Results 1 - 10
of
19
The Case for a Progressive Tax: from Basic Research to Policy Recommendations” The Journal of Economic Perspectives
, 2011
"... T he fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal tax making. A large academic literature has developed models of optimal t ..."
Abstract
-
Cited by 65 (7 self)
- Add to MetaCart
(Show Context)
T he fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal tax making. A large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity. In this theory to cast light on the problem of optimal tax progressivity. In this paper, we explore the path from basic research results in optimal tax theory to paper, we explore the path from basic research results in optimal tax theory to formulating policy recommendations. formulating policy recommendations. Models in optimal tax theory typically posit that the tax system should maximize a Models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint, taking into account social welfare function subject to a government budget constraint, taking into account that individuals respond to taxes and transfers. Social welfare is larger when resources that individuals respond to taxes and transfers. Social welfare is larger when resources are more equally distributed, but redistributive taxes and transfers can negatively are more equally distributed, but redistributive taxes and transfers can negatively affect incentives to work, save, and earn income in the fi rst place. This creates the clasaffect incentives to work, save, and earn income in the fi rst place. This creates the classical trade-off between equity and effi ciency which is at the core of the optimal income sical trade-off between equity and effi ciency which is at the core of the optimal income tax problem. In general, optimal tax analyses maximize social welfare as a function of tax problem. In general, optimal tax analyses maximize social welfare as a function of individual utilities-the sum of utilities in the utilitarian case. The marginal weight for individual utilities-the sum of utilities in the utilitarian case. The marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds. Such welfare weights depend on of consumption expressed in terms of public funds. Such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income. Therefore, optimal income tax theory is fi rst a normative more equality of income. Therefore, optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c
On Dynamic Principal-Agent Problems in Continuous Time
, 2009
"... I study the provision of incentives in dynamic moral hazard models with hidden actions and possibly hidden states. I characterize implementable contracts by establishing the applicability of the first-order approach to contracting. Implementable contracts are history dependent, but can be written re ..."
Abstract
-
Cited by 29 (0 self)
- Add to MetaCart
I study the provision of incentives in dynamic moral hazard models with hidden actions and possibly hidden states. I characterize implementable contracts by establishing the applicability of the first-order approach to contracting. Implementable contracts are history dependent, but can be written recursively with a small number of state variables. When the agent’s actions are hidden, but all states are observed, implementable contracts must take account of the agent’s utility process. When the agent has access to states which the principal cannot observe, implementable contracts must also take account of the shadow value (in marginal utility terms) of the hidden states. As an application of my results, I explicitly solve a model with linear production and exponential utility, showing how allocations are distorted for incentive reasons, and how access to hidden savings further alters allocations.
Dynamic Mechanism Design: A Myersonian Approach
, 2013
"... We study mechanism design in dynamic quasilinear environments where private information arrives over time and decisions are made over multiple periods. Our
rst main result is a necessary condition for incentive compatibility that takes the form of an envelope formula for the derivative of an agents ..."
Abstract
-
Cited by 21 (5 self)
- Add to MetaCart
We study mechanism design in dynamic quasilinear environments where private information arrives over time and decisions are made over multiple periods. Our
rst main result is a necessary condition for incentive compatibility that takes the form of an envelope formula for the derivative of an agents equilibrium expected payo ¤ with respect to his current type. It combines the familiar marginal e¤ect of types on payo¤s with novel marginal e¤ects of the current type on future ones that are captured by impulse response functions.The formula yields an expression for dynamic virtual surplus which is instrumental to the design of optimal mechanisms, and to the study of distortions under such mechanisms. Our second main result gives transfers that satisfy the envelope formula, and establishes a sense in which they are pinned down by the allocation rule (revenue equivalence). Our third main result is a characterization of PBE-implementable allocation rules in Markov environments, which yields tractable su ¢ cient conditions that facilitate novel applications. We illustrate the results by applying them to the design of optimal mechanisms for the sale of experience goods (bandit auctions).
Optimal Tax Progressivity: An Analytical Framework*
, 2014
"... What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, pro-gressivity reduces incen ..."
Abstract
-
Cited by 11 (2 self)
- Add to MetaCart
What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, pro-gressivity reduces incentives to work and to invest in skills, and aggravates the externality associated to valued public expenditures. We develop a tractable equilibrium model that fea-tures all these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preferences, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the externality linked to valued government purchases play quantitatively similar roles in limiting desired progressivity. *The opinions expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. 1
Optimal Dynamic Contracting: the First-Order Approach and Beyond∗
, 2014
"... We study a dynamic principal-agent model in which the agent’s types are serially correlated. In these models, the standard approach consists of first solving a relaxed version in which only local incentive compatibility constraints are considered, and then in proving that the local constraints are s ..."
Abstract
-
Cited by 4 (0 self)
- Add to MetaCart
We study a dynamic principal-agent model in which the agent’s types are serially correlated. In these models, the standard approach consists of first solving a relaxed version in which only local incentive compatibility constraints are considered, and then in proving that the local constraints are sufficient for implementability. We explore the conditions under which this approach is valid and can be used to characterize the profit maximizing contract. We show that the approach works when the allocation in the relaxed problem is monotonic in the types, a condition that is satisfied in most solved examples. Contrary to what happens in static environments, however, this condition is violated in general environments: when the time horizon is long enough and serial correlation is sufficiently high, global incentive compatibility constraints are generically binding. By fully characterizing a simple two period example, we uncover a number of interesting features of the optimal contract that cannot be observed in the special environments in which the standard approach works. Finally, we show that even in complex environments, approximately optimal allocations can be easily characterized by focusing on a particular class of contracts in which the allocation is forced to be monotonic.
and MatthewWeinzierl (2014), "Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Childrens Abilities Depend on ParentsResources," NBER Working Paper 18332
"... Abstract Empirical research suggests that parents'economic resources a¤ect their children's future earnings abilities. Optimal tax policy therefore treats future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the ..."
Abstract
-
Cited by 3 (1 self)
- Add to MetaCart
Abstract Empirical research suggests that parents'economic resources a¤ect their children's future earnings abilities. Optimal tax policy therefore treats future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate such an optimal policy numerically. The optimal policy in this context is more redistributive toward low-income parents than existing U.S. tax policy. It also increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of more than two and one half percent of consumption in our baseline case.
The Private Memory of Aggregate Shocks
, 2010
"... Os artigos publicados são de inteira responsabilidade de seus autores. As opiniões neles emitidas não exprimem, necessariamente, o ponto de vista da ..."
Abstract
- Add to MetaCart
Os artigos publicados são de inteira responsabilidade de seus autores. As opiniões neles emitidas não exprimem, necessariamente, o ponto de vista da
Dynamic Contracting: An Irrelevance Result
"... Abstract This paper considers a general, dynamic contracting problem with adverse selection and moral hazard, in which the agent's type stochastically evolves over time. The agent's final payoff depends on the entire history of private and public information, contractible decisions and th ..."
Abstract
- Add to MetaCart
(Show Context)
Abstract This paper considers a general, dynamic contracting problem with adverse selection and moral hazard, in which the agent's type stochastically evolves over time. The agent's final payoff depends on the entire history of private and public information, contractible decisions and the agent's hidden actions, and it is linear in the transfer between her and the principal. We transform the model into an equivalent one where the agent's subsequent information is independent in each period. Our main result is that for any fixed decision-action rule implemented by a mechanism, the maximal expected revenue that the principal can obtain is the same as if the principal could observe the agent's orthogonalized types after the initial period. In this sense, the dynamic nature of the relationship is irrelevant: the agent only receives information rents for her initial private information. We also show that any monotonic decision-action rule can be implemented in a Markov environment satisfying certain regularity conditions.
unknown title
, 2011
"... T he fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal tax making. A large academic literature has developed models of optimal t ..."
Abstract
- Add to MetaCart
(Show Context)
T he fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal tax making. A large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity. In this theory to cast light on the problem of optimal tax progressivity. In this paper, we explore the path from basic research results in optimal tax theory to paper, we explore the path from basic research results in optimal tax theory to formulating policy recommendations. formulating policy recommendations. Models in optimal tax theory typically posit that the tax system should maximize a Models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint, taking into account social welfare function subject to a government budget constraint, taking into account that individuals respond to taxes and transfers. Social welfare is larger when resources that individuals respond to taxes and transfers. Social welfare is larger when resources are more equally distributed, but redistributive taxes and transfers can negatively are more equally distributed, but redistributive taxes and transfers can negatively affect incentives to work, save, and earn income in the fi rst place. This creates the clasaffect incentives to work, save, and earn income in the fi rst place. This creates the classical trade-off between equity and effi ciency which is at the core of the optimal income sical trade-off between equity and effi ciency which is at the core of the optimal income tax problem. In general, optimal tax analyses maximize social welfare as a function of tax problem. In general, optimal tax analyses maximize social welfare as a function of individual utilities-the sum of utilities in the utilitarian case. The marginal weight for individual utilities-the sum of utilities in the utilitarian case. The marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds. Such welfare weights depend on of consumption expressed in terms of public funds. Such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income. Therefore, optimal income tax theory is fi rst a normative more equality of income. Therefore, optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c
A Service of zbw Redistribution and Insurance with Simple Tax Instruments Redistribution and Insurance with Simple Tax Instruments Redistribution and Insurance with Simple Tax Instruments
"... Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, ..."
Abstract
- Add to MetaCart
(Show Context)
Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. We analyze optimal taxation of labor and capital income in a life-cycle framework with idiosyncratic income risk. We provide a novel decomposition of labor income tax formulas into a redistribution and an insurance component. The latter is independent of the social welfare function and determined by the degree of income risk and risk aversion. The optimal linear capital tax is non-zero and trades off redistribution and insurance against savings distortions. Our quantitative results reveal that the insurance component contributes significantly to optimal labor tax rates and provides an informative lower bound on optimal taxes: even for welfare functions that do not value redistribution, marginal tax rates are positive for all income levels. Optimal capital taxes are significant and yield sizable welfare gains; in particular if labor income taxes are suboptimal. JEL Classification: H21, H23
