Title: Essays in Public Economics
Description: Studying how firms and individuals respond to tax policy changes is key to assess their trade-off between equity and efficiency. Among individuals, taxpayers at the top of the income distribution have received special attention in the Public Economics literature. Progressive tax systems disproportionately rely on high income individuals to raise revenues, making them susceptible to strategies adopted by these taxpayers to reduce their tax liability. In the first two chapters of this dissertation, I provide new empirical evidence on the characteristics of high income individuals that can inform the design of tax policies. Chapter 1, focusing on the UK, shows that migrants have become more prevalent among high income individuals, thus altering the composition of individuals in the top 1 percent. Chapter 2, focusing on Italy, provides evidence of long term persistence in economic status among present-day descendants of noble dynasties. These chapters shed light on the characteristics of high income taxpayers and their path to the top of the distribution in these two countries.

Understanding the composition of individuals at the top of the income distribution is key for analyzing their response to tax policies and for informing the trade-off between equity and efficiency. Firms too are a central part of the tax system of developed countries. They remit payment of the vast majority of government revenues, either fulfilling their own tax liabilities or on behalf of third parties. As a result, governments implement enforcement strategies to reduce evasion while minimizing their costs. In Chapter 3, I analyze one of these government interventions aimed at curbing tax evasion of Value Added Tax (VAT) in Italy and I provide evidence on a new margin of response adopted by businesses. As the government shifted the responsibility to remit VAT from the seller to the buyer for a subset of transactions in the economy, it altered the distribution of costs between the two sides of the transaction. I show that smaller firms face the largest increase in costs and, thus, exhibit higher exit rates, leading to higher market concentration.

Chapter 1, which is joint work with Arun Advani, Felix Koenig, and Andy Summers, studies the contribution of migrants to the rise in UK top incomes.Using administrative data on the universe of UK taxpayers we show that migrants are over-represented at the top of the income distribution, with migrants twice as prevalent in the top 0.1 percent as anywhere in the bottom 97 percent. These high incomes are predominantly from labor, rather than capital, and migrants are concentrated in only a handful of industries, predominantly finance. Finally, we calculate the contribution of migrants and natives to the observed growth in the UK top 1 percent income share over the past 20 years. We find that almost all (92 percent) of the observed growth can be attributed to migration. Chapter 2 documents that present-day descendants of aristocratic dynasties enjoy high economic status in Italy, several decades or centuries after their ancestors received a title. Over this period of time, Italy experienced wars, annexations, political reforms, and a structural transformation of the economy.

Yet, the income distribution of noble taxpayers living in Milan in 2005 is shifted to the right relative to the one of all other taxpayers. On average, noble descendants obtain 41,125 Euros (or 1.77 times) more, controlling for observables. Moreover, aristocrats are three times more likely to be involved in firms, either as shareholders or company officials. Chapter 3 analyzes how firms and markets adapt to a reform of the collection of Value Added Tax (VAT), combining a new administrative dataset on firm-to-firm links from Italy and a quasi-experimental research design. The reform shifted the responsibility to remit payments of VAT from sellers to “trusted" buyers, such as government entities and large firms. I present three main findings. First, firm-to-firm links subject to the new rules are more likely to become inactive after the introduction of the new rules. Second, I find that the reform was costly for the average firm. Firms more exposed to the reform experienced lower sales and higher exit rates, relative to the counterfactual.

Third, I document that the burden of the reform was not evenly distributed across firms. Small firms were hit hardest, while large firms did not appear to be negatively affected. As a result, I show that markets more exposed to the reform became more concentrated.