The Legal Incidence of Ad Valorem Taxes Matters
Fred Schroyen & Wilfired Pauwels
Published in
Journal of Economics (2024)
Abstract
It is well known that, for a specific tax, its economic incidence does not depend on which side of the market has the legal obligation to pay the tax. In this paper, we show that, for an ad valorem tax, this legal incidence does matter for the economic incidence. In particular, when a government imposes an ad valorem tax rate on the sale of a commodity, the resulting reduction in the market equilibrium level of sales will be larger when sellers are obliged to pay the tax than when buyers are obliged to pay the tax.
Dissecting Idiosyncratic Earnings Risk
Elin Halvorsen, Hans A. Holter, Serdar Ozkan and Kjetil Storesletten
Published in
Journal of European Economic Association (2023).
Abstract
This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear, while hours dynamics are nonlinear—negative changes to hours are transitory, while positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) Both wages and hours contribute to negative skewness and high kurtosis for earnings changes, although hour-wage interactions are quantitatively more important. (iv) When considering household earnings and disposable household income, the deviations from normality are mitigated relative to individual labor earnings: changes in disposable household income are approximately symmetric and less leptokurtic.
Long-run evolution of income inequality in the Nordic countries
Rolf Aaberge and Erik Bengtsson
Published in
Scandinavian Economic History Review (2023)
Abstract
This paper surveys Nordic historic studies on the distribution of income to highlight similarities and differences between Denmark, Finland, Norway, and Sweden in the evolution of income concentration and income inequality over more than 140 years. Our descriptive analysis allows for a decomposition where we identify the contribution of the income share of the richest 1 per cent and the distribution of income among the other 99 per cent to overall inequality as measured by the Gini coefficient. The results show that the evolution of income concentration and inequality can be characterised by episodes rather than by secular cycles, which means that the evolution can neither be summarised by Kuznets’ inverse U nor by a U. The evidence on the role played by the share of the top 1 per cent for overall income inequality shows to be mixed and to vary across time and countries.
How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income
Magne Mogstad, Mikhail Golosov, Michael Graber and David Novogorodsky
Published in
Quarterly Journal of Economics (2023)
Abstract
We study how Americans respond to idiosyncratic and exogenous changes in household wealth and unearned income. Our analyses combine administrative data on U.S. lottery winners with an event-study design. We first examine individual and household earnings responses to these windfall gains, finding significant and sizable wealth and income effects. On average, an extra dollar of unearned income in a given period reduces household labor earnings by about 50 cents, decreases total labor taxes by 10 cents, and increases consumption by 60 cents. These effects are heterogeneous across the income distribution, with households in higher quartiles of the income distribution reducing their earnings by a larger amount. Next, we examine margins of adjustment other than earnings and, in the course of doing so, address a number of important economic questions about how additional wealth or unearned income affects retirement decisions and labor market dynamics, family formation and dissolution, entrepreneurship and self-employment, and geographic mobility and neighborhood choice. Lastly, we carefully compare our findings to those reported in existing lottery studies. This comparison reveals that existing U.S. studies substantially underestimate wealth and income effects because they use measures that understate earnings responses and overstate wealth changes associated with lottery wins.
Controlling for fixed effects in studies of income underreporting
Thor Olav Thoresen and Odd E. Nygård
Published in
European Journal of Law and Economics (2023)
Abstract
The expenditure method of Pissarides and Weber (J Public Econ 39(1):17–32, 1989) shows how one backs out measure of income underreporting by the self-employed by using food consumption as trace of true income. In this paper we make a case for using panel data and fixed effects estimation in such analysis, instead of OLS esti- mation. The main argument is that fixed effects estimation addresses the problem of omitted variable bias in the identification. We demonstrate the use of panel data and fixed effects estimation by using large-scale administrative register data on charita- ble donations, exploiting that the data can be turned into a panel dataset. The results suggest that the estimation technique matters—fixed effects estimates are smaller than OLS estimates.
Alternatives to Paying Child Benefit to the Rich: Means-Testing or Higher Tax?
Ray Rees, Thor Olav Thoresen and Trine E. Vattø
Published in
Australian Economic Review, Volume 56, 2023, pp. 328-354.
Abstract
There appears to be a general movement away from universal child benefits and towards means-testing. In the present article we argue that instead of suppressing the labour supply of middle-income parents by withdrawing the transfer as a function of income, one should consider the alternative of financing a generous universal child benefit by increasing taxation of income. The implications of means-testing compared with a tax-financed universal alternative are discussed analytically in a piecewise linear schedule and by combining information from behavioural and non-behavioural micro-simulation models. Our results provide support for making child benefit universal instead of means-tested.
Do Audits Improve Future Tax Compliance in the Absence of Penalties? Evidence from Random Audits in Norway
Thor O. Thoresen, Shafik Hebous, Zhiyang Jia and Arnstein Øvrum
Published in
Journal of Economic Behavior & Organization, Volume 207, 2023, pp. 305-326.
Abstract
The Norwegian Tax Administration conducted multi-year random audits on a specific item in the personal income tax return. We exploit this exceptional randomized setup to estimate the effects of tax audits on future compliance explicitly distinguishing between dynamic responses of compliant and noncompliant audited taxpayers. A priori, the literature has suggested two competing effects: a post-audit deterrence effect, whereby audits prompt taxpayers to comply in subsequent years, or a “bomb-crater” effect, whereby audits lower taxpayers’ subjective perception of the probability of future evasion being detected and hence weaken compliance. Our results show improved future compliance for six post-audit years by those found noncompliant in the audits, despite the absence of penalties. Although the findings are consistent with a deterrence effect, mainly stemming from being caught in wrongdoing rather than being penalized, we argue that there could also be a “learning effect” involved. An important implication of our study is that better information for taxpayers critically should complement tax audits.
Evaluating Compliance Gains of Expanding Tax Enforcement
Gaute Torsvik, Knut Løyland, Oddbjørn Raaum and Arnstein Øvrum
Published in
Forthcoming in Economica
Abstract
This paper demonstrates how tax administrations can evaluate future compliance gains from risk‐based tax enforcement that audits all taxpayers above a risk threshold. Expanding tax enforcement in this setting means reducing the audit threshold. The compliance gains from such an expansion consist of a mechanical audit correction effect and a behavioural effect that reflects changes in self‐reporting in the subsequent years. We estimate this behavioural effect in a regression discontinuity analysis with the risk score as the forcing variable. We find that taxpayers at the margin had a significant reduction in self‐reported deductions in the next years' tax filing. The behavioural effect over a three‐year post‐audit period is estimated to be of a magnitude similar to that of the direct adjustment of the audit. This compliance effect does not change when we include the reporting of the spouse. We find that the risk score threshold that maximizes net public revenue from the audits is considerably below current practice.
A European equivalence scale for public in‑kind transfers
Rolf Aaberge, Audun Langørgen and Petter Lindgren
Published in
Journal of Economic Inequality (2023)
Abstract
This paper introduces a theory-based equivalence scale for public in-kind transfers, which justifies comparison of distributions of extended income (cash income plus the value of public services) between European countries. We demonstrate the usefulness of the proposed equivalence scale in an empirical analysis of the effects of public health care, long-term care, education and childcare expenditure on estimates of income inequality and poverty for 24 European countries. The empirical results show significant effects of public in-kind transfers on the level of income inequality and poverty for all countries. Over the period 2006–2018, inequality and poverty estimates display rather different trends across European countries.
Arbeidsfradrag og skatt på formue – kommentarer til Torvik-utvalget
Thor Olav Thoresen
Published in
Samfunnsøkonomen, 2. utgave, 2023
Abstract
Behovet for skatteinntekter og arbeidskraft i tiden som kommer taler for at vi innretter skattesys- temet slik at disinsentivene til markedsarbeid begrenses. Jeg tror imidlertid ikke at Torvik-utvalgets hovedgrep for å oppnå dette – arbeidsfradraget – vil ha noe særlig effekt på sysselsettingen. I stedet foreslås det her å se på kvinners arbeidstilbud mer generelt. Jeg er enig med utvalget i at det er grunnlag for å fortsette beskatningen av formue, men mens utvalget foreslår å gjeninnføre skatt på arv, argumenterer jeg for at det godt kan skje innenfor en årlig skatt på nettoformue. Torvik-utvalgets rapport kan danne grunnlaget for et «historisk kompromiss» når det gjelder formuesbeskatningen, dvs. at partiene på Stortinget går sammen om å etablere et langsiktig og forutsigbart system for årlig beskatning av formue.
Facts and Fantasies about Wage Setting and Collective Bargaining
Magne Mogstad, Manudeep Bhuller, Karl Ove Moene and Ola L. Vestad
Published in
Journal of Economic Perspectives, Volume 36 No. 4, 2022, pp. 29-52.
Abstract
In this article, we document and discuss salient features of collective bargaining systems in the OECD countries, with the goal of debunking some misconceptions and myths and revitalizing the general interest in wage setting and collective bargaining. We hope that such an interest may help close the gap between how economists tend to model wage settings and how wages are actually set. Canonical models of competitive labor markets, monopsony, and search and matching all assume a decentralized wage setting where individual firms and workers determine wages. In most advanced economies, however, it is common that firms or employer associations bargain with unions over wages, producing collective bargaining systems. We show that the characteristics of these systems vary in important ways across advanced economies, with regards to both the scope and the structure of collective bargaining.