University of Groningen On Taxes and Taxpayers ten Kate, Fabian

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University of Groningen

On Taxes and Taxpayers

ten Kate, Fabian

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Publication date: 2019

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ten Kate, F. (2019). On Taxes and Taxpayers: understanding the heterogeneous effects of taxation. University of Groningen, SOM research school.

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531634-L-sub01-bw-tenKate 531634-L-sub01-bw-tenKate 531634-L-sub01-bw-tenKate 531634-L-sub01-bw-tenKate Processed on: 23-5-2019 Processed on: 23-5-2019 Processed on: 23-5-2019

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On Taxes and Taxpayers

Understanding the Heterogeneous Eﬀects of Taxation

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Processed on: 23-5-2019 PDF page: 2PDF page: 2PDF page: 2PDF page: 2 Published by University of Groningen, Groningen, the Netherlands

Printed by Ipskamp Printing

ISBN

978-94-034-1767-7

978-94-034-1766-0 (ebook)

c

2019 Fabian ten Kate

All rights reserved. No part of this publication may be reproduced, stored in a re-trieval system of any nature, or transmitted in any form or by any means, electronic, mechanical, now known or hereafter invented, including photocopying or recording, without prior written permission of the author.

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On Taxes and Taxpayers

Understanding the Heterogeneous Effects of Taxation

Phd thesis

to obtain the degree of PhD at the University of Groningen

on the authority of the Rector Magnificus prof. E. Sterken

and in accordance with the decision by the College of Deans. This thesis will be defended in public on

Thursday 4 July 2019 at 14.30 hours

by

Fabian ten Kate

born on 28 July 1992

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Supervisor

Prof. J. de Haan

Co-supervisor

Dr. P. Milionis

Assessment Committee

Prof. P. Méon Prof. S. Beugelsdijk Prof. K. Caminada

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Acknowledgements

This thesis would not have been possible without the support and guidance of many friends and colleagues. In fact, it is likely that I would never have embarked on this journey altogether if not for them. Until the final year of the Bachelor in Economics and Business Economics , I fancied a career in finance (trading options in particular). It was then, however, that I took a course in Political Economics, taught by Jakob de Haan and Richard Jong-A-Pin, which opened my eyes to other alternatives. This course was particularly formative, as it sparked an interest in doing research and in (applied) econometrics. The paper written in this course, with fellow student Omiros Kouvavas, was a great learning experience. Thanks to Jakob and Richard, we were able to present this paper at the European Public Choice Society meeting in Zürich. This whole experience inspired me to pursue a Research Master’s degree and thus marked the starting point of my academic journey, eventually leading to the writing of this thesis.

I am particularly grateful to my supervisors, Jakob de Haan and Petros Milionis. Their confidence in me and support throughout has been essential for the completion of this thesis. Through a combination of laissez-faire when possible and more strict guidance when neccesary, they helped me flourish. As already noted above, Jakob played a critical role in inspiring me to do research in the first place. His ability to to get to heart of any issue and see immediately the potential of a particular research question has been very helpful. In the early and intermediate stages of any project his comments on the broader picture and interpretation of the research have been very useful; as were the many textual comments in the final stages, which have greatly improved my writing. Similarly, Petros has been a key part in developing my skills as a researcher, both on the theoretical and empirical front. He supervised my research during the Research Master, and encouraged me to also pursue theoretical work, which became a large part of my first year research project and eventually became a part of the second chapter of this thesis. Petros has given me much practical advice regarding the kind of analysis to conduct, as well as how to subsequently present the results. Without his many comments on my work, I would certainly not have become the researcher that I am today.

My appreciation further extends to all the other academics who contributed in various ways to this thesis. I am particularly indebted to professors Sjoerd Beugels-dijk, Koen Caminada, and Pierre-Guillaume M´eon, who agreed to be on the reading committee. Their comments were most kind and constructive, and have helped improve the thesis substantially. My thanks also go out to Mariko Klasing, for co-authoring the paper on tax morale. Her knowledge of cultural values and their measurement has been crucial for the writing of this paper, as well as in furthering

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Processed on: 23-5-2019 PDF page: 6PDF page: 6PDF page: 6PDF page: 6 my own understanding. Parts of this thesis have also been presented at various

conferences and I am most appreciative of my discussants, as well as others who made constructive comments, who thus helped improve my work.

Besides those who have contributed directly to this thesis, I am also appreciative of all those who contributed indirectly. Firstly, my thanks go out to all of my teachers over the years at the University of Groningen, without whom this thesis would never have existed. In addition I have greatly enjoyed working with Gerard Kuper and Elmer Sterken. Although our endeavours at predicting the Olympic Games were not always equally successful, I very much enjoyed it as an exercise in thinking about applied econometrics and sports economics. Last but not least on the academic front, I am grateful to all my fellow students, PhDs, and other colleagues with whom I have had the pleasure of working with over the years.

Those who know me a bit, know that academia is not my only major pursuit in life. Running has kept me sane and helped me weather any adversities throughout my studies and the course of writing this thesis. Whenever I was struggling aca-demically, I could always draw from my athletic success, and vice versa. Although running is for the most part a rather solitary venture, I would not have become the person I am today without the various coaches with whom I have had the pleasure of working with over the years. I very much appreciated the philosophical discus-sions that I have had with Dirk Dijkstra, who coached me during my time at the student athletics association Vitalis. Under his guidance I first started to flourish as a runner. Subsequently I have had the pleasure of joining Team 4 Mijl and being coached by Fokie Cnossen. She helped me find out how hard I could push myself, and piqued my interest in psychology. For the last two years and a bit I have been working with Wilfred van Holst. He has helped me reach the next level and earlier this year coached me through my first marathon successfully. Besides my coaches, I am also very grateful to all my (former) team mates, with whom I have had many sensible and nonsensical discussions. Their support has been very much appreciated. Last, but certainly not least: my parents. Words cannot possibly express the appreciation for my greatest supporters. Thank you.

Fabian

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List of Tables

2.1 Estimation Results with Diﬀerent Capital Taxation Measures . . . 17

2.2 Estimation Results with Interactions for Main Capital Tax Measures 20 2.3 GMM Estimation Results . . . 25

2.4 Estimation Results using Annual Data: Long-Run Coeﬃcients . . . . 28

2.5 Estimation Results using Annual Data: Short-Run Coeﬃcients . . . . 30

2.B.1Descriptive Statistics and Sources . . . 50

2.C.1Robustness Checks with Additional Controls . . . 52

2.C.2Robustness Checks with Alternative Thresholds . . . 54

3.1 Process of Taxation . . . 65

3.1 Average and Marginal Tax Rates: 2000-2014 Averages . . . 69

3.2 Variance Decomposition of the Average Tax Rate: Between and Within Regions . . . 73

3.3 Variance Decomposition of the Marginal Tax Rate: Between and Within Regions . . . 75

3.1 Descriptive Statistics . . . 80

3.2 Relative Average Rate Regressions . . . 82

3.3 Relative Marginal Rate Regressions . . . 84

3.1 Unemployment Rate Regressions . . . 87

4.1 Diﬀerent Conformity Measures . . . 110

4.2 Numerical Example Diﬀerent Conformity Measures . . . 111

4.3 Descriptive Statistics . . . 115

4.1 Baseline Estimation Results . . . 118

4.2 Individual Value Conformity . . . 120

4.3 Individual and Regional Values Compared . . . 123

4.4 Conformity Interaction Eﬀects . . . 126

4.1 Robustness Checks: Part 1 . . . 129

4.2 Robustness Checks: Part 2 . . . 132

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List of Figures

2.1 Marginal Eﬀect Plots for Relative Income* . . . 22

3.1 Average Tax Rates and Regional Dispersion Over Time . . . 71

3.2 Relative Average Tax Rates . . . 77

3.3 Relative Marginal Tax Rates . . . 78

4.1 Interaction Eﬀect Individal and Regional Values Conformity* . . . 127

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University of Groningen On Taxes and Taxpayers ten Kate, Fabian