Albrecht Bohne: Learning Dynamics in Tax Bunching at the Kink: Evidence from Ecuador
Job talk. Albrecht Bohne is a PhD Candidate at the University of Mannheim. He will present a paper entitled "Learning Dynamics in Tax Bunching at the Kink: Evidence from Ecuador", co-authored by Jan Sebastian Nimczik.
Lack of information prohibits optimal responses to economic incentives and slows down formalization. We analyze how dynamic adjustment processes allow individuals to overcome information frictions in the context of tax incentives. The unique setting of a rapidly formalizing economy with increasing numbers of taxpayers and firms provides an ideal environment to study the dynamics of behavioral responses to personal income taxes. Using novel administrative data from Ecuador, we show that with increasing experience in the formal sector, individuals are more likely to avoid paying taxes by reporting income below the exemption threshold (“bunching”). Exploiting variation in the knowledge environment induced by exogenous job mobility, we identify firms to be the drivers of individual learning processes. In particular, we show that individuals are more likely to bunch as their employer gains experience in the formal sector. We establish peers and experts as two important channels of information transmission between firms and quantify their importance through changes of a firm’s coworker composition and accountant switches.
Host: Gaute Torsvik