scholarly journals Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium

Econometrica ◽  
2020 ◽  
Vol 88 (2) ◽  
pp. 469-493 ◽  
Author(s):  
Dominik Sachs ◽  
Aleh Tsyvinski ◽  
Nicolas Werquin
Keyword(s):  
General Equilibrium ◽  
Optimal Taxation ◽  
Income Taxes ◽  
Tax Incidence ◽  
Labor Income ◽  
Tax Rates ◽  
Tax System ◽  
Marginal Tax Rates ◽  
Optimal Taxes

We study the incidence of nonlinear labor income taxes in an economy with a continuum of endogenous wages. We derive in closed form the effects of reforming nonlinearly an arbitrary tax system, by showing that this problem can be formalized as an integral equation. Our tax incidence formulas are valid both when the underlying assignment of skills to tasks is fixed or endogenous. We show qualitatively and quantitatively that contrary to conventional wisdom, if the tax system is initially suboptimal and progressive, the general‐equilibrium “trickle‐down” forces may raise the benefits of increasing the marginal tax rates on high incomes. We finally derive a parsimonious characterization of optimal taxes.

scholarly journals Entrepreneurial Taxation with Endogenous Entry

2014 ◽  
Vol 6 (2) ◽  
pp. 126-163 ◽  
Author(s):  
Florian Scheuer
Keyword(s):  
General Equilibrium ◽  
Optimal Taxation ◽  
Production Efficiency ◽  
Differential Treatment ◽  
Labor Income ◽  
Endogenous Entry ◽  
Tax Rates ◽  
Firm Formation ◽  
Tax System ◽  
Optimal Policies

I analyze the optimal taxation of profits and labor income under endogenous firm formation. Individuals differ in their skill and cost of setting up a firm, and can become workers or entrepreneurs. A tax system in which profits and labor income are subject to the same schedule uses general equilibrium effects through wages to indirectly redistribute across occupations. Optimal policies can involve low tax rates at the top and distortions of firms' input choices. However, these properties disappear under a differential treatment of profits and labor income. Then, redistribution is achieved directly through taxes and production efficiency is always optimal. (JEL H21, H24, H25, J24, L25, L26)

Measuring Revenue-maximizing Elasticities of Taxable Income

2016 ◽  
Vol 45 (2) ◽  
pp. 174-204 ◽  
Author(s):  
John Creedy ◽  
Norman Gemmell
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Marginal Rate ◽  
Tax System ◽  
Tax Rate ◽  
Taxable Income ◽  
Wide Range ◽  
The Us ◽  
Marginal Tax Rates ◽  
The Right

This article considers the question of whether marginal tax rates (MTRs) in the US income tax system are on the “right” side of their respective Laffer curves. Previous attention has tended to focus specifically on the top MTR. Conceptual expressions for these “revenue-maximizing elasticities of taxable income” (ETI L), based on readily observable tax parameters, are presented for each tax rate in a multi-rate income tax system. Applying these to the US income tax, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected within, and across, tax brackets and for all taxpayers in aggregate. For some significant groups of taxpayers, these revenue-maximizing ETIs appear to be within the range of empirically estimated elasticities.

Taxation of Couples under Assortative Mating

2014 ◽  
Vol 6 (3) ◽  
pp. 155-177 ◽  
Author(s):  
Alexander Frankel
Keyword(s):  
Assortative Mating ◽  
Optimal Taxation ◽  
Married Couples ◽  
Tax Rates ◽  
Optimal Tax ◽  
Marginal Tax Rates ◽  
Multidimensional Screening

I present a simple and tractable model of the optimal taxation of married couples, working off of the multidimensional screening framework of Armstrong and Rochet (1999). In particular, I study how the tax code varies with the degree of assortative mating. One result is that the “negative jointness” of marginal tax rates found in Kleven, Kreiner, and Saez (2007, 2009) for couples with uncorrelated earnings should be attenuated in the presence of assortative mating. When mating is sufficiently assortative, the optimal tax schedule is separable: an individual's taxes do not depend on his or her spouse's income. (JEL D82, H21, H24, J12)

scholarly journals Public Provision of Private Goods and Nondistortionary Marginal Tax Rates

2010 ◽  
Vol 2 (2) ◽  
pp. 1-27 ◽  
Author(s):  
Sören Blomquist ◽  
Vidar Christiansen ◽  
Luca Micheletto
Keyword(s):  
Income Tax ◽  
Optimal Taxation ◽  
Social Cost ◽  
Market Price ◽  
Efficiency Gain ◽  
Tax Rates ◽  
Public Provision ◽  
Private Goods ◽  
Marginal Tax Rates

Using an optimal taxation model combined with a previously neglected scheme of public provision of private goods, we show that there is an efficiency gain if public provision of selected goods replaces market purchases and that efficiency requires marginal income tax rates to be higher than if the goods were purchased in the market. Part of the marginal tax serves the same role as a market price and conveys information about a real social cost of working more hours. It might be that economies with higher marginal tax rates have less severe distortions than economies with lower marginal tax rates. (JEL H21, H42, I38)

scholarly journals Finances of the Nation: Net Income Tax Rates and the Changing Progressivity of the Cash Tax/Transfer System

2021 ◽  
Vol 69 (2) ◽  
pp. 575-593
Author(s):  
Tahsin Mehdi ◽  
Brian Murphy
Keyword(s):  
Income Tax ◽  
Cash Transfers ◽  
Income Taxes ◽  
Transfer System ◽  
Tax Rates ◽  
Lower Income ◽  
Net Income ◽  
Effective Tax Rates ◽  
Tax System ◽  
Over Time

In this article, using new data released in 2019, Tahsin Mehdi and Brian Murphy examine changes in the progressivity of the federal and provincial income tax system, in conjunction with changes in the progressivity of federal and provincial cash transfers since 1992, by examining effective tax rates. Many of the major components of the system of income taxes and cash transfers have become somewhat more progressive collectively over time. This has resulted in an improved net tax position for lower-income taxfilers as well as the top third of taxfilers. On the other hand, taxfilers in the middle quintile have experienced a drop in their net tax position since 1992.

A New General Equilibrium Welfare Measure, with Application to Labor Income Taxes

2022 ◽  
Vol 0 (0) ◽  
Author(s):  
Arman Mansoorian ◽  
Leo Michelis ◽  
Constantine Angyridis
Keyword(s):  
General Equilibrium ◽  
Dynamic Models ◽  
Income Taxes ◽  
Welfare Cost ◽  
Labor Income ◽  
Compensating Variation ◽  
Welfare Measure ◽  
Dynamic Setting ◽  
Separable Preferences

Abstract In this paper we extend the Hicksian compensating variation welfare measure in two directions. First, we adjust the size of the compensating variation in order to account for the fact that the compensating transfers will result in changes in output, as well as in prices, because labor and, in dynamic models, capital will adjust in response to these transfers. Second, we extend the measure to a dynamic setting with possibly time non-separable preferences. We find that these considerations become more significant for the welfare cost of higher labor income taxes as one moves from static to dynamic models, to models with time non-separable preferences, and finally to models with uncertainty.

scholarly journals Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records

2016 ◽  
Vol 8 (3) ◽  
pp. 233-257 ◽  
Author(s):  
Claus Thustrup Kreiner ◽  
Søren Leth-Petersen ◽  
Peer Ebbesen Skov
Keyword(s):  
Tax Reform ◽  
Liquidity Constraints ◽  
Labor Income ◽  
Tax Rates ◽  
Tax Reforms ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates ◽  
Willingness To Cooperate ◽  
Wage Income

This paper uses monthly payroll records for all Danish employees to identify widespread intertemporal shifting of labor income in response to a tax reform that significantly reduced the marginal tax rates for one-fourth of all employees. When ignoring shifting, the estimate of the overall elasticity of taxable income equals 0.1, and the elasticity is increasing with earnings. When removing the shifting component, the elasticity is close to zero at all earnings levels. The evidence also indicates that tax salience, liquidity constraints and firm willingness to cooperate in shifting are important factors in explaining shifting behavior. (JEL H24, H31, J22, J31)

scholarly journals Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India

2016 ◽  
Vol 33 (2) ◽  
pp. 144-166 ◽  
Author(s):  
Chetan Ghate ◽  
Gerhard Glomm ◽  
Jialu Liu Streeter
Keyword(s):  
Income Taxes ◽  
Labor Income ◽  
Tax Rates ◽  
Policy Reforms ◽  
Potential Growth ◽  
Public And Private ◽  
Agriculture Sector ◽  
Growing Economy ◽  
Infrastructure Investments ◽  
Positive Effect

We construct a two-sector (agriculture and modern) overlapping generations growth model calibrated to India to study the effects of sectoral tax rates, sectoral infrastructure investments, and labor market frictions on potential growth in India. Our model is motivated by the idea that because misallocation depends on distortions, policies that reduce distortions raise potential growth. We show that the positive effect of a variety of policy reforms on potential growth depends on the extent to which public and private capital are complements or substitutes. We also show that funding more infrastructure investments in both sectors by raising labor income taxes in the agriculture sector raises potential growth.

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