Firms and Policy Incidence (available upon request)

I study the role of firms for the consequences of public policies that target workers by developing a framework to incorporate firms in welfare analysis. Building on the existing sufficient statistics frameworks, I introduce heterogeneity across firms, and involuntary unemployment caused by firm’s employment decisions. The model rationalizes the use of firm-level causal estimates of the effects of a policy to study its welfare impact. I apply the model to various policies studied in the literature. The new approach significantly changes the welfare conclusions for most policies, suggesting a pivotal role of firms for the passthrough of public policies.

Firm-level Tax Incidence: Redistribution of Labor Costs Within the Firm

How is the cost of payroll taxes redistributed within the firm? Standard tax incidence theory is based on the assumption that labor markets are perfectly competitive and firm-idiosyncratic shocks to the cost of labor have no effects on the wages of incumbent workers. However, labor market frictions generate quasi-rents at the firm, whose elasticity determines part of the effect of payroll taxes on wages. I attempt to identify this component by studying how wages respond to firm-level changes in the cost of labor for low-paid employees. I use administrative data for the universe of French private sector firms that I match to information on paid social security contributions to study a payroll tax reform implemented in France in 2003. This policy changed payroll tax subsidies for low-paid workers leaving tax rates unchanged for other workers. I exploit variation in the wage distribution of the subset of low-paid workers to create firm-level shifts in the average payroll tax rate of low-paid employees and I use them as an instrument for the total change in the cost of labor. I show that tax cuts affect both low-paid and high-paid employees by increasing their net wages. This redistribution reduces the effectiveness of the policy in transferring resources to low-paid workers. I then estimate a structural model to evaluate the economy-wide redistribution of the benefits of lower taxes and the contribution of firms to the passthrough of the policy.

Audit Rule Disclosure and Tax Compliance (available upon request)

We study whether tax agencies can selectively disclose their audit selection criteria to foster voluntary tax compliance. We rely on the Italian Sector Studies, a policy creating salient file-specific discontinuities in the tax audit schedule of small firms and the self-employed. This setting allows us to pursue two empirical strategies, leveraging access to a confidential database of more than 26 million Sector Study files from the 2007-2016 period. First, we set up a structural model to rationalize the substantial bunching responses observed at the featured thresholds, and we estimate the model parameters exploiting local heterogeneity in bunching and tax rates. After reconstructing the prevailing level of evasion in a sensible range of counterfactuals where taxpayers perceive audit risks to be constant, we determine that selective disclosure results in 3.7-7.7% higher mean declared revenues relative to keeping the thresholds secret. Second, we exploit the staggered introduction of a 2011 reward regime that reinforces the initial audit risk discontinuity. In line with our theory, we show that taxpayers who benefit from greater audit exemptions above the threshold tend to reduce their relative compliance, while those originally below the threshold improve it. However, on the net reported profits increase on average by 16.2% in treated sectors over the course of six years. Together, our results suggest that tax authorities can design the release of audit-relevant information to stimulate compliance even among the “hard-to-tax”.