Behavioral Effects of Taxes and Transfers

This dissertation comprises four chapters within public economics, which are united by a common thread: They investigate aspects of how taxes and transfers influence human behavior. Chapter 1, co-authored with Amalie Sofie Jensen and Henrik Kleven, studies the effects of welfare generosity on international migration using reforms of immigrant welfare benefits in Denmark. The first reform lowered benefits for non-EU immigrants by about 50 percent, with no changes for EU immigrants. The policy was later repealed and reintroduced. In a quasi-experimental research design, we find sizable effects: the benefit reduction reduced the net flow of immigrants by about 5,000 people per year, and the subsequent repeal of the policy reversed the effect. Chapter 2, co-authored with Owen Zidar, estimates the effect of capital gains taxation on realizations at the state level and develops a framework for determining federal revenue-maximizing rates. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is –0.5 to –0.3. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent. Chapter 3 studies the effects of complex tax systems. In a model where taxpayers can acquire costly knowledge to reduce their tax burden, I show that a complex tax system can act as a sorting device similar to second-degree price discrimination, where more elastic taxpayers will invest in more tax knowledge. I prove that if elasticities are increasing with income, tax complexity can allow the government to raise higher tax revenues at no efficiency cost. However, a simulation exercise demonstrates that complexity benefits high earners and exacerbates inequality. Chapter 4, co-authored with Julie Brun Bjørkheim, studies a complex tax system in Norway. Using register data on business owners, we demonstrate that many taxpayers make accounting decisions that cause them to pay higher taxes, and we quantify the size of this overpayment at the individual level. We show that overpayment tends to be larger for women, the less wealthy, and immigrants. We validate the predictions of the theoretical model from Chapter 3 by showing that failure to optimize is associated with a lower estimated tax elasticity