estimates of effective marginal tax rates on factor incomes this chapter describes a method of calculating summary measures of effective factor income tax rates in the united states using readily available data the numbers resulting from application of this method in a study are reported in the chapter and some of their possible uses are discussed the estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy the postwar movement in the tax rate on income from labor relative to that on income from capital or more accurately the relevant components of these tax rates provides suggestive support for the miller scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax the tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate held capital they are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden

capital taxation and government debt policy with public discounting abstract this paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty the government has access to linear taxes on capital and labor and to non state contingent bonds government impatience generates positive and empirically realistic long run levels of both capital taxes and public debt prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries alongside other statistics the paper then presents econometric evidence that countries with higher political instability used as an approximation of unobservable public discount rates have both higher capital taxes and debt

the effects of total factor productivity and export shocks on a small open economy with unemployment abstract the paper analyzes the dynamic effects of a supply side shock and a demand side shock which hit an open economy with unemployment the supply side shock is modeled as a reduction in total factor productivity whereas the demand side shock is caused by a drop in exports the model builds upon the small one sector two good open economy framework described in turnovsky 2000 chapter 11 3 in contrast to this standard framework in which walrasian labor markets are assumed search unemployment and wage bargaining are introduced and unemployment results from time consuming and costly matching of vacancies with searching agents using a plausible calibration of the model the dynamic adjustments of unemployment output and other economic key variables are analyzed we find that a negative export shock primarily has effects on consumption and welfare but not on unemployment and output whereas the supply side shock leads to considerable responses of unemployment output consumption and welfare if both shocks together hit the economy the changes in consumption and welfare almost double

endogenous trading constraints with incomplete asset markets abstract this paper endogenizes the borrowing constraints on capital in a production economy with incomplete markets we find that these limits get looser with income a property that is consistent with us data on credit limits the framework with endogenous limits is then used to study the effects of a revenue neutral tax reform that eliminates capital income taxes our results illustrate that it is very important to take into account the effects of tax policies on the limits throughout the transition these effects can be big enough to change the overall conclusion about the desirability of a tax reform

democratisation and tax structure in the presence of home production evidence from the kingdom of greece abstract this paper examines the impact of democratisation on tax structure in an agrarian economy where goods can be produced at home for self consumption we first develop a model of optimal taxation with heterogeneous agents where the good produced in the market is subject to a consumption tax whereas the homogeneous good produced at home is burdened by a direct tax such as land tithes contrary to conventional theory our model suggests that extension of the voting franchise to poorer segments of the population exerts a negative impact on the share of direct to indirect taxes using unique national and regional tax data for the kingdom of greece a typical agrarian economy where universal male suffrage was established in 1864 we provide consistent empirical evidence greek governments adjusted tax policy in order to meet the preferences of the newly enfranchised electorate that constituted mostly peasants and farmers this group was harmed substantially by direct taxes on land but was able to avoid indirect taxes through self consumption we also analyse a sample of 12 european countries over the same period and provide evidence for a similar change in the tax structure when the agricultural sector dominates the economy

balanced budget rules and aggregate instability the role of endogenous capital utilization schmitt grohe and uribe 1997 demonstrate that a balanced budget fiscal policy can induce aggregate instability unrelated to economic fundamentals the empirical relevance of this result has been challenged by subsequent studies in this paper we show both analytically and numerically that such extrinsic instability is an empirically robust plausibility associated with a balanced budget rule once endogenous capital utilization is taken into consideration this suggests that the design or operation of a balanced budget fiscal policy must recognize that it may constitute a practical source of self fulfilling prophecies and belief driven fluctuations

global demographic trends and social security reform how sustainable are the current social security systems in the developed economies given the projected demographic trends the most recent literature has answered this question through dynamic general equilibrium models in a closed economy framework this paper provides a new quantitative benchmark of analysis for this question represented by a two region model south and north of the world economy where capital flows across regions the timing and the extent of the demographic transition and the associated economic forces shaping capital accumulation and equilibrium factor prices are very different in the two regions thus the projected paths of interest rate and wage rate in the north diverge substantially between closed and open economy we perform a wide range of policy experiments under both scenarios our main conclusion is that if one is interested in quantifying the path of the fiscal variables e g the value of the payroll tax needed to keep the social security system viable or to finance a transition towards a fully funded system then these two benchmarks yield similar results however if the focus is on quantifying the path of factor prices aggregate variables and ultimately welfare then the two approaches can diverge significantly

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

tax structure and growth are some taxes better than others using pooled cross sectional data from 23 oecd countries between1965 and 1990 i find evidence that the tax structure affectseconomic growth specifically the proportion of tax revenueraised by taxing personal income has a negative correlation witheconomic growth this result is robust to a rigorous sensitivityanalysis where i control for other plausible growth determinantsin a systematic manner also there is some empirical evidencethat tax progressivity measured in terms of the long run incomeelasticity of tax revenue is associated with low economicgrowth

political instability capital taxation and growth abstract in cross country studies of economic growth average growth rates of gdp per capita tend to be negatively associated both with the size of government and with measures of political instability we show that a linear endogenous growth model with a very simple model of government spending and taxation in the presence of political instability can account for both empirical correlations in addition the model predicts that both correlations are intimately linked thus greater political instability leads to both lower growth rates and a higher share of government spending in gdp

explaining output volatility the case of taxation this paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous in particular based on a closed form solution we obtain a long run equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes without affecting the mean we estimate the tax semi elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among oecd countries

government spending shocks and rule of thumb consumers with steady state inequality in the body of literature concerning fiscal policy a central result is that government spending might stimulate private consumption because only some households save while others spend their entire income each period although such heterogeneity naturally causes inequality this complication is commonly avoided by assuming that transfers redistribute steady state wealth i show that this steady state assumption drives short run results without redistribution the equilibrium is indeterminate and the labor market structure that is imposed to support the expansive result is theoretically inconsistent on a more positive note i propose a labor market formulation under which the expansive effects of government spending might arise

micro and macro elasticities in a life cycle model with taxes we build a life cycle model of labor supply that incorporates changes along both the intensive and extensive margin and use it to assess the consequences of changes in tax and transfer policies on equilibrium hours of work we find that changes in taxes have large aggregate effects on hours of work moreover we find that there is no inconsistency between this result and the empirical finding of small labor elasticities for prime age workers in our model micro and macro elasticities are effectively unrelated our model is also consistent with other cross country patterns

implications of increasing college attainment for aging in general equilibrium we develop an overlapping generations general equilibrium model of the u s economy with heterogeneous consumers who face idiosyncratic earnings and health risk to study the implications of increasing college attainment decreasing fertility and increasing longevity 2005 2100 while all three trends contribute to a higher old age dependency ratio increasing college attainment has different implications because it increases labor productivity decreasing fertility and increasing longevity require the government to increase the average labor tax rate from 33 5 to 47 1 percent increasing college attainment lowers the required tax increase by 12 0 percentage points the labor tax rate required to balance the government budget is higher under general equilibrium than in a small open economy with a constant interest rate because the reduction in the interest rate lowers capital income tax revenues

government spending local indeterminacy and tax structure this paper develops an endogenous growth model where sustained growth is due to the introduction of a public input consumers derive utility from consumption leisure and a public good the public input and the public good are the flow of government expenditures these expenditures are financed by means of income taxes with these assumptions it is shown that the dynamic equilibrium may exhibit local indeterminacy when the tax rate on the labour income is large the tax structure that maximizes growth and the optimal tax structure are characterized and compared

marginal income tax rates in the united states a non parametric approach abstract the objective of this paper is to estimate both the u s federal marginal income tax rate and the state and local marginal income tax rates we use the non parametric regression method and data on income and tax extracted from u s individual tax model files for the period 1985 1995 the flexibility of the non parametric approach and the information at the individual level enable us to construct a more reliable time series of the average federal marginal income tax rates and that of the average state and local marginal income tax rates our results suggest that the average federal marginal income tax rate varies from 18 2 to 21 8 and the average state and local marginal income tax rate varies from 4 7 to 5 6 we also find that the state and local income tax accounts for roughly 18 of the total income taxes paid during 1985 1995 moreover our analysis shows that stephenson journal of monetary economics 41 1998 pp 389 409 provides the most consistent tax rate series for use in applications that require estimates of tax rates for years prior to 1985

financial innovation the discovery of risk and the u s credit crisis abstract financial innovation and overconfidence about the risk of new financial products were key factors behind the 2008 u s credit crisis we show that a model with a collateral constraint in which learning about the risk of a new financial environment interacts with fisherian amplification produces a boom bust cycle in debt asset prices and consumption early realizations of a high borrowing ability regime turn agents optimistic about the persistence probability of this regime conversely the first realization of a low borrowing ability regime turns agents unduly pessimistic the model predicts large increases in household debt land prices and excess returns during 1998 2006 followed by a collapse

the new political economy of taxation in advanced capitalist democracies earlier versions of this paper were presented at the 1999 annual meeting of the american political science association september 1 5 atlanta ga and the 2000 annual meeting of the midwest political science association april 27 30 chicago il the authors thank steffen ganghof philip genschel mark hallerberg alex hicks william keech dennis quinn and the anonymous reviewers and editor of this journal for many helpful comments and dennis quinn for generously sharing data duane swank thanks the german marshal fund of the united states and marquette university for support of work incorporated in this paper data utilized in this paper are available from duane swank marquette edu

marginal federal personal and corporate income tax rates in the u s 1909 1975 abstract in this article i first report and describe the construction of two new statistical series on the marginal federal income tax rates for corporations and private individuals in the united states since the inception of those taxes and then analyze the behavior of these series over time several results on the determination of tax rates are derived these generally are not consistent with barro s theory of deficit finance

u s tax policy and health insurance demand can a regressive policy improve welfare abstract the u s tax policy on health insurance is regressive because it subsidizes only those offered group insurance through their employers who also tend to have a relatively high income moreover the subsidy takes the form of deductions from the progressive income tax system giving high income earners a larger subsidy to understand the effect of the policy we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance a complete removal of the subsidy may lead to a partial collapse of the group insurance market reduce the insurance coverage and deteriorate welfare there is however room for improving the coverage and welfare by extending a refundable credit to the individual insurance market

macroeconomic effects of corporate tax policy abstract prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence we argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions tax deductions tax enforcement and firms tax planning we propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms which reflect not only statutory tax rates but also other features of the tax code enforcement and firms tax planning we find a strong robust negative relation between country level effective tax rates and future macroeconomic growth

public budgetary rules and gdp growth an empirical study on oecd and twelve european countries we study the long term effects of budgetary rules on gdp growth rate and analyse the determinants of the short term gdp growth dynamics for both a sample of 19 oecd and a subsample of 12 european countries we show that in the long run improvements in the cyclically adjusted budget balance as well as increases in the tax burden have negative effects on gdp growth the highest effect of fiscal policy on gdp growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden in line with barro 1990 a deficit financed reduction of tax burden has a stronger effect for european than for oecd countries because in europe the government size with respect to market size is too large therefore if gdp growth is a dominant policy objective in europe specific actions should redress the 2012 treaty toward a reduction of the tax burden

international competition in corporate taxation evidence from the oecd time series despite numerous studies controversy remains about the impact of economic globalization on corporate taxation theoretical models of tax competition generate different predictions about trends in the level of tax burdens and the degree of convergence in tax burdens across countries in this paper we present a purely empirical analysis of the evolution of tax burdens across oecd countries since the 1950s issues of measurement and methodology have contributed to the inconclusive character of studies to date so we begin with an assessment of alternative measures of the burden problems with some commonly used measures of the tax burden are considered and the most plausible measures identified descriptive analysis of these time series reveals no evidence of a competitive race to the bottom in corporate taxation and little evidence of even a harmonization of the tax burden many inferential studies of corporate taxation base their conclusions on cross sectional analysis in contrast we adopt an explicitly time series method to what are essentially time series questions cointegration methodology originally developed to study issues of convergence of living standards is applied and fails to reveal evidence of convergence of tax burdens for the oecd and europe as a whole it does however indicate that there has been some harmonization within smaller groups of countries mainly in northern europe important questions remain about the effectiveness and impact of corporate taxation in an increasingly open and integrated global economy but we find little evidence to support fears that the burden of taxation is being lifted from corporations kenneth stewart and michael webb

taxes transfers and employment in an incomplete markets model the consequences of increases in the scale of tax and transfer programs are assessed in the context of a model with idiosyncratic productivity shocks and incomplete markets the effects are contrasted with those obtained in a stand in household model featuring no idiosyncratic shocks and complete markets the main finding is that the impact on hours remains very large but the welfare consequences are very different the analysis also suggests that tax and transfer policies have large effects on average labor productivity via selection effects on employment

inflation inertia and credible disinflation abstract we develop a model of optimizing forward looking staggered price setting where even fully credible disinflations display a delayed and gradual inflation response and significant output losses there is a welfare trade off between these output losses and the gains from smaller inflationary distortions for reasonable parameter values disinflation improves welfare and more so if it is phased in gradually the pricing assumption of our model yields dynamics that are similar to models of sticky information but its state space is much simpler thereby allowing for the application of standard linearization methods

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

aggregate stability and balanced budget rules it has been shown that under perfect competition and a cobb douglas production function a basic real business cycle model may exhibit indeterminacy and sunspot fluctuations when income tax rates are determined by a balanced budget rule bbr this paper introduces in an otherwise standard real business cycle model a more general and data coherent class of production functions namely a constant elasticity of substitution production function we show that the degree of substitutability between production factors is a key ingredient to understanding the de stabilizing properties of a bbr then we calibrate the model consistently with the empirical evidence that is we set the elasticity of substitution between labor and capital below unity we show that compared to the cobb douglas case the likelihood of indeterminacy under a bbr is greatly reduced in the u s the eu and the uk

the extensive macro labor supply elasticity integrating taxes and expenditures abstract this paper shows that accounting for certain public expenditures is crucial when comparing labor tax system efficiencies across countries to measure the extensive margin response to taxation i assemble a large cross country dataset consisting of the employment ratios the average effective tax rates the out of work benefits transfers as well as public expenditures on childcare elderly care and family policy covering all oecd countries and more than two decades when not controlling for the country and year fixed effects the extensive margin elasticities are negative once accounting for transfers the elasticities are negative or at most flat even with fixed effects once additionally accounting for public expenditures subsidies on labor complements which are robustly positively associated with the employment to population ratios i obtain either flat or positive extensive margin elasticities in the lower end of the expected range

taxes and international risk sharing abstract we extend a standard model of international risk sharing to include an empirically plausible distortion taxes the tax inclusive theory implies even under full risk sharing a predictable relationship between consumption growth and the consumption and capital income tax rates both within and across countries we find strong empirical evidence in favor of this relationship while idiosyncratic output fluctuations account for substantially more of cross country consumption growth variability than do taxes trends in tax differentials are found to be informative about the dynamic evolution of international risk sharing in particular adjusting for capital taxes reveals a marked improvement in risk sharing over the last three decades that is absent in baseline measures this improvement has been driven by the convergence of average tax rates on capital income across oecd countries toward the united states average capital tax rate

taxation aggregate activity and economic growth cross country evidence on some supply side hypotheses data from sixty three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity apparent negative effects of tax rates on growth disappear upon controlling for 1 potential endogeneity of average tax rates to per capita income and 2 the relation between economic growth and per capita income however controlling for average tax rates increases in marginal tax rates have negative effects on the level of economic activity this evidence supports the hypothesis that reductions in the progressivity of tax rates induce a parallel shift upward in the growth path

tax analysis in a real business cycle model on measuring harberger triangles and okun gaps abstract a tax distorted real business cycle model is parameterized calibrated and solved numerically in an attempt to measure the size of harberger triangles relative to okun gaps in particular the model constructed is used to study quantitatively the impact of various distortional government tax and subsidy schemes it is shown that the government can use tax policy to stabilize cyclical fluctuations and this is done for the economy being studied the benefits of implementing such a stabilization policy are calculated and compared with the size of the welfare gains realized from reducing various tax distortions

health insurance reform the impact of a medicare buy in abstract the steady state general equilibrium and welfare consequences of a medicare buy in program optional for those aged 55 64 is evaluated in a calibrated life cycle economy with incomplete markets incomplete markets and adverse selection create a potential welfare improving role for health insurance reform we find that adverse selection eliminates any market for a medicare buy in if it is offered as an unsubsidized option to individual private health insurance the subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0 03 0 18 percent depending on how the program is implemented

growth welfare and the size of government i introduction given the current state of political debate within the u s it would appear that making the claim a smaller government is a better government is just a mere statement of a simple fact president clinton the head of the political party which has traditionally supported a larger government has now proclaimed that the era of big government is over and has proposed fiscal programs to cut both taxes and the growth of government spending in a very real sense it has been economists who have been consensus makers on this issue numerous studies have been conducted recently estimating the growth and welfare costs of distortionary taxation 1 these studies have generally found that income and capital taxation have large welfare effects and also significant effects on growth however the potential benefits of the government purchases financed with distortionary taxes are very limited in these supply side models most often being simply ignored in these aforementioned studies government purchases do not directly provide utility to households and do not affect the productivity of firms as a result the optimal size of government in these models is zero which is a troubling property of any model being used to evaluate the effects of changes in fiscal policy in terms of cost benefit analysis by ignoring these effects previous studies have only considered the costs of a larger government but not the benefits 2 this paper develops an endogenous growth model of the u s economy in which government purchases directly affect both the utility of individuals through the provision of public consumption goods and services and the productivity of firms through the provision of public capital in a manner which is consistent with existing empirical work by aschauer 1985 1989 and munnell 1990a b among others by incorporating the full benefits of government purchases into our model the growth and welfare effects of a smaller government can be more realistically evaluated this paper proceeds as follows in section ii the endogenous growth model with human capital accumulation used in this study is described the competitive equilibrium of the model is described and calculated in section iii and the calibration of the parameters in the model is discussed in section iv in section v various fiscal policy experiments are conducted investigating the growth and welfare effects of government downsizing although this is a macroeconomic model and as such is too general to investigate the effects of specific government spending and taxation programs the results presented here do provide some broad fiscal policy guidelines 1 the effects of a smaller government depend as much on the mix of spending cuts as on the mix of tax cuts and government downsizing is not necessarily growth and welfare enhancing 2 while tax reductions by themselves can significantly increase growth and welfare simultaneous reductions in government spending and taxation are not likely to lead to large positive or negative changes in growth or welfare regardless of the exact form of the spending and tax cuts 3 reducing the size of government is less likely to increase growth and welfare if the reductions in public investment are large especially reductions in public investment which directly affect the accumulation of human capital 4 government downsizing is most likely to increase growth and welfare if the proceeds from spending cuts are used to finance reductions in capital tax rates 5 across the board spending cuts fail to maximize the potential growth and welfare benefits of government downsizing although downsizing is more likely to increase growth and welfare if the cuts pertain to all forms of government spending including transfer payments and not just government purchases ii description of the model the model developed here is similar to the well known two sector endogenous growth model used by rebelo 1991 and king and rebelo 1990 with endogenous labor supply

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

impactos das distorcoes tributarias sobre a determinacao da oferta de trabalho usando um modelo de crescimento neoclassico prescott 2004 e ohanian et alii 2008 explicam com sucesso as diferencas de horas trabalhadas entre paises da ocde aplicamos este mesmo modelo para o caso brasileiro entre 1988 e 1998 nossa principal conclusao e que esta metodologia falha em explicar a experiencia brasileira o modelo preve como consequencia do aumento de impostos verificado no periodo uma queda substancial no numero de horas trabalhadas entretanto os dados mostram apenas uma leve queda utilizamos ainda especificacoes alternativas para a preferencia do agente representativo as quais tornam a oferta de trabalho menos sensivel a impostos entretanto o ajuste aos dados e satisfatorio apenas para par metros bastante distantes daqueles utilizados pela literatura internacional sugerimos que a presenca significativa de um setor informal pode explicar a especificidade brasileira

evaluation of callable bonds finite difference methods stability and accuracy the purpose of this paper is to evaluate numerically the semi american callable bond by means of finite difference methods this study implies three results first the numerical error is greater for the callable bond price than for the straight bond price and too large for real applications secondly the numerical accuracy of the callable bond price computed for the relevant range of interest rates depends entirely on the finite difference scheme which is chosen for the boundary points thirdly the boundary scheme which yields the smallest numerical error with respect to the straight bond does not perform best with respect to the callable bond the callable bond is a straight coupon bond with the provision that allows the debtor to buy back or to call the bond for a specified amount the call price plus the accrued interest since the last coupon date at some time the call date s during the life of the bond three types of callable bonds can be observed in financial markets the american callable bond may be repurchased at any time on or before the final redemption day in contrast to the european or semi american counterparts which may only be called at one or several specific dates respectively in the case of semi american bonds the debtor gives the bondholder two months notice the callable bond can be viewed as a compound security which consists of an otherwise identical straight bond and of an embedded call option which is not traded and the price of which is therefore not observable the embedded call option which is written on the underlying straight bond can be viewed as being sold by the initial

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

implications of productive government spending for fiscal policy abstract the standard assumption in macroeconomics that government spending is unproductive can have substantive implications for tax and spending policy productive government spending introduces a positive feedback between the tax rate the productive capacity of the economy and tax revenue we allow marginal tax revenue to be optimally allocated between productive subsidies to human capital and utility enhancing government consumption and calculate laffer curves for the us productive government spending yields higher revenue maximizing tax rates steeper slopes at low tax rates and higher peaks the differences are particularly pronounced for the labor tax laffer curve the use of tax revenue is an important determinant of the actual revenue that a tax rate increase generates

personal income taxes in developing countries comparative work on income taxes in developing countries has commonly looked at average tax rates these rates are often constructed by dividing revenue collections by some measure of private or personal income recent controversies have however focused on the incentive effects of marginal tax rates this article develops and applies a simple methodology to compare marginal official tax rates across a sample of fifty developing countries as would be expected given differences in fiscal capacity the poorest and the lower middle income countries impose relatively low marginal rates and the rates for the upper middle income and developed countries are higher conversely several low and lower middle income countries tax thresholds start at income levels which are low relative to their mean income when compared with those of developed countries the results warn against trying to derive information on the disincentive effect of a country s tax schedule from the highest marginal rate the authors data show that this is not an accurate indicator of overall disincentive effects

taxes subsidies and equilibrium unemployment this paper considers the effects of wage taxes employment subsidies and unemployment benefits in a simple model of equilibrium search unemployment is determined by the equality of job matchings and job separations job vacancies are determined by a zero profit condition and wages by a nash bargain between the meeting firm and worker i show that marginal wage taxes influence the firm s and worker s equilibrium sharing rule whereas employment subsidies and unemployment benefits influence only the surplus shared hence tax financed subsidies reduce wages and raise employment and vacancies whereas tax financed unemployment benefits raise wages and reduce employment and vacancies in this paper we consider the effects of wage taxes employment subsidies and unemployment benefits on equilibrium search unemployment in a model where wages are determined competitively by the meeting firm and worker discussions about the desirability of taxes and subsidies and their effect on employment and wages abound in the labour economics literature yet the only tax or subsidy that has been systematically discussed in a competitive search framework is a lump sum unemployment benefit the reason for this might be that the structure of the model is such that it is ideally suited to the study of unemployment benefits whereas traditional supply and demand analysis could arguably cope with other kinds of taxes this might be true in some cases but if it is at all appropriate to think of equilibrium unemployment as coming out of an essentially competitive framework when the process which brings together jobs and workers is characterized by frictions traditional supply and demand analysis may not be rich enough to give us all the answers we need 1 the model of this paper is a simple equilibrium model with endogenous unemployment supply of jobs i e demand for labour and real wages unemployment exists because unemployed workers and unfilled jobs cannot find each other instantaneously in the interval of time required to match all workers and jobs some existing job worker pairs break up providing a new flow into unemployment thus unemployment can never be eliminated in equilibrium flows into and flows out of unemployment are equal wages are set endogenously by generalized nash bargains between the individual firm and worker the equilibrium wage rate is shown to depend on all the parameters of the model and to be determined simultaneously with equilibrium unemployment the driving force in the model which provides the link between wages and unemployment is the rate of job vacancies the total number of jobs is determined by zero profit conditions because of constant returns to scale the number of jobs taken up each period depends positively on the number of job vacancies because a typical unemployed worker will have a better chance of locating a job when there are more vacancies if the real wage rate falls the expected profits from a job rise firms open up more vacancies to take advantage of this and so more jobs are taken up but as vacancies rise and

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

measuring the welfare costs of inflation in a life cycle model abstract in a neoclassical growth model with life cycle households in which money is held to satisfy a cash in advance constraint the optimal steady state inflation rate is absurdly high in excess of 20 lump sum age independent money injections twist and flatten the lifetime profile of utility making this profile look more like the one that would be chosen by a planner the cost of monetary finance of lump sum payments is the distortion introduced to the labor leisure choice

debt hangover in the aftermath of the great recession following the great recession u s government debt levels exceeded 100 of output we develop a macroeconomic model to evaluate the role of various shocks during and after the great recession labor market shocks have the greatest impact on macroeconomic activity we then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt output ratio to its pre great recession level our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending the labor income tax or the consumption tax using the capital income tax is welfare reducing

a life cycle model of unemployment and disability insurance abstract a general equilibrium life cycle model is developed in which individuals choose a sequence of saving and labor supply faced with search frictions and uncertainty in longevity health status and medical expenditures unemployed individuals decide whether to apply for disability insurance di benefits if eligible we investigate the effects of cash transfer and in kind medicare component of the di system on the life cycle employment without medicare benefits di coverage could fall significantly we also study how di interacts with reforms of social security and medicare and find that di enrollment amplifies the effects of reforms

a quantitative assessment of the decline in the u s current account low frequency changes in the u s current account can be understood in terms of the influence of differences in productivity growth rates across time and across countries using standard growth theory in particular the secular decline is primarily driven by the increase in the u s tfp growth rate relative to its trading partners differences in population growth rates or fiscal policy have no significant effects on the low frequency changes in the u s current account

flat tax reform a quantitative exploration abstract this paper explores quantitatively the general equilibrium implications of a revenue neutral tax reform in which the current income and capital income tax structure in the u s is replaced by a flat tax as proposed by hall and rabushka 1995 the flat tax 2nd ed hoover the central aspects of such reform the impact of tax reform on capital accumulation and labor supply as well as its distributional consequences are analyzed in a dynamic general equilibrium model main results are that i the elimination of the actual taxation of capital income has an important and positive effect on capital accumulation ii mean labor hours are relatively constant across tax systems but aggregate labor in efficiency units increases iii in all circumstances analyzed the distributions of earnings income and especially wealth become more concentrated

heterogeneity and long run changes in aggregate hours and the labor wedge abstract from 1961 to 2007 u s aggregate hours worked increased and the labor wedge measured as the discrepancy between a representative household s marginal rate of substitution and the marginal product of labor declined substantially the labor wedge is negatively related to hours and is often attributed to labor income taxes however u s labor income taxes increased since 1961 we examine a model with gender and marital status heterogeneity which accounts for the trends in the u s hours and the labor wedge apart from taxes the model s labor wedge reflects non distortionary cross sectional differences in households hours worked and productivity we provide evidence that household heterogeneity is important for long run changes in labor wedges and hours in other oecd economies

optimal dynamic carbon taxes in a climate economy model with distortionary fiscal policy how should carbon be taxed as a part of fiscal policy the literature on optimal carbon pricing often abstracts from other taxes however when governments raise revenues with distortionary taxes carbon levies have fiscal impacts while they raise revenues directly they may shrink the bases of other taxes e g by decreasing employment this article theoretically characterizes and then quantifies optimal carbon taxes in a dynamic general equilibrium climate economy model with distortionary fiscal policy first this article establishes a novel theoretical relationship between the optimal taxation of carbon and of capital income this link arises because carbon emissions destroy natural capital they accumulate in the atmosphere and decrease future output consequently this article shows how the standard logic against capital income taxes extends to distortions on environmental capital investments second this article characterizes optimal climate policy in sub optimal fiscal settings where income taxes are constrained to remain at their observed levels third this article presents a detailed calibration that builds on the seminal dice approach but adds features essential for a setting with distortionary taxes such as a differentiation between climate change production impacts e g on agriculture and direct utility impacts e g on biodiversity existence value the central quantitative finding is that optimal carbon tax schedules are 8 24 lower when there are distortionary taxes compared to the setting with lump sum taxes considered in the literature

unemployment insurance in a three state model of the labor market abstract the paper extends the model of krusell et al 2010 to study the welfare effects of unemployment insurance the model unemployment insurance program includes four realistic features 1 a 50 replacement rate up to a benefit cap 2 finite duration of eligibility during a jobless spell 3 limited eligibility and 4 and an imperfectly monitored job search requirement the model is parameterized to fit the size of scope of unemployment insurance in the united states removing unemployment insurance from the model leads to only a 0 1 consumption equivalent increase in average welfare simplifying assumptions about the structure of unemployment insurance such as allowing all job losers to receive benefits lead to much larger welfare effects similar to the effects found in the past literature understanding the welfare effects of unemployment insurance requires careful modeling of the structure of the program

personal income tax progressivity and output volatility evidence from oecd countries this paper investigates empirically the effect of personal income tax progressivity on output volatility using macro data from a sample of oecd countries over the period 1982 2009 our measure of progressivity is based on the difference between the marginal and the average personal income tax rate for the average production worker we find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility this effect comes in addition to the stabilizing impact of government size and it is equally important in economic terms all other factors constant countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilizers

tax burden and migration a political economy theory and evidence abstract the extent of taxation and redistribution policy is generally determined as a political economy equilibrium by a balance between those who gain from higher taxes transfers and those who lose the standard theory of the size of government in a representative democracy links the tax burden to measures of the pre tax income inequality we develop in this paper a theory which encompasses the existing literature and provides a complementary channel linking the tax burden in the presence of migration to the fiscal leakage from native born to the migrants in a stylized model of migration and human capital formation we show somewhat against the conventional wisdom that low skill immigration can lead to a lower tax burden and less redistribution than would be the case with no immigration even though migrants naturally join the pro tax transfer coalition data on 11 european countries over the period 1974 1992 are consistent with the implications of the theory a higher share of low education immigrants in the population leads to a lower tax rate on labor income and less generous social transfers

financial crisis fiscal policy and the 1995 gdp contraction in mexico in 1995 mexico experienced its largest contraction of gross domestic product gdp since the early twentieth century i propose a simple mechanism to partially account for the contraction the effects of changes in fiscal policy the contraction of gdp was preceded by a financial crisis the government responded by raising taxes and reducing spending using a model with taxation and government consumption and the business cycle accounting methodology i measure the impact of fiscal policy fiscal policy accounts for 20 7 of the fall in output

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

aggregate instability under balanced budget consumption taxes a re examination we re examine the destabilizing role of balanced budget fiscal policy rules based on consumption taxation using a one sector model with infinitely lived households we consider a specification of preferences derived from jaimovich 2008 14 and jaimovich and rebelo 2009 15 which is flexible enough to encompass varying degrees of income effect when the income effect is not too large we show that there exists a laffer curve which explains the multiplicity of steady states and that non linear consumption taxation may destabilize the economy promoting expectation driven fluctuations if the elasticity of intertemporal substitution in consumption is sufficiently larger than one and the tax rate is counter cyclical with respect to consumption numerical illustrations also show that consumption taxation may be a source of instability for most oecd countries for a wide range of structural parameters configurations we finally prove the robustness of our conclusions if we consider a discrete time setup

bargaining frictions labor income taxation and economic performance abstract this paper is an attempt to explain differences in economic performance between a subset of oecd countries we classify countries in terms of their degree of rigidity in the labor market and use a matching model with labor leisure choice bargaining frictions and labor income taxation to capture these rigidity differences added flexibility improves economic performance in different ways depending on whether income taxation is high or low feeding income taxation rates estimated from the countries at hand we find that the model is able to replicate the observed rigidity levels the model is also shown to reproduce well cross country differences in non employment population ratios and the share of part time jobs in the absence of rigidity differences taxation shows little promise to replicate cross country differences as it has insufficient quantitative effects on production and productivity however the interaction of rigidity and income taxation is crucial in explaining the empirical patterns of the non employment rate and of the share of part time jobs

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

on the construction of marginal federal personal and social security tax rates in the u s abstract in this article i correct and extend my earlier series on marginal federal personal income tax rates i also construct a measure of the marginal social security tax rate and add this to the income tax rate to obtain a measure of the effective marginal tax rate on income due to federal taxes finally i compare my series on marginal income tax rates and its method of construction with those of barro and sahasakul

the role of technology and nontechnology shocks in business cycles this article proposes a method to identify technology and nontechnology shocks that permanently affect labor productivity and applies this method to data for the g7 countries in most cases whereas technology improvements have negative or weak effects on hours worked positive permanent nontechnology shocks are expansionary permanent nontechnology shocks play an important role in business cycles particularly in the united states and japan and account for 71 of a large reduction in japan s detrended output from 1991 to 2002 credit conditions are likely to be an important driver of variations in permanent nontechnology shocks

fiscal policy and asset prices with incomplete markets we study the simultaneous impact of fiscal policy decisions on macroeconomic activity wealth distribution and asset prices we consider a general equilibrium overlapping generations model with incomplete markets and heterogeneous agents where government debt and capital are imperfect substitutes increases in public debt lead to significant increases in the riskless rate and to a reduction in the equity premium while higher capital income tax rates lead to a higher equity premium the crowding out effects on capital and output are much higher than in models where government debt and capital are perfect substitutes which thus ignore households portfolio reallocation decisions the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

measuring the average marginal tax rate from the individual income tax the economic effects of taxation depend on the configuration of marginal tax rates we consider here the appropriate measure of a marginal tax rate for the federal individual income tax which has a graduated rate structure and allows for numerous legal and illegal deductions from total income our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes hence we construct approximately weighted averages of these marginal tax rates for 1916 80 when weighted by adjusted gross income the arithmetic average of marginal tax rates is 5 in 1920 2 in 1930 6 in 1940 20 in 1950 23 in 1960 24 in 1970 and 30 in 1980 we also discuss the dispersion of marginal tax rates as well as the behavior of average tax rates and deductions from taxable income one noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35 this fraction quadruples from 1964 to 1980 this abstract was borrowed from another version of this item

balanced budget rules and aggregate instability the role of consumption taxes it is known that in a real business cycle model with constant returns to scale and a balanced budget fiscal policy rule steady state indeterminacy may arise due to endogenous labour income tax rates this article shows that when the government finances its expenditures via an endogenous consumption tax instead a steady state is always saddle path stable consequently combining income taxes with consumption taxes makes the ranges of indeterminacy shrink thus reducing the possibility of aggregate instability from a policy perspective the results provide an additional argument in favour of consumption taxes in place of capital taxes

household borrowing constraints and residential investment dynamics abstract it is well known that residential investment leads output in the us economy the main contribution of our paper is to highlight the role of household borrowing constraints in accounting for this fact we study the role of home equity loans used to boost consumption as a channel that affects residential investment we consider a multi agent model where some home owning households face borrowing constraints that reflect home equity loans or refinancing constraints we show that the severity of the households borrowing constraints in an economy can generate this stylized fact of us residential investment dynamics interestingly the model correctly predicts coincident residential investment dynamics in countries with less severe borrowing constraints this prediction is borne out when the model is calibrated to french data

the growth effects of tax rates in the oecd this paper explores the merits of macro and micro based tax rate measures within an open economy fiscal policy and growth model using annual data for 15 oecd countries we find statistically small non robust long run growth effects of macro based average tax rates on capital income and consumption but some evidence for average labor income tax effects changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust gdp responses of modest size both domestic and foreign corporate taxes appear relevant in general tax effects on gdp operate largely via factor productivity rather than factor accumulation

optimal taxation with home production abstract optimal taxes for europe and the u s are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services the optimal tax rate on services is substantially lower than the tax rate on goods specifically the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production the optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large

the international ramifications of tax reforms supply side economics in a global economy this paper studies tax reforms in a dynamic model of a global economy calibrated to current u s and european tax policies world capital markets add consumption smoothing and income redistribution effects that alter closed economy predictions in the absence of taxes on foreign interest welfare gains of eliminating u s income taxes are enlarged by up to 34 percent at the expense of european losses caused by transitional declines in consumption and leisure and a permanent capital outflow in contrast if foreign interest is taxed the same tax reform reduces u s welfare 0 7 percent and increases european welfare 1 8 percent copyright 1998 by american economic association