Published Papers
Retailer Remittance Matters: Evidence from Voluntary Collection Agreements- (with Tejaswi Velayudhan, and Eleanor Wilking)
National Tax Journal 76.2 (2023): 000-000 (link)
Recent reforms have shifted tax-remittance responsibility for online purchases from consumers to sellers, thereby eliminating an important disparity between tax treatments of online and brick-and-mortar commerce. Despite the attention these reforms received, we know little about how shifting the responsibility to remit affects consumption or the tax system. To remedy this, we study US states’ staggered adoption of voluntary collection agreements, which committed large online retailers to remit sales taxes. We find that this change stemmed sales-tax base erosion and shifted consumption toward brick-and-mortar retailers. The increased tax burden resulting from the effective tax increase fell mainly on consumers, but it did not significantly alter the distributional burden of US sales taxes.
The Role of Information Aggregators in Tax Compliance
International Tax and Public Finance, 29.2 (2022): 237-285 (link)
Fifty-six percent of the US taxpaying population uses a paid tax preparer, but the effect of these tax preparation services on tax compliance is not well understood. Although governments conceal the algorithms they use to determine which taxpayers to audit, tax preparation firms with large client bases may be able to infer these algorithms and therefore offer strategic advice to taxpayers. This paper formalizes this role, using a simple asymmetric information model where agents can purchase information about the government’s enforcement rules. In a competitive market for tax preparation services, demand for tax preparers is selective and increases in taxpayer income. Moreover, the presence of tax preparers always reduces compliance when tax preparers have perfect information. Perhaps surprisingly, if the demand for strategic advice is high enough, the government can mitigate evasion by revealing full information about its audit rule. Alternatively, when the tax preparers have imperfect information about the audit rule, if the top income within an audit class is low enough, the government can utilize tax preparer firms to increase compliance by influencing the audit information available to these firms.
How to Increase and Sustain Cooperation in Public Goods Games: Conditional Commitments via a Mediator-(with Mehmet Y. Gürdal, Özgür Gürerk, and Edip Kart) (link)
Forthcoming at Journal of Economic Behavior and Organization
Conditional commitment devices, such as price-matching guarantees, legal agreements, and smart contracts, can significantly enhance cooperation and improve outcomes in various scenarios. Despite their potential, empirical evidence of their effectiveness in the context of public goods is limited. This paper addresses this gap by demonstrating that conditional and binding commitments can indeed increase voluntary contributions to public goods. We begin by theoretically analyzing the impact of conditional commitments managed by a mediator on public good contributions. Our analysis shows that conditional commitments can be structured to achieve a Pareto Optimal Nash Equilibrium (PONE). We then validate our theoretical findings with laboratory experiments. The results reveal that when a PONE exists, nearly all participant groups adopt conditional commitments and achieve high levels of sustained cooperation. Conversely, when conditional commitments lead to socially inefficient outcomes, their use declines and cooperation levels drop significantly.
Working Papers
Supplier Salience: Incidence, Market Entry & Welfare-(with Eleanor Wilking, Elisa yu-chun Cheng) (available upon request)
This paper explores how optimization frictions in supplier price-setting affect tax incidence. We use a natural experiment that varied the effective hotel tax rate in certain cities at different times to document heterogeneity in tax pass-through using multiple proxies for price-setting acumen. Pass-through is lowest for sophisticated hosts whose prices before the policy closely follow local hotels. In contrast, less sophisticated hosts are much less likely to adjust their pre-tax price, passing the entire tax burden onto consumers. We develop a model for welfare analysis that incorporates supplier salience and other price-setting optimization failures.
Order Effects, Reciprocity and Equilibrium Play in a TV Show-(with Mehmet Y. Gürdal, Tolga Umut Kuzubaş, and Büşra Yavuz) (available upon request)
This paper theoretically and empirically analyzes strategic behavior in a Turkish reality TV cooking competition with a unique scoring system. The structure differs from prior studies in several ways: contestants must assign scores from a restricted set, publicly reveal evaluations after each round, and are additionally evaluated by a program host whose scores are concealed until the last stage. Contestants generally assign the lowest permissible scores to opponents, consistent with a payoff-maximizing equilibrium strategy rarely observed in similar games. Additionally, while the points received from other contestants exhibit an order effect where later performers receive higher scores, we show that the winning probability itself does not depend on the order of performance. The analysis also finds no evidence of generalized reciprocity but does find dyadic reciprocity, with contestants reciprocating scores in one-on-one interactions. However, given the incentives, this reciprocal behavior does not contradict rational play. Overall, the unique contest design provides novel insights into how institutional rules and information structure shape strategic interactions in competitive environments.
Tax Evasion with Somewhat Honest Taxpayers (available upon request)
This paper analyzes the optimal audit rule in a setting where taxpayers' evasion behavior is bounded from above due to an intrinsic cost function, such as lying aversion. The standard cutoff audit rule, where no reported income is audited above a certain threshold, is not robust to adding a parameter that induces a bound on possible evasion. For example, when taxpayers are homogeneously lying averse, a random audit rule with a constant audit probability across the income distribution might perform better. The paper also provides insights into the characteristics of an optimal audit rule in this setting. For example, the audit probability does not have to be non-increasing in reported income to ensure incentive compatibility. Additionally, the lack of significant bunching at the cutoff income suggests that the tax authority can audit some individuals above the cutoff and collect revenue. The paper's findings suggest that the standard cutoff audit rule is not optimal in a setting where taxpayers' evasion opportunities are bounded away from the extreme extent. Second, the tax authority can collect more revenue by auditing some individuals above the cutoff income.
Income-dependent Penalty Rate for Tax Evasion- (with Yulia Kuchumova)
This paper presents a theoretical examination of income-dependent penalties as a potential mechanism for addressing tax evasion and income inequality. While traditional models focus on fixed or proportional penalties, they often overlook the role of income heterogeneity in shaping evasion decisions and their impact on income distribution. We explore the theoretical implications of scaling penalties according to taxpayers' income levels, drawing insights from countries that have implemented similar systems for general financial penalties. Our analysis evaluates how income-dependent fines could enhance tax compliance, reduce evasion, and contribute to a more equitable tax system. This theoretical study aims to provide valuable insights for policymakers considering innovative approaches to combat tax evasion and improve fiscal equity.
Work in Progress
Firm Networks and the Transmission of Shocks to Workers and Firms- with Dimitrije Ruzic
The Engel Curve for Tax Preparation Services- with Giacomo Brusco, J.M. Payne and Ellen Stuart