What have been the economic impacts of existing government tax and expenditure programs? Among the topics to be covered:

• To what degree have existing social insurance programs such as Social Security, disability insurance, and unemployment insurance helped stabilize household consumption? What economic distortions are created in the process?
• How can the provision of key public services such as education and health care be made more cost effective?
• How have existing safety-net programs done in alleviating poverty and improving the future success of poor children? To what degree do these programs distort household incentives?
• What have been the economic impacts of recent and proposed tax reforms?

Latest articles

The surprising power of tax stimulus to the housing market

In September 2008, the UK government announced a surprise stimulus policy in response to a dramatic fall in the housing market: a property transaction tax on houses sold in a certain price range was temporarily eliminated. This column reports research showing that this stimulus boosted transaction volumes by 20% and increased consumer spending by an amount equal to the forgone tax revenue. Cutting transaction taxes during economic downturns can thus be an effective way to stimulate both the housing market and the broader economy.

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Where star scientists choose to locate: the impact of US state taxes

What are the effects of geographical variations in personal and corporate taxes on the location decisions of innovative individuals and companies? This column reports research showing that state taxes have a significant effect on the localization of star scientists and firms that employ star scientists. Local policy-makers would do well to consider this previously unrecognized cost of high taxes when deciding how much to tax highly productive, high-income workers.

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Who benefits from corporate tax cuts? Evidence from local US labour markets

Quantifying who benefits from corporate tax cuts requires estimates of the effects of taxes on the local economy and on the location decisions of firms and workers. This research analyses every change in state business taxes in the United States since 1980 to show that the largest beneficiaries from a tax cut are the owners of firms (40%), with landowners and workers splitting the remaining (60%) of the economic gains. Where the benefits of corporate tax cuts fall ultimately depends on the relative mobility of firms and workers – and many factors other than tax rates influence their choice of location.

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Bargaining with asymmetric information: an empirical study of plea negotiations

In the US, most criminal cases are resolved before trial through plea bargain agreements. Given the extent to which cases are settled before trial, the impact of sentencing reforms will depend largely on how they affect these agreements as opposed to the outcome of cases argued in court. Therefore, the current debate over criminal justice must consider the role of plea bargaining. By adapting and applying a theoretical model of litigation to data on violent crime cases filed in North Carolina’s superior court system, this article attempts to examine the potential impact of several hypothetical policy interventions on the outcome of criminal cases. This provides a helpful tool for understanding the potential ramifications of sentencing reform.

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Economic benefits of transportation infrastructure: historical evidence from India and America

Dave Donaldson is an empirical trade economist and recipient of the 2017 John Bates Clark Medal. His research examines the intersection of international trade and development economics. Donaldson’s paper “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure?” (American Economic Review, forthcoming) investigates the economic benefits from building transportation infrastructure studying the case of railways in 19th century India. This paper is widely viewed as both a methodological breakthrough and substantively important paper in the field. The article below provides a summary of his work.

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Disability insurance and the dynamics of the incentive-insurance tradeoff

Recent growth in the number of Disability Insurance claimants has led to calls for substantial scaling back of the program. We evaluate the incentive cost of the DI program against its insurance value to those in need. The main failure of the program is the number of severely work limited who do not receive insurance: the program is badly targeted.

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Impact of incentives on tax collectors and taxpayers

Tax collectors in developing countries collect far less tax revenue as a share of gross domestic product than tax collectors in higher income countries. In many of these developing countries, tax officials have discretion in assessing, enforcing, and auditing taxes. In addition, they earn relatively low wages with fewer rewards for good performance, allowing for the possibility of collusion with taxpayers. In the case of property taxes, officials may accept payments in exchange for leaving properties off the tax rolls, granting inappropriate exemptions, or assessing properties at a lower rate, all of which lead to lower revenues for the state.

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A choice of auction type allows for corruption to persist in Chinese land sales

Urban land development in China is occurring on a massive scale and corruption is prevalent in the real estate sector through side deals between buyers and city officials. A recent study by Cai, Henderson, and Zhang (2013, RAND Journal of Economics) provides indirect evidence of this corruption through the use of two different types of auctions. The authors argue that the practices of city officials overseeing land sales amount to losses in city revenue in the hundreds of billions of dollars.

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Designing tax policy in high-evasion economies

Developing economies are typically characterized by low tax revenue and widespread tax evasion. This research shows that in such environments, it can be better to tax firms based on turnover rather than profits: while turnover taxes are known to distort production decisions, they are more difficult to evade than profit taxes. Analyzing administrative tax records from Pakistan, the study shows that the use of production-inefficient turnover taxes sharply reduces tax evasion and increases tax revenue.

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Divorce laws and the economic behavior of married couples

By regulating when divorce can occur and how resources are divided when it does, divorce laws can affect people’s behavior and their wellbeing both during marriage and at divorce. Household survey data from the United States shows that the introduction of unilateral divorce in states that imposed an equal division of property is associated with higher household savings and lower female employment rates among couples that are already married. This paper develops a model of household behavior to account for these effects and study how current laws can affect the wellbeing of different household members.

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