Skip to main content

Summary

My Taxes are Too Darn High: Tax Protests as Revealed Preferences for Redistribution
Author(s):
Brad C. Nathan, University of Texas at Dallas
Ricardo Perez-Truglia, University of California, Berkeley and NBER
Alejandro Zentner, The University of Texas at Dallas
Abstract:

In all U.S. states, individuals can file a protest with the goal of legally reducing their property taxes. This choice provides a unique opportunity to study preferences for redistribution via revealed preference. Nathan, Perez-Truglia, and Zentner study the motives driving tax protests through two sources of causal identification: a quasi-experiment and a pre-registered large-scale natural field experiment. They show that, consistent with selfish motives, households are highly elastic to their private benefits and private costs from protesting. The researchers also find that social preferences are a significant motive: consistent with conditional cooperation, households are willing to pay higher tax rates if they perceive that others pay high tax rates too. Lastly, Nathan, Perez-Truglia, and Zentner document significant differences between the motivations of Democrats and Republicans.

Downloads:

This paper was distributed as Working Paper 27816, where an updated version may be available.

Beyond Health: Non-Health Risk and the Value of Disability Insurance
Author(s):
Manasi Deshpande, University of Chicago and NBER
Lee Lockwood, University of Virginia and NBER
Abstract:

The public debate over disability insurance (DI) has centered on concerns about individuals with less-severe health conditions receiving benefits. Deshpande and Lockwood go beyond health risk alone to quantify DI's overall insurance value, including value from insuring non-health risk. They find that DI recipients, especially those with less-severe health conditions, are much more likely to have experienced a wide variety of non-health shocks than non-recipients. Selection into DI on the basis of non-health shocks is so strong among individuals with less-severe health conditions that by many measures less-severe DI recipients are worse off than severe DI recipients. As a result, under baseline assumptions, DI benefits to less-severe recipients have an annual value (insurance benefit less efficiency cost) of $7,700 per recipient, about three-fourths that of DI benefits to severe recipients ($9,900). Insurance against non-health risk accounts for about one-half of DI's value.

Downloads:

This paper was distributed as Working Paper 28852, where an updated version may be available.

Does Taxing Business Owners Affect Employees? Evidence from a Change in the Top Marginal Tax Rate
Author(s):
Max Risch, Carnegie Mellon University
Abstract:

Debates about the taxation of business owners often center around the distributional impacts of these taxes and the degree to which they affect workers. The majority of business income in the U.S. is earned by pass-through businesses and taxed subject to the personal income tax system, yet the existence and magnitude of spillovers from personal income taxation to firm behavior has been difficult to estimate. This paper uses a new linked owner-firm-employee dataset created from administrative tax records to analyze how a recent increase in the top marginal tax rate faced by pass-through business owners affected the compensation of their employees. Risch uses panel difference-in-differences methods to compare the earnings of employees in similar firms but whose owners were differentially exposed to a recent tax increase and estimate that approximately 15 to 18 cents per dollar of new tax liability was passed through to employee earnings. This resulted from lower earnings growth among employees attached to their firms, not compositional changes in employment. These results show behavioral responses to the business income taxation embedded in the personal income tax system and imply that the incidence of the personal income tax was not fully borne by those directly subject to the tax change.

Downloads:
Who Needs Liquidity, When, and Where? Evidence from Penalized Withdrawals
Author(s):
David Coyne, Department of the Treasury
Itzik Fadlon, University of California, San Diego and NBER
Tommaso Porzio, Columbia University and NBER
The Equilibrium Effects of Public Provision in Education Markets: Evidence from a Public School Expansion Policy
Author(s):
Michael Dinerstein, University of Chicago and NBER
Christopher Neilson, Princeton University and NBER
Sebastian Otero, Stanford University
Abstract:

In markets with private options, the optimal level of public provision may require balancing a trade-off between reducing private options' market power with the possibility of crowding out potentially high-quality products. These considerations are particularly relevant in many developing countries' education systems where private schools capture high market shares while public schools are overcrowded. Dinerstein, Neilson, and Otero study the equilibrium effects of public provision in the context of a large expansion of public schools in the Dominican Republic. Over a five-year period, the government aimed to increase the number of public school classrooms by 78%. Using an event study framework, the researcher estimate the effect of a new public school on neighborhood outcomes and competing private schools, where the researchers instrument for how quickly the public school construction project finished with the characteristics of the contractor randomly assigned to build the project. They find that a new public school increased public sector enrollment significantly. As public enrollment increased, a large number of private schools closed while the surviving schools lowered prices and increased school quality. To study how the level of public provision affects the overall level of quality in the market, Dinerstein, Neilson, and Otero specify and estimate an empirical model of demand (students choosing schools) and supply (schools choosing whether to enter, stay open and what price to charge). They use the model estimates to calculate the level of public provision that maximizes learning. Due to equilibrium competitive effects, The researchers find that the optimal level is non-monotonic in the quality of the increased public schooling.

Downloads:
In-Kind Transfers as Insurance
Author(s):
Lucie Gadenne, Warwick University
Samuel Norris, University of British Columbia
Sandip Sukhtankar, University of Virginia
Monica Singhal, University of California, Davis and NBER
Abstract:

Recent debates about the optimal form of social protection programs have highlighted the potential for cash as a preferred form of transfer to low income households. However, in-kind transfers remain prevalent throughout the developing world. In this paper Gadenne, Norris, Sukhtankar, and Singhal consider one potential advantage of in-kind transfers: the ability to provide insurance against commodity price risk. Many households face substantial price variation as a result of poorly integrated markets. They develop a model showing that in a world with price risk, in-kind transfers are welfare improving relative to cash if the covariance between marginal utility of income and price is positive. Using calorie shortfalls as a marginal utility proxy, the researcher find that in-kind food transfers are empirically welfare improving relative to cash for Indian households, an effect driven entirely by poor households. Gadenne, Norris, Sukhtankar, and Singhal further show that policies that expand the generosity of the Public Distribution System (PDS)-- India's in-kind food transfer program--are associated with increased caloric intake as well as reduced sensitivity of calories to prices, suggesting that the PDS does indeed provide insurance against food price risk.

Downloads:
Beveridgean Unemployment Gap
Author(s):
Pascal Michaillat, Brown University and NBER
Emmanuel Saez, University of California, Berkeley and NBER
Abstract:

This paper estimates the unemployment gap (the actual unemployment rate minus the efficient unemployment rate) using the sufficient-statistic approach from public economics. While lowering unemployment puts more people into work, it forces firms to post more vacancies and devote more resources to recruiting. This unemployment-vacancy tradeoff, governed by the Beveridge curve, determines the efficient unemployment rate. Accordingly, the unemployment gap can be measured from three sufficient statistics: the elasticity of the Beveridge curve, cost of recruiting, and social cost of unemployment. This novel formula applies to a wide range of macroeconomic models of the labor market. Michaillat and Saez implement the formula using US data. Their find that the efficient unemployment rate varies between 2.6% and 4.7% since 1951, and has been stable between 3.3% and 4.0% since 1990. As a result, the unemployment gap is counter-cyclical, reaching 1.9-6.7 percentage points in slumps. Thus the US labor market appears inefficient--especially inefficiently slack in slumps. The unemployment gap is in turn a crucial statistic to determine optimal stabilization policies over the business cycle, including fiscal and monetary policy.

Downloads:

This paper was distributed as Working Paper 26474, where an updated version may be available.

Mad as Hell: Property Taxes and Financial Distress
Author(s):
Francis Wong, NBER Postdoctoral Fellow
Abstract:

Taxes on land and property are efficient in theory but uniquely unpopular in practice, and have been curtailed in 46 states. Unlike other taxes, property taxes may create financial distress when rising home values raise property tax bills but not incomes. Wong finds that even modest tax hikes create distress: a $50 monthly tax hike increases mortgage delinquency by 9% and reduces auto consumption by $15. Homeowners report being able but unwilling to draw on housing wealth, and cite debt aversion as a key factor. Distortionary income-based relief reduces property tax animus, which is concentrated in counties that do not limit how much rising home values can raise property taxes. These findings suggest that financial distress makes efficient property taxation politically infeasible.

Downloads:
Social Security and Trends in Inequality
Author(s):
Sylvain Catherine, University of Pennsylvania
Max Miller, University of Pennsylvania
Natasha Sarin, University of Pennsylvania
Abstract:

Recent influential work finds large increases in inequality in the U.S. based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. Catherine, Miller, and Sarin find that top wealth shares have not increased in the last three decades when Social Security is properly accounted for. This finding is robust to assumptions about how taxes and benefits may change in response to system financing concerns. When discounted at the risk-free rate, real Social Security wealth increased substantially from $4.8 trillion in 1989 to $41.3 trillion in 2016. When the researchers adjust for systematic risk coming from the covariance of Social Security returns with the market portfolio, this increase remains sizable, growing from over $3.9 trillion in 1989 to $33.9 trillion in 2016. Consequently, by 2016, Social Security wealth represented 57% of the wealth of the bottom 90% of the wealth distribution. Catherine, Miller, and Sarin conclude that Social Security represents the main source of savings for most Americans. Measures of inequality that exclude it are misleading.

Downloads:
Worker Voice and Shared Governance: Evidence from a Reform in Finland
Author(s):
Jarkko Harju, VATT Institute for Economic Research
Simon Jäger, Massachusetts Institute of Technology and NBER
Benjamin Schoefer, University of California, Berkeley and NBER
The Social Determinants of Choice Quality: Evidence from Health Insurance in the Netherlands
Author(s):
Benjamin R. Handel, University of California, Berkeley and NBER
Jonathan T. Kolstad, University of California, Berkeley and NBER
Thomas Minten, London School of Economics
Johannes Spinnewijn, London School of Economics
Abstract:

Market provision of impure public goods such as insurance retirement savings and education is common and growing as policy makers seek to offer more choice and gain efficiencies. This approach induces an important trade-off between improved surplus from matching individuals to products and misallocation due to well documented choice errors in these markets. Handel, Kolstad, Minten, and Spinnewijn study this trade-off in the health insurance market in the Netherlands, with a specific focus on misallocation and inequality. They characterize choice quality as a function of predicted health risk and leverage rich administrative data to study how it depends on individual human capital, socioeconomic status and social and information networks. The researchers find that choice quality is low on average, with many people foregoing options that deliver substantive value. Handel, Kolstad, Minten, and Spinnewijn also find a strong choice quality gradient with respect to key socioeconomic variables. Individuals with higher education levels and more analytic degrees or professions make markedly better decisions. Social influence on choices further increases inequality in decision making. Using panel variation in exposure to peers they find strong within firm, location and family impacts on choice quality. Finally, the researchers use their estimates to model the consumer surplus effects of different counterfactual scenarios. While smart default policies could improve welfare substantially, including the choice of a high-deductible option delivers little welfare gain, especially for low-income individuals who make lower quality choices and are in worse health.

Downloads:

This paper was distributed as Working Paper 27785, where an updated version may be available.

Taxing Property in Developing Countries: Theory and Evidence from Mexico
Author(s):
Anne Brockmeyer, Institute for Fiscal Studies
Juan Carlos Suárez Serrato, Duke University and NBER
Alejandro Estefan, University of Notre Dame
Abstract:

Property taxes in developing countries are plagued by high noncompliance and can exacerbate household liquidity constraints. Do governments have the capacity to increase tax revenue and, if so, should they do so by raising tax rates on existing taxpayers or by enforcing taxes on delinquent households? How should policies account for taxpayer hardship from enforcement and liquidity constraints? Brockmeyer, Suárez Serrato, and Estefan characterize the optimal trade-off between enforcement efforts and tax rates. Optimal policies depend on revenue elasticities from taxation and enforcement and on a measure of taxpayer hardship--the effect of taxes on consumption. They estimate these parameters using multiple sources of variation and administrative data from Mexico City. While the researchers find that both tax rate increases and enhanced enforcement raise tax revenue, liquidity constraints are empirically important in shaping taxpayer behavior. Brockmeyer, Suárez Serrato, and Estefan evaluate the welfare effects of these policies using their empirical results to implement their theoretical model. By comparing the revenue gains and welfare costs of enforcement and taxation, the researchers find that tax rate increases are more effective at raising welfare than enhanced enforcement. Moreover, because liquidity constraints raise the welfare cost of taxation, the provision of liquidity to constrained taxpayers is an important and hitherto neglected policy instrument.

Downloads:

Participants

David Coyne, Department of the Treasury
Tim Dowd, Joint Committee on Taxation
Peter R. Merrill, PricewaterhouseCoopers LLP
Max Miller, University of Pennsylvania
Sebastian Otero, Stanford University
Neil Thakral, Brown University

More from NBER

In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, and the Bulletin on Health — as well as online conference reports, video lectures, and interviews.

 

 

feldsteinlecture2021.JPG
  • Lecture
Alan J. Auerbach, the Robert D. Birch Professor of Economics and Law at the University of California, Berkeley, and...
2021_NobelPrizewinners_Angrist_Card_Imbens
  • Article
Long-time NBER research associates Joshua Angrist, David Card, and Guido Imbens have been awarded the 2021 Nobel Prize in Economic Sciences in recognition of...
2021methodslecture.jpg
  • Lecture
The credible estimation of causal effects is a central task of applied econometrics. Two tools for this purpose that...