Research

Publications

Corporate Taxation and Evasion Responses: Evidence from a Minimum Tax in Honduras  - American Economic Journal: Economic Policy 2024, 16(1): 482-517. DOI: 10.1257/pol.20210587 

(with Felipe Lobel and Pedro Zuniga) 

[Working paper][International Tax and Public Finance PhD Student award at IIPF 2020] [Short policy note (in Spanish)]Coverage: World Bank Development Impact blog

Abstract: We study corporate responses to a minimum income tax, using the universe of corporate tax filings in Honduras. The policy design allows us to separately estimate cost misreporting under profit taxation and the elasticity of reported revenue. Large corporations overreport true costs when taxed on profits. Taxing revenue leads to a substantial decrease in reported revenues: we estimate an elasticity in the range 0.35-1. The elasticity of revenue is attenuated when third-party information on the revenue of firms is available, suggesting misreporting plays an important role. Our results inform tradeoffs when broadening tax bases to curb evasion.

Selecting Top Bureaucrats: Admission Exams and Performance in Brazil  - The Review of Economics and Statistics 2023; doi: https://doi.org/10.1162/rest_a_01311 

(with Laura Schiavon and Ricardo DahisCoverage: Folha de Sao Paulo

Abstract: In the absence of strong incentive schemes, public service delivery crucially depends on bureaucrat selection. Despite being widely adopted by governments to screen candidates, it is unclear whether civil service examinations can predict job performance. This paper investigates this question by focusing on a highly prestigious and influential set of bureaucrats in Brazil: state judges. We first explore data on judges' monthly output and cross-court movement to separately identify what share of observed performance is explained by judges and courts. We estimate that judges account for at least 23% of the observed variation in the number of cases disposed. Using a novel data set on examinations, we then show that, within cohorts of candidates taking the same exam, those with higher grades perform better than their lower-ranked peers. Our results suggest that competitive examinations can be an effective way to screen candidates, even among highly qualified contenders.

The Importance of Political Selection for Bureaucratic Effectiveness. Economica. 2023; 90(359):  746 - 779. doi: 10.1111/ecca.12470 

(with James Habyarimana and Stuti Khemani). World Bank Policy Research working paper; n. WPS 8673

Abstract: Economic theory of public bureaucracies as complex organizations predicts that bureaucratic productivity can be shaped by the selection of different types of agents, beyond their incentives. This theory applies to the institutions of local government in the developing world, where nationally appointed bureaucrats and locally elected politicians together manage the implementation of public policies and the delivery of services. Yet, there is no evidence on whether (which) selection traits of these bureaucrats and politicians matter for the productivity of local bureaucracies. This paper addresses the empirical gap by gathering rich data in an institutional context of district governments in Uganda, which is typical of the local state in poor countries. The paper measures traits such as the integrity, altruism, personality, and public service motivation of bureaucrats and politicians. It finds robust evidence that higher integrity among locally elected politicians is associated with substantively better delivery of public health services by district bureaucracies. Together with the theory, this evidence suggests that policy makers seeking to build local state capacity in poor countries should take political selection seriously.

Working Papers

Trade-offs in the Design of Simplified Tax Regimes: Evidence from Sub-Saharan Africa [New!]

(with Christopher Hoy, Alex Oguso, Anna Custers, Daniel Zalo, Ruggero Doino, Jonathan Karver and Nicolas Pillai).  World Bank Policy Research working paper n. WPS10909. [Reproducibility Package

This paper provides novel evidence of the trade-offs policy makers face when designing simplified tax regimes for small businesses. First, it provides a comprehensive stocktaking of the main features of these regimes across Sub-Saharan Africa: they are adopted by two-thirds of countries, but their design varies greatly. Second, it draws on administrative and survey data for a thorough examination of a specific simplified tax regime. This analysis shows most small businesses lack knowledge about design features, such as the existence of a minimum exemption threshold, but they react strongly to increases in tax rates by lowering their declared turnover. Finally, the paper presents the results of an experiment that encourages taxpayers to pay fixed amounts—a potential alternative design of a simplified tax regime that aims for a better balance of the trade-offs facing policy makers. The findings show that providing simple guidance about how much small businesses with similar characteristics typically pay in taxes can increase revenue, but this reduces equity among taxpayers.


Two Decades of Top Income Shares in Honduras [New!]

(with Giselle Del Carmen, Santiago Garriga, and Wilman Nuñez).  World Bank Policy Research working paper n. WPS 10722. [Reproducibility Package

This paper presents distributional national accounts for Honduras over 2003–2019, using survey microdata, administrative tax records, and national account aggregates. It assembles comprehensive data on formal income for high-income individuals, including information on corporate shareholders, which allows corporate profits to be assigned to their owners. The estimates suggest a high and persistent inequality in the country: the top 1 percent highest earners received approximately 30 percent of the total income over the period, placing Honduras among the most unequal countries in the world. Undistributed corporate profits are the overwhelming income source at the very top of the distribution, highlighting its importance in the measurement of income inequality. Finally, using a panel of tax records, the paper also documents that not only is inequality persistent, but the same individuals are often observed at the top, suggesting that the observed inequality has deep roots.


Speed of Payment in Procurement Contracts: The Role of Political Connections 

(with Ricardo Dahis and Bernardo Ricca)

We provide evidence of a new channel through which politicians can exchange favors with campaign donors: earlier payment in procurement contracts. We exploit an electoral reform in Brazil that bans corporate contributions and partially breaks down the relationship between donors and politicians. Using a within-firm difference-in-differences identification strategy, we find that connected firms experience longer payment terms post-reform. The effect is larger in municipalities with low liquidity, where payment delays are more common, and for contracts awarded through a competitive tendering process. Our results point to the importance of designing rules that curb discretion over the contract execution process in government purchases.


MiDES: New Data and Facts from Local Procurement and Budget Execution in Brazil   

(with Ricardo Dahis, Lucas Nascimento, Bernardo Ricca e Nathalia Sales). World Bank Policy Research working paper n. WPS 10598. [Reproducibility Package
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This paper introduces a new disaggregated and harmonized dataset on public procurement and budget execution by Brazilian subnational entities, which currently covers half of Brazilian municipalities and spans the years 2003–21. This dataset provides key information that was previously unavailable from aggregate data, such as the identities of suppliers, details on purchases of goods and services, and granular information on the life cycle of each expenditure action. It then uses these data to provide new stylized facts about local public finance. First, it shows that about one-quarter of government purchases are locally procured and discusses implications for efficiency. Second, it demonstrates that close to 15 percent of payments exceed the 30-day threshold and that payment timeliness is systematically correlated with the income level of the municipality.

Corporate Responses to  Size-Based Tax Rates in Lithuania  

(with Pablo Garriga). World Bank Policy Research working paper n. WPS 10500.
Abstract: This paper studies how firms respond to differential, size-based tax rates using administrative tax data in Lithuania. Exploiting a notch in the tax schedule faced by corporations, it documents strong behavioral responses to tax incentives— revenue elasticity is estimated at 0.35 and cost elasticity at −1.3, implying a large total profit elasticity of 7.4. It then leverages the panel structure of the data to provide insights on the dynamic effects of these tax incentives. Firms located close to but below the notch report systematically lower revenue growth in the short term, but the effects dissipate over time.

Building State Capacity: What is the Impact of Development Projects? 

(with Vincenzo Di Maro, David Evans and Stuti Khemani). World Bank Policy Research working paper n. WPS 9875.
Abstract: Although research has established the importance of state capacity in economic development, less is known about how state capacity comes about and the role of external partners in the process. This paper estimates the impact of an external project designed to build state capacity in a low-income country. Specifically, it evaluates a multilateral development bank project in Tanzania, designed to incentivize investments in local state capacity by offering grants conditional on institutional performance scores. This program typifies many development projects to build state capacity implemented around the world by development agencies. The paper uses a difference-in-differences methodology to estimate the project impact, comparing outcomes between 18 project and 22 non-project local governments over 2016–18. Outcomes were measured through two rounds of primary surveys of nearly 500 local government officials and nearly 3,000 households. Over the course of the project, measured state capacity improved in project areas, but due to comparable gains in non-project areas, the project’s value-added to change in state capacity is estimated to be zero across all the dozens of relevant variables in the surveys. The data suggest that improvements in state capacity in Tanzania resulted from endogenous changes in trust and legitimacy in the country rather than from financial incentives offered by external partners.

Targeting in Tax Compliance Interventions: Experimental Evidence from Honduras 

(with Giselle del Carmen and Edgardo Enrique Espinal Hernandez). [AEA RCT registry] [Pre-Analysis Plan] [Github Replication code] World Bank Policy Research working paper n. WPS 9967.

Tax authorities often use low-cost communication with taxpayers to encourage voluntary compliance and avoid other costly interventions. This paper reports findings from an experiment with more than 30,000 taxpayers in Honduras, designed to assess how taxpayers with different risk scores respond to a communication intervention. Across several outcomes, the average effect of the intervention on compliance was zero. Contrary to the expectation of experts surveyed, only taxpayers considered to be at low risk of noncompliance increase their filing and reported income. Using rich administrative data and a causal forest algorithm, the paper finds that ex-ante predicted risk and responsiveness to the intervention are negatively correlated. These findings can inform the design of targeted interventions by tax authorities. 

Work in Progress


VAT Refunds and Firms’ Performance: Evidence from a Withholding Reform in Honduras

(with David Pinto and Jose Carlo Bermudez)

The Financial Risk of Winning a Procurement Contract: Evidence from Chile

(with Andres Gonzalez-Lira)

Promotions, Performance, and Diversity in the Brazilian Judiciary 

(with Laura Schiavon and Ricardo Dahis)

Pre-Doctoral Research

"Sifting through the Data: Labor Markets in Haiti through a Turbulent Decade (2001-2012)" 

(with Aude-Sophie Rodella and P. Facundo Cuevas). World Bank Policy Research Working Paper WPS7562

"But … what is the poverty rate today? Testing poverty nowcasting methods in Latin America and the Caribbean"

(with German Caruso, Leonardo Lucchetti, Eduardo Malasquez and Andres Castaneda). World Bank Policy Research Working Paper WPS8104. 

"Cyclical Variations in Participation and Employment in Urban Brazil"

(with Emmanuel Skoufias and Renata Gukovas). No 24952, World Bank Other Operational Studies, May 2016. 

"Investing in people to fight poverty in Haiti: reflections for evidence-based policy making (Haiti Poverty Assessment)"

(with Federica Marzo, P. Facundo Cuevas and Natalia Garbiras). December 2014