PUBLICATIONS
Digital Financial Services Go a Long Way: Transaction Costs and Financial Inclusion, with Paul Gertler, Sean Higgins & Enrique Seira, American Economic Association Papers and Proceedings, May 2018
Size-Dependent Tax Enforcement and Compliance: Global Evidence and Aggregate Implications, with Roberto Fattal Jaef & Anders Jensen, Accepted, Journal of Development Economics World Bank Policy Research Working Paper 8363,
WORKING PAPERS
Not(ch) Your Average Tax System: Corporate Taxation Under Weak Enforcement , with Mauricio Soto,
Revise and Resubmit, AEJ: Economic Policy , World Bank Policy Research Working Paper 8524, Paper in Estado de la Nacion,
How should developing countries tax corporate income? This paper studies this question in Costa Rica, where firms face discontinuously higher average tax rates on profits when their revenue marginally increases. The paper combines a discontinuity and a bunching design to estimate the profit elasticity and separate it into revenue and cost elasticities. Faced with higher tax rates, firms slightly reduce revenue but considerably increase costs, generating a large elasticity of profits. In this context, the revenue maximizing rate for profit taxation is below 25 percent and broadening the tax base while lowering the rate can increase revenue for these firms by 80 percent.
Revise and Resubmit, AEJ: Economic Policy , World Bank Policy Research Working Paper 8524, Paper in Estado de la Nacion,
How should developing countries tax corporate income? This paper studies this question in Costa Rica, where firms face discontinuously higher average tax rates on profits when their revenue marginally increases. The paper combines a discontinuity and a bunching design to estimate the profit elasticity and separate it into revenue and cost elasticities. Faced with higher tax rates, firms slightly reduce revenue but considerably increase costs, generating a large elasticity of profits. In this context, the revenue maximizing rate for profit taxation is below 25 percent and broadening the tax base while lowering the rate can increase revenue for these firms by 80 percent.
NEW Informality, Consumption Taxes and Redistribution with Lucie Gadenne & Anders Jensen, May 2019
We study how the informal sector impacts the distributional properties of consumption taxes. We assemble a dataset of household expenditure using micro-data from 20 countries at different levels of economic development. Using the place of purchase to proxy for informal consumption, we show a large negative relation between informal consumption shares and households' total expenditure, which is robust to product and geography controls. This implies that consumption taxes are de-facto progressive: households in the top decile pay 70% more taxes as a share of expenditure than households in the bottom decile. Finally, we build a model of optimal commodity taxation in the presence of informal consumption, which we calibrate to our data. We find that optimal tax rates are less differentiated across products with an informal sector. Tax exempting necessities, such as food, is rarely optimal as it leads to only a marginal gain in progressivity.
We study how the informal sector impacts the distributional properties of consumption taxes. We assemble a dataset of household expenditure using micro-data from 20 countries at different levels of economic development. Using the place of purchase to proxy for informal consumption, we show a large negative relation between informal consumption shares and households' total expenditure, which is robust to product and geography controls. This implies that consumption taxes are de-facto progressive: households in the top decile pay 70% more taxes as a share of expenditure than households in the bottom decile. Finally, we build a model of optimal commodity taxation in the presence of informal consumption, which we calibrate to our data. We find that optimal tax rates are less differentiated across products with an informal sector. Tax exempting necessities, such as food, is rarely optimal as it leads to only a marginal gain in progressivity.
How Debit Cards Enable the Poor to Save More, with Paul Gertler, Sean Higgins & Enrique Seira, NBER Working Paper No 23252, VoxDev Summary
We study a natural experiment in which debit cards are rolled out to beneficiaries of a cash transfer program. Prior to receiving debit cards, beneficiaries received transfers directly into a savings account. Using administrative account data and household surveys, we find that before receiving cards, few beneficiaries used the accounts to make transactions— other than withdrawing their transfers—or to save. With cards, beneficiaries check their balances frequently, and the number of checks decreases over time as their reported trust in the bank and savings increase. After 1–2 years, the overall savings rate increases by 3–4 percent of household income.
We study a natural experiment in which debit cards are rolled out to beneficiaries of a cash transfer program. Prior to receiving debit cards, beneficiaries received transfers directly into a savings account. Using administrative account data and household surveys, we find that before receiving cards, few beneficiaries used the accounts to make transactions— other than withdrawing their transfers—or to save. With cards, beneficiaries check their balances frequently, and the number of checks decreases over time as their reported trust in the bank and savings increase. After 1–2 years, the overall savings rate increases by 3–4 percent of household income.
Bank Non-Secrecy: Taxation and Financial Service Use in Mexico, with Anders Jensen & Sean Higgins
Economies are increasingly becoming cashless. Since cash is an anonymous transaction technology, this trend presents an opportunity to reduce informal sector activities. Whether governments should encourage the transition towards cashless technologies depends on the elasticity of firms’ behavior with respect to the price of cash. We combine panel data on over 300,000 bank clients with a natural experiment in Mexico which repealed a tax of 3% on cash deposits. We show that entrepreneurs and small firms increase cash usage by over 20% following the repeal of the tax. The effect stems principally from substitution away from modern deposit methods (e.g., electronic and online deposits), as opposed to an increase in total deposits. While the mix of cash versus modern deposit technologies is very elastic to the price of cash, total deposits appear inelastic, suggesting limited tensions between government’s objective and financial inclusion.
Economies are increasingly becoming cashless. Since cash is an anonymous transaction technology, this trend presents an opportunity to reduce informal sector activities. Whether governments should encourage the transition towards cashless technologies depends on the elasticity of firms’ behavior with respect to the price of cash. We combine panel data on over 300,000 bank clients with a natural experiment in Mexico which repealed a tax of 3% on cash deposits. We show that entrepreneurs and small firms increase cash usage by over 20% following the repeal of the tax. The effect stems principally from substitution away from modern deposit methods (e.g., electronic and online deposits), as opposed to an increase in total deposits. While the mix of cash versus modern deposit technologies is very elastic to the price of cash, total deposits appear inelastic, suggesting limited tensions between government’s objective and financial inclusion.
