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This paper provides novel evidence for the determinants of preferences for public health and the willingness to pay for health services using a survey experiment implemented during the third week of the lock-down in Spain. At the time of our experiment the confirmed COVID-19 cases reached the 100k mark in Spain and 1 million worldwide. We collect information on several health outcomes, which we are able to benchmark with results from previous surveys. Results show a substantial deterioration of mental health, which is more pronounced in groups of the population with less stable income sources. Furthermore, we implement two information treatments about the fatality rate across age groups and the incidence rate across regions. In the first case, the treatment is stronger for those in, or with relatives in the risk group. The fact that regions are on different parts of the trajectory creates variation across regions in the second treatment. We ask participants about their preferred budget allocation, which we can again benchmark against the enacted budget and previous surveys. Results suggest that preferences for health care expenditures have almost doubled. Furthermore, we ask respondents about their willingness to pay for one out of three randomly assigned health care improvements. Contributions for more ICU beds are significantly higher compered to medical treatments and a vaccine. 


"Paraísos Fiscales, Wealth Taxation, and Mobility"
with David R.Agrawal and Clara Martínez-Toledano

 
Using administrative wealth and income tax records from Spain, we study the effect of annual wealth taxes on migration. Historically, Spain has imposed a relatively centralized progressive wealth tax schedule, but the wealth tax reemerged in decentralized form with variation across Spanish regions starting in 2011. Following this decentralization, Madrid elected not to impose a wealth tax on its fiscal residents, but all other regions levied progressive wealth taxes with top marginal rates as high as 3.75%. This fiscal decentralization provides a unique quasi-experiment facilitating a difference-in-differences design to understand the mobility responses of high wealth individuals and the resulting effect on wealth tax revenue and wealth inequality. Aggregating the individual data to the region-year-wealth tax filer level, we first show that four years after the reform, the stock of wealthy individuals and the stock of wealth residing in the region of Madrid increased, respectively, by 7% and 12% relative to other regions prior to the reform.  Such an increase is not evident among individuals below the wealth tax  filing threshold. Next, an individual choice model shows that Madrid's zero tax rate increased the probability of changing one's fiscal residence to Madrid by 25 percentage points. However, smaller tax differentials between other regions had almost no effect on the probability of changing the fiscal residence between those pairs. We conclude that Madrid's status as a tax haven plays a critical role above and beyond inter-jurisdictional tax rate differentials. The paper provides a cautionary tale about how the design of the wealth tax in the Spanish case – decentralization of tax rates, difficulty of monitoring residency status and enforcing wealth taxes at the regional level, and the application of the residence-principle rather than the source-principle to all assets including those that are physically of limited mobility – erodes the effectiveness of raising tax revenue and reducing wealth concentration.
 


 "Information, Ethnic Diversity, and Preferences for Redistribution"

 
Results from a large-scale survey experiment in Spain reveal large misperceptions about the level of taxes and the level of government which sets tax rates and receives revenues. Respondents underestimate their true tax burden, but an information treatment is able to remove that difference relative to a control group. Another treatment informs participants about the fact that 50\% of the personal income tax base belongs to regional governments. I show that the first treatment changes the way respondents would design a tax reform towards a more progressive system. The second treatment is particularly important with respect to the ethnic diversity in Spain. Treated respondents regard income differences between rich and poor as more important once they learned that income taxes are partially set by the regions and redistribute among residents of the same Autonomous Community. The effect is approximately 10% relative to the baseline, and larger for individuals born in their region of residence and those which report strong regional ties.


"Revenue Shocks and Fiscal Capacity: Evidence from Brazil", with Claudio Ferraz and Juan Santini

 
Together with my co-authors from PUC-Rio we analyze the adjustment to an exogenous revenue shock in formula transfers to Brazilian municipalities. Given the well-established stylized fact that the ability to collect taxes varies substantially between developed and developing countries, we are the first to analyze how local governments in a middle-income country react to these shocks. The main difference to high-income countries is that institutions related to tax collection in developed countries are already advanced, and the only margin at which a reaction of local governments is possible is changing tax rates or local expenditures. In middle and low-income countries, however, institutions and infrastructure related to tax collection are less developed. We find that positive shocks translate into additional spending, but the adjustment after a negative shock depends on the local characteristics. On average, municipalities increase fiscal capacity and tax collection, but this effect disappears in jurisdictions with low-educated mayors, which rather tend to cut expenditures.
 

"Income Shifting and Tax Evasion: Evidence from an Uruguayan Tax Reform", with Javier Vazquez and Leonel Muinelo

 

This paper provides novel empirical evidence on intertemporal income shifting as a consequence of a large tax reform in Uruguay. We exploit VAT and income tax returns at the individual level. We observe this information for the universe of individuals that declare activity as liberal professionals (e.g. lawyers, public notaries, architects and accountants) during the years around the reform. Using a difference-in-difference approach, we document large shifting responses of personal business income in the period before the reform was implemented. After controlling for fixed effects, we find that on average an amount of 35 thousand Uruguayan pesos (1,450 US$) or approximately 13% of income is shifted in order to receive a beneficial fiscal treatment. This amount increases up to 23% for the top of the income distribution. Furthermore, we show that lawyers and notaries respond much stronger and drive indeed most of the result. This confirms that income shifting, as a means of tax evasion, depends on the information taxpayers have about the functioning of the tax system.   
 
 
This paper analyzes the distribution of discretionary transfers from higher tiers of government in the process of fiscal adjustment in local jurisdictions which were hit by a negative revenue shock in formula transfers. Spanish local governments experienced a 30% fall in their revenue-sharing revenues at the beginning of the Great Recession. We use a `difference-in-discontinuities' design to identify the causal effect of that shock on the amount of discretionary grants provided by three higher tiers of government (i.e., central, regional, and provincial) and on other budget items (i.e., spending and taxation). We identify these effects using an exogenous variation in formula transfers, as the losses during the crisis of municipalities above the 5,000 population threshold were greater than the losses of those below this threshold. We find that, on average, municipalities above and below the 5,000 inhabitant threshold did not differentially adjust their budgets during the crisis. Rather, we find that for the most indebted municipalities, a substantial share of the shock was absorbed by discretionary grants provided by regional and provincial governments.

 

  

"Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Tax Reforms"
with David R. Agrawal
The Review of Economics and Statistics (2019), vol. 101(2), pages 214–232

 

Media coverage:

I discussed our work with The Economist for their Money Talks Podcast edition. At around minute 11 you will hear my interview recorded at the Lindau Nobel Meetings in Germany.
 


"'Ghost Citizens': Using Notches to Identify Manipulation of Population-Based Grants"
with Jordi Jofre and Albert Solé
Journal of Public Economics (2017), vol. 154, pages 49-66

"Overlapping political budget cycles"
with Ronny Freier, Marc-Daniel Moessinger, and Mustafa Yeter Public Choice (2018), vol. 177, pages 1–27 (2018)

"Business taxes and the electoral cycle"
with Nadine Riedel Journal of Public Economics (2014), Elsevier, vol. 115(C), pages 48-61

"Sub-national deficits in European countries: The impact of fiscal rules and tax autonomy"
European Journal of Political Economy (2014), vol. 34, pages 86–110

"Strategic fiscal interaction across borders: Evidence from French and German local governments along the Rhine Valley"
with Edoardo di Porto and Aurélie Cassette
Journal of Urban Economics (2012),  vol. 72(1), pages 17-30

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