The Importance of Deductions in Response to the Personal Income Tax: Bunching Evidence from Germany

For its promise to summarize all necessary information to calculate efficiency losses from taxation (Feldstein, 1999), the elasticity of taxable income (ETI) has become one of the most widely studied parameters in public economics. More recently, Chetty (2009) and others have pointed out the limits of the sufficiency property of the ETI and reemphasized the importance of separating the behavioral margins along which taxpayers react. Using German tax administration data from 2007, this paper documents bunching patterns that are consistent with deduction behavior playing a key role in response to the personal income tax. Because the set of available deductions and the strength of enforcing their proper use are policy choices, this result cautions against construing the ETI as a structural parameter that determines optimal tax rates independently of non-tax rate policy instruments. For reference, I also report estimates for the local ETI at the personal allowance threshold from applying Saez' (2010) bunching estimator

How effective are enforcement measures for compliance with the minimum wage? Evidence from Germany

The extent of non-compliance with minimum wages is heavily debated, but little is known about the effectiveness of enforcement measures. Following the introduction of a national minimum wage in Germany in 2015, employers in a catalogue of industries deemed at high risk of non-compliance were subject to more stringent enforcement requirements, such as an obligation to record hours worked. Using national administrative employment data, in this study the authors exploit the variation in enforcement measures to analyze the effect on non-compliance. As an empirical strategy, they balance jobs from industries with stricter enforcement measures with jobs from other industries and apply difference-in-differences estimations. The evidence points to a small compliance-enhancing effect of the enforcement measures. The gains in compliance are not offset by more pronounced employment losses in those industries subject to stricter enforcement

Taxation with Mobile High-Income Agents: Experimental Evidence on Tax Compliance and Equity Perceptions

In a laboratory experiment on tax compliance, we model a situation in which high-income taxpayers can leave a tax system that finances a public good. We compare low-income taxpayers’ compliance decisions and equity perceptions across treatments in which they are informed or not informed about the mobility option of high-income taxpayers. This allows us to test if low-income taxpayers regard the mobility option as a rationale for implementing a regressive tax schedule. To investigate if a potential ‘justification effect’ of the mobility option depends on the causes of income heterogeneity, we also varied whether income was allocated based on relative performance in a prior ability task or at random. Interestingly, although the performance-based allocation itself was judged to be fairer, we observed higher compliance under the random allocation mechanism. However, compliance and equity perceptions did not significantly differ by the information treatment variation, regardless of the source of income inequality. The results indicate that the threat of losing high-income taxpayers’ contributions does not lead low-income taxpayers to view the regressive tax schedule more favorably. This suggests that taking the differential mobility options as given and altering tax schedules accordingly may not be perceived as an adequate policy response

Detecting envelope wages with e-billing information

Utilizamos información del sistema de facturación electrónica para estimar el subregistro de ingresos de los empleados del sector privado. Seguimos una metodología basada en el gasto que utiliza el consumo de los empleados de los sectores público y privado para niveles similares de ingresos declarados. Encontramos que los empleados del sector privado reportan menos de 7 y el 9% de sus ingresos en Ecuador. El tamaño de la brecha de subregistro es negativo correlacionado con el número de empleados de la empresa, consistente con los diferentes riesgos y los costos administrativos de los “salarios en sobre” en las empresas pequeñas versus las grandes.We use information from the electronic billing system to estimate the underreporting of income of private sector employees. We follow an expenditure-based methodology using the consumption of public and private sector employees for similar levels of reported income. We fnd that private sector employees underreport between 7 and 9% of their income in Ecuador. The size of the underreporting gap is negatively correlated with the number of employees at the frm, consistent with diferent risks and administrative costs of ‘envelope wages’ in small versus large frms.2023-2

A playground for tax compliance? Testing fiscal exchange in an RCT in Argentina

We present new evidence that a non-threatening behavioral intervention appealing to reciprocity significantly increases tax compliance in a setting (i.e., crisis-ridden Argentina) where one might least expect such an intervention to succeed. Prior research offers many examples of the efficacy of more threatening deterrence approaches. In contrast, field experimental evidence for non-deterrence nudges such as those appealing to taxpayers feelings of reciprocity ('fiscal exchange') has been limited. This paper reports evidence from a randomized controlled trial with over 20,000 taxpayers in Argentina. A redesigned tax bill with fiscal exchange appeal increased payment rates of tax delinquents by about 20 percent, or almost 40 percent when the bills were delivered in person. With the fiscal exchange appeal, the new bill design elicited significantly more payments than without. The unfavorable economic crisis context in Argentina makes the impacts remarkable. We hypothesize that having children as beneficiaries, the visual form of the appeal, and the proximity between taxpayers and public services in the municipal setting have contributed to the positive compliance impacts

Nudging taxpayer registration? Field experimental evidence on backfiring incentives

Governments in Latin America raise little revenue from property taxation, despite arguments for its efficiency and equity. Adequate registry information would support consistent collection, but registries are costly to establish and maintain. Compared to tax collection, field experimental evidence on low-cost interventions in this area is scarce. This paper provides the first such evidence for online tax registration. The municipality of Fortaleza, Brazil, randomized 163K property taxpayers into three groups. The first group represents the status quo that did not receive a particular treatment. To the second group, the tax administration sent an e-mail asking for registration; to the third group, an e-mail that additionally offered a lottery reward for successful registration. Relative to the first group, both e-mails increased registration, especially among compliant taxpayers, men, intermediate age groups and intermediate property values. But adding the lottery incentive had a negative effect on registration. We hypothesize that this backfiring effect relates to an inadvertent signal about non-enforcement. Additional evidence from a post-experimental survey suggests that for taxpayers in the lottery group, norm compliance and the usefulness of the online registry were less important reasons to register. In sum, the results suggest that the intervention prompted parts of the population to register and that monetary incentives may be counterproductive

How Effective Are Social Distancing Policies? Evidence on the Fight against Covid-19 from Germany

To fight the spread of Covid-19, many countries implemented unprecedented social distancing policies. This is the first paper that uses an event-study approach to examine the effects of the German social distancing policies on (a) individual behavior and (b) the spread of the epidemic. Combining administrative health data and cell phone data, we find that the policies, first, heavily reduced citizens’ mobility and, second, strongly contained the epidemic. In comparison to a benchmark without social distancing, within three weeks, the policies avoided 84% of the potential Covid-19 cases (point estimate: 499.3K) and 66% of the potential fatalities (5.4K)

Gender differences in multi-employee gift exchange with self-reported contributions

Gender-wage gaps are an important phenomenon on labor markets. They can possibly be caused by the institutional framework. This question is addressed in this paper. When only joint output can be observed in team production, individuals may submit self-reports of their contribution to a principal. In a multi-employee gift exchange experiment, we study how men and women behave differently with and without such self-reports. We cannot reject that self-reports left the overall efficiency of the gift exchange interaction unchanged, but detect notable gender differences. Women reported similar effort levels as men, but contributed significantly less. The difference in contributions led to a significant gender gap in wages, depending on gender group composition. These effects were only present when participants did not know each other’s gender, however. When instead gender was observable, the behavior of men and women converged. The results suggest that parts of wage gaps may be related to different behavior within incomplete contract and imperfect information environments, depending on details of the informational context

Competitive Mate Choice: How Need for Speed Beats Quests for Quality and Harmony

The choice of a mate is made complicated by the need to search for partners at the same time others are searching. What decision strategies will outcompete others in a population of searchers? We extend previous approaches using computer simulations to study mate search strategies by allowing direct competition between multiple strategies, evaluating success on multiple criteria. In a mixed social environment of searchers of different types, simple strategies can exploit more demanding strategies in unexpected ways. We find that simple strategies that only aim for speed can beat more selective strategies that aim to maximize the quality or harmony of mated pairs

Detecting envelope wages with e-billing information

This paper studies tax evasion in the form of under-reported wages in Ecuador using microdata from a combination of electronic billing and personal income tax returns filed in 2017. Bringing together this novel combination of data, the study applies the standard method Pissarides and Weber (1989) used to estimate the under-reporting of income by comparing public- and private-sector employees. The results demonstrate empirically that under-reporting of income in private-sector employees is between 7 and 9 percent of their income, which translates to an estimated 3 percent of unregistered GDP. The under-reporting has important implications for social security, reducing these contributions by about 10 percent. Beyond the overall picture of under-reporting, the study detects substantial heterogeneities concerning firm size, concluding that the gap size is negatively correlated with the number of employees at the firm, which is consistent with different risks and administrative costs of envelope wages in small versus large firms