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on Public Finance |
| By: | Emmanuel Saez; Joel B. Slemrod; Seth H. Giertz |
| Abstract: | This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates (ETI) using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of most of the taxable income elasticities studies to date, both in the United States and abroad, in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research. |
| JEL: | H24 H31 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15012&r=pub |
| By: | Piergallini, Alessandro; Rodano, Giorgio |
| Abstract: | Since Leeper's (1991, Journal of Monetary Economics 27, 129-147) seminal paper, an extensive literature has argued that if fiscal policy is passive, that is, guarantees public debt stabilization irrespectively of the inflation path, monetary policy can independently be committed to inflation targeting. This can be pursued by following the Taylor principle, i.e., responding to upward perturbations in inflation with a more than one-for-one increase in the nominal interest rate. This paper considers an optimizing framework in which the government can only finance public expenditures by levying distortionary taxes. It is shown that households' participation constraints and Laffer-type effects may render passive fiscal policies unfeasible. For any given target inflation rate, there exists a threshold level of public debt beyond which monetary policy independence is no longer possible. In such circumstances, the dynamics of public debt can be controlled only by means of higher inflation tax revenues: inflation dynamics in line with the fiscal theory of the price level must take place in order for macroeconomic stability to be guaranteed. Otherwise, to preserve inflation control around the steady state by following the Taylor principle, monetary policy must target a higher inflation rate. |
| Keywords: | Public Debt; Distortionary Taxation; Monetary and Fiscal Policy Rules. |
| JEL: | H31 E63 H63 |
| Date: | 2009–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:15348&r=pub |
| By: | Dean Baker |
| Abstract: | Economists are increasingly coming to the recognition that the current downturn is likely to be longer and more severe than they had expected at the time the last stimulus package was approved in February. As a result, there is likely to be interest in additional stimulus in order to boost the economy and lower the unemployment rate. This paper briefly outlines a method for Congress to quickly boost demand in the economy, while at the same time promoting important public ends: an employer tax credit for paid time off. This paid time off can take the form of paid family leave, paid sick days, paid vacation, or a shorter workweek. This tax credit can both provide short-term stimulus and also provide an incentive to restructure workplaces in ways that are more family friendly. It is possible that many workplaces may leave in place changes made to take advantage of this tax credit even after it has expired. |
| Keywords: | economic stimulus, fiscal stimulus, ARRA, recession, paid time off |
| JEL: | H H2 H25 H3 I I1 I18 E E2 E24 E6 E62 E64 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2009-13&r=pub |