IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/24049.html
   My bibliography  Save this paper

Tax Simplicity and Heterogeneous Learning

Author

Listed:
  • Philippe Aghion
  • Ufuk Akcigit
  • Matthieu Lequien
  • Stefanie Stantcheva

Abstract

We study how strongly individuals respond to tax simplicity and how they learn about the complexities of the tax system. We focus on the self-employed, who can more easily adjust to tax incentives and whose responses directly stem from their own understanding of the tax system. We use new French tax returns data from 1994 to 2012. France serves as a good quasi-laboratory: it has three fiscal regimes – or modes of taxation – for the self-employed, which differ in their monetary tax incentives and in their tax simplicity. Two key features are that, first, these regimes are subject to eligibility thresholds; we find large excess masses (bunching) right below the latter. Second, the regimes impact different agents heterogeneously and have changed extensively over time. Taken together, these two key elements give us measures of tax responses (the bunching) as well as the variation needed to jointly estimate a value of tax simplicity and taxable income elasticities. They also give us an opportunity to study how individuals learn about and respond over time to changing policy parameters. We estimate a large value for tax simplicity of up to 650 euros per year per individual depending on the regime and activity. We also find sizable costs of tax complexity; agents are not immediately able to understand what the right regime choice is, leave significant money on the table, and learn over time. The cost of complexity is “regressive” in that it affects mostly the uneducated, low income, and low skill agents. Agents who can be viewed as more informed and knowledgeable (e.g., the more educated or high-skilled) are more likely to make the correct regime choice and to learn faster.

Suggested Citation

  • Philippe Aghion & Ufuk Akcigit & Matthieu Lequien & Stefanie Stantcheva, 2017. "Tax Simplicity and Heterogeneous Learning," NBER Working Papers 24049, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24049
    Note: LS PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w24049.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
    2. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
    3. Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2011. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 749-804.
    4. Antoinette Schoar, 2010. "The Divide between Subsistence and Transformational Entrepreneurship," NBER Chapters,in: Innovation Policy and the Economy, Volume 10, pages 57-81 National Bureau of Economic Research, Inc.
    5. Alexander M. Gelber & Damon Jones & Daniel W. Sacks, 2013. "Estimating Earnings Adjustment Frictions: Method and Evidence from the Social Security Earnings Test," NBER Working Papers 19491, National Bureau of Economic Research, Inc.
    6. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2017. "Accounting for Wealth Inequality Dynamics: Methods, Estimates and Simulations for France (1800-2014)," Working Papers 201605, World Inequality Lab.
    7. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 180-212, August.
    8. Fack, Gabrielle & Landais, Camille, 2016. "The effect of tax enforcement on tax elasticities: Evidence from charitable contributions in France," Journal of Public Economics, Elsevier, vol. 133(C), pages 23-40.
    9. Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, vol. 117(518), pages 327-352, March.
    10. Dina Pomeranz, 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," American Economic Review, American Economic Association, vol. 105(8), pages 2539-2569, August.
    11. Michael Carlos Best & Anne Brockmeyer & Henrik Jacobsen Kleven & Johannes Spinnewijn & Mazhar Waseem, 2015. "Production versus Revenue Efficiency with Limited Tax Capacity: Theory and Evidence from Pakistan," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1311-1355.
    12. Alexander M. Gelber & Damon Jones & Daniel W. Sacks & Jae Song, 2017. "Using Kinked Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Social Security Earnings Test," NBER Working Papers 23362, National Bureau of Economic Research, Inc.
    13. Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015. "House prices, collateral, and self-employment," Journal of Financial Economics, Elsevier, vol. 117(2), pages 288-306.
    14. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, vol. 103(7), pages 2683-2721, December.
    15. Sallee, James M. & Slemrod, Joel, 2012. "Car notches: Strategic automaker responses to fuel economy policy," Journal of Public Economics, Elsevier, vol. 96(11), pages 981-999.
    16. Paul Carrillo & Dina Pomeranz & Monica Singhal, 2017. "Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 144-164, April.
    17. repec:aea:aecrev:v:107:y:2017:i:5:p:388-92 is not listed on IDEAS
    18. Kolsrud, Jonas & Landais, Camille & Nilsson, Peter & Spinnewijn, Johannes, 2015. "The Optimal Timing of UI Benefits: Theory and Evidence from Sweden," CEPR Discussion Papers 10701, C.E.P.R. Discussion Papers.
    19. Alexander M. Gelber, 2014. "Taxation and the Earnings of Husbands and Wives: Evidence from Sweden," The Review of Economics and Statistics, MIT Press, vol. 96(2), pages 287-305, May.
    20. Peter Nilsson & Johannes Spinnewijn & Camille Landais, 2015. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," 2015 Meeting Papers 279, Society for Economic Dynamics.
    21. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," Working Papers 603, Princeton University, Department of Economics, Industrial Relations Section..
    22. Fack, Gabrielle & Landais, Camille, 2016. "The effect of tax enforcement on tax elasticities: Evidence from charitable contributions in France," Journal of Public Economics, Elsevier, vol. 133(C), pages 23-40.
    23. Gabrielle Fack & Camille Landais, 2010. "Are Tax Incentives for Charitable Giving Efficient? Evidence from France," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 117-141, May.
    24. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    25. Cullen, Julie Berry & Gordon, Roger H., 2007. "Taxes and entrepreneurial risk-taking: Theory and evidence for the U.S," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1479-1505, August.
    26. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 669-723.
    27. Best, Michael Carlos & Cloyne, James & Ilzetzki, Ethan & Kleven, Henrik Jacobsen, 2015. "Interest rates, debt and intertemporal allocation: evidence from notched mortgage contracts in the United Kingdom," Bank of England working papers 543, Bank of England.
    28. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
    29. R. Glenn Hubbard & William M. Gentry, 2000. "Tax Policy and Entrepreneurial Entry," American Economic Review, American Economic Association, vol. 90(2), pages 283-287, May.
    30. repec:hal:journl:hal-01300122 is not listed on IDEAS
    31. Julie Berry Cullen & Roger Gordon, 2006. "Tax Reform and Entrepreneurial Activity," NBER Chapters,in: Tax Policy and the Economy, Volume 20, pages 41-72 National Bureau of Economic Research, Inc.
    32. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:24049. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.