Taxation
Paper Session
Saturday, Jan. 7, 2017 3:15 PM – 5:15 PM
Hyatt Regency Chicago, Atlanta
- Chair: Michael Gideon, U.S. Census Bureau
How Taxing Is Tax Filing? Leaving Money on the Table Because of Hassle Costs
Abstract
I use a quasi-experimental design and a novel identification strategy to estimate the burden of filing taxes. Employing a sample of US income tax returns, I observe the preferences of taxpayers when choosing between itemizing deductions and claiming the standard deduction. Taxpayers forgo tax savings to avoid the hassle cost of itemizing, resulting in an average burden of itemizing of \$644, with substantial heterogeneity. A revealed preference argument implies that itemizing deductions is as painful as working 19 hours. The burden of tax filing is larger for richer households, consistent with the fact that the value of time increases with income. I explore two explanations for the magnitude of forgone deductions. First, it could be due to an extreme aversion to filing taxes. Such aversion implies that itemizing deductions imposes aggregate hassle costs of 0.2\% of GDP and back-of-the-envelope extrapolations to filing federal taxes yield an overall burden of 1.28\% of GDP. Second, if taxpayers are time inconsistent they may forgo large benefits even when hassle costs are relatively small due to procrastination. I provide evidence most consistent with taxpayers being present-biased. Both explanations -- whether driven by preferences or mistakes -- suggest that the burden of tax filing is significantly larger than previously estimated. I discuss policy implications of the result.Adjust Me if I Can’t: The Effect of Firm Incentives on Labor Supply Responses to Taxes
Abstract
I provide theoretical and empirical evidence on the importance of statutory incidence in labor markets in the presence of asymmetric frictions. Using a theoretical model I show that labor supply responses are stronger when the statutory incidence of taxes or labor rules falls on firms even when wages can adjust freely. I explore these mechanisms by studying labor responses to incentives generated by the “Mini-Job” program aimed at increasing labor supply of low-income individuals in Germany. Using administrative data, I show evidence of a strong behavioral response – in the form of sharp bunching – to the mini-job threshold that generates large discontinuous changes both in the marginal tax rates and in the total income and payroll tax liability of individuals in Germany. Sharp bunching translates into elasticity estimates that are an order of magnitude larger than has been previously estimated using the bunching approach. To explain the magnitude of the observed response, I show that in addition to tax rates, fringe benefit payments also change at the threshold. Mini-job workers receive smaller yearly bonuses and fewer vacation days but are paid higher gross wages than regular workers. These results indicate that lower fringe benefits make mini-jobs attractive to employers, thus facilitating labor supply responses in accordance with the model’s predictions.Cigarette Taxes and Illicit Trade in Europe
Abstract
Cigarettes are highly taxed in Europe to discourage tobacco use and to fund public-health measures to mitigate the harms from tobacco consumption. At higher prices (more precisely, at higher differentials between licit and black-market prices) consumers may potentially substitute more toward illicit cigarettes. Illicit retail trade in cigarettes (IRTC) includes counterfeiting and smuggling—either of legally purchased products, from lower-tax to higher-tax jurisdictions, or of entirely non-tax-paid cigarettes. The existing literature includes claims that taxes are not an important factor determining the scale of IRTC. We investigate these claims with data from 1999–2013 in the European Union. We find that while the simple correlation between licit cigarette prices and the market share of illicit cigarettes in consumption is negative, raising prices in any one country would lead to substantial increases in the expected illicit market share and volume in that country. A one euro increase in tax per pack in a country is expected to increase illicit market share by 5 to 12 percentage points and increase illicit cigarette sales by 25% to 120% of the average consumption. We also find that the role of prices in stimulating IRTC is, empirically, far more important than the role of corruption. The results are robust to a host of alternative specifications and sources of data.Is Taxing Waste a Waste of Time? Evidence From a Supreme Court Decision
Abstract
Environmental taxes are often underexploited. This paper analyses the effectiveness of a garbagetax, assessing its effects on multiple outcomes, as well as its acceptability. We study how a Supreme Court decision, mandating the Swiss Canton of Vaud to implement a tax on garbage, affects garbage production and beliefs about the tax. We adopt a difference-in-differences approach exploiting that parts of Vaud already implemented a garbage tax before the mandate. Pricing garbage by the bag (PGB) is highly effective, reducing unsorted garbage by 40 %, increasing recycling of aluminium and organic waste, without causing negative spillovers on adjacent regions. The effects of PGB seem to be very persistent over time, and across specifications. Our assessment of PGB looks very favourable. It is puzzling why we do not use it more often. Hence, we look at the political economy of PGB, and analyse people’s perceptions. We find that people are very concerned with PGB ex ante. Public opposition seems to be the main obstacle to PGB. However, implementing PGB reduces concerns with effectiveness and fairness
substantially. After implementing PGB, people accept 70 % higher garbage taxes compared to before
PGB. We argue that environmental taxes could be much more diffused, if people had the chance to
experience their functioning and correct their beliefs.
JEL Classifications
- H2 - Taxation, Subsidies, and Revenue