macroeconomic equilibrium and reform in a transitional economy we build a general equilibrium macro model of a transitional economy to reflect four stylized facts among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing an almost classical dichotomy obtains in the model monetary expansion leaves output and employment unchanged despite the existence of unemployment though leisure time declines however the economy displays a high degree of complementarity between the state controlled and private sectors giving rise to keynesian multiplier effects we also analyse the effects of price liberalization and privatization on the properties of the economy

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

tax policy and income inequality in the united states 1979 2007 this paper assesses the effects of u s tax policy reforms on inequality over around three decades from 1979 to 2007 it applies a new method for decomposing changes in government redistribution into 1 a direct policy effect resulting from policy changes and 2 the effects of changing market incomes over the period as a whole the tax policy changes increased income inequality by pushing up the income share of high income earners the top 20 jel h23 h31 h53 p16

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

labor income responds differently to income tax and payroll tax reforms we estimate the responses of gross labor income with respect to marginal and average net of tax rates in france over the period 2003 2006 we exploit a series of reforms to the income tax and payroll tax schedules affecting individuals who earn less than twice the minimum wage our estimate for the elasticity of gross labor income with respect to the marginal net of income tax rate is around 0 2 while we find no response to the marginal net of payroll tax rate the elasticity with respect to the average net of tax rate is not significant for the income tax schedule while it is close to 1 for the payroll tax schedule a plausible explanation is the existence of significant labor supply responses to the income tax schedule combined with sticky posted wages i e the gross labor income minus payroll taxes divided by hours worked finally the effect of the net of income tax rate seems to be driven by participation decisions in particular those of married women

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

top marginal taxation and economic growth abstractthe article explores the relationship between top marginal tax rates on personal income and economic growth using a data set of consistently measured top marginal tax rates for a panel of

iceland s natural experiment in supply side economics the move to a pay as you earn income tax system in iceland in 1987 1988 made income earned in 1987 tax free using a sample of 9 274 individuals for the years 1986 1987 and 1988 we calculate the labour supply response of this change and find that total labour supply rose by 6 7 in 1987 over the average of 1986 and 1988 when we correct for entry in 1988 this consists of an 8 6 increase in weeks supplied by those already in the labour market in 1986 and a 1 9 decline due to entry exit the elasticity of weeks worked to the rise in after tax wages was 0 41 for men and 0 11 for women while the participation rate of women increased somewhat in our sample participation by men fell this abstract was borrowed from another version of this item

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

china s macroeconomic performance and management during transition since reforms started in 1978 china has combined rapid growth with moderate price stability this paper analyzes china s macroeconomic performance over the past fifteen years with special attention to factors responsible both for the pace of economic expansion and the periodic fluctuations regarding the former the author identifies four sources of stimuli administrative decentralization high levels of fixed capital investment the elastic supply and quality of the labor force and the increasing volume of savings supplemented in recent years by a large inflow of foreign direct investment future growth with stability calls for controlling and implementing banking and fiscal reform

fiscal policy monetary targets and the price level in a centrally planned economy an application to the case of china this paper presents a planned economy monetary model of china a money supply equation links changes in broad money to government transactions evaluated at official prices the demand for real money balances by consumers equals the nominal demand for money deflated by an unobserved true price index the model explains money demand as the divergence between the then official and true price indices changes in the money supply are explained by government transactions while money demand is explained by real income and the anticipated true rate of inflation the true rate of inflation is 2 5 times the official rate copyright 1987 by ohio state university press

stagflationary effect of government bond financing in the transforming chinese economy a general equilibrium analysis abstract this paper studies how the method of government debt financing affects the macroeconomic performance of the transforming chinese economy the investigation is conducted within the context of an endogenous growth model that incorporates the major institutional features of the chinese economy using this framework we evaluate the effects on the growth rate of output and inflation if the chinese government relies more on bonds and less on money creation for budget deficit and debt repayment financing it is shown that although this policy change can reduce the growth rate of the money supply it can generate a stagflationary effect reducing the rate of output growth while raising the rate of inflation if the initial fraction of government deficit and debt repayment financed by bonds is sufficiently small and the tax rate on labor income is sufficiently low

financial control in the transition from classical socialism to a market economy the transition from socialism to capitalism poses severe problems of financial management that have yet to be resolved in principle let alone in practice one unfortunate consequence is continual financial turmoil as socialist economies of the soviet union and eastern europe attempt reform inflation either open or repressed first accompanies and then undermines attempts to decentralize decision making to dampen inflation and prevent economic chaos even reform governments may be provoked to reintervene by seizing the financial assets of enterprises reinstituting price controls or commandeering outputs through state orders and similar devices but why should the transition from central planning to a market economy be inflationary understanding the system of financial control in the preexisting regime of classical socialism is the key to understanding what might go wrong in the transition under classical socialism all the means of production industrial and agricultural are state owned output targets input levels wages and prices are all set by a stalinist system of central planning accordingly i shall first identify 1 how domestic fiscal and monetary processes interact with and complement central planning in the classical socialist economy and then discuss 2 why this mechanism for securing domestic financial control and avoiding inflation under classical socialism tends to break down when decentralization begins and central planning is weakened the discussion will then turn to 3 how in a more deliberate transition domestic tax and monetary arrangements might be managed to keep the average price level stable as the market prices of individual goods and services become free to fluctuate after sufficient domestic financial control is secured

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

the response of deferred executive compensation to changes in tax rates abstract given the increasing use of stock options in executive compensation we examine how taxes influence the choice of compensation and document that income deferral is an important margin of adjustment in response to tax rate changes to account for this option in the empirical analysis we explore deferral by estimating how executives choice of compensation between current and deferred income depends on changes in tax policy our empirical results suggest a significant impact of taxes on the composition of executive compensation

job additionality and deadweight spending in perfectly competitive industries the case for optimal employment subsidies abstract this paper links the old literature on employment subsidies with the current theories of contract and regulation one important source of inefficiency of employment subsidies is non additional employment and deadweight spending which occur when private firms receive a subsidy for jobs that would have been created without the subsidy we identify the asymmetry of information between the government and the private firm as the source of these problems when the government proposes optimal incentive contracts to promote employment we show that all employment creations are additional and that the deadweight spending is equal to the information rent which may be null when firms types are discrete

combining price and quantity controls under partitioned environmental regulation abstract this paper analyzes hybrid emissions trading systems etss under partitioned environmental regulation when firms abatement costs and future emissions are uncertain we show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions price bounds are more efficient than abatement bounds as they also use information on firms abatement technologies while abatement bounds can only address emission uncertainty using a numerical stochastic optimization model with equilibrium constraints for the european carbon market we find that introducing hybrid policies in eu ets reduces expected excess abatement costs of achieving targeted emission reductions under eu climate policy by up to 89 we also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex post cost reductions

mandatory minimum contributions heterogeneous endowments and voluntary public good provision abstract in a public good experiment with heterogeneous endowments we investigate if and how the contribution level as well as the previously observed fair share rule of equal contributions relative to one s endowment hofmeyr et al 2007 keser et al 2014 are influenced by minimum contribution requirements we consider three different schedules fixmin requiring the same absolute contributions relmin requiring the same relative contributions and progmin requiring minimum contributions that progressively increase with the endowment we find that minimum contributions exert norm giving character and may lead to an increase in average group contributions this is especially true for the progressive schedule on the individual level this schedule leads to higher relative contributions by the wealthier players and thus violates the fair share norm on the group level it leads to the highest contribution level and the lowest inequality in total profits as measured by the gini index

the effect of marginal tax rates on taxable income a panel study of the 1988 tax flattening in canada abstract federal tax reform in 1988 flattened the canadian personal income tax schedule changing the marginal tax rates for many individuals using methods similar to those applied by auten and carroll rev econ 81 4 1999 681 in the study of the effects of the 1986 u s tax reform act we estimate the responsiveness of income to changes in taxes to be substantially smaller in canada however we find evidence of a much higher response in self employment income in the labor income of seniors and from those with high incomes

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 top 1 percent in international and historical perspective world top incomes database at http topincomes parisschoolofeconomics eu and has represented a challenge to the economics profession stories based on the and has represented a challenge to the economics profession stories based on the supply and demand for skills are not enough to explain the extreme top tail of supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution nor is it enough to look only at earned incomes different the earnings distribution nor is it enough to look only at earned incomes different approaches are necessary to explain what has happened in the united states over approaches are necessary to explain what has happened in the united states over the past century and also to explain the differing experience in other high income the past century and also to explain the differing experience in other high income countries over recent decades we begin with the international comparison in the countries over recent decades we begin with the international comparison in the fi rst section and then turn to the causes and implications of the evolution of top fi rst section and then turn to the causes and implications of the evolution of top income shares income shares

assessing tax reforms through the elasticity of reported income an empirical analysis for spain this paper demonstrates the usefulness of the elasticity of reported income to assess tax reforms from the perspectives of tax revenue and well being employing different identification strategies

growth efficiency and convergence in china s state and collective industry in china as in the soviet union and eastern europe economic reform initiatives seek to increase productivity by introducing elements of market oriented policies and institutions into an economy formerly dominated by state planning efforts to evaluate the impact of reform of chinese industry have focused on the measurement of productivity change in state enterprises this study expands the prior framework of analysis in several directions our investigation of productivity trends is not limited to state enterprises but includes quantitative comparisons with china s fast growing collective industries which contributed 36 of overall industrial output in 1988 1 unlike previous studies our analysis works with gross rather than net output this permits us to investigate changes in the productivity of intermediate inputs which occupy a large portion of total costs in chinese industry as well as labor and capital to do this we develop a quasi frontier estimation procedure which seems appropriate for comparisons of total factor productivity based on chinese industrial data finally we offer a quantitative perspective on the extent to which reform efforts have moved industrial resource allocation toward patterns expected of a market system the analysis confirms our previous finding based on a restricted framework employing only labor fixed capital and net output that multifactor productivity in state industry has risen substantially during

post reform industrial productivity performance of china new evidence from the 1985 industrial census data i introduction during the last decade china implemented a series of economic reforms that followed what many observers agreed was a period of stagnation in industrial productivity 1 the first wave of chinese economic reforms 1978 79 following the economic opening to the west under the four modernizations began after the third plenum of the eleventh central committee of the communist party of china announced a new policy of economic modernization in december 1978 a major goal of the new policy was to improve productivity toward this end the party would 1 allow the formation of private enterprises 2 permit state owned and collective enterprises to retain a portion of their profits 3 devolve a greater degree of decision making to factory managers and drastically reduce the scope of planning 4 introduce material incentives such as bonuses to labor and 5 place increased reliance on markets for inter industry resource allocation it is important to note that at this time in the early 1980s real reform was limited to the agricultural sector as discussed in perkins 1988 the second wave of reforms occurred in 1983 84 with the announcement of sweeping changes for the urban industrial sector these reforms included four major measures 1 a reduction in the number of leadership positions in enterprises 2 a further expansion of enterprise managers authority 3 the substitution of an income tax for remission of profits to the state and 4 removal of the ceiling on bonuses naturally it is important to know whether or not these reforms improved chinese industrial productivity since the early 1980s both chinese and western economists have conducted many empirical studies on china s post reform economic performance however the results from these studies are far from conclusive for example the world bank 1983 1985 field 1984 yeh 1984 chen 1986 chen and sang 1986 pan 1986 and tidrick 1986 have reported that input accumulation accounts for nearly all of output increases in industry as a whole in the early 1980s in particular tidrick 1986 found that china s performance has been extremely disappointing total factor productivity in the state owned industrial sector declined at an annual rate ranging from 0 10 percent to 1 20 percent for the period 1978 83 in contrast more recent studies such as those by kuan et al 1988 and jefferson 1988 have found that china s post reform industrial productivity was significantly improved most notably kuan et al 1988 found that chinese industrial productivity in the state owned sector grew at an average annual rate ranging from 2 7 to 3 1 percent for 1980 84 and from 15 3 to 18 2 percent for 1984 85 this difference in the findings reported in the literature is striking and requires further investigation one explanation is that the various studies are based on different data sets time periods models and data construction methods for example tidrick 1986 used aggregate time series data for state owned industry for the period 1952 83 while kuan et al 1988 used aggregate time series data including only independent accounting units within the state owned industrial sector for the period 1953 85 perkins 1988 reviewed china s overall post reform economic performance using data at the national level he found that during 1976 85 total factor productivity in china grew at an annual rate of 3 79 percent accounting for over 40 percent of china s net material product he concluded that reform and productivity growth thus led the way to higher overall growth and that agriculture and the collectively organized small scale industrial enterprises play an important role in the accelerated productivity growth of the reform periods perkins however hastened to point out that his conclusion is based on impressionistic evidence and is in no sense definitive and suggested that disaggregated data on outputs and inputs by sector or individual industries are required to identify those sectors that accounted for most of the rise in productivity perkins 1988 628

taxation and the earnings of husbands and wives evidence from sweden i examine the response of husbands and wives earnings to a tax reform in which husbands and wives tax rates changed independently allowing me to examine the effect of both spouses incentives on each spouse s behavior i analyze the large swedish tax reform of 1990 1991 and find that in response to a compensated fall in one spouse s tax rate each spouse s earnings rise i compare these results to those of simplified econometric models used in the typical setting in which independent variation in each spouse s tax rate is unavailable i find that standard econometric specifications may produce substantially biased estimates

what does the taxable income elasticity say about dynamic responses to tax changes the taxable income elasticity is relevant to dynamic scoring because it broadly encompasses many ways taxpayers respond to changes in tax rates the elasticity includes for example changes in labor supply and participation savings and portfolio allocation the form of compensation the timing of income and deductions and tax evasion and avoidance on the tax base all subsumed in this one statistic this one statistic summarizes how the tax base expands or contracts in response to changes in tax rates and consequently the extent taxpayer behavior offsets the static revenue loss gain of tax rate reductions increases in contrast to conventional revenues estimates which assume that output and other key macroeconomic aggregates remain fixed when considering changes in the tax law the taxable income elasticity imposes no such constraint nevertheless some macro dynamic responses such as investment and savings related supplyside effects and crowding out are only partially captured in the taxable income elasticity and demand effects are generally not reflected at all also the taxable income elasticity generally does not account for shifting between the individual and corporate tax bases and is primarily useful to only evaluate policies that involve changes in tax rates while large is in the eye of the beholder the taxable income literature has generally found evidence of at least a modest behavioral response with some of the more recent studies suggesting a taxable income elasticity of about 0 4 this paper uses a 0 4 elasticity to simulate the revenue effect of repealing the recent reduction in the top two tax rates to 35 percent and to motivate a discussion of what the this elasticity can tell us about the dynamic response to changes in tax policy

alternative forms of government expenditure financing a comparative welfare analysis this paper derives criteria for evaluating the impact of an increase in government expenditure on both the time path of instantaneous utility and overall welfare under alternative forms of tax financing these consist of three factors the first is the direct crowding out effect which reflects the utility differential between the government expenditure being undertaken and the private consumption it is displacing the second describes the intertemporal trade off between the effect on the short run rate of capital accumulation and the resulting change in the the long run capital stock the final term is due to the distortion arising from the pre existence of a tax on wage income copyright 1992 by the london school of economics and political science

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

the effect of tax based savings incentives on the self employed abstract the u s individual income tax allows employers to make tax deferred contributions to qualified pension plans for their employees and in the case of the self employed on their own behalf we examine the effect of these tax based savings incentives on the self employed for this purpose we use a panel of sole proprietors constructed from the statistics of income soi individual income tax files for 1985 1989 and 1993 we find that taxes have a substantial effect on both the dichotomous decision to contribute and the amount contributed to tax deferred retirement savings plan by the self employed in general our estimates suggest a tax price elasticity of contributions around 2 0 this finding is surprisingly robust to a number of alternative specifications

the evolution of income concentration in japan 1886 2005 evidence from income tax statistics abstract this paper studies the evolution of income concentration in japan from 1886 to 2005 by constructing long run series of top income shares and top wage income shares using income tax statistics we find that i income concentration was extremely high throughout the pre wwii period during which the nation underwent rapid industrialization ii a drastic de concentration of income at the top took place in 1938 1945 iii income concentration remained low during the rest of the century but shows some sign of increase in the last decade and iv top income composition in japan has shifted dramatically from capital income to employment income over the course of the twentieth century we attribute the precipitous fall in income concentration during wwii primarily to the collapse of capital income due to wartime regulations and inflation we argue that the change in the institutional structure under the occupational reforms made the one time income de concentration difficult to reverse in contrast t

the effect of marginal tax rates on income a panel study of bracket creep this paper uses a panel of individual tax returns and the bracket creep as source of tax rate variation to construct instrumental variables estimates of the sensitivity of income to changes in tax rates from 1979 to 1981 the us income tax schedule was fixed in nominal terms while inflation was high around 10 this produced a real change in tax rate schedules taxpayers near the top end of a tax bracket were more likely to creep to a higher bracket and thus experience a rise in marginal rates the following year than the other taxpayers compensated elasticities can be estimated by comparing the differences in changes in income between taxpayers close to the top end of a tax bracket to the other taxpayers these estimates based on comparisons between very similar groups are robust to underlying changes in the income distribution such as a rise in inequality the elasticities of taxable income and adjusted gross income are around 0 4 and significant but the elasticities of wage income are in general insignificant and close to zero 2002 elsevier science b v all rights reserved

hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates recently a voluminous literature estimating the taxable income elasticity has emerged as an important field in empirical public economics however to a large extent it is still unknown how the hourly wage rate an important component of taxable income reacts to changes in marginal tax rates in this study we use a rich panel data set and a sequence of tax reforms that took place in sweden during the 1980 s to estimate the elasticity of the hourly wage rate with respect to the net of tax rate while carefully accounting for the endogeneity of marginal tax rates as well as other factors that determine wage rates we do find a statistically significant response both among married men and married women the hourly wage rate elasticity with respect to the net of tax rate is estimated to 0 14 0 16 for males and 0 41 0 57 for females in addition we obtain uncompensated taxable labor income elasticities of around 0 21 for men and 0 96 1 44 for women in contrast to earlier studies we also find significant income effects for males accordingly for males the compensated taxable labor income elasticity is about 4 percentage points higher than the uncompensated one

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

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

estimating taxable income responses with elasticity heterogeneity abstract we explore elasticity heterogeneity in the estimation of the elasticity of taxable income eti and propose potentially valid instruments we show that previously used instruments are not valid and yield weighted averages of etis of different taxpayers plus a bias using the nber tax panel for 1979 1990 we find a weighted average eti of 0 57 when using all available variation in budget set changes provided by the tax reforms in the data our results also demonstrate that elasticity heterogeneity is an important explanation for the remarkable divergence of estimates in the previous literature

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

some even more unpleasant monetarist arithmetic does monetizing a deficit always result in a higher rate of inflation than bond financing the same deficit t j sargent and n wallace 1981 produced conditions under which the answer was negative unpleasant monetarist arithmetic subsequent authors have challenged the empirical validity of these conditions the authors develop a model similar to that of sargent and wallace and modify it to allow for financial intermediation in the presence of reserve requirements unpleasant arithmetic arises even when the real rate of growth exceeds the real return on bonds moreover under empirically plausible restrictions there exists a unique equilibrium no laffer curve considerations arise

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

evidence on the insurance effect of redistributive taxation copyright 2010 by the president and fellows of harvard college and the massachusetts institute of technology

does tax policy affect executive compensation evidence from postwar tax reforms abstract the trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy by contrast the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s however the relative tax advantage of different forms of pay was small during this period using a sample of top executives in large firms from 1946 to 2005 we also find a small short run response of salaries qualified stock options and bonuses paid after retirement to changes in tax rates on labor income even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following wwii we explore several potential explanations for the conflicting impressions given by the long run and short run correlations between taxes and pay including changes in social norms and concerns about pay equality

the effect of age targeted tax credits on labor force participation of older workers abstract i analyze the effect of income tax policy changes on labor force participation of older workers i exploit two age targeted policy initiatives to promote work at older ages simultaneously implemented in sweden in 2007 an earned income tax credit and a payroll tax credit for workers above age 65 using an age based discontinuity in eligibility criteria i conduct a difference in differences analysis with the reform as an instrument for the net of tax rate i find a participation elasticity with respect to the net of participation tax rate of about 0 22 in the year following the 65th birthday for individuals who were working four years earlier

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

how to reform a planned economy lessons from china the countries of eastern europe and the former soviet union have been flooded with advice from the west on how to liberalize their planned econo mies this advice is unfortunately offered in an empirical vacuum no one knows how these econo mies will react to the proposed liberalization meas ures there exists however a neglected source of information china offers a long time series of data over a decade s worth on the effects of reforms on a planned economy china s reforms were gradual but their cumulative effect has been large and they have been remarkably successful china s experiments provide some practical les sons on what kinds of reforms can work elsewhere the dominant school of thought among economists favours the big bang policy of reforming quickly and according to a comprehensive plan partial reforms in this view are useless they will be negated by the remnants of the planning system the proponents of big bang reform have been influential with poland czechoslovakia and rus sia announcing plans for a rapid transition to capi talism

taxation as a social choice problem the scope of the laffer argument abstract this paper studies the form of the tax equilibrium set in simple diamond mirrlees models and characterizes the corresponding laffer curves the curves need not ever slope downward and can have multiple local maxima local information about them is thus not sufficient to place restrictions on optimal choice among tax systems in this simple framework the problem of choice among tax systems is shown to have no more structure than an abstract social choice problem