My research interests are in public economics, psychology and economics, and labor economics.
"Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions" 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%.
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.
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:
"Who Wants a Second Job? Evidence from a Tax Reform in Germany"
When evaluating labor supply responses to tax cuts, researchers are never certain as to what extent increases in labor supply are limited by the inability of workers to extend their working hours as desired. I attempt to circumvent this concern by studying a reform in Germany that allowed part-time and full-time workers earning more than €400 per month to hold a second job tax-free as long as earnings from this secondary job do not exceed €400 per month. The reform thus generated a very strong incentive to acquire a secondary job, at minimum offering a 20% tax break on additional income. Preliminary results show that this reform lead to a large increase in the take-up of secondary jobs, with the majority of these employments concentrated around the €400 cutoff. Using an administrative panel dataset of labor histories in Germany, I investigate several outcomes of interest. First, I study how the likelihood of secondary employment changes with one’s marginal tax rate and demographic characteristics. Second, I study the intensive margin of response: individuals with secondary jobs at the moment of reform were subject to both income and substitution effects. I study how their labor supply changes after the reform. And third, I study whether this reform lead to job splitting, whereby individuals with larger earnings reduce hours in their main job and acquire a secondary job to save on taxes.
"Hour Requirements for In-Work Benefits: Do They Help or Do They Hurt?"
I study how rules governing in-work subsidies affect program participation. In contrast to the Earned Income Tax Credit in the USA that provides in-work subsidies starting from the first dollar earned, the Working Tax Credit (WTC) in the UK requires individuals to work a certain number of hours per week before they can qualify for benefits. On the one hand, the WTC program incentivizes individuals to seek out substantial employments. On the other hand, needy individuals who are genuinely trying to find work but unable to meet the hour requirement are denied benefits. I investigate how hour requirements affect program participation by studying a reform that increased the hour requirement for couples from 16 hours to 24 hours per week. Using administrative data on the full sample of the WTC recipients I find that a large number of couples were able to increase working hours from 16 to 24 as evident by a shift of excess mass from 16 times the minimum wage to 24 times the minimum wage. However, nearly 50% of couples who were previously eligible were not able or chose not to increase their labor supply, and therefore lost WTC benefits.