The Impact of 2021 Advance Child Tax Credit Payments on Low-Income Households’ Labor Supply
by Zixin “Ellen” Zhang
Abstract
Studies have established that the Advance 2021 Child Tax Credit (CTC) payments substantially reduced poverty and food insecurity, but some claim that the CTC payments may create negative labor supply effects that could offset its hardship-reduction benefits. Researchers have used a variety of methods to measure how the monthly CTC payments affect the labor supply of households, but the results vary from significant decreases to no significant change to even increases in household labor supply. Using a method novel to this literature, I estimate the labor supply impacts of Advance 2021 CTC by analyzing labor supply changes in response to real amounts of CTC received, which varies by household depending on regional cost-of-livings. Through fixed effects linear regressions across many different combinations of household type and income level, I find that, on average, receiving Advance CTC caused a statistically significant decrease in household labor supply. However, for different household subgroups, I find both statistically significant and insignificant labor supply impacts as well as both increases, decreases, and no change in households’ labor supply due to monthly CTC payments. This suggests that the impacts of 2021 Advance CTC on household labor depend heavily on a household’s situation, specifically income level and household composition. These household-specific patterns align with prior research on the Advance 2021 CTC and how welfare payments are used by families.
Professor Thomas Nechyba, Faculty Advisor
JEL Codes: C31, H24, I38, J22
Taxing Marijuana and the Road to Reparations: Comparing the Colorado and Illinois Cannabis Markets
by Tommaso Carlo Filippo Babucci
Abstract
Although still prohibited at the federal level, cannabis can now be found on the shelves of recreational dispensaries across thirty-three U.S states. This thesis examines the development of this legal market from both historical and empirical perspectives. Using a new data set, it estimates the determinants of cannabis sales and tax revenues in the Colorado market and analyzes the incidence of a single tax increase. The results, which suggest that legal cannabis behaves like a luxury good, are used to analyze the potential for cannabis-funded reparations programs in Illinois, which recently approved recreational sales of cannabis.
Advisor: Connel Fullenkamp | JEL Codes: H2, R50, L15
Japan’s Furusato Nouzei (Hometown Tax): Which Areas Get How Much, and Is It Really Working?
by Kay Hasegawa
Abstract
In 2015, 7,260,093 individuals donated a total of ¥165,291,021,000 (approximately 1.5 billion USD total) to 1,741 municipalities in Japan using the furusato nouzei system (Ministry of Internal Affairs and Communications). In this paper, I examine this system in two ways. Firstly, I predict the amount of donations each municipality receives based on a number of explanatory variables. Secondly, I run a 2SLS difference-in-differences regression to see if the tax was successfully redistributing wealth from city centers to rural areas, using an increase in municipal-level expenditure as a proxy.
Professor Charles Becker, Faculty Advisor
JEL Codes: H2, H21, H27
Tax Evasion and Tax Morale in Latin America
By Sofia Becerra Taschetti
Tax evasion throughout the world is widely endured, but not widely understood. The decision making process of the taxpayer may include many concerns outside of the monetary payoffs. The tax compliance decision considers social norms and social sanctions in addition to deterrence levels. The goal of this paper is to illuminate some of the social norms and factors that affect tax morale, since tax morale in turn drives part of compliance. An empirical study comparing tax morale in 18 Latin American countries finds that, social factors like perception of evasion by peers, as well as government trust and approval, are significant determinants of tax morale. Moreover, culture also plays a role. However, its role is not nearly as large as believed, and cannot be explained much of the variance across countries. Compliance is partly explained by tax moral, which is partly explained by culture. Tax morale will drive higher compliance all else equal, but compliance is also a function of deterrence, and both factors work in a feedback loop. Social norms and culture develop through assimilation of deterrence mechanism over time and so, culture need not be deterministic since it mutable.
Advisor: Michelle Connolly, Michael Munger | JEL Codes: H2, H26, H31 | Tagged: Argentina, Chile, Latin America, Tax Evasion, Tax Morale
Federal Excise Taxes and the U.S. Beer Industry’s Three-Tier System of Distribution: Do beer manufacturers benefit from federal excise taxes?
by Ankur Sunildatta Fadia
Abstract
On January 1, 1991, the federal excise tax on beer increased from $9 to $18 per barrel. Young & Bielinska-Kwapisz (2002) discovered that this $9 per barrel tax increase led to a $15-$17 per barrel increase in the end-of-sale price of beer. No study has yet explained why the beer tax increase was overshifted as it passed through the three tiers, namely manufacturers, distributors, and retailers. I hypothesize that manufacturers cooperate under focal point pricing and pass beer tax increases to distributors and retailers with a markup. Applying Taubman’s (1965) model to the beer industry, I show that manufacturers could have theoretically passed the 1991 beer tax increase with a markup. In support of Taubman’s (1965) model, personal interviews and e-mail exchanges with beer distributors revealed that manufacturers can pass beer tax increases with a markup to both distributors and retailers. PPI and CPI data show that manufacturers and retailers substantially marked up prices to distributors and consumers, respectively. Macrobrewer profit data establish that Anheuser-Busch and Miller’s real net profits between 1990 and 1991 increased, in 1982-84 dollars, by $69 and $3 million, respectively, while Coors’s real net profits decreased by $11 million due to rising costs during its expansion to national production. Since Anheuser-Busch and Miller’s output did not significantly increase but their costs did increase from 1990 to 1991, macrobrewers’ profits could have only increased due to rising prices. Moreover, in a leader-follower game it is expected that profits for the dominant firm, Anheuser-Busch, increase more than profits for fringe firms, Miller and Coors. I accept my hypothesis that manufacturers were responsible for overshifting, and as a whole benefited from, the 1991 beer tax increase.
Professor Phillip J. Cook, Faculty Advisor
JEL Codes: H2, H21,
