Does Cutting the Tax Rate to Zero Induce Behavior Different from Other Tax Cuts? Evidence from Pakistan

• 成果类型: Article
• 署名作者: Waseem, Mazhar
• 署名单位: University of Manchester
• 刊物名称: REVIEW OF ECONOMICS AND STATISTICS
• ISSN/ISSBN: 0034-6535
• DOI: 10.1162/rest_a_00832
• 发表日期: 2020-07
• 页码: 426-441
• 关键词: taxable income; optimization frictions; deadweight loss; elasticity; SALIENCE; taxation; evasion

摘要

Using a series of Pakistani tax reforms and administrative records, I document that taxable income responses induced by to-zero tax cuts are orders of magnitude larger than ones induced by similar-sized other cuts. This finding is remarkably robust to alternative specifications and holds for both the self-employed and wage earners. I explore salience, selective enforcement, and discontinuous evasion costs as explanations of the observed behavior. I find that the data favor the last explanation. The difference between the two sets of responses is primarily driven by a large, discrete tax evasion response, which is included in the former but not in the latter behavior. I estimate the difference as a lower bound on tax evasion, showing that at least 70% of the income of low- and middle-income self-employed and 1% of low-income wage earners goes unreported.