Research work

Behavioural response to time notches in transaction tax: Evidence from stamp duty in Hong Kong and Singapore CBT working paper WP 18/01

Abstract To moderate speculation in housing market, multiple Asian cities implemented transaction tax notches on holding period of property. Using administrative transaction record of property trading, this paper studies the behavioural response in the timing of transaction, tax incidence and selection of buyers using the policy changes in Hong Kong and Singapore. Tax notches on holding period generate significant tax avoidance bunching in the timing of transaction, and properties were less likely to be resold even one year after the tax last applies, suggesting plausible crowd out of transactions. I construct and use a new dataset on government estimated rental rate to estimate the tax incidence and find evidence that buyers bear significant tax burden even when tax-free alternatives are available in the market. Evidence shows that time notches on holding duration produce selection effect among buyers with different ex ante probability of trade in the taxable holding period. Estimates suggest that traders on average are willing to wait for 3-4 weeks to avoid 1% of transaction tax, and each week of delay in transaction would generate loss in the trading surplus at 0.2-0.3 % of property value.

"VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence" (with M. Almunia, L. Li, B. Lockwood) Review of Economics and Statistics, 2021, 103:1, 151-164

Abstract Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

"On the Quantity and Quality of Girls: New Evidence on Abortion, Fertility, and Parental Investments" (with S Anukriti and S Bhalotra) Economic Journal, 2022, 132:461, 1-36

Abstract The introduction of prenatal sex-detection technologies in India has led to a phenomenal increase in abortion of female fetuses. We examine fertility and investment responses to these technologies. We find a moderation of son-biased fertility stopping, erosion of gender gaps in parental investments, and convergence in the under-5 mortality rates of boys and girls. For every three aborted girls, one additional girl survives to age five. We also find a shift in the distribution of girls towards low-socioeconomic status families. Our findings have implications not only for counts of missing girls but also for the later life outcomes of girls.

"Discretionary Fiscal Responses to the Covid-19 Pandemic" (with M. Devereux, I. Güçeri and M. Simmler) Oxford Review of Economic Policy, Vol. 36, Suppl., 2020, p.S225–S241

Abstract We analyse discretionary fiscal responses to the Covid-19 pandemic. We distinguish policies for three phases of the pandemic: (1) acute overall disruption, (2) initial recovery phase and (3) the longer term. We analyse measures already taken in (1) and consider measures relevant for (2). We distinguish between lump-sum subsidies, such as deferral of tax payments, which may ease financial constraints, and measures which intentionally affect incentives. We also identify factors that are important given the short-term nature of the measures.

Working papers

"Impact of British Colonial Gender Reform on Early Female Marriages and Gender Gap in Education: Evidence from Child Marriage Abolition Act, 1929" (with S. Roy)

Abstract The British colonial government raised the minimum age at first marriage of females to 14 years in British India in 1929. The law had two distinct features: it was announced in 1929 but implemented six months later in 1930, and the law applied to only British India, which was directly ruled by the British government but not to Princely States (Indian Native States), which were under their indirect control. Using Princely States in colonial India as a control group, we employ difference-in-differences strategy to estimate the causal impact of the abolition of child marriage on underage female marriage in regions that were affected by the law. Analyzing historical census data from 1911-1931, we find an immediate unintended anticipation effect of the law that increased female child marriages in the affected regions in 1931, followed by a sharp decline of female child marriages in the affected region post-independence in 1961-1981. We further use three independent nationally representative datasets on female education and marriage to show that there was a long term decline in child marriages and increase in educational attainment among women in affected regions.

"Fell by the wayside: Trade integration and policy choices of local governments" (with J. Xing) CBT working paper WP 20/08

Abstract We examine how trade integration affects the incentives and policy choices of local governments, using the construction of China’s national expressway as a natural experiment. We find that governments of peripheral counties connected to expressway “gave up” by adopting less business-friendly policies. Affected local governments changed both the level and the composition of public spending, and became less involved in inter-jurisdictional spending competition. Private firms in connected peripheral counties received fewer subsidies and faced higher effective tax rates, while state-owned firms were less likely to be privatized. These policy changes contribute significantly to the observed output decline in these regions.

"Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates" (with B. Lockwood and M. Simmler) CBT working paper WP 20/18

Abstract We study the impact of commercial property taxation on vacancy rates in the UK using regression kink and regression discontinuity designs. We exploit exogenous variations in commercial property tax rates from three different reliefs in the UK business rates system: small business rate relief (SBRR), retail relief and empty property exemption. A simple theoretical framework predicts: (i) relationships between rateable values and taxes, and vacancies; (ii) that SBRR has a sorting effect on the mix of businesses in small properties. Findings consistent with the theory suggest that SBRR increases the likelihood that a property is occupied by a small business, reduces the likelihood that it is occupied by a large business, and reduces the overall likelihood of being vacant. We estimate that the retail relief reduces vacancies by 90%, and SBRR relief by up to 54%.

"Small Firm Growth and the VAT Threshold:Evidence for the UK" (with B. Lockwood and L.Liu) CAGE Online Working Paper Series 631/2022

Abstract This paper studies the effect of the VAT threshold on firm growth in the UK, using exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find robust evidence that annual growth in turnover slows by about 1 percentage point when firm turnover gets close to the threshold, and weaker evidence of higher growth when the threshold is passed. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that habitually register even when their turnover is below the VAT threshold (voluntary registered firms) have growth that is unaffected by the threshold, whereas firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of “crossers” (firms who eventually register for VAT) and “non-crossers” (those who permanently stay below the threshold) in explaining our empirical findings.

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