Governments seeking to provide food assistance have a choice between providing in-kind food directly to beneficiaries, or providing vouchers that can be used to purchase food on the market. To understand the differences between these policies, the Government of Indonesia randomly phased in the transition from in-kind delivery of subsidized rice to approximately equivalent vouchers usable to buy rice and eggs across 105 districts comprising over 3.4 million beneficiary households. Banerjee, Hanna, Olken, Satriawan, and Sumarto find the transition led to substantial changes in the allocation of aid in practice. The vouchers provided concentrated assistance to targeted households, who received 45 percent more assistance in voucher areas than in in-kind districts. As a result, for households in the bottom 15 percent at baseline, poverty fell by 20 percent. Vouchers also allowed households to purchase higher-quality rice, and led to increased consumption of egg-based proteins. Banerjee, Hanna, Olken, Satriawan, and Sumarto find little effect on aggregate prices. Overall leakage from the program was not affected, but the administrative costs of benefits delivery substantially falls. The results suggest that the change from in-kind to vouchers led to substantial impacts on poverty through the way it changed how programs were implemented on the ground.
In addition to the conference paper, the research was distributed as NBER Working Paper w28641, which may be a more recent version.
Using panel data on a 20% random sample of Canadian taxpayers, Lavecchia and Tazhitdinova study behavioral responses to the cancellation of a lifetime capital gains exemption that resulted in increased capital gains taxation for some individuals. The unique setting allows us to distinguish between short-term avoidance responses and permanent responses to capital gains taxes. Lavecchia and Tazhitdinova show that the exemption did not change the number of taxpayers reporting positive capital gains, and thus unlikely resulted in increased participation in capital markets. However, the exemption cancellation slightly increased capital gains realizations of the existing traders.
In addition to the conference paper, the research was distributed as NBER Working Paper w28514, which may be a more recent version.
In this paper, Thakral and Tô introduce a model of how the timing of information affects consumption decisions and tests its predictions in both developed and developing contexts. In their model, consumers form intertemporal plans and experience utility from anticipating future consumption. The model predicts excess sensitivity of spending to receiving a windfall, with smaller spending responses when there is more time to anticipate receiving the payment. The prediction that waiting leads to more patient decisions does not depend on whether consumers are liquidity constrained. Using Nielsen Consumer Panel data, Thakral and Tô find higher marginal propensities to spend for households scheduled to receive the 2008 Economic Stimulus Payments sooner. Using data from randomized experiments in Kenya and Malawi, the researchers find higher savings and assets among households scheduled to wait longer before receiving lump-sum unconditional cash transfers. Finally, Thakral and Tô discuss existing evidence on how consumption responds to gains, losses, and news in light of their model.
How does going public affect firms' tax obligations and tax planning? Dobridge, Lester, and Whitten compare firms that completed an IPO with those that filed for an IPO but later withdrew and remained private, instrumenting for IPO completion with measures of short-run trends in financial market conditions around IPO filing. Using a panel of U.S. corporate tax return data from 1994 to 2018, the researchers find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay higher U.S. taxes as a share of sales and income. The effects are concentrated in firms reporting or using tax losses in the pre-IPO period and are not explained by statutory limitations imposed on these loss firms. Furthermore, the increases in tax obligations do not appear attributable to higher earnings generated from post-IPO corporate investment and employment spending. Rather, preliminary evidence suggests that the increases are associated with increased capital market reporting incentives. Furthermore, the effects are concentrated in firms with relatively more disperse ownership - and possibly greater agency concerns - in the post-IPO period. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
Scot, Lobel, and Zúniga use administrative data on the universe of corporate taxpayers in Honduras to study the impact of a minimum tax implemented between 2014 and 2017. While minimum taxes are widely used tools in lower income countries to ensure tax payment from large corporations, evidence on the response of taxpayers and implications for tax collection are still scarce. The researchers document substantial tax evasion when costs are deductible: large corporations significantly increase their reported profit margins when incentives to over-report costs disappear, implying evasion rates of up to 17% of profits. Scot, Lobel, and Zúniga also use the reaction of taxpayers to a revenue-dependent exemption threshold to estimate the elasticity of reported revenue, a key behavioral parameter to assess the impact of taxing output. Their estimates suggest large elasticities in the range of [0.35,1]. Importantly, these responses are attenuated when revenue is independently observed by the tax authority, suggesting that revenue misreporting plays an important role. Their results inform the trade-offs involved when considering broadening the tax base to curb evasion and highlight the importance of tax administration capacity to the design of tax policy.
This paper describes a novel approach to estimating the marginal cost of air pollution regulation, then applies it to assess whether a large set of existing U.S. air pollution regulations have marginal costs exceeding their marginal benefits. The approach utilizes an important yet underexplored provision of the Clean Air Act requiring new or expanding plants to pay incumbents in the same or neighboring counties to reduce their pollution emissions. These "offset" regulations create several hundred decentralized, local markets for pollution that differ by pollutant and location. Shapiro and Walker describe conditions under which offset transaction prices can be interpreted as measures of the marginal cost of pollution abatement, and they compare estimates of the marginal benefit of abatement from leading air quality models to offset prices. The researchers find that for most regions and pollutants, the marginal benefits of pollution abatement exceed mean offset prices more than ten-fold. In at least one market, however, estimated marginal benefits are below offset prices. Marginal abatement costs are increasing rapidly in real terms. Notably, their revealed preference estimates of marginal abatement costs differ enormously from typical engineering estimates. Some evidence suggests that using price rather than existing quantity regulation in these markets may increase social welfare.
In addition to the conference paper, the research was distributed as NBER Working Paper w28199, which may be a more recent version.
This paper investigates the effects of the Low-Income Housing Tax Credit (LIHTC) on residents of buildings qualifying for the credit. Specifically, it analyzes whether individuals who grow up in LIHTC housing are more likely to enroll in post-secondary education programs and have higher earnings as adults. Using administrative tax records, Derby finds that each additional year spent in LIHTC housing as a child is associated with an average 4.3 percent increase in the likelihood of attending a higher education program for four years or more, and a 5.7 percent increase in future earnings. Furthermore, she finds that there are heterogeneous effects when comparing individuals who live in LIHTC housing located in neighborhoods with different characteristics, and among families that have varying income levels and varying levels of housing security prior to moving into a LIHTC building. Based on this analysis, it is likely that the housing subsidy provides some families with a more stable living situation and with more disposable income.
This paper studies tax evasion at the top of the U.S. income distribution using IRS micro-data from (i) random audits, (ii) targeted enforcement activities, and (iii) operational audits. Drawing on this unique combination of data, Guyton, Langetieg, Reck, Risch, and Zucman demonstrate empirically that random audits underestimate tax evasion at the top of the income distribution. Specifically, random audits do not capture most tax evasion through offshore accounts and pass-through businesses, both of which are quantitatively important at the top. The researchers provide a theoretical explanation for this phenomenon, and they construct new estimates of the size and distribution of tax noncompliance in the United States. In their model, individuals can adopt a technology that would better conceal evasion at some fixed cost. Risk preferences and relatively high audit rates at the top drive the adoption of such sophisticated evasion technologies by high-income individuals. Consequently, random audits, which do not detect most sophisticated evasion, underestimate top tax evasion. After correcting for this bias, Guyton, Langetieg, Reck, Risch, and Zucman find that unreported income (as a fraction of true income) rises from 7% in the bottom 50% to more than 20% in the top 1%. They estimate that 42% of federal income taxes unpaid are owed by the top 1%; collecting all unpaid federal income tax from this group would increase federal revenues by about $200 billion annually.
In addition to the conference paper, the research was distributed as NBER Working Paper w28542, which may be a more recent version.
Is government guiding the invisible hand at the top of the labor market? Gottlieb, Polyakova, Rinz, Shiplett, and Udalova study this question among physicians, the most common occupation among the top one percent of income earners, and whose billings comprise one-fifth of healthcare spending. They use a novel linkage of population-wide tax records with the administrative registry of all physicians in the U.S. to study the characteristics of these high earnings, and the influence of government payments in particular. The researchers find a major role for government on the margin, with half of direct changes to government reimbursement rates flowing directly into physicians' incomes. These policies move physicians' relative and absolute incomes more than any reasonable changes to marginal tax rates. At the same time, the overall level of physician earnings can largely be explained by labor market fundamentals of long work and training hours. Competing occupations also pay well and provide a natural lower bound for physician earnings. Gottlieb, Polyakova, Rinz, Shiplett, and Udalova conclude that government plays a major role in determining the value of physicians' human capital, but it is unrealistic to use this power to reduce healthcare spending substantially.
Health insurance provides valuable insurance against health care costs. But individuals face other risks, and health insurance's overall insurance value depends on the extent to which it insures or exacerbates those as well. Using a variety of approaches, Lockwood finds that health insurance systematically exacerbates other risks, and this exacerbation is sufficiently costly that on average for U.S. households health insurance increases risk exposure on net. The key driver is the uneven, health care-focused safety net. The safety net---charity care, bad debt, bankruptcy, and means-tested support---provides considerable protection against otherwise-uninsured health care costs, especially in the worst, highest-marginal utility states of the world. Health insurance displaces such support, which undoes without replacing the valuable insurance against other risks that such support otherwise would have provided. This is an important cost of health insurance and of the unevenness of the safety net.
How does energy regulation affect production and energy use within conglomerates? Suárez Serrato, Xu, Chen, Liu, and Chen study the effects of a prominent program aimed at reducing the energy use of large Chinese companies. Difference-in-differences analyses show that regulated firms significantly reduced their energy consumption and output but did not increase their energy efficiency. Using detailed business registration data, the researchers link regulated firms to non-regulated firms that are part of the same conglomerate. The researchers estimate large spillovers on cross-owned nonregulated firms, which increased both output and energy use. Suárez Serrato, Xu, Chen, Liu, and Chen then specify and estimate a model of conglomerate production that fits their setting and the estimated effects of the regulation. The model quantifies the importance of conglomerate reallocation for aggregate outcomes, the shadow cost of the regulation, and the efficiency gains from using public information on business networks to improve the design of energy regulation.