Work in Progress

Challenging Conventional Wisdom: Theoretical (Ir)relevance of Statutory Incidence of Ad Valorem Taxes
with Konstantin Poensgen

• SSRN WP 5232926
• Abstract: Conventional wisdom in the theoretical public finance literature suggests that the economic incidence of a tax is independent of its statutory (nominal) incidence in a frictionless, competitive economy. This paper cautions that this result is more nuanced for ad valorem taxes even in this benchmark case. Ad valorem taxes are proportional to the price (e.g., a 7% sales tax), whereas per unit or specific taxes are a fixed $ amount per unit of the good (e.g., 10 cents per liter of gasoline). First, we prove that statutory irrelevance fails in the canonical sense: shifting the statutory incidence of a constant ad valorem tax rate towards the demand side decreases the consumer price, increases the supplier price, and thus increases the equilibrium quantity. This relevance result is due to differences in the tax base when shifting the statutory incidence. The revenue-maximizing statutory incidence of a fixed ad valorem tax depends on the supply and demand elasticities. Second, we introduce a new, weaker notion of statutory irrelevance: a shift in the statutory incidence can be accompanied by a change in the tax rate that keeps equilibrium prices and allocation unchanged while holding tax revenue constant. Ad valorem taxes satisfy weak irrelevance. We derive testable formulas for economic incidence accounting for these results and provide numerical examples of the economic relevance of statutory incidence. We apply our results to payroll taxes in OECD countries. Together, our insights offer policymakers the ability to more effectively address economic incidence of tax policies.
• Presentations: Harvard Graduate Labor/PF Workshop*, Harvard Graduate Contracts Workshop*

Violation and Enforcement of Labor Regulations: Evidence from Mexican Firm Inspections
with Agustina Colonna and Jorge Pérez Pérez

• Presentations: UZH Doctoral Development Seminar, UZH Doctoral Labor Seminar*

* Presented by co-author