It takes two to tango: labor responses to an income tax holiday in Argentina
(with Guillermo Cruces and Victoria Castillo); Job Market Paper
Presentations: 13th ACLEC (UC Santa Cruz), Labor Symposium (Berkeley), 18th IZA-SOLE, AAEP meeting (La Plata), RIDGE PF Workshop (Uruguay), PF Lunch Seminar (Berkeley), NTA (Philadelphia), Ministry of Labor (Argentina), 2nd Zurich PF Conference (U. of Zurich), UNU-WIDER PF Conference (Mozambique)

ABSTRACT

We exploit a large and quasi-randomized 2.5 year-long income tax holiday to identify intertemporal labor responses of high-wage earners to net wage changes. In August 2013, the Argentine government exempted a group of wage earners from the income tax and left the remaining group taxed until February 2016, when the tax break was repealed. Eligibility was based on whether past wage earnings were below a fixed threshold, creating a discontinuity that treated workers who coexist in the same labor market (even in the same firm) with sharply different marginal and average tax rates —effectively 0% for workers below the threshold. Using rich population-wide administrative data and a regression discontinuity design, we estimate a precise and very small wage earnings elasticity of 0.017 to this large, salient, and temporary income tax change. Responses are larger for more flexible outcomes (overtime hours) and more elastic groups (job switchers and managers). We also find avoidance responses from new entrants who faced no tax if their first monthly wage was below the fixed threshold. The strategic entry below the threshold to dodge taxes required coordination with employers. Our evidence challenges the standard model of labor supply and demand, and points toward rigidities in the labor market which requires employer-employee cooperation for wage earners to respond to tax changes.

Incidence and wage effects of means-tested transfers: evidence from a change in the payment system
(with Santiago Garriga); In progress (Slides)

ABSTRACT

We explore how the way in which tax credits are disbursed affects employer's behavior, wages, and employment. We exploit a change in the payment system that was gradually rolled out between 2003 and 2010 in Argentina. Under the old system, employers were intermediaries that paid family allowances to their employees together with their corresponding salary, and they were allowed to deduct this transfer from employer social security contributions. The new system eliminated the intermediary role played by employers and centralized the payments in a government agency that started disbursing the allowances directly to eligible workers. Using employer-employee micro-data and an event-study design, we show that the way tax credits are disbursed is not neutral. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. The effect is mostly driven by big firms and firms located in less dense areas (proxy for monopsonistic power). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers.

Taxpayers' responses to tax and administrative notches across the revenue distribution
(with Santiago Garriga and Jorge Puig); In progress

ABSTRACT

We estimate the response of self-employed and firms to two revenue taxes, Monotributo and the Turnover Tax, across the turnover distribution using rich administrative data from Argentina. We exploit several revenue-dependent discontinuities that provide incentives to underreport taxable income combined with a bunching design to estimate revenue elasticities. We also explore heterogeneities by firm size, type of activities, and type of taxpayers. In the case of small firms, we find sizeable bunching below the thresholds that is stronger for higher tax incentives. The response is stronger in sectors that have more space for manipulation, such as service-based activities. In the case of medium and large firms, bunching is more muted but it suggests that even large firms are able to underreport their gross sales to avoid facing higher tax rates. Firms also seem to find more costly the indirect administrative cost of becoming a collection agent than the direct fiscal cost of the turnover tax. We cannot rule out, however, that large firms adjust other margins (or taxes) to compensate for the higher tax pressure.

Imperfect competition in product and labor markets: an empirical analysis using firm-level production data
(with Roman D. Zarate); In progress (Slides)
Presentations: Labor Lunch Seminar, Trade Lunch Seminar, CAF Symposium

ABSTRACT

We disentangle the extent of imperfect competition in product and labor markets using plant-level data. We derive a formula for the ratio between markups and markdowns assuming cost-minimizing firms that face upward-sloping labor supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labor supply elasticities instrumenting wages with intermediate inputs. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.

WORK IN PROGRESS (pipeline)

POLICY PAPERS

Anatomía del Impuesto a las Ganancias sobre los Asalariados: Argentina 2000-2016
In preparation for Revista de Trabajo (Ministry of Labor, Argentina)

Investment in ICT, Productivity and Labor Demand. The Case of Argentina
(with Irene Brambilla), World Bank Policy Research Working Paper No. 8325 (January 2018)

Pre-doctoral