An upcoming trend in public finance is applying economic theory to understand how private
agents' incentives, expectations, and perceptions affect the efficiency and sustainability of
government policies. This doctoral dissertation presents novel studies that fall into this category.
The first three chapters examine many aspects of tax amnesties from this perspective,
while the last chapter studies intergenerational risk-sharing under limited enforcement.
The first chapter introduces a selection of stylized facts about tax amnesties by examining
the recent state-level tax amnesty experiences in the US. We provide observational
evidence on the heterogeneity of tax amnesty implementations among US states. The heterogeneity
is also persistent throughout the last four decades. We show that a few states
declaring amnesties very rarely in the 80s and 90s start to implement amnesties much more
frequently in recent decades. We also observe that the tax amnesty declarations of US states
cluster around the US recession periods.
The second chapter introduces a theoretical framework to investigate the strategic
interaction between a government and taxpayers in an economy. Our model predicts four
factors that make a tax amnesty more likely in an economy: high personal income; high tax
rates; low political cost for declaring an amnesty; and low audit rates. We examine US statelevel
data to test this prediction and show that the states with high personal income and
high tax rates are using tax amnesties more frequently. We also show that the self-fulfilling
characteristic of tax amnesties may lead to sub-optimal outcomes under lack of commitment.
In the third chapter, we present a theoretical framework to explain the recurring nature
of tax amnesties. We construct a model with the strategic interaction of a government and
a mass of taxpayers. The government and the taxpayers interact repeatedly, and each interaction
can result in a tax amnesty. We show that an amnesty can cause another amnesty
in the near future by altering taxpayers' beliefs about unobservable government characteristics.
Therefore, an economy may get into a sequence of successive tax amnesties through
a reputational channel referred to as an "expectation trap." The expectation trap mechanism
can explain the series of tax amnesties in some US states that rarely experienced tax
amnesties in the past. Extending our baseline model shows that a recession may cause a tax amnesty, which can trigger a sequence of further amnesties that can spread into the years
after recovery from the recession.
In the fourth chapter, we study the sustainable intergenerational insurance schemes under
lack of enforcement. The welfare improving insurance policies may not be implementable
under limited enforcement since any agent can opt-out of the insurance scheme if it does
not benefit her. We develop a 2-period overlapping generations model to study the impact
of different government policies. A standard tax-and-transfer scheme cannot provide perfect
risk-sharing. To improve intergenerational risk sharing, we first introduce money into the
system. We show that introducing money into the baseline model may improve risk-sharing.
We also investigate the possibility of providing further risk-sharing by using monetary policy.
We show that a monetary policy rule improves welfare under a numerical example.Programa de Doctorado en Economía por la Universidad Carlos III de MadridPresidente: Nicola Pavoni.- Secretario: Piero Gottardi.- Vocal: Andrés Erosa Etchebeher