Constrained inefficiency in GEI: A geometric argument

In this paper we use global analysis to study the welfare properties of general equilibrium economies with incomplete markets (GEI). Our main result is to show that constrained Pareto optimal equilibria are contained in a submanifold of the equilibrium set. This result is explicitly derived for economies with real assets and fixed aggregate resources, of which real numéraire assets are a special case. As a by product of our analysis, we propose an original global parametrization of the equilibrium set that generalizes to incomplete markets the classical one, first, proposed by Lange [Lange, O., 1942. The foundations of welfare economics. Econometrica 10, 215–228].     

EVALUATING IMPACT EFFECTS OF TAX REFORMS

Abstract. This survey paper provides coverage of the inputs from the theory side which go into the empirical analysis of impact effects of tax reforms. Inequality, social welfare, progressivity and horizontal inequity effects are considered. The value judgements inherent in selecting the target group for analysis, specifying welfare through household utility, equivalizing incomes and otherwise incorporating differences in household needs into utilitarian analysis, are all explained. The evaluation procedures described include dominance checks and index comparisons. The inequality and social welfare tests are also applicable to other comparisons of income distribution. Standard computer software to sort, cumulate and compute covariances is all that is required to undertake the necessary computations using microdata.     

Absentee Ownership of Farmland and State and Local Tax Policy: Income Tax Promotes Absenteeism, But the Property Tax Can Be Used to Strengthen Family Farms

Abstract . The incentive effects of state and local tax policies in promoting or inhibiting the ownership of farmland by non-operators are evaluated. Previous research on the economic, social and environmental effects of absentee ownership is reviewed as well as evidence regarding the impact of tax laws on absentee owners versus owner-operators. The Federal tax laws, it is found, work to increase land prices, reduce entry into farming by young farmers, and increase absentee ownership. State income tax policies may reinforce these effects. Property tax policies, on the other hand, may counteract income tax laws by giving tax relief preferentially to owner-operators. Several modifications of property tax relief programs are suggested.     

MARGINAL COMMODITY TAX REFORMS: A SURVEY

Abstract.  As noted 30 years ago by Martin Feldstein, optimal taxes may be useless for practical purposes and emphasis should instead be placed on the possibility of enhancing welfare by reforming existing tax rates. In this perspective, marginal commodity tax reforms are gaining increasing attention due to political and economic constraints on large reforms of direct (or indirect) taxation. In this paper, we summarize the main features and results of the literature on marginal commodity tax reforms pioneered by Ahmad and Stern, further developed by Yitzhaki and Thirsk and recently reinterpreted by Makdissi and Wodon. We establish new links to other fields of research, namely the literature on the use of equivalence scales and on poverty measurement. We also critically examine some issues associated with the implementation of marginal tax reforms with special reference to the calculation of welfare weights and revenue effects. Finally, we suggest directions for future research on poverty-reducing commodity tax reforms.     

The Distributional Effects of Tax‐benefit Policies under New Labour: A Decomposition Approach*

I revisit the distributional effects of tax‐benefit policy reforms under New Labour using counterfactual microsimulations embedded in a Shapley decomposition of time change in inequality and poverty indices. This makes it possible to quantify the relative effect of policy changes compared to all other changes, and to check the sensitivity of this policy effect to the use of (i) income vs. price indexation, and (ii) base vs. end period data. Inequality and poverty depth would have increased, and the sharp fall in child poverty would not have occurred, had the reforms of income support and tax credits not been implemented.     

The winners and losers of tax reform: An assessment under financial integration

I quantify the macroeconomic and redistributive effects of the unilateral elimination of the capital income tax in a two-country, heterogeneous-agent incomplete markets model with progressive labor income taxes. Home, by implementing the reform, induces government responses where labor income is taxed in Home and mostly subsidized in Foreign. In addition, post-reform price dynamics reduce Home’s wealth and suppress households’ ability to do consumption smoothing, with negative effects on the majority—particularly on the poor. In turn, Foreign accumulates wealth, and price movements work particularly in favor of the poor. As a result, a large majority in Home prefers the status quo whereas Foreign supports the reform unanimously. These findings are robust to alternative scenarios where (i) the borrowing constraints are relaxed, (ii) both countries jointly eliminate capital income taxes, (iii) foreign interest income is taxed, and (iv) Home capital income tax is reduced from 40% to 35%.     

Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

We investigate an overlapping generations (OLG) model in which agents who live for two periods receive idiosyncratic productivity shocks when they are old. We show that, around zero tax equilibria, we can always construct a combination of a small capital tax and a lump-sum transfer that are Pareto-improving. As Dávila et al. (Econometrica (2012)) show, a capital reduction in one period raises the welfare level of agents who are old in that period, but lowers that of the young agents, because it reduces their wages. We show that the government can compensate for these wage losses by additionally taxing the old agents, such that their welfare gains remain positive. Our result is unchanged when earnings are uncertain at young age.     

Alternative Methods of School Finance: An Empirical Analysis of Cities in San Diego County

. Two alternatives to the local school property tax are explored using a simulation model: a power equalizing property tax and a state-wide property tax. The effects on residents’tax burdens and service levels are estimated and compared for residents of 13 cities in San Diego County. Under each of the available options shifts in tax burdens would occur. One high income city is a major beneficiary. Three others which would be required to contribute more to education are otherwise dissimilar; one is already taxing itself heavily. When tax effort is considered, cities intended to be prime beneficiaries do benefit but not greatly. The principal gainer is a city with high income and high property values. This analysis does not indicate that these alternative programs are more equitable than the present property tax.     

Income taxes and urban spatial structure

This paper examines the impact of an income tax in a monocentric city where households equilibriate their allocation of time between work, commuting, and leisure. An increase in the income tax rate lowers the implicit value of time, and hence transportation costs. “Compensated equilibrium” comparative statics analysis shows that under certain conditions, this results in a larger, more dispersed urban area, with lower land rents at the city center and less population within any given distance from the center. The welfare effect of an income tax rate change is also studied, and an expression for the marginal excess burden is derived. The income tax produces welfare losses both because it induces substitution in favor of leisure and in favor of travel—the latter accompanied by excessive spatial dispersion and consumption of space. The marginal excess burden depends not only on the compensated demand elasticity for leisure, but also on that for space. Finally, the problem of benefit measurement for transportation projects in this tax-distorted spatial economy is examined. Benefit measures should be deflated to adjust for the fact that further transportation improvements lead to reduction of land use intensity, exacerbating the problem of spatial resource misallocation in an already excessively dispersed urban area.     

Reducing government debt in the presence of inequality

What are the welfare effects of government debt? In particular, what are the welfare consequences of government debt reductions? We answer these questions with the help of an incomplete markets economy with production. Households are subject to uninsurable income shocks. We make several contributions. First, by targeting the skewed wealth and earnings distribution of the US economy in our calibration, we identify inequality as the major driver of the welfare effects of public debt/GDP changes. Second, we show that in order to fully gauge the welfare consequences and the political feasibility of government debt changes, it is crucial to consider the transitional dynamics between stationary equilibria. Our results therefore have important implications for the design of debt reduction policies. Since the skewed wealth distribution generates a large fraction of borrowing-constrained households, a public debt reduction should be non-linear, such that the tax burden is postponed into the future.     

Pareto-improving income redistribution: expanding consumer access to the vaccines market

Economic theory has proved that income redistribution in imperfectly competitive markets can increase social welfare and lead to Pareto-improving situations. This paper shows that, under certain assumptions, self-financing tax subsidy schemes can have Pareto-improving effects also in a competitive framework. This result is achieved by exploiting external economies of scale, resulting in a decrease in price along with an increase in output. The case of the vaccines industry and World Health Organization initiatives are examined to illustrate the theoretical analysis.     

Income and Democracy: A Smooth Varying Coefficient Redux

Acemoglu et al. (American Economic Review 2008; 98 : 808–842) find no effect of income on democracy when controlling for fixed effects in a dynamic panel model. Work by Moral‐Benito and Bartolucci (Economics Letters 2012; 117 : 844–847) and Cervellati et al. (American Economic Review 2014; 104 : 707–719) suggests that the original model might have been misspecified and proposes alternative specifications instead. We formally test these parametric specifications by implementing Lee's (Journal of Econometrics 2014; 178 : 146–166) dynamic panel test of linear parametric specifications against a general class of nonlinear alternatives robustly and reject all these specifications. However, using a more flexible model proposed by Cai and Li (Econometric Theory 2008; 24 : 1321–1342) we find that the relationship between income and democracy appears to be mediated by education, but results are not statistically significant. Copyright © 2016 John Wiley & Sons, Ltd.     

Divergence in alternative Hicksian welfare measures: the case of revealed preference for public amenities

This paper investigates the divergence between the two Hicksian welfare measures of non‐traded amenity improvement associated with housing. First, the Hicksian surplus measures for amenity changes are analytically developed based on explicit specification of utility structures. A hedonic two‐stage approach is then applied to empirically show that, for quantity changes, in contrast to hypothetical markets, divergence in real market is small. The paper also analytically develops expressions for the income and substitution effects and empirically shows that for a given income effect, the greater the substitution effect the smaller the divergence between the two measures. Copyright © 2002 John Wiley & Sons, Ltd.     

Providing Shelters or Low Income Housing? An Optimal Control Model

An optimal control model is developed to model the choice between short-term safety nets (shelter beds) and longer term investments (low income housing) for the alleviation of literal homelessness (people sleeping on the street). Society's objective function depends negatively on literal homelessness and the budget expenditure to fight it. A steady-state saddle point solution is found. The model is extended to take into account incentive effects in the provision of shelters and leakage effects in the provision of low income housing.Journal of Economic Literature ClassificationNumbers: H53, R21, C61.     

我国个人所得税征管难的制度因素分析

个人所得税在我国流失严重，个人所得税征管成了税务部门的一大难题。本文分析了在我国个人所得税制度、个人所得税征管制度及相关社会福利制度等方面存在的不合理因素，并探讨了这些不合理的制度因素对纳税人纳税积极性及税收征管的影响，最后得出结论，只有优化相关制度建设，才能从根本上提高纳税人的纳税意识，解决个人所得税的征管难问题。     

Union wage setting and progressive income taxation with heterogeneous labor: theory and evidence from the German income tax reforms 1986–1990

This paper analyzes the effects of tax shifting in a model with union wage setting and progressive income taxation. The setup allows for different skill levels of the workforce and accounts for the union's distributional objective of income equality. The theoretical predictions of the model are empirically tested with a panel of German micro-data covering the period of the income tax reforms 1986–1990. It is shown that average taxes raise wages, whereas increasing the progressivity of the tax system reduces wages. The effect of progressivity on high-skilled labor tends to be less significant and smaller. Stronger preferences for equality compress the (pre-tax) wage distribution.     

NIT picking: The macroeconomic effects of a Negative Income Tax

I study a revenue-neutral reform of the U.S. income tax and welfare system that involves the adoption of a Negative Income Tax (NIT). The reform is undertaken in a life-cycle economy with individual heterogeneity and uninsurable idiosyncratic labor risk. The optimal NIT consists of a 22% rate and a transfer equivalent to 11% of per-capita GDP. The ex-ante average welfare gain is a 2.1% annual increase of individual consumption. I show that a NIT outperforms a flat tax reform (income tax plus deduction) by a considerable margin. The key consequence of the reform is that high-productivity agents increase their relative importance in the labor supply at the expense of low-productivity agents.     

Federal Income Tax Reform in the United States: How Did It Happen? What Did It Do? Where Do We Go from Here?

Abstract . The 16th Amendment to the U.S. Constitution in 1913 provided the legal basis for progressive federal income taxes. They now yield revenues of about $450 billion annually. Tax base erosion eventually produced a levy in serious violation of norms of allocation efficiency, distributional equity, and macroeconomic performance. Vested private interests influenced legislators by propaganda and campaign contributions to minimize their tax burdens at the expense of less wealthy taxpayers. The result was an irrational and badly flawed tax structure. In 1981 the maximum marginal tax rate on income from property and wealth was significantly reduced along with other bracket reductions. The income tax reform movement culminated in 1984 to 1986. It expanded the base of the tax while reducing marginal rates as well as brackets, with little change in the distribution of the burden among different income groups but achieving some greater equity in tax liabilities for those with similar incomes.     

Welfare targeting in networks

This paper investigates welfare targeting for public goods in networks. First, we show that a tax/subsidy scheme (not necessarily budget-balanced) affects each consumer only insofar as it affects his neighbourhood. Second, we show that either a Pareto-improving income redistribution can be found or there exist Negishi weights, which we relate to the network structure. Third, in the case of Cobb–Douglas preferences, we show that a Law of Welfare Targeting holds and links two well-known notions of the comparative statics of policy interventions: neutrality and welfare paradoxical effects. Collectively, our findings uncover the importance of the $-1$ eigenvalue to economic and social policy: it is an indication of how consumers absorb the impact of income redistribution.     

Health insurance reform: The impact of a Medicare buy-in

The steady-state general equilibrium and welfare consequences of a Medicare buy-in program, optional for those aged 55–64, is evaluated in a calibrated life-cycle economy with incomplete markets. Incomplete markets and adverse selection create a potential welfare improving role for health insurance reform. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. The subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0.03–0.18 percent depending on how the program is implemented.