Kind of Black: The Musicians' Labour Market in Italy

It is estimated that only 5% of musicians in Italy are regularly employed. In an attempt at understanding such a peculiar situation, we build a theoretical model of the musicians’ labour market in which we embed the main institutional features of the Italian system. We notice how the presence of taxation incentivates the formation of a black market for musicians and discourages talented agents from becoming full-time musicians in all second-best economies. In Italy both tendencies are particularly strong, and further exacerbated by the presence of an actuarially unfair pension system for musicians. These inefficiencies might be corrected by a two-fold policy: the reform of the pension system, and the introduction of a sufficiently large unemployment benefit for musicians. We notice that the first step, while highly desirable, is unlikely to be politically feasible in the current Italian institutional setting. The second step, which has a general interest for any second-best economy, is instead viable under certain circumstances.musician, labour market, moonlighting, unemployment benefit, Italy

Gifts, Lies and Bequests

Recent empirical work on intergenerational transfers has shown that: i) parents prefer to transfer resources to their children using bequests rather than inter vivos transfers (gifts), and ii) bequests tend to be divided equally, while gifts tend to be directed towards the less well-off children. In this note, we present a theoretical model of the altruistic family with heterogeneous children which does not contradict either i) or ii). In our setting, i) follows because bequests are more e¢cient than gifts: these are negatively related to the children’s reported income (true income cannot be observed) and therefore distort the effort supply decisions as well as inducing underreporting. As for ii), we propose two arguments. First, market imperfections make bequests, which come late in life, a rather ineffective redistributive tool, so that it may be pointless to differentiate them. Second, imposing the constraint that bequest have to be equal is not necessarily costly in welfare terms and permits to avoid the the psychic costs or the loss of reputation associated with unequal giving.altruism, inter vivos transfers, bequests

It is a Theft but not a Crime

Why do people who normally refrain from committing illegalities become digital pirates? In this paper we use a theoretical model of digital piracy combined with a game-theoretic mechanism of social norm formation to argue that no social stigma is attached to digital piracy because the latter has no perceived social cost; therefore, there is no pressure to build a norm condemning it. We note the existence of a "sophisticate" form of piracy focused on high-quality copies, and not on Internet downloads and black market purchases of low-quality copies like the most common form. Somewhat paradoxically, sophisticate piracy could help to generate a social attitude against piracy, because it is self-containing. However, it is limited in its scope, and it is difficult to predict whether it might ever become sufficiently widespread to effectively engender the formation of an anti-piracy social norm.digital piracy, social norms, conformism

Taxes, Status Goods, and Piracy

This paper studies the design of indirect redistributive taxation and of corrective taxation, as well as the formation of equilibrium indirect tax policies via a political process, in the presence of status goods, allowing for the possibility that illegal copies of those goods may be purchased on black markets (the phenomenon of "piracy"). Heavy taxation of status goods, despite the fact these are typically overconsumed, is not particularly favoured in a social welfare maximisation context, because the tax rate is highly distortionary, due to the presence of piracy. Corrective taxation, aimed at remedying the inefficiencies associated with the consumption externalities generated by the status goods, is made ineffective by piracy. In contrast with the normative results, the median voter model predicts an inefficiently large tax rate on status goods when piracy is widespread.social status, indirect taxes, corrective taxes, median voter, piracy

Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect

We present a model of income tax avoidance with heterogenous agents, assuming the presence of a comparison income effect and of a psychic cost (disutility) of tax dodging. We analyse the policy preferences of the agents, and identify a median-voter political equilibrium. Paralleling previous results in the optimal taxation literature, we show that the comparison income effect calls for a high degree of progressivity of the income tax; additionally, we find that this tendence is strenghtened by the psychic cost of avoidance. We then investigate the source of the stigma attached to the act of avoidance and find that such stigma is motivated by the desire to make redistribution more effective, and that it is enhanced by the income comparison effect.

Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect

We present a model of income tax avoidance with heterogeneous agents, assuming the presence of a comparison income effect and of a psychic cost (disutility) of tax dodging. We analyse the policy preferences of the agents, and identify a median-voter political equilibrium. Paralleling previous results in the optimal taxation literature, we show that the comparison income effect calls for a high degree of progressivity of the income tax; additionally, we find that this tendence is strengthened by the psychic cost of avoidance. We then model the endogenous formation of the stigma attached to the act of avoidance as a "conformism game". We argue that such stigma is motivated by the desire to make redistribution more effective, and that it is enhanced by the income comparison effect.tax avoidance, social norms, conformism, comparison income, median voter

On the Redistributive Properties of Presumptive Taxation

Presumptive taxation, in which an income proxy is used as tax base, has been and is still used today in countries with very diverse situations - developing, transition and developed countries. Usually, this form of taxation is thought of as a revenue-raising device in presence of widespread imperfect tax compliance. We investigate the question of whether presumptive taxation can be used as a redistributive instrument. To this end, we employ an occupational choice model in which an individual can be either an entrepreneur or a worker. We allow for different abilities to dodge taxes across social classes, and consider both the case in which a conventional income tax is in place alongside presumptive taxation and the case in which only presumptive taxation is operating. We argue that a revenue-neutral reform introducing a lump-sum presumptive tax based on occupational choice can improve social welfare, and sometimes even lead to a Pareto-improvement.tax avoidance, presumptive taxation, redistribution, occupational choice

The Political Economy of Post-Compulsory Education Policy with Endogenous Credit Constraints

Altruistic parents, who differ in income, make financial transfers to their children, who differ in ability. The children invest in post-compulsory education, subject to an endogenous credit constraint, and taking policy as given. There are two policy tools: a subsidy to those who participate in education and a proportional income tax. Not all children participate; a larger subsidy encourages participation, and a larger income tax discourages it. The parents, prior to making transfers, vote on policy. A voting equilibrium, if it exists, is such that voters in the two tails of the income distribution support a reduction, while the “middle-class” supports an expansion, of the education subsidy. Public support of education is a policy with regressive elements as it entails, among other things, a redistribution from the poor to the middle-earners. We characterise a local equilibrium analytically, verify its existence numerically, and finally perform a number of comparative statics exercises.

Social Norms, Cognitive Dissonance and the Timing of Marriage

We present a model of courtship in which the timing of marriage is affected by the cognitive dissonance between perceived norms and personal aims. We argue that as long as the family has been the main provider of social protection, marriage has been favoured by strongly felt social norms, and thus people accepted less-than-ideal partners early on in their search in order to minimize the dissonance caused by the non-adherence to the custom. Once the Welfare state has replaced the family, these norms have lost their strength, so that agents can afford the luxury of searching their preferred partners at length without feeling at odds with their social duties. The model yields predictions in line with relevant stylised facts: the raising age of marriage, the prevalence of assortative mating and the common occurrence of divorce in the early years of marriage. We finally discuss the impact of late marriages on fertility, and argue that there need not be negative consequences if the declining role of the family becomes socially accepted, and alternative arrangements are made possible and indeed encouraged by means of an appropriate family policy.marriage, cognitive dissonance, fertility

On the Causes and Consequences of Divorce

In most Western economies, the flourishing of the Welfare State has coincided with a decline of the role of the family: divorce has been introduced, and the number of marriages has decreased. We suggest that a taboo against divorce was part of the informal safety net in a period when social protection was provided by the family. Once the State started offering suitable alternatives, the taboo was no longer expedient, and was dropped. For the same reasons, marriage has become less popular. We further notice that divorce is an extremely costly process, and once allowed it may act as an independent reason for the reduction of the number of marriages. This latter result is especially evident under the assumption that agents subjectively evaluate the probability of facing a divorce using an availability heuristic.divorce, marriage, availability heuristic