coase lecture human capital inequality and tax reform recent past and future prospects even before the financial crisis many developed economies were facing growing inequality and struggling to maintain employment and earnings this paper addresses two key questions what has happened to inequality where will tax and welfare reforms have most impact the uk is used as a running example the analysis suggests that the pattern of sluggish real wages at the bottom looks set to continue and longer term earnings growth will come mainly from high skilled occupations growing earnings inequality will bring increasing pressure on the tax and welfare system a blueprint for a coherent tax policy reform is presented

natural resources and sub national economic performance does sub national democracy matter abstract the differentiation in the impact of resources on economic growth is often explained by the specifics of institutional factors the aim of this paper is to investigate how sub national political differences influence the effect of natural resources on economic growth using a dataset of russian regions this paper demonstrates that sub national democratization influences the growth effects of resources and considers possible mechanisms for this influence the paper finds that in russia natural resources are only capable of promoting growth in the regions with non democratic political systems that at the same time have an efficient and non corrupt bureaucracy

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

the evolution of institutions in india and its relationship with economic growth this paper examines the evolution in a few public institutions over time in india it presents three types of evidence on institutional outcomes such as losses in power generation backlogs in disposal of court cases on perceptions based measures of governance some going back to the 1960s and finally on customs administration and whether it has been more effective at detecting evasion over time all the evidence suggests that institutional quality has not improved over time it then addresses the two way relationship between growth and institutions in terms of two apparent paradoxes the first is why growth has turned around so dramatically in india despite the relatively limited nature of reforms especially compared with other countries the second paradox is why despite nearly 30 years of rapid growth institutions have not improved the paper offers some explanations that might help explain these paradoxes

optimal redistribution and monitoring of labor supply this paper extends the mirrlees 1971 model of optimal non linear income taxation with a monitoring technology that allows the government to verify labor supply at a positive but non infinite cost we analyze the joint determination of the non linear monitoring and tax schedules and the conditions under which these can be implemented monitoring of labor supply reduces the distortions created by income taxation and raises optimal marginal tax rates possibly above 100 the optimal intensity of monitoring increases with the marginal tax rate and the labor supply elasticity our simulations demonstrate that monitoring strongly alleviates the trade off between equity and efficiency welfare gains of monitoring are around 2 8 of total output the optimal intensity of monitoring follows a u shaped pattern similar to that of optimal marginal tax rates our paper can explain why large welfare states optimally rely on work dependent tax credits active labor market policies benefit sanctions and work bonuses in welfare programs

taxpayer responses in good times and bad abstract i show that the magnitude of taxpayer responsiveness a key parameter in public finance varies through time using linked administrative data and identifying responses from changes in notches i document a marked decline in responsiveness during the great recession that cannot be explained by increased enforcement i characterize which employee employer pairs are best at reporting tax advantaged incomes workers in industries with above average responsiveness such as construction were disproportionately affected by the recession i show responsiveness also declined for workers who remained matched with the same employers throughout the period

environmental regulation and competitiveness empirical evidence on the porter hypothesis from european manufacturing sectors abstract this paper investigates the weak and strong versions of porter hypothesis ph focusing on the manufacturing sectors of 17 european countries between 1997 and 2009 the hypothesis that well crafted and well enforced regulation would benefit both the environment and the firm was originally proposed by porter 1991 and porter and van der linde 1995 to date the literature has analyzed the impact of environmental regulation on innovation and on productivity mostly in separate analyses and focusing on the usa the few existing contributions on europe study the effect of environmental regulation either on green innovation or on performance indicators such as exports we instead look at overall innovation and productivity impacts first focusing on overall innovative activity allows us to account for potential opportunity costs of induced innovations second productivity impacts are arguably the most relevant indicators for the strong ph as a proxy of environmental policy stringency we use pollution abatement and control expenditures pace one of the few sectoral level indicators available we remedy upon its main drawback namely potential endogeneity by adopting an instrumental variable estimation approach we find evidence of a positive impact of environmental regulation on the output of innovation activity as proxied by patents thus providing support in favor of the weak ph this result is in line with most of the literature on the other front we find no evidence in favor of the strong ph as productivity appears to be unaffected by the degree of pollution control and abatement efforts

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

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

environmental regulations and productivity growth the case of fossil fueled electric power generation this paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973 79 business cycle a firm specific measure of regulatory intensity is developed which depends on the severity of the emission standard the extent of enforcement and the unconstrained emission rate relevant to each utility the results indicate that emission regulations result in significantly higher generating costs primarily from the increased use of low sulfur fuels the average rate of productivity growth was reduced by 0 59 percentage points per year for constrained utilities

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

wto accession and tariff evasion abstract this study documents some unintended consequences of the world trade organization wto membership by providing evidence on displacement of tariff evasion driven by the wto accession process the analysis focuses on the wto customs valuation agreement cva which limits the discretion of customs officials when it comes to assessing the price of imports while prior to the wto accession customs officials are free to use their own judgment or apply minimum or reference prices after their country joined the wto they are mandated to accept the invoice price issued by the exporter if customs officials enjoy discretion with respect to assessing the import price they may assist importers with tariff evasion in exchange for bribes removing such discretion limits their ability to facilitate misrepresentation of import prices using data on 15 countries which joined the wto between 1996 and 2008 we find a positive relationship between underreporting of import prices and the tariff rate which is expected as the incentive to evade increases with the tariff rate importantly this relationship disappears after a country joins the wto this result is consistent with the cva closing one channel for corrupt behavior however we also find that changes to customs valuation procedures induce importers to seek alternative ways of tariff evasion such as underreporting of quantities and product misclassification the overall level of evasion remains unchanged

taxing the rich affluent households can respond to taxation with means that are not economically viable for the rest of the population such as sophisticated tax plans and international tax arbitrage this article studies an economy in which an inequality averse social planner faces agents who have access to a tax avoidance technology with subadditive costs and who can shape the risk profile of their income as they see fit subadditive avoidance costs imply that optimal taxation cannot be progressive at the top this in turn may trigger excessive risk taking when the avoidance technology consists in costly migration between two countries that compete fiscally we show that an endogenous increase in inequality due to risk taking makes progressive taxation more fragile which vindicates in turn risk taking and can lead to equilibria with regressive tax rates at the top and high migrations of wealth towards the smaller country

resource richness and economic growth in contemporary u s abstract we study the effects of energy innovation and policy on income growth between 1997 and 2014 us corn soybean and cotton production almost fully converted to genetically modified crops starting around 2007 improved tight oil and shale gas technologies turned the declining us fossil fuel production into a booming industry we study the effects of these two resource technology revolutions on us state income we find that the shale revolution increased income in states abundant in oil and gas resources states dependent on agricultural production also saw an increase in income which we however attribute not only to the gm innovation but to a demand increase brought by the energy policy act of 2005

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

the resource curse a statistical mirage abstract a surprising feature of resource rich economies is slow growth it is often argued that natural resource production impedes development by creating market or institutional failures this paper establishes an alternative explanation a slow growing resource sector a declining resource sector is disproportionately reflected in resource dependent countries additionally there is little evidence that resource dependence impedes growth in non resource sectors more generally this paper illustrates the importance of considering industry composition in cross country growth regressions

the paradox of plenty a meta analysis since sachs and warner s seminal article in 1995 numerous studies have addressed the link between natural resources and economic growth although the resource curse effect was commonly accepted at first many articles have challenged its existence and the results found in the literature are ambiguous in this paper we aim to quantitatively review this literature in order to i identify the sources of heterogeneity and ii assess the impact of natural resources on economic growth a meta analysis is performed on 69 empirical studies on the resource curse totaling 1 419 estimates our findings show that i only developing countries suffer from the resource curse although it is soft ii the way natural resources are taken into account is crucial to understand the heterogeneity found in the literature iii the negative impact of the volatility of the terms of trade on growth should be qualified an additional mra performed on indirect effects size also indicate that when institutions are at their best level the resource curse disappears and may be turned into a blessing

majority voting and the welfare implications of tax avoidance abstract a benchmark result in the political economy of taxation is that majority voting over a linear income tax schedule will result in an inefficiently high tax rate whenever the median voter has a below average income the present paper examines the role of tax avoidance for this welfare result for a right skewed distribution of taxed income we show that the political distortion from majority voting is increasing in the median voter s avoidance vice versa keeping the decisive voter s avoidance constant the political inefficiency is decreasing in the average level of avoidance in the economy

tariffs enforcement and customs evasion evidence from india we examine the effect of tariff policies on evasion of customs duties in the context of the trade reform in india of the 1990s by exploiting the variation in tariff rates across time and products we identify a robust positive elasticity of evasion with respect to tariffs a second contribution of the paper is to provide some evidence on the impact of enforcement while we cannot identify the direct impact of enforcement on evasion we can establish the extent to which enforcement related factors such as product characteristics that determine the ease of detection of evasion affect the evasion elasticity the results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs

measurement methods for technological change embodied in inputs abstract this paper shows how unmeasured quality change embodied in purchased materials input may be estimated as part of a cost function model the methods presented simultaneously incorporate quality adjusted price and quantity of the materials input into the model

tax evasion and the optimum general income tax abstract this paper incorporates tax evasion into an optimum general income tax problem with endogenous labor supply it posits a two group model with high and low wage individuals to investigate the properties of optimal audit and tax structures the following main results are obtained first high wage persons are never audited while low wage persons are audited with a probability strictly less than one secondly high wage persons should face a zero marginal tax rate thirdly low wage individuals who have been audited and found innocent should pay a lower tax than those who are not audited fourthly there are two possible tax regimes low wage persons face a positive marginal tax rate under one regime and a zero rate under the other fifthly even if honesty cannot be rewarded the other results of the paper continue to hold

taxation and the long run allocation of labor theory and danish evidence abstract inspired by hayek 1945 we study the distortionary effects of taxation on labor mobility and the long run allocation of labor across different profitable opportunities these effects are not well detected by the methods applied in the large public finance literature estimating the elasticity of taxable income and quantifying the efficiency loss from taxation our analysis builds on a standard search theoretic framework where workers are continually seeking better paid jobs but are also fired from time to time because of economic development and productivity shocks we incorporate non linear taxation into this setting and estimate the structural parameters of the model using employer employee register based data for the full danish population of workers and workplaces for the years 2004 2006 our results indicate that along the intensive margin the danish taxation generates an overall efficiency loss corresponding to a 12 reduction in total income it is possible to reap 4 5 of this potential efficiency gain by going from a high tax scandinavian system to a level of taxation in line with low tax oecd countries such as the united states the tax responsiveness of labor mobility and allocation corresponds to an elasticity of taxable income with respect to the net of tax rate in the range 0 15 0 35

myth and reality of flat tax reform micro estimates of tax evasion response and welfare effects in russia we examine the effects of russia s 2001 flat rate income tax reform on consumption income and tax evasion we use the gap between household expenditures and reported earnings as a proxy for tax e

is this tax reform or just confusion based on the experience of recent decades the united states apparently musters the political will to change its tax system comprehensively about every 30 years so it seems especially important to get it right when the chance arises based on the strong public statements of economists opposing and supporting the tax cuts and jobs act of 2017 a causal observer might wonder whether this law was tax reform or mere confusion in this paper i address that question and more importantly offer an assessment of the tax cuts and jobs act the law is clearly not tax reform as economists usually use that term that is it does not seek to broaden the tax base and reduce marginal rates in a roughly revenue neutral manner however the law is not just a muddle it seeks to address some widely acknowledged issues with corporate taxation and takes some steps toward broadening the tax base in part by reducing the incentive to itemize deductions

the effect of tax enforcement on tax elasticities evidence from charitable contributions in france optimal tax formulas expressed in sufficient statistics are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments in practice though tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments in this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument the level of tax enforcement we exploit a natural experiment that took place in france in 1983 when the tax administration tightened the requirements to claim charitable deductions the reform led to a substantial drop in the amount of contributions reported to the administration which can be credibly attributed to overreporting of charitable contributions before the reform rather than to a real change in giving behaviours we show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions this finding allows us to partially identify the elasticity of overreporting contributions which is shown to be large and inferior to 2 in the lax enforcement regime we further show using bunching of taxpayers at kink points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in kopczuk and slemrod 2002

tax policy reform the role of empirical evidence to understand the role of evidence in tax policy design this paper organizes the empirical analysis of reform under five loosely related headings i key margins of adjustment ii measurement of effective tax rates iii the importance of information and complexity iv evidence on the size of responses and v implications from theory for tax design the context for the discussion is the recently published mirrlees review of tax reform although the review focused on all aspects of tax reform this paper highlights the taxation of earnings it also comments on earnings taxation in the context of vat base broadening reforms and the taxation of capital

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

do resource dependent regions grow slower than they should abstract a large literature documents a negative correlation between income growth and resource dependence this correlation has been named the resource curse we present evidence that suggests that the resource curse can be explained by a slow growing resource sector

input measurement and productivity growth in japanese and u s manufacturing in their article in this review j r norsworthy and david h malmquist 1983 have presented interesting comparisons of productivity growth in the japanese and u s manufacturing sectors their paper starts with the discussion of whether the conventional value added or gnp measurement of output is an appropriate framework for productivity analysis some confusion frequently arises as to whether a production function should be structured on the basis of gross output or value added output separability is a pivotal concept in the analysis of production structures especially in relation to the existence of a real value added aggregate it is well known that there are two types of separability which pertain to the existence of a real value added function weak local separability and strong partial separability the practical advantage of distinguishing these two different forms of separability is that the double deflation method in conventional gnp accounting is justified only when strong partial separability holds using the approximate separability tests of michael denny and melvyn fuss 1977 norsworthy and malmquist have shown that a value added aggregate does not exist in either u s or japanese manufacturing and they conclude that the appropriate output measure for joint investigation of both countries for purposes of productivity analysis is gross output p 953 the purpose of this comment is to indicate some deficiencies in norsworthy and malmquist s analysis in particular it will be demonstrated that the conditions for weak local and strong partial separability in norsworthy and malmquist s paper are incorrectly formulated and as a consequence their findings may not be used as conclusive evidence that a gross output measure is an appropriate basis for the analysis of capital labor substitutability and productivity growth in japan and the united states

on the optimal tax base for commodity taxation taxed considerable effort has been devoted to characterizing the manner in which the optimal tax rates differ across the taxable commodities but the literature has rarely addressed the issue of which commodities should be included in the tax base in fact the standard optimal tax model cannot provide a useful answer to this question because it does not contain any of the resource costs normally associated with the collection of taxes an omission that seriously diminishes the policy relevance of the model 2

taxes informality and income shifting evidence from a recent pakistani tax reform abstract this paper examines firm behavior to taxation in a low enforcement and large informality setting using quasi experimental variation created by a tax reform which increased taxation of partnerships substantially relative to firms of other legal form and the population of income tax returns filed in pakistan in 2006 11 i document that treated firms report significantly lower earnings migrate into informality and switch business form in response to the increase in tax rate the revenue loss caused by these behavioral responses is so large that by the third year after the reform the government was collecting less revenue than it would have without the tax increase this implies that the new tax rate was on the wrong side of the laffer curve and would not have been optimal under any social preferences the richness of the data and tax variation permits me to decompose the observed responses into real and evasion margins and to identify fiscal externalities created by the reform on other tax bases the welfare cost of the reform increases by around 40 once these externalities are taken into account

optimal tax salience abstract recent empirical work finds that consumers under account for commodity taxes when the after tax price is not prominent i investigate how policymakers may utilize such low salience taxes to promote welfare the optimal combination of high and low salience taxes balances two competing effects low salience taxes dampen distortionary substitution but cause consumers to misallocate their budgets using a stylized model i show the availability of taxes with differing salience provides an extra degree of freedom that can be used to implement the first best welfare outcome i characterize the optimal policy and derive a formula for incremental adjustments when the first best is unattainable

voting on income tax exemptions most itemized tax exemptions lead to significant deductions for a minority of the population only this raises the question why the majority does not vote for the abolition of these tax privileges in exchange for lower tax rates in this paper we show that a reform proposal may be voted down even when the majority uses the exemption at stake below the average turning to an empirical application we simulate the voting outcome on the proposal to abolish the tax deductibility of commuting expenses in germany our model predicts that this proposal would be rejected even though a comfortable majority has below average deductions

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

income shifting as income creation abstract income shifting arises as one of the key questions when thinking about the design of a tax system as a whole we study a simple economy involving a benevolent policy maker and a population of agents differing in terms of productivities labor supply elasticities and shifting costs paying special attention to the cost structure of income shifting we highlight that when people who shift easily along the extensive margin are also more elastic in labor supply giving them a lower tax rate is a good thing and the government should not necessarily combat income shifting this mechanism may be compared to third degree price discrimination in industrial organization and works as a form of endogenous tagging we explore this possibility numerically before showing that our results derived for a policy maker optimally adjusting two linear tax instruments carry over when two fully non linear taxes are potentially available

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

optimal income tax under the threat of migration by top income earners we examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear income tax scheme in a mirrleesian economy an individual emigrates if his domestic utility is less than his utility abroad net of migration costs utilities and costs both depending on productivity a simple formula that complements saez s formula obtained in closed economy is derived for the marginal tax rates faced by top income earners it depends on the labour elasticity the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad the rawlsian marginal tax rates obtained for the whole population illustrate a curse of the middle skilled simulations are provided for the french economy

taxpayer confusion evidence from the child tax credit we develop an empirical test for whether households understand or misperceive their marginal tax rate our identifying variation comes from the loss of the child tax credit when a child turns 17 using this age discontinuity we find that despite this tax liability increase being lump sum and predictable households reduce their reported wage income upon discovering they have lost the credit this finding suggests that households misinterpret at least part of this tax liability change as an increase in their marginal tax rate this evidence supports the hypothesis that tax complexity can cause confusion and leads to unintended behavioral responses jel d12 d14 h24 h31

optimal taxation with costly enforcement and evasion abstract this paper analyzes the relationship between optimal taxation and optimal tax enforcement a central question concerns the extent to which revenue should be raised through higher tax rates which distort behavior or greater enforcement which distorts behavior and also entails direct resource costs in the models examined some expenditure on enforcement may be optimal despite its resource cost its distortionary effect and the availability of other revenue sources having no enforcement costs rules for optimal tax rates and enforcement expenditures are derived which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency

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

resource abundance and economic growth in the united states abstract it is a common assumption that regions within the same country converge to approximately the same steady state income levels the so called absolute convergence hypothesis focuses on initial income levels to account for the variability in income growth among regions empirical data seem to support the absolute convergence hypothesis for us states but the data also show that natural resource abundance is a significant negative determinant of growth we find that natural resource abundance decreases investment schooling openness and r d expenditure and increases corruption and we show that these effects can fully explain the negative effect of natural resource abundance on growth

tax reform and the political economy of the tax base abstract this paper studies the political prospects for reform in a model where the tax base and statutory rate are separate instruments of tax policy the model suggests that large changes in the tax code may be easier to enact than marginal reforms the tax base faces a tipping point where even the beneficiaries from tax exemptions support reform at this tipping point tax reform is pareto improving politically feasible tax reform occurs when fiscal needs are large but may nonetheless involve reductions in marginal tax rates there is strategic complementarity in lobbying for tax exemptions resulting in multiple equilibria the model s main predictions are consistent with recent tax reforms in oecd countries

optimal tax administration abstract this paper sets out a framework for analyzing optimal interventions by a tax administration one that parallels and can be closely integrated with established frameworks for thinking about optimal tax policy its key contribution is the development of a summary measure of the impact of administrative interventions the enforcement elasticity of tax revenue that is a sufficient statistic for the behavioral response to such interventions much as the elasticity of taxable income serves as a sufficient statistic for the response to tax rates among the applications are characterizations of the optimal balance between policy and administrative measures and of the optimal compliance gap

experimental evidence on the relationship between tax evasion opportunities and labor supply abstract motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities we first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment n 205 in which all participants undertake a real effort task over several rounds subjects face a tax rate that varies across rounds and are required to pay taxes on earned income the treatment group is given the opportunity to underreport income while the control group is not we find evidence that participants in the treatment group respond differently to changes in the net of tax rate than participants in the control group the effect is more prevalent when tax rates fall additionally the direction of the treatment effect is dependent on the evolution of tax rates across rounds

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

local labor markets and natural resources a synthesis of the literature a primary way that natural resources affect a locality is through the demand for labor with greater extraction requiring more workers shifts in labor demand can be measured through changes in employment and earnings the main labor market outcomes or through changes in the population and income more generally these changes may spillover into the nonresource economy leading to greater overall effects or possibly crowd out be spread unequally across the population thereby altering the distribution of income and the poverty rate or influence educational attainment as people choose between additional schooling and work in this review the literature linking natural resources to local labor markets is synthesized by organizing existing studies according to their resource measurement and the outcomes that they consider this synthesis provides an accessible guide to a literature that has boomed in recent years it also identifies promising avenues for future research and lays a foundation to further generalize the evidence through an eventual meta analysis

tax evasion concealment and the optimal linear income tax this paper incorporates tax evasion into the analysis of optimal linear income taxation taxevaders can influence the probability of being caught if audited through expenditures on concealment it is proved that tax evasion can make a given tax system more as well as less progressive depending on the concealment technology the paper derives and interprets simple formulas for characterizing the optimal tax rate and audit probability it also gives sufficient conditions under which tax evasion lowers the optimal tax rate while showing that an increase in the optimal tax rate is also possible

how can scandinavians tax so much american visitors to scandinavian countries are often puzzled by what they observe despite large income redistribution through distortionary taxes and transfers these are very high income countries they rank among the highest in the world in terms of income per capita as well as most other economic and social outcomes the economic and social success of scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare to form a basis for the discussion table 1 shows tax revenues and income tax rates in the three scandinavian countries denmark norway and sweden as compared to other european countries and the united states we see that the tax to gdp ratio and the tax rates on income are much higher in scandinavia than elsewhere the top marginal tax rates are about 60 70 percent in the scandinavian countries as opposed to only 43 percent in the united states the contrast is even more striking when considering the so called participation tax rate which is the effective average tax rate on labor force participation when accounting for the distortions due to income taxes payroll taxes consumption taxes and means tested transfers this tax rate is around 80 percent in the scandinavian countries implying that an average worker entering employment will be able to increase consumption by only 20 percent of earned income due to the combined effect of higher taxes and lower transfers by contrast the average worker in the united states gets to keep 63 percent of earnings when accounting for the full effect of the tax and

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

bunching and non bunching at kink points of the swedish tax schedule recent microeconometric studies of taxpayers responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero however a common view is that long run responses might still be large since micro estimates are downward biased owing to optimization frictions in this paper we estimate the taxable income elasticity at a very large kink point of the swedish tax schedule using the bunching method during the period of study the change in the log net of tax rate reached a maximum value of 45 6 interestingly we obtain a precise elasticity estimate of zero for wage earners at this large kink the size of the kink allows us to derive tighter bounds on the long run elasticity than previous studies if wage earners on average tolerate 1 of their disposable income in optimization costs the upper bound on the long run taxable income elasticity is 0 39 we also evaluate the performance of the bunching estimator by performing monte carlo simulations

the effect of prices on nutrition comparing the impact of product and nutrient specific taxes this paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction level observations for a large nationally representative sample of us consumers over the period 2002 2007 using product specific nutritional information we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally bundled goods which parsimoniously characterize consumer choice sets we then estimate a large utility derived demand system over this joint product nutrient space that allows us to calculate price and expenditure elasticities using our structural demand estimates we simulate the role of product taxes on soda sugar sweetened beverages packaged meals and snacks and nutrient taxes on fat salt and sugar we find that a 20 nutrient tax has a significantly larger impact on nutrition than an equivalent product tax due to the fact that these are broader based taxes however the costs of these taxes in terms of consumer utility are only about 70 cents per household per day a sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers

additive general error models for production cost and derived demand or share systems many empirical studies of production specify a deterministic model of the firm derive the implied behavioral equations input demand or share system and then embed this system in a stochastic framework by tacking on linear error terms in contrast this paper proposes general error models gems in which the error specification is an integral part of the optimization model these models are the statistical embodiment of stigler s view that apparent observed inefficiencies reflect the investigator s ignorance of the true optimization problem additive gems are proposed and interpreted specification tests indicate that a translog additive gem is superior to the standard translog specification

fixing the leak in okun s bucket optimal tax progressivity when avoidance can be controlled this paper examines optimal income tax progressivity when avoidance responses to taxation are important and can be controlled at some cost by the government a simple example shows that ignoring the fact that avoidance can be controlled that the leak in okun s bucket can be fixed can lead to misleading implications about the optimal degree of tax rate progressivity the paper then generalizes the standard modei of the optimal linear income tax to include taxpayer avoidance behavior and the ability of government to control the avoidance but not the labor supply response to higher marginal tax ites the discussion suggests that if the tax burden is to be made more progressive base broadening and increased enforcement ought to be considered as alternatives or complements to increasing tax rates for high income individuals

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

economics of modern energy boomtowns do oil and gas shocks differ from shocks in the rest of the economy abstract the us shale boom has intensified interest in how the expanding oil and gas sector affects local economic performance research has produced mixed results and has not compared how energy shocks differ from equal sized shocks elsewhere in the economy what emerges is that the estimated impacts of energy development vary by region empirical methodology as well as the time horizon that is considered this paper captures these dimensions to present a more complete picture of energy boomtowns utilizing us county data we estimate the effects of changes in oil and gas extraction employment on total employment growth as well as growth by sector we compare this to the effects of equal sized shocks in the rest of the economy to assess whether energy booms are inherently different the analysis is performed separately for nonmetropolitan and metropolitan counties using instrumental variables we difference over 1 3 6 and 10 year time periods to account for county fixed effects and to assess responses across different time horizons the results show that in nonmetro counties energy sector multiplier effects on total county employment first increase up to 6 year horizons and then decline for 10 year horizons we also observe positive spillovers to the non traded goods sector while spillovers are small or negative for traded goods in metro counties there are no significant effects on total employment although positive spillovers are present in some sectors yet equal sized shocks in the rest of the economy produce more jobs on average than oil and gas shocks suggesting that policymakers should seek more diversified development

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

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

taxation and top incomes in canada we estimate the elasticity of reported income with respect to tax rates for high earners using sub national variation across canadian provinces we argue this allows for better identification of tax elasticities than the existing literature we find that elasticities of reported income at the provincial level are large for incomes in the top 1 but small for lower earners there are strong indications that the response happens both through earned and capital income while our estimated elasticities are large changes in tax rates cannot explain much of the overall long run trend of higher income concentration in canada resume fiscalite et revenus les plus eleves au canada les auteurs evaluent l elasticite du revenu declare par rapport aux taux d imposition pour les revenus les plus eleves en utilisant les variations intra nationales a travers les provinces du canada ils suggerent que cela produit une meilleure identification des elasticites que ce que contient la litterature pour le moment on decouvre que les elasticites du revenu declare sont elevees pour les 1 au sommet mais faibles pour les revenus plus bas il appert fortement que la reponse se produit tant pour les revenus gagnes que pour les revenus d investissement meme si les elasticites mesurees sont elevees les changements dans les taux d imposition ne peuvent pas expliquer beaucoup de la tendance a long terme vers une plus forte concentration des hauts revenus au canada

viewpoint empirical evidence and tax policy design lessons from the mirrlees review this paper examines the role of evidence in drawing up the recommendations for tax reform in the mirrlees review the arguments are organised loosely under five related headings i key margins of adjustment ii measurement of effective tax rates iii the importance of information and complexity iv evidence on the size of responses v implications from theory for tax design although the mirrlees review focuses on all aspects of tax reform the focus is this paper is on the taxation of earnings with some examples drawn from the taxation of consumption and savings ce memoire examine le role des resultats dans la confection des recommandations pour la reforme fiscale dans l enquete mirrlees les arguments sont regroupes sous cinq rubriques i les importantes marges d ajustement ii la mesure des taux d imposition effective iii l importance de l information et de la complexite iv constat sur la taille des reponses et v les implications pour la theorie du design des politiques d imposition meme si l enquete mirrlees a examine tous les aspects de la reforme fiscale ce texte met l accent sur l impot sur les remunerations avec quelques exemples portant sur l impot sur la consommation et l epargne

a general index of technical change this paper outlines a procedure for estimating a general index of technical change within the context of a quite general production technology specifically when panel data are available for firms in an industry time specific dummies can be combined in a nonlinear estimation procedure to yield a general index of technical change that may be both nonneutral and scale augmenting this approach offers numerous advantages over the traditional time trend representation of technical change for example the general index can serve as the basis for analysis of the determinants of technical change results for a sample of 30 electric utilities over the period 1951 78 show that the productivity decline of the 1970s can be attributed primarily to sulphur oxide restrictions and secularly declining capacity utilization due to rapidly increasing peak load demands

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

the elasticity of taxable income in the presence of deduction possibilities several recent studies show that the elasticity of taxable income eti is not a sufficient statistic for the welfare costs of taxation due to factors such as tax base shifting this paper provides an additional argument demonstrating the non sufficiency of the eti namely tax deductions building on a theoretical framework which incorporates deductions in a standard optimal tax model we show that the eti is not sufficient for welfare analysis if i deductions generate externalities and if ii deductions are responsive to tax rate changes while the first condition should arguably hold true for the majority of tax deductions we provide an empirical examination of the second condition relying on rich german panel data from administrative tax records we exploit several tax reforms that were implemented in germany between 2001 and 2008 our main estimates indicate an overall eti between 0 54 and 0 68 and an elasticity of deductions with respect to the net of tax rate of about 0 9 these results suggest that the eti is not sufficient to calculate the welfare cost of taxation