Public procurement contracts are necessarily incomplete and require frequent ex-post renegotiation. In this paper, we first develop a stylized theoretical model of the effects of renegotiation policies on firms' bidding strategies and, consequently, on the winning bids and final prices of contracts. To empirically test the model's predictions, we then use a policy reform in the Czech Republic that implemented an EU Directive into Czech law, which eased the rules for renegotiation. Our findings show that (i) eased renegotiation rules lead to a decrease in the average winning bids; however, (ii) average final prices of contracts remain at the pre-reform level because the extra renegotiated price compensates for the drop in winning bids. While we do not find convincing evidence of a decrease in the productivity of the winning firms, we do provide suggestive evidence of a change in contract allocation towards firms with higher bargaining power.

This paper studies how the ratchet effect and managerial accountability affects the attainment non-binding performance targets within government. The U.S. federal government sets agency-specific goals for contract awards to small businesses. I find evidence of a ratchet effect, where small business utilization one year results in a higher goal the next. Under uncertainty, agencies may be conservative early in the year to avoid to unexpectedly high awards by year’s end, and I find evidence consistent with these within-year dynamics. Next, exploiting a 2013 increase in accountability for agency leaders in meeting small business goals, I examine how managerial incentives affect goal attainment. After this change, agencies accelerated small business awards when lagging behind their small business target. This acceleration is associated with a greater likelihood of adverse contract outcomes. Finally, I use an excess bunching design around sole-sourcing thresholds to demonstrate that the above patterns are intentional.

We explore the relationship between political donations and the allocation of public procurement contracts across multiple local elections in Colombia. By linking the universe of public contractors and the mandatory report of political donations by individuals and firms, our reduced form results demonstrate a long-term distortion in the contract allocation process attributable to political donations: Contractors who donate to political campaigns are more likely to be awarded contracts, often of greater value, exceeding budgetary limits. Donor contractors also tend to be less experienced individuals and riskier firms. Returns to donations remain even after losing direct political connections, suggesting that donations grant contractors extended access beyond immediate reciprocation. We conduct a Randomized Control Trial to study how new mayors respond to deterrence messages about contract scrutiny for their donors. Using this intervention, we estimate a structural model to rationalize the reduced form results and evaluate counterfactual policies.

This project scrutinizes the impact of public spending efficiency on aggregate firm productivity, with a specific focus on public procurement within the construction sector. We explore the different effects on a firm's productivity arising from two commonly employed awarding procedures: First Price Auction (FPA) and Average Bid Auction (ABA). While the FPA allocates the contract to the lowest bid, the ABA's method resembles a lottery in selecting the winner. FPA yields a threefold increase in turnover compared to ABA, with a particularly pronounced effect observed among smaller firms. Additionally, the study quantifies the aggregate loss in productivity within the Italian construction sector attributable to the introduction of ABA.

Few studies about value added tax (VAT) have examined business-to-business (B2B) transactions, and policymakers implicitly assume that VAT will be full-shifted. This paper investigates theoretically and empirically whether this is true. A system of input tax credit seems to allow firms to avoid the VAT burden. However, the determination of the transaction prices is left to the market, and taxation affects intermediate goods markets. We examine VAT pass-through in B2B transactions using the producer price indices in Japan. The October 2019 VAT increase in Japan covered almost all private goods and services, and prices in B2B transactions were subject to tax increases. We show that, despite the input tax credit, the tax is not fully shifted in B2B transactions. The degree of pass-through is more likely upstream of the transaction stage, whereas the pass-through is more difficult downstream closer to the taxpayer, the consumer.

We estimate the effect of a temporary and large (21 pp) VAT cut along with anti-profiteering measures on food necessities during a period of high inflation in Argentina. Using barcode-level data in over 3,000 supermarkets, we find that (1) absent the anti-profiteering measures, prices responded less to the VAT cut than its repeal resulting in prices that were higher than their pre-VAT cut levels; (2) imposing anti-profiteering measures resulted in symmetric pass-through rates. Using a household welfare model, we show that the VAT cut resulted in progressive welfare effects and that the anti-profiteering measures were successful at dampening the regressive welfare effects of the asymmetric pass-through. However, we show that these policies benefitted high-income households more because pass-through rates are more asymmetric in independent supermarkets, which is precisely where low-income households tend to shop the most.

We study the equity-efficiency trade-off of differentiated commodity taxation. When first introduced in 2017, India's General Sales Tax (GST) applied the highest tax rate of 28\% to many normal and luxury goods which were later reclassified to the 18\% tax bracket. We combine the sharp cuts in tax rates with administrative data at the firm-goods-month level, to estimate behavioral responses in a difference in difference design across goods. The 10p.p. tax cut led to a 5p.p. rise in sales and was mostly passed-through to consumers via lower prices. The sales of substitute goods hardly changed, even for multi-product firms selling both a treated good and a close substitute, suggesting a low re-labelling elasticity. These results challenge the common view that indirect commodity taxation is of limited use for redistribution: in countries where direct taxation is constrained, taxing luxury goods at higher rates might be desirable to achieve distributional goals while generating limited distortions.

The problem of tax incidence is of great importance for both the theory of taxation and the practice of shaping the relationship between taxpayers and the tax administration. Determining the extent of tax pass-through is important, for example, in the case of overstated or overpaid tax. In some countries, a prerequisite for refunding overpaid tax is to establish that the taxpayer has suffered a loss or damage from the undue tax and has not shifted the tax burden to its customers. The prevention of unjust enrichment of taxpayers follows directly from laws i.a. in Austria, France and the UK. The purpose of the article is to discuss how to understand tax pass-through and a loss or damage resulted from the payment of an undue tax and to determine how to calculate them so that the refund of overpaid tax to the taxpayer does not lead to unjust enrichment.

Are reforms towards individual taxation politically feasible? Are they desirable from a welfare perspective? We develop a novel method to answer such questions and apply it to the US federal income tax since the 1960s. Main findings are: As of today, Pareto-improvements require a move away from joint taxation. Revenue-neutral reforms towards individual taxation are not Pareto-improving, but attract majority-support. Such reforms are rejected by Rawlsian welfare measures and supported by ones with weights that are increasing in the secondary earner’s in-come share. Thus, there is a tension between the welfare of “the poor”and the welfare of “working women.”

Goldin (2014) highlights the role of hours flexibility across occupations as a source of gender wage inequality. We ask how the tax system, in terms of jointness and progressivity, affects occupational choice, work hours and wages across occupations, and the gender wage gap. The decision to work in a high-wage/high-hours occupation depends on the earnings gained from being in that occupation and the cost of having less leisure time. Taxation affects this trade-off in an ambiguous way. Calibrating the model to US data, we find that the impact of (1) introducing individual taxation and (2) removing tax progressivity via a flat tax on occupational choice is relatively small: the share of women working in long-hours occupation increases by at most 0.7pp. By contrast, endogenous wages play an essential role in amplifying the effects of tax reforms due to the positive impact of long work hours on wages.

This paper uses a permanent reduction of the "tampon tax"' in Germany to study the price and unit-sales effects of the tax. Exploiting an extensive data set on the sales and scanner prices of feminine hygiene products in Germany and Italy, our results show that the incidence of tampon taxes is fully on consumers, while demand for these products is price-inelastic. We do not find cross-price effects for a closely related product group, which remained taxed at the standard tax rate. We conclude that reducing taxes on feminine hygiene products could be an effective measure to address "period poverty"'.

While the correlation between working and voting is positive, I provide some of the first evidence that the causal relationship for individuals is negative. Instrumenting for working using EITC expansions and welfare reform, I find that working women are less likely to vote and become more politically conservative. Consistent with these effects, I find decreases in being registered to vote, civic participation, and political knowledge, and increased preferences for conservative government policies. Effects are driven by younger, White, lower-educated mothers, that did not have a working mother growing up, and are consistent across four data sources that span five decades. Overall, working leads to more votes for Republicans and less votes for Democrats. While recent decades have seen more and more women voting Democrat, even more women would have voted Democrat if not for decades of pro-work public policy targeting lower-income mothers.

This paper uses administrative data from all registered Thai firms to investigate the unintended consequences of size-dependent regulations in SME promotion policies. Focusing on Thailand’s 2011 introduction of a revenue cap for the SME tax incentive program, which mandates that firms must never exceed this threshold, we capitalize on this exogenous policy shift to assess its effects on firm’s growth. Our study shows a marked bunching of firms just below the cap. A difference-in-differences analysis indicates that, following the cap introduction, eligible firms under the threshold exhibit a significant decline in revenue growth compared to those just above it. This adverse effect is more pronounced among firms with lower pre-policy profitability. We further document substantial negative effects on investment and profitability. Our findings highlight the paradox within size-based SME policies: while intended to help smaller businesses, the measures might inadvertently suppress growth and deter investment.

This paper shows that bargaining over tax payments is an important feature of tax compliance and enforcement in lower income countries. Analyzing the universe of administrative tax filings from Zambia, we document sharp bunching in (i) dominated regions above tax schedule discontinuities and (ii) at round number tax payments (not necessarily round turnover). Additional evidence from our own survey suggests that discussing tax payments with tax officials before filing taxes is widespread, consistent with tax payments being the outcomes of bargaining. Such bargaining over taxes is consistent with fact (ii), as bargaining outcomes are often round numbers, and with fact (i), because tax schedule discontinuities restrict the set of feasible bargaining outcomes. In contrast, alternative cannot rationalize the bunching patterns and are inconsistent with additional experimental survey evidence. Finally, we generalize the conventional Allingham Sandmo (1972) model and show that bargaining leads to pareto-improvements if state capacity is sufficiently low.

Promoting growth of small firms is an important policy concern. However, size-based policies can incentivize firms to remain below a threshold. Using the context of an Indian revenue-based tax registration threshold that affected only manufacturing firms but not services firms, coupled with administrative tax data, we examine how firm growth responds to the threshold. We find that firms respond by slowing down growth in reported revenue from far below the threshold. Our difference-in-difference estimates suggest this slowdown to be around 14 percentage points or roughly 42% of average growth. A lack of corresponding change in reported costs, along with heterogeneity analysis suggests an evasion response rather than a real response by firms. We modify the standard Allingham-Sandmo model of evasion to calculate deadweight loss due to a threshold in a dynamic setting and find that the welfare cost of a threshold can be substantial in the long run.

Turnover is a key indicator of economic activity, but we know little about how much entrepreneurs adjust it as a response to taxation. This paper exploits the notch created by the eligibility cut-off of the preferential turnover tax regime for solo self-employed in Italy to study turnover responses to taxation. I find substantial and significant bunching below the turnover threshold of the regime. Professionals, business intermediaries and retailers have the largest observed responses. I estimate the turnover tax elasticity in these three sectors by focusing on the marginal buncher. To do so, I build on Kleven and Waseem (2013) to develop a theoretical framework that fits the institutional set-up and rationalises the observed responses to it. Professionals have the largest turnover elasticity (0.066). Difference in compliance costs across regimes explains less than half of the observed responses, therefore highlighting the key role of low taxation for the observed bunching behaviour.

We analyse whether there exists a first mover and/or a second mover (dis)advantage in a game where a more industrialized country -the leader- and a less industrialized country the follower- decide on two policy instruments (prot taxation and environmental regulation) to raise their tax income while limiting the damage from pollution. We show that when governments care about world emissions, they can use a sequential game to reach their national goals and reduce the level of world emissions, even if industrial leakage occurs. This is no longer the case when emissions are considered solely as local.

This article explores whether altruistic preferences for households in poor countries contributes to avoid the free-rider problem associated with global warming policies within non-cooperative solutions. The article analyzes optimized carbon taxes on commodities within rich countries with altruistic preferences when damage inflicted upon poor countries are accompanied with foreign aid. The article contributes to the literature by identifying two cases where the second-best optimized carbon tax for rich polluting countries exceeds the marginal damage inflicted on poor countries. First, when rich countries place a higher welfare weight on environmental damage than on economic well-being within poor countries. Second, when second-best optimal revenue raising taxes are combined with foreign aid. The article also identifies cases where the Pigouvian tax implements the social planner solution. Hence, altruistic preferences and foreign aid contributes to avoid the free-rider problem.

We study the impact of the COVID-19 pandemic on formal sector employment in Uganda. Utilizing employee-level administrative tax data from the Uganda Revenue Authority, we describe the dynamics of employment as the pandemic evolved, seeking to better understand the various coping strategies undertaken by firms in the face of reduced sales and business activity. We find that over 10% of formally employed workers fully lost their incomes in the immediate aftermath of the onset of the pandemic. Of those remaining employed, ~14% saw their salaries fall in the short term and by March 2021 over 9% were still earning less than pre-pandemic. We match these pay-as-you-earn records with firms’ income tax returns to better understand how firm characteristics affected the likelihood that different coping strategies were undertaken. Larger and more profitable firms pre-pandemic were more likely to retain their workforce and less likely to cut employee salaries.

This paper examines the labour market impacts of Finland’s initial COVID-19 subsidy program, designed to mitigate the economic fallout of the pandemic. Utilising a novel and comprehensive dataset and a judge-leniency instrumental variables design, we analyse the effects of these subsidies at both the firm and worker levels. Our findings reveal nuanced effects: the program increased the wage sum in the treated firms and decreased the risk of unemployment. On the other hand, the subsidies reduced labour productivity in treated firms, potentially hindering creative destruction. At the worker level, subsidised employees fared better in subsequent years than workers in non-subsidised firms, with slight increases in annual salaries and a higher likelihood of being employed. However, these workers were more likely to be employed in lower-productivity firms. This paper contributes to our understanding of the implications of fiscal interventions during crises and provides critical insights for shaping future economic policies.

We estimate the effects of a large targeted income support for the self employed during the COVID-19 pandemic in the Netherlands. We leverage administrative data on all self-employed with survey data on hours worked and tax records on revenue. Using dynamic differences-in-differences models and quarterly data for the period 2018-2021, we exploit differences in eligibility based on whether or not the self-employed had a partner before the pandemic. We find an intention-to-treat effect of -12% for hours worked and -7% for revenue, compared to pre-pandemic levels. Hence, our results suggest that the targeted program can have adverse effects on the work effort of the self-employed.

The paper discusses the economic impacts of the COVID-19 pandemic in the EU, focusing on monetary compensation schemes aimed at preserving household income in 2021 and comparing them with 2020. It examines how these schemes absorbed income shock for employees and the self-employed. Utilizing microsimulation techniques and EUROMOD, it simulates labor market conditions and assesses the role of compensation schemes in stabilizing incomes, reducing inequality, and alleviating poverty across EU Member States. Compared to 2020, we find a decrease in the cushioning effect of monetary compensation schemes and an increased role of unemployment benefits. The overall stabilizing effect at the EU level was progressive, cushioning the shock for lower-income households more than for richer households. Without schemes, income inequality and poverty would have been higher, but their effect was relatively small overall due to limited usage in 2021 compared to 2020.

This paper conducts an incidence analysis of the value-added tax (VAT) in high-informality countries. While consumption taxes have traditionally been considered regressive, recent research suggests they might be progressive under specific assumptions regarding pass-through of taxes to prices and household shopping behavior. We use high-frequency price data from partially informal markets in Peru and a temporary VAT exemption to calculate pass-through in the informal sector, and household survey data to analyze consumption patterns across the income distribution. Results show pass-through in informal markets varies by product (from 0% to 100%), and that households in the bottom 10% of the income distribution spend about 34 percentage points more on informal markets than the top 10%. We use these findings to recalculate VAT incidence in high-informality countries and develop a model to explain this.

While distributional tax incidence has been frequently studied in the literature, little is known about how the rents of evasion are split between consumers and producers. While some theoretical general-equilibrium models would predict factor prices adjust so that firm owners do not benefit from evasion in equilibrium, we have very limited empirical evidence, which so far has only been based on online surveys or imperfect natural experiments. This project aims to quantify the incidence of evasion by conducting an innovative, face-to-face, survey-based field experiment in Italy. Thanks to a randomized treatment design, we elicit average price differentials by the method of payment in order to back out what portion of evaded taxes are passed on to consumers.

In this paper, we study the effect of cross-border tax differentials on fuel tax pass-through and sales responses. Using regional variations in diesel taxes and a comprehensive dataset of diesel prices for all petrol stations in Spain, we find that diesel tax pass-through is asymmetric depending on the sign of tax differentials relative to cross-border competitors. Our estimates reveal that petrol stations on the high-tax side of borders only shift 56% of fuel taxes into prices, while those on the low-tax side exhibit a pass-through of 120% of fuel taxes. In line with spatial pass-through responses, we find substantial spatial fuel tax avoidance responses to cross-border tax differentials. Our findings suggest that spatial fuel tax differentials play a significant role on the geographical distribution of the burden of fuel taxes and contribute to substantial fuel tax avoidance behavior, which may pose challenges to the effectiveness of fuel taxation to reduce CO2 emissions.

This paper explores how optimization frictions in supplier price-setting affect tax incidence. We use a natural experiment that varied the effective hotel tax rate in certain cities at different times to document heterogeneity in tax pass-through using multiple proxies for price-setting acumen. Pass-through is lowest for sophisticated hosts whose prices before the policy closely follow local hotels. In contrast, less sophisticated hosts are much less likely to adjust their pre-tax price, passing the entire tax burden onto consumers. Further investigation suggests that the behavior of these hosts can be delineated into inattention (failure to change price) or lack of skill in price setting which have distinct consequences for demand. Finally, we find that this policy affected market composition, with net entry skewing toward more sophisticated hosts after the policy. We develop a model for welfare analysis which incorporates supplier salience and other price setting optimization failures.