Negative Income Tax System Research Articles

Flat rate taxes and relative poverty measurement: a reconsideration

Thompson (Soc Choice Welf 38:543–551, 2012) studies the impact of revenue-neutral changes to the parameters of a flat rate tax system and a negative income tax system respectively on the level of relative poverty with different definitions of the poverty line. Under the flat rate tax system, for the case where this line is some fraction of the median post-tax income level, we show in this note that in general one of its main propositions does not hold, and then propose an additional assumption to redress some assertions of that proposition.

Negative income taxes, inequality and poverty

AbstractWe use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit (“demogrant”). We show that changing the demogrant‐to‐output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant‐to‐output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post‐tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.

The Welfare Policy Dilemma of a Negative Income Tax System: Normative Approach

The Welfare Policy Dilemma of a Negative Income Tax System: Normative Approach

The Welfare Policy Dilemma of a Negative Income Tax System

The Welfare Policy Dilemma of a Negative Income Tax System

Flat rate taxes and relative poverty measurement

We provide a systematic analysis of the impact of revenue-neutral changes to the parameters of a flat rate tax system on the level of relative poverty (where the poverty line is some fraction of either the mean or the median post-tax income level). We also perform a similar analysis for a negative income tax system. We find that the choice of poverty line type has important consequences in respect of how changes to the tax parameters affect the level of relative poverty. Our results are illustrated with a numerical simulation, in which we allow the pre-tax income distribution to be either given exogenously or determined endogenously.

An Agent-Based Simulation Model of the Economy: An Empirical Study of Negative Income Tax System in a Transition Economy

In this paper, we present an agent-based computer simulation model to analyze the dynamic relationship between economic growth and income difference in a transition economy and to evaluate the empirical effects of negative income tax system. Micro agents in the economy form the economic networks and enable the economy to evolve forward through the intelligential evolutionary system and mutual interactions between the agents. Based on the logical reasons of the transition economy, the model finally gives the results of the simulation: when the economy finishes rapid transition and enters into stable development, by implementing negative income tax system, government can effectively decrease income difference while at the same time maintain rapid economic growth.

Evaluating alternative tax reforms in Italy with a model of joint labor supply of married couples

In this paper we estimate a model of household labor supply using an econometric approach that allows simultaneous decisions of household members, complex and non-convex choice sets induced by tax and benefit rules and quantity constraints on hours choice. The model is estimated using the 1993 Bank of Italy's survey of household income and wealth and used to simulate three hypothetical tax reforms, namely, a flat tax and two versions of a negative income tax system, under the constraint of equal tax revenue. All these reforms contain both incentives to work less and incentive to work more. The incentives to work more seem to prevail, at least for the more productive: the labor supply elasticities, although modest, are sufficiently large (especially female participation elasticity), so that all the reforms produce a larger household average disposable income, without worsening much the equality of the income distribution as measured by the Gini index. A remarkable result is that no significant `poverty trap' effect is associated with the negative income tax reforms. All the reforms are supported by a majority of winners in the sample, although the proportion of winners varies considerably across income deciles.

Towards a Negative Income Tax System for Australia

The undue complexity of the Australian tax‐transfer system is outlined as are the associated high effective marginal tax rates for many individuals and families. A negative income tax system is a possible solution to these problems.The most radical version of negative income tax is a ‘basic income/flat tax’ system which combines universal tax credits (that vary according to presence of children, disability etc.) and a flat tax rate on private income. Using NATSEM’s microsimulation model STINMOD it is found that to ensure that no current social security beneficiaries become worse off under such a system would either be very expensive to introduce or require a tax rate that is likely to be unacceptably high. Less radical versions of negative income tax are also costed, incorporating the possibility of varying tax rates, the tapering out of tax credits, and placing some restrictions on the granting of tax credits. This makes negative income tax look more feasible.The analysis does not incorporate behavioural responses. Since the motivation for a negative income tax system is largely to achieve such responses (for example, labour supply responses), this feasibility analysis might have been unduly harsh. Research is required to incorporate behavioural responses into the analysis.

The Distribution of Work in Australia*

Since the 1960s substantial increases in unemployment, female participation and employment, part‐time employment, and persons working long hours, have produced a wider distribution of work between individuals in the Australian labour market. A widening distribution of work between income units and households has also occurred. The effect on the distribution of earnings and ‘well‐being’ is considered. The case for work‐sharing policies to reduce unemployment and create a more even distribution of work is rejected. Labour market deregulation combined with a negative income tax system may be a way of increasing employment without creating a substantial ‘working poor’.

A Negative Income Tax in The Netherlands? A General and Emancipatory Point of View

Could an alternative system of income maintenance overcome the existing inequitable and inefficient situation, which effectively limits women′s options in the labour market in The Netherlands? This question is approached by describing an alternative system of income maintenance in the form of a negative income tax. Both prospects and limitations of a negative income tax system for Dutch society, from the point of view of this society in general and from an emancipatory point of view in particular, are explored.

An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation

A two-person, two-period general equilibrium model with uncertainty about second-period labor productivity is developed. The model is used to consider potential welfare (Pareto) gains from both a stylized unemployment insurance system and from a negative income tax system. Welfare gains are possible if individuals are sufficiently homogeneous. When both programs are operated simultaneously, complete insurance is always feasible but is optimal only if the labor supply curve is negatively sloped.

Professor Friedman, meet Lady Rhys-Williams: NIT vs. CIT

In the conventional view, income testing is required to make a tax-transfer program ‘efficient.’ This view can be seen to hinge on the ‘target efficiency’ concept. The economic efficiency of income testing is analyzed here-including distortions of household behavior and the total administrative costs of the tax-transfer system. The income-tested program is a negative income tax system (NIT), which has divergent marginal tax rates for beneficiaries and net taxpayers; the nontested scheme is a credit income tax (CIT), which makes universal payments and imposes a uniform marginal tax rate. Theoretical analysis shows the conditions under which the CIT is more efficient than a comparable NIT. Some suggestive empirical evidence and policy considerations in the choice between NIT and CIT are presented.