

Tax Us, If You Can: a Game Theoretic Approach To Profit Shifting Within The European Union

Joana Andrade Vicente

ISEG - Lisbon School of Economics and Management, Portugal

In this paper we theoretically analyse the European Union’s ongoing political impasse regarding the choice of a single method to allocate multinational enterprises’ profits across countries and we find that this strategic situation resembles a coordination game with distributional consequences. The two Nash equilibria involve no efficiency trade-off, but the conflictual distribution of welfare gains and the presence of heterogeneous preferences have been preventing the implementation of a new long-term comprehensive tax policy reform. A unitary taxation approach with formulary apportionment in the European Union is better suited to tackle artificial profit shifting via transfer pricing and would mean an evolutionary change without disrupting the current international tax policy environment. It would restore faith in fairness in the European tax system and allow for further coordination of the transfer pricing policies of the two main international political forces – the United States and the European Union.

Vicente-Tax Us, If You Can-137.pdf


Tackling BEPS In The Global South: Evidence From Peru’s Tax Reform

Katia Maritza Toledo Ruiz1, Alfredo Manuel Alvarado Enciso2

1CORPTAX, Charles University; 2Department of Economics, Pontifical Catholic University of Peru

This study assesses the effect of a transfer pricing reform on tax payments at the firm level. Given the critical role that the consulting firms play in tax avoidance schemes, we include the effect on expenditure on tax advisory. Exploiting the particular feature of the reform, we use a regression discontinuity design to estimate the causal effect of the tax reform. We find that firms affected by the intervention paid more taxes on average in 2017. Although those firms paid fewer taxes in 2018, we do not find conclusive evidence that spending on tax advisory drove such an effect.

Toledo Ruiz-Tackling BEPS In The Global South-496.pdf


Identifying Profit-shifting Channels: Evidence from Japanese Multinationals

Hayato Kato1, Bin Ni2, Yuting Chen3

1Osaka University, Japan; 2Hosei University, Japan; 3Shanghai University of Finance and Economics, China

We build a simple model of multinationals that highlights income transfer between a parent and affiliates. The model predicts that an affiliate’s reported profits rise, as the corporate tax difference between the affiliate’s and the parent’s countries increases. It also predicts that the sensitivity of the reported profits to the tax difference varies depending on whether affiliates are in tax-haven economies or in non-tax-haven economies. We empirically confirm these predictions using a unique affiliate-level data on Japanese multinationals. Furthermore, our estimation seriously takes into account endogeneity issues of corporate taxes, which has not been fully addressed in the literature.

Kato-Identifying Profit-shifting Channels-245.pdf


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

Sebastian Bustos3, Dina Pomeranz1, Juan Carlos Suarez Serrato4, Jose Vila-Belda1, Gabriel Zucman2

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

Profit shifting by multinationals is thought to reduce tax revenue for governments around the world. In a comprehensive analysis of regulations aimed at limiting profit shifting in Chile, using transactions-level administrative data from taxes and customs in difference-in-differences event study designs, we find the reform was ineffective in reducing multinationals' propensity to make transfers to affiliates in lower-tax countries and did not significantly raise tax payments. Interviews with tax advisors reveal that the reform led to a strong increase in tax advisory services, with employment of transfer pricing experts at leading consulting firms growing twelve-fold within three years. Confirming an identified mechanism for tax planning, we find that multinationals concentrate their cost centers in fewer countries following the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, tax enforcement reforms can benefit the tax consulting industry at the expense of both tax authorities and taxpayers.

Bustos-The Race Between Tax Enforcement and Tax Planning-413.pdf
 
11:00am - 1:00pmF04: Taxation and Globalization
Location: Room K 153 C
 

Bringing Property Owners into the Tax Net. Evidence from Dakar, Senegal.

Justine Knebelmann1, Victor Pouliquen2, Bassirou Sarr3

1JPAL-MIT; 2Oxford University; 3Ministry of Finance, Senegal

Administrations in developing countries are challenged by the lack of comprehensive information to successfully implement policies that require individual-level tailoring, such as taxation. In collaboration with the Senegalese national tax administration, we developed a property tax census program relying on a new digital tool, currently being rolled-out at scale in Dakar. We experimentally vary the extent to which agents have discretion in the valuation of the tax base: in “discretionary” areas, agents use their own judgement to estimate property values, while in “formula” areas predicted property values are computed based on observable characteristics. We study how rules versus discretion compare in terms of targeting and valuations, using certified real estate assessments as a benchmark for the true value of the tax base.

Knebelmann-Bringing Property Owners into the Tax Net Evidence-263.pdf


Netting It Out: Labor Income Inequality and Taxation around the Globe

Peter H. Egger2, Sergey Nigai3, Nora Margot Strecker1

1University College Dublin; 2Swiss Federal Institute of Technology, Zurich; 3University of Colorado, Boulder

In this paper we portray the distribution of labor income and its taxation around the globe for the 132 largest economies in 1993-2012. This analysis permits tracking the distribution of labor income inequality before and after taxation as well as alluding to the consequences of labor-tax-financed transfers under different scenarios. We find that current labor tax systems, while lowering inequality in a single year, have led to smaller reductions in after-tax relative to before-tax inequality.

Egger-Netting It Out-225.pdf


The Political Economy of Labor Income Taxes and Globalization

Peter H. Egger2, Marko Köthenbürger2, Nora Margot Strecker1

1University College Dublin, Ireland; 2Swiss Federal Institute of Technology, Zurich

The world has seen a surge in the discomfort of electorates around the world, resulting in changing political majorities and less predictable outcomes of direct democracy. Economists concur that perceived inequality in conjunction with increased competition for resources is explaining this phenomenon. What should matter to households in this regard, beyond changes in consumer prices, are disposable, after-tax incomes. While data on assets, incomes, and their distribution prior to taxation are more available, the profession lacks a holistic, global view on how gross earnings are mapped into disposable incomes through labor income taxes and how this mapping has changed over time. The present paper aims to fill this gap by introducing a data set of unprecedented size and detail covering personal labor income tax calculators. Beyond presenting an overview of this data, the paper explores globalization-induced changes in labor income taxes and how institutions affect these changes.

Egger-The Political Economy of Labor Income Taxes and Globalization-224.pdf


Globalization and Factor Income Taxation

Pierre Bachas1, Matt Fisher-Post2, Anders Jensen3, Gabriel Zucman4

1World Bank Research; 2Paris School of Economics; 3Harvard Kennedy School; 4UC Berkeley

How has globalization affected the taxation of labor and capital, and why? To address this, we build and analyze a database of effective macroeconomic tax rates (ETRs) covering 150 countries since 1965. We obtain four main findings: (1) ETRs on labor and capital converged globally since 1965, due to a 10% increase in labor taxation and a 5% decline in capital taxation. (2) The capital taxation decline is concentrated in rich countries. By contrast, capital taxation increased in developing countries since 1990. (3) The rise in capital taxation in developing countries is explained by a tax-capacity effect of international trade: trade openness concentrates economic activity in formal corporate structures, where capital taxes are easier to impose. (4) Simultaneously, international integration reduces statutory tax rates, due to tax competition. In high-income countries, the negative tax competition effect of trade dominates, while in developing countries the positive tax-capacity effect has prevailed.

Bachas-Globalization and Factor Income Taxation-283.pdf
 
11:00am - 1:00pmF05: Political Economy VI
Location: Room HS 5
 

Euro Area Time-varying Cyclicality Of Fiscal Policy

António Afonso

ISEG - Lisbon School of Economics and Management, Portugal

We assess the cyclicality of fiscal policy in the 19 Euro area countries, notably during recessions, for the period 1995-2020. We use a time-varying measure of fiscal cyclicality to describe fiscal policy developments. The results suggest that during recessions discretionary fiscal policy becomes more pro-cyclical, but the overall budget balance becomes more counter-cyclical. Hence, pursuing a Ricardian fiscal regime by more indebted countries leads to higher counter-cyclicality of fiscal policy. Government size reduces counter-cyclicality, as well as trade openness, and financial development has a positive impact on counter-cyclicality.

Afonso-Euro Area Time-varying Cyclicality Of Fiscal Policy-133.pdf


Divided Government and Polarization: Regression-discontinuity Evidence from US States

Luca Repetto, Maximiliano Sosa Andres

Uppsala University, Sweden

This paper studies the effect of having a divided government on political polarization. Using data on electoral and legislative outcomes for US states over 1950-2018 and a regressiondiscontinuity design, we start by showing that Republican state legislators are substantially more polarized when they serve in a divided government. Instead, we find little or no effect for Democrats. Additionally, having both chambers against cause governors of both parties to veto more bills, but with no impact on actual policy implementation as measured by a policy liberalism score. Finally, we study the effect of divided government on future electoral performance and find very limited impact for both parties.

Repetto-Divided Government and Polarization-177.pdf


Does Income Transparency Affect Support for Redistribution? Evidence from Finland's Tax Day

Maurice Dunaiski1,2, Janne Tukiainen3,4

1United Nations; 2London School of Economics and Political Science; 3University of Turku, Finland; 4VATT Institute for Economic Research

The disconnect between rising inequality and lack of support for redistribution in Western democracies raises the question of whether policy interventions can shift demand for redistribution. We examine whether income transparency – the public release of citizens' income information - affects support for redistribution. We take advantage of a quasi-experiment in Finland, where every year on the Tax Day, the authorities release income information on Finland's top-earners to the public. We compare respondents who took part in the European Social Survey shorty before and after the event. We find that the Tax Day increases income comparisons and perceptions that earnings of the top 10% are unfair, but that public support for redistribution remains largely unaffected. A notable exception are top-earners, who decrease their support for redistribution, and young people, who increase their support for redistribution. Increasing exposure to inequality through a real-world policy triggers only marginal changes in support for redistribution.

Dunaiski-Does Income Transparency Affect Support for Redistribution Evidence-270.pdf


The Effects of Social Capital on Government Performance and Turnover: Theory and Evidence from Italian Municipalities

Ben Lockwood1, Francesco Porcelli2, Michela Redoano1, Federica Liberini3, Emanuele Bracco4, Daniel Sgroi1

1University of Warwick; 2University of Bari; 3University of Bath; 4University of Verona

This paper makes three contributions. First, it presents a theoretical analysis of how social capital, formalized as trust in politicians, impacts on government performance and turnover, employing a political agency model with both moral hazard and adverse selection. Second, it presents novel measures of both local government performance and on social capital at the Italian municipality level, using administrative data and an online survey respectively. Third, empirical results are consistent with the main predictions of the theory; higher social capital improves both the discipline and election effects of elections (performance both in the first and final terms in office), but also increases turnover of incumbent mayors.

Lockwood-The Effects of Social Capital on Government Performance and Turnover-312.pdf
 
11:00am - 1:00pmF06: Optimal Taxation VI
Location: Room HS 4
 

Optimal Taxation, Monopolistic competition and Trade.

Nicolas Djob Li Ngue Bikob

CY Cergy Paris Université, France

In this paper, we use a simple extension model of \cite{DixitStiglitz1977} to address optimal taxation in monopolistic competition in a two countries model. Taxes may be used to prevent monopolistic distortions, create income, and for distributive reasons in an open economy with a supranational authority. We discover that the first best can be distributed, and locally manufactured and sold goods may be subject to lower taxes than those that are imported or exported. The value of labor productivity should be taken into account when determining the appropriate tax rate; but, as competition increases, the significance of this factor steadily declines.

Djob Li Ngue Bikob-Optimal Taxation, Monopolistic competition and Trade-411.pdf


Redistribution with Performance Pay

Pawel Doligalski1, Nicolas Werquin2, Abdoulaye Ndiaye3

1University of Bristol, United Kingdom; 2Chicago FED; 3NYU Stern

Half of the jobs in the U.S. feature pay-for-performance. We derive novel incidence and optimum formulas for the overall rate of tax progressivity and the top tax rates on total earnings and bonuses, when such labor contracts arise from moral hazard frictions within firms. Optimal taxes account for the fiscal externalities and welfare consequences of two distinct forces: a direct crowding-out of private insurance and a countervailing crowding-in due to endogenous labor effort responses. These imply that the amount of pre-tax earnings risk to which the worker is exposed is roughly invariant to tax progressivity, whereas the (adverse) welfare consequences of the crowd-out outweigh those of the crowd-in. Quantitatively, the optimal tax policy with performance-pay contracts is close to that prescribed by standard models that treat pre-tax earnings risk as exogenous. Finally, we uncover an efficiency-based argument for taxing bonuses at strictly lower rates than base earnings.

Doligalski-Redistribution with Performance Pay-428.pdf


Welfare Analysis Of Changing Notches: Evidence From Bolsa Familia

Katy Bergstrom1, William Dodds2, Juan Rios3

1World Bank; 2Tulane University; 3Uber

This paper develops a framework to bound the welfare impacts of reforms that change notches in transfer schedules. We show that we can construct bounds from two empirical objects: (1) the number of households bunching at the old notch who move toward the new notch, and (2) the number of households who “jump” down to the new notch as a result of the reform. Importantly, our bounds hold in a wide class of models; thus, we refer to our two empirical objects as “sufficient statistics”. We estimate these statistics using a generalized difference-in-difference strategy in the context of a reform to the Brazilian anti-poverty program, Bolsa Familia. We find that the reform's marginal value of public funds is bounded between 0.90 and 1.12; thus, the reform was welfare improving (decreasing) if the government values giving $0.90 ($1.12) to eligible households more (less) than spending one dollar on their best alternative.

Bergstrom-Welfare Analysis Of Changing Notches-140.pdf


Flip or Flop? Tobin Taxes in the Real Estate Market

Chun-Che Chi1, Cameron LaPoint2, Ming-Jen Lin3

1Academia Sinica, Institute of Economics; 2Yale University, School of Management; 3National Taiwan University, Department of Economics

Concerns about housing affordability have led policymakers worldwide to call for property transfer taxes targeting speculators. We estimate the optimal tax on property flips using a sufficient statistics approach which extends the intuition for imposing financial transaction taxes, or Tobin taxes, to the housing market context. The framework incorporates investors’ housing tenure choice and search costs. We apply our model to a 2011 reform in Taiwan which levied a 10%-15% surcharge on investment properties sold within two years. Linking the universe of buyer-seller income tax returns to sales records, we find a 75% drop in one-year flips. We use variation in typhoon severity to classify 20% of pre-reform sales as noisy. Combining these two parameters, the optimal tax rate is 4%, which is close to the transfer tax rates imposed in many global property markets. Segmentation and inventory shifts limit the ability of Tobin taxes to mitigate housing inequality.

Chi-Flip or Flop Tobin Taxes in the Real Estate Market-169.pdf
 
11:00am - 1:00pmF07: Macro Public Finance IV
Location: Room K 269 D
 

Fiscal Discipline meets Macroeconomic Stability: When the Eurobonds are a Good Idea

Luciano Greco1, Francesco Pintus2, Davide Raggi3

1University of Padua & CRIEP, Italy; 2University of Padua & CRIEP, Italy; 3University of Venice Ca' Foscari, Italy

We describe a new Euro-insurance bond that implies sovereign debt mutualization in the Eurozone without any significant short-term redistribution across countries or perverse incentives to fiscal profligacy. Relying on a GVAR model, we analyze the evolution of public debt and other key macroeconomic variables over time in the baseline scenario and in a counterfactual scenario with the Euro-insurance bond. We find no significant differences in the future path of interest expenditures- and public debt-over-GDP ratios in the two scenarios, but a consistent reduction in the macroeconomic uncertainty in the counterfactual scenario. Moreover, the proposed scheme would imply a new source of EU revenues that derives by the collection of fiscal (in)discipline premia from individual members of the Eurozone.

Greco-Fiscal Discipline meets Macroeconomic Stability-276.pdf


Redistribution, Efficiency and Cross-country Transfers within the European Union

Thomas Davoine

University of Applied Sciences Western Switzerland (EHL, HES-SO), Switzerland

There exist few theoretical justifications for cross-country transfers within the European Union based on aggregate economic gains. I provide a new motivation, where tax-financed public investments are freed from concerns over redistribution between generations. For public investment projects with twice larger expected returns than the average, my simulations show that the Union-wide GDP per capita gains would be nearly twice smaller if cross-country transfers by high-income countries would be used for domestic investments, rather than entirely dedicated to

finance public investments by low-income countries.

Davoine-Redistribution, Efficiency and Cross-country Transfers-135.pdf
 
11:00am - 1:00pmF08: Pensions IV
Location: Room HS 3
 

Reduced Retirement Age - An Effective Reform To Calm Public Unrest?

Natalie Laub1, Christoph Sajons2

1Institute for Applied Economic Research, Tübingen, Germany; 2Institute for SME Research (ifm), University of Mannheim

The pension reforms implemented during the past twenty years in many European countries were predominantly concerned with safeguarding the pension system against the effects of demographic aging by lowering its benefit payments and increasing retirement ages. This has led to growing unrest in the population. In this paper, we examine a targeted reform enacted in Germany in 2014 to appease this sentiment and remove one of the strongest points of criticism from the greater austerity package. Most importantly, it grants decrement-free retirement at the age of 63 for a distinct group of long-working individuals. We show that this reform led to a remarkable increase in early retirement in this group, leading to sizable costs for the social insurance system. Complementary evidence suggests, however, that it managed to calm public unrest about the larger pension reform.

Laub-Reduced Retirement Age-348.pdf


Social Security Privatization, Labor Supply, and Earnings Reporting: Evidence from a Cohort-Based Reform in Uruguay

Maximiliano Lauletta1, Marcelo Bergolo2

1University of California Berkeley; 2IECON - Universidad de la República

This paper studies workers’ responses to the introduction of a capitalization element to a pay-as-you-go pension system. We analyze a pension reform in Uruguay that transitioned from an unfunded system with defined benefits to a mixed system with retirement accounts. For identification, we leverage a cohort-based discontinuity in the introduction of the new system with regression discontinuity analyses. Using administrative and census data, we analyze workers’ employment and labor earnings trajectories over a 17-year trajectory. We find no significant differences in employment rates early-on, although workers under the new system are significantly more likely to be employed in old age. This is driven partially by a lower probability of having retired early. Regarding earnings responses, we document a substantial increase in reported earnings early on, which gradually fades over time. We find evidence that suggests that the increase in reported earnings is due to lower underreporting of income.

Lauletta-Social Security Privatization, Labor Supply, and Earnings Reporting-433.pdf


Macroeconomic and Distributional Effects of Pension Taxation Reforms

Magdalena Zachlod-Jelec4, Irina Belousova1, Boris Chafwehe2, Wouter van der Wielen3

1European Commission, Joint Research Centre, Spain; 2European Commission, Joint Research Centre, Spain; 3European Investment Bank; 4European Commission, Joint Research Centre, Spain

We study the fiscal and distributional implications of a change in the taxation regime applying to pension contributions and pensions benefits, in a quantitative OLG model that also accounts for skill heterogeneity between households. We carefully calibrate the model so that it reflects the pension and tax system currently in place in Germany.

We find that, over the time horizon we consider, exempting pension benefits rather than pension contributions would increase income tax revenues. When the fiscal gains are used to decrease consumption taxes, the reform mostly benefits low- and middle-skilled workers, implying a slight increase in the income tax progressivity. Pensioners reduce their savings as they increase consumption, especially the low-skilled.

Zachlod-Jelec-Macroeconomic and Distributional Effects of Pension Taxation Reforms-344.pdf


Progressing Towards Efficiency: the Role for Labor Tax Progression in Reforming Social Security

Joanna Tyrowicz1, Krzysztof Makarski2

1University of Regensburg, FAME|GRAPE & IZA, Poland; 2FAME|GRAPE

We study interactions between progressive labor taxation and social security reform. Increases in longevity and the resulting fiscal strain necessitate social security reform. The current social security is redistributive, thus providing (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. A reform which links pensions to individual incomes reduces distortions associated with social security contributions, but incurs insurance loss. The existing view in the literature is that the net outcome of such reform is negative. Contrary to this view, we show that the progressive labor tax can partially substitute for the redistribution in social security, thus reducing the insurance loss.

Tyrowicz-Progressing Towards Efficiency-108.pdf
 
11:00am - 1:00pmF09: Welfare Programs III
Location: Room K 001 A
 

On Value of Transfer to Young Adults

Marion Brouard

CREST, France

I leverage rich transaction-level data from one of the largest retail banks in France to study the discrepancies of transfer values between young adults aged 18-25 and individuals aged 25-55.

I exploit two one-shot state transfers to separately study consumption responses in both aged categories. I find that young people’s consumption responses are at least twice higher than for 25+, with estimated marginal propensity to consume (MPC) of 44% and 58% for individuals aged 18-25 against 21% for 25+. I document the primary characteristics driving heterogeneities among young adults and find that workers who live alone for at least 3 months have larger consumption responses with a striking MPC of 85%.

Brouard-On Value of Transfer to Young Adults-389.pdf


To Work Or Not To work? Effects Of Temporary Public Employment On Future Employment And Benefits

Eva Mörk1, Lillit Ottosson1,2, Ulrika Vikman2

1Uppsala University, Sweden; 2IFAU

We evaluate a temporary public sector employment program targeted at individuals with weak labor market attachment, applying dynamic inverse probability weighting to account for non-random dynamic assignment into the program. We show that the program is successful in increasing employment and reducing social assistance. However, being at a regular workplace seems crucial for future labor market outcomes; for participants that had their temporary employment at a constructed workplace, we instead find negative employment effects. The decrease in social assistance is to some extent countered by an increase in the share receiving unemployment insurance benefits, indicating that municipalities are able to shift costs from the local to the central budget.

Mörk-To Work Or Not To work Effects Of Temporary Public Employment-153.pdf


Banking on Jobs: Employment Guarantee Schemes and Financial Intermediation

Mayuri Chaturvedi1, Asad Rauf2

1University of Liverpool, United Kingdom; 2University of Groningen, Netherlands

In this paper we analyze the impact of a country-wide job guarantee program, launched in India in 2006, on financial intermediation. Exploiting the staggered implementation of the program we employ a difference-in-differences estimator to estimate the treatment effect of the program on bank lending and deposits. We find that the program led to an of increase of 10 to 16 per cent in bank loans for districts which received the treatment first. Loans to manufacturing firms and loans to households are the two major categories where the impact was most significant. We do not find conclusive evidence of any effect on later treated districts. Our findings can be rationalized as increased aggregate demand effects of additional funds provided by a welfare scheme. Some of our findings also point towards relaxation of credit supply constraints because the program reduced information asymmetries between banks and rural households.

Chaturvedi-Banking on Jobs-128.pdf


Tax Credits In Rural And Economically Distressed Areas: More Bang Per Buck?

Jacob Bastian

Rutgers University-New Brunswick, United States of America

Numerous papers show that Earned Income Tax Credit (EITC) expansions have increased maternal labor supply, but little is known about how this effect differs by metropolitan status. Using various datasets and exploiting several EITC expansions, I find that the EITC consistently had larger positive effects on the labor supply of unmarried mothers in rural and economically distressed areas. Among married mothers, I find small negative effects in suburban and urban areas and small positive effects in rural areas. I also replicate and extend previous EITC research to show that these effects hold for EITC expansions spanning 1975 to the 2010s.

Bastian-Tax Credits In Rural And Economically Distressed Areas-410.pdf
 
11:00am - 1:00pmF10: Taxing Personal Income III
Location: Room K 034 D
 

Heterogenous Responses To Tax Reforms In Ecuador

H. Xavier Jara1, Pia Rattenhuber2, Nicolás Oliva3

1University of Essex, United Kingdom; 2UNU-WIDER; 3Universitat Autònoma de Barcelona

Using tax records data from Ecuador, we assess the extent to which bunching behaviour varies across taxpayers following a major personal income tax reform introduced in 2008. The reform increased the number of tax bands from six bands with rates from 5% to 25% to nine bands with rates from 5% to 35%. The reform also introduced generous deductions for personal expenditures on housing, education, food, clothes, and health. Our analysis shows that responses to the reform do not happen uniformly across the tax schedule. Bunching is stronger for those in the first tax bracket who can relatively benefit most from the deductions that are limited to a nominal maximum. Moreover, bunching is most prominent in the group of taxpayers who went from filing taxes only as an employee to filing taxes both as an employee and self-employed. The later effect is dominated by public sector employees.

Jara-Heterogenous Responses To Tax Reforms In Ecuador-291.pdf


Tax Evasion and Self-Employment Decisions: Evidence From an Income Tax Reform in Chile

Sebastian Castillo1, Romina Safojan2

1Pontificia Universidad Catolica de Chile, Chile; 2Tilburg School of Economics and Management, Tilburg University, and Social Policy Research Institute (SPRI)

This paper studies the causal effect of income tax evasion on self-employment decisions. We develop a theoretical model to disentangle the mechanisms behind this effect when the marginal tax rate changes. Then, we obtain a proxy of tax evasion. We obtain two behavioral parameters using a difference-in-difference approach. Firstly, the elasticity of evasion to marginal tax rate equals 1.4. Also, we find that an increase of 1 percentage point in the evasion rate raises the probability of being self-employed by 6.1 percentage points, with a semi-elasticity of 0.16. We also show that the evasion channel explains 99.73% of the effect of taxes on self-employment decisions. Finally, we document that the deadweight loss associated with the tax reform is between 2.82 - 3.01% depending on the tax compliance policy. Moreover, we theoretically and empirically demonstrate that not considering evasion in this measure produces a biased estimation of the tax effect on welfare.

Castillo-Tax Evasion and Self-Employment Decisions-147.pdf


The Impact of Income Taxes on Worker Shirking

Alexander Ahammer1, Michael Brottrager1, Ulrich Glogowsky1,2, Rudolf Winter-Ebmer1,3,4

1Department of Economics, Johannes Kepler University Linz; 2CESifo; 3CEPR; 4IZA

Do workers shirk to adjust short-run labor supply in response to higher income taxation? We test this hypothesis using a 2009 reform in the Austrian tax schedule that reduced marginal taxes in the middle of the income distribution. Based on linked register data, we find that a one percentage point decrease in the marginal tax rate reduces sick days by 10%, which amounts to roughly 10% of the taxable income elasticity. These effects are driven by easy-to-fake diagnoses; overall healthcare expenditures are not affected. Our findings have important implications for firms allocating labor resources and for the design of tax reforms.

Ahammer-The Impact of Income Taxes on Worker Shirking-326.pdf


The Effect Of Taxes On Ceo Performance

Laura Arnemann1,3, Florian Buhlmann1,3, Martin Ruf2, Johannes Voget1,3

1University of Mannheim, Germany; 2University of Tuebingen, Germany; 3ZEW

A ten percentage point higher personal income taxation of CEOs results in a 1.7 percentage point lower firm performance, since CEOs reduce their effort as a response to their reduced net pay. There is a trade-off between the desire to tax CEOs more from an equity perspective and the resulting efficiency losses at the firm level. Our empirical results support the shareholder value view on CEO pay, since we show a causal effect of CEO pay on firm performance.

Arnemann-The Effect Of Taxes On Ceo Performance-258.pdf
 
11:00am - 1:00pmF11: Local Public Finance V
Location: Room K 033 C
 

Business Taxes, Capital and Labor

Sarah Gharbi1, Andreas Lichter5,6, Emilie Sartre3,4, Sebastian Siegloch1,2

1University of Cologne; 2ZEW and University of Mannheim; 3CREST; 4Brown University; 5DICE; 6Heinrich-Heine-University Duesseldorf

NOTE FROM THE IIPF OFFICE:

The authors prefer not to keep the abstract available in the (online) program after the congress. It has therefore been taken out.

The abstract can be requested from the authors, or contact the IIPF at info@iipf.org.

Gharbi-Business Taxes, Capital and Labor-378.pdf


Under a SALT Cap: The Effect of Limiting the SALT Deduction on Local Housing Markets

Chase Coleman1, Kenneth Tester2

1University of Kentucky, Department of Economics; 2University of Exeter, Tax Administration Research Centre

Prior studies suggest that local taxes and amenities are capitalized into home prices. This study uses the implementation of SALT caps through the passage of the TCJA to see how a national change in the price of local residence impacted housing markets. Using Zillow's ZTRAX and ZASSMT data merged with Home Mortgage Disclosure Act and IRS Statistics of Information data on zip code level tax filings, we estimate event study and difference-in-difference estimates on the effect of the TCJA in high SALT areas. Overall we find that the SALT cap reduced prices and change the composition of homes in areas with a high share of SALT deductions, suggesting that both prices and the composition of movers changes in response to the introduction of the SALT cap.

Coleman-Under a SALT Cap-525.pdf


Is The Property Tax a Capital Tax?

Annalisa Tirozzi

University of Rome Tor Vergata, Italy

This paper studies the impact of the local property tax on business by exploiting a tax reform approved in Italy at the end of 2015, when heavy equipment are excluded from the business property tax base. In the first part, with a Difference-in-difference approach, I show that firms that previously employ heavy equipment within the production process increase their capital more than companies that do not. This result contributes to demonstrate that the tax acts as a direct tax on that part of business capital which is less fixed. In the second part, with Fuzzy difference-in-difference, I also investigate how increasing investments in capital determines positive effects on value added and profits for firms that employ heavy equipment, affected by the policy.

Tirozzi-Is The Property Tax a Capital Tax-500.pdf


Decentralization of Property Tax Revenues and the Development of Commercial Property Markets - Evidence from the UK

Martin Simmler1, Eddy Tam2

1Oxford University, United Kingdom; 2King's College London, United Kingdom

We investigate whether local governments influence the supply of commercial properties if given the incentive to do so, and its impact on economic growth. Using a triple differences strategy, we exploit a fiscal reform in England that induces exogenous variation in the share of locally retained commercial property tax revenue, to identify the effect of incentive change on commercial properties development. We find that increasing the share of retained commercial property tax revenue by 20% increases commercial floor space by 1% in jurisdictions with high tax revenue per property relative to jurisdictions with low tax revenue per property; and that the former jurisdictions offer more high tax revenue properties. Further, jurisdictions that benefit stronger from local commercial property tax revenue growth experienced more new firm entry and less unemployment. The latter seems to be, however, driven by the resulting increased spending due to higher retained revenues.

Simmler-Decentralization of Property Tax Revenues and the Development of Commercial Property Markets-412.pdf
 
11:00am - 1:00pmF12: Taxing Consumption V
Location: Room K 224 B
 

Tax Evasion through Product Misclassification in the Presence of Multiple VAT Rates; Evidence from Greece

Antonios Marios Koumpias

University of Michigan-Dearborn, United States of America

Using firm-level, administrative tax information from Greece, this paper explores VAT evasion through a relatively understudied channel; product misclassification or mislabeling of standard- as reduced-rate VAT sales. I exploit exogenous variation in the gains from product misclassification generated by increases in the VAT rate differential that applies to alcoholic and non-alcoholic sales between January 2010 to June 2011 to examine whether alcoholic sales-intensive subindustry firms such as night clubs and bars report an increased share of reduced-rate VAT remittances relative to restaurants and fast-food establishment. I estimate that alcoholic sales-intensive subindustries are associated with 7.8%-7.9% more reduced-rate VAT remittances compared to the control subindustries during the policy reform period. The study has important policy implications that provide descriptive evidence against the use of multiple VAT rate systems because they generate new, more difficult avenues for tax evasion from product misclassification.

Koumpias-Tax Evasion through Product Misclassification in the Presence-441.pdf


VAT Fraud And Reverse Charge: Empirical Evidence From VAT Return Data

Annalisa Tassi1, Thiess Büttner1,2

1FAU, Germany; 2CESifo

In order to stop Value-Added Tax (VAT) fraud, EU member states have introduced the so-called "reverse-charge" (RC) mechanism, which fundamentally changes the tax remittances in business-to-business transactions. Using the German VAT return data, we explore the effects of the implementation of RC on VAT reporting. Our results point to a significant decline in claims of input VAT and reported sales in affected industries after the scope of RC has been widened. Based on our estimates, we quantify the VAT fraud prior to RC implementation in these industries to be around 2.9% of VAT revenues.

Tassi-VAT Fraud And Reverse Charge-238.pdf


Car Registration Taxes Across EU Countries, MNEs’ Profitability, and the Role of Market Concentration

Pranvera Shehaj1, Martin Zagler1,2

1WU Vienna University of Economics and Business, Austria; 2University of Eastern Piedmont, Italy

This paper discusses the effects of car registration taxes and market concentration degree on the profitability of multinational enterprises (MNEs) in the EU car industry. Our simple theoretical framework shows that firm’s profits depend on the demand function and therefore on taxes applied to prices. We overcome empirically the challenges of making informative theoretical predictions on the pass-through rate under imperfect competition. We find that car registration taxes, - both as ad valorem taxes and as specific taxes, - have a significant negative effect on MNEs’ profitability. Our findings show a statistically significant positive effect of market concentration on profitability. Finally, our results suggest that the degree of competitiveness in the car market moderates the effect of car registration taxes on firm profitability only in EU countries where the CRT is formulated as an ad valorem tax, with the negative effect of the ad valorem CRT becoming higher as the car market becomes less competitive.

Shehaj-Car Registration Taxes Across EU Countries, MNEs’ Profitability, and the Role-261.pdf
 
11:00am - 1:00pmF13: Demography I
Location: Room K 009 D
 

Spending Effects of Child-related Fiscal Transfers

Nils Wehrhöfer1, Olga Goldfayn-Frank2, Vivien Lewis3

1Deutsche Bundesbank, Germany; 2Deutsche Bundesbank, Germany; 3Deutsche Bundesbank, Germany

As part of Germany's fiscal response to the Covid-19 pandemic, parents received three payments totalling €450 per child. Randomization in the payment dates and daily scanner data allow us to identify the effects of these transfers on household spending. We find a significant but small spending effect of the first transfer, with an estimated marginal propensity to consume of about 12%. The effect is higher for low-income and liquidity-constrained households, and in areas with lower infection rates. The second and third payment failed to increase spending. Our results indicate that the child bonus was redistributive rather than stimulative.

Wehrhöfer-Spending Effects of Child-related Fiscal Transfers-189.pdf


Winners and Losers of the 2008 and 2013 Alimony Reforms: Evidence from the German Taxpayer-Panel

Marianna Schaubert, Johannes Köckeis

Fraunhofer Institute for Applied Information Technology, Germany

This study analyzes the direct effects of two relevant reforms in Germany on alimony payments between divorcees. The 2008 regime change imposed financial self-responsibility post-divorce, whereas the 2013 reform partly reversed the latter. By separately estimating event study models for couples divorced before and after the reforms, we find that, indeed, the 2008 reform significantly benefitted the financially stronger individuals - who are mainly men - at the expense of their former spouses. However, the reform did not worsen the cooperation of the ex-partners after the divorce. The 2013 reform, although aiming at improving the situation of the financially weaker divorcee, did not reverse this situation.

Schaubert-Winners and Losers of the 2008 and 2013 Alimony Reforms-195.pdf


Child-Related Earnings Gaps in Germany

Ulrich Glogowsky1, Dominik Sachs2, Emanuel Hansen3, Timm Bönke4, Holger Lüthen5

1Johannes Kepler University Linz; 2University of St. Gallen; 3University of Cologne; 4Freie Universität Berlin; 5Freie Universität Berlin

Recent evidence documents (a) that parenthood lowers women's long-run earnings and (b) that children explain a large part of the gender earnings inequality. Such findings put family policies at the center of the public debate. Combining German administrative data ranging from 1949 to 2015 with quasi-experimental variation, we study the impacts of family policies on women's earnings trajectories. Our paper's first descriptive part confirms the substantial effects of parenthood on mothers' careers: Due to children, ten years after birth, mothers earn roughly 55% less compared to fathers or childless women. The child-related earnings gap in West Germany is much higher than in East Germany and also increased substantially from the 1950s to the 2000s. The second part exploits a dynamic regression discontinuity design to demonstrate that a sequence of parental leave reforms explains a large share of this increase. Despite creating job security, parental leave policies can harm women's careers.

Glogowsky-Child-Related Earnings Gaps in Germany-327.pdf


Cognitive Skills Among Adults: An Impeding Factor For Gender Convergence?

Michele Battisti1, Alexandra Fedorets2, Lavinia Kinne3

1Glasgow University; 2Bundesdruckerei; 3ifo Institute, Germany

While gender differences in labour force participation and wages have been studied extensively, gender gaps in cognitive skills among adults are not yet well understood. Using the cross-country PIAAC dataset, this paper presents novel findings on cognitive skill distributions by gender. Despite improvements in educational equality, inequalities in numeracy skills favouring men compared to women are pervasive. These skill differences account for part of the gender pay gap. Glass ceiling effects in wages are partly explained by both gender differences in numeracy skills in favour of men at the top of the wage distribution, as well as by lower returns to higher skills for women at the highest wage deciles. Lastly, we find that these numeracy-wage patterns are especially pronounced for parents and for those with higher degrees in a non-STEM field of study.

Battisti-Cognitive Skills Among Adults-293.pdf
 
1:00pm - 2:00pmLunch III: Lunch
Location: Mensa
2:00pm - 4:00pmG01: Loopholes, Disclosure, and Taxes
Location: Room HS 7
 

Heterogeneous Responses to Capital Taxes: Evidence from the Introduction of a Dividend Tax

Katarzyna Bilicka1, Irem Guceri2, Evangelos Koumanakos3

1Utah State University, USA; NBER, CEPR; 2University of Oxford, United Kingdom; CEPR; 3Hellenic Open University, Greece

We analyze the effects of the introduction of a flat tax on dividends on firm behavior and find that a dividend tax may correct inefficient over-distribution. We use exogenous variation in how the policy affected firms with different legal statuses and financial year-end dates, and distinguish between firms that were caught immediately by the tax and those that could distribute tax-free dividends after policy announcement. Immediately-affected firms significantly reduce payouts, retain earnings and increase investment, consistent with intertemporal tax arbitrage. In the long run, the efficiency of money reallocation within the firm predicts the likelihood of bankruptcy.

Bilicka-Heterogeneous Responses to Capital Taxes-503.pdf


Homes Incorporated: Offshore Ownership of Real Estate in the U.K.

Niels Johannesen2, Jakob Miethe1, Daniel Weishaar1

1University of Munich (LMU), Germany; 2University of Copenhagen

We study offshore ownership of real estate in the United Kingdom by combining several data sources: administrative data from the land register, a comprehensive transaction database and offshore data leaks. We show that the market share of offshore corporations is around 1% overall, but more than 10% for top-end properties. For a subsample of properties we can trace ownership through the offshore corporation and find that most have ties to Africa, Asia and the Middle East, but that the largest 'foreign' investor country is the United Kingdom itself. Next, we present causal evidence that changes in capital gains taxes and the introduction of an ownership register induced strong responses in patterns of offshore ownership, consistent with taxation and secrecy motives. Finally, we show that the Brexit referendum caused a large differential decrease in local areas with more offshore ownership relative to close-by local areas with otherwise similar ex ante characteristics.

Johannesen-Homes Incorporated-320.pdf


Mandatory Disclosure of Tax Arrangements: an Effective Measure against Tax Evasion?

Elisa Casi-Eberhard1, Mohammed Mardan2, Rohit Reddy Muddasani3

1Norwegian School of Economics(NHH); 2Norwegian School of Economics(NHH); 3Wirtschaftsuniversitat Wien, Austria

We study the short-term effect of the introduction of the mandatory disclosure program for aggressive tax arrangements by focusing on the one introduced in May 2018 under the Council Directive 2018/288/EU (or DAC6). Employing bilateral data on cross-border deposits, we study the effect of this new disclosure requirement on cross-border tax evasion. Our results show a reduction of cross-border deposits in EU countries with a strong enforcement, captured by large monetary penalties for misreporting. At the same time, we document a relocation of income and wealth to countries with limited intermediary reporting obligation. Finally, we detect an increase in volume of cross-border deposits from countries offering citizenship/residence by investment programs, suggesting the use of these schemes as regulatory arbitrage to circumnavigate the disclosure mandated under DAC6. Overall, we provide timely and relevant evidence which contribute to the debate on international administrative cooperation to reduce cross-border tax evasion.

Casi-Eberhard-Mandatory Disclosure of Tax Arrangements-328.pdf


Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-cum and Cum-ex Transactions

Evelina Gavrilova, Elisa Casi, David Murphy, Floris Zoutman

Norwegian School of Economics, Norway

We study the effect of reforms that close loopholes in the enforcement of the dividend-withholding tax (DWT). We examine a Danish reform enacted in 2016 and compare Denmark to its Nordic neighbors. Before the reform all countries have a strong spike in stocks on loan centered around the ex-dividend day. On average, excess stocks on loan peak at around 4 percent of the public float. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We find evidence of DWT arbitrage in all EU countries that levy DWT, though there is strong heterogeneity across countries.

Gavrilova-Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax-352.pdf
 
2:00pm - 4:00pmG02: Secrecy, Reporting, and Transparency
Location: Room HS 2
 

Shallow and Uneven Progress Towards Global Financial Transparency: Evidence from the Financial Secrecy Index, 2011-2020

Petr Janský1, Miroslav Palanský1, Dariusz Wójcik2

1Charles University, Czech Republic; 2University of Oxford, United Kingdom

The global financial crisis and leaked documents such as the Panama Papers highlighted the important role of financial secrecy in the global economy. In this paper we use the internationally recognised Financial Secrecy Index and analyse its five editions between 2011 and 2020. We find that financial transparency related to international standards and cooperation improved much more than transparency in the arguably more substantive areas of ownership registration, as well as legal, tax and financial regulation. Second, we document convergence of financial transparency among jurisdictions. Third, we map the heterogeneity of financial secrecy across the world and introduce five categories of jurisdictions based on their levels of financial transparency and its dynamics: relatively transparent, cooperative improvers, non-cooperative improvers, pretenders, and resisters. Put together, our findings show some progress towards global financial transparency over the past decade but demonstrate that change has been shallow and very uneven.

Janský-Shallow and Uneven Progress Towards Global Financial Transparency-230.pdf


The Effect of Private Country-by-Country Reporting on Tax Avoidance: a Regression Discontinuity Approach

Tijmen Tuinsma1, Kristof De Witte1,2, Vitezslav Titl1,3,4, Petr Janský4, Miroslav Palanský4

1KU Leuven, Belgium; 2Maastricht University, the Netherlands; 3Utrecht University, the Netherlands; 4Charles University, Prague, Czech Republic

Private Country-by-Country Reporting (CbCR) is a measure against tax avoidance by large multinationals, implemented EU-wide in 2016. Multinational companies with an annual revenue over 750 million euros are required to report their global activities on a country-by-country basis to the tax authorities. Using this cutoff in a sharp regression discontinuity design, we find evidence for an increase in effective tax rates for affected companies, indicating an increase in tax compliance. In our preferred specification, we estimate the increase in effective tax rates locally at 9.1 percentage points. The effects are heterogeneous however: the most aggressive multinationals remain unaffected. This may imply that while CbCR was effective in combating tax avoidance, it does not deter the biggest offenders from using tax havens for profit shifting.

Tuinsma-The Effect of Private Country-by-Country Reporting-329.pdf


How Do Investors Value The Publication Of Tax Information? Evidence From The European Public Country-By-Country Reporting

Raphael Müller1, Christoph Spengel1,2, Stefan Weck2

1University of Mannheim, Germany; 2ZEW - Leibniz Centre for European Economic Research, Germany

We examine the capital market reaction to the announcement of the European Union (EU) to introduce a public tax country-by-country reporting (CbCR) regime. By employing an event study methodology, we estimate a significant cumulative average abnormal return (CAAR) between -0.484% and -0.660%, which translates into a monetary value drop between EUR 48-65 billion for up to three days after the announcement. We conclude that investors evaluate reputational risks arising from public scrutiny and proprietary costs to outweigh potential benefits of an extended information environment. In cross-sectional tests, we find that the average investor reaction is more pronounced for firms with higher reputational risk. Furthermore, we document a stronger market reaction for firms facing higher proprietary costs. Assessing the relative importance of the channels, our results indicate that the reputational channel is more relevant for investors. Our inferences are of particular importance in light of ongoing debates on similar disclosure rules.

Müller-How Do Investors Value The Publication Of Tax Information Evidence-377.pdf


The Long Way to Tax Transparency: Lessons from the Early Publishers of Country-by-Country Reports

Giulia Aliprandi1, Sarah Godar1,2, Tommaso Faccio3, Petr Janský2

1EU Tax Observatory, France; 2Charles University, Czechia; 3Nottingham University Business School, UK

We analyse a hand-collected sample of voluntarily published Country-by-Country reports (CbCRs) of ten multinational enterprises (MNEs). We assess the value-added of qualitative and quantitative information provided in the reports also based on comparison to individual MNEs’ financial reports and aggregate CbCR data. We find that early publishers of CbCRs do not double-count profits by including intra-company dividends but that the inclusion of equity-accounted participation results may bias their CbCR profits by up to 30% or 10% on average. Our sample MNEs seem to pay higher effective tax rates (ETRs) than the global average. This might indicate that more tax-transparent MNEs avoid taxes less aggressively. However, our assessment of different tax risk indicators reveals important variations between companies.

Aliprandi-The Long Way to Tax Transparency-458.pdf
 
2:00pm - 4:00pmG03: International Tax Rules
Location: Room HS 6
 

The Importance Of Escape Clauses: Firm Response To Thin Capitalization Rules

Lars Thorvaldsen1, Martin Eckhoff Andresen2

1University of Oslo, Norway; 2Statistics Norway, Norway

Most thin capitalization rules include escape clauses intended to shield firms that are not debt shifting. However, we show that corporate groups are able to exploit these exemptions to minimize group exposure. After the introduction of thin-cap rules in Norway in 2014, we observe sharp bunching among new and existing subsidiaries at all thresholds for these escape clauses, and find that internal corporate group debt is offloaded to these bunching subsidiaries in order to avoid additional tax costs. As a result, what appears to be significant and large effects on firm-level capital structure in response to the thin capitalization rules, is in reality a reshuffling of capital within corporate groups with no real effects.

Thorvaldsen-The Importance Of Escape Clauses-510.pdf


Interest Limitation Rules And Business Cycles: Empirical Evidence

Olli Ropponen

Etla Economic Research, Finland

This paper studies the performance of interest limitation rules during business cycles. It employs register data on Finnish affiliates of multinational enterprises (MNEs) to study both thin-capitalization rules (TCRs) and earnings-stripping rules (ESRs). Both types of rules are found to become tighter ineconomic downturns: TCRs due to higher debt-to-equity ratios and ESRs due to lower company profits. Among equally tight interest limitation rules, TCRs are found to provide less variation and less pro-cyclical outcomes by increasing the company tax burden less than ESRs in an economic downturn.

Ropponen-Interest Limitation Rules And Business Cycles-267.pdf


The Value of a Loss: Restricting Tax Loss Transfers and its Impact on Acquisition Activity

Anna Theresa Bührle1, Elisa Casi2, Barbara Stage3, Johannes Voget4

1ZEW Mannheim, University of Mannheim; 2Norwegian School of Economics (NHH), ZEW Mannheim; 3WHU - Otto Beisheim School of Management; 4University of Mannheim

This paper examines the economic consequences of anti-tax loss trafficking rules, which disallow the use of loss carry-forwards after a substantial change in ownership or activity. For our empirical analysis, we utilize 17 changes in legislation and data on M&A deals in the EU28 Member States and Norway from 1998 to 2019. Our findings provide evidence that limiting the transfer of losses impacts the market for corporate control. We document a significant negative relationship between the value of M&A deals and anti-tax loss trafficking rules. This supports the idea that such rules decrease the value of accumulated loss carry-forwards, reducing the firm value of acquisition targets. This has important economic consequences as we find that loosening restrictive anti-tax loss trafficking rules positively affects entrant survival rates and improves industry-level performance. Overall, our study offers important policy implications on the desirability of anti-tax loss trafficking rules.

Bührle-The Value of a Loss-220.pdf
 
2:00pm - 4:00pmG04: Pensions V
Location: Room K 153 C
 

An Earned Income Pension Credit as a means to reduce old-age poverty risk

Fabian Kindermann, Veronika Pueschel

Universität Regensburg, Germany

We study the optimal design of pension systems that aim at reducing old-age poverty risk. A pension scheme that grants subsidies to the earnings poor based on their annual earnings is superior to a redistribution scheme that is based on the life-time earnings history of individuals. In particular, we find that pension subsidies for individuals with low earnings that are designed in a similar way as the Earned Income Tax Credit provide both insurance against old-age poverty and incentives for labor force participation. As such, the Earned Income Pension Credit generates substantial long-run welfare gains. We evaluate the individual and macroeconomic consequences of redistributive pension reforms in a quantitative overlapping generations model that accounts for a rich set of demographics (gender, marital status, and family size), permanent labor market characteristics, idiosyncratic labor productivity shocks, individual savings choices and labor supply decisions at the extensive and the intensive margin.

Kindermann-An Earned Income Pension Credit as a means to reduce old-age poverty risk-239.pdf


Pension Reform Preferences in Germany: Does Information Matter?

Jana Schuetz1, Silke Uebelmesser1,2, Carmela Aprea3, Ronja Baginski3

1Friedrich Schiller University Jena, Germany; 2CESifo; 3University of Mannheim

Demographic change has an impact on pay-as-you-go pension systems. To maintain their financial sustainability, reforms are necessary but often lack public support. Based on representative survey data from Germany, we conduct an information provision experiment that deals with the topic of demographic change. With this, we investigate whether salience of or information about demographic change enhances preferences towards reforms in general as well as towards specific reform measures which positively affect the financial stability. We find that information provision significantly increases the perceived reform necessity. Furthermore, salience of the topic increases the likelihood that respondents prefer increasing the retirement age over other reform measures. In addition, we highlight differences between respondents who over- or underestimated demographic change and find that especially those respondents

underestimating react to the treatments.

Schuetz-Pension Reform Preferences in Germany-219.pdf


Optimal Retirement with Disability Pensions

Hans Fehr1,2,3, Adrian Fröhlich1

1Julius-Maximlian University of Würzburg, Germany; 2Netspar; 3CESifo

This paper develops a general equilibrium life-cycle model with endogenous retirement and disability risk, which captures the interaction between disability pensions (DP) and old-age pensions (OAP) in Germany. At certain ages households may either apply for DP or for OAP depending on the eligibility rules and generosity of the two programs. Consequently, reforms which affect only one program typically have spill-over effects to the other program which dampens the

intended impact of the reform. Our simulation results indicate that such effects are also quantitatively important in Germany where the OAP normal retirement age will rise up to age 67 until 2030 while at the same time the generosity of disability pensions will dramatically increase. We show that the reformof the DP rules may offset the financial gains from the increase in the normal retirement age if current eligibility rules would prevail

Fehr-Optimal Retirement with Disability Pensions-141.pdf


Employment Effect of Means-Tested Program: Evidence from a Pension Reform in Chile

Pablo Troncoso

University of Georgia, United States of America

In this paper, I study the employment effects of policy reform in the Chilean pension system. Government transfers are determined by a means-tested program which i) increased pension benefits by 50% and ii) changed the accrual rates during 2008. I use two datasets for my analysis. The first one is a representative cross-sectional survey with 12 waves. The second is a unique database that combines monthly administrative records with a representative panel survey. Using a Difference in Differences (DID) approach, I find that, on average, the reform increased labor force participation and hours worked for men between 60-64 years old by 15% and 4%, respectively. Additionally, I conclude that people react differently regarding labor decisions depending on where they were in the joint distribution of pension wealth and years of contribution. These heterogeneous effects rely on the fact that several groups face different accrual rates over time.

Troncoso-Employment Effect of Means-Tested Program-199.pdf
 
2:00pm - 4:00pmG05: Environmental IV
Location: Room HS 5
 

Willingness-to-Pay for Energy Efficiency: Evidence from the European Common Market

Anne Kesselring

Friedrich-Alexander-University Erlangen/Nuremberg, Germany

This paper explores the willingness-to-pay for energy efficiency by exploiting variation across products and countries within the EU market for household appliances. Based on scanner data at product-level, I use the hedonic method to estimate implicit prices for energy efficiency and derive implicit discount rates. The paper argues that the implicit price will be underestimated when energy consumption is not only a determinant of operating cost but also is positively associated with other features of a product. The empirical analysis confirms that estimates of the willingness-to-pay are higher when this effect is accounted for in the estimation. This is especially true of product types for which the heterogeneity of usage intensity is low. The results thus indicate that the energy efficiency gap is smaller than found in earlier studies.

Kesselring-Willingness-to-Pay for Energy Efficiency-467.pdf


Carbon Pricing, Border Adjustment and Climate Clubs: An Assessment with EMuSe

Anne Ernst, Natascha Hinterlang, Alexander Mahle, Nikolai Stähler

Deutsche Bundesbank, Germany

In a dynamic, three-region environmental multi-sector general equilibrium model (called EMuSe), we find that carbon pricing generates a recession initially as production costs rise. Benefits from lower emissions damage materialize only in the medium to long run. A border adjustment mechanism mitigates but does not prevent carbon leakage, but it "protects" dirty domestic production sectors in particular. From the perspective of a region that introduces carbon pricing, the downturn is shorter and long-run benefits are larger if more regions levy a price on emissions. However, for non-participating regions, there is no incremental incentive to participate as they forego trade spillovers from carbon leakage and face higher production costs along the transition. In the end, they may be better off not participating. Because of a costly transition, average world welfare may fall as a result of global carbon pricing unless "the rich" assist "the poor".

Ernst-Carbon Pricing, Border Adjustment and Climate Clubs-394.pdf


Non-Compliance with Environmental Product Standards in an International Duopoly

Jan S. Voßwinkel1, Laura Birg2

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

This paper studies the incentives for non-compliant behavior of firms in a two-country duopoly with vertical product differentiation. Both firms have an incentive for non-compliant behavior, while both firms would prefer that the other firm is compliant. The incentive for non-compliance is higher for the high-quality firm than for the low-quality firm. Non-compliant behavior of one firm lowers the incentive for non-compliance by the other firm. A welfare-maximizing government may lack incentives to enforce compliant behavior of the domestic firm.

Voßwinkel-Non-Compliance with Environmental Product Standards-483.pdf


Taxes on Greenhouse Gas Emissions to Counter the Demographic Change

Kilian Ruppert, Matthias Schön, Nikolai Stähler

Deutsche Bundesbank, Germany

This paper assesses how a permanent shift from financing a public pay-as-yougo pension by direct (labour income) taxation towards financing it by indirect (consumption) taxation affects the economy and welfare. To this end, we use an overlapping-generations-augmented two-region general equilibrium framework with search frictions on the labour market. The analysed tax reform partially shifts the tax burden from domestic to foreign producers and lowers marginal costs of domestic production and generates positive domestic macroeconomic effects. In addition, the partial postponement of a household’s tax burden to retirement leads to higher savings and increases domestic assets. However, for some time after implementation of the tax reform, the policy-induced increase in consumption costs makes retirees and households close to retirement worse off. Moreover, the increase in domestic net foreign assets implies that consumption of foreign households eventually falls, which stands in contrast

Ruppert-Taxes on Greenhouse Gas Emissions to Counter the Demographic Change-346.pdf
 
2:00pm - 4:00pmG06: Local Public Finance VI
Location: Room HS 4
 

Why Do National Politicians Care About Local Politics?

Felipe Carozzi1, Davide Cipullo2, Luca Repetto3

1London School of Economics; 2Università Cattolica del Sacro Cuore, Italy; 3Uppsala University

We study whether political alignment affects coalition formation and government stability using a regression discontinuity design and a large dataset of Spanish municipal elections. Local governments aligned with the region receive more transfers only when they have a single-party majority. When such majority is not feasible and a coalition is needed, alignment increases the probability to appoint the mayor for the most voted party at the expense of the runner-up. At the same time, aligned coalition governments are less likely to be unseated via no-confidence vote. These effects have electoral consequences in the next electoral round, with the most voted party benefiting from alignment at the expense of the runner-up. These electoral returns are much larger for coalition governments than for single-party majorities, suggesting that local parties benefit the most from alignment when they have to bargain for the control of the local government.

Carozzi-Why Do National Politicians Care About Local Politics-202.pdf


Fiscal Illusion and Flypaper effects of Public Financing in India: An Analysis of Wagner’s Law at Subnational Context

Bhabesh Hazarika, Dinesh Kumar Nayak

National Institute of Public Finance and Policy, India

The present paper analyses the aspect of fiscal illusion and flypaper effects in Indian subnational context. Panel data from 1980-81 to 2019-20 for 20 subnational governments of India were analysed using second-generation panel unit root, and cointegration approaches accounting for the cross-sectional dependence and heterogeneity. The results of the PMG estimation provide evidence for the existence of fiscal illusion induced by intergovernmental transfers and fiscal deficit and a flypaper effect. While the validity of Wagner’s law becomes weak when controlled for intergovernmental transfers and fiscal deficit, the degree of publicness of public spending is found to be low at the subnational level in the country. The increased reliance on the transfers has become a norm for many states, especially the north-eastern and hilly states having implications for the own tax collection at the subnational level, and as a result, the fiscal gap has become larger and larger.

Hazarika-Fiscal Illusion and Flypaper effects of Public Financing-266.pdf


Lord, How I Want To Be In That Number: On The Blessings Of UNESCO World Heritage Designation

Enrico Bertacchini1, Federico Revelli2, Roberto Zotti3

1University of Torino, Italy; 2University of Torino, Italy; 3University of Torino, Italy

The inclusion of heritage sites in the UNESCO World Heritage List (WHL) can, in principle, positively impact the economy of the regions where sites are located. We aim at shedding light on the effects of the inscription of a site in the WHL in Italy by studying the consequences it has on average housing prices and personal income of the host localities. To identify the causal impact of formal UNESCO inscription separately from the effect of public and private investments that stakeholders might have performed in the candidate municipality to boost its chances of inscription, we control for the time of earlier registration of sites in national tentative lists. Preliminary evidence suggests that housing prices rise right after the inclusion of sites in national tentative lists, while income rises only after official UNESCO listing along with the international visibility boost of the locality hosting a site.

Bertacchini-Lord, How I Want To Be In That Number-336.pdf
 
2:00pm - 4:00pmG07: Behavioral Public Finance III
Location: Room K 269 D
 

Cheating Responses To Tax Evasion

Andrea Fabio Michael Martinangeli1, Lisa Windsteiger2

1Burgundy School of Business, France; 2Max Planck Institute for Tax Law and Public Finance

This paper uses a survey experiment on a representative sample of the Italian population to explore whether respondents' propensity to cheat is conditional on information about tax malpractice.

Our study thus generalises previous laboratory findings on conditional behaviours (cooperation, cheating) to uncover their real-world bearing in the context of tax compliance. We find asymmetries along the income gradient: The strongest conditional responses are uncovered in connection to tax malpractice on behalf of the rich, which induce a greater propensity to cheat.

Martinangeli-Cheating Responses To Tax Evasion-341.pdf


Evidence on Need-sensitive Giving Behavior: An Experimental Approach to the Acknowledgment of Needs

Stefan Traub1, Manuel Schwaninger2, Fabian Paetzel3, Sabine Neuhofer4

1Helmut-Schmidt-Universität Hamburg, Germany; 2Universität Oldenburg, Germany; 3TU Clausthal, Germany; 4Institut für höhere Studien, Wien, Austrua

We utilize a modified dictator game to analyze whether information about the need of recipients affects dictator giving behavior. Need information is presented as objective information about the recipients' living circumstances (income, public transfers, and travel time to the lab) and subjective information about the recipients' self-assessment of their need (``need request''). Classifying dictators according to their conditional transfers yields that 139 of the 246 (57%) dictators are need sensitive. The results show that recipient's income and travel time affect dictator giving behavior significantly. Furthermore, dictator giving increases when the need request is supported by the income information (``acknowledgment effect'').

Traub-Evidence on Need-sensitive Giving Behavior-335.pdf


Scarcity and Consumption Priorities

Momi Dahan1, Doron Sayag2

1Hebrew University, Israel; 2Israel Central Bureau of Statistics

This paper studies whether households facing economic scarcity tend to change consumption priorities measured by the share of necessity goods relative to luxury goods in their consumption basket. Based on detailed weekly revenues from data in a large national supermarket chain in Israel for the years 2011–2018, we found that in weeks of economic scarcity (weeks without payments of social security allowances or salary), households reduced spending on necessity goods by 4.4%, but they cut even more the spending on luxury goods by 6.5%, and the difference between these two types of goods is up significantly by 2.1%. The effect of scarcity on the difference between spending on necessity goods and luxury goods is higher in stores located in disadvantageous areas. The main results of this study are robust to alternative methodology of classifying necessity goods, concentrating on products with short shelf life or excluding hard discount stores.

Dahan-Scarcity and Consumption Priorities-273.pdf


Cultural Identity and Norms of Cooperation and Trust in Italy

Daniel Sgroi1, Michela Redoano1, Federica Liberini2, Ben Lockwood1, Francesco Porcelli3, Emanuele Bracco4

1University of Warwick; 2University of Bath; 3University of Bari; 4University of Verona

In a survey involving 1,547 subjects across three Italian cities we exploit regional variation in background, language and diet to investigate the relationship between cultural identity, trust and cooperation. Subjects with relatives who originate in the north of Italy, and who share common cultural characteristics, contributed 15% more in a public goods game, displayed greater trust in government and greater willingness to pay taxes, than subjects whose language and diet identified them as being southern. However, self-reported identity, a mainstay of the survey literature, had no predictive power. This highlights the importance of identity but only if measured appropriately.

Sgroi-Cultural Identity and Norms of Cooperation and Trust-311.pdf
 
2:00pm - 4:00pmG08: Labor Supply IV
Location: Room HS 3
 

A Letter Experiment To Increase Take-up Of Wage Subsidies By Employers

Nicole Bosch1, Lucy Kok2, Lennart Kroon2

1Tax and Customs Administration of the Netherlands; 2SEO Amsterdam Economics

This paper analyzes a large-scale randomized letter experiment nudging employers to take up a wage subsidy for older unemployed. Since long-term unemployment rates are fairly high among this group, the wage subsidy should make hiring them more attractive. However, non-take-up is high (50%, SEO 2014). From earlier behavioural research reasons for non-take up are unawareness and difficulty applying for the wage subsidy.

We analyzed the outcomes of more than 30,000 letters, which to the best of our knowledge we are the first to do this.The findings are as follows. First, we find on average no effect of the letters on take-up or probability of hiring. This indicates that unawareness and difficulty are not the main reasons for non-take-up. Second, there is no distinguishable effect of the different messages.

Overall, our findings suggest that nudging employers concerning their hiring behaviour is more difficult than nudging employers concerning their tax payments.

Bosch-A Letter Experiment To Increase Take-up Of Wage Subsidies-508.pdf


The Earned Income Tax Credit and Welfare Reform Policies in the 1990s: What Really Happened?

Adam Looney

University of Utah, United States of America

This paper argues that difference-in-difference (DD) estimators are unable to identify the effects of specific policies like the Earned Income Tax Credit or welfare time limits from the effects of other contemporaneous policies or the strong economy. Counterfactual policies that reduce welfare use and increase employment also produce large and disproportionate impacts on specific populations: mothers with young children and multiple children; less educated mothers; and mothers in more generous states. Using placebo tests, in which welfare recipients are caused to leave welfare and work by random placebo policies in sufficient numbers to achieve the reductions observed each year in the 1990s, I show the distribution of placebo test statistics mirrors those produced from canonical difference-in-difference estimates of the impact of welfare reform policies and the EITC on welfare use and employment.

Looney-The Earned Income Tax Credit and Welfare Reform Policies-494.pdf


(Dis)Connecting People: Labor Market Consequences Of The Nokia Decline

Andrés Barrios-Fernández1,3, Jarkko Harju2, Tuomas Matikka3, Sami Remes2

1Massachusetts Institute of Technology; 2Tampere University, Finland; 3VATT Institute for Economic Research

This paper investigates the labor market consequences of the rapid decline of Nokia, a shock that dramatically transformed the local information and communication industry. The paper utilizes rich administrative data from Finland, together with information on the timing of the employee co-operation negotiations, to study how well the former Nokia employees bounce back with their new careers and entrepreneurial ventures. The results indicate that an important share of the displaced were able to quickly find a new job and maintain their level of earnings. Entrepreneurship is a more common career path for the high skill individuals and 9% of them were working on their own firm three years after the layoff. Pre-layoff skill level also matters for the likelihood and duration of unemployment as 25% (15%) of the displaced low (high) skill individuals remained unemployed three years later.

Barrios-Fernández-(Dis)Connecting People-365.pdf
 
2:00pm - 4:00pmG09: Local Public Finance VII
Location: Room K 001 A
 

The Beach: Tax Competition along the Italian Coasts

Martin Zagler1,2, Chiara Cavallero3,4

1UPO Novara, Italy; 2WU Vienna; 3University of Trento; 4Sant’Anna School of Advanced Studies Pisa

Space: the final frontier. This paper seeks to understand the spatial dimension of tax competition. We provide two novel contributions to the literature on tax competition. First, we present a spatial model of tax competition, which is an adoption of the Hotelling model of imperfect competition in the linear city. We find that tax rates are strategic complementarities, as a change in taxes of one town will lead to a similar change of tax rates in neighboring towns. Second, we test the model with data from tourism taxes along the Italian coastline. We find that towns on the Thyrennian coast reduce their tax rates in order to attract tourists and additional tax base. We do not find a similar effect on the Adriatic coast, but we still see a reaction of tax rates, pointing to yardstick competition.

Zagler-The Beach-149.pdf


Intermunicipal Cooperation In Italy: A Panel Analysis Disaggregated By Service

Giuseppe Gori1, Patrizia Lattarulo1, Francesco Porcelli2, Leonzio Giuseppe Rizzo3, Riccardo Secomandi4

1Istituto Regionale di Programmazione Economica della Toscana; 2Università degli Studi di Bari-Aldo Moro; 3Università degli Studi di Ferrara, IEB; 4Università degli Studi di Ferrara

Municipalities’ territorial scale can be an important factor in determining the cost of the provision of local public services. In the last two decades national governments tried to induce amalgamation or cooperation of small municipalities in the provision of local public services. In our work we exploit a panel dataset for the years 2010-2016 for all Italian municipalities with details on output relative to nine municipal services. The novelty of our approach is to use a panel disaggregated not only by municipalities but, also by services. This last distinction is extremely important in evaluating the impact of intermunicipal cooperation, which, differently from amalgamation, cover only some specific service. We find that intermunicipal cooperation decreases the ratio between output and expenditure on average by 14%. This result is stronger the smaller the municipality is, confirming the role of intermunicipal cooperation in exploiting scale economies.

Gori-Intermunicipal Cooperation In Italy-240.pdf


The Impact of Tax Sharing Agreements on Local Public Finance and Cross-Border Commuting: Evidence from the Fonds Des Frontaliers Luxembourgeois

Sander Ramboer

VATT Institute for Economic Research, Finland

This paper examines how cross-border commuting affects local public finance and vice versa. It takes the case of the Belgian-Luxembourgian border region where since 2004, the "Fonds des Frontaliers" has compensated Belgian municipalities for their inability to tax cross-border commuters' income. I aim to uncover how these border municipalities differed from others, what type of externalities this "tax deficit" has created and whether they were internalized by the institution of the fund. Finally, it will examine to what extent the compensation has influenced location patterns and commuting. To that end, the paper utilized detailed data on municipal accounts and commuting flows. The identification strategy exploits the introduction as well as the reform of the fund and encompasses a range of DiD analyses. Preliminary results suggest the fund reduced tax pressure on non-commuters, supported investment in transport infrastructure and shored up the capacity of public administration, education and social services.

Ramboer-The Impact of Tax Sharing Agreements on Local Public Finance and Cross-Border Commuting-385.pdf


Income Taxes and Mobility of the Rich: Evidence from US and UK Households in Switzerland

Marko Koethenbuerger1, Costanza Naguib2, Christian Stettler1, Michael Stimmelmayr3

1ETH Zurich, Switzerland; 2University of Bern, Switzerland; 3University of Bath, UK

We provide evidence on tax-induced migration of foreign high-income households in Switzerland using administrative data on the universe of US and UK households in Switzerland. The world-wide income tax system of the US effectively isolates high-income US households living in Switzerland from the Swiss income tax scheme. This allows us to separate tax from amenity induced sorting effects by comparing the location choices of US households with the ones of UK households. We find that UK households with incomes above CHF 300k have significantly lower tax burdens in Switzerland as compared to their US counterparts. We also find that even within the range of high income households, tax-induced sorting strongly increases with income levels. Around 4 out of 5 UK households at the top 1\% of the income distribution locate in local tax heavens.

Koethenbuerger-Income Taxes and Mobility of the Rich-431.pdf
 
2:00pm - 4:00pmG10: Public Goods II
Location: Room K 034 D
 

Collusion by Exclusion in Public Procurement

Regina Seibel, Samuel Skoda

University of Zurich, Switzerland

This paper studies bid rigging in auctions with bidder preselection. We develop a theoretical model to analyze the optimal behavior of a bid-rigging cartel and show how two-stage auction formats, in which the first stage is used to preselect bidders, may be exploited. Bidder preselection based on opening bids allows cartels to exclude rivals and thereby increase procurement costs. To test our predictions, we use administrative data from public procurement in Slovakia. By leveraging a unique auction format reform we show that after a preselection procedure was abandoned, the savings gap between potentially rigged and non-rigged auctions decreased by 48%. In contrast to the conventional motivation for two-stage auctions, our analysis suggests that two-stage auctions might facilitate bid rigging and increase procurement costs.

Seibel-Collusion by Exclusion in Public Procurement-501.pdf


Local Engagement: Do Community Needs Affect The Decision To Volunteer?

Annalisa Tassi

FAU, Germany

I study the relationship between changes in community needs and the supply of voluntary work. I present basic theoretical considerations, which suggest that voluntary work is positively related to an increase in local needs. Then, I test the hypotheses empirically by proxying local needs with the number of needy people, i.e., refugees, in a county, and by exploiting the quasi-experiment of refugees' allocation within Germany. I find that doubling the number of refugees increases the probability of volunteering by about 2 percentage points. My estimates imply that 1.7 million people additionally volunteered during the refugee crisis, i.e., more than one person per refugee.

Tassi-Local Engagement-237.pdf


Opacity In Bargaining Over Public Good Provision

Julian Lamprecht1, Marcel Thum1,2,3

1TU Dresden, Germany; 2ifo Dresden, Germany; 3CESifo, Germany

We consider ultimatum bargaining over the provision of a public good. Offer-maker and responder can delegate their decisions to agents, whose actual decision rules are opaque. We show that the responder will benefit from strategic opacity, even with bilateral delegation. The incomplete information created by strategic opacity choices does not lead to inefficient negotiation failure in equilibrium. Inefficiencies arise from an inefficient provision level. While an agreement will always be reached, the public good provision will, however, fall short of the socially desirable level. Compared to unilateral delegation, bilateral delegation is never worse from a welfare perspective.

Lamprecht-Opacity In Bargaining Over Public Good Provision-256.pdf


Investment in Education in a Dual Economy

Michel Strawczynski

Hebrew University of Jerusalem, Israel

This paper analyzes educational optimal government policy in a dual economy composed by skilled and unskilled workers. The skilled group invests in education according to government-determined parameters on the cost of education, while the unskilled does not invest in education and receives a means-tested government transfer that is financed by an optimal non-linear income tax imposed on skilled wages. Using simulations, I found that the existence of a dual economy drives the policy maker to compromise about growth: under empirically plausible assumptions - about inequality aversion of the social planner, labor elasticities and the distribution of income - his/her preferred option is to limit education at the expense of increasing output. By acting this way, the government assures a higher social utility that is inclusive of the unskilled workers.

Strawczynski-Investment in Education in a Dual Economy-304.pdf
 
2:00pm - 4:00pmG11: Education II
Location: Room K 033 C
 

Global Universal Basic Skills: Current State and Implications for World Development

Sarah Gust1, Eric A. Hanushek2, Ludger Woessmann3

1ifo Institute at the University of Munich, Germany; 2Hoover Institution, Stanford University; CESifo, IZA, and NBER; 3University of Munich, ifo Institute; Hoover Institution, Stanford University; CESifo, and IZA

Ensuring that every child achieves basic skills is a prime development goal. But how far is the world away from reaching this goal? And what would it mean for world development? Based on the micro data of all international and regional achievement tests, we map achievement onto a common (PISA) scale using the mean and standard deviation of student-level performance of the countries participating both in PISA and the specific other test. We estimate the share of children not achieving basic skills for 127 countries and provide imputations for 161 countries that cover 99% of the world population. According to our estimates, 68% of the world’s youth do not reach basic skill levels. Using growth projections, our analysis suggests that the lost world economic output due to missing the goal of global universal basic skills amounts to over 700 trillion dollars over the remaining century, or 11.5% of discounted GDP.

Gust-Global Universal Basic Skills-353.pdf


Do Studying Abroad Programs Work? Evidence From a Large Scholarship Program in Brazil

Rodrigo Oliveira1, Otávio Conceição2, André Portela2

1UNU-WIDER, Finland; 2Getúlio Vargas Foundation (FGV-SP)

This paper investigates the impacts of studying abroad by examining the effects of the Science Without Borders (Ciência sem Fronteiras - CSF) program in Brazil. The program was launched in 2011 to promote student and professional exchange in the STEM fields through a substantial increase in the supply of scholarships for Brazilians to carry out part of their undergraduate studies abroad. Our empirical strategy exploits variation in the approval rate across CSF selection calls for the same destination country and year to create an instrumental variable. We combine five public and private administrative records to track the post-universities outcomes of Brazilian university candidates. The main results suggest that the program had a negative impact on post-graduation enrollment, no impact on having a formal job and wages, and no impact on being a firm partner.

Oliveira-Do Studying Abroad Programs Work Evidence From a Large Scholarship Program-393.pdf


Social Interactions of International Students and their Role for Academic Progress

Fabian Koenings1, Julia Peter1, Silke Uebelmesser1,2

1Friedrich Schiller University Jena, Germany; 2CESifo

International students are an important factor for the German labour market to overcome demographic change and skilled-labour shortage. However, their dropout rates are high. This study investigates the impact of social interactions on the academic progress of international students. We capture social interactions in three areas: work, leisure and living situation. We argue that the effect of social interactions is twofold. They give students access to information which help them with their academic progress. At the same time, too many interactions may distract students from studying (Tinto 1975). Using data on 671 international students in Eastern Germany, our estimations show that social interactions in too many areas are negatively associated with academic progress. The results indicate that, in particular, non-European students, bachelor students and students at the beginning of their studies benefit from more social interactions, while the distraction aspect dominates for other groups.

Koenings-Social Interactions of International Students and their Role-522.pdf


Immigrant Peers and Foreign Language Acquisition

Jon Marius Iversen1, Colin Green2

1Ntnu Social Research, Norway; 2NTNU

There has been a large degree of focus on whether immigrant children generate negative spillovers on native students’ educational attainment. However, exposure to immigrant peers has the potential for a wider range of effects. This paper examines effects on foreign language acquisition focusing on Norway. In Norway all students are taught, and are assessed, in English from an early age. We demonstrate that exposure to native English-speaking peers increase Norwegian students’ English language skills. These effects are solely present for English language skills and provide evidence of positive spillovers from immigrant diversity in schools that is missing from the existing literature. Our results have implications for the social effects of immigration and implications for how foreign languages are taught in schools.

Iversen-Immigrant Peers and Foreign Language Acquisition-325.pdf
 
2:00pm - 4:00pmG12: Demography II
Location: Room K 224 B
 

Cross-country Differences in the Long-run Economic Impacts of Increased Fertility

Thomas Davoine

University of Applied Sciences Western Switzerland (EHL, HES-SO), Switzerland

Higher fertility slowly increases the workers-to-retirees ratio over the long run, which can ease the pension financing challenge brought about by population aging. It may or may not increase production per capita. Existing simulation studies all find a positive impact on public finances over the long run. They however differ on the impact on output per capita. Whether differences are due to model designs or country characteristics is unknown. Using the same model for a sample of 14 European countries, I find that the long-run pension deficits are reduced 27% on average, if one woman out of five had one more child in her lifetime. Variations across countries are small. On the other hand, I find that output per capita increases in all countries from my sample, with one exception. Differences in population structures, age-productivity profiles and pension systems can explain the exception.

Davoine-Cross-country Differences in the Long-run Economic Impacts-136.pdf


Migration: Impact On Taxes And Social Benefits In The EU

Carlo Fiorio, Tommaso Frattini, Andrea Riganti, Michael Christl

JRC Seville, Spain

We provide novel and comprehensive evidence on the net fiscal contributions of natives and migrants to governmental budgets of EU countries. We account for income taxes and cash benefits, alongside with indirect taxes and in-kind benefits, that are often missing in standard data sets. We find that on average migrants are net contributors to public finance over the period of 2014-2018 in the EU-14, and moreover they contribute about 1500 euro per year per capita more than natives. We also show that this difference is partly due to selection on characteristics that make migrants net fiscal contributors, such as demographic factors and employment probability.

Fiorio-Migration-416.pdf


Overcoming Budget Constraints And Migrating Out Of Rural And Distressed America

Jacob Bastian, Dan Black

Rutgers University-New Brunswick, United States of America

There is a strong and growing interest in helping families move to areas with higher economic opportunity. We exploit variation in the Earned Income Tax Credit (EITC) to examine how relaxing budget constraints affects migration, with a focus on women from rural and economically distressed areas. We find that relaxing budget constraints increases migration out of rural and distressed areas, to areas with higher labor force participation and lower unemployment rates. Many of these moves occur across counties or commuting zones, but we find no effect on moving across states. We also find decreases in living "doubled up" with another family, and reductions in commute length. We are the first to show that the EITC relaxes budget constraints and helps women move to economic opportunity.

Bastian-Overcoming Budget Constraints And Migrating Out Of Rural And Distressed America-405.pdf


It Takes Two to Borrow: The Effects of the Equal Credit Opportunity Act on Housing, Credit and Labor Market Decisions of Married Couples

Alina Kristin Bartscher

Danmarks Nationalbank, Denmark

Until the 1970s, U.S. mortgage lenders commonly discounted half of the wife's income in couples' joint mortgage applications. This changed with the introduction of antidiscrimination legislation in the 1970s, providing a natural experiment to study the relaxation of income-related borrowing constraints. I study the effects of the reform by estimating difference-in-differences regressions and solving a simple calibrated life cycle model. I find substantial positive effects of the reform on mortgage borrowing and homeownership rates of married couples with working wives. Moreover, I find a positive effect on married women’s labor force participation, which strongly amplifies the homeownership and borrowing effects.

Bartscher-It Takes Two to Borrow-207.pdf
 
2:00pm - 4:00pmG13: Public Finance and Emerging Economies III
Location: Room K 009 D
 

Minimum Wage Regulation And The Impact On Small Brazilian Firms

Silvia Quiota1, Enlinson Mattos2, Veronica Orellano3

1FGV Fundacao Getulio Vargas, Sao Paulo School of Economics Brazil; 2FGV Fundacao Getulio Vargas, Sao Paulo School of Economics Brazil; 3FGV Fundacao Getulio Vargas, Sao Paulo School of Economics Brazil

This paper explores bunching estimation (Saez, 2010; Chetty et al, 2011; Kleven, 2016) to investigate small Brazilian firms’ wage responses to the mandated wage floor. First, we consider two datasets encompassing formal and informal firms in 2003. Our findings suggests that firms in both markets bunch at the minimum wage with a larger response for the formal firms. While up to 14% of the small formal firms adjust their reported wages, close to 4% of our sample of informal firms do respond to minimum wage policies. Using only formal firms for the years from 2004 to 2018, we find the presence of bunching at the threshold of the minimum wage. Our results show that a 1% increase in the fines imposed on firms that do not comply with minimum wage leads to an estimated adjustment of up to 2.7% for these small firms.

Quiota-Minimum Wage Regulation And The Impact On Small Brazilian Firms-198.pdf


Employment Income Tax in Africa: Findings From A New Dataset

Kyle McNabb, Hazel Granger

ODI, UK

This paper introduces the first set of findings from the TaxDev Employment Income Taxes Dataset (EITD), a new publicly available resource that comprises detailed information of income taxes and social security contributions owed by employees on wage earnings in Africa, over the period 1995–2020. We begin by discussing high-level trends in PIT structure, before analysing reform episodes, effective tax rates for individuals and progressivity. We find that reform of employment income taxes (EIT) is infrequent, effective tax rates differ greatly across countries and that the taxes are, on average, progressive, although less so at higher levels of income. We also find that EIT can kick in at a very low level of income; in one in four African countries, an individual would be liable to pay employment income taxes if their wage was less than or equal to the international poverty line of $1.90 a day

McNabb-Employment Income Tax in Africa-161.pdf
 
4:00pm - 4:30pmCoffee Break VI: Coffee Break
Location: Hall B and C, right outside HS 1
4:30pm - 5:30pmPlenary IV: Karthik Muralidharan, University of California San Diego/USA: "Building State Effectiveness: Lessons for and from India"
Location: Room HS 1
Session Chair: Dina Pomeranz, University of Zurich
5:30pm - 6:00pmClosing: Closing and Awards Ceremony (directly after Plenary IV)
Location: Room HS 1
6:30pm - 9:00pmSocial Program III: Conference Dinner (barbecue)
Location: Schloss Auhof

 
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