WORKING PAPERS
“Understanding Misreporting: New Evidence from Responses to a Notched Housing Transaction Tax” (with Ziying Fan, Hang Zhang)
Using proprietary data from a large real estate brokerage company that records both true and reported prices of housing transactions, this paper provides new evidence of misreporting. Cross-sectionally, we document a series of stylized facts of misreporting featuring a novel three-segment reporting pattern. Dynamically, we show that underreporting could negatively respond to the tax rate, which implies that the tax erosion effect emphasized by the bulk of the literature could be lessened due to less underreporting among those remaining transactions. All these facts are reconcilable by a simple model that depicts the tradeoff between tax-saving and misreporting costs.
Presentations (including coauthor presentations): NYU Furman Center, Fudan FISF Real Estate Finance Workshop, NBER Conference on the Chinese Economy, University of Michigan, North American Summer Meeting of the Econometric Society, 4th Zurich Conference on Public Finance in Developing Countries, Tsinghua University, Xiamen University, SJTU Antai, PKU NSD&SOE, Nanjing Audit University, Beijing Normal University, ICCDS, Osaka University, University of Tokyo.
“Tax Evasion and Avoidance of the U.S. Households”
In many countries like the U.S., employees honestly report income due to third-party reporting, while the self-employed generally under-report income. Based on such facts, previous literature (Pissarides and Weber, 1989; Hurst et al. 2014) estimates the income under-reporting scale of the self-employed by comparing the income-consumption relation between employees and the self-employed. In this study, by exploring the panel structure of PSID data, I examine how reported total income changes when (the head of) a family transitions from being an employee to becoming self-employed, conditional on total consumption, and use this to obtain an estimate of income under-reporting close to the scale implied by the IRS audits. Furthermore, I distinguish tax evasion from several types of tax avoidance (income shifting; income deferral; use of exemptions and deductions) and carefully investigate how tax liability changes due to evasion and avoidance when a family becomes self-employed. The main finding is that, on average for the self-employed in the U.S., the amount of tax evasion is comparable to that of tax avoidance. But the corporate self-employed rely more on tax avoidance while the non-corporate self-employed rely more on tax evasion.
PUBLICATIONS
“The Impacts of the U.S. Trade War on Chinese Exporters” (with Yang Jiao, Zhikuo Liu, Zhiwei Tian), Accept at the Review of Economics and Statistics, Working Paper.
This paper studies the impacts of the 2018 U.S. tariff surges on export prices and adjustments of sales across different markets of Chinese exporters. The finding that U.S. tariffs did not affect the free-on-board price of Chinese exports is robust to controlling for firm-related fixed effects. While firms’ exports to the U.S. dropped significantly, exports to the E.U. increased moderately and domestic sales or exports to other foreign markets were barely affected. Finally, by surveying managers of exporting firms, we shed light on potential impediments to firms’ adjustments of export prices and sales.
“Understanding the Elasticity of Taxable Income: A Tale of Two Approaches”, (with Daixin He, Langchuan Peng) Journal of Public Economics, 197 (2021): 104375. Working Paper, Published Version.
This paper conducts the first formal comparison of two main approaches (tax reform versus bunching approach) to estimate the elasticity of taxable income (ETI), a central parameter in the public finance literature since Feldstein (1999). Using a novel panel of administrative tax data from China and exploiting China’s progressive monthly wage income tax schedule and a tax reform in 2011, we document two key differences in the ETI estimates obtained from these two approaches. First, the tax reform ETI estimates increase concavely over time, while the bunching ETI estimates are much more stable. Second, the tax reform ETI estimates (around 4 in the long-run) are much larger than the bunching ETI (around 0.5), and the difference is statistically significant. To account for these facts, we develop a simple model where individuals in each period have some probability to permanently change hours of work without paying other costs but can temporarily adjust hours by paying additional costs. With stable wage rates, the two estimators should converge to the same underlying value. But with normal wage growth, the tax reform estimates converge to the true underlying parameter, whereas the bunching estimates can be far below the true figure.
“How Do Minimum Wage Adjustments Affect Wages in China? Evidence Based on Administrative Personal Income Tax Data” (with Langchuan Peng, Daixin He) Contemporary Economic Policy, 37.2 (2019): 349-365. Published version
By using unique administrative personal income tax data covering the population of a middle‐sized Chinese city from 2009 to 2013, we explore how minimum wage adjustments affect wages of low‐wage workers. The empirical evidence documented in this paper suggests a unique pattern of minimum wage regulation: while it permits wages to stay below the prevailing minimum wage threshold temporarily, it does encourage a higher growth rate for wages below the threshold. Overall, such a pattern might help lessen any downward pressures on employment, while ensuring that low‐wage earners gradually get better off over time.
The Effect of China's Agricultural Tax Abolition on Rural Families' Incomes and Production (with Yan Shen) China Economic Review 29, 2014: 185-199. Published version
This paper uses the rural household panel data collected by Research Center for Rural Economy to evaluate the impacts of China's agricultural tax abolition during 2004–2005 on farmers' income and production behavior. We find that the abolition of agricultural tax did not significantly affect agricultural production. The effects on input use and productivity are also found statistically insignificant. All these are consistent with the lump-sum property of the tax and imply little effect of the tax abolition on relaxing credit constraints to farmers. Finally, we find that the tax abolition did not increase farmers' net income significantly.
How Will Fertility Imbalances Affect the Human Capital Structure in China?--Evidence from the National Family Planning and Fertility Health Survey (with Xiaoyan Lei, Yan Shen) China Economic Journal, December 2012, vol. 5, no. 1. p29-45. Published version