Latest Public Economics Programme Discussion Papers

Mobility in China

Yi Chen, Frank A Cowell

PEP 18. April 2013.
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We examine the evidence on rank and income mobility in China during the decades immediately preceding and immediately following the millennium using panel data from the China Health and Nutrition Survey. We show that rank mobility changed markedly over the period: in this respect China is becoming markedly more rigid. By contrast income mobility has carried on increasing; so has income inequality.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep18.pdf

Do We Value Mobility?

PEP 17. April 2013.
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Is there a trade-o between people's preference for income equality and income mobility? Testing for the existence of such a trade-o is dicult because mobility is a multifaceted concept. We analyse results from a questionnaire experiment based on simple precise concepts of income inequality and income mobility. We nd no direct trade-o in preference between mobility and equality, but an indirect trade-o, applying when more income mobility can only be obtained at the expense of some income inequality. Mobility preference but not equality preference appears to be driven by personal experience of mobility.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep17.pdf

Assessing theWelfare Effects of Unemployment Benefits Using the Regression Kink Design

Camille Landais

PEP 16. July 2012.
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I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from 1976 to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how one can use the weighted difference between the behavioral response to an increase in potential duration and to an increase in benefit level to identify the pure moral hazard effect of UI. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep16.pdf

Taxation and International Migration of Superstars: Evidence from the European Football Market

Henrik Kleven, Camille Landais, Emmanuel Saez

PEP 14. February 2012.
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This paper analyzes the effects of top earnings tax rates on the international migration of top football players in Europe. We construct a panel data set of top earnings tax rates, football player careers, and club performances in the first leagues of 14 European countries since 1985. We identify the effects of top earnings tax rates on migration using a number of tax and institutional changes: (a) the 1995 Bosman ruling which liberalized the European football market, (b) top tax rate reforms within countries, and (c) special tax schemes offering preferential tax rates to immigrant football players. We start by presenting reduced-form graphical evidence showing large and compelling migration responses to country-specific tax reforms and labor market regulation. We then set out a theoretical model of taxation and migration, which is tested using all sources of tax variation simultaneously. Our results show that (i) the overall location elasticity with respect to the net-of-tax rate is positive and large, (ii) location elasticities are extremely large at the top of the ability distribution but negative at the bottom due to ability sorting effects, and (iii) cross-tax effects of foreign players on domestic players (and vice versa) are negative and quite strong due to displacement effects. Finally, we estimate tax revenue maximizing rates and draw policy conclusions.d2.asp

Full article: http://sticerd.lse.ac.uk/dps/pep/pep14.pdf

Estimating Taxable Income Responses using Danish Tax Reforms

Henrik Kleven, Esben Anton Schultz

PEP 13. February 2012.
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This paper presents evidence on taxable income responses using administrative data that link tax return information to detailed socioeconomic information for the full Danish population over 25 years. The identifying variation is provided by a series of tax reforms that create large tax variation across individuals, income forms, and over time. It is argued that the unique tax variation and data in Denmark makes it possible to control for the biases from non-tax changes in the income distribution and mean reversion that plague much of the existing literature. Using a very large and salient tax reform in the 1980s, we present compelling graphical evidence of taxable income responses by comparing treatment and control groups that experience very similar pre-reform income trends but face very different tax rate changes due to the reform. We then turn to panel regressions using the full population and all reforms over time, which produces the following main findings: (i ) Labor income elasticities are modest overall, around 0.05 for wage earners and 0.10 for self-employed individuals. (ii ) Capital income elasticities are two-three times larger than labor income elasticities. (iii ) Behavioral elasticities are much larger when estimated from large tax reform changes than from small tax reform changes, consistent with the idea that responses to small tax changes are attenuated by optimization frictions such as adjustment costs and inattention. (iv) Cross-tax effects between labor and capital income– for example due to income shifting–are in general small. (v) All of our findings are extremely robust to specification (such as pre-reform income controls), suggesting that we have controlled in a sufficiently rich way for non-tax factors impacting on taxable income.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep13.pdf