Taxpayer Responses over the Cycle: Evidence from Irish Notches
This paper investigates the response of taxpayers to changes to three tax notches in Ireland before and after the Great Recession. Pre-2009 there is clear evidence of bunching in the earnings distribution below the notch thresholds, just avoiding large tax liabilities. This evidence disappears from 2009 onwards: the treatment effects of introducing a notch before the recession are three times larger than those in later years. This suggests that the taxpayer response is smaller during a recession. As the characteristics of both the employer and employee are determinants of the ability to report tax-advantageous incomes, sector-specific unemployment generates time-varying taxpayer responsiveness. However, the changing composition of the labor force alone cannot fully explain the results: the determinants of reporting a tax-advantaged income for people who remained with the same firms also vary substantially over the cycle.
Political Fragmentation and Fiscal Policy
This paper examines the link between political fragmentation and tax policy. A model of government is presented where an n-member coalition chooses revenue and expenditure policies. I derive the response of tax policy to a change in the number of coalition partners. The model predicts that an increase in the number of parties leads to (i) lower taxes; (ii) lower expenditure; and (iii) lower social security transfers. These results are counter to the conventional wisdom that countries with more fragmented governments have larger public sectors. I test the model on a large panel of developed countries, and all three of the model's predictions are supported. My results have coefficients significantly different from, and of opposing signs to, the conventional wisdom. I estimate that moving from a two- to three-party legislature lowers tax revenue by 6.7%, expenditure by 9.5%, and transfers by 5.4%. These results are robust to a host of potentially important variables such as the ideological composition of government, changes in the tax base, and electoral cycle effects.
Optimal Pigouvian Taxation when Externalities Affect Demand
Purchasing a network good such as a cell phone generates the positive externality of making phones more useful for others. Should we subsidize cell phones? If pollution/fumes from cars make commuting by foot less desirable, people become more willing to pay road tax. How then should we tax car pollution? To address these questions, I extend and generalize the standard optimal commodity tax model to let the demand for an externality-generating good depend on society's total consumption of that good. The optimal tax rate depends on three factors: the demand elasticities of the good, the marginal social cost, and the response of consumption to the externality. These factors are additive and separable. I find that if a negative externality affects consumption enough, the optimal policy can be to subsidize it.
Crime and Unemployment in Ireland, 2003-2016
This paper investigates the relationship between crime and unemployment in Ireland during the Celtic Tiger boom, Great Recession, and subsequent economic recovery. Using unique administrative police station-level crime data and exploiting large variation in unemployment rates, I first document that a 10% increase in unemployment is associated with a 5% increase in thefts and burglaries. Instrumental variables show that a 1,000-person decline in employment causes 15-25 more thefts or burglaries per quarter. The property crime-unemployment relationship remained robust during the most recent period of substantial economic recovery, with areas where the recovery was fastest also experiencing sharper decreases in property crime.