How Marginal Tax Rates Affect Families at Various Levels of Poverty

Maag, Elaine; Steuerle, C. Eugene; Chakravarti, Ritadhi; Quakenbush, Caleb

doi:10.17310/ntj.2012.4.02

Cited by 25 publications

(20 citation statements)

References 9 publications

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“…In the United States, there is heterogeneity in the shapes of the effective tax rates as a function of income as they vary by state, family status, age, type of residence, etc. Some typical patterns of the effective marginal rates in the US data are progressive, U-shaped, and inverted S-shaped (see Congressional Budget Office 2007 and Maag et al 2012). 15 Kelly's skewness is defined as…”

Section: Quantitative Analysismentioning

confidence: 99%

Redistribution and Social Insurance

Golosov

Troshkin

Tsyvinski

2016

American Economic Review

117

109

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We study optimal redistribution and insurance in a life-cycle economy with private idiosyncratic shocks. We characterize Pareto optima, show the forces determining optimal labor distortions, and derive closed form expressions for their limiting behavior. The labor distortions for high-productivity shocks are determined by the labor elasticity and the higher moments of the shock process; the labor distortions for low-productivity shocks are determined by the autocorrelation of the shock process, redistributive objectives, and past distortions. In a model calibrated using newly available estimates of idiosyncratic shocks, the labor distortions are U-shaped and the savings distortions generally increase in current earnings.(JEL D82, D91, H21, H23, I38, J22, J24)We study a life-cycle economy with individuals who are ex ante heterogeneous in their abilities and experience idiosyncratic shocks to their skills over time. We derive a novel decomposition that allows us to isolate key economic forces determining the optimal labor distortions in life-cycle economies with unobservable idiosyncratic shocks and to provide their characterization. We also compute the optimal labor and savings distortions in a model calibrated to match moments of the labor earnings process from a newly available high-quality US administrative data. The data allow us to estimate the higher moments of the stochastic process for skills, such as kurtosis, which emerge from our analysis as key parameters determining the properties of the optimum.Most of our analysis focuses on characterizing the properties of the optimal labor distortions, or wedges, between marginal utilities of consumption and leisure. We show that the labor distortion in a given period is driven by two components: an intratemporal component that provides insurance against new shocks in that period, and an intertemporal component that relaxes incentive constraints and reduces the

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Section: Quantitative Analysismentioning

confidence: 99%

Redistribution and Social Insurance

Golosov

Troshkin

Tsyvinski

2016

American Economic Review

117

109

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“…7 See, for example, Maag et al (2012). 9 Using simulated data has a number of advantages relative to using observed panel data.…”

Section: Measuring Work Incentives Using a Structural Dynamic Model mentioning

confidence: 99%

“…6 See, for example, Congressional Budget Office (2015). 7 See, for example, Maag et al (2012). 8 Evans and co-authors also focus on how the usual annual adjustment for price changes to tax thresholds, and to entitlements and earnings disregards in benefits and refundable tax credits, affects work incentives for a given family over time.…”

Section: Measuring Work Incentives Using a Structural Dynamic Model mentioning

confidence: 99%

How Taxes and Welfare Benefits Affect Work Incentives: A Life‐Cycle Perspective

Brewer

Shaw

2018

Fiscal Studies

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Personal taxes and benefits affect the incentive to work over the life cycle by altering income–age profiles, insuring against adverse shocks and changing the returns to human capital. In this paper, we show how a life‐cycle perspective alters our impression of how the UK tax and benefit system affects women's work incentives. Given that actual longitudinal data conflate age effects, cohort effects and policy effects, and, in the UK, are not available covering the full life cycle, we use simulated data produced by a rich, dynamic structural model of female labour supply and human capital that incorporates family formation and fertility. We find that individuals experience considerable variability in work incentives across life that outweighs the variability across individuals. Changes in the presence of children and a partner, as well as the level of any partner's earnings, are key to explaining these patterns: work incentives vary dramatically depending on family composition and the earnings of any partner, especially for the lower‐skilled, and most women experience a number of different family types during the course of their lives.

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“…Some typical patterns of the effective marginal rates in the U.S. data are increasing, U-shaped, and inverted S-shaped (see CBO (2007) and Maag et al (2012)). …”

Section: Persistent Shocksmentioning

confidence: 99%

Recursive Contracts and Endogenously Incomplete Markets

Golosov

Tsyvinski²,

Werquin

2016

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In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems -the theory of recursive contracts. Recursive formulations allow to reduce often complex models to a sequence of essentially static problems that are easier to analyze both analytically and computationally. We first provide a selfcontained treatment of the basic theory: the Revelation Principle, formulating and simplifying the incentive constraints, using promised utilities as state variables, and analyzing models with persistent shocks using the first-order approach. We then discuss more advanced topics: duality theory and Lagrange multiplier techniques, models with lack of commitment, and martingale methods in continuous time. Finally, we show how a variety of applications in public economics, corporate finance, development and international economics featuring incomplete risk-sharing can be analyzed using the tools of the theory of recursive contracts.

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How Marginal Tax Rates Affect Families at Various Levels of Poverty

Cited by 25 publications

References 9 publications

Redistribution and Social Insurance

Redistribution and Social Insurance

How Taxes and Welfare Benefits Affect Work Incentives: A Life‐Cycle Perspective

Recursive Contracts and Endogenously Incomplete Markets

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