Abstract: This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). To date no direct evidence exists in the UI context and the desirability of a UI mandate has been untested. Building on the unique institutional setting of Sweden, where workers can buy supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that workers who buy the supplemental coverage face higher unemployment risk (with semi-elasticities above 1), even after controlling for a rich set of observables. Exploiting unique variation in risk and in prices to control for moral hazard, we show how this correlation is driven by substantial risk-based selection. Despite the severe adverse selection, we find that allowing for choice welfare-dominates mandating the supplemental coverage. We also show that a large subsidy for supplemental coverage is optimal and complementary to the minimum mandate.

Abstract: Despite considerable gender convergence over time, substantial gender inequality persists in all countries. Using Danish administrative data from 1980-2013 and an event study approach, we show that most of the remaining gender inequality in earnings is due to children. The arrival of children creates a gender gap in earnings of around 20% in the long run, driven in roughly equal proportions by labor force participation, hours of work, and wage rates. Underlying these ''child penalties'', we find clear dynamic impacts on occupation, promotion to manager, sector, and the family friendliness of the firm for women relative to men. Based on a dynamic decomposition framework, we show that the fraction of gender inequality caused by child penalties has increased dramatically over time, from about 40% in 1980 to about 80% in 2013. As a possible explanation for the persistence of child penalties, we show that they are transmitted through generations, from parents to daughters (but not sons), consistent with an influence of childhood environment in the formation of women's preferences over family and career.

Abstract: This paper provides a simple, yet robust framework to evaluate the time profile of benefits paid during an unemployment spell. We derive sufficient-statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits paid at different times during a spell. Our approach allows us to revisit separate arguments for inclining or declining profiles put forward in the theoretical literature and to identify welfare-improving changes in the benefit profile that account for all relevant arguments jointly. For the empirical implementation, we use administrative data on unemployment, linked to data on consumption, income and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that, if anything, the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption affecting the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. In trading off insurance and incentives, our analysis suggests that the flat benefit profile in Sweden has been too generous overall. However, both from the insurance and the incentives side, we find no evidence to support the recent introduction of a declining tilt in the profile.

Abstract: In this paper we document the evolution of gender inequality in labor market outcomes ( earnings, labor supply, and wage rates) across levels of economic development, and discuss the main reasons for the observed patterns. To this end, we have created a micro database that compiles 248 surveys from 53 countries between 1967-2014, covering a wide range of per capita income levels. There is large convergence in the earnings of men and women across levels of development, driven by female labor force participation and wage rates. We argue that the single most important factor behind this covergence is demographic transition: the effects of children on gender gaps ("child penalties") are large at both low and high levels of development, but fertility declines drastically over the growth process and thus reduces the aggregate implications of children. We also document gender convergence in educational attainment and consider its effects on earnings inequality, which are significant but less dramatic than the effects of fertility. Finally, we document striking changes in the values or norms surrounding the role of women with children, arguing that such changes may serve as a reinforcing mechanism for gender convergence.

Abstract: This paper develops a theory of optimal unemployment insurance (UI) in matching models. The optimal replacement rate is the conventional Baily-Chetty replacement rate, which solves the tradeoff between insurance and job-search incentives, plus a correction term, which is positive when an increase in UI pushes labor market tightness toward its efficient level. Labor market tightness is generally inefficient because in matching models, most wage mechanisms do not ensure efficiency. The effect of UI on tightness depends on the model: UI may raise tightness by alleviating a rat race for jobs or lower tightness by increasing wages through bargaining.

[WSJ Blog]

Abstract: In the United States, unemployment insurance (UI) is more generous when unemployment is high. This paper examines whether this policy is desirable. The optimal UI replacement rate is the Baily-Chetty replacement rate plus a correction term measuring the effect of UI on welfare through labor market tightness. Empirical evidence suggests that tightness is inefficiently low in slumps and inefficiently high in booms, and that an increase in UI raises tightness. Hence, the correction term is positive in slumps but negative in booms, and optimal UI is indeed countercyclical. Since there remains some uncertainty about the empirical evidence, the paper provides a thorough sensitivity analysis.

[WSJ Blog]

Abstract: Optimal tax formulas expressed in ``sufficient statistics'' are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments. In practice though, tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments. In this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument: the level of tax enforcement. We exploit a natural experiment that took place in France in 1983, when the tax administration tightened the requirements to claim charitable deductions. The reform led to a substantial drop in the amount of contributions reported to the administration, which can be credibly attributed to overreporting of charitable contributions before the reform, rather than to a real change in giving behaviours. We show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions. This finding allows us to partially identify the elasticity of overreporting contributions, which is shown to be large and inferior to -2 in the lax enforcement regime. We further show using bunching of taxpayers at kink-points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform. Our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in Kopczuck & Slemrod [2002]

Abstract This paper offers quasi experimental evidence of the existence of spillover effects of UI extensions using a unique program that extended unemployment benefits drastically for a subset of workers in selected regions of Austria. We use non-eligible unemployed in treated regions, and a difference-in-difference identification strategy to control for preexisting differences across treated and untreated regions. We uncover the presence of important spillover effects: in treated regions, as the search effort of treated workers plummets, the job finding probability of untreated workers increases, and their average unemployment duration and probability of long term unemployment decrease. These effects are the largest when the program intensity reaches its highest level, then decrease and disappear as the program is scaled down and finally interrupted. We use this evidence to assess the relevance of different assumptions on technology and the wage setting process in equilibrium search and matching models and discuss the policy implications of our results for the EUC extensions in the US.

Abstract: I show how, in the tradition of the dynamic labor supply literature, one can identify the moral hazard effects and liquidity effects of unemployment insurance (UI) using variations along the time profile of unemployment benefits brought about by exogenous variations in the benefit level as well as in the benefit duration. I use this strategy to investigate the anatomy of partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from the late 1970s to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide various tests for the robustness of the RK design, and assess its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. My results suggest that the response of search effort to UI benefits is driven almost as much by liquidity effects as by moral hazard effects, with an estimated ratio of liquidity to moral hazard effect of 88%. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Abstract: This paper analyzes the effects of income taxation on the international migration and earnings of top earners using a Danish preferential foreigner tax scheme and population- wide Danish administrative data. This scheme, introduced in 1991, allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years. We obtain three main results. First, the scheme has doubled the number of highly paid foreigners in Denmark relative to slightly less paid ineligible foreigners, which translates into a very large elasticity of migration with respect to the net-of-tax rate on foreigners, between 1.5 and 2. Hence, preferential tax schemes for highly paid foreign workers could create severe tax competition between countries. Second, we find compelling evidence of a negative effect of scheme-induced increases in the net-of-tax rate on pre-tax earnings at the individual level. This finding cannot be explained by the standard labor supply model where pay equals marginal productivity, but it can be rationalized by a matching frictions model with wage bargaining where there is a gap between pay and marginal productivity. Third, we find no evidence of positive or negative spillovers of the scheme-induced influx of high-skilled foreigners on the earnings of highly paid natives.

Abstract: We analyze the effects of top tax rates on international migration of football players in 14 European countries since 1985. Both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates, with an elasticity of the number of foreign (domestic) players to the net-of-tax rate around one (around .15). We also find evidence of sorting effects (low taxes attract high ability players who displace low ability players) and displacement effects (low taxes on foreigners displace domestic players). Those results can be rationalized in a simple model of migration and taxation with rigid labor demand.

[The Economist] [Bloomberg] [WSJ Blog] [Bloomberg] [Miller-McCune] [The New Republic] [France 2 (from 23' on)]

Abstract: This paper estimates the effect of tax incentives for charitable contributions in France. We focus on two tax reforms, which took place in 2003 and 2005, that increased the non refundable tax credit rate for charitable contributions by 32%. We use a difference-in- difference identification, comparing the evolution of contributions for groups of households with similar income but different taxable status due to differences in family size. We control for censoring issues and investigate distributional effects using a three-step censored quantile regression estimator. We find that the elasticity of contributions with respect to tax subsidy is relatively small, between -0.2 and -0.6. We also show that the response to tax incentive tends to increase with the level of gifts.