Complex Boundary Integral Equation Formulation and Stability Analysis of a Maxwell Model and of an Elastic Model of Solid-Solid Phase Transformations

by Pierre Bachas

Institution: University of California – Berkeley
Year: 2016
Keywords: Economics
Posted: 02/05/2017
Record ID: 2064537
Full text PDF: http://www.escholarship.org/uc/item/9mx5749q


At a time of growing inequality and under-investment in public infrastructure, my re- search has focused on understanding governments’ constraints in raising tax revenue and providing redistribution. These challenges are particularly important for low and middle- income countries: despite improvements in their institutional capacity in the last decades, their ratios of tax revenue to GDP remain much lower than OECD countries’ (Besley and Persson 2013a), and their tax and transfer systems are often distributionally neutral, instead of progressive.In the first chapter, I ask whether developing countries with limited information and tax capacity can use the corporate income tax to raise additional revenue, and design it optimally given these constraints. I explore this question for Costa Rica, using the universe of corporate tax returns and a novel methodology which exploits the country’s unique tax design: firms with marginally different revenue face discontinuously higher average tax rates. This notch feature allows me to first estimate the elasticity of profits with respect to the tax rate, and second to separate it into its components, namely the revenue and cost elasticities. I find that firms facing a higher tax rate slightly decrease reported revenue, but considerably increase reported costs, leading to a large drop in reported profits. Using additional data sources, firms’ behavioral responses appear to occur through tax evasion, with no evidence of production responses. Taken together, this implies that Costa Rican firms evade taxes on a massive 70% of their profits when faced with a 30% tax rate. In this context, lowering corporate tax rates could increase tax revenue, since we estimate the revenue maximizing rate to be below 25%. Alternative tax rules, that limit the deductibility of costs could be preferable since they would reduce evasion opportunities on this crucial margin. The results highlight the limitations of standard business taxation as an instrument to raise revenue in developing countries.The first chapter points to limitations for revenue collection, when given the current enforcement environment. In the Second Chapter, I study how third-party information might spread to the government, in order to improve tax enforcement. Firm level tax compliance depends on the stock of information accessible to the government. Theoretical work(Gordon and Li 2009b, Kleven, Kreiner, and Saez 2016) highlights two specific information trails: access to formal finance and the number of employees. I test whether firms with more employees and with access to formal finance are more likely to be audited and less prone to evading taxes. I use firm-level data on 108,000 firms across 79 countries in the World Bank Enterprise Surveys and construct instruments for finance and worker-size at the industry level, using an out of sample extrapolation strategy related to Rajan and Zingales (1998). The instruments isolate variation in industry technological demand for labour and formal finance by taking the US industry…