Faculty Spotlight: Dr. David Agrawal Meet our faculty

We caught up with Dr. David Agrawal, an Assistant Professor of Economics both at the Martin School and in the Department of Economics, to learn more about his interests. His website can be found here.

What is your favorite topic to teach? Why?

Taxes!  Taxes change the behavior of people.  Taxes can change how much someone will work or save.  They can influence charitable giving and decisions on where to live or work.  Taxes can influence the timing of births and even the timing of deaths.  Given that taxes can potentially influence so many aspects of behavior, I want my students to learn whether these responses are large or small and how the size of these responses influences optimal tax policy.

What research are you currently working on?

A recent paper, “The Internet as a Tax Haven? The Effect of the Internet on Tax Competition” studies how municipalities adjust their sale tax rate in response to e-commerce.  If online transactions are untaxed, the Internet may act as a tax haven and put downward pressure on local sales tax rates. On the other hand, if e-commerce is taxed, the Internet may act as an anti-haven, allowing cities and towns to collect taxes on remote transactions that previously went untaxed.  The results in this paper suggest that many towns perceive the Internet as a tax haven and lower their tax rate if they have a higher number of households with access to the Internet.  In addition, William Fox (University of Tennessee) and I are writing a policy research paper “Sales Taxes in an e-Commerce Generation” that discusses the economic argument for levying sales taxes on the basis of the destination of the sale.  We then discuss various policy options for how the United States can reform its sales and use tax system to better achieve destination taxation on online transactions.  In conducting this research, we highlight several economic lessons from recent European Union reforms designed to address taxing digital products.

What is the “hot topic” in your field right now?

One of the hottest topics in public finance is the study of notches and the bunching of individuals on the tax-favored side of the notch.  A notch is a discontinuous change in an individual’s budget set.  These notches in the tax code imply that a very small change in an individual’s behavior can cause very large changes in tax payments.  Our tax system features many notches, but they have only been studied recently.  One example is the Saver’s Credit.  A married couple with income of $30,000 that contributes more than $2000 of savings will receive a $1000 tax credit.  However, if this couple declares $30,001 of income and has the same saving, the credit will fall to only $400.  The incentives to work an hour less or hide some income from the tax authority are large.  My advisor’s article, “Buenas Notches: Lines and Notches in Tax System Design” was an important article that helped inspire research on notches.

What is your favorite thing about the Martin School?

I enjoy having many colleagues who are supportive of my research agenda and who provide great feedback on my research.  I also appreciate having several colleagues that conduct research on taxation.