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Conference Report

Since 2000, IFN has organized a yearly conference within areas of research in Stockholm. This year, it was organized within the newly started research program “Taxation and society” which is led by Daniel Waldenström. The program has its focus on increasing the knowledge about the importance of taxation in the economy. The conference was held in Vaxholm outside of Stockholm and brought together about 20 researchers to present and discuss the latest research within the theme “taxation and inequality”. The presentations included both theoretical and empirical research and covered a broad range of topics. Below, we give a short summary of the presentations at the conference. Saving clause, the studies presented are work in progress and could be up for revision.

Missing Work: Elasticities with Dynamic Optimization Frictions
Andreas Ravndal Kostøl, ASU WP Carey School of Business, has studied how optimization frictions affect the dynamics of work decisions. Specifically, they have studied how smooth or lumpy the fine-tuning and labor supply is during a year and what are the drivers of lumpiness. Using monthly employment data from Norway they exploit a reform within the disability insurance program. Their main finding is that within-year observed adjustments to annual incentives are lumpy to a large extent.

Migration and Tax Policy: Evidence from Finnish Full-Population Data
Jukka Pirttilä, University of Helsinki, presented a study which examines how migration decisions are related to taxes for the entire workforce and various occupational groups. They also examine migration patterns of Finnish emigrants and estimate how the semi-elasticity of migration is related to the income level at the top of the distribution. They use data on the population of Finnish income earners combined with migration data. They predict earnings abroad and use tax codes to calculate their tax rates for the predicted income level. Their results show that elasticities are small and migration patterns seem to be affected by other factors rather than tax policy.

Taxation of Housing in a Mirrleesian Context when Urban Land is Scarce
Spencer Bastani, Institute for Evaluation of Labor Market and Education Policy (IFAU) gave a presentation about a paper analyzing the optimal taxation of housing in a Mirrleesian context. They focus on how housing should be taxed relative to other goods in the presence of a fully nonlinear tax on labor income. They present a static model incorporating both that land is scarce in urban areas and structures requiring maintenance. They show that there are large welfare gains from taxing urban housing and there are substantial welfare gains from differentiating taxes between urban and rural areas.

Rethinking Global Wealth Inequality - The role of Human Capital
Olle Hammar, Research Institute of Industrial Economics (IFN), studies how the global wealth inequality pattern changes when including human capital in a measure of total wealth inequality. They measure human capital by setting a monetary value on the knowledge, skills, competencies, and attributes of a person, which enable individuals to work, and therefore produce something of economic value. The results show that there is a big difference in the Gini coefficient in the standard measure of wealth compared to the total wealth measure when human capital is included. The standard wealth Gini measure is 0.91 and Gini drops to 0.65 when including human capital.

Which Income Comparisons Matter to People, and How? Evidence from a Large Field Experiment
Kaisa Kotakorpi, Tampere University, presented a study analyzing which are the relevant reference-groups that people compare themselves to. They have conducted a large-scale field experiment that implements exogenous variation in income rank information to study the causal effects of rank on well-being. They let individuals estimate their income rank in relation to a reference group and then individuals get information about their actual rank relative to the reference groups. Next, they ask individuals about their own income satisfaction and income fairness. The results show that information on rank in narrowly defined reference groups is particularly important for well-being and rank information affects income satisfaction but not life satisfaction.

A New Approach to Evaluating the Welfare Effects of Decentralized Policies
David Agrawal, University of Kentucky, presented a paper which studies how to quantify the welfare effects of a policy implemented in an open state/locality. Local policies result in benefit-spillovers, mobility of households and firms, and interjurisdictional fiscal externalities that are not internalized by the government enacting the policy. They have established a new metric, the "marginal corrective transfer'' (MCT), that can be used to quantify the welfare effects of decentralized policies. The MCT enables comparisons of local policies, allowing the federal government to prioritize policies based on the relative external benefits and costs.

Micro vs Macro Labor Supply Elasticities: The Role of Dynamic Compensation
Claus Thustrup Kreiner, University of Copenhagen, presented a paper studying the importance of dynamic compensation for labor supply elasticities. In their paper, they develop a theoretical framework to inform identification when compensation is dynamic. They use a quasi-experimental approach and show empirically that accounting for dynamic compensation using job switchers implies much larger labor supply elasticities than what is found using standard approaches.

The Anatomy of Tax Responsiveness: Evidence from Dutch Closely Held Corporations
Gabriella Massenz, Research Institute of Industrial Economics (IFN), presented a paper studying bunching of closely held corporations at a kink in the Dutch corporate income tax schedule. The results show an overall elasticity of 0.07. Furthermore, they find that some firms are persistently targeting the kink over time and that there is greater tax responsiveness for firms using energy and environment investment deductions and firms operating in agriculture, forestry, and fishing.

Financial Frictions and the Non-Distortionary Effects of Delayed Taxation
Marius Ring, University of Texas at Austin, presented a novel hypothesis which suggests that delaying the payment of income taxes reduces their distortionary effects when some agents are borrowing constrained. They test this hypothesis using a de-facto delayed taxation scheme affecting young workers in Norway and find a bunching labor supply elasticity of 0.016. Additionally, they explore what implications this result has for optimal taxation.

Who Owns Offshore Real-estate?
Annette Alstaedsater, Norwegian University of Life Sciences, presented a paper which analyzes a unique micro-dataset capturing the ownership of about 800,000 properties in Dubai. They quantify the real estate owned by foreigners in Dubai, they describe who these foreign owners are and whether they report duty to home countries. They find that offshore real estate in Dubai is large, 27 percent is owned by foreigners. Furthermore, using Norwegian data, they find that the probability of owning Dubai real estate rises with wealth and 70 percent of properties in Dubai are unreported.

Paying Moms to Stay Home: Short and Long Run Effects
Tuomas Kosonen, VATT Institute for Economic Research, presented a paper studying home care allowance and how this has affected both parents and children. They have analyzed a Finnish reform which created variation between municipalities. They find that mothers respond to incentives and have lower employment and earnings when the child is one year old due to home care allowance. In the long run, they find that there are negative effects on both maternal earnings and employment. Additionally, there is evidence of children being negatively affected by higher home care allowance in early tests and mid-term schooling outcomes.

Accounting for business income in measuring top income shares: Integrated Accrual Approach Using Individual and Firm Data from Norway
Wojciech Kopczuk, Columbia University, presented a paper studying the implications of accounting for business income in inequality measures when there are incentives to delay realization. They use linked individual and firm administrative data from Norway and attribute corporate profits to the ultimate individual owner as they accrue rather than when realized. They show that a Norwegian tax reform which incentivized the retention of earnings within businesses, the total income share of the top 0.1% more than doubled in some years, compared with ordinary realization-based income measures.

External Validity in Empirical Public Finance
Joel Slemrod, Ross School of Business, University of Michigan, presented a paper that has developed a new approach to estimate country-specific elasticity of taxable income (ETI) with cross-country panel data, based on the correlated random coefficients model, which explicitly expresses the ETI as a function of structural determinants of the tax system and which generates estimates of the ETI for each country that reflects its innate character. They estimate their model using cross-country panel data from OECD countries from 1981 to 2014 about top income shares and tax rates, as well as survey data, and they find that countries with greater preference for redistribution, and trust in government have lower ETIs.

Explaining Benefit Take-Up Behavior - The Role of Incentives and Habits
Håkan Selin, Institute for Evaluation of Labor Market and Education Policy (IFAU), presented a study analyzing the imperfect take up of social benefit. They exploit a reform which increased the flat rate benefit level in the Swedish parental leave system and analyze the take-up of benefits of parents at different income segments. Even though there is no financial reason to leave flat rate benefits on the table, they show that only 40 percent of parents use all flat rate days after reform. They find that the take-up rate increases among all income levels, but the largest increase appeared among low-income parents.