Abstract: This paper focuses on the role of market power to study a historically large payroll tax cut that affects a subset of Brazilian firms. Difference-in-differences estimates based on plausibly exogenous legal variation indicate that the payroll tax reduction causes an increase in employment, wages, and profits, while capital decreases. Responses are substantially more pronounced among small firms, which are estimated to possess less market power. Two-thirds of the employment effect arises from plant size expansion and one-third from input substitution. Reduced-form estimates reveal that consumers pay 75% of payroll taxes, firm owners 11%, and workers 14%. Estimates of a monopsonistically competitive model of factor demand suggest that a targeted alternative tax policy focusing on small firms could amplify the efficiency gains of the tax cut by 36% and enhance workers' welfare gains by 95%. These results establish that market power not only mitigates the distortionary costs of taxation but also redistributes the tax burden from workers to firm owners and consumers.

Abstract: We study corporate responses to a minimum income tax, using the universe of corporate tax filings in Honduras. The policy design allows us to separately estimate cost misreporting under profit taxation and the elasticity of reported revenue. Large corporations overreport true costs when taxed on profits. Taxing revenue leads to a substantial decrease in reported revenues: we estimate an elasticity in the range 0.35-1. The elasticity of revenue is attenuated when third-party information on the revenue of firms is available, suggesting misreporting plays an important role. Our results inform trade-offs when broadening tax bases to curb evasion.

Abstract: Online marketplace designers frequently run randomized experiments to measure the impact of proposed product changes. However, given that marketplaces are inherently connected, total average treatment effect (TATE) estimates obtained through individual-level randomized experiments may be biased due to violations of the stable unit treatment value assumption, a phenomenon we refer to as “interference bias.” Cluster randomization, i.e., the practice of randomizing treatment assignment at the level of “clusters” of similar individuals, is an established experiment design technique for countering interference bias in social networks, but it is unclear ex ante if it will be effective in marketplace settings. In this paper, we use a meta-experiment or “experiment over experiments” conducted on Airbnb to both provide empirical evidence of interference bias in online market settings and assess the viability of cluster randomization as a tool for reducing interference bias in marketplace TATE estimates. Results from our meta-experiment indicate that at least 19.76% of the TATE estimate produced by an individual-randomized evaluation of the platform fee increase we study is attributable to interference bias and eliminated through the use of cluster randomization. We also find suggestive, non-statistically significant evidence that interference bias in seller-side experiments is more severe in demand-constrained markets, and that the efficacy of cluster randomization at reducing interference bias increases with cluster quality.

Abstract: We derive optimal labor income tax schedules for married agents, taking the distinction between interpersonal and interhousehold inequality seriously. Each household consists of two workers with different productivitylevels and unequal access to the family’s economic resources. We handle the multidimensionality that could undermine the Mirrlees’ (1971) approach by restricting preferences to be identical and iso-elastic and by focusing on taxes characterized by income-splitting. After showing how individual-oriented utilitarianism typically leads to a misalignment between the households’ and the government’s objectives, which Apps and Rees (1988) have named dissonance, we provide a complete solution for the screening problem, incorporating different degrees of assortative matching and assessing dissonance’s role in shaping the optimal schedule. We also investigate the welfare gains from gender-based policies.

Abstract: What is the cost of informality? On the one hand, an informal sector creates a restriction on the set of policies that can be implemented. On the other hand, its existence offers an alternative for those for whom the benefits of formal relations do not compensate for the costs. Based on Mirrlees’ (1971b) we propose an optimal tax formula that accounts for the existence of informality. This allows us to adopt an inverse-optimum procedure to recover the social objective that rationalizes the current tax system and use it to evaluate the welfare consequences of eliminating the informal sector. Using survey data from Brazil that encompasses formal and informal workers’ wages, we calibrate the model to recover the main parameters that underlie the formalization decision, i.e., the joint distribution of productivity and the formalization costs. We find welfare gains of 6.3% which can be decomposed into a 2% gain from a direct increase in tax revenues and a 4.3% gain from re-optimizing the tax system.