While tax avoidance has been identified as the primary behavioral response to inheritance and gift taxation, relatively few is known about the potentially negative externalities of inheritance and gift tax avoidance on production, employment and output of firms being transferred from one generation to the next. In this paper, we study the effect of business gift tax avoidance on firm growth and employment in Germany. Since 2009, the German inheritance and gift tax law creates an incentive to downsize before a firm transfer. We estimate excess separations before ownership transfer of family firms to quantify the efficiency cost of inheritance and gift tax avoidance in Germany, where family firms represent the backbone of the economy. We find that affected firms cut 5 to 20% of firm size before firm transfer.

Wealth transfer taxes are important instruments to counter increasing wealth inequality. Yet, inter-generational business transfers, whose distribution is particularly concentrated at the top, are inherently difficult to tax. This is due to preferential tax treatments in many countries and sophisticated tax avoidance strategies by business owners. We analyze how business transfers react to anticipated changes in such preferential tax treatment using German administrative gift tax return data. We find strong timing responses of business transfers to expected tax changes, particularly for large transfers of business wealth. We further estimate that the amount of foregone gift tax revenue due to timing responses is up to 2.8 times the size of actual annual inheritance and gift tax revenue.

This paper studies tax-minimizing behavior of wealthy individuals. Drawing on the universe of inheritance tax returns filed in Catalonia, I study tax-minimizing strategies to an increase in effective tax rates faced by heirs at the top 5% of the inheritance distribution. To identify causal effects, I use a difference-in-difference design comparing wealthy descendants to spouse inheritors who were barely affected by the policy change. After the tax reform, wealthy descendants inherit a higher fraction of tax-favored assets and report lower taxable inheritances. This shift in the asset composition of inheritances is explained by a sharp increase in the proportion of wealthy descendants inheriting equity shares in family business. Wealthy testators seem to create family business to relabel financial and real estate wealth into business assets. The change in the asset composition of inheritances accounts for 52% of the forgone tax revenue associated to the behavioral responses elicited by the reform

Empirical research has established that privately held firms are used to respond to various tax margins. A separate strand has shown that income given or passed on to children responds to gift and inheritance taxation. This paper shows new evidence that privately held firms are additionally used to provide income to underage children, creating considerable inequalities among children. We show that individuals who own firms and are located in the top 0.1% of the income distribution, are seven times more likely to have underage children as co-owners in their firm, compared to the bottom 90%. The mean age of these children is 12 years, and ownership occurs at all ages between 0-17. Underage children who own firms earn such high incomes that would allow them to accumulate wealth to place them near the median wealth of middle-aged single adults.

We examine preferences for gender diversity in high-profile jobs, using stated-choice experiments with more than 9,000 highly educated individuals in Germany. Across three distinct samples covering university students, Ph.D. students, and university professors, we uncover a substantial willingness-to-pay for gender diversity at the workplace of up to 5% of earnings on average. Women have a much higher willingness-to-pay for gender diversity compared to men across all samples. Our findings carry insights for why organizations with a high share of men in top positions may find it difficult to attract and retain top-talent women.

This paper provides the first time series of the gender pay ratio for full-time employees in Germany since the 1870s and compares Germany’s path with the Swedish and U.S. cases. The industrialization period yielded slow advances due to women’s delayed inclusion in industrial work. The first half of the 20th century exhibited a marked leap. In Germany, the gender pay ratio increased from 47% in 1913 to 58% in 1937. Similar increases are visible in Sweden and the United States. In all three countries, the interplay between increased women’s education and increased returns to education due to the expanding white-collar sector fueled pay convergence. Yet in Germany, women’s educational catch-up was slowed due to the dominance of on-the-job vocational training. German women’s migration from low-paid to higher-paid jobs was predominantly increasing the pay ratio. The postwar period brought diverging developments due to different economic conditions and policy action.

Against the backdrop of persisting wage inequality between men and women in Western societies, we investigate what people believe about wages. Using a factorial vignette design, we explore two aspects: "What are people's beliefs about the gender wage gap?" i.e., perceptions of gendered pay, and "Do women and men have different beliefs about wages," i.e., gendered perceptions of pay.

Preliminary results on HR managers reveal interesting patterns. First, HR managers expect a gender wage gap of around 7%, aligning with Germany's adjusted gender gap. Furthermore, respondents believe that female workers have lower returns to high work performance than men, as well as lower returns to certain occupations.

Second, we show that female and male respondents have different beliefs about wages. Female HR managers expect lower wages overall, and gender differences emerge in expected returns on professional decisions, like part-time work or self-employment.

Young women in the workforce are more likely to experience a loss of earnings than young men, and this is often attributed to their decision to have children and take care of them. To better understand this gender gap, we analyse longitudinal tax data from Australia. Contrary to popular belief, having children explains at most 40 percent of the gap. Many women who experience a loss in earnings have not given birth to a new child. Instead, economic factors such as earnings level contribute to more than 50 percent of the gender gap. Moreover, low-earning women are especially vulnerable to earnings shocks. In a simulation exercise, we found that if men had the same impact of having children as women do, they would experience earnings loss twice as often.

This paper provides novel evidence on the relationship between corporate taxation and firm productivity measured by total factor productivity (TFP). Existing theoretical literature suggests several channels through which taxes can affect firm productivity. Nevertheless, empirical evidence is scarce. We investigate the relationship between corporate taxation and firm productivity - overall and across the distribution of firm productivity. We also analyze how different tax system characteristics affect the development of a firm’s productivity over time. Our findings suggest that a higher tax burden may drive the least productive firms out of the market and may decrease the probability of a firm moving up the productivity distribution over time.

We analyze the role of financing frictions for investment in R&D and innovation by building and estimating a structural investment model for privately-held, R&D-intensive companies -- a group for which reliable estimates of financing frictions have not been available in earlier papers. We use confidential administrative data from the UK to study the effect of a special policy that aims to address financing frictions and stimulate innovation. Profitable firms are offered tax super-deductions for R&D, while loss-makers are given a choice between taking a cash injection from the government immediately or when they become profitable in the future. We find that privately-held innovative firms face much higher costs of external finance than public firms and there are vast heterogeneities across different sub-groups of firms in their exposure and responses.

We develop a general equilibrium model to study how corporate tax avoidance affects firm policies and aggregate outcomes. Tax avoidance and investment are complementary inputs, leading the largest firms to engage in the most avoidance and face the lowest effective tax rates, consistent with the data. We find that tax avoidance significantly increases both the average firm size and concentration, disproportionately benefiting large firms. Tax avoidance also generates capital misallocation, lowering productive efficiency and welfare. We estimate the model to quantify the costs and benefits of tax avoidance and evaluate the equilibrium effects of changes to the statutory tax rate and costs of avoidance.

R&D tax subsidy schemes are prevalent policy tools to foster private sector R&D. Their key aim is to internalize positive knowledge externalities from private sector R&D. In this paper, we use rich accounting and patent data to establish that R&D tax incentives increase the private sector R&D of treated firms and induce knowledge flows to other entities in the economy. A significant fraction of these knowledge externalities, pertaining to around 50% of the overall knowledge spillover, is found to accrue at foreign firms. We offer a conceptual framework, which illustrates that our estimates imply that R&D tax subsidies decentrally set by national governments are inefficiently small from a global perspective, most likely by a significant margin. In additional analyses, we show that the identified positive cross-border knowledge externality outweighs negative cross-border effects related to the relocation of mobile R&D.

A growing literature in public and corporate finance emphasizes the role of intertemporal tax arbitrage for investment and firm activity, and several papers have documented salient anticipatory payout responses to pre-announced tax changes that were implemented as planned. We study an unusual event in the history of Swedish tax policy. An increase in the dividend tax on shares of closely held corporations, scheduled for January 1, 2018, was canceled at short notice. We examine how shareholders and firms reacted to the discontinued reform. Dividends accelerated in 2016 and 2017, but the impact of these financial operations on firm investment is unclear.

This paper uses administrative data to analyze the incidence effects of an employer-administered EITC program in Italy. In a setting that allows to disentangle the wage from the employment effects of EITCs, I find no effect on gross wages at the market level. I explore the role of firm-level mechanisms as determinants of tax incidence. The reform creates more or less exposed firms as a share of their pre-reform eligible workers. Earnings of eligible workers in more exposed firms decrease compared to comparable less exposed firms. Highly exposed firms capture up to 30% of the transfer. The effect is monotonic in the share of eligible workers. Both higher rent-seeking incentives or higher salience can explain the results. The results show significant heterogeneity in the incidence of tax credits across firms and highlight that firm-level channels in the transmission of incidence of wage subsidies are likely to be significant.

We investigate how income should be redistributed in economies where taxpayers supply multiple production factors which may be imperfect substitutes. The production sector may exhibit market imperfections and be specifically impacted by some "production policies" including the taxation of intermediate goods (e.g. taxing robots), public production, trade openness and competition policies.Deviation from production efficiency depends on whether or not the tax system can be reformed in some specific directions, that we label "GE-replicating", which replicate the effects on taxpayers' supplies and utility of factor price adjustments. If reforms in the GE-replicating directions are admissible, production policies should be designed solely to enhance production possibilities. Moreover, tax formula incidence and optimal tax formula are only modified to correct for market imperfections. We illustrate these insights with practical examples, including intermediary goods taxation, Cournot duopoly scenarios, changes in trade regulations, and taxing robots.

Understanding how the tax rate elasticity varies across the distribution is crucial for determining optimal taxes. In Mexico City, a 1% increase in the property tax liability is associated with a 7 times larger reduction in compliance amongst the wealthy than the poor. Unlike similar findings for the elasticity of taxable income, this is not because the rich are able to access certain evasion / avoidance technologies, such as transferring labour to capital income. The results are also not explained by differences in the strength of enforcement across the distribution, or because tax rates are higher at the top. In other words, it seems that the rich are ’fundamentally’ more sensitive to tax rates than the poor. Higher elasticities at the top of the distribution mean that the optimal tax structure will be less progressive.

This paper investigates how wealth taxation affects households' portfolio choices. Leveraging a major wealth tax reform introduced in France in 2017, I estimate the degree of substitution between real estate and financial wealth. To identify causal effects, I use comprehensive administrative-linked income and wealth microdata for France and a difference-in-differences design comparing French residents to non-French residents subject to the wealth tax but not affected by the policy change. Five years after the reform, the stock of real estate held by French taxpayers decreased by an average of 6% This decrease in real estate is driven by investment rather than owner-occupied housing and is mirrored by a surge in dividend income. The reduced-form estimates can be converted into a cross-elasticity of 5: a 1 percentage point increase in the tax rate differential between real estate and financial assets leads to a 5% reallocation of households' housing stock to financial assets.

In Uganda, the revenue authority launched a unit to monitor the tax affairs of the richest, both high net-worth individuals and very important people. We evaluate the impact of such policy on tax filing and payment outcomes of targeted taxpayers, with a standard difference-in-difference framework. We show that the policy has been only partially successful. While the unit increased the probability to file, especially of VIPs, it produced a strategic response by which taxpayers declare less on different margins, with no impacts on tax liability. On tax payments, only a small impact on tax collected is measured, again due to complex offsetting responses across tax heads. Importantly, we also measure the spillover effect on companies associated with the richest – documenting again complex compensating reactions and no meaningful impacts. Lastly, we show that, while deterrence is more effective on HNWIs, taxpayer assistance and public shaming are more relevant for VIPs.

Substance rules aim to ensure anti-tax avoidance rules do not target genuine economic activities. This paper empirically analyses whether the requirement to have economic substance leads to an increase in real investment in low-tax jurisdictions. The baseline results indicate that Controlled-Foreign-Company rules decrease investment in fixed assets and employment in low-tax jurisdictions. This effect is offset when the Controlled-Foreign-Company rule allows an exemption through substance rules. The results support the idea that multinational enterprises exploit leeway in CFC rules through increasing substance, which allows them to continue shifting profits. Additional analysis shows this effect is three times as large in EU tax havens, suggesting that it is more attractive to increase substance in tax havens that have real economic activity

While profit-shifting practices by multinational enterprises have received considerable attention in recent years for their impact on tax revenues, their real economic consequences remain poorly understood. In this paper, we use administrative data for the universe of Norwegian firms and workers to study employment responses to aggressive tax planning. We exploit variation in the timing of establishing corporate ownership presence in a tax haven to show that tax haven use is associated with lower employment growth. The granularity of the data allows us to uncover heterogeneity across worker groups, with the negative effects being strongest for service-sector employees in the highest occupations. In examining the potential of tax avoidance to shape labor market outcomes, this paper highlights the need for a more nuanced understanding of the socioeconomic implications of profit shifting beyond foregone government revenues.

This paper offers the first detailed characterization of the labor market in a tax paradise and investigates the impact of a reform aimed at discouraging tax avoidance on different employment margins. Our findings reveal that incumbent workers, who were relatively few compared to profits, had high levels of education, performed specialized tasks, and earned a wage gap, particularly at the top. Immediately after the reform announcement, they experienced an increased probability of exiting, largely due to the exit of firms. Stayers became more likely to accumulate jobs across several firms and saw an increase in wages, representing a small cost relative to firms' fiscal benefits. New workers who moved post-reform earned wages that were, on average, 30% lower than incumbents and were over 30 percentage points more likely to be on temporary contracts. These results provide valuable insights into policies aimed at increasing economic substance in low-tax jurisdictions.

We examine how the introduction of Controlled Foreign Company (CFC) rules by the Anti-Tax Avoidance Directive (ATAD) in the European Union impacts multinational enterprises (MNE). Using firm-level financial data and a difference-in-differences research design, we study whether the implementation of CFC rules in the context of the ATAD alters MNEs’ location, financial and economic activity decisions. Our results reveal that the newly implemented CFC rules were only partly effective in reducing income shifting. While the share of CFC subsidiaries decreases, the financial income of the persisting subsidiaries remains largely unchanged. Moreover, we observe positive effects on the costs of employees assigned to a CFC subsidiary, suggesting that the economic activity exemptions introduced by the ATAD allows MNEs to circumvent the rules by opting for a simple approach of enhancing economic activity in these locations.

This paper introduces wealth into the utility function in an otherwise standard dynamic optimal taxation framework. The optimal tax on capital income is positive in steady state. This stands in contrast to the classic results of Chamley (1986) and Judd (1985) where the optimal steady state capital tax rate is zero. When consumers get direct utility from their holdings of wealth, they are willing to accept a lower rate of return on those holdings: their intertemporal marginal rate of substitution (IMRS) is reduced. It is this reduction in the IMRS that drives the positive optimal capital tax rate in steady state.

This paper explores tax arbitrage incentives and behaviours in OECD countries, and their implications for tax systems more broadly. It focuses on how OECD tax systems might encourage business owners, in particular owners of unincorporated businesses and owner-managers of closely held incorporated businesses, to minimise their tax burdens through tax arbitrage. The paper finds that tax incentives to incorporate and earn capital income through corporations have increased in the last two decades. It shows that there has been an increase in incorporated businesses in many OECD countries, and that this has at least partly been driven by widening PIT-CIT differentials. The paper also finds that, in many countries, a combination of tax system features – related to corporate, dividend, capital gains and inheritance taxation – provide particularly strong incentives to retain earnings inside corporations.

Interest paid by U.S. state and local bonds is tax-exempt, making these bonds attractive to investors – though a tax rule limits arbitrage opportunities by restricting associated interest expense deductions. Prior to 1986, U.S. banks were not subject to the interest deduction limitation, making banks preferred holders of tax-exempt debt. U.S. banks used tax-exempt debt to reduce their tax liabilities by roughly 20% in the 1950s and 45% in the 1960s, rising to as much as 80% by the early 1980s. Despite their special exemption, and in part because of their widespread holdings, banks did not benefit from investing in tax-exempt bonds, as competition between banks reduced bond yields to the point of investor indifference.