Tax Evasion and the Swiss Cheese Regulation
[Updated, March 2023] (with Clara Martínez-Toledano)
Click to view abstractThis paper studies how investors respond to tax evasion regulations in offshore financial centers. We do so by analyzing the 2005 EU Savings Tax Directive, which introduced a withholding tax on interest income earned by EU households in Switzerland and other offshore centers. Exploiting a unique combination of public administrative Swiss datasets, we find that the reform barely curbed tax evasion: 73% of the European offshore wealth in Switzerland remained both undeclared and untaxed by the time the Directive was repealed. We show that the limited scope of the Directive is mainly explained by tax evaders’ active re-investment strategies in tax-exempt assets, as well as ownership transfer to sham corporations registered in tax havens. We rationalize the drivers of declarations by means of a model and document empirically that monetary incentives, such as the increase in the upfront tax in Switzerland or tax amnesties in the evader’s home country, appear to be the driving force behind the rise of declarations. Conversely, bilateral information exchange treaties that were praised as a way to “end bank secrecy” have the least effect on declarations.
The central role of the ask gap in gender pay inequality
[Updated, July 2022] Revise and resubmit, Quarterly Journal of Economics
Click to view abstractThe gender ask gap measures the extent to which women ask for lower salaries than comparable men. This paper studies the role of the ask gap in generating wage inequality, using novel data from Hired.com, an online recruitment platform for full-time engineering jobs in the United States. To use the platform, job candidates must post an ask salary, stating how much they want to make in their next job. Firms then apply to candidates by offering them a bid salary, solely based on the candidate’s resume and ask salary. If the candidate is hired, a final salary is recorded. After adjusting for resume characteristics, the ask gap is 2.9%, the gap in bid salaries is 2.2%, and the gap in final offers is 1.4%. Remarkably, further controlling for the ask salary explains the entirety of the residual gender gaps in bid and final salaries. To estimate the market-level effects of an increase in women’s ask salaries, I exploit an unanticipated change in how candidates were prompted to provide their ask. For some candidates in mid-2018, the answer box used to solicit the ask salary was changed from an empty field to an entry pre-filled with the median bid salary for similar candidates. Using an interrupted time series design, I find that this change drove the ask gap, the bid and the final offer gap to zero. In addition, women did not receive fewer or worse bids or final offers than men did due to the change, suggesting they faced little penalty for demanding wages comparable to men.
Media coverage: Bloomberg, BBC, Econimate
Bidding for Talent: Equilibrium Wage Dispersion on a High-Wage Online Job Board (with Benjamin Scuderi)
Click to view abstractThis paper studies the nature and implications of firm wage-setting conduct on a large online job board for full-time U.S. tech workers. Utilizing granular data on the choice sets and decisions of firms and job seekers, we first develop and implement a novel estimator of worker preferences that accounts for both the vertical and horizontal differentiation of firms. The average worker is willing to pay 14% of their salary for a standard deviation increase in firm amenities. However, at the average firm, the standard deviation of valuations of that firm’s amenities across coworkers is also equivalent to 14% of their salaries, indicating that preferences are not well-described by a single ranking of firms. Following the “New Empirical Industrial Organization” literature, we use our labor supply estimates to compute the wage markdowns implied by a series of models of firm conduct that vary in the degree to which worker preference heterogeneity gives rise to market power. We then formulate a testing procedure that can discriminate between these models. Oligopsonistic models of wage setting are rejected in favor of monopsonistic models exhibiting near uniform markdowns of roughly 18%. Relative to a competitive benchmark, imperfect competition substantially exacerbates gender gaps in both wages and welfare. However, blinding employers to the gender of job candidates would have negligible effects on wage inequality.
Worker Beliefs About Outside Options (with Simon Jäger, Chris Roth and Benjamin Schoefer)
[December 2021] Revise and resubmit, Quarterly Journal of Economics
Click to view abstractWorkers wrongly anchor their beliefs about outside options on their current wage. In particular, low-paid workers underestimate wages elsewhere. We document this anchoring bias by eliciting workers’ beliefs in a representative survey in Germany and comparing them to measures of actual outside options in linked administrative labor market data. In an equilibrium model, such anchoring can give rise to monopsony and labor market segmentation. In line with the model, misperceptions are particularly pronounced among workers in low-wage firms. If workers had correct beliefs, at least 10% of jobs, concentrated in low-wage firms, would not be viable at current wages.
Media coverage: Brookings, Project Syndicate, Business Insider, BBC, Economic Report of the President/CEA Annual Report
Works in progress
Measuring the Incidence of Wage Subsidies Under Imperfect Competition (with Benjamin Scuderi)
Persistent Labor Market Impact of Exposure to Temporary Migration (with Chloe De Meulenaer and Mathilde Munoz)
Asymmetric Peer Effects at Work: How White Coworkers Shape the Careers of ‘‘People of Color’‘ (with Elizabeth Linos and Sanaz Mobasseri)