 Thank you for coming. So I will present in this paper, this is part of my PhD dissertation in Berkeley. So the title of the presentation is the response of salaried workers to the personal income tax, and I will be showing some evidence using our revisions from the new design from Argentina. So the big question behind the paper is how do taxes affect the labor supply of wage earners? And of course, this question is not new. The response of wage earners to the personal income tax has been of interest to the economies and policy makers for a long time. And the magnitude of this response is of critical importance for tax and transfer policies and welfare analysis. However, I think that there is no common sense to see it about the response of, in particular, wage earners to tax rates in general. And pretty calisthenics range from no effect to very size of responses, and there is this paper by size and co-authors to any input in which they summarize most recent evidence. Moreover, most of the literature is based on developed countries, so it's good to have papers showing some evidence for developing countries like Argentina or, for example, average for echo. So while we're doing this project, we have to exploit that natural experiment in Argentina in the period 2013-2016 that introduce this continuity in the income tax. The reform, in August 2013, the president passed a decree that exempted from the personal income tax a group of workers, certain workers, approximately 1.4 million workers, that were below an earning threshold. And this was in place for two and a half years, so it was between 2013 to 2016. The key part of this natural experiment is that the tax gap was based on earnings accurate prior to the reform, so before 2013. So workers were not able to manipulate earnings to avoid the tax. This was an unexpected reform, and it affected differentially what would otherwise be compiler workers around this company. So we use these associated variation to estimate earnings responses outside workers using administrative data from Argentina. And this is a contribution, we use Regression Continuity Design, which is going to overcome identification issues that have last previous point. So as a preview of the findings, the fifth thing I show in the first stage is that the tax gap created a large and salient discontinuity in tax liabilities. For example, the marginal tax rates for the group of workers around the discontinuity went from 20% to zero. And for example, annual tax savings as a share of gross earnings, annual gross earnings, or net earnings, was about 10%. So this, we are talking about a lot of money. However, in the second stage, we show that salient workers didn't react to the tax in terms of real responses. So we don't see any discontinuity in earnings around the threshold after two and a half years. So let me start the presentation of this. The next step is to discuss a little bit of the institutional context, so that you understand how the income tax works in Argentina. We have a progressive personal income tax schedule with seven brackets. Now they made a report, we have eight, this period we have seven brackets and marginal tax rates ranging from nine to 35%. So we have here, this is the classic table in which I show the seven brackets and the marginal tax rate for each of these categories. In practice, employers might withhold the income tax for employees from their monthly paychecks. They want to withhold, it depends on the taxable income, so this is very standard. From your gross income, you have to subtract the social security contributions, then you can subtract personal exemptions, for example, schools and children, this is a very important part. And other minor general deductions, for example, mortgage payments. Another important thing to keep in mind is that in Argentina, as well as in many developing countries, the personal income tax is formed by relatively high income people. So let me motivate a little bit the reform that we exploit. There are 40 facts that have characterized the evolution of the personal income tax in the last years. The first one is that this schedule here was fixed in nominal terms in the last 15 years. The second fact is that we have huge inflation in the fiscal capital, on average, 27% to 30% yearly. So you can imagine this is a mess. A lot of people start to pay in taxes because the third five nominal earnings were adjusted every year, roughly following inflation. And exemptions, first, schools and children deductions were adjusted regularly and usually behind the average increase in wages. So because of these bracket creep, a lot of people started paying the income tax and, moreover, a lot of people were facing the top marginal tax rate and they had different earnings provided. So the income tax lost a lot of progressivity in the last years to alleviate the increasing tax burden on wage turners in 2013. The government implemented a large and salient tax gap to alleviate this burden. And this was very convenient for the government because it was right before the sheet set of invitations. So it was also like a public base. So let me explain the reform. The reform is pretty standard. It was announced in August 28th. But the key fact, as I mentioned before, is that the reform was based on your earnings prior, before August 28th. So workers were not able to manipulate or to adjust their earnings to avoid or to be part of this tax gap. So what the reform is was to split the universe of workers into three groups. The most important part is the first part of the second, in the timeline, the second timeline is the first part. Let me explain this in this slide. So the rule was the following. To be tax exempt from the income tax, you have to take your earnings, monthly earnings, from January to August 2013. So before the announcement. And if your highest gross earnings was below 15K, then you were tax exempt from the income tax from that point onwards, regardless of what you made afterwards. And this is the group that I will focus today. This is the most important one. Then there was a 20% increase in personal exemptions if you were between 15 and 25K. And then if you were above 25K, you continue to pay the income tax normally. So you can see that the reform introduces continuity at 15K and 25K. I will show you some graphs for the first question, so for 15. The key fact of this reform is that it affected differently what would otherwise be compatible workers around the question. So an example, so that this is very clear, if you were earning below 15K, prior to the reform, and after that you get a promotion and you earn 20,000 pesos after the reform, then you don't have to pay the income tax. But if you were earning 16,000 pesos, then you continue to pay the income tax. The big strategy, the regression of interest is on the left-hand side we have reported income. Remember that this is third party reported. And we want to see what is the effect of taxes on reported income. Of course, the standard OLS regression is going to be biased. And what the literature has done so far is to try to find some smart instruments or use variation from reforms. So what we did instead in this paper, we used a regression continuity design, which is going to overcome identification difficulties because as you know, this is the most internally valued strategy. And the basic idea, I want to show you the equation that will run, but the basic idea is to plot average outcomes around the discontinuity. In the first stage, the important thing to show is that the world tax burden changes sharply around the discontinuity. So we should see that people to the left are going to pay less taxes than the people to the right. And in the second day, the real question is whether this continuity in tax liabilities translate into a discontinuity labor outcomes after the reform. So the data we use in this paper is coming from administrative data from the social security. The important thing that I want to stress here is that we are not using tax data. We are using data from the social security. And this is because we want to see workers paying the income tax, tax and not paying the income tax. So we need to go over it. Another important thing is in the last part of this slide, we can see that the size of the data we have in 2013, there were around 400K private firms and around six million private salary workers, nine million if we take into account public workers. So we have public and private workers. And remember that this is also only for salary workers. So we are not, the reform didn't affect self-employment. In this table, I want to show in column number four, you can see that in the second slide, something that I mentioned before is that relatively rich people or higher income people pay the income tax. So we can see that around this discontinuity, we are talking of people in this side, eight and nine. So this is an identification check. This is the distribution of our running value. The running value remember is that your highest earnings between January and August 2013. And of course, around the discontinuity, 15 and 25K, it has to be small. Otherwise, they would be manipulating the running value and this wouldn't work. We will be talking about banning another army. Another important thing from this picture is that the line there that has NNI, this is for minimum non-taxable income, this is the first scheme. And we can see this consistent with average paper. We can see that for gross earnings, there is no banning, okay? So this is already a message or this is like some evidence that it's hard for salient workers hard to respond in real terms to the income tax. This is another robust check. We can see that the distribution of age and gender is balanced around the threshold. And this is for 15K. Then the first stage, we have to show that there is a discontinuity in tax liabilities. So in the left part of this slide, you can see that the share of, before the reform, the single workers without children were paying around 10% of gross, of net, sorry, of net earnings in taxes. And then they went from this 10% to zero or the flat line there. And on the right hand side, you can see that they went from a 27% marginal tax rate to zero, okay? And because of inflation, you can see that actually the people to the right, they face a higher marginal tax rate after the reform. So the main result in one slide, we can see that what we are putting here is the average earnings after the reform. So two years and a half after the reform and on the X axis, what we have is our running value. So your earnings before the reform. And we can see that around the discontinuity or around the threshold 15K, there is no discontinuity in two years and a half after. Okay? So you might wonder, remember that in the literature, they find no effect sometimes, but the standard elasticity is usually low, but in the around 0.2 or 0.1. So if we actually take that in a CTD and we do this thought-explaining and we simulate what should have been the response, this is what we should have observed with an CTD of 0.2. So this is a humiliation. And we actually observe this. No response. So here we have some numbers for completeness. In this picture, in this table, what we can see is that we are actually measuring precisely zero effect of tax cut on labor supply. So we have only once after two and a half years. Another question that you might have is, what about other margins? For example, people switching from having positive income to missing or to zero. And we can interpret missing as people going from the formal system to informality or maybe, I don't know, there could be many reasons, but that's one of the candidates. Another thing that is standard is to do, to study some intermediaries by term size, gender and sector, the sector where you work. And finally, some would argue that this was not indeed salient, but I'm going to argue that it was indeed salient. So the fraction of missing, and we take this missing as a proxy for former workers dropping out, we can see that again, around the responsibility, we don't see anything going on there. But all the heterogeneities, we can see here that female and male didn't respond differently. Again, this is for private workers. Then on the two bottom graph, we have for unionized workers and non-unionized. We have very strong labor unions in Argentina, and we don't see any response either. Finally, another thing that we have tried by term size, I can show you this if you are interested later, by age group, sectors, labor unions, we didn't find anything. So this is a very robust seed or result. Finally, I would like to finish this presentation by talking about saliency. Maybe people can argue that this was not salient before, but first of all, the income tax is very salient. In Argentina, people are complaining always about this. They complain about many things, but they also complain about the income tax. You can actually see in your page, if you are paying the income tax, if you feed the first king. I will show you some anecdotal evidence from newspapers and Google Trends and from a page. So first thing, this is from newspapers. This was the top two pictures. This is the newspaper of the day the reform was announced, or one day after the reform was announced. And we're gonna see that this is the front page of the two main newspapers in Argentina. It says only people earning more than 15K are going to pay the income tax. And then in the bottom part, it says that this decree was created in an equal treatment between side workers. So this was very salient. It was in the new server. Then if we look at these Google Trends, people were actively searching for the word minimum non-taxable income. So they wanted to know whether they were going to pay the income tax or not. And this was the day the reform was, the month, the reform was announced. We can see a big spike there. And the month, the reform was repealed. 2016, we can also see that people were actively searching for this. Finally, this is my favorite part of the presentation. This is evidence. This is one observation in my regression. So this is the paycheck of a salient worker that was affected by the reform. And we can see here, there are two things to know. The first one is look. We can see that this is actually the number that I observed in my data. So I only observed gross monthly earnings. And then you can see that there are three lines that correspond to income tax concepts. The first line says that these guys should have paid 4,000 and I have persons in income taxes. And the second line, it says that he was benefited by this tax reform. So he doesn't have to pay these income tax. And you can see that these, if we take the ratio, we are talking about a lot of money. It was a huge share of this monthly gross salary. So some potential explanations. One is that substitution effect and income effect are actually each other. That's the theory that labor economists like. Another one is that there is low intensive electricity of earnings or gross earnings with respect to marginal tax rates. And in particular, remember that we are talking about high income people here. So this is consistent with all the papers talking about this. Another explanation is that there are a large adjustment cost. So it takes time to find a job. Side workers don't have a lot of flexibility to adjust hours. So they take a part-time job or a full-time job and they don't have a lot of flexibility like self-employed people. Finally, and this is also related to average labor that first mediate tax responses of employees and it could be hard to coordinate this. In particular, if you have a mix of workers that were affected by the reform and that were not affected, adjusting their gross earnings could be something very difficult to do. So some final remarks on the first day. We show that there is a continuous change in taxes. However, in the second state, we show that people didn't react to this. So labor supply of upper wage earners is not responsive and we think this is striking because the tax cut was large and very saving. This theory is consistent with some papers in developed countries, ties in the US, ties again in Greece, Rastani and Zellipo, Sweden and also I should have average here for Ecuador for all his evidence for gross income. This could imply that the cost of rising personal income taxes in Argentina and maybe in other developing countries are not large, at least for intensive margin and upper income earners and in terms of pre-ale responses, not all the responses like deductions. The similarity of the income tax in other developing countries and the lack of evidence as I mentioned to make the topic of this paper a very important venue for future research and I would like to see what happens in other contexts and in other countries regarding real labor supply responses. Thanks.