Working Papers
Taxing Property in Developing Countries: Theory and Evidence from Mexico
With Alejandro Estefan, Karina Ramirez and Juan Carlos Suárez Serrato
Revised & resubmitted, American Economic Journal: Applied Economics
Coverage from VoxDev | Premio Citibanamex de Economía 2020 | ADB-IEA Innovative Policy Research Award 2023
We study the most under-utilized tax in developing countries---the property tax---by modeling and estimating the welfare effects of tax rate changes and enforcement. The model shows tax hikes impact welfare by reducing compliance and exacerbating liquidity constraints. Enforcement impacts welfare by subjecting non-compliant taxpayers to threats of fines and property seizure. Empirically, administrative data, sharp tax rate increases, and an enforcement experiment show both policies increase revenue. Tax hikes raise welfare since revenue gains surpass liquidity costs. Enforcement reduces welfare as threat costs overshadow revenue increases. Governments can enhance welfare by raising tax rates rather than escalating enforcement.
Effective Tax Rates, Firm Size and the Global Minimum Tax
With Pierre Bachas, Roel Dom and Camille Semelet
Revised & resubmitted, Journal of Public Economics
Coverage from UCL Stone Center | Let's Talk Development
We document new facts on corporate taxation and the revenue potential of corporate minimum taxes, leveraging firm-level tax returns from 16 countries. First, effective tax rates (ETRs) follow a hump-shaped pattern with firm size: small firms benefit from reduced rates, while large firms take up tax incentives, leaving mid-sized firms with the highest ETRs. On average, the ETR for the largest 1% of firms is 2.2 percentage points lower than the average ETR for top decile firms. Second, although statutory tax rates are above 15% in all sample countries, over a quarter of top firms face an ETR below 15%, challenging the simple tax haven vs non-haven dichotomy. Third, a simple 15% domestic minimum tax for the top 1% firms could raise corporate taxes by 14% on average across countries, absent behavioral responses. In contrast, the global minimum top-up tax would only raise a quarter of this revenue due to its generous deductions and a smaller number of firms in scope.
The Fiscal Contract up Close: Experimental Evidence from Mexico City
With Francisco Garfias and Juan Carlos Suárez Serrato
Can the provision of public goods strengthen fiscal capacity and foster tax compliance in developing countries? We study this question using a large-scale randomized infrastructure investment in Mexico City and administrative property tax data. Despite substantial improvements in local amenities, property values, and economic conditions, we find no evidence that infrastructure investments increased tax compliance - even when the tax-benefit link was made salient. These null results hold across different measures, subgroups, and empirical strategies, and we can rule out even small causal effects. By precisely estimating the limits of reciprocity-based compliance, our findings refine the fiscal contract theory and challenge its applicability beyond narrow elites. Equipped with this evidence, policymakers can redirect efforts toward more effective approaches for strengthening state capacity, such as enforcement and administrative reform.
Algorithms and Bureaucrats: Evidence from Tax Audit Selection in Senegal
With Pierre Bachas, Alipio Ferreira and Bassirou Sarr
Supported by two EDI grants (pilot and scale-up)
AEA RCT Registry | Blog
Can algorithms enhance bureaucrats’ work in developing countries? In data-poor environments, bureaucrats often exercise discretion over key decisions, such as audit selection. Exploiting newly digitized micro-data, we conduct an at-scale field experiment whereby half of Senegal’s annual audit program is selected by tax inspectors and the other half by a transparent risk-scoring algorithm. Algorithm-selected audits are 18 ppt less likely to be conducted, detect 89% less evasion, are less cost-effective, and don’t reduce corruption. Moreover, even a machine-learning algorithm would only have moderately raised detected evasion. These results are consistent with bureaucrats’ expertise, the task complexity, and inherent data limitations.
Taxation, Information and Withholding: Evidence from Costa Rica [Appendix]
With Marco Hernandez
Coverage from La Nación | Winner of the World Bank Innovation Prize
Withholding of taxes by employers and by firms' trading partners is common around the world, but absent in public finance theory. We demonstrate the surprising power of withholding as a tax collection instrument, studying a scheme in Costa Rica where credit-card companies withhold tax on card sales. Doubling the withholding rate increases sales tax remittance among treated firms by 32 percent and aggregate revenue by 8 percent, although the statutory tax rate and third-party reporting requirements remain unchanged. We identify the mechanisms driving this effect and show that the current withholding rate is below the welfare-maximizing rate.
The Elasticity of Corporate Taxable Income Across Countries
With Nathan Seegert, Katarzyna Bilicka, Pablo Garriga, Guillermo Falcone, Guillermo Vuletin and many other coauthors
Program website
Do firms respond similarly to corporate tax incentives across countries? We provide globally comparable estimates of the corporate elasticity of taxable income using administrative tax return data from sixteen countries and a unified empirical framework. Exploiting bunching at a common kink, zero taxable income, we estimate elasticities ranging from 0.08 to 1.9, with an average of 0.79. To explain this heterogeneity, we link elasticities to tax policy, firm characteristics, and country fundamentals. These differences imply that identical corporate tax reforms can generate sharply different revenue effects across countries, leading to substantial heterogeneity in the efficiency costs of corporate taxation
Formal Labor Market Dynamics and Development
With François Gerard, Gabriel Ulyssea, Linda Wu, Marcelo Bergolo, Rodrigo Ceni González, Benard Kirui, Andrea Lopez-Luzuriaga, Leonardo Fabio Morales, Andrea Otero-Cortés, Nadine Riedel, Matías Tapia, Tanisa Tawichsri and Verena Wiedemann
This paper studies formal employment dynamics using linked employer–employee data from eight countries spanning a wide income range from Kenya to Chile. First, we show that formality rates increase with development, both between and within countries, because more workers enter the formal sector, not because they spend more time in formal jobs. Second, formal labor market fluidity increases with development, as workers hold more formal jobs, spend less time in each job, and less time between jobs. Third, greater fluidity is associated with higher life-cycle wage growth, which is largely accounted for by within- rather than between-firm wage gains.
Selected Works in Progress
Are the Rich More Sensitive to Taxes? Evidence from Mexico City
With Vedanth Nair
Fiscal Externalities: Evidence from Tariff Reforms and Domestic Production Networks
With Pierre Bachas, Anders Jensen and Gabriel Tourek