Research

Working Papers

Optimal Taxation, Marriage, Home Production, and Family Labour Supply

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[abstract]

This paper develops an empirical approach to optimal income taxation design within an equilibrium collective marriage market model with imperfectly transferable utility. Taxes distort labour supply and time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey we structurally estimate our model and explore empirical design problems. We consider the optimal design problem when the planner is able to condition taxes on marital status, as in the U.S. tax code, but for married couples we allow for an arbitrary form of tax jointness. Our results suggest that the optimal tax system for married couples is characterized by negative jointness, although the welfare gains from this jointness are shown to be quite modest.

Equilibrium search and tax credit reform

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[abstract]

A multi-sector empirical equilibrium job search model with wage posting is developed to analyse the labour market impact of UK tax reforms and to explore tax credit design. The model allows for a rich characterization of the labour market, with hours responses, accurate representations of the tax and transfer system, and both worker and firm heterogeneity. The model is estimated with pre-reform longitudinal survey data using a semi-nonparametric technique, and the impact of actual tax reform policies is simulated. The British Working Families' Tax Credit and contemporaneous reforms are predicted to increase employment, with equilibrium effects found to be relatively modest. The model is used to assess the impact of alternative policies, and equilibrium effects are shown to become important as the generosity of tax credits is increased. They also bear an important influence when the optimal design of tax credits is considered.

Publications

Employment, hours of work and the optimal taxation of low income families

[full document] [supplement] [bibtex]

[abstract]

The optimal design of low income support is examined using a structural labour supply model. The approach incorporates unobserved heterogeneity, fixed costs of work, childcare costs and the detailed non-convexities of the tax and transfer system. The analysis considers purely Pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion. We explore the gains from tagging and also examine the case for the use of hours-contingent payments. Using the tax schedule for lone parents in the UK as our policy environment, the results point to a reformed non-linear tax schedule with tax credits only optimal for low earners. The results also suggest a welfare improving role for tagging according to child age and for hours-contingent payments, although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities.

Comparing Charitable Fundrasing Schemes: Evidence from a Field Experiment and a Structural Model

[full document] [bibtex]

[abstract]

We present evidence from a natural field experiment designed to shed light on the efficacy of alternative fundraising schemes. In conjunction with the Bavarian State Opera House, we mailed 25,000 regular opera attendees a letter describing a charitable fundraising project organized by the opera house. Recipients were randomly assigned to six treatments designed to explore behavioral responses to fundraising schemes varying in two dimensions: (i) the presence of a lead donor; (ii) whether and how individual donations would be matched using the lead donation. We provide reduced form evidence from the field experiment on the causal impact of each fundraising scheme on the extensive and intensive margins of giving. We then develop and estimate a structural model of giving behavior that simultaneously estimates individuals responses on both margins. We utilize the structural model to predict giving behavior in counterfactual fundraising schemes. The evidence suggests the optimal fundraising scheme is one in which the charitable organization merely announces the existence of a significant and anonymous lead donor, and does not use the lead donation to match donations in any way, be it through linear matching, non-linear matching, threshold matching, or some combination of the three. We conclude by discussing evidence from a follow-up field experiment designed to probe further the question why lead donors are effective.

Means Testing and Tax Rates on Earnings

[full document] [bibtex]

Work in Progress

Joint Household Labour Supply and Health Care Reform

[abstract]

Health insurance in the United States has traditionally been provided in form of employer sponsored health insurance, with workers having the option to extend coverage to their spouse and dependents. Provisions in the Affordable Care Act significantly alter the incentive for firms to offer insurance to the spouses of employees. We extend the empirical equilibrium job search literature to an environment where multiple household members are searching for jobs. The distribution of job offers is determined endogenously, with compensation packages comprising of a wage and menu of insurance offerings (premiums and coverage) that workers select from. The model allows for a richcharacterisation of the labour market, with both household and firm heterogeneity. The model is estimated using MEPS, SIPP and Kaiser Family Foundation Survey data sets using a multi-step estimation procedure. Counterfactual experiments using the estimated model are conducted to provide a quantitative assessment of the impact of the Affordable Care Act on firms’ insurance offerings and on household outcomes.

Optimal Taxation in an Empirical Life-Cycle Model of Labour Supply

[abstract]

The optimal structure of taxation is examined using a empirical life-cycle model of labour supply. The approach incorporates intensive and extensive labour supply decisions, savings, and endogenous human capital accumulation, in a rich dynamic environment where individuals are subject to preference and productivity shocks, and changes in family structure. We estimate our model using an extensive UK panel data set that spans a series of reforms to the tax and transfer system, and use the estimated model to explore dynamic optimal taxation problems.