22 research outputs found
Dynamic Causal Forests, with an Application to Payroll Tax Incidence in Norway
This paper develops a machine-learning method that allows researchers to estimate heterogeneous treatment effects with panel data in a setting with many covariates. Our method, which we name the dynamic causal forest (DCF) method, extends the causal-forest method of Wager and Athey (2018) by allowing for the estimation of dynamic treatment effects in a difference-in-difference setting. Regular causal forests require conditional independence to consistently estimate heterogeneous treatment effects. In contrast, DCFs provide a consistent estimate for heterogeneous treatment effects under the weaker assumption of parallel trends. DCFs can be used to create event-study plots which aid in the inspection of pre-trends and treatment effect dynamics. We provide an empirical application, where DCFs are applied to estimate the incidence of payroll tax on wages paid to employees. We consider treatment effect heterogeneity associated with personal- and firm-level variables. We find that on average the incidence of the tax is shifted onto workers through incidental payments, rather than contracted wages. Heterogeneity is mainly explained by firm-and workforce-level variables. Firms with a large and heterogeneous workforce are most effective in passing on the incidence of the tax to workers
Optimal Taxation with Multiple Incomes and Types
We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple in comes and differ along many unobserved dimensions. We derive the necessary conditions for the government’s optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique
Welfare Effect of Closing Loopholes in the Dividend-Withholding Tax: The Case of Cum-cum and Cum-ex Transactions
We study the effect of reforms that close loopholes in the enforcement of the dividend withholding tax (DWT). We focus on a Danish reform enacted in 2016, and compare Denmark to its Nordic neighbors. Our main outcome of interest is the quantity of stocks on loan. Before the reform all Nordic countries have a strong spike in stocks on loan centered around the ex-dividend day. The magnitude is large: on average excess stocks on loan peak at around 4 percent of the public float. The spike in lending is consistent with the most popular DWT arbitrage schemes. After the reform the spikes in Denmark disappear, but they continue in the other Nordics. We interpret this as evidence that the reform was successful at eliminating DWT arbitrage. We consider the welfare effects of the reform. Using synthetic difference-in-difference we find that stricter DWT enforcement resulted in a 130 percent (approx. 1.3 bln USD annually) increase in DWT revenue in Denmark. We detect no changes in foreign portfolio investment or dividend policy. We also consider DWT arbitrage among 15 European countries between 2010-2019. We find evidence of DWT arbitrage in all countries that levy DWT, though there is strong heterogeneity across countries. Importantly, similar to Denmark, Germany’s 2016 reform has eliminated the spikes in lending completely. We validate our identification strategy by showing that we find no evidence of DWT arbitrage in the UK, which does not levy a DWT
The effect of capital taxes on household's portfolio composition and intertemporal choice : evidence from the Dutch 2001 capital income tax reform
This paper estimates the effect of capital taxation on portfolio composition and savings using quasi-
experimental variation generated by the Dutch 2001 capital tax reform. The reform drove a wedge
between the taxation of housing and financial wealth and in addition affected the after-tax return
on all assets. I use unique administrative household panel data with information on capital income,
wealth and portfolio shares to exploit this variation. I derive and estimate a semi-structural model
which directly relates the share invested in financial wealth to the after-tax return on financial and
housing wealth. In addition, I link accumulated wealth in the reform-period to the change in the
after-tax return on total wealth. Elasticities have the expected sign but are modest in size. I find
some evidence for heterogeneity in the behavioral response. In particular, rich and single households
seem to be more responsive in terms of both portfolio composition and wealth accumulation, than
other households. The estimated elasticities can be used in capital tax models to calibrate the opti-
mal tax rate
The Effect of Social Distancing Measures on Intensive Care Occupancy: Evidence on COVID-19 in Scandinavia
Understanding the effectiveness of social distancing on the spread of COVID-19 is crucial to justify economically costly social distancing measures. We present a case study focusing on the three Scandinavian countries. Whereas Denmark and Norway imposed relatively strict measures, Sweden follows an extraordinarily lenient approach. We use an event-study approach in which Sweden serves as a counterfactual to Denmark/Norway to estimate the measures’ effectiveness. We estimate that in the counterfactual in which Denmark/Norway implemented Sweden’s more lenient measures the number of hospitalizations would have peaked between around 15-20 days later. The peak number of hospitalizations in Denmark (Norway) would have been 133 (231) percent higher, and the peak number of ICU patients would have increased by 107 (140) percent
Optimal redistribution and monitoring of labor effort
This paper extends the Mirrlees (1971) model of optimal non-linear income taxation with
a monitoring technology that allows the government to verify labor effort at a positive,
but non-infinite cost. We analyze the joint determination of the non-linear monitoring and
tax schedules and the conditions under which these can be implemented. Monitoring of
labor effort reduces the distortions created by income taxation and raises optimal marginal
tax rates, possibly above 100 percent. The optimal intensity of monitoring increases with
the marginal tax rate and the labor-supply elasticity. Our simulations demonstrate that
monitoring strongly alleviates the trade-off between equity and efficiency as welfare gains
of monitoring are around 1.4 percent of total output. The optimal intensity of monitoring
follows a U-shaped pattern, similar to that of optimal marginal tax rates. Our paper can
explain why large welfare states optimally rely on work-dependent tax credits, active labormarket
policies, benefit sanctions and work bonuses in welfare programs to redistribute
income efficiently
When a price is enough : implementation in optimal tax design
This paper studies the design of tax systems that implement a planner's secondbest
allocation in a market economy. An example shows that the widely used Mirrleesian
(1976) tax system cannot implement all incentive-compatible allocations.
Hammond's (1979) "principle of taxation" proves that any incentive-compatible
allocation can be implemented through at least one tax system. However, this tax
system is often undesirable since it severely restricts the choice space of agents in
the economy. In this paper we derive necessary and suficient conditions to verify
whether a given tax system can implement a given incentive-compatible allocation.
We show that when an incentive-compatible allocation is on the Pareto frontier,
and/or surjective onto the choice space, a tax system that equates the marginal
tax rates to the optimal wedges can implement the second best, without restricting
the choice space of the agents. It follows that the Mirrleesian tax system can
successfully implement the second best in the identified classes. Since the secondbest
allocation of welfarist planners is always on the Pareto frontier, our results (ex
post) validate most tax systems proposed in the literature. Outside of the identified
classes, the planner may need to restrict the choice space of agents to implement its
second best in the market. This sheds new light on rules, quotas and prohibitions
used in real-world tax and benefit systems
The Effect of Social Distancing Measures on Intensive Care Occupancy: Evidence on COVID-19 in Scandinavia
Understanding the effectiveness of social distancing on the spread of COVID-19 is crucial to justify economically costly social distancing measures. We present a case study focusing on the three Scandinavian countries. Whereas Denmark and Norway imposed relatively strict measures, Sweden follows an extraordinarily lenient approach. We use an event-study approach in which Sweden serves as a counterfactual to Denmark/Norway to estimate the measures’ effectiveness. We estimate that in the counterfactual in which Denmark/Norway implemented Sweden’s more lenient measures the number of hospitalizations would have peaked between around 15-20 days later. The peak number of hospitalizations in Denmark (Norway) would have been 133 (231) percent higher, and the peak number of ICU patients would have increased by 107 (140) percent