Some fringe candidates, previously dismissed, have seen unexpected surges in popularity. We explore this issue by focusing on the dynamic interplay between social norms and elections. We develop a two-period electoral competition model with a mainstream candidate and a fringe candidate. Because the fringe candidate claims an extreme view that contravenes social norms, voting for her is stigmatized. We show that a sufficient vote share of the fringe candidate in the first period signals wider acceptance of the extreme view, eroding established norms even if the fringe candidate loses in the election. This triggers the rise of the fringe candidate in the second period. To induce the erosion of the norm, the fringe candidate tries to differentiate from the mainstream candidate on standard issues, whereas the mainstream candidate imitates the fringe candidate. Furthermore, heightened social norms in the initial election might enhance the future success of the fringe candidate.

In this paper, we formulate a general equilibrium theory that explains the existence and stability of democratically elected governments that support certain groups of individuals in society (insiders) to the detriment of everybody else (outsiders), even if the latter constitute a majority. The vehicle is a dynamic general equilibrium model, where insiders get monopoly rents and outsiders get less than what they would have gotten under a common good regime. We construct such political economy equilibria and we identify the conditions under which such political regimes (coalitions of insiders): (a) can safeguard against opportunistic behavior (i.e., do not fall from within) and (b) may come to power in the first place (i.e., manage to get elected). To that end, we highlight the role of ideology or self-serving bias as a gluing device to garner an electable coalition.

We present a model that integrates electoral competition of majority-minority redistricting with legislative redistribution to optimize minority representation. Analyzing voter allocation's impact, we find that minorities with limited political power benefit from concentrated districts, while stronger minorities prefer dispersed voter distributions. Majority voters voting for minorities has two effects: it helps minorities gain offices, but it may increase majority voters' influence and policy benefits. Paradoxically, adding minorities to a district is non-monotonic and can result in representatives less favored by minorities. The interplay between redistricting, electoral competition, and policy distribution offers novel insights into equitable minority representation and public policy.

We construct a unifying model of optimal decentralized policymaking that includes multiple tax and spending policies with mobile workers, mobile residents, and mobile capital. Local governments are linked by commuting patterns, the cost of which is endogenously determined by congestion. Both industrial capital and residential property taxes cause fiscal externalities on other jurisdictions, but these externalties arise because of the movement of workers and households, not through the movement of capital. The city-suburb commuting relationships give rise to asymmetric policy choices of each jurisdiction. Employment-based taxes are valuable when jurisdictions are net recipients of commuters, while jurisdictions that are net providers of commuters will choose to rely on the use of residential-based taxes. Cities will rely on commercial capital taxes and employment income taxes, while suburbs will rely on residential property taxes and residential head taxes.

Status or income rank matters to most of us. Rank is not a fixed characteristic, however: we could be doing well relative to neighbors, for example, but much less so relative to others in our occupation. We might be big fish in some ponds, but smaller fish in others, which makes the choice of a pond a decision with important welfare consequences. In this paper, we report on the results of a large-scale field experiment that first elicited the beliefs of a representative sample of mid-career Finns about their income ranks in various reference distributions and, in one condition, allowed them to choose which rank would be revealed to them, after which we collected a range of welfare and preference measures. We characterize the choice of reference population and its implications for individual well-being. Last, we compare the effects to cases where the reference population is assigned at random.

Surveys and experiments suggest that people hold workers more responsible for wage gains stemming from factors indicative of merit, such as education, than other factors. This paper shows how to design redistributive income taxes that account for workers’ merits. First, we introduce meritocratic social welfare functions that accommodate individual preferences and hold workers responsible for the part of their wage stemming from merit. Second, we show how to map primitives of these social welfare functions into empirically measurable statistics and exploit long-run comprehensive Norwegian income and family relations data to examine the relationship between merit and wages. Third, we simulate linear and non-linear optimal income tax implications of the meritocratic social welfare functions, given our measurement of the role of merits. The result shows that accounting for merit leads to lower optimal marginal income tax rates than the utilitarian criterion recommends.

The present paper analyzes optimal redistributive income taxation in a Mirrleesian framework extended with other-regarding preferences at the individual level. We start by developing a general model where the other-regarding preference component of the utility functions is formulated to encompass almost any form of preferences for other people’s disposable income, and then continue with four prominent special cases. Two of these reflect self-centered inequality aversion, based on Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), whereas the other two reflect non-self-centered inequality aversion, where people have preferences for a low Gini coefficient and a high minimum income level in society, respectively. We find that other-regarding preferences may substantially increase the marginal tax rates, including the top rates, and that different types of other-regarding preferences have very different implications for optimal taxation.

This paper studies the consequences of charitable giving for both the optimal tax system and the optimal provision of public goods. In a setting where heterogeneous individuals can give to a variety of charitable causes, I first characterize the optimal grants that the government should allocate to different charities. I show that the desirability of such grants depends on the relative strength of warm glow compared to the cost of fundraising. Generally, preferences for public goods are not relevant for determining the necessity of grants. However, I provide a new Samuelson rule describing how warm glow, fundraising costs, and public good preferences collectively affect the optimal level of public goods. Second I derive new optimal nonlinear tax formulas for both income and donation that are robust to a wide set of microfoundations for both labor supply, public good preferences and donation behavior.

We identify the territories in Africa affected by subnational border reforms during 1992-2013 with GIS methods. Using this data, we first show that border reforms correlate with several local political and geographic variables (e. g., ethnic heterogeneity, conflicts, distance to capital). Secondly, we study the local effects of subnational border reforms. Difference-in-differences regressions at the grid-level with luminosity as outcome variable suggest insignificant effects for most countries. Political implications, as proxied by the incidence of conflicts, are also small and heterogeneous. In contrast, indicators of pub- lic goods provision (education, electrification, health) suggest significantly positive effects in several countries. Overall, border reforms appear to be more consequential for public goods delivery than for local economic development or political stability.

This research aims to examine the impact of the institutional factors and tax revenue on firm performance in 63 provinces and cities in Vietnam. The authors select data of the period 2015-2021 and run the regression model using GMM with the population and public investment in localities as instrument variables. The results show positive effects of Provincial Competitiveness Index (PCI), Provincial Information and Communication Technologies (ICT) Index, labor productivity, and tax revenue on firmperformance, while there is a negative impact of firm investment on performance. There exists a negative interaction effect of PCI and labor productivity on firm performance, which might be due to the lack of policies from the local governmental bodies aiming to enhance the knowledge and skills of the labor force. These results suggest both governmental policymakers and business managers have proper strategies to boost the firm performance in the next period.

We compute government spending efficiency scores via data envelopment analysis. Second, relying on panel data and impulse response approaches, we estimate the effect of decentralization on public sector efficiency and how extreme natural disasters mediate this relationship. The sample covers 36 OECD countries between 2006 and 2019. Our results show that tax revenue decentralization decreases public sector efficiency, while spending decentralization and a regional authority index are positively related to public sector efficiency, both for local projections and panel analysis. For instance, efficiency rises by 10 percent following a spending decentralization shock (reaching over 20 percent after 4 years). Nevertheless, in cases of natural disasters, spending decentralization reduces public sector efficiency. Moreover, extreme natural disasters also deteriorate the negative effect of tax revenue decentralization on public sector efficiency. These results suggest that sub-national discretionary spending and tax revenue responses might be less fruitful when such extreme events occur.

To what extent do economic forecasts for a single country affect expectations at the global level? Designing a large-scale survey experiment among economic experts from over 120 countries, I identify the effect of an information shock about the recession probability in the United States of America on expectations of non-US experts. The results show a large positive effect on the reported recession probability in the host countries of the experts. This has relevant policy implications, as I can show that experts who expect a higher recession probability, are more supportive of increasing global trade integration. This effect is driven by the European Experts, whose host countries have strong trade ties with the United States and potentially seek to diversify those to reduce risk from spillovers.

This paper extends the Mirrleesian non-linear income taxation model, of the modern form as expressed by Diamond (1997) and Saez (2001), to the case where people also care about their ordinal income rank in society. It is concluded that preferences for rank induce externalities that tend to increase the optimal marginal tax rate, and that these effects may be substantial. This is despite the fact that the ordinal income rank is unaffected in the model for all individuals who work, implying that the modified taxes due to rank positionality are not due to governmental incentives to change the ordinal rank. While this is the first Mirrleesian model with concerns for rank, the results are in contrast to some related earlier results.

We establish foundational results in dynamic consumption taxation. Network goods such as cellphones are an increasingly important part of the economy and require a different fiscal approach than non-network goods. Their consumption profile is dynamic, an aspect under-studied by the existing literature. Due to network effects, market growth today can increase willingness-to-pay tomorrow. This intertemporal externality changes the optimal tax rate through time. Optimality may require subsidization in early periods when demand is low followed by high subsequent taxes. These results also generalize to a wider class of goods with subtle network effects, including indoor dining during a pandemic.

This paper develops a comprehensive framework for analyzing the revenue, efficiency and social welfare implications of taxing top incomes. It generalizes the Saez (2001) formula for the optimal top tax rate by deriving analytical expressions for the Laffer curve and the excess burden. Applied to the 2021 U.S. top federal tax bracket, assuming a taxable income elasticity of 0.25, the study finds an excess burden of $101 billion and a maximum potential revenue increase of $111 billion. In contrast, other English-speaking countries and Germany are positioned closer to their Laffer curve peaks, whereas the Nordic countries studied are on the downward-sloping part of the Laffer curve. Additionally, the paper endogenizes the marginal social welfare weight on high-income earners and, following an inverse optimal taxation approach, concludes that in none of the studied countries does the observed top marginal tax rate appear consistent with a conventional welfarist social welfare function.

Measuring the welfare consequences of tax change is critical for policy evaluation. Tax schemes are progressive and piecewise functions, and agents decide on different occupations with different evasion facilities. This paper studies the measure of welfare effects of tax change incorporating those elements. We model an economy with those elements, where self-employed bunch at the income bracket threshold and declare less income to face a smaller marginal tax rate than they owe. Later, we characterize the welfare effect of tax change. This characterization depends on evasion, occupational decisions, and frictions based on the tax system. Those elements produce a divergence with the use of the elasticity of taxable income or total earned income. Also, we propose a metric to estimate the marginal change in welfare based on a trapezoid. Lastly, we estimate the measure using a tax reform in Chile, showing the relevance of incorporating occupational decisions and tax evasion.

This paper presents a conceptual framework for a satellite account for the measurement of the size and structure of tax evasion and avoidance and its impact on public finance. It represents a first attempt at the creation of a unifying reporting framework for all kinds of fragmented evidence on tax evasion and avoidance, departing from the adjustments made to GDP estimates in order to account for the non-observed economy, which is distinct from the undeclared economy. The paper defines the scope of the satellite account, framing the discussion within a broad definition of fraud considering the impact on both sides of the public budget, and anticipates some conceptual differences. Finally, it reviews different strands of literature in order to provide a classification of fraud phenomena, provides an outline of the tables to be compiled and indicates some of the data sources available at the international level.

We develop a dynamical model that includes not only corporate tax revenue losses due to profit shifting of multinationals, but also tax revenue collected from capital gains and dividend taxes, as well as government borrowing costs. We use country-by-country reporting data on the operations of multinationals to estimate profit shifting, alternative operationalizations of the location of investors to proxy the tax revenues from capital gains and dividend taxes, and yields on government bonds to measure the cost of borrowing. Our results show that when these indirect costs are included, the total cost of profit shifting for developing countries increases significantly, while some developed countries can offset or recover the majority of the direct costs of profit shifting. The ability of the latter to do this is, however, uneven, with, for example, most European countries losing revenues from profit shifting even after indirect effects are taken into account.

This paper investigates the association between the effectiveness of mutual agreement procedures provided for in bilateral tax treaties (MAP) and foreign direct investments by analyzing MAP statistics and distinct MAP components. Using firm-level ownership data, we find that MNEs invest more frequently in countries with good MAP policy structures and qualities (e.g., MAP components and fast dispute resolution). Vertically integrated MNEs and small parent MNEs most favor countries with several effective MAP components. Overall, we provide novel evidence on MNEs’ investment responses to effective MAP, evidence that is crucial for policymakers who aim to reduce tax disputes and double taxation.

In a continuous-time setting, we study the taxation of a state-sponsored monopolist, granted with the right to use a government-owned facility, when there is asymmetric information of demand parameters hit by imperfectly correlated shocks. We show that optimal taxation requires an appropriate combination of fixed and time-adjusted payments from actual sales. We then analyse how the optimal combination of fixed and variable transfers is impacted by the private revenue potential, by the expected variability of demand and by the importance assigned to tax receipts relative to other welfare concerns.

Do elections constrain incumbent politicians’ policy choices? To answer this longstanding question, this paper proposes a novel identification strategy to separate electoral incentives from selection effects. Taking advantage of the unique setup of lame-duck sessions in the U.S. Congress, where lame-duck incumbents who lost re-election vote on the same issues as their re-elected colleagues, I use a close election regression discontinuity design to exploit quasi-random assignment of re-election seeking representatives to lame-duck status. Comparing within-incumbent changes in roll call voting of barely unseated lame ducks to narrowly re-elected co-partisans serving the same congressional term, I find that lame ducks revert to more extreme positions with lame-duck Democrats (Republicans) voting more liberally (conservatively). Consistent with lame ducks’ loss of re-election incentives driving the result, the effect of lame-duck status on roll call extremism is more pronounced among ex-ante more vulnerable legislators.

We examine the influence of lobbying through meetings, a novel measure of such activity, between members of the European Parliament (MEPs) and interest groups during legislative procedures in Europe. Using the Transparency Register, we use data reported by MEPs on meetings and amendments written during the legislative procedure for a set of regulations to investigate whether a meeting at t-1 influences the writing of the law by the legislator. Using a pre-trained Large Language Model (LLM) as a novel method to quantify change in amendments, preliminary results suggest the writing of a share of amendments in the Digital Services Act (DSA) tends to benefit gatekeepers - defined as a firm with monopolistic behavior - and undermines consumers and other online platforms when written by rapporteurs, although it is not clear if this legal preference is caused by meetings with representatives of gatekeepers.

By employing a unique prison-specific administrative dataset encompassing the universe of 187 Italian public prisons, we analyze the determinants of the prison riot wave of March 2020 at the start of the COVID-19 pandemic. Probit estimates reveal that prison size and the extent of overcrowding positively correlate with the likelihood of riots. In contrast, a criminality index shows a negative impact on riots. Proxies for the effectiveness of prison management, composition of prison population, and level of internal violence exhibit no significant association with riots. Data support emulation effects: the likelihood of riots occurring in a given prison positively correlates with riots in nearby geographical areas. This study highlights the role of prison conditions, notably overcrowding, in the 2020 prison riot surge. We find no evidence supporting the Italian parliamentary Anti-Mafia Commission of Inquiry’s hypothesis that COVID-19-related prison riots were the result of a conspiracy orchestrated by Italian organized crime.

Illicit financial flows, including aid diversion, remain a critical challenge for developing countries, draining vital resources and impeding sustainable development. With a considerable number of aid-receiving nations facing high corruption levels, concerns arise about the aid reaching its intended destination. In this paper, we study the impact of enhanced financial transparency on aid diversion induced by global efforts advocating for greater transparency in the financial system of tax havens since 2009. We examine the relationship between changes in foreign bank deposits linked to aid disbursements in aid-dependent countries. Our results indicate that the global push to end bank secrecy positively influenced the diminishing effect of aid capture, particularly after 2008, coinciding with the initial release of customer information from tax havens. The findings have significant implications for the allocation of foreign aid, especially in aid-dependent countries involved in offshore leaks and with high degree of corruption.

We analyze the impact of public disclosure of politicians' outside income on their income, following the implementation of disclosure regulations for German federal MPs. We use administrative tax return data and a difference-in-differences design with unaffected state MPs serving as the control group. We show that MPs increased their outside income once this information became publicly available. Using a proxy for party membership, we find evidence that right-wing MPs drive the effect. To explain this finding, we conducted a survey experiment among German voters, which revealed that the interpretation of moderate outside income varies along party lines. Specifically, right-wing voters perceive outside income as a sign of competence, whereas left-wing voters believe that such politicians are less likely to represent their constituents effectively.

Non-profit entities that meet certain earnings and asset thresholds are required to publicly disclose the compensation of certain employees whose taxable earnings exceed $100,000. We use empirical bunching techniques and administrative data to estimate the behavioral response of taxpayers to this transparency threshold. We bound the willingness to pay to avoid salary transparency between $173 and $3,695 of pre-tax earnings. These results suggest that taxpayers and firms are likely to value salary confidentiality.

This paper studies the effect of leaks of confidential offshore documents on the value of the implicated firms. Using the International Consortium of Investigative Journalists’ Offshore Leak Database, I identify 206 publicly traded firms connected to the implicated offshore firms. I use propensity score matching to identify similar non-implicated companies and assess the leaks’ impact on the stock prices of both groups using an event study methodology. I find that implicated firms have 1.5% lower cumulative abnormal returns during the event window compared to similar non-implicated firms. I estimate that the implicated firms lost an average of USD 105 million in stock market value following the leaks.