Latest Public Economics Programme Papers

Taxation and International Migration ofSuperstars:Evidence from the European FootballMarket

Henrik Kleven, Camille Landais, Emmanuel Saez

PEP 14. February 2012.
This paper analyzes the effects of top earnings tax rates on the internationalmigration of top football players in Europe. We construct a panel data set oftop earnings tax rates, football player careers, and club performances in thefirst leagues of 14 European countries since 1985. We identify the effects oftop earnings tax rates on migration using a number of tax and institutionalchanges: (a) the 1995 Bosman ruling which liberalized the European footballmarket, (b) top tax rate reforms within countries, and (c) special tax schemesoffering preferential tax rates to immigrant football players. We start bypresenting reduced-form graphical evidence showing large and compellingmigration responses to country-specific tax reforms and labor marketregulation. We then set out a theoretical model of taxation and migration,which is tested using all sources of tax variation simultaneously. Our resultsshow that (i) the overall location elasticity with respect to the net-of-tax rate ispositive and large, (ii) location elasticities are extremely large at the top of theability distribution but negative at the bottom due to ability sorting effects,and (iii) cross-tax effects of foreign players on domestic players (and viceversa) are negative and quite strong due to displacement effects. Finally, weestimate tax revenue maximizing rates and draw policy conclusions.d2.asp

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

Estimating Taxable Income Responsesusing Danish Tax Reforms

Henrik Kleven, Esben Anton Schultz

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

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

FISCAL ZONING AND SALES TAXES:DO HIGHER SALES TAXES LEAD TO MORERETAILING AND LESS MANUFACTURING?

Daria Burnes, David Neumark, Michelle J. White

PEP 12. June 2011.
We test the hypothesis that local government officials in jurisdictions thathave higher local sales taxes are more likely to use fiscal zoning to encourageretailing. We find that total retail employment is not significantly affected bylocal sales tax rates, but employment in big box and anchor stores is highersignificantly in jurisdictions with higher sales tax rates. This suggests thatlocal officials in jurisdictions with higher sales taxes concentrate on attractinglarge stores and shopping centers. We also find that the effect of local salestaxes on big box and anchor store retail employment is larger in countyinteriors, where residents tend to be captive to local retailers. Finally, fiscalzoning has the opposite effect on manufacturing employment, suggesting thatlocal officials’ efforts to attract shopping centers and large stores crowd outmanufacturing.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep12.pdf

The Choice of the Personal Income Tax Base

Roger H. Gordon, Wojciech Kopczuk

PEP 11. June 2011.
Starting with Mirrlees (1971) and Vickrey (1945), the optimal tax literature hasstudied the design of a personal income tax. The ideal would be to taxearnings ability. Earnings ability is unobservable for tax purposes, however,and past papers have focused instead on designing a tax on labor income.Existing tax bases, though, depend on a broader range of information abouteach individual. In principle, this supplementary information can help indesigning a tax that has more attractive distributional properties, by moreclosely approximating an ability tax. The objective of this paper is to lay outtheoretically and estimate empirically how to make best use of availableinformation about each individual in addition to earnings, when constructinga tax base that is most attractive on distributional grounds.To begin with, we find that the current tax base does slightly less well thanthe far simpler tax base equal just to a couple's joint earnings. In accordancewith current practice, we find that the optimal tax base should include capitalincome, at least to some degree. In contrast to current practice, property taxpayments and mortgage interest payments should not be deductible, sincethese deductions are costly on equity and presumably on efficiency grounds.We also find that joint filing and separate filing by a couple have similarconsequences on equity grounds.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep11.pdf

POLICY ANALYSIS WITH INCREDIBLECERTITUDE

Charles F. Manski

PEP 10. February 2011.
Analyses of public policy regularly express certitude about the consequencesof alternative policy choices. Yet policy predictions often are fragile, withconclusions resting on critical unsupported assumptions or leaps of logic.Then the certitude of policy analysis is not credible. I develop a typology ofincredible analytical practices and gives illustrative cases. I call these practicesconventional certitude, duelling certitudes, conflating science and advocacy, wishfulextrapolation, illogical certitude, and media overreach.>

Full article: http://sticerd.lse.ac.uk/dps/pep/pep10.pdf

Measuring Mobility

Frank A Cowell, Emmanuel Flachaire

PEP 09. April 2011.
Our new approach to mobility measurement involves separating out thevaluation of positions in terms of individual status (using income, social rank,or other criteria) from the issue of movement between positions. Thequantification of movement is addressed using a general concept of distancebetween positions and a parsimonious set of axioms that characterise thedistance concept and yield a class of aggregative indices. This class of indicesinduces a superclass of mobility measures over the different status conceptsconsistent with the same underlying data. We investigate the statisticalinference of mobility indices using two well-known status concepts, related toincome mobility and rank mobility.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep09.pdf