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Essays on the economics of taxation

Best, Michael Carlos (2014) Essays on the economics of taxation. PhD thesis, The London School of Economics and Political Science (LSE).

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Abstract

This thesis explores the way economic behaviour responds to taxation both theoretically and empirically. Chapter 1 studies the impact of transation taxes on the housing market, using UK administrative data and quasi-experimental variation created by notches, tax reforms, and stimulus. Transaction taxes have large effects on house prices and purchases, and adjustments to tax changes are fast. A temporary elimination of transaction taxes stimulated housing market activity by 20% in the short run (timing and extensive responses) followed by a smaller slump in activity after the policy was withdrawn (timing response). The success of this stimulus program stems from the large distortions created by the tax in the first place. Chapter 2 presents evidence on three ways in which firms affect workers’ earnings responses in Pakistan. First, third-party reporting of salaries by employers reduces evasion. Second, firms’ equilibrium salary-hours offers are tailored to aggregate worker preferences in response to adjustment costs in the labour market. Third, workers learn about the tax schedule from firms and become more responsive to taxation both contemporaneously (by 130%) and in subsequent years (by 100%). Third-party reporting does not eliminate misreporting: 19% of workers underreport their salaries, creating a loss of 5% of tax revenue, and indicating high returns to investments in improving enforcement. Chapter 3 develops a theory of optimal income taxation allowing for career effects of current work effort on future wages. Such effects are empirically important, but have been ignored by the optimal tax literature. We provide analytical characterizations that depend on estimable entities, including the elasticity of future wages to current work effort. We explore the magnitude of this “career elasticity” in a meta-analysis of the empirical literature on the returns to work experience and tenure, and provide numerical simulations calibrated to US micro-data. Our results show that career effects have important qualitative and quantitative implications for optimal tax design.

Item Type: Thesis (PhD)
Additional Information: © 2014 Michael Carlos Best
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Departments > Economics
Supervisor: Kleven, Henrik Jacobsen
URI: http://etheses.lse.ac.uk/id/eprint/940

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