Seminario CEDE

Jueves 11 de septiembre | 12:30 p.m.
Presenta: Juan José Ferro - Universidad de los Andes

Relative price and deterrence: the effect of speeding tickets on road behavior
Governments use fines in order to deter socially unwanted behavior on a wide array of issues. It is commonly assumed that, fixing the probability of sanction, the higher the price, the more deterrent a sanction is. I use data from automated speed cameras in Bogotá, Colombia to measure the deterrent effect of a speeding ticket. By using the real speed limit as a source of exogeneous variation and a regression discontinuity design, I find that speeding tickets have a general deterrent effect on speeding behavior but a null effect on reducing traffic accidents. Using the commercial price of the vehicle as a proxy for wealth and the fact that the monetary sanction is fixed, I find that the deterrent effect is concentrated on the higher quintiles of the distribution. I validate these findings with a judge-IV using the fact that a police agent manually verifies all tickets. Other dimensions of driving behavior show that speeding tickets do change behavior, not only adjust beliefs about enforcement. In short, speeding tickets might be less useful for preventing road fatalities than it is commonly assumed and inefficiently expensive for changing behavior for a considerable number of drivers. They also seem to be of little effectiveness for the current public health challenge of traffic fatalities in low and middle income countries. This evidence points to income based fines as a necessary public policy tool.

Jueves 4 de septiembre | 12:30 p.m.
Presenta: Daniel Schwartz - Universidad de Chile

The Rise of a Nudge: Field Experiment and Machine Learning on Minimum and Full Credit Card Payments
An analysis of corporate income tax reveals a largely overlooked fact: statutory tax rates are higher in developing economies. In addition, statutory tax rates are procyclical in low-income economies, rising during downturns and potentially amplifying recessions. This paper develops a theoretical framework that reconciles these two phenomena. In our model, firms choose between formal and informal operations based on their productivity and the benefits of formalization, while the government---constrained by limited tax collection efficiency---must set a statutory tax rate to finance a given level of expenditure. We show that low state capacity forces governments to adopt high statutory tax rates, which in turn raise the threshold for formalization and exacerbate informality. Moreover, during economic downturns, the contraction of the tax base compels these governments to raise statutory rates, rendering fiscal policy procyclical. We demonstrate that this procyclicality intensifies as state capacity decreases, creating a compounding challenge where the weakest states face the most destabilizing fiscal adjustments during economic downturns. We also show that even when firms in different countries have the same inherent productive capabilities, stronger state capacity leads to higher observed productivity. This creates an artificial productivity gap between developing and developed countries, driven by institutional constraints rather than actual differences in productive potential. A dynamic extension of our model reveals how political instability and high reform costs can trap countries in a low-capacity equilibrium. Our framework offers implications for policies aimed at modernizing tax administration, broadening the tax base, and implementing countercyclical fiscal measures in developing economies.
>>Paper

Jueves 28 de agosto | 12:30 p.m.
Presenta: Luis Fernando Mejía - Director ejecutivo Fedesarrollo

Why are Tax Rates High and Procyclical in Developing Economies?
An analysis of corporate income tax reveals a largely overlooked fact: statutory tax rates are higher in developing economies. In addition, statutory tax rates are procyclical in low-income economies, rising during downturns and potentially amplifying recessions. This paper develops a theoretical framework that reconciles these two phenomena. In our model, firms choose between formal and informal operations based on their productivity and the benefits of formalization, while the government---constrained by limited tax collection efficiency---must set a statutory tax rate to finance a given level of expenditure. We show that low state capacity forces governments to adopt high statutory tax rates, which in turn raise the threshold for formalization and exacerbate informality. Moreover, during economic downturns, the contraction of the tax base compels these governments to raise statutory rates, rendering fiscal policy procyclical. We demonstrate that this procyclicality intensifies as state capacity decreases, creating a compounding challenge where the weakest states face the most destabilizing fiscal adjustments during economic downturns. We also show that even when firms in different countries have the same inherent productive capabilities, stronger state capacity leads to higher observed productivity. This creates an artificial productivity gap between developing and developed countries, driven by institutional constraints rather than actual differences in productive potential. A dynamic extension of our model reveals how political instability and high reform costs can trap countries in a low-capacity equilibrium. Our framework offers implications for policies aimed at modernizing tax administration, broadening the tax base, and implementing countercyclical fiscal measures in developing economies.