Brown bag seminar - Linda Wu (UCL)


Date: Tuesday 7 February 2023

Time: 12.00 – 13.00

Location: The Cassel Room (A700) at the Department of Economics

Linda Wu, University College London (UCL).

"Behavioral Responses to Estate Taxation: Evidence from Taiwan".

We quantify the behavioral responses to estate taxation by exploiting variation in exemption threshold and tax rate from a large Taiwanese reform. Using machine learning, difference-in-difference, and bunching techniques, we estimate an elasticity of net estate w.r.t. net-of-tax-rate at 0.97 (se 0.16) and show responses are instantaneous, persistent over time, and heterogeneous across tax rate changes.
First, net estate jumps by 8% right after the reformand remains strong throughout the periods. What’s more, an excess mass is formed at the new kink instantly and grows over time. Second, those whose taxes are repealed have an elasticity that is four-time greater than those whose tax rates are decreased but not removed. Third, elasticity declines with size of tax rate change. Finally, a breakdown of the composition of estate reveals the source of response. Individuals misreport on unmonitored and liquid assets and adjustable deductions, which highlights a heterogeneity in sheltering costs across estate items. In the last part of the paper, we develop a model to explain the mechanism of our empirical findings and gauge welfare effect. It is shown that in both of the old and new regimes, the tax rates are too low and exemption thresholds are too high.