Discussion of “ THE EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL ” Pietro Tommasino

1. Discussion of “THE EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL” Pietro Tommasino Bank of Italy XXI Banca d’Italia Workshop on Public Finance“Frontiers of taxation and taxation across frontiers”Rome, 20-22 March 2019

2. “EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL” OUTLINE OF THE PAPER • While poverty is a household-level concept, Israel’s EITC depends on individual earnings. • Not very sound in theory – it has a silver lining in practice: labour supply of the second earner is not discouraged. • Main finding: EITC eligibility is associated with a sizable drop in exit from employment both for men and for (married) women. Partner’s eligibility does not seem to matter.

3. “EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL” SOME COMMENTS ON THE EMPIRICS (I) • Impressive data set: tax filings merged with population registry data (no privacy concerns in Israel?!? ). However… • Thedependent variable. – it is somewhat unusual: (changes in) the participation rate would seem more intuitive. Furthermore, exits toward self-employment do not seem a trivial problem. Finally, do we have some information on hours? • The independent variable. – Instead of a binary treatment, would it be possible to compute a proxy of the actual EITC-induced reduction in the average tax-rate?

4. “EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL” SOME COMMENTS ON THE EMPIRICS (II) • Identification strategy. – The program affects a large part of the adult population. Can we rule-out general equilibrium effects on wages? For example, spillovers from treated to non-treated areas would be problematic. In the same vein: (i) do we observe people moving? (ii) How pilot zones were chosen?

5. “EMPLOYMENT EFFECTS OF THE EITC PROGRAM IN ISRAEL” POLICY IMPLICATIONS? Here one should be very cautious. • What’s the objective of the policy? Labour mkt participation vs poverty relief vs improving welfare. • While the peculiar design of the Israel’s EITC might be good for aggregate labour supply, it entails less horizontal equity andhigher fiscal costs (in a context of scarce resources, the policy-maker should condition transfers to as much info as possible). • Also, from a theoretical (“household economics”) viewpoint, one could argue that family members choose both labour supplies in a jointly-optimal way. The Israel’s EITC design is such that they have just one margin to adjust instead of two. Adopting the “standard” design, you could make people better-off spending the same amount of money.

6. Discussion of “Mortgage repayments from tax-exempted intergenerational transfers” XXI Banca d’Italia Workshop on Public Finance“Frontiers of taxation and taxation across frontiers”Rome, 20-22 March 2019

7. “Mortgage repayments from tax-exempt intergenerational transfers” OUTLINE OF THE PAPER • Between October 2013 and December 2014, the Dutch Government increased the generosity of the tax exemption on private transfers used to make a voluntary mortgage repayment, buy a new house or make home-improvement. It also lifted the previously existing age limit and the limits concerning relationship between the donor and the recipient. • Data: DNB disaggregated quarterly administrative data on loans. You don’t know whether the repayment was voluntary, you do not observe where the money comes from. • Results: during the exemption period an increase in (a proxy of) voluntary repayments is observed.

8. “Mortgage repayments from tax-exempt intergenerational transfers” SOME COMMENTS ON THE EMPIRICS (I) • The authors are transparent in acknowledging that there is measurement error in the dependent variable. Do they have an intuition concerning the direction of the related estimation bias? • As the authors acknowledge, “the treatment effects look very much like time dummies”. One possibility would be to pursue a regression discontinuity strategy. Look at differences in the behaviour of people just above and just below the 35 y.o. threshold around the start (and/or the end) of the tax exemption period. • Another problem is that seasonality is in the data may bias the results (due to the inclusion of 2014/Q3 in the treatment). Maybe one could substitute the treatment effect with true quarterly dummies. Furthermore, in this way results would be interpreted more easily.

9. “Mortgage repayments from tax-exempt intergenerational transfers” SOME COMMENTS ON THE EMPIRICS (II) • Is the common trend assumption reasonable? You should provide good arguments (informal and possibly formal) that the policy was not anticipated (placebo experiments)? • One can imagine several reasons why the policy change might be endogenous. To reduce this issue, you should add further macro variables as control: house prices, asset prices, employment rates, wage dynamics. • The explanation of the sign of the Treatment_Lowitcoefficient should be improved. • What exactly is in the Xitvector? You say you include age and cohort “to proxy for capital gains”. It seems this creates a lot of collinearity as well!

10. “Mortgage repayments from tax-exempt intergenerational transfers” GENERAL COMMENTS: «SO WHAT?» ISSUES Theoretical relevance of the research question. • There is a small literature (e.g. Guiso and Jappelli JMCB 2002) on whether parental transfers influence home-ownership decisions. This question is (moderately) interesting for the debate about the empirical implications of the LCH. When it comes to the link between transfers and mortgage down-payments, what theory are we testing/illustrating/relying upon? • Can interpret the results as a horse-race between the three possibilities allowed by the Dutch reform (make a voluntary down-payment, buy a new house or make home-improvements)? However, even if this is possible, the exernalvalidiy of the results would be low given you study a uniquely depressed.

11. “Mortgage repayments from tax-exempt intergenerational transfers” GENERAL COMMENTS: «SO WHAT?» ISSUES Policy relevance of the results. • Probably the results across LTV categories are the most promising at the moment, first because, econometrically, they clean up part of the measurement error. Second, because they suggest that the policy was ill-designed/unsuccessful. • However, (i) we would like some (loose) theory to rationalize this finding; (ii) it would be interesting to discuss possible policy alternativesand their fiscal costs.

12. Discussion of “Who Bears the Burden of Local Income Taxes?” XXI Banca d’Italia Workshop on Public Finance“Frontiers of taxation and taxation across frontiers”Rome, 20-22 March 2019

13. “Who Bears the Burden of Local Income Taxes?” OUTLINE OF THE PAPER: THEORY • A relatively standard spatial equilibrium model.Tax/expenditure policies are reflected in house prices (capitalization). Mobility is less than perfect. • Main feature: taxes proportional to income; balanced budget; a local public good; preferences for the local public good are income-specific. Therefore, the behavioural and welfare effects of a change in policy is also income-specific. • As a result, overall population and rental prices and also the income structure of the populationchange when the policy package changes

14. “Who Bears the Burden of Local Income Taxes?” OUTLINE OF THE PAPER: EMPIRICS (I) • IV spatial-difference reduced-form estimation of the elasticity of the population in the different income brackets and of the rental price to local tax rates. • Results: richer households (especially if they are without children) move away when taxes increase; effect on rental prices negative but not always statistically significant.

15. “Who Bears the Burden of Local Income Taxes?” OUTLINE OF THE PAPER: EMPIRICS (II) • Adding further restrictions on the model’s parameters, structural estimation becomes possible. • Results: the structural elasticities are similar to the reduced form elasticities (i.e. they decrease with income, especially for childless family). Price elasticity very low. • The preference-for-the-public-good parameter decreases with income among households without children, increases among households with children. • Incidence is negative for the childless rich; it is positive for the childless poor; it is negligible for the other agents.

16. “Who Bears the Burden of Local Income Taxes?” COMMENTS (I) • In reality there’s not a single public good bundle but public good bundles which differ in how they cater the different income groups. Public policy is bi-dimensional: how much G & how redistributive G is. Can you account for this in the model? Should you control for this in the empirics? • The role of children is crucial in the empirical analysis, but you do not model the effect of children in the theoretical part.

17. “Who Bears the Burden of Local Income Taxes?” COMMENTS (II) • The model is static, the empirical analysis is dynamic: are you implicitly making assumptions on whether tax changes are perceived as temporary or permanent? • Intuition for some results is not straightforward: for example, among households with children the parameter increases with income, but the tax elasticity is (slightly) decreasing. • In the same vein, differences in tax incidence across income and demographic groups deserve to be explained better.