Michela Giorcelli Wins Excellence Awards

/in /by

On September 4th, Michela Giorcelli was one of two young economists based in the United States to receive this year’s Excellence Awards in Global Economics Affairs from the Kiel Institute for the World Economy. The other recipient, Javier Cravino, is a former UCLA Econonomics Phd Student who graduated in 2013.  The ceremony took place during the Kiel Lectures Day.

Professor Giorcelli received this award because of her contribution to the field of Economic History and Innovation. Her work uses historical policy events and unique historical data to look at the development and diffusion of management and technology innovations and their impact on firm productivity. In particular, she takes advantage of these unique data to convincingly identify and illustrate causes and effects of how innovations emerge, persist and is diffused across countries.

 

The Excellence Awards were created to promote young talent and are open to researchers and academics up to 35 years of age. Each laureate will be awarded a Research Fellowship at the Kiel Institute funded through separate scholarship programs. The aim of the Kiel Institute’s Excellence Awards in Global Economic Affairs is to build an international community of young economic researchers. The Excellence Awards have been presented annually since 2007.

Enforcing Wealth Taxes in the Developing World: Quasi-Experimental Evidence from Colombia

/in /by
Juliana Londono-Velez

Juliana Londono-Velez

The rise in income and wealth inequality has spurred a renewed interest in progressive wealth taxation. However, experts have disputed whether rich countries like the U.S, could realistically enforce a wealth tax. The matter is even more critical in developing countries, where a happy few own most of the wealth while governments have a weak capacity to enforce taxes.

In “Enforcing Wealth Taxes in the Developing World: Quasi-Experimental Evidence from Colombia,” Professor Juliana Londoño-Vélez and her co-author Javier Avila-Mahecha fill this gap by leveraging quasi-experimental variation and data on personal wealth, offshoring, and tax evasion from Colombians’ tax returns and a government-designed program for disclosures of hidden wealth. To shed additional light on offshoring, the authors link the tax microdata with the leaked “Panama Papers,” which inform about Colombians offshoring to the country’s most relevant tax havens.

In the first part of the study, the authors estimate the prevalence, distribution, and nature of wealth tax evasion:

  • How big of a problem is tax evasion? There is substantial evasion: Colombia’s disclosure program revealed hidden wealth worth 1.73% of GDP, an order of magnitude more than a similar scheme in the U.S. recovered. Moreover, Colombians are three times more likely to evade than Scandinavians, with two-fifths of the wealthiest 0.01% admitting to hiding wealth.
  • Who evades? Wealth tax evasion is remarkably skewed: the wealthiest 0.01% of the distribution is 55 times more likely to dodge taxes than the top 5% as a whole.
  • How do people evade? More than 80% of tax evasion is achieved by hiding assets offshore, especially in neighboring tax havens like Panama. In all, the wealthiest evaders hide one-third of their fortune offshore.

In the second part of the study, the authors explore how wealth tax evasion responds to policies aiming to strengthen enforcement. In the field of Public Economics, the canonical framework for tax evasion models the decision of whether and how much to evade as a function of (i) the tax incentives, (ii) the perceived threat of detection, and (iii) the penalty for misreporting. Guided by this framework, the study exploits a series of exogenously-timed events to isolate effects along each of these components on tax compliance.

  • Can tax incentives encourage compliance in the short- and medium-term? A difference-in-difference approach compares wealthy individuals who did versus did not disclose under Colombia’s scheme. Tax compliance is persistent: three years after their revelation, disclosers report 49.2% more wealth. Because they also reveal the return of those assets, they end up paying 39% more income taxes. Since exposed wealth tax evasion concentrates at the top, the policy raised revenue collected from the wealthiest 1%, raising effective progressivity.
  • Does evasion respond to a credible threat of detection? Halfway through the disclosure scheme, the Panama Papers news story broke, exposing tax evaders named in the leak to government scrutiny. A difference-in-difference approach exploits the exogenous timing of this leak and compares wealth tax filers named or not in the leak before and after it occurred. The Panama Papers spooked Colombia’s elite to own up about their wealth: the leak caused a sixfold increase in the likelihood of disclosing any hidden wealth. Consistent with offshore tax evasion, disclosures of foreign assets increased by an even larger amount. Consequently, taxes paid by people named in the leak more than doubled.
  • Can evasion respond to the threat of jail? There is suggestive evidence that evasion responds to tougher sanctions, with a significant spike in disclosures six months after Colombia criminalized tax evasion for the first time in its history.

These results help reconcile the views of the wealth tax skeptics and enthusiasts regarding the feasibility of taxing wealth in a globalized world. On the one hand, offshore evasion is a serious threat to progressive wealth taxation, especially when the enforcement environment is weak. But, on the other hand, strengthening the enforcement regime can credibly improve wealth tax compliance, raise taxes from the wealthiest individuals, and safeguard the feasibility of progressive wealth taxation.

Sam Sheth

/in /by

Board of Visitors

 Sam Sheth

Mr. Sam Sheth

FOUNDER AND SENIOR MANAGING DIRECTOR OF VERITYPOINT
 

Sam is a founder and Senior Managing Director of VerityPoint. Since 1994, Sam has worked with several of the nation’s largest corporations and institutions to develop and implement executive and employee benefit plans that are most effective and efficient. He has worked with clients in a broad range of industries and is dedicated to helping them solve their unique benefit related challenges.

Sam’s expertise includes all aspects of nonqualified plans (including Deferred Compensation Plans, Supplemental Executive Retirement Plans, Rabbi Trusts and specialized state-of-the-art nonqualified plans), as well as other broad-based employee benefit plans. He is a frequent speaker on these topics, having spoken at World at Work, The Conference Board and other industry events.

Sam shares a strong commitment to the community and currently serves as a Board member and member of the Executive Committee for Junior Achievement of Southern California, and as a Board member for the Torrance Memorial Hospital Foundation. He has also previously served on UCLA’s Alumni Association Board and the UCLA Foundation’s Board of Governors. Sam is also an active member of several other industry and community-based organizations.

Sam graduated from the University of California, Los Angeles with a degree in Business and Economics in 1989.

The UCLA School of Economics

/in /by

Recently, a book was published recounting the history of the UCLA Economics Department. This book, written by David R. Henderson and Steven Globerman, discusses some of the most important economists at UCLA during the 1970s: Armen Alchian, Harold Demsetz, Sam Peltzman, Benjamin Klein, Robert Clower, Axel Leijonhufvud, Jack Hirshleifer, William Allen, and George Hilton. To learn more about the book, visit this site here.

Martin Hackmann wins the Warren C. Scoville Distinguished Teaching Award

/in , /by

Congratulations to Martin Hackmann, the winner of the Warren C. Scoville Distinguished Teaching Award for best undergraduate teaching in Spring 2021! Martin Hackmann won this award while teaching ECON 131: Economics of Health and Healthcare. This course provides an economic analysis of health and healthcare. It includes presentations of several detailed economic models, including models of addiction, demand for healthcare, demand for insurance, nonprofit behavior, and other models.

Warren C. Scoville was a faculty member for the UCLA Department of Economics for 28 years before his death in 1969.  This award is given quarterly in his name to the ladder faculty member who receives the highest teaching evaluation scores from his or her course.

New Department Leadership

/in /by

On July 1st, Jinyong Hahn took over as Chair of the Department of Economics, taking over from Dora Costa. During her time as Chair, Dora introduced innovations to all aspects of the department. At the undergraduate level, the department obtained a STEM classification of the Economics major, reformed the undergraduate econometrics sequence, introduced new two-unit basic investment courses (Econ 3A, 3B, 4), created an online course for principles, and introduced a new GE course (Econ 5). At the masters level, the department strengthened the Masters of Quantitative Economics (MQE) program by increasing the range of classes and started the MQE Distinguished Speaker Series. In addition, Dora established the pre-collegiate summer institute and expanded our Board of Visitors. We are grateful for her leadership.

Jinyong Hahn arrived at UCLA as a Professor of economics at UCLA in 2002. He held previous appointments at the Universities of Pennsylvania, Michigan and Brown. He is a theoretical econometrician, and has been Co-Editor of Econometric Theory and Associate Editor of Econometrica and the Journal of Econometrics. He worked as the Undergraduate Vice Chair in the past.

 

There are many other changes to our leadership in the department for the upcoming academic year. We are excited to see new faces taking up new leadership roles, as well as having many faculty returning to the roles they have served before. Please see below for all the updates!

 

New Leadership Roles: 

Department Chair: Jinyong Hahn

Vice Chair for Personnel: Andres Santos

Webpage Coordinator: Maurizio Mazzocco

 

Leadership Roles Returning: 

Graduate Vice Chair: Ichiro Obara

Undergraduate Studies Vice Chair: Kathleen McGarry

Business Economics Director: Andy Atkeson

MQE Director: Aaron Tornell

Development Director: Lee Ohanian

1st Year Advisor: Ariel Burstein

 

New Committees and Leadership:

In addition, we are excited to announce the formation of a few new committees that will help enhance our program for all of our students:

Faculty Director of the Pre-collegiate Programs: Dora Costa

Chair of Alumni Outreach Committee: Dora Costa

Diversity Committee Chair: Rosa Matzkin

Diversity Committee Members: Martha Bailey & Moritz Meyer-ter-Vehn

Arbitration in Wage Negotiations

/in /by
Bernardo Silveira

Prof. Bernardo Silveira

Arbitration is a private bilateral conflict resolution procedure in which a third party, the arbitrator, makes a binding decision on the dispute. Compared to formal litigation through a court system, it is generally faster and cheaper. Arbitration has been extensively employed to resolve disputes including labor impasses, disagreements concerning commercial contracts, and tariff negotiations, among many others.

In “Risk and Information in Dispute Resolution: An Empirical Study of Arbitration,” Professor Bernardo Silveira and his coauthors (Yunmi Kong and Xun Tang, from Rice University) combine theory and empirics to address two related sets of questions concerning arbitration. First, they investigate the role of risk aversion. Risk attitudes matter in arbitration because there is substantial uncertainty concerning the arbitrator’s ruling. If one of the disputing parties is more risk-averse than the opponent, how does this imbalance in risk attitudes affect arbitration outcomes?

Second, the study compares two widely used arbitration designs – final-offer (FOA) and conventional (CA). In either design, the disputing parties submit to the arbitrator one offer each. But, whereas in FOA the arbitrator must select the offer of one side or the other, in CA the arbitrator is unconstrained. An arbitrator may attempt to learn from the offers any private information the parties have about the case in order to deliver a better-informed ruling. What is particularly interesting as a consequence of the different designs is that the offers in CA are cheap-talk, whereas in FOA they are not. The paper examines the differences between CA and FOA regarding the behavior of the parties, the arbitrator’s decisions and the amount of information revealed through the offers.

The authors address these questions in the context of wage negotiations between local governments and police/fire officer unions in New Jersey. In that state, unions must regularly renegotiate the officers’ contracts with their employers. If the parties cannot reach an agreement, state law requires the case to proceed to arbitration. The study employs data on disputes from 1978-2000 and exploits an empirical opportunity provided by the transition of the default arbitration method from FOA to CA in 1996.

To analyze these data, the authors develop and estimate a structural model of the strategic interaction between the union, the employer and the arbitrator. The model accounts for heterogeneous risk-attitudes between the disputing parties; the arbitrator’s ability to learn from the parties’ offers; and the possibility that the parties settle the dispute prior to arbitration.

The estimates indicate that unions are risk-averse whereas the employers are risk-neutral. With the model, the authors can isolate the effect of the unions’ risk-aversion on the resolution of cases. They find that risk-aversion raises the expected wage increases in cases decided by arbitration. Nevertheless, due to the risk associated with the arbitrator’s decision, the certainty-equivalent of going into arbitration is lower for the risk-averse party. Therefore, unions are willing to settle for relatively low wage increases pre-arbitration. Altogether, the unions’ risk aversion reduces overall expected wage increases by 0.2 percentage points per year, relative to a hypothetical scenario in which both parties were risk-neutral.

In comparing FOA and CA, the authors find that the dispersion in arbitrated awards is higher in the former. However, this greater dispersion has a small impact on the union’s certainty-equivalent of arbitration, so the effect of the arbitration design on the likelihood and terms of settlements is minimal. The results also indicate that the expected gap between the offers more than doubles – i.e., the parties take more exaggerated positions – under CA compared to FOA. This finding raises the question of whether the cheap-talk nature of CA leads parties to make relatively uninformative offers. Investigating this possibility, the authors find that FOA offers convey to the arbitrator information about the case that is roughly twice as precise as that transmitted in CA. There is a tradeoff, however, as the superior information transmission afforded by FOA comes at the cost of its one-offer-or-the-other constraint on the arbitrator’s ruling. On balance, the results suggest that CA does better in terms of delivering arbitration awards that are closer to the ideal or fair wage.