My research interests are in public economics, labor economics, and psychology and economics.
Revise and resubmit, Journal of Public Economics
When third-party reporting is infeasible or too costly, tax liability is assessed based on self- reported information. To limit potential cheating, tax authorities require that self-reported accounts follow a set of “self-reporting” rules, that range from basic requirements to provide unsubstantiated details of claimed expenses to more stringent rules that require receipts to be included with tax returns. Using a quasi-experimental design, I show that even the most simple self-reporting requirements are effective at reducing evasion. Exploring a reform that simplified the reporting rules for tax deductions of noncash charitable contributions in the U.S., I show that weaker reporting requirements led to a large increase in reported donations but that nearly 50% of those donations were untruthful. At the same time, individuals experienced a substantial reduction in their reporting costs, an average of more than $55 per person. These results suggest that information reporting should be imposed only on individuals with reported donations above a pre-specified threshold. Model calibrations in the case of noncash charitable donation deductions show that an optimally chosen threshold could reduce the welfare loss due to compliance and evasion by 70%.
"Does the Magnitude of Incentives Matter? Labor Supply and Demand Responses to an Unusually Large Tax Break"
Presented at the NBER SI Public Finance, Winner of the 2016 IIPF Peggy and Richard Musgrave Prize
I explore labor supply responses to an unusually large notch generated by the “Mini-Job” program in Germany. Using administrative data, I document three findings. First, despite the unusually large magnitude of incentives, earnings elasticities are modest, even after accounting for frictions. Second, the observed response cannot be fully attributed to labor supply alone; instead, the observed outcomes are highly dependent on the availability of jobs and, hence, are strongly influenced by labor demand incentives. Third, I show that these firm incentives are driven by the fact that mini-jobs workers receive lower fringe-benefit payments.
Drawing on administrative panel data covering the full population of entrepreneurs in the UK, I study the effects of lower corporate tax liability on entrepreneurial entry and income shifting. I find that a 10% increase in savings from incorporation leads to a 2.64% increase in the number of new entrepreneurs, and a 2.25% increase in income shifting. Nonetheless, despite large tax savings to incorporation (exceeding 10 pp in some years), a substantial proportion of business owners fails to incorporate. Using a revealed-preference approach, I estimate an average yearly cost of incorporation of more than £3,750. 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 moderate. At the same time, the large perceived cost of incorporation indicates 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?"