Jensen, Anders
(2016)
Essays in public finance.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis explores the determinants of tax evasion and their implications for tax policy, with a special focus on taxation in developing countries.
Chapter 1 studies how the transition from self-employment to employee-jobs over the long run of development explains the rise of the modern tax system. I construct a new microdataset, covering 90 countries at all levels of development today and 140 years within the US between 1870 and 2010. Using these data, I provide new stylized facts: within country, the share of employees increases over the income distribution, and increases at all levels of income as a country develops; 2) the income tax exemption threshold moves down the income distribution
as a country develops tracking employee growth. I provide a causal estimate of the impact of employee-share on the exemption threshold and on tax revenue, by studying a state-led development program which was implemented across US states in the 1950s-60s. I find that the exogenous increase in employee share is associated with a lower state income tax threshold and higher revenue.
Chapter 2 studies individual and social motives in tax evasion. We build a dynamic model that incorporates these motives, their interactions, and where social motives underpin the role of norms. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the UK, which led to widespread evasion, and a series of natural experiments due to narrow election outcomes, which induce shifts into single-majority local governments and lead to more vigorous enforcement of local taxes. The econometric results are consistent with the model’s main predictions on the dynamics of evasion.
Chapter 3 studies the impact of access to formal finance and firm size on tax inspection and tax compliance. We use firm-level data on 108,000 firms across 79 countries in the World Bank Enterprise Surveys. We instrument for finance and firm size at the industry-level using an out of sample extrapolation strategy related. We find a large and positive effect of firm size on both tax inspection and sales tax compliance, but no overall significant impact of reliance on external finance.
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