My AFR op-ed today is on tobacco and alcohol taxes. Full text over the fold. Some references are hyperlinked, and there’s more detail at the end of the piece.
As regular blog readers will know, I’m a big fan of randomisation. In the context of tax audits, this is particularly useful. Though politically controversial, random audit experiments like the US TCMP have taught us a lot about who underreports tax. And now a new two-stage experiment in Demark is revealing other lessons. Perhaps Australia – which has never had a random audit of personal income taxpayers – could follow suit.
Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark (gated stable link, ungated unstable link)
Henrik Kleven, Martin Knudsen, Claus Kreiner, Soren Pedersen and Emmanuel Saez
This paper analyzes a randomized tax enforcement experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, "threat-of-audit" letters were randomly assigned and sent to tax filers in both groups. Using comprehensive administrative tax data, we present four main findings. First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income. Since 95% of all income is third-party reported, the overall evasion rate is very modest. Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses. Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit. Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes.
Xiaodong Gong and I have a paper in the latest issue of the Australian Economic Review. Abstract below.
Does Maternal Age Affect Children’s Test Scores?
Andrew Leigh and Xiaodong Gong
We estimate the relationship between maternal age and child outcomes, using indices aimed at measuring overall outcomes, learning outcomes and social outcomes. In all cases,we find evidence that children of older mothers have better outcomes. Not only do children born to mothers in their twenties do better than children born to teen mothers, but children born to mothers in their thirties do better than children born to mothers in their twenties. However, when we control for other socioeconomic characteristics, such as family income, parental education and single parenthood, the coefficients on maternal age become small and statistically insignificant. The only exception is an index of social outcomes, which is positively associated with maternal age, even controlling for socioeconomic factors. For cognitive outcomes, young motherhood appears to be a marker, not a cause, of poor child outcomes.
An easy way to see the result is to compare the relationship between maternal age and child outcomes first without any socioeconomic controls:
(strong positive relationship, mostly statistically significant)
…and then with socioeconomic controls:
(virtually no relationship, generally statistically insignificant).
My AFR op-ed today is on the economic incidence of company taxes. The draft benefited from comments by Nicholas Gruen and an anonymous friend. Full text over the fold.
Watching the attempts of the red-shirts to change the Thai government by bringing Bangkok to a standstill, I was reminded of the observation that Alberto Alesina and Ed Glaeser make in their book Fighting Poverty. In countries where the largest city is also the capital, it’s easier for mass movements to bring about populist reforms. For example you could mobilise a bigger crowd in Paris or Brussels than you could in Washington DC or Ottawa, which goes part way towards explaining the different political complexion of the two sets of countries.
At this point, I wonder if Thai leadership are ruing the eighteenth-century decision to move the seat of government from Thonburi to Bangkok?
Macgregor Duncan and I have a piece out today in the Australian Literary Review, looking at what Australian politicians should and do read. Full text here, and results from our survey of federal politicians here. We had a lot of fun writing the piece (which ranges afield from my usual economics research), so I hope you’ll enjoy it.
We didn’t do as much as one could with the full dataset of pollies’ responses, so part of the reason for posting all our survey responses is the hope that others might analyse them a little further.
My Tuesday AFR op-ed was on the economics of inequality. Full text here.
My ABC Radio National ‘Wryside Economics’ segment tomorrow (Tue 23rd) will be on gender and competition, riffing off my AFR op-ed on this topic. Jane Caro is standing in for Richard Aedy (who has the flu this week), so you’ll be spared the spectacle of two blokes discussing gender.
If you miss it, the podcast should be up on the Life Matters website around lunchtime.