Session 8: Public Economics

We study the repeal of France’s Taxe Professionnelle, a large local capital tax with rates set by nearly 35,000 municipalities. Combining administrative data with a dynamic spatial general equilibrium model disciplined by reduced-form investment responses, we estimate that the reform raises long-run real income per worker by 8% and welfare by 3% in consumption-equivalent terms. Most gains come from the lower aggregate tax burden, which increases real wages everywhere. Equalizing tax rates alone has little aggregate effect, as activity shifts from large, low-tax, high-income hubs toward lower-wage locations, rather than raising productivity or capital deepening in the aggregate economy.

This paper presents novel estimates of the incidence of corporate taxes that, for the first time, account for commercial real estate in addition to residential landowners, firm owners, and workers. We combine unique real estate data covering over 32 million properties with administrative data on wages and profits in Germany and leverage over 17,000 local business tax changes for our empirical analysis. Our estimates indicate that a one percentage point increase in local business taxes reduces commercial real estate prices by 2%, while residential real estate prices decline by 1%. Wages decline by approximately 1%, and profits decline by about 2%. These results are robust to the inclusion of a large set of controls and to estimators that account for heterogeneous treatment effects. We use the reduced-form estimates to update current incidence measures using a spatial-equilibrium framework and find that commercial landowners bear a significant share of the tax burden (≈ 20%) in the medium-run, while workers (≈ 11%) and residential landowners (≈12%) are likely to bear a smaller burden. Firm owners bear the largest share of the burden (≈ 58%). Moreover, our framework puts the existing literature into perspective: we not only derive new incidence estimates but also reconcile divergent findings and clarify the mechanisms and modeling choices responsible for differences across studies.

Local governments in the United States are vertically differentiated: in a given location, multiple overlapping jurisdictions provide distinct local public services and draw revenue from shared portions of the property tax base. This paper estimates the fiscal spillovers generated by this structure and proposes a mechanism that internalizes them in local policy choice. I assemble a new georeferenced dataset covering the universe of local government boundaries and nominal property tax rates nationwide over the past two decades. Using a dynamic regression discontinuity design, I estimate fiscal spillovers from narrowly approved property tax referenda. To extrapolate beyond effects identified at the approval threshold, I develop a spatial equilibrium model with overlapping jurisdictions and majority voting over the provision of local public goods. I use the model to quantify spillovers for all school districts and municipal governments in the United States and find sizable effects. I then evaluate a policy that (i) informs voters about cross-jurisdiction spillovers and (ii) applies symmetric intergovernmental transfers (taxes or subsidies) upon approval of a spending change. The counterfactual regime yields aggregate welfare gains.

This paper studies how labour taxation affects the international allocation of employment within multinational enterprises (MNEs). We combine detailed data on employment and wages at foreign-owned firms in the United Kingdom with variation from labour tax reforms at MNE headquarters. We find that increases in labour taxes at headquarters raise employment of UK affiliates, consistent with cross-border reallocation of jobs within firms. These effects are largest when headquarter and affiliate employment is more plausibly substitutable and extend to R\&D employment. We also find that higher HQ labour taxes reduce wages within UK affiliates. The results suggest that labour tax policy can have substantial international spillovers through the internal allocation decisions of multinational firms.

Whether multinationals pay their fair share of taxes in developing countries is a contested question in international tax policy. Country-by-Country Reporting (CbCR), the most far-reaching response to date, requires multinationals to disclose granular jurisdiction-level financial information to tax authorities. Whether such transparency benefits developing countries is theoretically ambiguous: stronger or more arbitrary enforcement may raise short-run tax revenue at the cost of investment, while the institutional reforms required to join the CbCR exchange network may attract it. We exploit the staggered activation of bilateral CbCR exchange agreements in a Bartik-style shift-share design. Once developing countries gain access to the CbC reports filed in the home jurisdictions of their inbound multinationals, both FDI inflows and corporate tax revenue rise. Within-multinational-year variation and the CbCR size threshold confirm this pattern at the firm level. Supplementary tests point to reduced tax enforcement uncertainty and improvements in host-country institutional quality as the operative mechanisms. The effects concentrate in lowerincome, high-corruption host countries. While commonly viewed as a compliance burden, CbCR can serve as a source of tax certainty that attracts, rather than deters, cross-border investment in the developing world.

In realization-based tax systems, capital gains are not taxed until the asset is sold. Policies of “stepped-up basis” make capital gains deferral permanent when appreciated assets pass in inheritance. We construct novel measures of unrealized and inherited capital gains inNorway. Unrealized gains are large, top-heavy, and poorly proxied by realized gains. Gains passing through inheritance equal 60% of the realized gains tax base. Two difference-in-differences designs show Norway’s 2006 removal of stepped-up basis raised capital gains tax revenue by more than 17%. Yet realizations are small relative to accrual, so the stock of unrealized gains continues to grow after the reform.

This paper documents the wealth of California’s billionaires and the taxes they pay. California billionaires’ wealth exceeds $2 trillion today, the equivalent of 50% of California’s GDP. It has grown 144% from 2023 to 2025, fueled by the AI boom. Over the longer run, the real wealth of California’s billionaire class—the 0.0002% richest households—has been multiplied by 30 from 1982 to 2025, while average real family income in California has about doubled. California billionaires pay about 0.2% of their wealth in California income tax ($3.2 billion/year), representing 2.4% of total California income tax revenue on average over 2023-2025. Using Securities and Exchange Commission data from Alphabet, Meta, Oracle, and Nvidia since 2004, we estimate the trajectory of wealth, income, and taxes paid by the top 4 California billionaires— Page, Brin, Zuckerberg, Ellison (through 2020), and Huang (since 2021)—focusing on their business wealth. This group alone holds nearly $1 trillion in business wealth, almost half of total California billionaire wealth. For this group, wealth growth (+322% over 2023-2025) and low taxation (0.04% of wealth in annual California income tax) are more pronounced. The proposed one-off California billionaire tax of 5%, payable over 5 years, is both small relative to California billionaires’ wealth gains and large relative to the taxes they currently pay. We estimate that it could raise about $100 billion, with comparatively minor impacts on income tax revenue. Using empirical estimates of mobility responses to wealth taxation, we find that an annual wealth tax on California billionaires could raise substantial additional revenue even after accounting for income tax losses due to mobility.

Capital gains taxes face a common problem: measuring what cannot be observed. When basis is self-reported or manipulable, we document behavioral responses along several margins. The reporting margin: homeowners report basis below the $500,000 exclusion, with a higher elasticity in non-disclosure states (0.23) than disclosure states (0.019). The transaction design margin: investors shift low-basis assets into ETFs to avoid realization, growing from $5 million to $3 billion in less than 2 years. The perception margin: broker reporting of post stock-split basis led to splits falling by 99%. Tax-base design shapes behavior as fundamentally as tax rates.

A central prescription in public economics is to correct externalities by taxing the externality-generating attribute: for example, ethanol content for alcohol, THC for cannabis, sugar for sweetened beverages, or CO2 emissions for vehicles. This prescription implicitly assumes independent demands across products, an assumption that fails in any differentiated product market, where the marginal external damage from a product depends not only on its externality content, but also on the external damage generated by its substitutes. We illustrate the conditions under which a simple attribute-based tax is likely to be sufficient and characterize when it fails. We then present case studies for distilled spirits and automobiles that quantify the welfare cost of ignoring within-market substitution.

This paper studies the roles of market power and taxes in determining market surplus and social welfare in the U.S. consumer firearms industry. Using microdata from Massachusetts and aggregate data from other states, we estimate an equilibrium model of the consumer firearms industry. To identify price elasticities, we construct an instrument based on heterogeneous exposure to aggregate shocks to the prices of metal commodities. Although firearm manufacturers charge substantial markups, a calibrated model of firearm-related homicide implies that these markups are poorly targeted towards each product’s homicide externalities. We consider the redesign of a longstanding federal excise tax on firearms (11% on long guns, 10% on handguns), and show considerable welfare gains from a “second-best” optimal tax scheme under the political-economy constraint that surplus among firearm consumers remains constant. We also construct a simple tax redesign (0% on long guns, 15.5% on handguns) that would capture 80% of the potential welfare gains from the constrained-optimal policy. Either tax redesign would lead to pricing better aligned with social welfare from firearm transactions, while preserving consumer surplus and industry profits and improving public health. Politically conservative regions of the U.S. would benefit disproportionately from these tax reforms, suggesting they may also be politically feasible.

Tax authorities typically concentrate enforcement resources on large businesses, yet small business evasion generates tax revenue losses that often exceed those from multinational profit shifting. We show that authorities can improve small business compliance by strategically disclosing audit-relevant information. We study audit rules that inform taxpayers that audit risk drops discontinuously above a threshold based on predicted revenues. Under empirically plausible conditions, our model shows that the tax base is concave in the size of this discontinuity. Consequently, if widening an existing discontinuity raises the tax base, the pre-reform disclosed rule must already outperform a flat, undisclosed benchmark. We test this implication using more than 26 million tax files (2007–2016) from Italy’s Sector Studies. Taxpayers bunch sharply at the threshold, and bunching correlates with evasion proxies and evasion technologies. Exploiting a staggered reform that increased the audit risk discontinuity, we find that compliance rises below the threshold and falls above it, yet average reported profits, the relevant tax base, grow by 16.2% in treated sectors over six years. Our theoretical result therefore implies that disclosure outperforms nondisclosure. Structural estimates further show that strengthening incentives at the threshold could more than halve the audit budget without reducing compliance, freeing resources to target larger firms, and that the reform brought the policy close to the optimum.

Bunching at tax kinks establishes that reported income responds to incentives, but not whether underlying resources change or reports are reassigned across tax bases. We study economic coordination units across which reported income may be reallocated while aggregate resources obey an accounting identity. Real responses imply singularities in the aggregate distribution, whereas pure reallocation can generate individual bunching while leaving the aggregate distribution smooth. We derive these testable implications under no shifting, unrestricted shifting, allocable passive income, and finite shifting costs. Because a coordination unit may contain multiple thresholds and shifting frictions may disperse aggregate irregularities across unknown locations, the empirical restriction requires a global rather than cutoff-specific smoothness test. We develop a novel bootstrap Kolmogorov–Smirnov test with valid size and power against atoms and density discontinuities. Applying the framework to linked Australian families from 2001–2022, we reject smoothness for individual taxable income in every year but never for family-average income under the preferred specification. The family test operates at a resolution far finer than the singularities implied by benchmark real- response models. Within the maintained class, intra-family income shifting accounts for the detectable individual bunching, while the family data leave little support for real bunching of comparable magnitude.

Up to half of the gender pay gap stems from women’s sorting into low-wage firms. Do women prefer amenities to wages, or face barriers to search? I tackle this question using data on 29 million job applications from Pakistan’s largest job search platform, combined with firm and worker surveys and a field experiment mandating pay transparency. I document that large, high-paying firms are more likely to omit salaries in job ads and less likely to offer flexibility – an amenity women value slightly more than men. When pay is disclosed, men and women respond similarly to wages. But when undisclosed, behaviors diverge: men search randomly, while women sort negatively on pay. A theoretical framework shows that pay non-disclosure amplifies small gender differences in amenity preferences into large gender gaps in applications. To test whether transparency closes these gaps, I randomize mandatory versus optional pay disclosure in 20,088 jobs across 8,906 firms on the platform. The experiment leaves large-firm pay and amenities unchanged. Yet women’s applications to these firms increase 95%, and men’s 59%, reversing the gender gap in directed search. This implies women do not prefer flexibility to wages. Rather, they turn to flexibility when they cannot access wages. Meanwhile, large firms most exposed to mandated transparency become 30% more likely to disclose pay post-experiment, suggesting they overestimated the costs of transparency.

This paper studies the real economic effects of a crackdown on offshore secrecy in Colombia. Exploiting variation in the likelihood of detecting offshore wealth triggered by the Panama Papers leak in 2016, I find that firms owned by users of offshore vehicles increase their retained earnings and use this additional liquidity to increase capital and employment, resulting in higher prof- its two years after the leak. Heterogeneity analyses show larger effects among owner-managed firms, where shocks to business owners more directly translate into firm choices. Moreover, these positive real responses imply higher corporate income tax revenues, complementing the revenue gains from increased wealth tax compliance. Overall, these findings provide new evidence on the real economic implications of offshore tax evasion by wealthy individuals.

We estimate the effect of value-added tax (VAT) reforms on the consumer prices of menstrual hygiene products in a large set of developed and developing countries. Over the last decade, more than thirty countries have reduced or eliminated VAT on menstrual products on the argument that the so-called “tampon tax” is a gender-discriminatory levy that contributes to menstrual poverty. Yet, whether such relief lowers consumer prices remains an open question, especially outside high-income settings. Using high-frequency consumer-panel scanner data covering more than twenty countries, we estimate dynamic difference-in-differences models around eleven reform episodes in nine countries (Italy, Colombia, India, the United Kingdom, Ecuador, France, Mexico, Costa Rica, and Nicaragua’s tax reintroduction). We document substantial heterogeneity in pass-through across reform designs and a gap between formal and informal retail channels, with direct implications for the policy debate on the use of VAT cuts to alleviate menstrual poverty.

This paper studies interregional fiscal redistribution and regional economic growth. In China, the central government takes substantial tax revenue from local governments and reallocates resources across regions. I model this redistribution as a progressive tax on local fiscal revenue and document a sharp rise in progressivity. Exploiting the 2002 tax reform in an event-study design, I show that the increased central tax claims reduced local infrastructure investment and slowed regional growth. To quantify the effects of increased redistribution, I develop a general equilibrium growth model featuring local fiscal policy under progressive redistribution. Rising progressivity accounts for 43% of the decline in the cross-provincial variance of log GDP per capita, while reducing aggregate TFP by 0.5 percentage points. Finally, I use this framework to characterize the determinants of optimal progressivity.

People's choices often depend on the frame in which they're made: marketing can influence how a consumer values certain goods, the immediacy of the choice can influence consideration of intertemporal tradeoffs, and public policy can shape people's preferences. In many cases, such framing effects are not "mistakes'"---they reflect equally legitimate preferences. We develop a welfare criterion that admits this normative ambiguity yet still provides money-metric estimates of policies' welfare effects. The criterion evaluates each policy by its  worst-case money-metric deviation from the first-best, across the frames. It is the unique criterion satisfying a set of natural axioms.  We illustrate its application to a variety of policy design questions, including ``sin taxes,''  provision of commitment opportunities, active-choice versus optimal default regimes, and regulation of marketing and advertising.

We provide the first systematic quantification of how decision-making frictions—such as failing to claim government benefits, choosing dominated insurance plans, not saving for retirement, and not quitting smoking—aggregate to affect inequality in income, consumption, and wealth. We review the existing literature and combine it with original analysis of survey data to estimate the prevalence and financial impact of 18 frictions across the income distribution. To make these frictions comparable, we develop a framework in which each friction is characterized by three parameters: the share of the population at risk, the share affected by the friction, and the average loss conditional on being affected. Aggregating across the frictions with dollar-loss estimates, the estimated impact on annual income is 7.8% for the bottom quartile of the income distribution relative to 4.2% for the top quartile; the total loss for low-income households is approximately 7.5 times larger than the impact of a major EITC expansion. We then incorporate these frictions into a life cycle model with realistic institutional features, including tax-advantaged retirement accounts, progressive taxation, portfolio choice, and a social insurance system. The model reveals that removing frictions tends to reduce inequality in lifetime consumption, with the largest effects coming from smoking and attending for-profit colleges. Our results suggest that decision-making frictions are a quantitatively important contributor to inequality in income, consumption, and wealth.