We investigate housing market responses to transaction taxes using administrative data on all property transactions in the U.K. from 2004 to 2012 combined with quasi-experimental variation from tax notches and tax stimulus. We present two main findings. First, transaction taxes are highly distortionary across a range of margins, causing large distortions to the price, volume, and timing of property transactions. Secondly, temporary transaction tax cuts are an enormously effective form of fiscal stimulus. A temporary elimination of a 1% transaction tax increased housing market activity by 20% in the short run (due to both timing and extensive responses) and less than half of the stimulus effect was reversed after the tax was reintroduced (due to re-timing). Because of the complementarities between moving house and consumer spending, these stimulus effects translate into extra spending per dollar of tax cut equal to about 1. We interpret our empirical findings in the context of a housing model with downpayment constraints in which leverage amplifies the effects of transaction taxes.

We develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches—discontinuities in the choice sets of agents—introduced by tax and transfer policies. Notches create excess bunching on the low-tax side and missing mass on the high-tax side of a cutoff, and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world. By combining excess bunching (observed response attenuated by frictions) with missing mass in the dominated region (frictions), it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long-run behavior. We apply our framework to tax notches in Pakistan using rich administrative data. While observed bunching is large and sharp, optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives. The combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large, but the underlying structural elasticity driving this response is nevertheless modest. This highlights the inefficiency of notches: by creating extremely strong price distortions, they induce large behavioral responses even when structural elasticities are small.

This paper builds a world atlas of child penalties in employment based on microdata from 134 countries. The estimation of child penalties is based on pseudo-event studies of first child birth using cross-sectional data. The pseudo-event studies are validated against true event studies using panel data for a subset of countries. Most countries display clear and sizable child penalties: men and women follow parallel trends before parenthood, but diverge sharply and persistently after parenthood. While this pattern is pervasive, there is enormous variation in the magnitude of the effects across different regions of the world. The fraction of gender inequality explained by child penalties varies systematically with economic development and proxies for structural transformation. At low levels of development, child penalties represent a minuscule fraction of gender inequality. But as economies develop—incomes rise and the labour market transitions from subsistence agriculture to salaried work in industry and services—child penalties take over as the dominant driver of gender inequality. The relationship between child penalties and development is validated using historical data from current high-income countries, back to the 1700s for some countries. Finally, because parenthood is often tied to marriage, we also investigate the existence of marriage penalties in female employment. In general, women experience both marriage and child penalties, but their relative importance depends on the level of development. The development process is associated with a substitution from marriage penalties to child penalties, with the former gradually converging to zero.

Using a novel source of quasi-experimental variation in interest rates, we develop a new approach to estimating the Elasticity of Intertemporal Substitution (EIS). In the U.K., the mortgage interest rate features discrete jumps—notches—at thresholds for the loan-to-value (LTV) ratio. These notches generate large bunching below the critical LTV thresholds and missing mass above them. We develop a dynamic model that links these empirical moments to the underlying structural EIS. The average EIS is small, around 0.1, and quite homogeneous in the population. This finding is robust to structural assumptions and can allow for uncertainty, a wide range of risk preferences, portfolio reallocation, liquidity constraints, present bias, and optimization frictions. Our findings have implications for the numerous calibration studies that rely on larger values of the EIS.

This paper analyzes the general nonlinear optimal income tax for couples, a multidimensional screening problem. Each couple consists of a primary earner who always participates in the labor market, but makes an hours-of-work choice, and a secondary earner who chooses whether or not to work. If second-earner participation is a signal of the couple being better (worse) off, we prove that optimal tax schemes display a positive tax (subsidy) on secondary earnings and that the tax (subsidy) on secondary earnings decreases with primary earnings and converges to zero asymptotically. We present calibrated microsimulations for the United Kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs.

Using administrative wealth records from Denmark, we study the effects of wealth taxes on wealth accumulation. Denmark used to impose one of the world’s highest marginal tax rates on wealth, but this tax was greatly reduced starting in 1989 and later abolished. Due to the specific design of the wealth tax, the 1989 reform provides a compelling quasi-experiment for understanding behavioral responses among the wealthiest segments of the population. We find clear reduced-form effects of wealth taxes in the short and medium run, with larger effects on the very wealthy than on the moderately wealthy. We develop a simple life cycle model with utility of residual wealth (bequests) allowing us to interpret the evidence in terms of structural primitives. We calibrate the model to the quasi-experimental moments and simulate the model forward to estimate the long-run effect of wealth taxes on wealth accumulation. Our simulations show that the long-run elasticity of taxable wealth with respect to the net-of-tax return is sizable at the top of the distribution.

We analyze the effects of top tax rates on international migration of football players in 14 European countries since 1985. Both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates, with an elasticity of the number of foreign (domestic) players to the net-of-tax rate around one (around 0.15). We also find evidence of sorting effects (low taxes attract highability players who displace low-ability players) and displacement effects (low taxes on foreigners displace domestic players). Those results can be rationalized in a simple model of migration and taxation with rigid labor demand.

This article analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population-wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential flat rate for a duration of three years. We obtain two main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid—and therefore ineligible—foreigners. This translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners, between 1.5 and 2. Second, we find compelling evidence of a negative effect of the scheme-induced reduction in the average tax rate on pretax earnings of foreign migrants at the individual level. This finding can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity.

We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects.

This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.