Research

Working Papers

Wealth and Property Taxation in the United States [UPDATED! February 2023]

(with Sacha Dray and Camille Landais)

Abstract (click to expand): We study the history and geography of wealth accumulation in the US, using newly collected historical property tax records since the early 1800s. The US General Property Tax was a comprehensive tax on all types of property (real, personal, and financial), making it one of the first “wealth taxes.” Drawing on many historical records, we construct long-run, consistent, and high-frequency wealth series at the city, county, state, and national levels. We first document the long-term evolution of household wealth in the US since the early 1800s. The US experienced extraordinary wealth accumulation after the Civil war and until the Great Depression. Second, we show that spatial inequality in the US was large and highly persistent since the mid-1800s, in large part driven by Southern states. Before the Civil war, enslaved people were assessed as personal property of the enslavers, which is both morally abhorrent and implies wrongly counting forced labor income as capital. The regional distribution of wealth and the effects of the Civil war appear very different if enslaved people are not included in the property measure. Third, we investigate the determinants of long-term wealth growth and capital accumulation. Among others, we find that counties with a higher share of enslaved property before the Civil War or higher levels of wealth inequality experienced lower subsequent long-run growth in property. Finally, we highlight the importance of local public policies, notably spending on education and property taxes, for long-term capital accumulation. Using variation in property tax rates for more than 300 municipalities, we also find significant elasticities of the local capital stock, driven by extensive (migration) margin response and capitalization of property taxes into the value of local assets.

• Online Appendix

• Slides

Zero-Sum Thinking and the Roots of U.S. Political Divides [NEW! January 2023]

(with Sahil Chinoy, Nathan Nunn, and Sandra Sequeira)

Abstract (click to expand): We examine the causes and consequences of an important cultural and psychological trait: the extent to which one views the world in zero-sum terms -- i.e., that benefits to one person or group tend to come at the cost of others. We implement a survey among approximately 15,000 individuals living in the United States that measures zero-sum thinking, political and policy views, and a rich set of characteristics about their ancestry. We find that a more zero-sum view is strongly correlated with several policy views about the importance of government, the value of redistributive policies, the impact of immigration, and one's political orientation. We find that zero-sum thinking can be explained by experiences of an individual's ancestors (parents and grandparents), including the amount of intergenerational upward mobility they experienced, the degree of economic hardship they suffered, whether they immigrated to the United States or were exposed to more immigrants, and whether they had experiences with enslavement. These findings underscore the importance of psychological traits, and how they are transmitted inter-generationally, in explaining current political divides in the United States.

Tax Design, Information, and Elasticities: Evidence from the French Wealth Tax [NEW! February 2023]

(with Bertrand Garbinti, Jonathan Goupille-Lebret, Mathilde Munoz, and Gabriel Zucman)

Abstract (click to expand): We study a reform of the French wealth tax that dramatically reduced the amount of information that taxpayers must self-report below a certain level of wealth. Combining administrative micro-data with dynamic bunching and difference-in-differences approaches, we find large behavioral responses to this switch to a low-information regime. The reform caused a 0.5 percentage points average decrease in the annual growth rate of wealth reported by treated taxpayers each year following the switch to the low-information regime. This reduction is driven by a 4 percentage points decrease for taxpayers bunching at the information discontinuity threshold. Consistent with opacity leading to lower compliance, treated households do not experience a real change in their (third-party) reported labor and capital income. The wealth tax base becomes much more elastic in the low-information regime, illustrating the first-order role of information policy choices for tax base elasticities.

• Slides

Fighting Climate Change: International Attitudes Toward Climate Policies [UPDATED! September 2022]

(with Antoine Dechezleprêtre, Adrien Fabre, Tobias Kruse, Bluebery Planterose, and Ana Sanchez Chico)

Abstract (click to expand): Using new surveys on more than 40,000 respondents in twenty countries that account for 72% of global CO2 emissions, we study the understanding of and attitudes toward climate change and climate policies. We show that, across countries, support for climate policies hinges on three key perceptions centered around the effectiveness of the policies in reducing emissions (effectiveness concerns), their distributional impacts on lower-income households (inequality concerns), and their impact on the respondents’ household (self-interest). We show experimentally that information specifically addressing these key concerns can substantially increase the support for climate policies in many countries. Explaining how policies work and who can benefit from them is critical to foster policy support, whereas simply informing people about the impacts of climate change is not effective. Furthermore, we identify several socioeconomic and lifestyle factors – most notably education, political leanings, and availability of public transportation – that are significantly correlated with both policy views and overall reasoning and beliefs about climate policies. However, it is difficult to predict beliefs or policy views based on these characteristics only.

Understanding of Trade [UPDATED! May 2022]

Abstract (click to expand): I study how people understand and reason about trade and which factors shape their views on trade policy. I design and run large-scale surveys and experiments in the U.S. to elicit respondents’ knowledge and understanding of trade. I also ask about their perceived economic gains and distributional impacts from trade and their views on trade restrictions and compensatory redistribution for those hurt by trade. People’s understanding of the price, wage, and welfare effects of trade is mixed. In general, respondents are optimistic about the efficiency gains from trade, but also understand that there may be adverse distributional consequences from it. Respondents’ own exposure to trade through their sector, occupation, skill, and local labor market shapes their perceptions of the impacts of trade on themselves, others, and on the broader U.S. economy. I also find patterns consistent with the idea of “diffuse gains and concentrated losses”: respondents’ perceived benefits as consumers are nonsalient and unclear to them, while those in at-risk jobs starkly perceive the threats from trade. Beyond material self-interest, people have broader social and economic concerns that strongly influence their views on trade policy. The belief that is most predictive of support for open trade is that trade generates efficiency gains. Furthermore, people who believe that those hurt by trade can be helped using other tools (compensatory redistribution) do not oppose free trade, even if they think that it will entail adverse distributional consequences. The results highlight the importance of compensatory redistribution as an indissociable part of trade policy in people’s minds.

• Understanding Economics Website

• Slides

Perceptions of Racial Gaps, their Causes, and Ways to Reduce Them

(with Alberto Alesina and Matteo Ferroni)

Abstract (click to expand): Using new large-scale survey and experimental data, we investigate how respondents perceive racial inequities between Black and white Americans, what they believe causes them, and what interventions, if any, they think should be implemented to reduce them. We intentionally oversample Black respondents, cover many cities in the US, and survey both adults and very young people aged 13 to 17. In the experimental parts, we consider the causal impact of information on racial inequities (such as the evolution of the Black-white earnings gap or the differences in mobility for Black and white children) and explanations for these inequities (i.e., the deep-seated roots and long-lasting consequences of systemic racism) on respondents’ views. Although there is heterogeneity in how respondents perceive the magnitude of current racial gaps in economic conditions and opportunities, the biggest discrepancies are in how they explain them. There is a stark partisan gap among white respondents, particularly in the perceived causes of racial inequities and what should be done about them. White Democrats and Black respondents are much more likely to attribute racial inequities to adverse past and present circumstances and want to act on them with race-targeted and general redistribution policies. At the same time, white Republicans are more likely to attribute racial gaps to individual actions. These views are already deeply entrenched in teenagers based on their race and their parents’ political affiliation. A policy decomposition shows that the perceived causes of racial inequities correlate most strongly with support for race-targeted or general redistribution policies, a finding confirmed by the experimental results.

Tax Simplicity or Simplicity of Evasion? Evidence from Self-Employment Taxes in France [UPDATED! November 2022]

(with Ufuk Akcigit, Philippe Aghion, Maxime Gravoueille, and Mathieu Lequien)

Abstract (click to expand): We exploit individual panel information from introducing of new and simpler tax regimes for the self-employed in France, in order to assess the extent to which individuals’ shift towards the new regimes is driven by a quest for tax simplicity, and the extent to which the demand for tax simplicity is itself at least partly driven by tax evasion motives. We find evidence of a quest for tax simplicity from observing a significant amount of bunching at the eligibility thresholds for the simpler self-employment tax regimes and from the fact that bunching is increasing in the degree of simplicity of the self-employment regime. We also argue that tax evasion plays an important role in accounting for individuals’ attraction towards simpler tax regimes. Finally, we quantitatively assess the importance of simplicity and evasion motives for choosing a simpler self-employment regime. More precisely, we combine bunching estimates and a structural model to jointly estimate the real income elasticities, the value of tax simplicity, and the evasion elasticity. We find that the parameters values which generate the best fit with the observed bunching across different tax brackets and years, imply noticeable preference for tax simplicity with a sizeable evasion elasticity behind it, and a negligible real income elasticity

• Slides

Press coverage: Washington Post , Liberation

Understanding Economic Policies: What do people know and learn?

Abstract (click to expand): I study how well people understand, reason, and learn about four economic policies: i) Personal income taxation, ii) Estate taxation, iii) Health insurance, and iv) Trade. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about policies and the underlying economic phenomena, but also their understanding of the mechanisms of each policy and their reasoning. The detailed survey questions are designed to address the three main factors that can shape support for or opposition to various policies: efficiency effects, distributional implications, and fairness considerations. To extract people's first-order considerations that come to mind when they are prompted to think about a given policy, its shortcomings, and goals without priming them, open-ended questions are used and then evaluated with text analysis methods. There are partisan divergences of varying magnitudes and significance, not just in the final policy views, but also in reasonings about the underlying mechanisms. Respondents are in many cases likely to think of themselves as responding differently and facing different consequences from other people. Women in particular tend to consider themselves and other women as less responsive to income and estate taxes. Health insurance considerations are also intertwined with gender considerations and views on female health concerns and services are starkly divided. I experimentally show people instructional videos that explain the workings and consequences of each policy from three different perspectives. The "Distributional" perspective focuses on the distributional consequences of each policy; the "Efficiency" perspective focuses on the efficiency costs; the "Economist" perspectives focuses on the trade-off, combining both the distributional and efficiency perspectives together. Respondents do change some of their views about the mechanisms and the desirable design of some policies after seeing the instructional videos. The possibility to influence at least the perceived mechanisms of and sometimes even support for given policies suggests that perhaps explanations (rather than the provision of simple facts) can be useful as a first step in elevating the policy debate.

• Survey Questionnaires

• Online Appendix

• Understanding Economics Website

Reforms and Dynamics of Income: Evidence Using New Panel Data

(with Philippe Aghion, Vlad Ciornohuz and Maxime Gravoueille)

Anatomy of Inequality in France

(with Philippe Aghion, Vlad Ciornohuz and Maxime Gravoueille)

Dancing with the Stars: Innovation through Interactions

(with Ufuk Akcigit, Santiago Caicedo Soler, Ernest Miguelez and Valerio Sterzi)

Abstract (click to expand): An inventor's own knowledge is a key input in the innovation process. This knowledge can be built by interacting with and learning from others. This paper uses a new large-scale panel dataset on European inventors matched to their employers and patents. We document key empirical facts on inventors' productivity over the life cycle, inventors' research teams, and interactions with other inventors. Among others, most patents are the result of collaborative work. Interactions with better inventors are very strongly correlated with higher subsequent productivity. These facts motivate the main ingredients of our new innovation-led endogenous growth model, in which innovations are produced by heterogeneous research teams of inventors using inventor knowledge. The evolution of an inventor's knowledge is explained through the lens of a diffusion model in which inventors can learn in two ways: By interacting with others at an endogenously chosen rate; and from an external, age-dependent source that captures alternative learning channels, such as learning-by-doing. Thus, our knowledge diffusion model nests inside the innovation-based endogenous growth model. We estimate the model, which fits the data very closely, and use it to perform several policy exercises, such as quantifying the large importance of interactions for growth, studying the effects of reducing interaction costs (e.g., through IT or infrastructure), and comparing the learning and innovation processes of different countries.

• Slides

Learning and (or) Doing: Human Capital Investments and Optimal Taxation

Abstract (click to expand): This paper considers a dynamic taxation problem when agents can allocate their time between working and investing in their human capital. Time investment in human capital, or "training", increases the wage and can interact with an agent's intrinsic, exogenous, and stochastic earnings ability. It also interacts with both current and future labor supply and there can be either "learning-and-doing" (when labor and training are complements) or "learning-or-doing" (when labor and training are substitutes). Agents' abilities and labor supply are private information to them, which leads to a dynamic mechanism design problem with incentive compatibility constraints. At the optimum, the subsidy on training time is set so as to balance the total labor supply effect of the subsidy and its distributional consequences. In a one-period version of the model, particularly simple relations arise at the optimum between the labor wedge and the training wedge that can also be used to test for the Pareto efficiency of existing tax and subsidy systems. In the limit case of learning-by-doing (when training is a direct by-product of labor) or in the case in which agents who are more able at work are also more able at training, there are important modifications to the labor wedge.

Optimal Income, Education and Bequest Taxes in an Intergenerational Model

Abstract (click to expand): This paper considers dynamic optimal income, education, and bequest taxes in a Barro-Becker dynastic setup. Parents can transfer resources to their children in two ways: First, through education investments, which have heterogeneous and stochastic returns for children, and, second, through financial bequests, which yield a safe, uniform return. Each generation's productivity and preferences are subject to idiosyncratic shocks. I derive optimal linear formulas for each tax, as functions of estimable sufficient statistics, robust to underlying heterogeneities in preferences, and at any given level of all other taxes. It is in general not optimal to make education expenses fully tax deductible and the optimal education subsidy, income tax and bequest tax can, but need not, move together at the optimum. I also show how to derive optimal formulas using "reform-specific elasticities" that can be targeted to empirical estimates from existing reforms. I extend the model to an OLG model with altruism to study the effects of credit constraints on optimal policies. Finally, I solve for the fully unrestricted policies and show that, if education is highly complementary to children's ability, it is optimal to distort parents' trade-off between education and bequests and to tax education investments relative to bequests.

• Slides

Publications

2023

Immigration and Redistribution

(with Alberto Alesina and Armando Miano)

Abstract (click to expand): Does immigration change support for redistribution? We design and conduct large-scale surveys and experiments in six countries to investigate how people perceive immigrants and how these perceptions influence their support for redistribution. We find striking misperceptions about the number and characteristics of immigrants. In all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and economically weaker–less educated, more unemployed, and more reliant on and favored by government transfers–than they actually are. In the experimental part of our paper, we show that simply making respondents think about immigration before asking questions about redistribution makes them support less redistribution, including actual donations to charities. The perception that immigrants are economically weaker and more likely to take advantage of the welfare system is strongly correlated with lower support for redistribution, much more so than the perceived cultural distance or the perceived share of immigrants. These findings are confirmed by further experimental evidence. Information about the true shares and origins of immigrants does not change support for redistribution. An anecdote about a “hard working” immigrant has somewhat stronger effects, but is unable to counteract the negative priming effect of making people think about immigration. Our results further suggest that narratives shape people’s views on immigration more deeply than hard facts.

• Slides

• Data and codes

Press coverage: New York Times (June 2018) , Project Syndicate , Corriere della Sera , VoxEU , New York Times (December 2018)

Social Positions and Fairness Views on Inequality

(with Claus Thustrup Kreiner and Kristoffer Balle Hvidberg)

Abstract (click to expand): We link survey data on Danish people’s perceived income positions and fairness views on inequality within various reference groups to administrative records on their reference groups, income histories, and life events. People are, on average, well informed about the income levels of their reference groups. Yet, lower-ranked respondents in all groups tend to overestimate their own position among others because they believe others’ incomes are lower than they actually are, whereas the opposite holds true for higher-ranked respondents. Misperceptions of positions in reference groups relate to proximity to other individuals, transparency norms, and visible signals of income. People view inequalities within their co-workers and education groups as significantly more unfair than overall inequality, yet underestimate inequality the most exactly within these groups. Views on the fairness of inequalities are strongly correlated with an individual’s current position, move with shocks like unemployment or promotions, and change when experimentally informing people about their actual positions. However, the higher perceived unfairness of income differences within co-workers and education groups stays unchanged. The theoretical framework shows that this can have important implications for redistribution policy.

Press coverage: VoxEU , NBER Digest , Marketplace , Econimate

Civil Liberties in Times of Crisis

(with Marcella Alsan, Luca Braghieri, Sarah Eichmeyer, Joyce Kim, and David Yang)

Abstract (click to expand): Major crises — from terrorist attacks to epidemic outbreaks — bring the trade-off between individual civil liberties and societal well-being into sharp relief. In this paper, we study how willing citizens are to restrict civil liberties to improve public health conditions in the context of the COVID-19 pandemic. We design and conduct representative surveys involving approximately 550,000 responses across 15 countries, including China and the United States, during many months of the COVID-19 pandemic, from March 2020 until January 2021. We document significant heterogeneity across countries and demographic groups in willingness to sacrifice rights for public welfare. Citizens disadvantaged by income, education, or race are less willing to sacrifice rights than their more advantaged peers in every country, as are those with prior experience in communist regimes. Leveraging naturally occurring variation as well as experimental approaches, we estimate that a one standard deviation increase in health security concerns increases willingness to sacrifice civil liberties by approximately 68%-83% of the difference between the average Chinese and U.S. citizen. Stated preferences correlate with observed behavior including demand for tracing apps, donations, and petitions.

• Online Appendix

The Health of Democracies during the Pandemic: Results from a Randomized Survey Experiment

(with Marcella Alsan, Luca Braghieri, Sarah Eichmeyer, Minjeong Joyce Kim, and David Y. Yang)

2022

How to Run Surveys: A guide to creating your identifying variation and revealing the invisible

Abstract (click to expand): Surveys are an essential approach for eliciting otherwise invisible factors such as perceptions, knowledge and beliefs, attitudes, and reasoning. These factors are critical determinants of social, economic, and political outcomes. Surveys are not merely a research tool. They are also not only a way of collecting data. Instead, they involve creating the process that will generate the data. This allows the researcher to create their own identifying and controlled variation. Thanks to the rise of mobile technologies and platforms, surveys offer valuable opportunities to study either broadly representative samples or focus on specific groups. This paper offers guidance on the complete survey process, from the design of the questions and experiments to the recruitment of respondents and the collection of data to the analysis of survey responses. It covers issues related to the sampling process, selection and attrition, attention and carelessness, survey question design and measurement, response biases, and survey experiments.

• Slides

Optimal Taxation and R&D Policies

(with Ufuk Akcigit and Douglas Hanley)

Abstract (click to expand): We study the optimal design of corporate taxation and R&D policies as a dynamic mechanism design problem with spillovers. Firms have heterogeneous research productivity, and that research productivity is private information. There are non-internalized technological spillovers across firms, but the asymmetric information prevents the government from correcting them in the first best way. We highlight that key parameters for the optimal policies are (i) the relative complementarities between observable R&D investments, unobservable R&D inputs, and firm research productivity, (ii) the dispersion and persistence of firms’ research productivities, and (iii) the magnitude of technological spillovers across firms. We estimate our model using firm-level data matched to patent data and quantify the optimal policies. In the data, high research productivity firms get disproportionately higher returns to R&D investments than lower productivity firms. Very simple innovation policies, such as linear corporate taxes combined with a nonlinear R&D subsidy—which provides lower marginal subsidies at higher R&D levels—can do almost as well as the unrestricted optimal policies. Our formulas and theoretical and numerical methods are more broadly applicable to the provision of firm incentives in dynamic settings with asymmetric information and spillovers, and to firm taxation more generally.

• Supplementary Material

• Data and codes

Eliciting People's First-Order Concerns: Text Analysis of Open-Ended Survey Questions

(with Beatrice Ferrario)

Abstract (click to expand): This paper illustrates the design and use of open-ended survey questions as a way of eliciting people's first-order concerns on policies. Multiple choice questions are the backbone of most surveys, but they may prime respondents to select answer options that they would not naturally have thought about, and they may omit relevant options. Open-ended questions that do not constrain respondents with specific answer choices are a valuable tool for eliciting first-order thinking. We discuss three text analysis methods to analyze open-ended questions' answers. To illustrate how to apply these methods, we provide evidence from large-scale surveys on income and estate taxation. We show the that key concerns relate mostly to distribution issues, fairness, and government, rather than to efficiency concerns. There are large partisan gaps in the first-order concerns on policies.

• Slides

• Data and codes

Taxation and Innovation in the 20th Century

(with Ufuk Akcigit, John R. Grigsby and Tom Nicholas)

Abstract (click to expand): This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We build a panel of the universe of inventors who patent since 1920, and a historical state-level corporate tax database with corporate tax rates and tax base information, which we link to existing data on state-level personal income taxes and on other economic outcomes. Our analysis focuses on the impact of personal and corporate income taxes on individual inventors (the micro level) and on states (the macro level), considering the quantity and quality of innovation, its location, and the share produced by the corporate rather than the non-corporate sector. We propose several identification strategies, all of which yield consistent results. We find that higher taxes negatively impact the quantity and the location of innovation, but not average innovation quality. The state-level elasticities to taxes are large and consistent with the aggregation of the individual level responses of innovation produced and cross-state mobility. Corporate taxes tend to especially affect corporate inventors’ innovation production and cross-state mobility. Personal income taxes significantly affect the quantity of innovation overall and the mobility of inventors.

• Online Appendix

• Data and codes

Press coverage: VoxEU

The Effects of Taxes on Innovation: Theory and Empirical Evidence

Abstract (click to expand): Income taxes are typically set to raise revenues and redistribute income at the lowest possible efficiency costs, which result from the distortions in individual behaviors that taxes entail. Individuals can respond along many margins, such as labor supply, tax avoidance and evasion, and geographic mobility. But one margin that taxes may affect — innovation — is less frequently considered. Conceptually, taxes reduce the expected net returns to innovation inputs and can reduce innovation. Much like other margins of responses to taxes, this efficiency cost must be taken into account. Innovation is done by a relatively small number of people, but it is nevertheless likely to have widespread benefits. While inventors may have divergent motivations, such as social recognition or the love of discovery, they also face an economic reality. How strongly innovation responds to taxes is an empirical question that has been the subject of a growing body of recent work. In this paper, I study how to account for innovation when setting personal income and capital taxation. I distinguish between two cases: one in which the government can set a differentiated tax on inventors and one in which the government is constrained to set the same tax on all agents. I provide a model that flexibly accounts for the spillovers generated by innovation and the nonpecuniary benefits inventors receive from innovation and derive tax formulas expressed in terms of estimable sufficient statistics. The second part of the paper discusses the empirical evidence on the effects of taxes on the quantity, quality, and location of innovation, as well as tax avoidance and income shifting done through innovation.

Press coverage: NBER Digest

2021

Trust in Scientists in Times of Pandemic: Panel Evidence from 12 Countries

(with Yann Algan, Daniel Cohen, Eva Davoine and Martial Foucault)

Abstract (click to expand): This article analyzes the specific and critical role of trust in scientists on both the support for and compliance with nonpharmaceutical interventions (NPIs) during the COVID-19 pandemic. We exploit large-scale, longitudinal, and representative surveys for 12 countries over the period from March to December 2020, and we complement the analysis with experimental data. We find that trust in scientists is the key driving force behind individual support for and compliance with NPIs and for favorable attitudes toward vaccination. The effect of trust in government is more ambiguous and tends to diminish support for and compliance with NPIs in countries where the recommendations from scientists and the government were not aligned. Trust in others also has seemingly paradoxical effects: in countries where social trust is high, the support for NPIs is low due to higher expectations that others will voluntary social distance. Our individual-level longitudinal data also allows us to evaluate the effects of within-person changes in trust over the pandemic: we show that trust levels and, in particular, trust in scientists have changed dramatically for individuals and within countries, with important subsequent effects on compliant behavior and support for NPIs. Such findings point out the challenging but critical need to maintain trust in scientists during a lasting pandemic that strains citizens and governments.

Understanding Tax Policy: How do people Reason?

Abstract (click to expand): I study how people understand, reason, and learn about two major tax policies: income taxation and estate taxation. I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. In decomposing policy views, I find that support for income and estate taxes is most strongly correlated with social preferences, i.e., the perceived benefits of redistribution and concerns around the fairness of inequality and taxation, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the "Redistribution" and the "Efficiency" treatments) or that bring the two together and focus on the trade-off (the "Economist" treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive income or estate taxes, while the Efficiency treatment has no effect. There are large partisan gaps, not just in the final policy views, but also at every step of the reasoning about the underlying mechanisms of taxes. Democrats and Republicans' divergences in tax policy views can ultimately be traced back to different normative criteria (social preferences) and views of the government, rather than to different perceptions of the efficiency implications of taxation.

• Survey Questionnaires

• Online Appendix

• Data and codes

• Understanding Economics Website

Clearing the Bar: Improving Tax Compliance for Small Firms through Target Setting

(with Yazan Al-Karablieh and Evangelos Koumanakos)

Abstract (click to expand): We use a new dataset of the universe of Greek corporate tax returns to study a voluntary tax compliance program for small firms. This “self-assessment” program prescribed target taxable profit margins (the ratio of taxable profits to revenues) for different types of activities. Firms that reported profit margins above these targets in a given year were exempt from audits in that year. We find that the firms that take up the program report significantly larger taxable profits than non-eligible firms, with some evidence for longer-lasting effects on tax reporting. Firms that take up the program for more years exhibit stronger effects. We also find that firms can easily and substantially manipulate reported revenue (decreasing it by up to 40%) to help meet prescribed profit margins without paying more in taxes. Overall, the program increased tax revenues collected from small firms, but points to a very large level of baseline under-reporting of profits and the ease of manipulating reported revenues.

2020

Diversity, Immigration, and Redistribution

(with Alberto Alesina and Armando Miano)

Abstract (click to expand): This paper provides a simple conceptual framework that captures how different perceptions, attitudes, and biases about immigrants or minorities can shape preferences for redistribution and reviews the empirical evidence on the effects of increasing racial diversity and immigration on support for redistribution.

• Slides

Dynamic Taxation

Abstract (click to expand): This paper reviews recent advances in the study of dynamic taxation, considering three main approaches: the dynamic Mirrlees, the parametric Ramsey, and the sufficient statistics approaches. In the first approach, agents' heterogeneous abilities to earn income are private information and evolve stochastically over time. Dynamic taxes are not ex ante restricted and are set for redistribution and insurance considerations. Capital is taxed only in order to improve incentives to work. Human capital is optimally subsidized if it reduces post-tax inequality and risk on balance. The Ramsey approach specifies ex ante restricted tax instruments and adopts quantitative methods, which allows it to consider more complex and realistic economies. Capital taxes are optimal when age-dependent labor income taxes are not possible. The newer and tractable sufficient statistics approach derives robust tax formulas that depend on estimable elasticities and features of the income distributions. It simplifies the transitional dynamics thanks to a newly defined criterion, the "utility-based steady state approach" that prevents the government from exploiting sluggish responses in the short-run. Capital taxes are here based on the standard equity-efficiency trade-off.

• Online Appendix

Taxation and Migration: Evidence and Policy Implications

(with Henrik Kleven, Camille Landais, and Mathilde Munoz)

Abstract (click to expand): In this article, we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications. We start by laying out the empirical challenges that prevented progress in this area until recently, and then discuss how recent work have made use of new data sources and quasi-experimental approaches to credibly estimate migration responses. This body of work has shown that certain segments of the labor market, especially high-income workers and professions with little location-specific human capital, may be quite responsive to taxes in their location decisions. When considering the implications for tax policy design, we distinguish between uncoordinated and coordinated tax policy. We highlight the importance of recognizing that mobility elasticities are not exogenous, structural parameters. They can vary greatly depending on the population being analyzed, the size of the tax jurisdiction, the extent of tax policy coordination, and a range of non-tax policies. While migration responses add to the efficiency costs of redistributing income, we caution against over-using the recent evidence of (sizeable) mobility responses to taxes as an argument for less redistribution in a globalized world.

The Polarization of Reality

(with Alberto Alesina and Armando Miano)

Abstract (click to expand): Americans are polarized not only in their views on policy issues and attitudes towards government and society, but also in their perceptions of the same, factual reality. In this paper we conceptualize how to think about the "polarization of reality’’ and review recent papers that show that Republicans and Democrats (as well as Trump and non-Trump voters since 2016) view the same reality through a very different lens. Perhaps as a result, they hold different views about policies and what should be done to address different economic and social issues. We also show that providing information leads to different reassessments of reality and different responses along the policy support margin, depending on one's political leanings. This is not about having different attitudes about economic or social phenomena or policies that could justifiably be viewed differently from different angles. What is striking is to have different perceptions of realities that can be factually checked.

• Slides

Disparities in Coronavirus 2019 Reported Incidence, Knowledge, and Behavior Among US Adults

(with Marcella Alsan, David Yang, and David Cutler)

2018

A Simpler Theory of Optimal Capital Taxation

(with Emmanuel Saez)

Abstract (click to expand): This paper develops a theory of optimal capital taxation that expresses optimal tax formulas in sufficient statistics. We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth. In this case, there are no transitional dynamics, the steady-state is reached immediately and has finite elasticities of capital with respect to the net-of-tax rate. This allows for a tractable optimal tax analysis with formulas expressed in terms of empirical elasticities and social preferences that can address many important policy questions. These formulas can easily be taken to the data to simulate optimal taxes, which we do using U.S. tax return data on labor and capital incomes. Second, we show how these results can be extended to the case with concave utility for consumption. The same types of formulas carry over by appropriately defining elasticities. We show that one can recover all the results from the simpler model using a new and non standard steady state approach that respects individual preferences even with a fully general utility function or uncertainty.

• Slides

Intergenerational Mobility and Support for Redistribution

(with Alberto Alesina and Edoardo Teso)

Abstract (click to expand): Using new cross-country survey and experimental data, we investigate how beliefs about intergenerational mobility affect preferences for redistribution in France, Italy, Sweden, the U.K., and the U.S.. Americans are more optimistic than Europeans about social mobility. Our randomized treatment shows pessimistic information about mobility and increases support for redistribution, mostly for "equality of opportunity" policies. We find a strong political polarization. Left-wing respondents are more pessimistic about mobility, their preferences for redistribution are correlated with their mobility perceptions, and they support more redistribution after seeing pessimistic information. None of these apply to right-wing respondents, possibly because they see the government as a "problem" and not as the "solution."

• Online Appendix

• Data and codes

• Slides

• Slides for the French National Assembly (June 2019)

Press coverage: Washington Post , Quartz , Fast Company , The Atlantic , VOX , The Economist , Bloomberg , Le Monde , Project Syndicate , Project Syndicate Youtube Video

Optimal Taxation and Human Capital Policies over the Life Cycle

Abstract (click to expand): This paper derives optimal income tax and human capital policies in a life cycle model with risky human capital. The government faces asymmetric information regarding agents’ ability, its evolution, and labor supply. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. Income contingent loans or a deferred deductibility scheme can implement the optimum. Numerical results suggest that full deductibility of expenses is close to optimal and that simple linear age-dependent policies perform very well.

• Online Appendix

2016

Generalized Social Welfare Weights for Optimal Tax Theory

(with Emmanuel Saez)

Abstract (click to expand): This paper proposes a new way to evaluate tax reforms, by aggregating losses and gains of different individuals using "generalized social marginal welfare weights." A tax system is optimal if no budget neutral small reform can increase the weighted sum of (money metric) gains and losses across individuals. Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. Weights directly capture society's concerns for fairness allowing us to cleanly separate individual utilities from social weights. Suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, Equality of Opportunity, or Poverty alleviation.

• Slides

• Online Appendix

Taxation and the International Mobility of Inventors

(with Ufuk Akcigit and Salome Baslandze)

Abstract (click to expand): This paper studies the effect of top tax rates on inventors' international mobility since 1977. We put special emphasis on "superstar" inventors, those with the most abundant and most valuable patents. We use panel data on inventors from the United States and European Patent Offices to track inventors' locations over time and combine it with international effective top tax rate data. We construct a detailed set of proxies for inventors' counterfactual incomes in each possible destination country including, among others, measures of patent quality and technological fit with each potential destination. Exploiting the differential impact of changes in the top tax rate on inventors of different qualities, we find that superstar top 1% inventors are significantly affected by top tax rates when deciding where to locate. The elasticity to the net-of-tax rate of the number of domestic superstar inventors is relatively small, around 0.03, while the elasticity of the number of foreign superstar inventors is around 1. Inventors who work in multinational companies are more likely to take advantage of tax differentials. On the other hand, if the company of an inventor has a higher share of its research activity in a given country, the inventor is less sensitive to the tax rate in that country.

• Online Appendix

• Slides

Press coverage: NBER Digest , The Telegraph , VoxEU , Wall Street Journal

2015

How Elastic are Preferences for Redistribution: Evidence from Randomized Survey Experiments

(with Ilyana Kuziemko, Michael Norton and Emmanuel Saez)

Abstract (click to expand): We develop online survey experiments to analyze how information about inequality and taxes affects preferences for redistribution. Approximately 4,000 respondents were randomized into treatments providing interactive, customized information on U.S. income inequality, the link between top income tax rates and economic growth, and the estate tax. An additional 6,000 respondents were randomized into follow-up treatments to explore mechanisms underlying the initial results. The treatment has very large effects on whether respondents view inequality as a problem. By contrast, it only slightly moves policy preferences (e.g., top income tax rates and transfer programs). An exception is the estate tax---informing respondents of the small share of decedents who pay it more than doubles support for it and this effect persists in a one-month follow-up. We explore several explanations for our results. Extreme ex-ante misinformation appears to drive the large estate tax results. The small effects for all other policies can be at least partially explained by respondents' low trust in government---indeed, we show that priming people to think negatively about the government substantially reduces support for transfer programs---as well as a disconnect between concerns about social issues and the public policies that aim to address them.

• Online Appendix

• Data and codes

• Slides

2014

Optimal Income Taxation with Adverse Selection in the Labour Market

Abstract (click to expand): This paper studies optimal linear and nonlinear redistributive income taxation when there is adverse selection in the labor market. Unlike in standard taxation models, firms do not know workers' abilities and competitively screen them through nonlinear compensation contracts, unobservable to the government, in a Miyazaki-Wilson-Spence equilibrium. Adverse selection leads to different optimal tax formulas than in the standard Mirrlees (1971) model, because of the use of work hours as a screening tool by firms, which for higher talent workers results in a "rat race" and for lower talent workers in informational rents and cross-subsidies. The most surprising result is that, if the government has sufficiently strong redistributive goals, welfare is higher when there is adverse selection than when there is not. Policies that endogenously affect adverse selection are discussed. The model has practical implications for the interpretation, estimation, and use of taxable income elasticities, which are central to optimal tax design.

• Online Appendix

Optimal Taxation of Top Incomes: A Tale of Three Elasticities

(with Thomas Piketty and Emmanuel Saez)

Abstract (click to expand): This paper presents a model of optimal labor income taxation in which top incomes respond to marginal tax rates through three channels: (1) standard labor supply, (2) tax avoidance, (3) compensation bargaining. We derive the optimal top tax rate formula as a function of the three corresponding behavioral elasticities. The first elasticity (labor supply) is the sole real factor limiting optimal top tax rates. The optimal tax system should be designed to minimize the second elasticity (avoidance) through tax enforcement and tax neutrality across income forms. The optimal top tax rate increases with the third elasticity (bargaining) as bargaining efforts are zero-sum in aggregate. We provide evidence on this elasticity using cross-country times series macro-evidence and CEO pay micro-evidence. The macro-evidence from 18 OECD countries shows that there is a strong negative correlation between top tax rates and top 1% income shares since 1960, implying that the overall elasticity is large. However, top income share increases have not translated into higher economic growth. US CEO pay evidence shows that pay for luck is quantitatively more important when top tax rates are low. International CEO pay evidence shows that CEO pay is strongly negatively correlated with top tax rates even controlling for firm characteristics and performance, and this correlation is stronger in firms with poor governance. These results suggest that bargaining effects play a role in the link between top incomes and top tax rates, implying that optimal top tax rates could be higher than commonly assumed.

• Data

Press coverage: VOX

2013

Optimal Taxation and Human Capital Policies over the Life Cycle

This is a long and comprehensive job market paper version and has now been replaced by two papers: ''Learning and (or) doing: Human Capital Investments and Optimal Taxation'' and ''Optimal Taxation and Human Capital Policies over the Life Cycle.''

Abstract (click to expand): This paper derives optimal income tax and human capital policies in a dynamic life cycle model of labor supply and risky human capital formation. The wage is a function of both stochastic, persistent, and exogenous inability and endogenous human capital. Human capital is acquired throughout life through monetary expenses and training time. The government faces asymmetric information regarding the initial ability of agents and the lifetime evolution of ability, as well as the labor supply. The optimal subsidy on human capital expenses is determined by three considerations: counterbalancing distortions to human capital investment from the taxation of wage and capital income, encouraging labor supply, and providing insurance against adverse draws from the productivity distribution. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. The optimal tax treatment of training time also depends on its interactions with contemporaneous and future labor supply. I consider two ways to implement the optimum: income contingent loans, and a tax scheme that allows for a deferred deductibility of human capital expenses. Numerical results are presented that suggest that full dynamic risk-adjusted deductibility of expenses might be close to optimal, and that simple linear age-dependent policies can achieve most of the welfare gain from the second best.

• Slides

• Computational appendix

Book Chapters & Policy Papers

2022

Taxation and Innovation: What Do We Know?

(with Ufuk Akcigit)

Abstract (click to expand): Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.

Inequalities in the Times of a Pandemic

Abstract (click to expand): This paper summarizes some of the major inequalities that have been exacerbated by the COVID- 19 pandemic and discusses avenues for policy intervention over the medium and long run.

• Slides

2021

Repenser l'héritage [in French]

(with Clément Dherbécourt, Gabrielle Fack and Camille Landais)

Abstract (click to expand): Cette Note propose une réforme en profondeur de la taxation de l’héritage s’appuyant sur quatre piliers. Le premier pilier est l’amélioration du système d’information actuel, sans lequel aucune réforme et aucun pilotage ne sont envisageables. Le deuxième est la mise en place d’une politique de taxation sur le flux successoral total perçu par l’individu tout au long de sa vie afin de réduire les inégalités de patrimoine issues de l’héritage. Un tel système permettrait d’éliminer les distorsions quant au séquencement des transmissions et de traiter de manière identique les héritages en lignes directes et indirectes. Le troisième pilier consiste en une refonte de l’assiette des droits de succession : réduire voire éliminer les principales exemptions ou exonérations dont la justification économique est limitée. Ceci permettrait d’instaurer des taux nominaux plus bas mais réellement progressifs, en particulier en haut de la distribution des patrimoines, tout en réduisant la taxation sur les classes moyennes. Enfin, pour réduire les inégalités les plus extrêmes dans le bas de la distribution, la création d’une garantie de capital pour tous constitue le quatrième pilier. Nos simulations avec différents scénarios montrent qu’une réforme élargissant l’assiette mais diminuant les taux nominaux peut réduire les droits de succession pour 99 % de la population tout en apportant un surplus de recettes fiscales substantiel permettant de financer des dépenses publiques ou de réduire les droits de succession pour les plus petits héritages ou d’autres impôts des ménages.

• Slides

A Policy Matrix for Inclusive Prosperity

(with Dani Rodrik)

Abstract (click to expand): One of the biggest challenges that countries face today is the very unequal distributions of opportunities, resources, income and wealth across people. Inclusive prosperity – whereby many people from different backgrounds can benefit from economic growth, new technologies, and the fruits of globalization –remains elusive. To address these issues, societies face choices among many different policies and institutional arrangements to try to ensure a proper supply of productive jobs and activities, as well as access to education, financial means, and other endowments that prepare individuals for their participation in the economy. In this paper we offer a simple, organizing framework to think about policies for inclusive prosperity. We provide a comprehensive taxonomy of policies, distinguishing among the types of inequality they address and the stages of the economy where the intervention takes place. The taxonomy clarifies the differences among contending approaches to equity and inclusion and can help analysts assess the impacts and implications of different policies and identify potential gaps.

Perceptions and Preferences for Redistribution

Abstract (click to expand): The relationship between the degree of inequality and the demand for redistribution has been a central question in political science and political economy. The famous median-voter model predicts that higher inequality, reflected in a growing gap between the income of the average and the median voter, should lead to increased demand for redistribution, as policymakers cater to the median voter’s preferences (Meltzer and Richard, 1981). Yet, using data from OECD countries, Kenworthy and McCall (2008) show that, despite increases in inequality in those countries, there was no corresponding increase in demand for redistribution. Part of the explanation of this puzzle lies in the realisation that it is not only (or even mainly) reality, but perceptions that shape support for policy. Perceptions of inequality, among others, may or may not be aligned with facts. Beyond beliefs about inequality, there are other perceptions on key issues that can deeply influence people’s views on redistribution. This article will explore beliefs about social mobility, diversity and immigration, social position, and understanding of how policies work. One common thread in the studies presented here is the use of large-scale online social economics surveys and experiments. These can be powerful tools to elicit intangibles that would be difficult to extract from observed behaviour using revealed preference approaches, namely perceptions, knowledge, attitudes, or reasoning. Experiments are a particularly appealing tool to better understand how information interacts with misperceptions and how views on redistribution can be shaped.

Fixing Capitalism’s Good Jobs Problem

(with Dani Rodrik)

Abstract (click to expand): I study how people understand, reason, and learn about two major tax policies: income taxation and estate taxation. I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. In decomposing policy views, I find that support for income and estate taxes is most strongly correlated with social preferences, i.e., the perceived benefits of redistribution and concerns around the fairness of inequality and taxation, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the "Redistribution" and the "Efficiency" treatments) or that bring the two together and focus on the trade-off (the "Economist" treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive income or estate taxes, while the Efficiency treatment has no effect. There are large partisan gaps, not just in the final policy views, but also at every step of the reasoning about the underlying mechanisms of taxes. Democrats and Republicans' divergences in tax policy views can ultimately be traced back to different normative criteria (social preferences) and views of the government, rather than to different perceptions of the efficiency implications of taxation.

Economic Inequality and Insecurity: Policies for an Inclusive Economy

(with Dani Rodrik)

Additional Links: Full Report , Summary , Full Report [French] , Summary [French] , Appendix

Why do we not Support more Redistribution? New Explanations from Economics Research

(Eds. Dani Rodrik and Olivier Blanchard, MIT University Press)

2020

Disparities in Coronavirus 2019 Reported Incidence, Knowledge, and Behavior Among US Adults

(with Marcella Alsan, David Yang, and David Cutler)