Explore the vast range of titles available.

This paper develops a theory of optimal taxation with behavioral agents. We use a general framework that encompasses a wide range of biases such as misperceptions and internalities. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities), and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to novel economic insights. We also show how to incorporate nudges in the optimal taxation framework, and jointly characterize optimal taxes and nudges.

Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions made in “good times” affect collateral prices during a crisis. We show that under commitment the optimal financial regulator’s plans are time inconsistent and study time-consistent policy. Quantitatively, this policy reduces sharply the frequency and magnitude of crises, removes fat tails from the distribution of asset returns, and increases social welfare. In contrast, constant debt taxes are ineffective and can be welfare reducing, while an optimized “macroprudential Taylor rule” is effective but less so than the optimal time-consistent policy.

We review the debate surrounding the macroeconomic effects of deficit reduction policies (austerity). The discussion about \"austerity\" in general has distracted commentators and policymakers from a very important result, namely the enormous difference, on average, between expenditure- and tax-based austerity plans. Spending-based austerity plans are remarkably less costly than tax-based plans. The former have on average a close to zero effect on output and lead to a reduction of the debt/GDP ratio. Tax-based plans have the opposite effect and cause large and long-lasting recessions. These results also apply to the recent episodes of European austerity, which in this respect were not especially different from previous cases.

Soda taxes aim to reduce excessive sugar consumption. We assess who is most impacted by soda taxes. We estimate demand using micro longitudinal data covering on-the-go purchases, and exploit the panel dimension to estimate individual-specific preferences. We relate these preferences and counterfactual predictions to individual characteristics and show that soda taxes are relatively effective at targeting the sugar intake of the young, are less successful at targeting the intake of those with high total dietary sugar, and are unlikely to be strongly regressive especially if consumers benefit from averted internalities.

We investigate the relation between corporate tax payments and corporate social responsibility. Because existing theory and empirical studies find inconsistent evidence on the relation between these constructs, we investigate whether the two activities act as complements or substitutes. We estimate the relation between measures of corporate social responsibility and (1) the amount of corporate taxes paid, and (2) the amount invested in tax lobbying activities using both ordinary least squares and a system of simultaneous equations. We find consistent evidence that corporate social responsibility is negatively related to five-year cash effective tax rates and positively related to tax lobbying expenditures. Our evidence suggests that, on average, corporate social responsibility and tax payments act as substitutes.

We analyze survey responses from nearly 600 corporate tax executives to investigate firms' incentives and disincentives for tax planning. While many researchers hypothesize that reputational concerns affect the degree to which managers engage in tax planning, this hypothesis is difficult to test with archival data. Our survey allows us to investigate reputational influences and, indeed, we find that reputational concerns are important—69 percent of executives rate reputation as important and the factor ranks second in order of importance among all factors explaining why firms do not adopt a potential tax planning strategy. We also find that financial accounting incentives play a role. For example, 84 percent of publicly traded firms respond that top management at their company cares at least as much about the GAAP ETR as they do about cash taxes paid and 57 percent of public firms say that increasing earnings per share is an important outcome from a tax planning strategy.

Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures their effect on the dynamics of the business cycle. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data and the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role in the dynamics of the business cycle, whereas tax-and-transfer programs that affect inequality and social insurance can have a larger effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has had little effect on the volatility of aggregate output fluctuations or on their welfare costs despite stabilizing aggregate consumption. The stabilizers have a more important role when monetary policy is constrained by the zero lower bound, and they affect welfare significantly through the provision of social insurance.

We develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches—discontinuities in the choice sets of agents—introduced by tax and transfer policies. Notches create excess bunching on the low-tax side and missing mass on the high-tax side of a cutoff, and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world. By combining excess bunching (observed response attenuated by frictions) with missing mass in the dominated region (frictions), it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long-run behavior. We apply our framework to tax notches in Pakistan using rich administrative data. While observed bunching is large and sharp, optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives. The combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large, but the underlying structural elasticity driving this response is nevertheless modest. This highlights the inefficiency of notches: by creating extremely strong price distortions, they induce large behavioral responses even when structural elasticities are small.

Income shifting from high-tax to low-tax jurisdictions is considered a primary method of reducing worldwide tax burdens of multinational firms. Current losses also affect income shifting incentives. We extend prior approaches by explicitly considering unprofitable affiliates and test whether the association between losses and tax incentives for unprofitable affiliates deviates from the negative association observed in profitable affiliates. Results suggest that multinational firms alter the distribution of reported profits to take advantage of losses. Our point estimate for profitable affiliates implies that an increase of one standard deviation in the tax incentive, C, of an affiliate with an average return on assets of 13.3 is associated with a lower return on assets of 0.5 percentage points. The same change in tax incentive of an unprofitable affiliate is associated with an increase in its return on assets of approximately 0.7 percentage points, holding assets, labor, productivity, and other factors constant. We further document a larger responsiveness to tax incentives between profitable and unprofitable affiliates in high-tax jurisdictions, consistent with predictions.

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest severely hurt their growth performance. In our model, the effects of taxation on growth are highly nonlinear. Low tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.