Tim Lohse

Self‐Insurance and Self‐Protection as Public Goods

Most pure public goods like lighthouses, dams, or national defense provide utility mainly by insuring against hazardous events. Our paper focuses on this insurance character of public goods. As for private actions against hazardous events, one can distinguish between self-insurance (SI) and self-protection (SP) also in the context of public goods. For both cases of SI and SP we analyze efficient public provision levels as well as provision levels resulting from Nash behavior in a private provision game. An interesting aspect of considering public goods as insurance devices is the interaction with market insurance. It turns out that the availability of market insurance reduces the provision level of the public good for both, the public and the private provision, regardless of whether we consider SI or SP. Moreover, we show that Nash behavior has always a larger impact than the availability of market insurance.

Optimal Taxes and Transfers under Partial Information

Summary Effective from 2005, benefits for long-term unemployed have been reduced in Germany to the level of social assistance. This measure reflects the view that “all who are able to work, should work” - a view which makes sense only if the government can distinguish the disabled from the productive. In this paper we augment the standard model of optimal taxation, where the government has no information about individual productivities, by this very assumption: Partial information means that the government can distinguish the disabled from the productive, but cannot distinguish among the different productive types. An interesting proposition about the shape of optimal tax-transfer schemes under partial information is derived. Moreover, it is shown that unemployment on the side of the productive poor may still be optimal.

Gender Differences in Deception Behaviour-The Role of the Counterpart

In a tax compliance experiment with real face-to-face communication between declaring subjects and officers, we analyse the role of both the subject’s and the officer’s gender for deceptive behaviour. We do not find, first, that the amount of underreporting generally depends on the officer’s gender, and second, that the matching of genders plays a role for the deceptive behaviour. Moreover, as a reaction to a high rather than a low penalty, women and men both reduce deceptive behaviour to the same extent and therefore exhibit the same risk-taking attitude.

Public Self-Insurance and the Samaritan's Dilemma in a Federation

Motivated by recent disasters, this article analyzes the risk-sharing aspect in a federation. The regions can be hit by a shock leading to losses that occur with an exogenous probability and in a stochastically independent way. The regions can spend effort on self-insurance to reduce the size of the loss. Being part of a federation has two countervailing welfare effects. On one hand, there is the well-known welfare increase due to risk pooling. On the other hand, the self-insurance effort is a public good, because all regions benefit from the reduction of the loss. There exists a Samaritan’s dilemma kind of effect whereby regions reduce their self-insurance effort potentially leading to an overall welfare decrease. The central government can solve this dilemma by committing to fixed rather than to variable transfers. This induces regions that behave noncooperatively to choose the efficient level of self-insurance effort.

Compliance with endogenous audit probabilities

This paper studies the effect of endogenous audit probabilities on reporting behavior in a face-to-face compliance situation such as at customs. In an experimental setting in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80% if subjects have reason to believe that their behavior towards an officer influences their endogenous audit probability. Higher compliance is driven by considerations about how own appearance and performance affect their audit probability, rather than by social and psychological effects of face-to-face contact.

Dubious Versus Trustworthy Faces - What Difference Does it Make for Tax Compliance?

ABSTRACT We find experimental evidence that the decision problem of tax compliance changes if subjects’ declarations are not randomly assessed, but is based on their appearance as captured by pictures of their faces, even if the aggregate audit probability does not change. Some subjects may fear that their picture looks rather dubious, whereas others may believe that their picture looks more trustworthy than average. Depending on these beliefs, they may adjust their compliance decisions. Our experimental design allows us to disentangle these potentially countervailing effects.

Gendereffekte bei Risikoneigung und Lügen - Evidenz aus einem Compliance-Experiment

Im Hinblick auf ökonomische Entscheidungen gelten Frauen im Vergleich zu Männern oft als weniger risikofreudig, aber ehrlicher. Der vorliegende Artikel legt die Ergebnisse eines Steuerbefolgungsexperiments (Tax-Compliance) dar, in welchem weder ein signifikanter Unterschied der Risikoneigung noch des Lügenverhaltens nachweisbar waren. Auch scheint es egal zu sein, ob man potenziell gegenüber einer Frau oder einem Mann lügen würde.

The Objections against Workfare Revised

Abstract Opponents of work obligations in return for transfer payments argue that workfare can crowd out private sector work, that workfare harms the welfare of the poor and thereby reduces a society’s welfare in general. This paper analyzes these objections against workfare in a discrete optimal income tax model. Workfare productivity emerges to be the crucial determinant. We identify a productivity threshold. If workfare productivity exceeds this threshold, then crowding out indeed happens, but it is second-best. Crowding out occurs entirely in the sense that workfare and private sector employment are mutually exclusive. Welfare increases due to the fact that out of the three effects workfare entails, beyond the detected threshold, the output effect and the incentive effect dominate the negative utility effect. Numerical simulations calibrated on the distribution of gross hourly wages in Germany reveal that on an individual level, the poor may even be better off under a tax-transfer scheme with workfare rather than without workfare. This is due to the fact that a higher degree of redistribution can be achieved.

Redistributional consequences of early childhood intervention

Recently, early investment in the human capital of children from socially disadvantaged environments has attracted a great deal of attention. Programs of such early intervention, aimed at children’s health and well-being, are spreading considerably in the US and are currently being tested in several European countries. In a discrete version of the Mirrlees model with a parents’ and a children’s generation, we model the intra-generational and the inter-generational redistributional consequences of such intervention programs. It turns out that the parents’ generation loses whenever such intervention programs are implemented. Furthermore, the rich part of the children’s generation always benefits. Despite the expectation that early intervention puts the poor descendants in a better position, our analysis reveals that the poor among the children’s generation may even be worse off, if the effect of early intervention on their productivity is not large enough.

Compliance and the Subjective Audit Probability

This paper studies the role of beliefs about how own appearance and performance affect the subjective probability of being audited in a compliance situation, e.g. at customs. In an experiment in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80% if subjects have reason to believe that their appearance or performance influences their subjective audit probability. We find that higher compliance is driven by subjective beliefs, rather than by social and psychological effects of personal contact. In contrast, we do not find evidence for individuals who believe that their personal performance can reduce the subjective probability of an audit. Our results suggest that individuals’ beliefs about their subjective audit probability are important. An institutional framework with personal contact and with discretion about whom to audit can therefore improve compliance.