individual taxpayer response to tax cuts 1982 1984 with implications for the revenue maximizing tax rate abstract this paper measures the response of taxpayers to the u s personal rate reductions from 1982 to 1984 a baseline income distribution is created to describe what level and distribution could be expected in the absence of tax changes comparison of this baseline with actual tax return data shows that at least one sixth and probably one quarter of the revenue ascribable to the rate reductions was recouped by changes in taxpayer behavior the data also show that federal income tax revenue would have been maximized at a tax rate of about 35 percent and total income tax revenue maximized at a total tax rate of about 40 percent

introducing incentives in the market for live and cadaveric organ donations we evaluate the introduction of monetary incentives in the market for live and cadaveric organ donations we show that monetary incentives would increase the supply of organs for transplant sufficiently to eliminate the very large queues in organ markets and the suffering and deaths of many of those waiting without increasing the total cost of transplant surgery by more than about 12 percent we build on the value of life literature and other parts of economic analysis to estimate the equilibrium cost of live transplants for kidneys and livers we also show that market price for kidneys will be determined by the cost of live donations even though most organs will come from cadavers

the evolution of high incomes in northern america lessons from canadian evidence this paper uses tax statistics to construct new series on canadian top income shares from 1920 to 2000 and provides a systematic comparison with the u s experience as in the united states top income shares in canada display a ushaped pattern over the century with a precipitous drop during world war ii followed by a slower decline until 1970 since the late 1970s top income shares have been increasing dramatically and the very top shares are now as high as in the pre war era as in the united states the recent increase in top income shares is the consequence of a surge in top wages and salaries the canadian experience since the late 1970s does not appear to be well explained by tax changes suggesting that the upward trend in canada derives from the united states perhaps because many high income canadians have an emigration option this in turn suggests that the recent increase in u s personal income top shares is not merely a change in tax reporting behavior the recent sharp increase in top income shares in canada is of the same magnitude at the individual and family level and is not due to an increase in income mobility

nature of transfers income tax function and empirical estimation of elasticity of taxable income for brazil abstractthis article aims to estimate the elasticity of taxable income eti taking into account the nature of transfers and their use as a redistribution package involving cash and in kind transfers to households in brazil our contributions are twofold first we provide a simple model with balanced budget government that reveals the role played by cash and in kind transfers on the labour supply and income tax revenues thereof next in order to estimate eti in the presence of cash and in kind transfers brazilian population surveys pesquisa nacional por amostra de domicilios pnad are used to explore a limited tax reform that was implemented between 1997 and 1998 this reform only affected the higher income tax bracket our findings suggest that in kind cash transfers are positively negatively associated with reported taxable income and precise estimation of eti requires estimates of both types of transfers last we estimate the eti for brazil in the range from 0 4 to 1 3 not different fro

earnings inequality and mobility in the united states evidence from social security data since 1937 this paper uses social security administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the united states annual earnings inequality is u shaped decreasing sharply up to 1953 and increasing steadily afterward short term earnings mobility measures are stable over the full period except for a temporary surge during world war ii virtually all of the increase in the variance in annual log earnings since 1970 is due to increase in the variance of permanent earnings as opposed to transitory earnings mobility at the top of the earnings distribution is stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s long term mobility among all workers has increased since the 1950s but has slightly declined among men the decrease in the gender earnings gap and the resulting substantial increase in upward mobility over a lifetime for women are the driving force behind the increase in long term mobility among all workers

marginal tax rates and income new time series evidence this paper estimates the dynamic effects of marginal tax rate changes on income reported on tax returns in the united states over the 1950 2010 period after isolating exogenous variation in average marginal tax rates in structural vector autoregressions using a narrative identification approach i find large positive effects of tax cuts in the top 1 of the income distribution in contrast to earlier findings based on tax return data i also find large effects in other income percentile brackets a hypothetical tax reform cutting marginal rates only for the top 1 leads to sizeable increases in top 1 incomes and has a positive effect on real gdp there are also spillover effects to incomes outside of the top 1 but top marginal rate cuts lead to greater inequality in pre tax incomes

measuring permanent responses to capital gains tax changes in panel data the authors use panel data and information about differences in state tax rates to separate the effects of transitory and permanent tax rate changes on capital gains realizations behavior the estimated effect of permanent change is substantially smaller than the effect of transitory change the difference is even larger than differences between estimates from past micro data studies which have primarily measured the transitory effect and time series studies which have primarily measured the permanent effect the authors results resolve a long standing conflict between micro data and time series studies of how marginal tax rates affect capital gains realizations behavior copyright 1994 by american economic association

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

toward obtaining a consistent estimate of the elasticity of taxable income using difference in differences abstract the elasticity of taxable income eti is a central parameter for tax policy debates this paper shows that mean reversion prevents most estimators employed in the literature from obtaining consistent estimates of the eti a new method is proposed that will resolve inconsistency due to mean reversion under testable assumptions regarding the degree of serial correlation in the error term using this procedure i estimate an eti of 0 858 which is about twice as large as the estimates found in the most frequently cited paper on this subject 13 the corresponding elasticity of broad income is 0 475

extremist platforms political consequences of profit seeking media we analyze how information about candidate quality affects the choice of electoral platforms made by an office motivated political challenger the incumbent is of known quality and located at the ideal policy of the voter the voter cares for both policy and the candidates quality and can learn about the challenger s quality by buying information a high quality challenger then has an incentive to signal her quality by choosing a policy that induces the voter to buy information we first study the benchmark case in which the information is supplied exogenously and its quality is independent of the challenger s platform this yields multiple equilibria and indeterminacy of equilibrium platforms by contrast when the information is supplied by a profit maximizing media outlet its quality depends on the challenger s platform and we obtain a unique equilibrium platform in particular when the incumbent s quality is relatively low the media coverage rises and the challenger s platform diverges further from the voter s ideal policy as the voter s preference for quality increases

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

the effect of income taxes on household income research on the distribution of income during the 1980s has identified a trend towards increasing inequality which may be the continuation and acceleration of trends spanning several decades this paper explores to what extent behavioral responses to the tax changes during the 1980s may also explain the rising inequality the 1986 tax reform act is used as a natural experiment to explore the roles played by both taxes and a variety of nontax factors our principal finding is that both tax rates and nontax factors appear to have had significant effects on relative income growth during the late 1980s

how progressive is the u s federal tax system a historical and international perspective this paper provides estimates of federal tax rates by income groups in the united states since 1960 with special emphasis on very top income groups we include individual and corporate income taxes payroll taxes and estate and gift taxes the progressivity of the u s federal tax system at the top of the income distribution has declined dramatically since the 1960s this dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income the sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity international comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity both for time trends and for cross country comparisons the pattern for the united kingdom is similar to the u s pattern france had less progressive taxes than the united states or the united kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the united states or the united kingdom

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

the elasticity of taxable income during the 1990s new estimates and sensitivity analyses author affiliation seth h giertz sgiertz2 unl edu acknowledgment the author wishes to thank david weiner ed harris bob dennis doug hamilton tom woodward emmanuel saez chris bollinger and three anonymous referees for their comments and assistance 1 introductioneconomists have long recognized that taxation creates economic inefficiency by distorting relative prices often between leisure and all other goods in the economy even a broad based income tax can have substantial efficiency costs so long as leisure remains untaxed harberger 1964 uses this as motivation for comparing the efficiency implications of direct versus indirect taxation in so doing he shows how labor supply elasticities can be used to measure the efficiency implications of income taxation 1 harberger s analysis had a profound influence on public and labor economists spurring increased research into labor supply elasticities which were seen as proxies for the efficiency costs from taxation more than two decades after harberger economists began to emphasize the variety of other margins over which taxes can distort behavior in addition to hours worked these economists noted that these other behavioral responses may too have important implications for efficiency an important building block in the evolution of this literature was set forth by slemrod 1990 who presented a hierarchy of behavioral responses to taxation slemrod divided behavior into three categories based on their responsiveness to taxes his least responsive category real responses includes individuals changing consumption and work patterns and businesses altering investment and production decisions second in order of responsiveness is circumvention which includes both illegally evasion and legally avoidance bypassing the tax system 2 in the case of evasion income is concealed from tax authorities or factors that offset tax liabilities such as expenses and deductions are inflated beyond what is legally permitted in the case of avoidance income is shifted in order to receive more favorable tax treatment diverting income into a tax deferred retirement account is an example of avoidance 3 included in circumvention is the expenditure of time and money necessary to avoid or evade taxation third on the hierarchy and the most responsive is the timing of income receipt which includes pulling the receipt of income into the previous year or pushing it into the next in order to take advantage of more favorable tax treatment while not altering real behavior 4 slemrod further recognizes that the type of behavioral response could have implications for both tax revenue and tax incidence and in some cases efficiency predating slemrod s insights lindsey 1987 produced elasticity estimates for taxable income although what lindsey termed taxable income more closely approximates adjusted gross income agi instead of labor supply 5 lindsey s estimated elasticities were much larger than the labor supply literature would have suggested lindsey emphasized the revenue implications of the elasticity of taxable income eti but not its efficiency implications building on slemrod and lindsey feldstein 1995 produced eti estimates but went much further than lindsey in describing the behaviors that could affect taxable income he argued that many of these behaviors were not captured by labor supply elasticities furthermore feldstein posited that income taxation creates economic inefficiency not only by distorting the relative price between labor and leisure but more broadly by distorting the relative price between goods or activities that are taxed and those that are not taxed since leisure is not the only untaxed activity for example in response to taxes not only work hours but also work effort might change

tax avoidance and the deadweight loss of the income tax traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption the full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure excludable income and deductible consumption are a hicksian composite good microeconomic estimates imply a deadweight loss of as much as 30 of revenue or more than ten times harberger s classic 1964 estimate the relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed 2 per 1 of revenue

tax bases tax rates and the elasticity of reported income abstract tax reforms usually change both tax rates and tax bases using a panel of income tax returns spanning the two major u s tax reforms of the 1980s and a number of smaller tax law changes i find that the elasticity of income reported on personal income tax returns depends on the available deductions this highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers one implication is that base broadening reduces the marginal efficiency cost of taxation the results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different their tax base is narrower the point estimates indicate that the tax reform act of 1986 reduced the marginal cost of collecting a dollar of tax revenue with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction as a by product the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income

on valuing american call options with the black scholes european formula empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the black scholes european formula such biases have been found related to the exercise price the time to maturity and the variance we argue here that the american option variant of the black scholes formula has the potential to explain the first two biases and may partly explain the third it can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods the expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings the black scholes european option pricing model tends to exhibit systematic empirical biases when used to value american call options the reported biases

reported gross income and marginal tax rates estimation of the behavioural reactions of spanish taxpayers this article estimates for the spanish personal income tax the elasticity of reported gross income to marginal tax rates the identification of this elasticity has been performed using the reform approved by law 35 2006 which came into force in january 2007 the elasticities obtained suggest the existence of important efficiency costs with significant regional differences the average elasticity estimated for spain as a whole is 0 676 however this elasticity is highly dispersed throughout the spanish administrative regions which indicates the unequal power of distortion of the tax thus households whose principal source of income is salary display an elasticity of 0 337 compared to 0 682 for households whose main income source comes from business or savings lastly a positive correlation is also detected between elasticity and income level an elasticity of 3 6 is reached for taxpayers with an annual gross income exceeding 100 000

the elasticity of taxable income evidence and implications abstract a central tax policy parameter that has recently received much attention but about which there is substantial uncertainty is the overall elasticity of taxable income we provide new estimates of this elasticity which address identification problems with previous work by exploiting a long panel of tax returns to study a series of tax reforms throughout the 1980s this identification strategy also allows us to provide new evidence on both the income effects of tax changes on taxable income and on variation in the elasticity of taxable income by income group we find that the overall elasticity of taxable income is approximately 0 4 the elasticity of real income not including tax preferences is much lower we estimate small income effects of tax changes on reported income implying that the compensated and uncompensated elasticities of taxable income are very similar we estimate that this overall elasticity is primarily due to a very elastic response of taxable income for taxpayers who have incomes above 100 000 per year who have an elasticity of 0 57 while for those with incomes below 100 000 per year the elasticity is less than one third as large moreover high income taxpayers who itemize are particularly responsive to taxation our estimates suggest that optimal tax structures may feature tightly targeted transfers to lower income taxpayers and a flat or even declining marginal rate structure for middle and high income taxpayers