Welfare Cost Of Taxation Research Articles

Politische Folgen finanzwissenschaftlicher Konzepte / Political consequence of public finance

Zusammenfassung Im ersten Teil des Aufsatzes wird dargelegt, wie finanzwissenschaftliche Konzepte in der Vergangenheit politisch umgesetzt worden sind, wie sie Prosperität und Krisen, Freud und Leid verursacht haben. Untersucht werden die römische Governance, das mittelalterliche Lehnswesen, die vertragslose Anarchie in der frühen Neuzeit, der Kameralismus in Deutschland und der Merkantilismus in Frankreich. Diese Konzepte vergangener Zeiten gehen dann in die modernen Konzepte von optimaler Besteuerung und Public Choice über. Optimale Besteuerung betrachtet die Wohlfahrtskosten der Besteuerung, lässt aber die Opportunitätskosten von Staatsausgaben unbeachtet. Public Choice integriert beide, Wohlfahrtsökonomik und Opportunitätskosten im Konzept einer Bürgersteuer.

The elasticity of taxable income in New Zealand: Evidence from the 1986 tax reform

This paper uses the 1986 New Zealand tax reform as a ‘natural experiment’ to estimate the elasticity of taxable income for New Zealand. Adopting the methodology of Auten and Carroll (1999), elasticity estimates ranging from 0.34 to 0.52 are obtained. These results imply a significant behavioural response to tax rate changes well in excess of that implied by standard labour supply elasticity estimates, and suggest that the welfare costs of taxation in New Zealand are larger than may have previously been considered.

The welfare cost of taxation in a labour market with unemployment and non-participation

The welfare cost of taxation in a labour market with unemployment and non-participation

The welfare cost of taxation in a labour market with unemployment and non-participation

The standard public economics analysis of the welfare cost of labour income taxation is based on the estimation of labour supply functions that treat unemployed individuals as non-participants. This paper applies econometric models of multinomial discrete choice to the labour market, explicitly allowing individuals to be in any of three possible states (employment, unemployment and non-participation). Based on these estimates, we present calculations of the dead-weight loss (DWL) of taxes, which turn out to be larger than those suggested by the literature.

The effects of tax reform on labor supply, tax revenue and welfare when tax avoidance matters

We examine how tax avoidance in the form of trade in well-functioning asset markets affects the study of labor supply. We discuss the implications for tax policy analysis, and we show that a failure to account for avoidance responses may lead to huge errors when analyzing how tax reform affects labor supply, tax revenue and the welfare cost of taxation. Our model may explain a number of otherwise hard to understand dimensions of taxpayer response.

Tax Deductions and the Marginal Welfare Cost of Taxation

Recent work emphasizes the efficiency costs of tax deductions that distort the pattern of household spending. Using evidence on the sensitivity of taxable income to tax rates, this work suggests that the marginal welfare cost (MWC) of income taxes in the United States could be dramatically higher because of tax deductions, and might exceed unity. This paper develops an alternative approach for assessing the MWC using evidence on underlying parameters (e.g., labor supply elasticities, the demand elasticity for tax-favored goods). A MWC of around 0.3 to 0.5 seems more consistent with these parameter values, though this estimate is still significantly higher because of tax deductions.

Precautionary Savers with Ricardian Propensities

In his seminal 1974 paper, Barro noted that Ricardian equivalence may fail if agents face undiversifiable, idiosyncratic risk and governments finance tax rebates with higher future tax rates [5]. Higher tax rates reduce the dispersion of future, after-tax income, decrease the precautionary demand for savings and hence tend to stimulate present consumption. Barro concluded, however, that the stimulus to consumption would be minor and would likely be offset by induced reductions in future labor income. The recent revival of interest in the precautionary savings motive has refocused attention on this Tax-Insurance Effect (TIE) [2; 8; 24; 27]. In particular, two highly influential papers, one by Barsky, Mankiw and Zeldes [6] and the other by Kimball and Mankiw [19], argue that the Tax-Insurance Effect generates consumption responses roughly equivalent to those obtained from Keynesian models where agents ignore future tax liabilities entirely. Although the existence of a precautionary demand for savings and, by implication, a TaxInsurance Effect, has received strong empirical support [9; 15; 21], the magnitude of the effect remains largely unknown. The two most difficult empirical issues involve quantifying the degree of uninsured, idiosyncratic risk faced by typical agents and determining the appropriate form and shape of agents' utility functions. On these issues, the profession is far from a consensus. Studies from the labor economics literature [1; 17] suggest idiosyncratic risk may be large and persistent whereas a recent paper by Heaton and Lucas [16] finds idiosyncratic risk to be small and largely transitory.' Similarly, the vast literature surrounding the equity premium puzzle highlights the profession's lack of consensus over the degree of risk aversion exhibited by typical agents. In this paper, I circumvent some of these controversial issues by extending Barsky, Mankiw, and Zeldes' model to include an explicit labor supply decision. The introduction of a labor supply decision allows me to bring evidence from the literature on optimal income taxation [22; 25] and the literature on the welfare cost of taxation [3; 4; 7] to bear on these issues. The idea is simple: Under the conditions that make the Tax-Insurance Effect large (i.e., very risky income distributions and a high degree of risk aversion), agents will place great value on tax-induced

The welfare cost of taxation in New Zealand following major tax reforms

The welfare cost of taxation on labour income is the economic loss to employees over and above the tax revenue acquired. This article estimates total and marginal welfare cost for New Zealand, along with marginal excess burden, for a hypothetical marginal tax reform prior to and following the major discrete reforms of 1986. Estimated welfare costs are, surprisingly, higher in the post‐reform period despite a significant reduction in the progressivity of the personal income tax schedule. Tax bracket creep resulting from inflation appears largely responsible for raising the weighted average effective marginal tax rate during the period. As with recent estimates for the US, estimated welfare costs for New Zealand are sensitive to labour supply elasticities, and are higher than for the US. This is due in part to our use of disaggregated income data.