measuring the impacts of teachers ii teacher value added and student outcomes in adulthood abstract are teachers impacts on students test scores value added a good measure of their quality this question has sparked debate partly because of a lack of evidence on whether high value ad

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

the impact of inflation on the aggregate debt asset ratio this paper demonstrates that contrary to the results of previous studies the impact of inflation on the aggregate debt asset ratio cannot be determined theoretically however it is shown that inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the personal tax rate on income from holding common stocks is relatively low studies concerning the effect of inflation on firms capital structure conclude that inflation enhances debt financing jaffe 9 modigliani and cohn 16 and modigliani 15 argue that nominal interest payments consist in part of true interest payments and in part of a compensation for the reduction in the real value of the principal the fact that firms are allowed to deduct their entire interest expense including the portion that is a return of principal reduces their cost of debt capital gordon 6 concludes that the equilibrium debt capital ratio rises when the inflation rate rises he argues that an increase in the nominal interest rate induced by inflation increases the tax advantage of debt financing thus debt financing becomes more attractive and a rise in leverage related costs is necessary to restore equilibrium gordon asserts that the increase in leveragerelated costs is brought about by an increase in the debt equity ratio all these studies however focus primarily on the tax benefits of debt financing to the corporation and implicitly assume that each firm has a unique optimal structure which may change with inflation in contrast miller 14 in a world without inflation concludes that firms are indifferent to their capital structure and that the aggregate debt equity ratio is determined by the ratio of the wealth of investors who for tax reasons choose to hold bonds to the wealth of those who choose to hold stocks this paper explicitly incorporates tax considerations of both investors and firms into the analysis of the effect of inflation on the aggregate corporate debtasset ratio it is demonstrated that the effect of inflation on the aggregate debtasset ratio cannot be determined theoretically however inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the tax on income from holding common stocks is relatively low we consider an economy in which investors are subject to a progressive tax system income from corporate bonds

wealth and portfolio composition theory and evidence we examine a survey of 6010 u s households and estimate a model for household portfolio allocation we extend the conventional portfolio choice model in order to capture the observed incompleteness of household portfolios we show that the empirical specification of the joint discrete and continuous choice that characterizes household portfolio behavior is a switching regressions model with endogenous switching we go on to examine the impact of taxes on portfolio composition using detailed survey data to calculate precisely the marginal tax rate facing each household finally we estimate wealth elasticities of demand for a range of assets and liabilities

the effect of income taxation on labor supply in the united states the effect of income taxation on the labor supply of prime age married men and women in the united states is examined using econometric methods similar to those used in the influential work of jerry hausman male labor supply is found to be relatively invariant to the net wage and virtual income in all specifications estimated the estimated impact of taxation on the labor supply of married women depends critically on the method used to estimate the labor supply function estimated net wage and virtual income elasticities are considerably larger when data on nonparticipants are included than when the estimation is conducted conditional on hours being greater than zero

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

assessing empirical approaches for analyzing taxes and labor supply recent surveys on the labor supply responses of men document a divergence in the estimates of substitution and income effects obtained using various estimation approaches generally studies accounting for nonlinear tax schedules in a static setting via a piecewise linear approach produce estimates that typically imply higher substitution and lower income responses than are suggested by empirical work applying other approaches this paper demonstrates that maximum likelihood estimation of a consumer choice problem with nonlinear budget sets implicitly relies on the satisfaction of inequality constraints that translate into behaviorally meaningful restrictions these constraints arise not as a consequence of economic theory but instead as a requirement to create a properly defined statistical model in the analysis of piecewise linear budget sets the implicit constraints required by maximum likelihood in estimation amount to imposition of slutsky conditions at all wage income combinations associated with kink points in the analysis of differentiable budget sets the tacit constraints invoked by maximum likelihood also involve inequality restrictions on slutsky terms the empirical work presented in this study supports the contention that these implicit constraints play a major role in explaining the discrepancies in estimates found in the literature on men s labor supply

the ban on indexed bonds 1933 77 in a recent article in this review nissan liviatan and david levhari attempt to explain the phenomenon that in spite of recent marked inflationary trends the important capital markets have not developed a significant free private enterprise market for cost of living linked bonds p 366 they note that the familiar theoretical complete dominance of indexed bonds over nonindexed bonds holds unambiguously only in an economy in which there are no nominal assets they demonstrate that borrowers may in theory insist on hedging the inflation risk on their nonindexed cash balances by issuing some nonindexed bonds at a discount that makes them attractive in spite of the risk they impose on lenders their model leads them to conclude that indexed bonds might not completely dominate nonindexed bonds however they do not claim that their model explains the phenomenon they set out to explain why is it that the free market to use their expression has come up with virtually no indexed bonds at all fortunately a simple explanation for the nonexistence of indexed bonds in the united states was provided two years

withdrawal location with progressive tax rates optimal withdrawal strategies are developed for retirees with multiple types of tax advantaged savings accounts in an environment of progressive tax rates the ability to convert pretax funds in traditional iras at low tax rates substantially increases investors residual accumulations and withdrawal sustainability specifically informed withdrawal location strategies in which traditional ira distributions can be applied against exemptions deductions and lightly taxed tax brackets can increase residual accumulations by more than 1 million in these strategies the optimal tax bracket through which an investor should take distributions is directly related to the investor s wealth level

decomposing trends in income volatility the wild ride at the top and bottom we use 2 year panels from the current population survey to provide a detailed accounting of family income volatility from 1980 to 2009 volatility doubled overall and the increase was most pronounced among the top 1 of the income distribution but in any given year the level of volatility among the bottom 10 exceeds that of the top the increased volatility comes from higher instability of head and spouse earnings other nonlabor income and from reduced covariance between these income sources with the tax system this suggests that current tax policy is less effective in mitigating income shocks than previous decades jel j31 i30

the relationship between hours of work and labor force participation in four models of labor supply behavior this article analyzes the relationship between hours of work and labor force participation lfp in heckman s model cogan s fixed cost model moffitt s minimum hours constraint model and a generalized version of heckman s model first the parameter restrictions between the lfp and reduced form hours of work equations are compared the models are then estimated and the results support the weakening of the link between the lfp and hours of work decisions one implication of the analysis is that heckman s model overstates the standard labor supply elasticities because it confounds the direct effect on labor supply with the participation effect

the importance of sample attrition in life cycle labor supply estimation we examine the importance of possible nonrandom attrition to an econometric model of life cycle labor supply using both a wald test comparing attriters to nonattriters and variable addition tests based on formal models of attrition estimates using the panel study of income dynamics show that nonrandom attrition is of little concern when estimating prime age male labor supply because the effect of attrition is absorbed into fixed effects in labor supply the wage measure and instrument set have much larger effects on the estimated labor supply function of prime age men than how one adjusts for panel attrition

estimating labour supply responses using tax reforms the 1980 s tax reforms and the changing dispersion of wages offer one of the best opportunities yet to estimate labor supply effects nevertheless changing sample composition aggregate shocks the changing composition of the tax paying population and discontinuities in the tax system create serious identification and estimation problems we develop grouping estimators that address these issues our results reveal positive and moderately sized wage elasticities we also find negative income effects for women with children

identifying the elasticity of taxable income we use matched panels from the current population survey along with a grouping instrumental variables estimator to provide new estimates of the elasticity of taxable income our identification strategy exploits the fact that federal and state tax reforms over the past three decades have differentially affected cohorts across states and over time we find that the elasticity is in the range of 0 4 0 55 the implication of our new estimates for tax policy is that the revenue maximising tax rate is nearly 30 percentage points lower than that obtained when we use the typical identification strategy in the literature

product bundling and a rule of thumb versus the harville formulae can each way bets with uk bookmakers generate abnormal returns bookmakers practise a type of product bundling to bet a horse for a place a punter has to bet an equal amount for a win the returns to the place component of the bet are determined by a rule of thumb this paper examines whether the product bundling negates a betting strategy that endeavours to exploit any inefficiency in pricing of the place component of each way bets based on the harville formulae in order to implement the harville formulae shin probabilities are employed which correct for the favourite longshot bias in starting price odds as measures of win probabilities the analysis suggests that small positive expected returns to each way bets appear to exist

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

match bias from earnings imputation in the current population survey the case of imperfect matching this article examines match bias arising from earnings imputation wage equation parameters are estimated from mixed samples of workers reporting and not reporting earnings the latter assigned earnings of donors regressions including attributes not used as imputation match criteria e g union are severely biased match bias also arises with attributes used as match criteria but matched imperfectly imperfect matching on schooling age flattens earnings profiles within education age groups and creates jumps across groups assuming conditional missing at random a general analytic expression correcting match bias is derived and compared to alternatives reweighting a respondent only sample proves an attractive approach

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

elasticity of taxable income evidence from changes in municipal income tax rates in finland the elasticity of taxable income eti is a key parameter in income tax analysis both in terms of efficiency and tax revenue this paper uses finnish data to analyze the eti i use changes in flat municipal income tax rates as an instrument for overall changes in marginal tax rates this instrument is not a function of individual income and thus the eti estimates are less susceptible to bias caused by differential trends across the income distribution in general instruments used in previous studies do not have this feature my preferred estimate for the average eti is 0 21 this article is protected by copyright all rights reserved

miller s irrelevance mechanism a note this note attempts to clarify miller s 12 capital structure irrelevance mechanism using a geometric edgeworth box diagrams presentation such an exercise is useful because miller s proposition is founded on analytically complex equilibrium arguments that tend to mask the intuition and logic behind his result since miller s original discussion unnecessarily assumed a zero tax on equity income and since miller did not prove his clientele effects rigorously we also focus our attention on the deangelo and masulis 8 9 henceforth d m generalization of the miller model the d m framework is also important because it assumes a proportional tax code as we shall see whether the tax code is proportional or progressive is an important factor in understanding miller s proposition

personal taxation pension wealth and portfolio composition this paper emphasizes the roles played by personal taxation and pension wealth in portfolio choice and composition a theoretical discussion of the impacts of taxation and participation in social security and private pension systems on individual wealth allocation is followed by empirical evidence based on u s cross section data both effects prove to be significant anticipated social security and private pension benefits exert a measurable influence on household portfolio allocation their omission from an asset demand model may lead to a misinterpretation of the impact of taxation on portfolio composition

dividend taxes and international portfolio choice this paper investigates how dividend taxes influence portfolio choices using the response to the distinctive treatment of a subset of foreign dividends in the jobs and growth tax relief reconciliation act jgtrra of 2003 an open economy after tax capital asset pricing model is used to derive the hypothesis that jgtrra should lead to a portfolio reallocation by us investors towards equities in tax favored countries a difference in difference analysis that compares us equity holdings in affected and unaffected countries finds a substantial portfolio reallocation towards the former this effect cannot be explained by several potential alternative hypotheses including differential changes to the preferences of american investors differential changes in investment opportunities differential time trends in investment changed tax evasion behavior or changes in stock prices associated or contemporaneous with jgtrra

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

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

has government any role in money abstract recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system in light of this interest we review the current validity of four good reasons friedman advanced in 1960 to rationalize government intervention we conclude that the forces that produced government involvement in the past will persist deregulation of financial intermediaries is desirable on grounds of market efficiency though it is an open question whether government should continue as lender of last resort we expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard

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

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

measuring the incidence of insider trading a comment on shin in a recent paper in this journal shin i 993 presents a model of the impact of insider trading on the bid ask spread in horse races he then estimates his model using an iterative procedure on linearised versions of his equations the purpose of this note is to show that an exact nonlinear estimation procedure is available and is very simply implemented we start from shin s equation 5 p i i47 which links the price of a ticket on horse i 7t to the incidence of insider trading z and the probabilities of wins by each horse ps

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

estimating life cycle labor supply tax effects we present an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and nonwge incomes our two stage fixedeffects generalized method of moments approach first extimates intretemporal and then intertemporal preferences specification testing domonstrates the value of incorporating joint progressive taxation of labor and nonlabor incomes results for prime age men emphasize the roles played by hourly wage endogeneity worker specific effects the measure of the rate of pay and intemporal budget constaint nonseparability simulations indicate that recent tax reform while not self financing stimulated made labor supplied by about 3 percent and reduced deadweight loss about 16 percent

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

a tax induced clientele for index linked corporate bonds this paper analyzes the circumstances under which tax considerations favor or disfavor the use of index linked corporate bonds using a model similar to miller s investors choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns it is concluded that the absence of indexlinked bonds in the u s cannot be attributed solely to tax reasons however following the 1986 tax reform act the tax code is expected to disfavor the use of index linked bonds the absence of index linked i l bonds in the u s is puzzling index linked bonds are common in countries that have experienced persistently high and or volatile rates of inflation both the periodic interest payments and the principal of an i l bond are linked to a price index this design provides protection against inflation induced changes in the nominal interest rate and prevents erosion of the bond s real value during inflationary periods anticipated or unanticipated the theoretical literature on i l bonds has focused primarily on the risk reduction aspect see for example sarnat 9 fischer 3 and siegel and warner 11 the recurrent theme of these studies is that the introduction of i l bonds reduces inflationary risks to both debtors and creditors these studies argue that in a portfolio context i l bonds provide investors protection against a risk that cannot be fully hedged otherwise fischer 4 conjectured that a possible reason for the absence of i l bonds in the u s may be the tax treatment of the returns on these bonds 2 from a tax point of view i l bonds differ from nominal bonds bonds hereafter in two respects first the returns on i l bonds consist of a combination of interest income and capital gains whereas the returns on nominal bonds consist in a steady state of interest income only second while the compensation for the inflation induced erosion in the real value of the principal of a nominal bond is part of the periodic interest payments and hence is taxed every period the corresponding compensation on an i l bond is realized and taxed only when the bond is sold thus holding i l bonds allows a tax deferment that is not possible when nominal bonds are held

interest rates and expected inflation 1831 1914 a rational expectations approach irving fisher argued that interest rates contain a premium for expected inflation and assembled a mass of data both historical and statistical in nature to support his argument 5 6 7 as a research paradigm his argument has proven useful in explaining the behavior of interest rates during the post war period however his original empirical analysis was never persuasive and contemporary studies using modern statistical techniques fail to find the fisher effect in the data fisher used this article examines yet one more time the behavior of interest rates and inflation during basically the 19th century this study is different from other contemporary studies in four important ways first a consumer price index as is required by fisher s theory and not a wholesale price index is used to measure inflation second expected inflation is modeled using a rational expectations approach expected inflation is not simply proxied by a weighted average of past inflation third the fisher effect is included in a reduced form model with other determinants of interest rates the fisher effect is therefore tested

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

estimating labour supply elasticities based on cross country micro data a bridge between micro and macro estimates the nordic model relies on high tax rates to finance an extensive welfare state if labour supply elasticities are large the burden of financing the model can be large even if arguably the practice of providing subsidised goods that support labour supply is likely to mitigate these effects we utilise repeated cross sections of micro data from several countries including the four major nordic countries available from the luxembourg income study lis to estimate labour supply elasticities both at the intensive and extensive margins the data span over four decades and include a large number of tax reform episodes with tax rate variation arising both from cross sectional and country level differences using these data we investigate whether micro and macro estimates differ in a systematic way the results do not provide strong support for the view that elasticities at the macro level would be higher than the corresponding micro elasticities

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

the effect of income taxation on consumption and labor supply we estimate the incentive effects of income taxation in a life cycle model of consumption and labor supply without intratemporal strong separability we find that consumption and hours worked are direct complements in utility both increase with a compensated increase in the net wage the compensated net wage elasticity is about 0 3 nearly double estimates for u s men from a linear labor supply specification estimated intertemporal elasticities indicate significant intertemporal smoothing of utility the estimated marginal welfare cost of government revenue is 6 20 which is about half the estimated welfare cost when additivity between consumption and leisure is incorrectly imposed

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

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

market evidence against widespread point shaving in college basketball abstract this paper proposes using market based information to investigate the likelihood of widespread point shaving in college basketball games with strong favorites information embodied in pre game money lines facilitates the calculation of the market s expectation that the game will end with a strong favorite winning but not covering the point spread a result deemed suspicious in previous studies additional market based information embodied in second half lines reveal how the market s expectation about second half play differs from pre game expectations applying our methodology to college basketball reduces previous estimates of the percentage of games thought to be consistent with potential point shaving to insignificant levels our approach can apply to other sports in which strong favorites are common

investment choice and asset allocation of italian households the discrete continuous approach financial and monetary policies are considered to be effective depending on the reaction of financial markets which are increasingly populated by households in this article from intertemporal settings i derive a financial almost ideal fai demand system and i estimate it by highlighting the determinants of both limited participation to financial markets and asset substitutability complementarity in the allocating stage finally the wealth elasticities provide some further insights on the low diffusion of the newer and more complex financial instruments across italian households

on the consequences of legal constraints and taxation for corporate choice in this article the author analyzes the effect taxation and legal constraints have on the definition of the firm s cost of capital and optimal financial policy under uncertainty the assumes firms are competitive and considers only input choices spanned by the return vectors of existing securities under very specific tax conditions these assumptions still guarantee a unique definition of the tax adjusted cost of capital but it is shown that under more general tax structures there is a split among potential shareholders accounted for by the ownership of the corporation

the relationship between two indicators of insider trading in british racetrack betting this paper examines whether a measure of insider trading in betting markets derived from the shin 1993 model is significantly related in samples of horse and greyhound races to an alternative independently derived indicator of insider activity suggested by crafts 1985 namely plunges in the odds offered against a particular competitor on the day of a race the analysis suggests that there is a significant relationship

stockholder tax rates and firm attributes abstract this paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to it then presents empirical results for the period 1963 1977 suggesting that 1 tax based investor clienteles do exist and are reasonably stable over time and 2 these clienteles are strongly influenced by the dividend price ratio but insignificantly by direct measures of risk and other firm characteristics

recent trends in top income shares in the usa reconciling estimates from march cps and irs tax return data although the majority of research on us income inequality trends is based on public use march cps data a new wave of research using irs tax return data reports substantially higher levels of inequality and faster growing trends we show that these apparently inconsistent estimates are largely reconciled if the inequality measure and the income distribution are defined in the same way using internal cps data for 1967 2006 we closely match irs data based estimates of top income shares reported by piketty and saez 2003 our results imply that any inequality increases since 1993 are concentrated among the top 1 percent of the distribution

taxation and household portfolio composition us evidence from the 1980s and 1990s abstract this paper explores the relationship between household marginal income tax rates the set of financial assets that households own and the portfolio shares accounted for by each of these assets it analyzes data from the 1983 1989 1992 1995 and 1998 surveys of consumer finances and develops a new algorithm for imputing federal marginal tax rates to households in these surveys the empirical findings suggest that marginal tax rates have important effects on asset allocation decisions the probability that a household owns tax advantaged assets such as tax exempt bonds or assets held in tax deferred accounts is positively related to its tax rate on ordinary income in addition the portfolio share invested in corporate stock which is taxed less heavily than interest bearing assets is increasing in the household s ordinary income tax rate holdings of heavily taxed assets such as interest bearing accounts decline as a share of wealth as a household s marginal tax rate increases

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

tax exempt investors and the asset allocation puzzle abstract investors frequently hold equity in pensions and other tax exempt savings plans despite the prediction of the standard model that they hold only bonds we provide a new explanation for this empirical puzzle based on differences between tax exempt and taxable assets in the tax treatment of capital losses we show how limits on refundability of losses on taxable equities leads to diversity of investors preferences for corporate leverage on the basis of tax rates in the simplest equilibrium of the model tax exempt savers hold risky highly levered equities while low bracket taxable savers hold bonds and high bracket taxpayers hold relatively safe unlevered equities we discuss the implications of tax exempts for risk taking and agency costs within the firm

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs