The Internet as a Tax Haven?

If online transactions are tax free, increased online shopping may lower tax rates as jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales may put upward pressure on tax rates because internet sales help enforce destination-based taxes. I find that higher internet penetration generally results in lower municipal tax rates but raises tax rates in some jurisdictions. The latter effect emerges in states where many online vendors remit taxes. A 1 standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.15 percentage points, or 16 percent of the average rate. (JEL H25, H26, H71, L81, R51)

Market Power and Income Taxation

This article analyzes concerns about market power and inequality in a model with multiple sectors, heterogeneous abilities, endogenous labor supply, and nonlinear income taxation. Proportional markups with no profit dissipation have no effect on the economy, and a policy that reduces a nonproportional markup raises (lowers) welfare when it is higher (lower) than a weighted average of other markups. With proportional (partial or full) profit dissipation, proportional markups are equivalent to a downward shift of the distribution of abilities, and the optimal policy rule with nonproportional markups maximizes consumer plus producer surplus despite concerns for distribution and labor supply distortion. (JEL D43, D61, H21, H23, H24, K21, L13, L40)

Collaborative Tax Evasion in the Provision of Services to Consumers: A Field Experiment

We conduct a field experiment with sellers of home improvement services on two German online markets. We take the role of consumers and vary whether we request an invoice for the delivery of the service. In a market that allows anyone to sell anonymously, a willingness to evade is prevalent. In a market that keeps track of credentials, sellers are only willing to evade when a willingness to collude is signaled. The evasion discount is in most estimates not larger than the tax subsidy for legal demand. Evasion is unlikely to be beneficial for many consumers in our setting. (JEL C93, H25, H26, L84)

Subsidizing Fuel-Efficient Cars: Evidence from China’s Automobile Industry

This paper examines the response of vehicle purchase behavior to China’s largest national subsidy program for fuel-efficient vehicles during 2010 and 2011. Using variation from the program’s eligibility cutoffs and the rollout of the subsidy program, the program is found to boost sales for subsidized vehicle models, but also to create a substitution effect within highly fuel-efficient vehicles. Estimates imply that ignoring the substitution effect would lead one to conclude that the program is welfare enhancing, whereas in fact the marginal cost of the program exceeds the marginal benefit by as much as 300 percent. (JEL D12, H25, L25, L62, O14, P23, P36)

Program Recertification Costs: Evidence from SNAP

Participants in means-tested programs must periodically document eligibility through a recertification process. If all cases that fail recertification are ineligible, the exact timing of this process should be irrelevant. We find that later recertification interview assignments for the Supplemental Nutrition Assistance Program (SNAP), which leave less time to reschedule missed interviews, decrease recertification success by 22 percent. The consequences of not recertifying due to later interviews are highly skewed: most cases quickly reenroll, while one-quarter remain off SNAP for over a year. The marginal disenrolled case is as needy as the average participant, suggesting inefficient screening from late interviews. (JEL H51, H75, I12, I18, I38)

Fiscal Transfers in the Spatial Economy

Many countries shift substantial public resources across jurisdictions to mitigate spatial economic disparities. We use a general equilibrium model with multiple asymmetric regions, labor mobility, and costly trade to carve out the aggregate implications of fiscal transfers. Calibrating the model for Germany, we find that transfers indeed deliver smaller disparities across regions. This comes at the cost of lower national output, however, because economic activity is diverted away from core cities and toward remote areas with low productivity. But despite this loss in output per capita by about 2 percent in our baseline specification, welfare still increases by 0.07 percent because the transfer scheme countervails overcongestion in large cities. If the optimal transfer regime was implemented, welfare would increase by 0.06 percent. (JEL H77, J61, R12, R13, R23)

Democracy and Aid Donorship

Almost half of the world’s states provide bilateral development assistance. While previous research takes the set of donor countries as exogenous, this article introduces a new dataset on aid giving that covers all countries in the world, both rich and poor, and explores the determinants of aid donorship. It argues and shows empirically that democratic institutions support the setup of an aid program in richer countries but undermine its establishment in poorer countries. The findings hold in instrumental-variable regressions and the pattern is similar for the amount of aid. (JEL D72, F35, H87, O17, O19)

Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms

This paper uses all value-added tax (VAT) changes across EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, even when VAT changes are large. These elasticities are substantially smaller than the elasticities of trade flows with respect to tariffs estimated in the trade literature. This finding holds across different time periods, countries, and types of reforms. Our results imply that VATs are unlikely to distort trade flows. (JEL F13, F14, H25, H87)

Corporate Taxation under Weak Enforcement

How should developing countries tax corporate income? We study this question in Costa Rica, where firms face higher average tax rates on profits when revenues marginally increase. We combine discontinuity and bunching designs to estimate the elasticity of taxable profit and separate it into revenue and cost elasticities. We find that firms faced with a higher tax rate slightly reduce revenues but considerably increase costs, thus producing a large elasticity of taxable profit of 3–5. In this context, the revenue-maximizing rate for a corporate tax on profit is below 25 percent, and we show that a tax policy that broadens the base while lowering the rate can almost double the tax revenue collected from these firms. (JEL D22, H25, H26, H32, K34, L25, O23)