Friday, September 2, 2011

Taxes, Elasticity, Revenue, and Economic Activity

Romer, Christina and David Romer, (2010). "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, vol. 100(3), pages 763-801.

tax increases to be highly contractionary with a negative effect on investment

Alesina, Alberto and Silvia Ardagna (2010) "Large Changes in Fiscal Policy: Taxes versus Spending" In Jeffrey Brown, 2010. "Tax Policy and the Economy, Volume 24," NBER Books, National Bureau of Economic Research.

Fiscal stimulis based on tax cuts increases the probability of future economic growth greater than spending

Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen (2000) "Income Taxes and Entrepreneurs Use of Labor," Journal of Labor Economics, 18 (2), April pp. 324-55

Increases in marginal tax rates reduce the probability of future increased hiring and are associaed with reduced growth in wages.

Gruber, Jon and Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, vol. 84(1), pages 1-32.

Finds a very elastic response for incomes over $100k, (.57) with an elasticity of about .17 for incomes < $100k.

Gentry, William and Glenn Hubbard (2000) "Tax Policy and Entrepreneurial Entry" American Economic Review, vol. 90, pp. 283-287.

Finds a significant increase in entrepreneurial activity when tax rates are less progressive.

Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho, and Andrei Shleifer, (2010). "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, vol. 2(3), pages 31-64, July.American Economic Association.

"our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity"

The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act Martin Feldstein Journal of Political Economy
Vol. 103, No. 3 (Jun., 1995), pp. 551-572

Estimates the elasticity of taxable income to range from about 1.0 -3.

Lindsey, Lawrence B. 1987. "Individual Taxpayer Response to Taxcuts, 1982-1984." J. of Public Economics 33 (July) 173-206

Found elasticity of taxable income by income category to be .728 for income > $50k, 1.023 for >$100k, 1.413 for >$250k, and 2.0 for > $1 million. Also derived the tax revenue responses to reductions in marginal taxes for those earning more than $200k / yr. Revenues increased by 19% in 1982, 35% in 1983, 56% in 1984.

Economic Inquiry, 2008, vol. 46, issue 2, pages 197-207


Why Do Americans Work So Much More Than Europeans?
Federal Reserve Bank of Minneapolis Quarterly Review
Vol. 28, No. 1, July 2004, pp. 2–13

Finds that taxes, and particularly higher marginal tax rates have a negative effect on labor hours.