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

regressive sin taxes with an application to the optimal soda tax a common objection to sin taxes corrective taxes on goods that are thought to be overconsumed such as cigarettes alcohol and sugary drinks is that they often fall disproportionately on low income consumers this paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework and delivers empirically implementable formulas for sufficient statistics for the optimal commodity tax the optimal sin tax is increasing in the price elasticity of demand increasing in the degree to which lower income consumers are more biased or more elastic to the tax decreasing in the extent to which consumption is concentrated among the poor and decreasing in income effects because income effects imply that commodity taxes create labor supply distortions contrary to common intuitions stronger preferences for redistribution can increase the optimal sin tax if lower income consumers are more responsive to taxes or are more biased as an application we estimate the optimal nationwide tax on sugar sweetened beverages using nielsen homescan data and a specially designed survey measuring nutrition knowledge and self control holding federal income tax rates constant our estimates imply an optimal federal sugar sweetened beverage tax of 1 to 2 1 cents per ounce although optimal city level taxes could be as much as 60 lower due to cross border shopping

how do individuals repay their debt the balance matching heuristic we study how individuals repay their debt using linked data on multiple credit cards repayments are not allocated to the higher interest rate card which would minimize the cost of borrowing moreover the degree of misallocation is invariant to the economic stakes which is inconsistent with optimization frictions instead we show that repayments are consistent with a balance matching heuristic under which the share of repayments on each card is matched to the share of balances on each card balance matching captures more than half of the predictable variation in repayments and is highly persistent within individuals over time

e ztax tax salience and tax rates this paper examines whether the salience of a tax system affects equilibrium tax rates i analyze how tolls change after toll facilities adopt electronic toll collection etc drivers are substantially less aware of tolls paid electronically i estimate that in steady state tolls are 20 to 40 percent higher than they would have been without etc consistent with a salience based explanation for this toll increase i find that under etc driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar alternative explanations appear unlikely to be able to explain the findings

dynamic inconsistency in food choice experimental evidence from two food deserts despite the great deal of research on dynamic inconsistency in time preferences few studies have ventured into investigating the question in a natural context to address this gap we conduct a natural field experiment with over 200 customers at a grocery store to investigate dynamic inconsistency and the demand for commitment in food choice over a 3 week time period subjects are invited to allocate and re allocate food items received as part of a grocery delivery program we observe substantial dynamic inconsistency in our experiment as well as a demand for commitment among a non negligible number of subjects interestingly individuals who demand commitment are more likely to be dynamically consistent in their prior behavior for academics our work provides direct evidence of dynamic inconsistency in consumption choices in the field and points towards potential extensions to models of temptation for policy makers our findings provide insights on innovations to alter food choices

social cost of environmental quality regulations a general equilibrium analysis the use of cost benefit analysis by federal regulatory agencies has expanded greatly in scope and sophistication unfortunately agencies continue to employ private cost rather than social cost to evaluate environmental quality regulations furthermore general equilibrium impacts and intertemporal effects of regulations are typically not included in the evaluation in this paper we estimate the social cost of environmental quality regulations mandated by the clean air and clean water acts we construct an econometric general equilibrium model of the united states to demonstrate that social cost estimates diverge sharply from private cost estimates we also demonstrate that general equilibrium impacts are significant and pervasive and that intertemporal effects of the regulations heretofore ignored are significant

the causes of order effects in contingent valuation surveys an experimental investigation contingent valuation researchers have found that the hypothetical values respondents place on a nested sequence of environmental goods are sensitive to the order in which the goods are presented typically the smallest bundle of goods is valued more highly if presented first than if following more comprehensive bundles such effects appear even when each bundle is valued from an exclusive list or as an alternative to any other so that income and substitution effects are controlled we conduct lab experiments where participants are asked to value sequences of nested goods for purchase from an exclusive list using an incentive compatible becker degroot marschak mechanism we test whether order effects occur in valuation for a induced value goods b actual private goods and c identical private goods that are to be donated to charities we find significant order effects when the goods are valued for own use but not when they are valued for donation

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

controlling acid deposition a general equilibrium assessment in this paper we evaluate the impact of the so2 provisions in the 1990 clean air act a computable general equilibrium cge model of the united states is used to evaluate the implications of this law for a number of economic sectors we find that the largest negative impact falls on the coal industry output in the refining sector also decreases but agricultural production increases as consumers shift spending into food and wood based products

psychological frictions and the incomplete take up of social benefits evidence from an irs field experiment we address the role of psychological frictions in the incomplete take up of eitc benefits with an irs field experiment we specifically assess the influence of program confusion informational complexity and stigma by evaluating response to experimental mailings distributed to 35 050 tax filers who failed to claim 26 million despite an initial notice while the mere receipt of the mailing simplification and the heightened salience of benefits led to substantial additional claiming attempts to reduce perceived costs of stigma application and audits did not the study and accompanying surveys suggests that low program awareness understanding and informational complexity contribute to the puzzle of low take up jel c93 d03 h24 m38

rational inattention competitive supply and psychometrics we introduce a simple method of recovering attention costs from choice data our method rests on a precise analogy with production theory costs of attention determine consumer demand and consumer welfare just as a competitive firm s technology determines its supply curve and profits we implement our recovery method experimentally outline applications and link our work to the broader literature on inattention and mistaken decisions

the impact of technical change on the aggregate production function this study endeavours to look at both disembodied technical progress and embodied technical progress in the capital stock and in the labour force in the united states over the period 1947 80 the results suggest that disembodied technical progress has been about 3 per year embodied technical progress in the capital stock is approximately 3 4 per year and educational attainment significantly enhances labour productivity finally when the issue of structural stability of the underlying production relationship is addressed the period 1971 80 gives rise to some inconsistency

a sparsity based model of bounded rationality this article defines and analyzes a sparse max operator which is a less than fully attentive and rational version of the traditional max operator the agent builds as economists do a simplified model of the world which is sparse considering only the variables of first order importance his stylized model and his resulting choices both derive from constrained optimization still the sparse max remains tractable to compute moreover the induced outcomes reflect basic psychological forces governing limited attention the sparse max yields a behavioral version of basic chapters of the microeconomics textbook consumer demand and competitive equilibrium i obtain a behavioral version of marshallian and hicksian demand arrow debreu competitive equilibrium the slutsky matrix the edgeworth box roy s identity and so on the slutsky matrix is no longer symmetric nonsalient prices are associated with anomalously small demand elasticities because the consumer exhibits nominal illusion in the edgeworth box the offer curve is a two dimensional surface rather than a one dimensional curve as a result different aggregate price levels correspond to materially distinct competitive equilibria in a similar spirit to a phillips curve the arrow debreu welfare theorems typically do not hold this framework provides a way to assess which parts of basic microeconomics are robust and which are not to the assumption of perfect maximization jel codes d01 d03 d11 d51

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

to buy or not to buy price salience in an online shopping field experiment abstract we examine whether shrouding or partitioning of a surcharge raises demand in online shopping in a field experiment with more than 34 000 consumers we find that consumers in the online shop of a cinema are more likely to select tickets for a 3d movie when the 3d surcharge is shrouded but they also drop out more often when the overall price is shown at the checkout in sum the demand distribution is independent of the price presentation this result outlines the limits of the effectiveness of shrouding practices

2 00 gas studying the effects of a gas tax moratorium there are surprisingly few estimates of the effects of sales taxes on retail prices especially at the firm level we consider the temporary suspension and subsequent reinstatement of the gasoline sales tax in illinois and indiana following a price spike in 2000 earlier laws set the timing of the reinstatements providing plausibly exogenous changes in the tax rates using a unique dataset of daily prices at the gas station level 70 of the tax suspension is passed on to consumers in the form of lower prices while 80 100 of the tax reinstatements are passed on to consumers some evidence suggests that these short run pass through estimates are smaller near the state borders with the tax reinstatements associated with relatively higher prices up to an hour s drive into neighboring states

optimal tax salience abstract recent empirical work finds that consumers under account for commodity taxes when the after tax price is not prominent i investigate how policymakers may utilize such low salience taxes to promote welfare the optimal combination of high and low salience taxes balances two competing effects low salience taxes dampen distortionary substitution but cause consumers to misallocate their budgets using a stylized model i show the availability of taxes with differing salience provides an extra degree of freedom that can be used to implement the first best welfare outcome i characterize the optimal policy and derive a formula for incremental adjustments when the first best is unattainable

optimal taxation with behavioral agents this paper develops a theory of optimal taxation with behavioral agents we use a general framework that encompasses a wide range of biases such as misperceptions and internalities we revisit the three pillars of optimal taxation ramsey linear commodity taxation to raise revenues and redistribute pigou linear commodity taxation to correct externalities and mirrlees nonlinear income taxation we show how the canonical optimal tax formulas are modified and lead to novel economic insights we also show how to incorporate nudges in the optimal taxation framework and jointly characterize optimal taxes and nudges

general equilibrium effects of environmental policy a cge modeling approach estimation of emission control cost functions is often carried out in a partial equilibrium framework i e under the assumption that emission control measures have negligible effects on input and output prices in this paper a computable general equilibrium model is used for simulation of the impact on factor prices and resource allocation of reductions of so infx sup no infx su and co2 emissions thus the model includes markets for tradable emission permits and the equilibrium prices of permits reflect the marginal costs of emission control the results suggest that major emission reductions are likely to have general equilibrium effects and thus that emission control cost functions that fail to take these effects into account may give a distorted picture of the economic impact of emission control

tax policy and u s agriculture a general equilibrium analysis this article emloys a computable general equilibrium model to analyze the effects of eliminating farm and food tax preferences in 1977 tax differentials on capital income labor payments and production and sales taxes are each examined results indicate that these combined preferences lowered food costs by about 4 5 billion while enhancing after tax returns to farm land labor and capital the associated general equilibrium tax expenditure is estimated to have been between 5 5 and 6 6 billion

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

taxpayer confusion evidence from the child tax credit we develop an empirical test for whether households understand or misperceive their marginal tax rate our identifying variation comes from the loss of the child tax credit when a child turns 17 using this age discontinuity we find that despite this tax liability increase being lump sum and predictable households reduce their reported wage income upon discovering they have lost the credit this finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate this evidence supports the hypothesis that tax complexity can cause confusion and leads to unintended behavioral responses jel d12 d14 h24 h31

individual teacher incentives and student performance this paper is the first to systematically document the relationship between individual teacher performance incentives and student achievement using the united states data we combine data from the national education longitudinal survey on schools students and their families with our own survey conducted in 2000 regarding the use of teacher incentives this survey on teacher incentives has unique data on frequency and magnitude of merit raises and bonuses teacher evaluation and teacher termination we find that test scores are higher in schools that offer individual financial incentives for good performance moreover the estimated relationship between the presence of merit pay in teacher compensation and student test scores is strongest in schools that may have the least parental oversight the association between teacher incentives and student performance could be due to better schools adopting teacher incentives or to teacher incentives eliciting more effort from teachers it is impossible to rule out the former explanation with our cross sectional data

attention variation and welfare theory and evidence from a tax salience experiment this article shows that accounting for variation in mistakes can be crucial for welfare analysis focusing on consumer under reaction to not fully salient sales taxes we show theoretically that the efficiency costs of taxation are amplified by differences in under reaction across individuals and across tax rates to empirically assess the importance of these issues we implement an online shopping experiment in which 2 998 consumers purchase common household products facing tax rates that vary in size and salience we replicate prior findings that on average consumers under react to non salient sales taxes consumers in our study react to existing sales taxes as if they were only 25 of their size however we find significant individual differences in this under reaction and accounting for this heterogeneity increases the efficiency cost of taxation estimates by at least 200 tripling existing sales tax rates nearly doubles consumers attention to taxes and accounting for this endogeneity increases efficiency cost estimates by 336 our results provide new insights into the mechanisms and determinants of boundedly rational processing of not fully salient incentives and our general approach provides a framework for robust behavioural welfare analysis

beyond revealed preference choice theoretic foundations for behavioral welfare economics we propose a broad generalization of standard choice theoretic welfare economics that encompasses a wide variety of nonstandard behavioral models our approach exploits the coherent aspects of choice that those positive models typically attempt to capture it replaces the standard revealed preference relation with an unambiguous choice relation roughly x is strictly unambiguously chosen over y written xp y iff y is never chosen when x is available under weak assumptions p is acyclic and therefore suitable for welfare analysis it is also the most discerning welfare criterion that never overrules choice the resulting framework generates natural counterparts for the standard tools of applied welfare economics and is easily applied in the context of specific behavioral theories with novel implications though not universally discerning it lends itself to principled refinements

inferior products and profitable deception we analyse conditions facilitating profitable deception in a simple model of a competitive retail market firms selling homogenous products set anticipated prices that consumers understand and additional prices that naive consumers ignore unless revealed to them by a firm where we assume that there is a binding floor on the anticipated prices our main results establish that bad products those with lower social surplus than an alternative tend to be more reliably profitable than good products specifically 1 in a market with a single socially valuable product and sufficiently many firms a deceptive equilibrium in which firms hide additional prices does not exist and firms make zero profits but perversely 2 if the product is socially wasteful then a profitable deceptive equilibrium always exists furthermore 3 in a market with multiple products since a superior product both diverts sophisticated consumers and renders an inferior product socially wasteful in comparison it guarantees that firms can profitably sell the inferior product by deceiving consumers we apply our framework to the mutual fund and credit card markets arguing that it explains a number of empirical findings regarding these industries

product design in selection markets insurers choose plan characteristics to sort for profitable consumers in a model with multidimensional types this sorting incentive is proportional to the covariance among marginal consumers between marginal willingness to pay and cost to the insurer standard forms of cost sharing successfully repel costly consumers but reducing plan comprehensiveness instead alienates the risk averse in a perfectly competitive equilibrium the sorting incentive must vanish market power increases insurance quality and welfare nonetheless a competitive equilibrium with positive insurance is possible when insurance value is suciently negatively correlated with cost however in a calibration to handel hendel and whinston 2013 s data equilibrium still fails to exist

revealed preference rational inattention and costly information acquisition we develop a revealed preference test for optimal acquisition of costly information the test encompasses models of rational inattention sequential signal processing and search we provide limits on the extent to which attention costs can be recovered from choice data we experimentally elicit state dependent stochastic choice data of the form the tests require in simple cases tests con rm that subjects adjust their attention in response to incentives as the theory dictates

the misallocation of housing under rent control the standard analysis of price controls assumes that goods are efficiently allocated even when there are shortages but if shortages mean that goods are randomly allocated across the consumers that want them the welfare costs from misallocation may be greater than the undersupply costs we develop a framework to empirically test for misallocation the methodology compares consumption patterns for demographic subgroups in rent controlled and free market places we find that in new york city which is rent controlled an economically and statistically significant fraction of apartments appears to be misallocated across demographic subgroups jel c25 d12 d61 r20

dynamic corrective taxes with time varying salience abstract economies across the globe are becoming increasingly cashless and many payment systems have become automated driving a temporal wedge between consumption and payment and generally making the costs of consumption intermittently salient since this inconsistent price salience alters demand elasticities it is a particular concern for goods that generate externalities and the price based policies deployed to address them this paper derives optimal dynamic corrective taxes for suboptimal and persistent consumption decisions these taxes depend on the agent s ability to commit to a future consumption path we also characterize a second best constant tax and the excess burden from time invariant tax rates when calibrated to u s residential electricity consumption the model shows that the second best constant tax is more than twice the marginal external cost of carbon emissions

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

behavioral economics and public policy a pragmatic perspective the debate about behavioral economics the incorporation of insights from psychology into economics is often framed as a question about the foundational assumptions of economic models this paper presents a more pragmatic perspective on behavioral economics that focuses on its value for improving empirical predictions and policy decisions i discuss three ways in which behavioral economics can contribute to public policy by oering new policy tools improving predictions about the eects

consumers perceptions and misperceptions of energy costs this paper presents three initial stylized facts from the vehicle ownership and alternatives survey voas a nationally representative survey that elicits consumers beliefs about gasoline prices and the relative energy costs of autos with different fuel economy ratings first american consumers devote little attention to fuel costs when purchasing autos second consistent with a cognitive bias called mpg illusion consumers underestimate the fuel cost differences between low mpg vehicles and overestimate the differences between high mpg vehicles third americans mean and median expected future gas prices were above current prices and predictions of the futures market at the time of the survey although it is often argued that misperceived energy costs justify policies to encourage the sale of energy efficient durable goods these results show that misperceptions and expectations that differ from market information could either increase or decrease energy efficiency