housing market responses to transaction taxes evidence from notches and stimulus in the uk we investigate housing market responses to transaction taxes using administrative data on all property transactions in the u k from 2004 to 2012 combined with quasi experimental variation from tax notches and tax stimulus we present two main findings first transaction taxes are highly distortionary across a range of margins causing large distortions to the price volume and timing of property transactions secondly temporary transaction tax cuts are an enormously effective form of fiscal stimulus a temporary elimination of a 1 transaction tax increased housing market activity by 20 in the short run due to both timing and extensive responses and less than half of the stimulus effect was reversed after the tax was reintroduced due to re timing because of the complementarities between moving house and consumer spending these stimulus effects translate into extra spending per dollar of tax cut equal to about 1 we interpret our empirical findings in the context of a housing model with downpayment constraints in which leverage amplifies the effects of transaction taxes

does cutting the tax rate to zero induce behavior different from other tax cuts evidence from pakistan using a series of pakistani tax reforms and administrative records i document that taxable income responses induced by to zero tax cuts are orders of magnitude larger than ones induced by similar

transfers to sustain dynamic core theoretic cooperation in international stock pollutant control international environmental agreements aiming at correcting negative externalities generated by transboundary pollution are difficult to achieve for many reasons important obstacles arise from asymmetry in costs and benefits and instability may occur due to the fact that coalitions of countries may attempt to do better for themselves outside of any proposed agreement in a static context it has already been shown that it is possible to achieve stability in the sense of the core of a co operative game by means of appropriately defined transfers between the countries involved however the transboundary pollution problems that are most important are caused by accumulated pollutants so that a dynamic analysis is required this paper provides a transfer scheme that yields a core property in a dynamic context the possibility of computing such transfers numerically is discussed

estimating the elasticity of intertemporal substitution using mortgage notches using a novel source of quasi experimental variation in interest rates we develop a new approach to estimating the elasticity of intertemporal substitution eis in the u k the mortgage interest rate features discrete jumps notches at thresholds for the loan to value ltv ratio these notches generate large bunching below the critical ltv thresholds and missing mass above them we develop a dynamic model that links these empirical moments to the underlying structural eis the average eis is small around 0 1 and quite homogeneous in the population this finding is robust to structural assumptions and can allow for uncertainty a wide range of risk preferences portfolio reallocation liquidity constraints present bias and optimization frictions our findings have implications for the numerous calibration studies that rely on larger values of the eis

bounding the labor supply responses to a randomized welfare experiment a revealed preference approach we study the impact of connecticut s jobs first jf welfare reform experiment on the labor supply decisions of a sample of welfare applicants and recipients although the experiment identies the distribution of choices made in the absence and presence of reform each woman s counterfactual choice is unknown we show that economic theory restricts the set of counterfactual choices compatible with each woman s actual choice we use these restrictions to develop bounds on the frequency of intensive and extensive margin responses to reform our results indicate that the jf experiment led some women to work and others to reduce their earnings

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

taking the high road compliance with commuter tax allowances and the role of evasion spillovers abstract this paper provides evidence of evasion in the context of a widely used commuter tax allowance and explores evasion spillovers as a determinant of the individual compliance decision for this purpose we exploit discontinuities in the commuter allowance scheme and employ a research design resting on a large panel of individual tax returns we find that around 30 of all allowance claims are overstated and consistent with deliberate tax evasion we observe sharp reactions of taxpayers to thresholds where the allowance discretely jumps to a higher amount further we use variation in job changes to uncover spillover effects from the work environment on the individual compliance decision these effects appear to be asymmetric job changers moving to companies with a higher fraction of cheaters increase their cheating in contrast movers to companies with a lower fraction of cheaters tend not to alter their reporting behavior we provide suggestive evidence that the spillover has more to do with an information environment but can ultimately not reject other behavioral explanations such as asymmetric persistence of norms

optimal acid rain abatement policy for europe an analysis for the year 2000 acid rain causes greater environment damage than would occur if countries act cooperatively based on new estimates of sulphur abatement cost functions the potential gains from cooperation are calculated for europe various cooperative abatement rates are compared with the rates implied by recent international agreements the 30 club and the second sulphur protocol it is shown that the monetary gains from cooperation may be smaller than previously thought the distinction is made between primary and secondary abatement and their respective roles are discussed it is shown that agreed targets can only be met if primary measures eg fuel switching are adopted

estimating the effects of the minimum wage in a developing country a density discontinuity design approach summary this paper proposes a framework to identify the effects of the minimum wage on the joint distribution of sector and wage in a developing country i show how the discontinuity of the wage distribution around the minimum wage identifies the extent of noncompliance with the minimum wage policy and how the conditional probability of sector given wage recovers the relationship between latent sector and wages i apply the method in the pnad a nationwide representative brazilian cross sectional dataset for the years 2001 2009 the results indicate that the size of the informal sector is increased by around 39 compared to what would prevail in the absence of the minimum wage an effect attributable to i unemployment effects of the minimum wage on the formal sector and ii movements of workers from the formal to the informal sector as a response to the policy

trade s dynamic solutions to transboundary pollution abstract this study develops a differential game to examine the effects of trade liberalization on transboundary water pollution water pollution is due to wastewater emissions from countries in a shared waterway along the u s mexico border with available data of pollution abatement costs public health damages and trade benefits noncooperative and cooperative games are examined with changes in trade policy and public health damages results show trade liberalization leads mexico to curtail pollution in both games cooperation and trade liberalization limit emissions from both countries and curtail strategic behavior of the united states from mexico s pollution control efforts in the noncooperative game

the medicaid notch labor supply and welfare participation evidence from eligibility expansions i assess the impact of losing public health insurance on labor market decisions of women by examining a series of medicaid eligibility expansions targeted toward young children these targeted expansions severed the historical tie between afdc and medicaid eligibility the reforms allowed a mother s earnings to increase without losing public health insurance for her young children increasing the income limit for medicaid resulted in a decrease in afdc participation and an increase in labor force participation among these women the effects were large for ever married women and negligible for never married women

taxpayer responses in good times and bad abstract i show that the magnitude of taxpayer responsiveness a key parameter in public finance varies through time using linked administrative data and identifying responses from changes in notches i document a marked decline in responsiveness during the great recession that cannot be explained by increased enforcement i characterize which employee employer pairs are best at reporting tax advantaged incomes workers in industries with above average responsiveness such as construction were disproportionately affected by the recession i show responsiveness also declined for workers who remained matched with the same employers throughout the period

the case for international emission trade in the absence of cooperative climate policy we evaluate the efficacy of international trade in carbon emission permits when countries are guided strictly by their national self interest to do so we construct a calibrated general equilibrium model that jointly describes the world economy and the strategic incentives that guide the design of national abatement policies countries decisions about their participation in a trading system and about their initial permit endowment are made noncooperatively so a priori it is not clear that permit trade will induce participation in international abatement agreements or that participation will result in significant environmental gains despite this we find that emission trade agreements can be effective that smaller groupings pairing developing and developed world partners often perform better than agreements with larger rosters and that general equilibrium responses play an important role in shaping these outcomes

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

compliance costs vs tax incentives why do entrepreneurs respond to size based regulations abstract this paper studies the mechanisms behind the responses of entrepreneurs to size dependent tax regulation we exploit the value added tax vat exemption threshold in finland both tax incentives remitted vat and compliance costs frequent filing of vat reports understanding the vat system etc change at this sales based threshold in a discontinuous manner we utilize variation in both the vat rate and reporting requirements to show that the large observed sales response is caused by the compliance costs of vat rather than the level of the vat rate highlighting the key role of compliance costs among small firms and entrepreneurs

taxes and borrower behavior evidence from the mortgage interest deductibility limit abstract this paper estimates the behavioral response to mortgage interest tax deductibility by studying the discrete change in the net of tax marginal interest rate that occurs at 1 million in mortgage debt using data on 2004 2016 mortgage originations i estimate excess bunching in the loan distribution based on a counterfactual that accounts for bunching at salient loan amounts findings suggest excess of about 54 000 loans at the deductibility limit or 4 5 of the sample the level of bunching implies an average reduction in borrowing around the 1 million limit of 9 4 percent and mortgage demand elasticities between 0 132 to 0 115 for home purchase loans estimated elasticities imply that from 2004 2016 the mid induced 49 52 billion in deadweight loss in the mortgage market

cost uncertainty and unilateral abatement unilateral abatement is sometimes advocated in order to set a good example that will make other countries follow the aim of this paper is to investigate whether existence of correlated cost uncertainty provides an incentive for a country to undertake unilateral abatement the theoretical model is driven by two main mechanisms first a learning effect as the follower country might reduce its risk premium as it can observe the cost level in the leader country second there is the public good effect i e the marginal benefit of abatement declines when abatement is a public good and other countries contribute to pollution reductions results shows that unilateral abatement would be efficient in reducing uncertainty about the unit costs of abatement if a country with low cost uncertainty would undertake abatement first while a country with initially high cost uncertainty would follow however countries may prefer to act simultaneously because of the larger uncertainties that are inherent in a sequential game

per customer quantity limit and price discrimination evidence from the u s residential mortgage market abstract theoretically if firms face a regulatory per customer quantity limit they should have an incentive to discriminatively charge high demand customers higher prices and make them just willing to buy a quantity equal to the limit in the u s residential mortgage industry mortgages with origination balances above the conforming loan limits cannot be guaranteed by government sponsored enterprises which make lenders face a per customer quantity limit this paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination this study rules out the alternative explanation that those borrowers are of higher risk lending cost than other borrowers

behavioral responses to inheritance tax evidence from notches in france abstract for the first time we exploit quasi experimental variation to investigate the impact of inheritance taxation on wealth accumulation using bunching and difference in differences methods we directly estimate several behavioral responses during lifetime rather than relying solely on observations at death our empirical findings shed new light upon wealth accumulation and bequest motives taken together the small responses to inheritance tax estimated cannot be supported by the desire to retain control over wealth

environmental consciousness and moral hazard in international agreements to protect the environment abstract a group of countries that can potentially commit to cooperation to protect the environment are identified as environmentally conscious countries conditions are examined under which they can provide self financing side payments too a second group of less environmentally conscious countries so that the two groups form a global or partial stable coalition that agrees to reduce emissions a mechanism that detects cheating is also developed in order to induce the desired emissions even when the emissions level of an individual country cannot be observed by the rest of the participating countries

agricultural policy reform in zambia the dynamics of policy formulation in the second republic abstract the agricultural policy reform process in africa during the 1980s has been slow partly because it has neglected a number of key factors analysis of zambia s experience during the second republic suggests that greater attention needs to be given to institutional heritage political acceptability the diversity of policy making organizations and the policy freedom of subsectoral organizations neglect of these issues has led to difficulties in getting policy makers to even conceptualize reform and has led to much concern over the political implications of insensitive reform proposals

ghost citizens using notches to identify manipulation of population based grants this paper analyzes how local governments misreport population figures to obtain higher per capita grant allocations in 1998 the allocation of a formula based grant in spain switched from using the centrally administered census to local population registers administered by municipalities the value of this per capita grant changes at fixed population thresholds for the entire local population we exploit these notches to analyze the size distribution of municipalities to detect deliberate manipulation of the grant assignment variable this allows us to causally identify the effect of grant generosity on population over reporting we document an excess mass of municipalities to the right of the notch threshold and a density hole to the left of it local registers included a proportion of ghost citizens that is people who presented no trace of actually residing in the municipalities which benefit the most from inflating population figures to pass the relevant threshold we document that manipulation rather than real population responses is the mechanism at work the main channel behind manipulation is the incorrect treatment of foreign residents to inflate total local population

the participation dividend of taxation how citizens in congo engage more with the state when it tries to tax them this article provides evidence from a fragile state that citizens demand more of a voice in the government when it tries to tax them i examine a field experiment randomizing property tax collection across 356 neighborhoods of a large congolese city the tax campaign was the first time most citizens had been registered by the state or asked to pay formal taxes it raised property tax compliance from 0 1 in control to 11 6 in treatment it also increased political participation by about 5 percentage points 31 citizens in taxed neighborhoods were more likely to attend town hall meetings hosted by the government or submit evaluations of its performance to participate in these ways the average citizen incurred costs equal to their daily household income and treated citizens spent 43 more than control treated citizens also positively updated about the provincial government perceiving more revenue less leakage and a greater responsibility to provide public goods the results suggest that broadening the tax base has a participation dividend a key idea in historical accounts of the emergence of inclusive governance in early modern europe and a common justification for donor support of tax programs in weak states

tax incentives and the demand for private health insurance we analyze the effect of an individual insurance mandate medicare levy surcharge on the demand for private health insurance phi in australia with administrative income tax return data we show that the mandate has several distinct effects on taxpayers behavior first despite the large tax penalty for not having phi coverage relative to the cost of the cheapest eligible insurance policy compliance with mandate is relatively low the proportion of the population with phi coverage increases by 6 5 percentage points 15 6 at the income threshold where the tax penalty starts to apply this effect is most pronounced for young taxpayers while the middle aged seem to be least responsive to this specific tax incentive second the discontinuous increase in the average tax rate at the income threshold created by the policy generates a strong incentive for tax avoidance which manifests itself through bunching in the taxable income distribution below the threshold finally after imposing some plausible assumptions we extrapolate the effect of the policy to other income levels and show that this policy has not had a significant impact on the overall demand for private health insurance in australia

the validity of the contingent valuation method perfect and regular embedding this article deals with one aspect of the validity claim of the contingent valuation method namely to what extent does the method produce different values in situations for which economic theory claims different values two aspects of this validity test perfect and regular embedding were tested in a field experiment comprising six samples of the dutch population perfect embedding occurs when the value for a specific good is similar to the value for a more inclusive good perfect embedding did not manifest itself in the experiment respondents considered a package of six goods as well as a package of two goods more valuable than one of these goods it is argued that this supportive evidence of the method s validity claim occurred because the goods involved were well defined regular embedding occurs when the same good receives a lower value if the value for it is inferred from the value for a more inclusive good rather than if that good is valued on its own regular embedding was only found when respondents were given the opportunity to value the inclusive good before valuing the specific good respondents who were given information on the inclusive good without valuing it did not state different values than respondents who were not given that information it seems that respondents perceive an inclusive good as being relevant to their valuation decision only when they are asked to value it further research is necessary to shed more light on the underlying processes that may account for this

limits of state strength toward an institutionalist view of economic development nomic development attempted to explain why growth did not occur occurred slowly or occurred in a distorted dependent form the impressive economic performances of the east asian newly industrialized countries nics have changed this many noneconomists as well as some economists are now focusing on the political bases of development rather than underdevelopment there are differences among these analysts some distance themselves from neoclassical economics by emphasizing the importance of getting the prices wrong others acknowledge the utility of market conforming policies but common to recent studies of nics is the belief that growthpromoting economic policies require certain types of domestic political institutions analysts have emphasized the utility of strong states in this regard 2 through an analysis of efforts to promote local auto manufacturing in southeast as well as east asia this article argues for an institutionalist approach to development that goes beyond statism the resolution of collective action problems is central to statist writings development requires that private returns to individual activities be brought in line with the broader needs of national development 3 two factors are presumed to obstruct such harmonization in developing

labor supply and optimization frictions evidence from the danish student labor market abstract using danish administrative data i investigate the magnitude and nature of optimization frictions in the labor market of danish students danish students face a unique institutional setting that makes it possible to distinguish between different types of frictions and estimate their effect on individual utility i find that frictions significantly affect observed labor market outcomes in particular the empirical evidence points to inattention as the dominant type of friction in contrast my findings appear inconsistent with real adjustment costs price misperception and gradual learning overall optimization frictions reduce the utility of individuals by approximately 2 3 of disposable income

pollution or crime the effect of driving restrictions on criminal activity abstract driving restriction programs have been implemented in many cities around the world to alleviate pollution and congestion problems enforcement of such programs is costly and can potentially displace policing resources used for crime prevention and crime detection hence driving restrictions may increase crime to test this hypothesis we exploit both temporal and spatial variation in the implementation of quito ecuador s pico y placa program and evaluate its effect on crime both difference in differences and spatial regression discontinuity estimates provide credible evidence that driving restrictions have increased crime rates

valuation methods and policy making in environmental economics 1 valuation methods and policy making in environmental economics relevance and scope h folmer e van ierland part i the valuation of public goods 2 non market asset prices a comparison of three valuation approaches r c d arge j f shogren 3 valuing public goods in a risky world an experiment p o johansson 4 recreational values pareto optimality and timber supply p o johansson k g lofgren k g maler 5 estimating social benefits of environmental improvements from reduced acid rain deposition a contingent valuation survey s navrud part ii the valuation of health and life 6 benefits of reduced morbidity from air pollution control a survey m dickie s gerking 7 valuing a public good direct and indirect valuation approaches to the measurement of the benefits from air pollution abatement m shechter m kim l golan 8 environmental regulation and the valuation of life interindustry mobility and the market price of safety h w herzog jr a m schlottmann part iii cost benefit analysis 9 disequilibrium cost benefit rules an exposition and extension p o johansson k g lofgren 10 macroeconomic cost benefit analysis of environmental programmes a nentjes part iv aspects of policy making 11 benefit estimation for complex policies a randall j hoehn 12 the acid rain game k g maler index

tax induced mobility evidence from a foreigners tax scheme in switzerland abstract we study location choice and residential mobility responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in switzerland the institutional setting used generates a deterministic duration threshold at 5 years of stay in the country at which the local tax rates an individual faces simultaneously change in all municipalities we exploit this exogenous variation by applying a fuzzy regression discontinuity design to merged survey and administrative individual level data a dynamic location choice model allows us to derive testable hypotheses of individuals location choices and mobility decisions our estimated treatment effects provide causal evidence for tax induced residential choices and tax induced intra national mobility

the effect of tax enforcement on tax elasticities evidence from charitable contributions in france optimal tax formulas expressed in sufficient statistics are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments in practice though tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments in this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument the level of tax enforcement we exploit a natural experiment that took place in france in 1983 when the tax administration tightened the requirements to claim charitable deductions the reform led to a substantial drop in the amount of contributions reported to the administration which can be credibly attributed to overreporting of charitable contributions before the reform rather than to a real change in giving behaviours we show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions this finding allows us to partially identify the elasticity of overreporting contributions which is shown to be large and inferior to 2 in the lax enforcement regime we further show using bunching of taxpayers at kink points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in kopczuk and slemrod 2002

the externalities problem of transboundary and persistent pollution abstract this paper deals with implementing the efficient allocation of transboundary and persistent pollution in particular we adapt varian s compensation mechanism varian a solution to the problem of externalities when agents are well informed amer econ rev 85 1994 1278 1293 to cover situations in which pollutants extend to neighboring regions and their effects persist over time the main contribution of this paper is the design of a mechanism that implements in subgame perfect equilibrium the efficient pollution levels in this context

a characteristics approach to optimal taxation line drawing and tax driven product innovation real world tax legislation assigns goods to different categories of tax rates on the basis of observable characteristics allowing the tax system to handle a constantly evolving set of available goods we recast the theory of optimal taxation in the language of characteristics and we show how to optimally draw lines that delineate tax rate regimes such lines are associated with notches in tax liability as a function of characteristics creating incentives to introduce goods with new combinations of characteristics in order to reduce tax liability with a restricted set of tax instruments such notches are in general part of the second best optimal tax system

taxes informality and income shifting evidence from a recent pakistani tax reform abstract this paper examines firm behavior to taxation in a low enforcement and large informality setting using quasi experimental variation created by a tax reform which increased taxation of partnerships substantially relative to firms of other legal form and the population of income tax returns filed in pakistan in 2006 11 i document that treated firms report significantly lower earnings migrate into informality and switch business form in response to the increase in tax rate the revenue loss caused by these behavioral responses is so large that by the third year after the reform the government was collecting less revenue than it would have without the tax increase this implies that the new tax rate was on the wrong side of the laffer curve and would not have been optimal under any social preferences the richness of the data and tax variation permits me to decompose the observed responses into real and evasion margins and to identify fiscal externalities created by the reform on other tax bases the welfare cost of the reform increases by around 40 once these externalities are taken into account

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

regulating household leverage this article studies how credit markets respond to policy constraints on household leverage exploiting a sharp policy induced discontinuity in the cost of originating certain high leverage mortgages we study how the dodd frank ability to repay rule affected the price and availability of credit in the u s mortgage market our estimates show that the policy had only moderate effects on prices increasing interest rates on affected loans by 10 15 basis points the effect on quantities however was significantly larger we estimate that the policy eliminated 15 of the affected market completely and reduced leverage for another 20 of remaining borrowers this reduction in quantities is much greater than would be implied by plausible demand elasticities and indicates that lenders responded to the policy not only by raising prices but also by exiting the regulated portion of the market heterogeneity in the quantity response across lenders suggests that agency costs may have been one particularly important market friction contributing to the large overall effect as the fall in lending was substantially larger among lenders relying on third parties to originate loans finally while the policy succeeded in reducing leverage our estimates suggest this effect would have only slightly reduced aggregate default rates during the housing crisis

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

unwilling or unable to cheat evidence from a tax audit experiment in denmark this paper analyzes a tax enforcement field experiment in denmark in the base year a stratified and representative sample of over 40 000 individual income tax filers was selected for the experiment half of the tax filers were randomly selected to be thoroughly audited while the rest were deliberately not audited the following year threat of audit letters were randomly assigned and sent to tax filers in both groups we present three main empirical findings first using baseline audit data we find that the tax evasion rate is close to zero for income subject to third party reporting but substantial for self reported income since most income is subject to third party reporting the overall evasion rate is modest second using quasi experimental variation created by large kinks in the income tax schedule we find that marginal tax rates have a positive impact on tax evasion for self reported income but that this effect is small in comparison to legal avoidance and behavioral responses third using the randomization of enforcement we find that prior audits and threat of audit letters have significant effects on self reported income but no effect on third party reported income all these empirical results can be explained by extending the standard model of rational tax evasion to allow for the key distinction between self reported and third party reported income

the behavioral response to housing transfer taxes evidence from a notched change in d c policy abstract this paper estimates the behavioral response to residential real estate transfer taxes by studying notched tax rate changes in washington d c exploiting both a price and time notch as identifying variation we provide evidence that there is manipulation of the sales price to the lower tax rate region around the price notch and use this manipulation to show that there was significant awareness of the tax changes and the incentives they created we then construct difference in difference estimates to examine whether there is a lock in effect in the volume of house sales away from the price and time notches we find no evidence of a lock in effect in this setting taken together our results suggest that the welfare costs of a state introducing or eliminating a housing transaction tax are small

bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

economic policy reform in developing countries the role and management of political factors abstract increased recognition of the role of sound economic policies in economic development has stimulated interest in the political and administrative factors that determine policy responses of different developing countries this article provides a critical introduction to three further papers in this special section of world development all of which deal with political and administrative dimensions of economic policy reform certain common themes are isolated and addressed these include the role of political analysis and explanation the concept of political will to undertake reforms and the importance of the implementation phase in the reform process

do only tax incentives matter labor supply and demand responses to an unusually large and salient tax break abstract i explore labor supply responses to an unusually large and salient 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 rather the observed outcomes are highly dependent on the availability of jobs and so are strongly influenced by labor demand incentives third i show that these firm incentives are likely driven by the fact that mini job workers receive lower fringe benefit payments

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

delegation of decision rights for wetlands different nutrient abatement activities jointly determine water quality policies are determined by governments at central and local level implying that decisions can be affected by strategic considerations in this article decentralization of wetland policies is analyzed with regard to the environmental and economic consequences a two stage game is used to investigate strategic abatement decisions regarding nitrogen fertilizer reductions waste water treatment plant phosphorus reductions and wetlands assuming that wetland decision can be decentralized it is shown that under particular circumstances strategic consideration may imply that a central government undertakes more abatement than socially optimal but in most cases the opposite is likely to occur decentralization of wetland decisions is advantageous to the central government but only benefits the local government if its wetland technology is considerably more efficient that the central government s this paper explains why local governments often hesitate to take on additional responsibilities for environmental management and identifies conditions under which local governments make smaller losses or even gain from delegation the results also contribute to understanding how strategically optimal matching grants are chosen when governments only take into account their own direct costs of abatement and the central government needs to satisfy the local government s participation constraint

balance sheet insolvency and contribution revenue in public charities abstract using form 990 data reported by public charities we document significant bunching of nonprofits at near zero net assets the threshold for insolvency bunching occurs despite the fact that creditors cannot force insolvent nonprofits into involuntary bankruptcy we show that the extent of bunching is greater among organizations that rely more heavily on contribution revenue and that by inflating their net assets bunching organizations are able to increase their contribution revenue relative to firms that report negative net assets charitable donors appear to use the net assets threshold as a heuristic for a charity s financial health nonprofit managers in turn respond to the preferences of their donors

tax farming redux experimental evidence on performance pay for tax collectors performance pay for tax collectors has the potential to raise revenues but might come at a cost if it increases the bargaining power of tax collectors vis a vis taxpayers we report the first large scale field experiment on these issues where we experimentally allocated 482 property tax units in punjab pakistan into one of three performance pay schemes or a control after two years incentivized units had 9 4 log points higher revenue than controls which translates to a 46 higher growth rate the scheme that rewarded purely on revenue did best increasing revenue by 12 9 log points 64 higher growth rate with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions the revenue gains accrue from a small number of properties becoming taxed at their true value which is substantially more than they had been taxed at previously the majority of properties in incentivized areas in fact pay no more taxes but instead report higher bribes the results are consistent with a collusive setting in which performance pay increases collectors bargaining power over taxpayers who have to either pay higher bribes to avoid being reassessed or pay substantially higher taxes if collusion breaks down

tax evasion capital gains taxes and the housing market abstract in this study we exploit a policy shock that differentially increased capital gains taxes for housing units with holding period less than 5 years and document tax avoidance and tax evasion in the residential resale market in china we show suggestive evidence that after the capital gains tax increase resale transactions exhibit more bunching above 5 years of holding period but the responses are small and imprecisely estimated more importantly using precise information of both the actual transaction price and the reported price to the tax authority we find that tax evasion measured by the difference between the two prices becomes 23 3 higher we also document that the policy has strong heterogeneous effects whereby cash buyers are 8 4 more likely to buy a house than buyers who need financing after the policy this is mainly because financing buyers prefer a higher reported price and so less tax evasion to secure higher bank loans but cash buyers do not have such concern

the oslo protocol on sulfur reduction the great leap forward the increasing number of international environmental agreements ieas and the fact that under some agreements emissions have been reduced beyond agreed targets are frequently viewed as success stories of international cooperation we argue that success can only be measured if abatement targets under an iea are compared with estimated abatement levels in the absence of a treaty and are evaluated in terms of costs and benefits we analyze the oslo protocol on sulfur reduction showing that this iea is not the great leap forward when compared with the calculated nash equilibrium and the social optimum however we also demonstrate that under the oslo protocol more ambitious targets could not have been realized due to strong free rider incentives

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

bunching and non bunching at kink points of the swedish tax schedule recent microeconometric studies of taxpayers responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero however a common view is that long run responses might still be large since micro estimates are downward biased owing to optimization frictions in this paper we estimate the taxable income elasticity at a very large kink point of the swedish tax schedule using the bunching method during the period of study the change in the log net of tax rate reached a maximum value of 45 6 interestingly we obtain a precise elasticity estimate of zero for wage earners at this large kink the size of the kink allows us to derive tighter bounds on the long run elasticity than previous studies if wage earners on average tolerate 1 of their disposable income in optimization costs the upper bound on the long run taxable income elasticity is 0 39 we also evaluate the performance of the bunching estimator by performing monte carlo simulations

federal acid rain games abstract federal environmental policy designed to control acid rain is shaped after the hierarchy of the system and is controlled simultaneously by regional and central governments each governmental level controls one of two policy instruments pollution abatement production and pollution tax in a two stage game where regional governments are stackelberg leaders and control pollution taxes the subgame perfect equilibrium is socially efficient but the subgame perfect equilibrium for a two stage game where the central government is the stackelberg leader and controls pollution taxes is inefficient it corresponds to the nash equilibrium for a game where regional governments control both policy instruments

employment hours of work and the optimal taxation of low income families the optimal design of low income support is examined using a structural labour supply model the approach incorporates unobserved heterogeneity fixed costs of work childcare costs and the detailed non convexities of the tax and transfer system the analysis considers purely pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion we explore the gains from tagging and also examine the case for the use of hours contingent payments using the tax schedule for lone parents in the uk as our policy environment the results point to a reformed non linear tax schedule with tax credits only optimal for low earners the results also suggest a welfare improving role for tagging according to child age and for hours contingent payments although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities acknowledgements this study is part of the research program of the esrc centre for the microeconomic analysis of public policy at the ifs we thank stuart adam mike brewer roger gordon guy laroque ian preston emmanuel saez florian scheuer seminar participants at harvard mit jerusalem niesr sole and participants in the mirrlees review the editor and the referees for helpful comments we are alone responsible for all errors and interpretations

social insurance and the marriage market social insurance is often linked to marriage existing evidence suggests small marital responses to financial incentives and stems from settings where benefits are realized in the near future i an

the participation decision versus the level of participation in an environmental treaty a spatial probit analysis abstract this paper represents treaty participation as a two stage game for which nations first decide whether or not to participate and then they choose their level of participation the resulting subgame perfect equilibrium is used to derive a reduced form equation for estimating and separating the influences of the variables at the two decision stages this spatial probit equation forms the basis for a full information maximum likelihood estimator that accounts for the simultaneity bias associated with public good spillins at both stages when the procedure is applied to the helsinki protocol we find that the strategic influence of a variable may drastically differ depending upon which stage is scrutinized

assessing policy implementation success observations from the philippines abstract this article analyzes the establishment and start up of the one stop shop inter agency tax credit and duty drawback center in the philippines it briefly describes the policy change agenda that was embodied in the center s creation and outlines developments during its first eight months of existence it explores the impact of bureaucratic complexity on the ability of center management and staff at the department of finance dof to implement the policy reform agenda finally it examines to what extent the center s managers actually adopted the principles and techniques of strategic management and if they did what difference it made to successful implementation of that policy agenda

expenditure response to health insurance policies evidence from kinks in rural china abstract this paper utilizes administrative data to analyze expenditure responses to the health insurance policy in rural china and clear visual evidence of bunching is observed at the kink point a static response model with optimization frictions estimates that a complete elimination of the reimbursement would cause the total expenditure per visit to decrease by 34 5 and approximately one third of the studied population makes decisions with errors heterogeneous expenditure responses and optimization frictions are observed across demographic groups cost benefit and counterfactual analyses indicate that the current policy generates the greatest welfare gains

transfer taxes and household mobility distortion on the housing or labor market we estimate the effect of the uk stamp duty land tax sdlt a transfer tax on the purchase price of property or land on different types of household mobility using micro data exploiting a discontinuity in the tax schedule we isolate the impact of the tax from other determinants of mobility we compare homeowners with self assessed house values on either sides of a cut off value where the tax rate jumps from 1 to 3 percent we find that a higher sdlt has a strong negative impact on housing related and short distance moves but does not adversely affect job induced or long distance mobility overall our results suggest that transfer taxes may mainly distort housing rather than labor markets

the backward hustle an experimental investigation of tax code notches and labor supply abstract the phase in and phase out of benefits as part of social safety nets has the potential to distort individuals labor supply decisions classical economic theory predicts a strong incentive to adjust labor supply and bunch at the discontinuities that arise within notched tax systems however such behavior has been difficult to observe in both survey and administrative data in this paper we design a laboratory experiment to explore the impact of notches on subjects bunching behavior within an environment where subjects receive full information about their payment schedules and can freely adjust their labor supply number of tasks completed while we find clear evidence of bunching under our notched payment system many subjects still fail to bunch we explore the role of behavioral factors such as self control overconfidence and loss aversion as potential determinants of bunching behavior our results indicate that within our sample self control and loss aversion have a positive and significant association with subjects decision to bunch while overconfidence has a negative association these estimates are of the expected sign and suggest that behavioral factors may serve as important underlying determinants of an individual s decision to bunch

reprint of bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

production versus revenue efficiency with limited tax capacity theory and evidence from pakistan to fight evasion many developing countries use production inefficient tax policies this includes minimum tax schemes whereby firms are taxed on either profits or turnover depending on which tax liability is larger such schemes create nonstandard kink points which allow for eliciting evasion responses to switches between profit and turnover taxes using a bunching approach using administrative data on corporations in pakistan we estimate that turnover taxes reduce evasion by up to 60 70 percent of corporate income incorporating this in a calibrated optimal tax model we find that switching from profit to turnover taxation increases revenue by 74 percent without reducing aggregate profits

regulation via the polluter pays principle we consider the problem of regulating an economy with environmental pollution we examine the distributional impact of the polluter pays pp principle which requires that any agent compensates all other agents for the damages caused by his or her pollution emissions with constant marginal damages we show that regulation via the pp principle leads to the unique welfare distribution that induces non negative individual welfare change and renders each agent responsible for his or her pollution impact we extend both the pp principle and this result to increasing marginal damages due to pollution we also compare the pp principle with the vickrey clark groves scheme

the economics of attribute based regulation theory and evidence from fuel economy standards in many countries fuel economy standards mandate that vehicles meet a certain fuel economy but heavier or larger vehicles are allowed to meet a lower standard this has the perverse implication of allowing automakers to meet standards either by improving fuel economy or by increasing weight which lowers fuel economy and increases externalities related to accidents this is but one example of an attribute based regulation in which the regulation imposed on a product depends on both the externality it creates and some other attribute attribute basing potentially motivates rms and individuals to strategically alter the attribute thereby endogenously altering the stringency of the regulation this paper develops a theory of attribute basing to demonstrate the costs and benets of its use the paper then empirically examines the consequences of attribute based fuel economy standards in japan where fuel economy standards are a notched attribute based function of vehicle weight we use cross sectional and panel techniques to demonstrate that attribute based regulation has signicantly altered the distribution of vehicle weight in japan where 10 of vehicles bunch at weight notches for cars whose weight is altered in response to the policy we estimate that the alteration generates a welfare loss from the exacerbation of weight related externalities of 1 500 per unit sold which translates into a 700 million annual loss across the japanese auto market

the missing missing middle the notion that the distribution of firm size in poor countries is characterized by a bimodal distribution with a missing middle is a widely accepted fact in development economics for example see krueger 2013 the idea of the missing middle is that there are a large number of small firms some large firms but very few medium sized firms the purported fact about the missing middle is cited as evidence for two broad stories of why many countries are poor perhaps surprisingly these models look for the cause of the missing middle in two fundamentally different places one approach suggests that small firms are disfavored in low income countries for example by a lack of access to financial capital and thus face difficulties in growing to become middle sized firms the other approach posits a dual economy of large high productivity firms and small low productivity firms and then suggests that larger firms are disfavored in low income countries for example by having to bear large fixed costs of regulation which make it difficult for middle sized firms to become established we begin by reviewing these theories of development based on the purported fact of a missing middle we then explore the evidence on distribution of firm sizes in more detail and challenge the presumption that a missing middle occurs at all we present three main facts first there is in fact no evidence of a missing middle in detailed and comprehensive data on the size of manufacturing firms in india indonesia or mexico regardless of how we slice the data to be sure there

tax bunching income shifting and self employment abstract this paper proposes a dynamic extension to saez 2010 bunching formula that allows us to distinguish bunching based on real responses and income shifting we provide direct evidence of income shifting and pronounced bunching in taxable income for the danish self employed if income shifting was neglected in this case we would estimate a taxable income elasticity in the range of 0 43 0 53 and conclude that taxable incomes were highly sensitive to changes in marginal tax rates we show however that more than half of the bunching in taxable income is driven by intertemporal income shifting implying a structural elasticity of 0 14 0 20

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions

adjustment cost and incentives to work evidence from a disability insurance program abstract how important is adjustment cost for individuals who face a change in work incentives induced by a policy change i provide the first estimate of adjustment cost in the context of a disability insurance di program by exploiting a policy change that increased work incentives by increasing the exemption threshold i use bunching at the thresholds to estimate adjustment cost and earnings elasticity the estimates of adjustment cost are quite sizeable and heterogeneous the estimates of earnings elasticity from both static and dynamic models are larger than the elasticity estimated with no adjustment cost suggesting that adjustment cost attenuates the responses to work incentives policies designed to increase labor supply will work if the work incentives are large enough to offset the adjustment cost accounting for adjustment cost then might explain the disparate findings on the effects of an increase in work incentives on the labor supply of beneficiaries of di programs

car notches strategic automaker responses to fuel economy policy notches where small changes in behavior lead to large changes in a tax or subsidy gure prominently in many policies but have been rarely examined by economists in this paper we analyze a class of notches associated with policies aimed at improving vehicle fuel economy we provide several pieces of evidence showing that automakers respond to notches in fuel economy policy by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment we then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts