Melbourne Institute of Applied Economic and Social Research - Research Publications
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ItemEvasion vs. real production responses to taxation among firms: bunching evidence from Argentina(Universidad de Alcalá. Instituto Universitario de Investigación en Estudios Latinoamericanos (IELAT), 2017-04-03)A key idea in public economics is that optimal tax policies and tax instruments can ensure production efficiency even in second-best environments. This theoretical prediction has been widely accepted and put into practice in developed and developing countries. Yet, it has been derived from models that ignore tax evasion. Once enforcement constraints are acknowledged, some studies suggest that –contrary to the theoretical prediction – production efficiency is no longer the centerpiece of the model while instead revenue efficiency becomes more relevant. This paper analyzes empirically such trade-off between revenue and production efficiency in the choice of tax instruments in Argentina. We use a production inefficient tax policy, the simplified tax regime, which affects firms’ behavior on compliance and real output. Using the bunching approach and administrative tax data covering all corporate income tax returns for the years 1997-2011, we show that the asymmetric bunching in Argentina represents intensive and extensive margin responses. Incorporating turnover evasion in an optimal tax model, we find that in Argentina the trade-off is not as clear as in Pakistan because bunching could be the result of less compliance
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ItemImpacts from Delaying Access to Retirement Benefits on Welfare Receipt and Expenditure: Evidence from a Natural Experiment(Melbourne Institute of Applied Economic and Social Research, 2016)Governments are responding to fiscal pressures associated with aging populations by increasing the eligibility age for publicly-funded retirement benefits. However, recent studies show large resulting increases in the receipt of disability and unemployment benefits, which raises concern that welfare savings are offset by increased inflows into alternative payments. Using administrative data to examine the impacts of female eligibility age increases in Australia, we find little evidence of this. Instead, most of the increase is because the delay mechanically extends the receipt time of people already on alternative payments. The implication is that fiscal savings are not jeopardized by opportunistic behaviour.
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ItemEarly Academic Outcomes of Funded Children with Disability(Melbourne Institute of Applied Economic and Social Research, 2017-10-01)People with disability face considerable difficulty participating fully in work and the wider community, due in part to poor schooling outcomes. To enable students with disability to meet their potential, the governments provide extra funding to schools to help them meet their special learning needs. Such funding includes extra funding for meeting diverse student needs under formula-based block grant arrangements, funding for specific programs and funding that is targeted at the individual level. In this study, we take a first-step in examining outcomes from targeted funding, over and above outcomes from other funding sources, in mainstream public schools in Victoria under the Program for Student with Disability (PSD). We use information on disability and child development in the first year of school from the Australian Education and Development Census (AEDC), linked to Year 3 NAPLAN and information on PSD receipt from Year 1 to Year 3. We find that only around 17% of mainstream public-school students with disability who are in the bottom quarter of the state developmentally receive ongoing targeted funding under the PSD between 2012 and 2015. Using multivariate regression and rich administrative student data to control for differences between students with disability who do and do not receive targeted funding, we find that the receipt of PSD is strongly associated with being exempt from sitting NAPLAN, which obstructs any proper examination of the educational outcomes from funding. These results raise the prospect of extending existing funding according to developmental need, but caution that any such change should be accompanied with measures that ensure funding outcomes can be assessed.
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ItemNo Preview AvailableKeep calm and consume? Subjective uncertainty and precautionary savings(Melbourne Institute, The University of Melbourne, 2017-07)This paper estimates the effect of income uncertainty on assets held in accounts and cash, and finds substantial empirical evidence for precautionary savings. Using household-level panel data, it explicitly distinguishes between ‘real’ income uncertainty the household is actually exposed to, and ‘perceived’ income uncertainty. It finds that the latter substantially increases precautionary savings above and beyond the effect of ‘real’ income uncertainty. The effect of subjective economic uncertainty on behaviour has only begun to show up after the Great Recession. The economic crisis appears to have shifted households’ willingness to forgo current consumption for insurance pruposes. Our results imply that households save above their optimal level especially after and during a crisis, potentially exacerbating the economic downturn.
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ItemSurvey Under-Coverage of Top Incomes and Estimation of Inequality: What Is the Role of the UK’s SPI Adjustment?(Melbourne Institute of Applied Economic and Social Research, 2017)Survey under-coverage of top incomes leads to bias in survey-based estimates of overall income inequality. Using income tax record data in combination with survey data is a potential approach to address the problem; we consider here the UK’s pioneering ‘SPI adjustment’ method that implements this idea. Since 1992, the principal income distribution series (reported annually in Households Below Average Income) has been based on household survey data in which the incomes of a small number of ‘very rich’ individuals are adjusted using information from ‘very rich’ individuals in personal income tax return data. We explain what the procedure involves, reveal the extent to which it addresses survey under-coverage of top incomes, and show how it affects estimates of overall income inequality. More generally, we assess whether the SPI adjustment is fit for purpose and consider whether variants of it could be employed by other countries.
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ItemEconomic Policy Uncertainty Spillovers in Booms and Busts [Working paper](Melbourne Institute of Applied Economic and Social Research, 2017)We estimate a nonlinear VAR to quantify the impact of economic policy uncertainty shocks originating in the US on the Canadian unemployment rate in booms and busts. We find strong evidence in favor of asymmetric spillover effects. Unemployment in Canada is shown to react to uncertainty shocks in economic busts only. Such shocks explain about 13% of the variance of the 2-year ahead forecast error of the Canadian unemployment rate in periods of slack vs. just 2% during economic booms. Counterfactual simulations lead to the identification of a novel “economic policy uncertainty spillovers channel”. According to this channel, jumps in US uncertainty foster economic policy uncertainty in Canada in first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. Evidence of asymmetric spillover effects due to US EPU shocks are also found for the UK economy. This evidence, which refers to a large economy having a low trade intensity with the US, supports our view that a channel other than trade could be behind our empirical results.
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ItemJob Loss by Wage Level: Lessons from the Great Recession in Ireland(University of Melbourne, 2015-09)This paper explores the pattern of job loss in the Great Recession with a particular focus on its incidence by wage level, using data for Ireland. Ireland experienced a particularly pronounced decline in employment with the onset of the recession, by international and historical standards, which makes it a valuable case study. Using EU-SILC data, our analysis identifies which employees were most affected. The results show that the probability of staying in employment, from one year to the next, is positively related to monthly wages both during the boom and in the bust. The gradient with wages, however, is much more marked in the bust, and remains significantly so even after controlling for a range of individual characteristics including part-time status, demographics, education, labour market history, industries or occupations.