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Hot-Button Tax Policy Questions: A Session of New Insights and Evidence Organized by the National Tax Association

Paper Session

Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PDT)

Manchester Grand Hyatt, Old Town B
Hosted By: National Tax Association
  • Chair: Matthew Weinzierl, Harvard Business School

Taxation and Innovation in the 20th Century

Stefanie Stantcheva
,
Harvard University

Abstract

This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm's total tax rate with changes in the federal tax rate only; iii) event studies, synthetic cohort case studies, and a border county strategy, which exploits tax variation across neighboring counties in different states. We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity and quality of inventive activity and shift its location at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.

Tax Reform Made Me Do It!

Michelle Hanlon
,
Massachusetts Institute of Technology

Abstract

This paper examines corporations’ actions, and statements about actions, following the tax law change known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine four different outcomes—bonuses (or other actions that benefit workers), announcements of new investments, share repurchases, and dividend announcements. We find that 4% of public firms in our sample announced in Q1 2018 they would pay some portion of their tax savings toward workers. In terms of investment, we find that 22% of the S&P 500 firms in our sample mentioned in earnings conference calls that they would increase investment because of the TCJA. We find a general increase in share repurchases following the passage of the TCJA, but the increase is extremely concentrated in a small number of firms. We find only nine firms that announced a new share repurchase plan explicitly attributed the new plan to the TCJA. In regression analysis, we find that both political and economic variables explain TCJA-linked announcements. The analysis suggests that firms with greater expected tax savings from the TCJA are those most likely to announce payments to workers and plans to increase investment. Firms with a Political Action Committee that donates more to Republican candidates are also more likely to announce benefits to employees.

The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund

Damon Jones
,
University of Chicago

Abstract

What are the effects of universal and permanent cash transfers on the labor market? Since 1982, all Alaskan residents have been entitled to a yearly cash dividend from the Alaska Permanent Fund. Using data from the Current Population Survey and a synthetic control method, we show that the dividend had no effect on employment, and increased part-time work by 1.8 percentage points (17 percent). Although theory and prior empirical research suggests that individual cash transfers decrease household labor supply, we interpret our results as evidence that general equilibrium effects of widespread and permanent transfers tend to offset this effect, at least on the extensive margin. Consistent with this story, we show suggestive evidence that tradable sectors experience employment reductions, while non-tradable sectors do not. Overall, our results suggest that a universal and permanent cash transfer does not significantly decrease aggregate employment.

What Is the Optimal Lottery Tax?

Benjamin Lockwood
,
University of Pennsylvania

Abstract

Publicly-sponsored lotteries in the US collect more than $60 billion annually in revenues, and are alternatively viewed as either a regressive tax on consumers who misunderstand their low expected value, or as sensible way to raise revenue for valuable public goods while generating consumer surplus. This paper studies the question of whether lotteries are welfare-enhancing, and if so, what is the optimal implicit tax rate on them? We present a model of lottery demand sufficiently flexible to allow for demand that is driven either by bias or by normatively valid consumer preferences, and we characterize the optimal implicit lottery tax (which may be infinite, corresponding to a ban) in terms of empirically estimable sufficient statistics. We then estimate these statistics using observational data on sales and lottery prizes over time, and using a new experimental survey of lottery consumption preferences.
Discussant(s)
Owen Zidar
,
Princeton University
Terry Shevlin
,
University of California-Irvine
Alexander Gelber
,
University of California-San Diego
Jacob Goldin
,
Stanford University
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue
  • H3 - Fiscal Policies and Behavior of Economic Agents