Essays in Public Finance and Taxation

Abstract

This dissertation analyzes individual behavioral responses to tax policy and administration. All three chapters use administrative tax microdata to assess the intended and unintended consequences of policies whose goals are to increase tax compliance or improve tax enforcement and debt collection. Together, these essays expand our understanding of how individuals respond to the tax system, and provide empirical findings that can inform future improvements to that system. The first chapter explores a recent increase in U.S. citizenship renunciation and its connection to tax rules and enforcement. The U.S. tax system applies to its citizens’ worldwide incomes and estates, whether those citizens live in the U.S. or abroad. Fully escaping the U.S. tax system requires dropping U.S. citizenship, and in recent years a growing number of individuals have done so. I use administrative tax microdata to answer three questions: Who is renouncing U.S. citizenship? Why are they renouncing? What are the policy consequences? I show that the recent increase is mainly driven by those who have for many years lived abroad, rather than by individuals leaving the U.S., and that these renunciations are primarily a response to increased compliance costs, not tax liabilities. I also present evidence of a strong response to a net worth threshold affecting the cost of renunciation. I conclude by showing that most of those renouncing had no or little pre-renunciation U.S. tax liability, suggesting their renunciations are likely to have minimal revenue impact. Overall, the evidence shows that the tax system does affect individuals’ citizenship decisions, though renunciations are still relatively uncommon. The second chapter, co-authored with Alex Ruda, Joel Slemrod, and Alex Turk, studies the IRS’ passport certification and revocation process. Traditional penalties for tax noncompliance are financial, but many jurisdictions now also use non-monetary tools, including collateral sanctions that deny access to some government-provided service. To learn about the effectiveness of one such penalty, we examine a U.S. policy restricting passport access for taxpayers with substantial tax debt, known as “certification.” We take advantage of an RCT during the policy rollout and find small but positive effects on taxpayer compliance of the certification notice sent to all eligible taxpayers. We then study a subset of certified taxpayers who were denied a passport-related request and find an immediate and strong positive effect of the denial on compliance actions. The third chapter, co-authored with Chad Angaretis, Brian Galle, and Allen Prohofsky, studies California’s Top 500 tax delinquent publication program. Many U.S. states and countries around the world publicly disclose tax debtors to encourage compliance. Little is known about the effectiveness of these programs. Using administrative tax microdata from California’s “Top 500” disclosure program, we study whether notices of imminent publication affect payment and other compliance outcomes, as well as whether these notices affect subsequent reported earnings. We estimate the direct effect of the letter sent to the 500 highest-balance, publication-eligible taxpayers to be additional revenue of between $2.8 and $7.2 million annually, with no evidence of an impact on subsequent reported earnings. We also estimate an upper bound on the deadweight loss caused by publication of non-compliers, and conclude that the program generates positive net social welfare. Together, these results suggest that delinquent taxpayer disclosure can be an efficient tax enforcement tool, at least among the relatively high-income population we study.