Working Papers:

Can Entry Mitigate the Effect of Inflated Reserve Prices in Public Procurement?

Abstract:

Using data from drug procurement auctions in Russia and exploiting exogenous variation induced by two natural experiments, this paper first studies whether bureaucrats abuse their discretionary power when setting the reserve price: the maximum per unit price the government is willing to pay for a given drug. It then asks whether even in the environment characterized by a significant discretionary power of bureaucrats sufficient entry of firms can undo effects of discretion.

Obtained results show that reserve prices are at least 8% too high as compared to the optimum: buyers could lower them by this amount, enjoying a one to one decrease in the final price with no increase in the probability of trade not happening. The second set of results indicates that entry can solve the problem of inflated reserve prices: an additional bidder causes prices to de- crease by around 8% to 9%. This effect is highly nonlinear: having more than one bidder versus one bidder causes prices to decrease by around 15% to 18%. Therefore my results suggest that even in an environment where reserve prices are inflated the legislator can undo these effects by ensuring that there are at least 2 participants in a procurement auction.

Million Dollar Baby: Should Parental Benefits Depend on Wages When the Payroll Tax Evasion is Present? (in collaboration with Anna Zasova)

Abstract:

This paper explores the effect of tying social security benefits to declared wages on the pay- roll tax compliance. We use administrative data from Latvia covering the entire working population over a 15-year period from 1996 to 2010 to study generous parental benefits, which depend on the reported wage in the time period before the childbirth. Our analysis delivers three principal results. First, we observe a sharp increase in the wage during the time period taken into account to calculate parental benefits. Depending on the specifi- cation, we conclude that during this period the wage on average increases by 5.4%-7.5%. Second, obtained effects are highly heterogeneous. We find that the wage growth is much higher in small firms, where it is presumably easier to sustain collusion between employ- ees and employers. Finally, we demonstrate that legalisation of wages is temporary and lasts only until the end of the period taken into account to calculate parental benefits. Hence looking from the tax policy perspective the result of tying parental benefits to re- ported wages is the net loss to government’s finances. Our back-of-the-envelope calcula- tions suggest that the net fiscal loss coming from foregone tax revenues in 2005 amounted to 0.5%-0.6% of GDP.

Work in Progress

1. Hysteresis of Austerity: Evidence From A Large Scale Pension Reform (in collaboration with Anna Zasova)

2. Decentralization in Indonesia: Spending Efficiency and Local Outcomes (in collaboration with Jonas Gathen and Stéphane Straub

3. Gender Effects in Procurement (in collaboration with Elena Paltseva and Giancarlo Spagnolo)

4. Bundling in Public Procurement

5. Network and Salience Effects in the Retirement Decision Making

6. Threshold Effects in The Below Threshold Procurement in Latvia