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  5. Behavioral Responses to Tax Policy
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Behavioral Responses to Tax Policy

Paper Session

Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)

San Francisco Marriott Marquis, Juniper
Hosted By: National Tax Association
  • Chair: David R. Agrawal, University of California-Irvine

Do Commuting Subsidies Drive Workers to Better Firms?

David R. Agrawal
,
University of California-Irvine
Eckhard Janeba
,
University of Manheim
Elke Jahn
,
Government of the Federal Republic of Germany

Abstract

A potential benefit of commuting subsidies is that they can expand the choice set of feasible job opportunities in a way that facilitates a better job match quality. Variation in tax rates and initial commuting distances, combined with major reforms of the commuting subsidy formula in Germany, generate worker-specific variation in commuting subsidy changes. Increases in the generosity of commuting subsidies induce workers to switch to higher-paying firms with longer commutes. Thus, the causal effect of commuting distance on the firm pay premium is positive. Although increases in commuting subsidies generally induce workers to switch to employers that pay higher wages, commuting subsidies also enhance positive assortativity in the labor market by better matching high-ability workers to higher-productivity plants. Greater assortativity induced by commuting subsidies corresponds to greater earnings inequality.

Work Requirements and Child Tax Benefits

Tatiana Homonoff
,
New York University
Jacob Goldin
,
University of Chicago
Neel Lal
,
University of Chicago
Ithai Lurie
,
U.S. Department of the Treasury
Katherine Michelmore
,
University of Michigan
Matthew Unrath
,
University of Southern California

Abstract

Many U.S. safety-net programs condition benefit eligibility on work. Eliminating work requirements would better target benefits to the neediest families but would also attenuate pro-work incentives. We study how expanding child tax credits to non-workers affects maternal labor supply, using administrative tax records and variation in state credit eligibility from quasi-random birth-timing. We employ a novel method for using placebo analyses to maximize the precision of our regression discontinuity estimator. Eliminating work requirements causes very few mothers to exit the labor force; our 95% confidence intervals exclude reductions over one-third of one percent.

Nothing is Certain Except Death and Taxes: The Lack of Policy Uncertainty from Expiring “Temporary” Taxes

Andrew Chang
,
Federal Reserve Board

Abstract

Do people expect extensions of statutorily temporary taxes? To answer this question, I look at the U.S. research and development tax credit, which was statutorily temporary but was extended 10 times from 1996 to 2015. Using event studies and abnormal stock market returns, I find that, on average, market participants expected these extensions. I then use a text analysis of 8,000,000 news items and also find that nonmarket participants expected these extensions. My results suggest that at least some temporary tax policies do not contribute to policy uncertainty and, therefore, that their extensions are not fiscal shocks.

The Role of Intellectual Property in Tax Planning

Irem Guceri
,
Oxford University
Katarzyna Bilicka
,
Utah State University
Paul Organ
,
U.S. Department of the Treasury

Abstract

Multinational enterprises (MNEs) that invest in research and development (R&D) and innovation find it easier to shift profits between their subsidiaries located in jurisdictions with different tax rates. While MNEs invest in R&D and develop intellectual property (IP) across multiple jurisdictions, they can also strategically move profits arising from that IP from high- to low-tax jurisdictions to reduce their overall tax bill. In this paper, we analyze and quantify the importance of two different strategies that MNEs use to move their IP to low-tax jurisdictions: selling a patent developed in a high-tax jurisdiction to a low-tax jurisdiction directly, or signing a cost-sharing arrangement (CSA) between those two jurisdictions to cover the costs of developing further IP. Combining administrative data on CSAs, patent applications and transactions, and US tax returns, we provide novel stylized facts on the use of both those strategies by MNEs. We then show that CSAs increase jurisdiction-level assets, patenting activity, royalty payments, taxes, and profitability, especially the CSAs signed with low-tax jurisdictions. At the MNE level, a new CSA significantly increases firm sales, profitability, and R&D investment, without affecting the MNE's effective tax rates.

Discussant(s)
Louise Sheiner
,
Brookings Institution
Dhammika Dharmapala
,
University of California-Berkeley
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue