2 " The Clinton revenue estimates are based on the fallacy that taxpayers will not change their behavior in response to a 37% jump in their marginal tax rates... " Martin Feldstein (1993) Estimating the effect of income taxes on individual behaviors such as labor supply, compensation, saving, and taxable income have been focal points of economic research for several decades. Because income taxe...

economic times, states often legislate tax increases to create additional revenues, even though standard macroeconomic theory suggests that doing so dampens economic activity. Over the last decade or so, state governments have taken on more responsibility for administering social welfare programs. Thanks to abundant federal aid, a robust national economy, and a decline in the number of particip...

The Volcker task force on tax reform, part of the President’s Economic Recovery Advisory Board, faces a daunting task that is made materially more difficult by ex ante constraints placed on its purview and recommendations. Broad-based reform proposals seem to be out of the question, and distributional constraints appear to eliminate many serious ideas. Nevertheless, I believe that significant t...

This paper analyzes the consequences of incorporating a different rate for tax depreciation than for economic depreciation. Firms most often choose their tax depreciation rate in a strategic way. It would therefore be a coincidence if this optimization process leads to a tax depreciation rate that equals the economic depreciation rate. The implications of a difference between tax depreciation a...

We develop a model of tax evasion based on the Ising model. We augment the model using an appropriate enforcement mechanism that may allow policy makers to curb tax evasion. With a certain probability tax evaders are subject to an audit. If they get caught they behave honestly for a certain number of periods. Simulating the model for a range of parameter combinations, we show that tax evasion m...

We examine the welfare consequence of emissions tax with and without a Border Tax Adjustment for an imperfectly competitive industry, where intraindustry trade arises between countries. BTA allows a government to impose a pollution-content tari¤ on imports and refund an emission tax for export sales. We analyze the structure of an optimal emission tax with BTA when a government chooses its emis...

This essay revisits certain basic features of tax systems as they relate to redistribution. It focuses on how the actual differences between proportional and graduated taxes with regard to redistribution diverge in important ways from what many believe or implicitly assume. The analysis seeks to clarify tax policy debates, including those surrounding classic treatments of progressivity and cont...

We examine the relationship between economic growth, tax policy, and the distribution of capital and labor ownership in a one-sector political-economy model of endogenous growth with productive government spending Þnanced by a proportional tax on capital income. Our analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either env...

Based on a representative data set of more than 36,000 original tax report extracts, we develop a microsimulation model that calculates the fiscal impact of changes in the area of tax deductible work-related expenses, in particular expenses for travelling from private home to the place of work, in Germany. The new model allows a more accurate estimation of the fiscal impact of changes in the Ge...

This paper analyzes the impact of rewards on tax compliance as an additional instrument to take into account. While social psychologists and neuroscientists have emphasized the importance of rewards, the tax compliance literature has strongly disregarded the possibilities of rewards. The use of field experiments presents an alternative “carrot” strategy for tax policy. Design mechanisms to cond...