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The Welfare Gains Of Age Related Optimal Income Taxation
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Book Synopsis The Welfare Gains of Age-Related Optimal Income Taxation by : Spencer Bastani
Download or read book The Welfare Gains of Age-Related Optimal Income Taxation written by Spencer Bastani and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using an overlapping generations model with skill uncertainty and private savings, we quantify the gains of age-dependent labor income taxation. The total steady-state welfare gain of switching from age-independent to age-dependent nonlinear taxation varies between 2.4% and 4% of GDP. Part of the gain descends from relaxing incentive-compatibility constraints and part is due to capital-accumulation effects. The welfare gain is of about the same magnitude as that which can be achieved by moving from linear to nonlinear income taxation. Finally, the welfare loss from tax-exempting interest income is negligible under an optimal age-dependent labor income tax.
Book Synopsis The Surprising Power of Age-dependent Taxes by : Matthew Weinzierl
Download or read book The Surprising Power of Age-dependent Taxes written by Matthew Weinzierl and published by . This book was released on 2011 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a new, empirically-driven application of the dynamic Mirrleesian framework by studying a feasible and potentially powerful tax reform: age-dependent labor income taxation. I show analytically how age dependence improves policy on both the intratemporal and intertemporal margins. I use detailed numerical simulations, calibrated with data from the U.S. PSID, to generate robust policy implications: age dependence (1) lowers marginal taxes on average and especially on high-income young workers, and (2) lowers average taxes on all young workers relative to older workers when private saving and borrowing are restricted. Finally, I calculate and characterize the welfare gains from age dependence. Despite its simplicity, age dependence generates a welfare gain equal to between 0.6 and 1.5 percent of aggregate annual consumption, and it captures more than 60 percent of the gain from reform to the dynamic optimal policy. The gains are due to substantial increases in both efficiency and equity. When age dependence is restricted to be Pareto-improving, the welfare gain is nearly as large.
Book Synopsis Optimal Taxation with Endogenous Wages by : Stefanie Stantcheva
Download or read book Optimal Taxation with Endogenous Wages written by Stefanie Stantcheva and published by . This book was released on 2014 with total page 207 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three chapters on optimal tax theory with endogenous wages. Chapter 1 studies optimal linear and nonlinear income taxation when firms do not know workers' abilities, and competitively screen them through nonlinear compensation contracts, unobservable to the government, in a Miyazaki-Wilson-Spence equilibrium. Adverse selection changes the optimal tax formulas because of the use of work hours as a screening tool, which for higher talent workers results in a "rat race," and for lower talent workers in informational rents and cross-subsidies. If the government has sufficiently strong redistributive goals, welfare is higher when there is adverse selection than when there is not. The model has practical implications for the interpretation, estimation, and use of taxable income elasticities, central to optimal tax design. Chapter 2 derives optimal income tax and human capital policies in a dynamic life cycle model with risky human capital formation through monetary expenses and training time. The government faces asymmetric information regarding the stochastic ability of agents and labor supply. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. The optimal tax treatment of training time also depends on its interactions with contemporaneous and future labor supply. Income contingent loans, and a tax scheme with deferred deductibility of human capital expenses can implement the optimum. Numerical results suggest that full dynamic risk-adjusted deductibility of expenses is close to optimal, and that simple linear age-dependent policies can achieve most of the welfare gain from the second best. Chapter 3 considers dynamic optimal income, education, and bequest taxes in a Barro- Becker dynastic setup. Each generation is subject to idiosyncratic preference and productivity shocks. Parents can transfer resources to their children either through education investments, which improve the child's wage, or through financial bequests. I derive optimal linear tax formulas as functions of estimable sufficient statistics, robust to underlying heterogeneities in preferences. It is in general not optimal to make education expenses fully tax deductible. I also show how to derive equivalent formulas using reform-specific elasticities that can be targeted to already available estimates from existing reforms.
Download or read book Tax Systems written by Joel Slemrod and published by MIT Press. This book was released on 2013-12-13 with total page 235 pages. Available in PDF, EPUB and Kindle. Book excerpt: An approach to taxation that goes beyond an emphasis on tax rates to consider such aspects as administration, compliance, and remittance. Despite its theoretical elegance, the standard optimal tax model has significant limitations. In this book, Joel Slemrod and Christian Gillitzer argue that tax analysis must move beyond the emphasis on optimal tax rates and bases to consider such aspects of taxation as administration, compliance, and remittance. Slemrod and Gillitzer explore what they term a tax-systems approach, which takes tax evasion seriously; revisits the issue of remittance, or who writes the check to cover tax liability (employer or employee, retailer or consumer); incorporates administrative and compliance costs; recognizes a range of behavioral responses to tax rates; considers nonstandard instruments, including tax base breadth and enforcement effort; and acknowledges that tighter enforcement is sometimes a more socially desirable way to raise revenue than an increase in statutory tax rates. Policy makers, Slemrod and Gillitzer argue, would be well advised to recognize the interrelationship of tax rates, bases, enforcement, and administration, and acknowledge that tax policy is really tax-systems policy.
Book Synopsis Age Related Optimal Income Taxation by : Nils Sören Blomquist
Download or read book Age Related Optimal Income Taxation written by Nils Sören Blomquist and published by . This book was released on 2003 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The New Dynamic Public Finance by : Narayana R. Kocherlakota
Download or read book The New Dynamic Public Finance written by Narayana R. Kocherlakota and published by Princeton University Press. This book was released on 2010-07-01 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however, economic research on this question either ignored people's uncertainty about their future productivities or imposed strong and unrealistic functional form restrictions on taxes. In response to these problems, the new dynamic public finance was developed to study the design of optimal taxes given only minimal restrictions on the set of possible tax instruments, and on the nature of shocks affecting people in the economy. In this book, Narayana Kocherlakota surveys and discusses this exciting new approach to public finance. An important book for advanced PhD courses in public finance and macroeconomics, The New Dynamic Public Finance provides a formal connection between the problem of dynamic optimal taxation and dynamic principal-agent contracting theory. This connection means that the properties of solutions to principal-agent problems can be used to determine the properties of optimal tax systems. The book shows that such optimal tax systems necessarily involve asset income taxes, which may depend in sophisticated ways on current and past labor incomes. It also addresses the implications of this new approach for qualitative properties of optimal monetary policy, optimal government debt policy, and optimal bequest taxes. In addition, the book describes computational methods for approximate calculation of optimal taxes, and discusses possible paths for future research.
Book Synopsis Does the Income Tax Cause Parents to Spend Too Much Time with Their Children? by : Theodore P. Seto
Download or read book Does the Income Tax Cause Parents to Spend Too Much Time with Their Children? written by Theodore P. Seto and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 1971, James Mirrlees published “An Exploration in the Theory of Optimum Income Taxation,” one of the most influential tax papers ever written. Unpacked, Mirrlees' claim can be restated as follows: Assume that our undistorted decisions about how to allocate our time between paid and unpaid activities are welfare-maximizing. If so, any distortion of those decisions by the tax system is welfare-reducing. Unless the supply of labor is inelastic or income effects predominate, taxing income from labor will cause taxpayers to spend less time engaged in paid activities and more time in unpaid activities than would be welfare-maximizing. Because of the declining marginal utility of money, redistribution from high-income to low-income individuals is generally welfare-enhancing. Nevertheless, at some point the welfare losses from taxing labor income to effect redistribution outweigh the welfare gains produced by redistribution. This, in turn, (1) limits the overall amount of welfare-enhancing redistribution we can effect by taxing income from labor and (2) requires flat or declining marginal tax rates on such income. Stated in the abstract, the claim is plausible enough to have persuaded important segments of the tax and tax economic academy. In the intervening 40 years, however, empirical evidence has come to suggest that the claim is strongest when applied to parents, especially mothers, with young children - the one economically significant group that consistently demonstrates elastic responses to labor taxation. Survey data establishes that a very large portion of the unpaid time spent by American parents of children age 12 or younger - both fathers and mothers - is spent on the care of their own children. If taxes cause parents to spend more time on unpaid activities, therefore, they almost certainly cause parents to spend more time with their children. Any such behavioral distortion is, by hypothesis, welfare-reducing. As to parents, therefore, optimal tax theory's claim is that progressive taxation causes parents to spend too much time with their children. At the very least, optimal tax theorists must be comfortable with the possibility that this is effectively their claim. But is the claim true? This paper approaches the question from within the standard preference-satisfaction utilitarian paradigm, using standard tax economic arguments - the perspective most sympathetic to the claim. Specifically, it focuses on two of the many assumptions Mirrlees used to make his mathematics tractable. First, he assumed that utility is absolute, not relative - that our utility curves do not depend on how much anyone else has. Second, he assumed that supply curves for consumption goods are similarly fixed and exogenous. In the case of parents, especially mothers, with young children, both assumptions are probably false. But if this is so, insufficiently progressive taxes may cause parents to spend too little time with their children. And if so, Mirrlees' computations cannot be taken to be even provisionally correct, even within the welfarist paradigm. The paper then turns to the problem of GDP maximization - a goal regularly confused with that of welfare maximization. GDP maximizers rely heavily on the empirical literature Mirrlees' paper triggered to argue that high top marginal rates trigger labor-leisure substitution. They then assume, generally without further evidence, that the substitution of leisure for labor by high-income taxpayers reduces GDP growth. Happily, the Reagan tax cuts tested this assumption nicely - advocates promised that those cuts would boost GDP growth. Contrary to predictions, however, average U.S. GDP growth declined in the decades after the Reagan cuts. The reasons are unclear. What this does mean, however, is that the Mirrlees literature cannot by itself be read to support the proposition that high marginal rates reduce GDP growth. And this, in turn, means that the constraints it imposes on real-world policymaking are much less significant than is commonly assumed.
Book Synopsis Savings and Taxes in a Life Cycle Growth Model with Age-earnings Profile by : Denis Gauthier
Download or read book Savings and Taxes in a Life Cycle Growth Model with Age-earnings Profile written by Denis Gauthier and published by . This book was released on 1985 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Optimal Progressivity of the Income Tax Code by : Juan Carlos Conesa
Download or read book On the Optimal Progressivity of the Income Tax Code written by Juan Carlos Conesa and published by . This book was released on 2005 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions.
Book Synopsis Optimal Taxation and Human Capital Policies Over the Life Cycle by : Stefanie Stantcheva
Download or read book Optimal Taxation and Human Capital Policies Over the Life Cycle written by Stefanie Stantcheva and published by . This book was released on 2015 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper derives optimal income tax and human capital policies in a dynamic life cycle model of labor supply and risky human capital formation. The wage is a function of both stochastic, persistent, and exogenous "ability'' and endogenous human capital. Human capital is acquired throughout life through monetary expenses. The government faces asymmetric information regarding the initial ability of agents and the lifetime evolution of ability, as well as the labor supply. The optimal subsidy on human capital expenses is determined by three considerations: counterbalancing distortions to human capital investment from the taxation of wage and capital income, encouraging labor supply, and providing insurance against adverse draws from the productivity distribution. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. I consider two ways to implement the optimum: income contingent loans, and a tax scheme that allows for a deferred deductibility of human capital expenses. Numerical results are presented that suggest that full dynamic risk-adjusted deductibility of expenses might be close to optimal, and that simple linear age-dependent policies can achieve most of the welfare gain from the second best.
Book Synopsis The Economics of Taxation, second edition by : Bernard Salanie
Download or read book The Economics of Taxation, second edition written by Bernard Salanie and published by MIT Press. This book was released on 2011-11-10 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: A concise and rigorous text that combines theory, empirical work, and policy discussion to present core issues in the economics of taxation. This concise introduction to the economic theories of taxation is intuitive yet rigorous, relating the theories both to existing tax systems and to key empirical studies. The Economics of Taxation offers a thorough discussion of the consequences of taxes on economic decisions and equilibrium outcomes, as well as useful insights into how policy makers should design taxes. It covers such issues of central policy importance as taxation of income from capital, environmental taxation, and tax credits for low-income families. This second edition has been significantly revised and updated. Changes include a substantially rewritten chapter on direct taxation; a discussion of recent research in the chapter on mixed taxation; the replacement of the chapter on capital taxation with a chapter on the “new dynamic public finance”; and considerations of environmental taxation in both theory and policy chapters. The book is aimed at graduate students or advanced undergraduates taking public finance classes as well as economists who want to learn more about the topic. It combines discussion of theory, empirical work, and policy objectives in compact form. Appendixes provide necessary background material on consumer and producer theory and the theory of optimal control.
Book Synopsis Optimal Income Taxes, Transfers and Inequality for an Atkinson-Based Social Welfare Function by : Michael Sattinger
Download or read book Optimal Income Taxes, Transfers and Inequality for an Atkinson-Based Social Welfare Function written by Michael Sattinger and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: By constructing a social welfare function that incorporates the explicit value judgments of Atkinson's measure of inequality, the paper develops implications of optimal income taxation derived using double limit analysis for transfers and inequality. The losses arising from transfers in the leaky bucket experiment associated with Atkinson's measure are explained. The paper shows that with e>0 the utility of a marginal unit of after-tax income is greater for a richer person than a poorer person, and the paper then resolves the apparent contradiction with Dalton's principle of transfers. Comparing social welfare and inequality generated by different tax systems from different values of Atkinson's e, maximization of social welfare does not minimize inequality, and the two goals are sometimes in conflict. The paper develops a decomposable measure of inequality in after-tax incomes based on the social welfare function associated with Atkinson's measure of inequality and establishes that Lorenz curves for after-tax income generated by tax systems that are optimal for different values of Atkinson's e do not cross.
Book Synopsis Savings and Taxation by : Social Science Research Council (Great Britain)
Download or read book Savings and Taxation written by Social Science Research Council (Great Britain) and published by . This book was released on 1980 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Tax By Design written by Stuart Adam and published by Oxford University Press. This book was released on 2011-09 with total page 552 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on the findings of a commission chaired by James Mirrlees, this volume presents a coherent picture of tax reform whose aim is to identify the characteristics of a good tax system for any open developed economy, assess the extent to which the UK tax system conforms to these ideals, and recommend how it might be reformed in that direction.
Book Synopsis The Equal-sacrifice Social Welfare Function with an Application to Optimal Income Taxation by : Kristoffer Berg
Download or read book The Equal-sacrifice Social Welfare Function with an Application to Optimal Income Taxation written by Kristoffer Berg and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose and axiomatically characterize a family of welfare criteria that prioritize individuals making larger sacrifices. By combining efficiency with a concern for equality of sacrifice, our criteria avoid serious shortcomings of utilitarianism. We illustrate our results within the Mirrleesian optimal taxation framework. Our simulated equal-sacrifice optimal tax schedule for the US has marginal tax rates in line with the US tax system and about 20 percentage points lower than the utilitarian recommendation.
Book Synopsis Designing Fiscal Redistribution: The Role of Universal and Targeted Transfers by : Mr.David Coady
Download or read book Designing Fiscal Redistribution: The Role of Universal and Targeted Transfers written by Mr.David Coady and published by International Monetary Fund. This book was released on 2020-06-26 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is a growing debate on the relative merits of universal and targeted social assistance transfers in achieving income redistribution objectives. While the benefits of targeting are clear, i.e., a larger poverty impact for a given transfer budget or lower fiscal cost for a given poverty impact, in practice targeting also comes with various costs, including incentive, administrative, social and political costs. The appropriate balance between targeted and universal transfers will therefore depend on how countries decide to trade-off these costs and benefits as well as on the potential for redistribution through taxes. This paper discusses the trade-offs that arise in different country contexts and the potential for strengthening fiscal redistribution in advanced and developing countries, including through expanding transfer coverage and progressive tax financing.
Book Synopsis Optimal Income Redistribution When Individual Welfare Depends Upon Relative Income by : Michael J. Boskin
Download or read book Optimal Income Redistribution When Individual Welfare Depends Upon Relative Income written by Michael J. Boskin and published by . This book was released on 1976 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of the present note is to explore the structure of optimal income taxation/redistribution in an economy where the welfare of individuals depends in part on relative after-tax consumption, i.e., we specify individual welfare as a function of absolute and relative after-tax consumption, with diminishing marginal utility to each. With such a specification, of course, an additional incentive for income redistribution from wealthy to poor citizens is created and the logical impossibility of increasing tax rates to the point where disincentive effects actually reduce tax revenues is potentially removed. The analysis highlights the importance of the marginal valuation placed on upward social mobility in various ranges of the income distribution and its interaction with the elasticity of the marginal utility of consumption; of course, "labor supply" elasticities, the form of the social welfare function, and the skill distribution continue to play an important role.
