Optimal Taxation of Families: Mirrlees meets Becker*

2021 ◽  
Author(s):  
Musab Kurnaz
Keyword(s):  
Quantitative Analysis ◽  
Income Distribution ◽  
Income Tax ◽  
Optimal Taxation ◽  
Tax Credits ◽  
Child Rearing ◽  
Welfare Gains ◽  
Us Economy ◽  
Parental Time ◽  
The Us

Abstract This paper studies optimal taxation of families—a combination of an income tax schedule and child tax credits. Child-rearing requires both goods and parental time, which distinctly impact the design of optimal child tax credits. In the quantitative analysis, I calibrate my model to the US economy and show that the optimal child tax credits are U-shaped in income and are decreasing in family size. In particular, the optimal credits decrease in the first nine deciles of the income distribution and then increase thereafter. Implementing the optimum yields large welfare gains.

Canada

2018 ◽  
Author(s):  
Joshua T. McCabe
Keyword(s):  
Income Tax ◽  
Child Poverty ◽  
Tax Credits ◽  
Primary Method ◽  
Tax Relief ◽  
The Us ◽  
Cash Benefits ◽  
Child Tax Credit ◽  
Family Allowances ◽  
Initial Change

Chapter 4 examines how Canadian policymakers’ renewed promise to tackle child poverty translated into the Child Tax Benefit, the nonrefundable Child Tax Credit, and the Working Income Tax Benefit. Whereas the logic of tax relief served as the springboard for fiscalization in the US, the logic of income supplementation drove the process in Canada. This difference had important implications for the shape and scope of Canadian tax credits, enabling them to significantly reduce child poverty relative to the much weaker outcomes in the US. Family allowances offered policymakers an alternative to welfare as the primary method of delivering cash benefits to children. Canadian policymakers, including conservative policymakers and profamily groups, saw expanding child tax credits as a way to “take children off welfare” by redirecting benefits through a nonstigmatizing program. The initial change occurred under the Progressive Conservatives in 1992 and was consolidated under the Liberals in 1997.

A Note on Relative Prices and Income Distribution over the US Business Cycle: 1857–2009

2020 ◽  
pp. 048661342096286
Author(s):  
Claudio Alberto Castelo Branco Puty
Keyword(s):  
Income Distribution ◽  
Business Cycles ◽  
Labor Costs ◽  
Market Prices ◽  
Relative Prices ◽  
Industrial Economy ◽  
Us Economy ◽  
The Us ◽  
Unit Labor Costs ◽  
Jel Classifications

This paper investigates the relation between relative prices and the income distribution by examining variations in output and prices occurred over thirty-three US business cycles from 1857 to 2009. Using a broad database, the author shows that average relative prices in twenty-seven industries of the US economy presented a remarkably smaller variation than the corresponding variation in output levels, profits and wages. These time-series results, although not conclusive, may provide additional empirical evidence of the Ricardian claim that even relative market prices in an industrial economy are strongly dominated by the correspondent integrated unit labor costs and that changes along a wage-profit schedule will play only a secondary role in their determination. JEL classifications: E11, E32

scholarly journals Optimal pensions in aging economies

2017 ◽  
Vol 18 (1) ◽  
Author(s):  
Burkhard Heer
Keyword(s):  
Labor Supply ◽  
Pension System ◽  
Welfare Gains ◽  
Replacement Ratio ◽  
Total Consumption ◽  
Us Economy ◽  
Public Pension System ◽  
Labor Supply Elasticity ◽  
The Us ◽  
Labor Supply Decision

Abstract We derive the optimal replacement ratio of the pay-as-you-go public pension system for the US economy in a life-cycle model that 1) replicates the empirical wage heterogeneity and 2) endogenizes the individual’s labor supply decision. The optimal net pension replacement ratio is found to be in the range of 0%–43% depending on demographic parameters and, in particular, the Frisch labor supply elasticity. Reducing the pensions from the present to the optimal pension policies implies considerable welfare gains amounting to approximately 0.1%–4.1% of total consumption. The welfare increase is particularly pronounced for the greyer US population that is projected for the time after the demographic transition.

scholarly journals Bunching to Maximize Tax Credits: Evidence from Kinks in the US Tax Schedule

2020 ◽  
Vol 12 (3) ◽  
pp. 402-432
Author(s):  
Jacob A. Mortenson ◽  
Andrew Whitten
Keyword(s):  
Growth Rate ◽  
Income Tax ◽  
Tax Credits ◽  
Sample Period ◽  
Unique Point ◽  
The Us ◽  
Tax Returns

We explore bunching at US income tax kinks using a panel of 258 million tax returns from 1996 to 2014. We find bunching at seven kinks, with nearly all bunching occurring at kinks maximizing tax credits. In our sample period, the total number of bunchers increased at an 11 percent annualized growth rate, from 134,300 in 1996 to 866,600 in 2014. Approximately two-thirds of these bunchers locate at the unique point that maximizes refunds. Some taxpayers repeatedly bunch at this point, even in consecutive years when different tax kinks are refund maximizing. (JEL H24, H26, H31)

scholarly journals The Rise of Working Mothers and the 1975 Earned Income Tax Credit

2020 ◽  
Vol 12 (3) ◽  
pp. 44-75
Author(s):  
Jacob Bastian
Keyword(s):  
Maternal Employment ◽  
Income Tax ◽  
Working Mothers ◽  
Parental Leave ◽  
Earned Income Tax Credit ◽  
Tax Credit ◽  
Earned Income ◽  
Us Economy ◽  
The Us ◽  
High Fraction

The rise of working mothers radically changed the US economy and the role of women in society. In one of the first studies of the 1975 introduction of the Earned Income Tax Credit, I find that this program increased maternal employment by 6 percent, representing 1 million mothers and an elasticity of 0.58. The EITC may help explain why the US has long had such a high fraction of working mothers despite few childcare subsidies or parental leave policies. I also find suggestive evidence that this influx of working mothers affected social attitudes and led to higher approval of working women. (JEL H24, J16, J22, J31, K34, Z13)

Dynamic Scoring in the Ramsey Growth Model

2008 ◽  
Vol 8 (1) ◽  
Author(s):  
Ergete Ferede
Keyword(s):  
Growth Model ◽  
Income Tax ◽  
Labor Income ◽  
Capital Income ◽  
Transfer Payments ◽  
Us Economy ◽  
The Us ◽  
Parameter Values ◽  
Tax Cuts ◽  
Dynamic Scoring

Abstract This paper extends the Mankiw and Weinzierl (2006) model and examines the revenue effects of capital and labor income tax cuts under alternative financing regimes. Our analysis suggests that the revenue losses from capital and labor income tax cuts are the highest when the tax cuts are productive spending-financed and the lowest when transfer payments are used to finance the tax cuts. For plausible parameter values consistent with the US economy, we find that about 47 percent of a transfer-financed capital income tax cut is self-financing. The corresponding result for a productive spending-financed capital income tax cut is only 6 percent.

Higher Taxes at the Top: The Role of Entrepreneurs

2021 ◽  
Vol 13 (3) ◽  
pp. 1-36
Author(s):  
Bettina Brüggemann
Keyword(s):  
Income Distribution ◽  
Income Tax ◽  
Tax Rates ◽  
Welfare Gains ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Long Run ◽  
Marginal Tax Rates

This paper computes optimal top marginal tax rates in Bewley-Huggett-Aiyagari–type economies that include entrepreneurs. Consistent with the data, entrepreneurs are overrepresented at the top of the income distribution and are thus disproportionately affected by an increase in the top marginal income tax rate. The top marginal tax rate that maximizes welfare is 60 percent. While average welfare gains are positive and similar across occupations along the transition, they are larger for entrepreneurs than for workers in the long run, and this occupational gap in welfare gains after the tax increase widens with increasing income. (JEL D11, D21, D31, H21, H24, L26)

scholarly journals Optimal Fiscal Policy in Overlapping Generations Models

2017 ◽  
Vol 47 (1) ◽  
pp. 3-31 ◽  
Author(s):  
Carlos Garriga
Keyword(s):  
Income Tax ◽  
Overlapping Generations ◽  
Demographic Structure ◽  
Capital Income ◽  
Transition Path ◽  
Overlapping Generations Model ◽  
Us Economy ◽  
The Us ◽  
Optimal Fiscal Policy ◽  
Optimal Capital

In this article, we explore the proposition that the optimal capital income tax is zero using an overlapping generations model. We prove that for a large class of preferences, the optimal capital income tax along the transition path and in steady state is nonzero. For a version of the model calibrated to the US economy, we find that the model could justify the observed rates of capital income taxation for an empirically reasonable intertemporal utility function and a robust demographic structure.

scholarly journals Optimal Taxation and Investment‑ Specific Technological Change

2020 ◽  
pp. 167-183
Author(s):  
Valter Nóbrega
Keyword(s):  
Technological Change ◽  
Optimal Taxation ◽  
Optimal Level ◽  
Relative Price ◽  
Labor Income ◽  
Overlapping Generations Model ◽  
Us Economy ◽  
The Us ◽  
The Relationship

In this paper, we look at the relationship between Investment Specific Technological Change (ISTC) and optimal level of labor income progressivity. We develop an incomplete markets overlapping generations model that matches relevant features of the US economy and find that the observed drop in the relative price of investment since the 1980’s leads optimal progressivity to increase. This result hinges on ISTC increasing the wage premium through an increase in the variance of the permanent component of labor income. This result is supported by recent findings in the literature that highlight the increasing role of the permanent component of labor income in the observed increase in income inequality.

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