RESEARCH PAPERS

[1] Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway

       Wealth taxation is commonly assumed to have a negative effect on household saving, but neither theory nor existing empirical evidence lends clear support. Theoretically, the effect is ambiguous due to opposing income and substitution effects. Empirically, the effect is challenging to discern because of (mis)reporting responses. I study this question using geographic discontinuities in the Norwegian annual net-wealth tax and third-party reported data on savings. I find that wealth taxation causes households to save more, and that this increase in saving is primarily financed by increased labor earnings. These responses are the combination of small negative effects of higher marginal tax rates on wealth and larger positive effects of higher average tax rates. My findings imply that income effects may dominate substitution effects in household responses to rate-of-return shocks, which has important implications for both optimal taxation and macroeconomic modeling.

[2] Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash

        I provide evidence that adverse shocks to the wealth of business owners during the Financial Crisis had large effects on their firms' financing, employment, and investment. I use individual-level portfolio data from Norway to exploit the dispersion in stock returns during 2008–09 as a source of exogenous variation in entrepreneurs' wealth. I then trace out the effects of these shocks to the entrepreneurs' privately-held firms. I find that the adverse employment and investment effects are primarily driven by young firms who—relative to mature firms—obtain considerably less bank financing following an owner wealth shock. Firms adjust employment primarily through hiring less, rather than firing, consistent with firms providing extensive-margin insurance for existing workers. These findings provide a causal link between asset price shocks and the real economy; and document that equity-financing frictions and the procyclicality of entrepreneurial wealth are important channels through which economic shocks amplify. 

[3] Optimal Delayed Taxation in the Presence of Financial Frictions

        In the presence of financial frictions, the timing of cash flows matters. We apply this insight to optimal income taxation by studying a new policy: delayed taxation. Introducing a delay between the accrual and payment of income taxes provides two sources of welfare gains when some agents are borrowing constrained. First, it improves consumption smoothing for financially constrained agents. Second, it reduces the present value tax rate from the perspective of constrained agents, thereby reducing the distortionary effects of income taxation. We characterize the conditions under which marginally delayed taxation is welfare enhancing under different assumptions about the sophistication of the benchmark tax system, and we contrast the welfare gains with those achievable by offering low-interest loans or changing nominal tax rates. We then characterize optimal delayed taxation in a model calibrated to the Norwegian economy. This exercise reveals substantial welfare gains from delayed taxation. When limiting the amount the government may borrow to finance any given reform, delayed taxation materially outperforms age-dependent taxation and a policy in which the government offers subsidized loans. Finally, we empirically test the hypothesis that delayed taxation substantially reduces income tax distortions in the context of young workers in Norway, where a kinked income-contingent student debt conversion scheme replicates an income tax with delayed payments. Bunching analyses reveal elasticities that are an order of magnitude lower than those we find for a regular income tax threshold, and that increase with ex ante financial resources. Taken together, our results underscore the potential for delayed taxation to be a powerful new component of optimal tax policy. 

[4] Wealth Taxation and Charitable Giving

        We study how tax incentives affect charitable giving using two quasi-experiments from Norway. First, using a shock to wealth tax exposure, we estimate the semi-elasticity of giving with respect to the after-tax rate of return on wealth. Inconsistent with the notion that households accelerate giving to reduce future taxes, we find that a 1% wealth tax reduces giving by 26%. We also find that wealth taxation reduces the likelihood of giving but only among ex-ante nongivers. Second, using bunching at an income-tax deduction threshold, we estimate a modest compensated own-price elasticity of giving of -0.44. This elasticity exhibits only minor heterogeneity with respect to income and wealth, but is considerably larger for religious than nonreligious giving. We develop a simple life-cycle model with endogenous charitable giving to interpret our combined findings. We find that the effects of wealth taxation on extensive-margin giving can be rationalized by entry costs equal to one third of the marginal giver’s lifetime giving. Removing these entry costs would increase aggregate giving by about 21%. Importantly, the calibrated model exhibits weak intertemporal substitution effects with an EIS of only 0.08. This implies that households both give and consume less when the after-tax rate of return goes down. In settings where the level of giving is high, the crowd-out effects of capital taxation on giving are substantial.

[5] How much and how fast do investors respond to equity premium changes? Evidence from wealth taxation

       We use a wealth tax reform that differentially affected the after-tax returns on risky and safe assets to study how households respond to persistent changes to the equity premium. We find that households respond slowly. It takes five years for households to reoptimize as prescribed by canonical portfolio models. Our quasi-experimental findings can be rationalized by a coefficient of relative risk aversion between 2 and 3 in combination with adjustment frictions, moderate one-time entry and small per-period participation costs. Our results provide supportive evidence for the asset pricing literature that builds on portfolio-adjustment frictions to explain asset pricing puzzles, and they have implications for optimal taxation when tax rates can differ across asset classes..

[6] A wealth tax at work [published version]

        We provide descriptive evidence from Norway to address key questions surrounding the current wealth tax debate. In particular, focusing on a subset of ordinary entrepreneurs (who fully own only one firm), we find a likely limited role for the annual 1% net wealth tax in inducing liquidity constraints due to the inclusion of private equity in the tax base. While the wealth tax accrues above a fairly low threshold (about $150,000), the annual marginal wealth tax bill  from entrepreneurial assets accounts for less than 1% of sales for 95% of entrepreneurs.

 [7] Financial Constraints and Selection Into Entrepreneurship

        We exploit a reduction in the minimum capital required to incorporate a limited liability company in Norway to study selection into entrepreneurship. We find that lowering the capital requirement from $17,000 to $5,000 roughly doubles the number of incorporations, indicating a large presence of marginal entrepreneurs sensitive to policy-induced reductions in financial constraints. We further study how the marginal entrepreneur differs from the average entrepreneur by contrasting the characteristics of pre- and post-reform entrants. We find no evidence that marginal entrepreneurs are of lower quality: they do not have lower IQ scores, lower prior incomes, or less education. While marginal entrepreneurs do create smaller firms in terms of assets and revenues, there is no clear indication that they have lower profitability.

WORK IN PROGRESS

 [8] Insuring labor income shocks: The role of the dynasty

        We study the extent to which parents provide income insurance to their adult offspring. We decompose income changes into transitory and persistent shocks, and document that parents dissave (transfer) in response to transitory shocks and save (to provide transfers in the future) in response to persistent shocks.

 [9] Tax Regressivity in Scandinavia

OTHER IMPORTANT PROJECTS