Tax simplicity and heterogeneous learning

Aghion, Philippe, Akcigit, Ufuk, Lequien, Matthieu and Stantcheva, Stefanie (2017) Tax simplicity and heterogeneous learning. CEP Discussion Papers (CEPDP1516). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We study the effects of fiscal incentives for self-employment using new French tax data from 1994 to 2012. France serves as a good quasi-laboratory: It has three fiscal regimes - or modes of taxation - for the self-employed, which differ in their financial payoffs and in their administrative simplicity. These regimes have changed extensively over time - offering the opportunity to study how people learn about them and understand them. We find that the self-employed respond to the tax and administrative notches created by the eligibility thresholds: there is strong bunching right before the eligibility thresholds, which we use to estimate self-employed taxable income elasticities and the value of administrative simplicity. Even a small preference for administrative simplicity could explain the bunching observed. There is a sizable cost of tax complexity; agents are not immediately able to understand what the right regime choice is and there is evidence for costly learning over time. The cost of complexity is regressive because it affects mostly the uneducated, low income, and low skill agents. Agents who can be viewed as more informed and knowledgeable (e.g., the more educated or high-skilled) are more likely to make the correct regime choice and to learn faster

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2017 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification:	H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
Date Deposited:	01 Feb 2018 12:47
Last Modified:	15 Sep 2023 23:43
Funders:	Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/86613

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