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Essays in Public Finance and Behavioral Economics
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2019 (English)Doctoral thesis, monograph (Other academic)
Description
Abstract [en]

Essay I: I study how individuals adjust their labor supply in response to a year with tax free income. Due to a transformation from a retroactive to a pay-as-you-earn tax system, income earned on the Icelandic labor market in 1987 was never taxed. Still, there was no cash-flow shock as taxpayers during the tax holiday (1987) paid taxes on income earned in the year before. This paper has three main results. First, I estimate a Frisch elasticity of 0.07 with a Wald difference-in-differences (DID) estimator by exploiting the progressivity of the tax scheme and the tax holiday. The Wald-DID estimator is biased if the Frisch elasticity differs between tax brackets. Second, I show how to overcome this bias by also exploiting changes in the tax scheme after 1987. This gives elasticities ranging from 0.7 (high income earners) to 4 (low income earners). However, this second approach to identify the Frisch elasticity gives biased results if there are frictions to labor supply adjustments during the tax holiday. Therefore, third and finally, I show that if there are frictions and the elasticity governing the response during the tax holiday is 0.05 (like that found by Martinez et al. (2018) who study a tax holiday in Switzerland) the frictionless elasticity is 0.2 for mid income earners, and 0.4 for high and low income earners. Overall, the paper adds to the literature on intertemporal labor supply responses and on how to deal with heterogeneity when perfect control groups are hard to find.

Abstract [en]

Essay II (with Per Engström and Katarina Nordblom): A fundamental tenet of economics is that agents respond to incentives. When filing their tax returns, Swedish taxpayers get information about whether they can expect a tax refund or having taxes due and about whether they are below or above a salient tax kink. This information may affect behavior depending on taxpayer motives. The former would induce loss averse taxpayers to claim deductions to a higher degree if having taxes due than if expecting a refund, while the latter would make the rational taxpayer more likely to claim deductions when facing the higher marginal tax rate. Access to register data on the universe of Swedish taxpayers for eight years allows for a clear-cut analysis using an RKD framework. We find strong causal effects of taxes due on the probability of claiming deductions, while the responses to the standard monetary incentives are insignificant. We find similar results for both inexperienced (young) and experienced (old) taxpayers. Hence, for both types of taxpayers, loss aversion is much more decisive than neoclassical incentives.

Abstract [en]

Essay III (with Per Engström, Eskil Forsell and Johannes Hagen): Using a randomized field experiment in the Swedish pension system, we investigate whether receiving an information letter affects the take-up rate of the housing allowance for pensioners. We also investigate whether the framing of the information letter affects take-up. The results show that simple information letters had a significant effect on the application rate and subsequent take-up rate: The baseline application rate in the targeted control population was only 1.4%, while the corresponding rates in the different treatment groups were between 9.9 and 12.1%. However, while the applications in the control group were accepted in almost 3 out of 4 cases, up to 50% of the applications in the treatment group were declined. The lower conditional acceptance rate in the treatment group seems to be largely driven by wealth, which the Pensions Agency cannot observe prior to submission. Information campaigns aimed  at increasing benefit take-up therefore need careful design in situations with imperfect  targeting.

Abstract [en]

Essay IV (with Alex Voorhoeve and  Brian Wallace): When people must either save a greater number of people from a smaller harm or a smaller number from a greater harm, do their choices reflect a reasonable moral outlook? We pursue this question with the help of an experiment. In our experiment, two-fifths of subjects employ a similarity heuristic. When alternatives appear dissimilar in terms of the number saved but similar in terms of the magnitude of harm prevented, this heuristic mandates saving the greater number. In our experiment, this leads to choices that are inconsistent with all standard theories of justice. We argue that this demonstrates the untrustworthiness of distributive judgements in cases that elicit similarity-based choice.

Abstract [en]

Essay V (with Alex Voorhoeve, Ken Binmore and Lisa Stewart): We use probability-matching variations on Ellsberg’s single-urn experiment to assess three questions: (1) How sensitive are ambiguity attitudes to changes from a gain to a loss frame? (2) How sensitive are ambiguity attitudes to making ambiguity easier to recognize? (3) What is the relation between subjects’ consistency of choice and the ambiguity attitudes their choices display? Contrary to most other studies, we find that a switch from a gain to a loss frame does not lead to a switch from ambiguity aversion to ambiguity neutrality and/or ambiguity seeking. We also find that making ambiguity easier to recognize has little effect. Finally, we find that while ambiguity aversion does not depend on consistency, other attitudes do: consistent choosers are much more likely to be ambiguity neutral, while ambiguity seeking is much more frequent among highly inconsistent choosers.

Place, publisher, year, edition, pages
Uppsala: Department of Economics, Uppsala University , 2019. , p. 201
Series
Economic studies, ISSN 0283-7668 ; 181
Keywords [en]
Frisch elasticity of labor supply, identification, elasticity heterogeneity, tax compliance, loss aversion, prospect theory, benefit take-up, similarity, distributive justice, moral decision-making, ambiguity attitudes, framing, consistency of choice
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:uu:diva-387415ISBN: 978-91-506-2777-0 (print)OAI: oai:DiVA.org:uu-387415DiVA, id: diva2:1328901
Public defence
2019-09-06, Hörsal 2, Ekonomikum, Kyrkogårdsgatan 10, Uppsala, 13:15 (English)
Opponent
Supervisors
Available from: 2019-08-16 Created: 2019-06-24 Last updated: 2019-08-16

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Stefánsson, Arnaldur

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