My research interests lie at the intersection of public economics, labour economics, household finance and economic data science.
With Arun Advani and William Elming. Forthcoming in The Review of Economics and Statistics.
We study the effects of audits on long run compliance behaviour, using a random audit program covering more than 53,000 tax returns. We find that audits raise reported tax liabilities for five years after audit, effects are longer lasting for more stable sources of income, and only individuals found to have made errors respond to audit. 60-65% of revenue from audit comes from the change in reporting behaviour. Extending the standard model of rational tax evasion, we show these results are best explained by information revealed by audits constraining future misreporting. Together these imply that more resources should be devoted to audits, audit targeting should account for reporting responses, and performing audits has additional value beyond merely threatening them.
With Peter Levell and Barra Roantree. Published in International Tax and Public Finance, 2021, Vol. 28, No. 4, pp. 751–793.
This paper examines the lifetime distributional impact of changes to the tax and transfer system. We find that—in contrast to standard snapshot analyses—increases to work-contingent benefits are just as effective at redistributing resources to the lifetime poor as increases to out-of-work benefits. This has important implications for the equity-efficiency trade-off typically thought to apply to work-contingent transfers. We also show that increases to higher rates of income tax are an effective way of targeting the lifetime rich because higher earners tend to exhibit greater persistence in their incomes. Our results illustrate the importance that moving beyond an exclusively snapshot perspective can have when analysing tax and transfer reforms.
With Chris Belfield, Teodora Boneva and Christopher Rauh. Published in Economica, 2020, Vol. 87, No. 346, pp. 490–529.
We study students’ motives to obtain sixth form and university education in a sample of 885 secondary school students in the UK. At each educational stage, perceptions about the consumption value of education explain a substantial share of the variation in students’ intentions to obtain further education, while beliefs about the monetary benefits and costs are not found to play an important role. Beliefs about the consumption value of university predict not only students’ intentions to go to university but also their intentions to go to sixth form, highlighting the importance of dynamic considerations in the choice. We further document that students’ beliefs about the consumption value of further schooling strongly predict students’ perceptions about how likely it is that they will obtain the necessary grades to proceed to the next educational stage. Differences in the perceived consumption value across gender and socioeconomic groups can account for a sizeable proportion of the gender and socioeconomic gaps in students’ intentions to pursue further education as well as in their perceptions about their own performance.
With Mike Brewer. Published in Fiscal Studies, 2018, Vol. 39, No. 1, pp. 5–38.
Personal taxes and benefits affect the incentive to work over the life-cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life-cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life-cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower‐skilled, and most women experience a number of different family types during the course of their lives.
With Barra Roantree. Published in the Journal of Economic Inequality, 2018, Vol. 16, No. 1, pp. 23–40.
Most analyses of inequality and tax and benefit reforms are based on measures of individuals’ circumstances at a point in time. But strong age-profiles in earnings, among other characteristics that the tax and benefit system conditions upon, combined with individuals’ ability to transfer resources across time suggests that measuring circumstances over longer horizons may lead to a very different picture. In this article, we consider how our impression of inequality and the tax and benefit system changes when the horizon under consideration is extended. We show that inequality is lower, redistribution less extensive, and benefit receipt far more widespread from a longer-run perspective. The choice of accounting period can also lead to a very different assessment of the distributional impact of policy reforms. Our results show the importance of policymakers explicitly considering what it is they are trying to achieve through redistribution: the alleviation of short-run hardship or the reduction of lifetime inequality. While there may be good reasons to pursue both objectives, the group of people affected and the appropriate policy response will differ depending on which is prioritized.
With Richard Blundell, Monica Costa Dias and Costas Meghir. Published in Econometrica, 2016, Vol. 84, No. 5, pp. 1705–1753.
We estimate a dynamic model of employment, human capital accumulation—including education, and savings for women in the United Kingdom, exploiting tax and benefit reforms, and use it to analyze the effects of welfare policy. We find substantial elasticities for labor supply and particularly for lone mothers. Returns to experience, which are important in determining the longer‐term effects of policy, increase with education, but experience mainly accumulates when in full‐time employment. Tax credits are welfare improving in the U.K., increase lone‐mother labor supply and marginally reduce educational attainment, but the employment effects do not extend beyond the period of eligibility. Marginal increases in tax credits improve welfare more than equally costly increases in income support or tax cuts.
With Peter Levell. Published in the International Journal of Microsimulation, 2016, Vol. 9, No. 2, pp. 5–40.
In this paper we discuss two alternative approaches to constructing complete adult life-cycles using data from an 18-year panel. The first of these is a splicing approach—closely related to imputation—that involves stitching together individuals observed at different ages. The second is a microsimulation approach that uses panel data to estimate transition probabilities between different states at adjacent ages and then simulates a large number of individuals with different initial values. Our aim throughout is to construct life-cycle profiles of employment, earnings and family circumstances that are representative of UK individuals born between 1945 and 1954. On balance, we find the microsimulation approach is to be preferred because it allows us to correct for observable differences across cohorts, and it is more amenable to counterfactual modelling.
Published in the Stata Journal, 2015, Vol. 15, No. 2, pp. 501–511.
Stata is a powerful and user-friendly package for setting up data and performing statistical analysis. Nevertheless, some features often cause unexpected errors that users either fail to notice or spend hours trying to correct. In this article, I list my top 10 Stata "gotchas" and suggest ways to combat them. Awareness of these "gotchas" will hopefully help newer users—particularly those making their first forays into Stata programming—avoid the most common pitfalls.
Work in progress
Sending out an SMS: automatic enrolment experiments for overdraft alerts
With Michael Grubb, Darragh Kelly, Jeroen Nieboer and Matthew Osborne. Revise and resubmit requested by the Journal of Finance.
At-scale natural and field experiments at major UK banks show that automatic enrolment into "just-in-time" text message alerts reduce unarranged overdraft and unpaid item charges 15–16% and arranged overdraft charges 4–8%, implying annual market-wide savings of £150–275 million. Additional "early warning" alerts, triggered by low account balances, provide no incremental benefit because consumers’ primary response to alerts is transferring money into their accounts, not reducing spending. Liquidity available in other accounts during overdraft episodes suggests that alerts eliminate (and inattention accounts for) less than half of overdraft charges that result from frictions rather than from optimal borrowing.
With Ida Chak, Karen Croxson, Francesco D'Acunto, Jonathan Reuter and Alberto Rossi. FCA Occasional Paper No. 61, 2022.
Poor debt-management skills lower financial security and wealth accumulation. And yet, most households, including the most vulnerable, are left to their own means when making repayment decisions. Because optimal solutions to credit repayment problems depend on neither risk preferences nor beliefs, loan repayment is a natural application for robo-advising. At the same time, the vulnerable households who would benefit most from robo-advising tend to distrust new technologies and override suggestions that do not align with ingrained heuristics, such as matching the minimum payment on a credit card balance. Lower adoption rates by these groups might increase rather than reduce wealth inequalities. To assess these trade-offs, we design and implement an RCT in which robo-advice for borrower repayment decisions is offered to a set of representative UK consumers. On average, the availability of free robo-advice significantly improves loan repayment choices. When asked about their willingness to pay, many subjects report values larger than the monetary benefits of the tool. Non-adopters and overriders report lower trust in algorithms at the end of the experiment. Providing tips alongside robo-advising barely improves subsequent unassisted choices, suggesting the lack of learning from using robo-advice. In fact, learning-by-doing is highest for those who make all choices unassisted.
The Formation of Subjective House Price Expectations
With Sarah Kiesl-Reiter, Melanie Lührmann and Joachim Winter.
With Melanie Lührmann, Sarah Reiter and Joachim Winter. FCA Research Note, 2022.
In this paper, we use the FCA’s latest Financial Lives survey to explore the extent to which consumers understand the risks and potential returns associated with different ways of saving. Our results indicate that 38% of consumers are able to assign probabilities to future outcomes and show a high degree of financial sophistication. 29% are able to assign probabilities and show a moderate degree of financial sophistication. The remaining 33% are either not able to assign probabilities or show a low degree of financial sophistication. This work also confirms that a substantial number of consumers with specific characteristics of vulnerability show considerable financial sophistication. This suggests targeting support specifically towards those with low financial sophistication might be more effective at improving saving decisions than focusing exclusively on other characteristics of vulnerability.
With Adiya Belgibayeva, Karen Croxson, Zanna Iscenko and Jesse Leary. FCA Occasional Paper No. 49, 2020.
With the cost of living rising and cheaper finance available, concerns are rising about consumer indebtedness and potential financial difficulty. Data available until now has made understanding patterns difficult. By looking at the credit files across borrower types, we can look at the characteristics as well as the circumstances that lead consumers into financial distress. For the purposes of this large-scale quantitative analysis, we consider a narrow objective distress measure (based on missed payments), whilst recognising that this likely understates the true incidence of distress. Future work may include some investigation of broader more subjective measures.
With Stuart Adam. IFS Report R113, 2016.
Individuals in the UK can save in many forms, such as bank accounts, pensions, housing, shares and Individual Savings Accounts (ISAs). The tax treatment of these different vehicles and underlying assets varies widely and this can affect the attractiveness of saving in different forms for people in different circumstances. In this report we describe the forms in which household wealth is held, set out the effects of the current UK tax system on the incentive to save in different assets, consider the implications of a number of current or potential reforms, and analyse the effect of non-tax features on the attractiveness of investing in different assets.
With Joel Slemrod and John Whiting. Published as Chapter 12 of Dimensions of Tax Design, 2010.
Assessing how much tax people owe and ensuring it is paid is a costly activity for both taxpayers and the government. Yet modern ‘optimal tax theory’ has for the most part ignored these costs and has focused on those created by distorting people’s behaviour (distortion costs). The first half of this chapter shows how it is possible to adapt the standard framework to reflect administration and compliance costs, and include real-world features of tax administration such as penalties for tax evasion, enquiry rates, and obligations to report information to the tax authority. The remainder of the chapter applies the resulting insights to current issues in UK tax implementation.
With Haroon Chowdry and Costas Meghir. Research Report for the Low Pay Commission, 2009.
This report explores the suitability of equilibrium search models to analyse the impact of minimum wages on the labour market outcomes of young workers. Such a modelling approach has not been widely considered before in the context of minimum wages for the UK, but it holds the potential for providing new insights into the impact of minimum wages. However, the report finds that these models are not currently sufficiently sophisticated to incorporate all the necessary features for a sensible analysis, and therefore concludes by providing a set of recommended developments and modifications to be pursued in future work.