Publication

Optimal Tax Mix with Income Tax Non-compliance, with Jason Huang

Journal of Public Economics (link)

Although developing countries face high levels of income inequality, they rely more on consumption taxes, which tend to be linear and are less effective for redistribution than a non-linear income tax. One explanation for this pattern is that the consumption taxes are generally more enforceable in these economies. This paper studies the optimal combination of a linear consumption tax with a non-linear income tax for redistributive purposes. In our model, households might not comply with the income tax code by reporting income levels that differ from their true income. However, the consumption tax is fully enforceable. We derive a formula for the optimal income tax schedule as a function of the consumption tax rate, the recoverable elasticities, and the moments of the taxable income distribution. Our equation differs from those of Mirrlees (1971) and Saez (2001) because households face a consumption tax and they respond to income tax not only through labor supply but also through mis-reporting their incomes. Both aspects are empirically relevant to our calibration of the optimal top rate in the Russian economy. We then characterize the optimal mix between a linear consumption tax rate and a non-linear income tax schedule. Finally, we find that the optimal consumption tax rate is non-increasing in the redistributive motives of the social planner.

Working Papers

Welfare Analysis of Changing Notches: Evidence from Bolsa Família, with Katy Bergstrom and William Dodds (Conditionally Accepted at the AEJ Policy)

We analyze the welfare impacts of a reform that expanded an eligibility notch in one of the world's largest cash transfer programs, Bolsa Família. We develop a novel framework to bound the welfare impacts of reforms to transfer programs featuring notches using two sufficient statistics: (1) the number of households bunching at the old notch who move toward the new notch, and (2) the number of households who "jump" down to the new notch. We estimate these two statistics using longitudinal administrative data and a difference-in-difference strategy. Despite strong evidence of behavioral responses to this reform, we find that the corresponding efficiency costs are small relative to the equity benefits: the reform's MVPF is between 0.90 and 1.12. Because the Bolsa Família eligibility threshold is based on self-reported income, our findings suggest that the efficiency costs of targeting based on self-reported income can be relatively small even in high-informality settings.

Political Dynasties and the Quality of Government, with Arthur Bragança and Claudio Ferraz

This paper examines whether dynastic politicians -- politicians that had relatives in office in the past-- affect the quality of government. We use a regression discontinuity design with electoral data for mayors in Brazil and examine whether dynastic politicians implement different policies compared to non-dynastic politicians. We find that dynastic politicians spend more resources, specially in investment in urban infrastructure, health and sanitation. However, we do not find improvements in economic growth and changes in the quality of public services.

Work in Progress

Estimating the Welfare Impact of Frictions and Misperceptions Using Observable Elasticities, with Katy Bergstrom and William Dodds