My research interests are in public economics, labor economics, and psychology and economics.
Revise and resubmit, Journal of Public Economics
Using a quasi-experimental design, I show that self-reported information requirements are effective at reducing evasion. I use a reform that simplified the reporting rules for tax deductions of noncash charitable contributions in the U.S. to show that weaker reporting requirements led to a large increase in the reported donations but that nearly 50% of these donations were untruthful. At the same time, individuals experienced a substantial reduction in their reporting costs, an average of $82 per person. Next, I provide a theoretical framework that accounts for the observed trade-off between evasion and compliance costs to determine the optimal information requirements. I show that reporting should only be imposed on individuals with reported donations above a pre-specified threshold and that the threshold is primarily governed by the type and magnitude of cheating. Model calibrations in the case of noncash charitable donation deductions show that an optimally chosen threshold would reduce the welfare loss due to compliance and evasion by 75%.
Version presented at the NBER SI Public Finance, Winner of the 2016 IIPF Peggy and Richard Musgrave Prize
I provide theoretical and empirical evidence on the importance of statutory incidence in labor markets in the presence of asymmetric frictions. Using a theoretical model I show that labor supply responses are stronger when the statutory incidence of taxes or labor rules falls on firms even when wages can adjust freely. I explore these mechanisms by studying labor responses to incentives generated by the "Mini-Job" program aimed at increasing labor supply of low-income individuals in Germany. Using administrative data, I show evidence of a strong behavioral response -- in the form of sharp bunching -- to the mini-job threshold that generates large discontinuous changes both in the marginal tax rates and in the total income and payroll tax liability of individuals in Germany. Sharp bunching translates into elasticity estimates that are an order of magnitude larger than has been previously estimated using the bunching approach. To explain the magnitude of the observed response, I show that in addition to tax rates, fringe benefit payments also change at the threshold. Mini-job workers receive smaller yearly bonuses and fewer vacation days but are paid higher gross wages than regular workers. These results indicate that lower fringe benefits make mini-jobs attractive to employers, thus facilitating labor supply responses in accordance with the model's predictions.
Drawing on administrative data covering the full population of self-employed individuals in the UK, I study the extent of income shifting from personal to corporate tax bases through incorporation. Despite large tax savings to incorporation (exceeding 10% in some years), a substantial proportion of business owners fails to incorporate. Using a revealed preference approach, I estimate an average cost of incorporation to be greater than £3200. Next, I estimate a proportional hazard model and uncover moderate elasticities of hazard rate of incorporation with respect to tax savings. These findings imply that income shifting through incorporation is not the primary avoidance channel for the self-employed and that distortions to the choice of organizational form are modest. At the same time, the large perceived cost of incorporation implies that barriers to entrepreneurship remain large.
"When Tax Incentives, Hour Constraints and Job Availabilities Clash: Moonlighting Responses to a Large Tax Reform"
Multiple job holding – or moonlighting – is widespread in OECD countries, with 5 to 10% workers holding two or more jobs. Yet, little is known about the determinants of moonlighting and its responsiveness to tax incentives: research has been held back by the lack of identifying variation as most tax systems treat primary and secondary employments equally. This paper circumvents these limitations by studying a unique reform in Germany that allowed workers to hold small secondary jobs tax-free, thus decreasing the tax rate on secondary earnings by 20% or more. I show that the take up of secondary jobs more than doubled, resulting in participation elasticities that are several times larger than participation elasticities in the primary employment. Moreover, individuals did not reduce earnings at their primary jobs when they obtained new secondary jobs, implying that the observed increase in multiple job holding represents genuine increases in labor force participation. Finally, I explore mechanisms behind the varying rates of response, and find that job availabilities and hour constraints are key determinants of moonlighting.
I study behavioral responses to changes in marginal tax rates of social security and income taxes. I find that responses depend on individual’s employment status: whether a worker is a wage earner, self-employed, or a proprietor. In line with the existing literature I document weak (but statistically significant) bunching at kink points of the tax schedule among wage earners. Starting from 1999, wage earners accumulate pension credits when they exceed a certain threshold, however, no contributions are due until earnings reach a second, higher threshold. Even 10 years after this reform I find no bunching to the right of the eligibility threshold, suggesting that individuals do not assign a high value to pension benefits. Lack of bunching is persistent across age groups and unlikely to be explained by friction costs as individuals are able to bunch at other kink points. I find strong responses to tax incentives among the self-employed but the responses differ by the type of kink. I find sharp bunching at the first kink, medium bunching at the top kink and weak bunching at the middle kink. Comparing responses before and after a tax reform that changed the magnitude of kinks I find that self-employed individuals aggressively reduce earnings to bunch at the lower, more salient kink points. Finally, I document large income shifting by proprietors: many firm owners report most of income as dividends thus avoiding social security taxes. Nevertheless many proprietors choose to pay themselves sub-optimally high wages thus incurring an unnecessarily high tax liability. I show that some of these proprietors pay multiples of £5,000 or £6,000.
WORK IN PROGRESS:
"Do Value-Added Taxes Affect International Trade: Evidence from 20 Years of Tax Reforms” (with Youssef Benzarti)
"Hour Requirements for In-Work Benefits: Do They Help or Do They Hurt?"