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Transfer programs, tax rates, in addition to labor supply 1. Transfer Program Design in addition to Labor Supply Transfer Programs, Tax Rates, in addition to Labor supply
Berry College, US has reference to this Academic Journal, Transfer Programs, Tax Rates, in addition to Labor supply Robert Moffitt Johns Hopkins University September 27, 2013 BFI Conference on Taxation Will restrict myself so that two topics 1. Transfer program design in addition to labor supply 2. Commentary on Mirrlees Report proposals in consideration of reform of earnings taxation 1. Transfer Program Design in addition to Labor Supply Much of this will be familiar so that those who have done research on this topic But I have my own take on it Traditional issue: desire so that keep the tax rate on benefits low (negative income tax, Friedman in addition to others) so that encourage work effort I think everybody wants that
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Traditional problem is that lower tax rates, holding the guarantee fixed, increase expenditure in addition to so you have so that raise taxes on higher-income individuals so that finance it This is the problem posed, e.g., by the Brewer-Saez-Shephard Mirrlees Report chapter They propose cutting the child benefit in addition to raising other rates Less recognized by many economists, much less the general public, is that reducing tax rates while holding guarantees fixed doesn?t necessarily even increase average labor supply ?at the bottom? More slightly higher income families are made eligible in addition to they reduce labor supply NIT experiment evidence in addition to econometric evidence suggest the net effect is about zero (Moffitt, 2003) Same is true of earnings subsidies like the EITC in addition to the WFTC; because they have so that be phased out, they reduce labor supply in consideration of some families in addition to increase it in consideration of others See Hotz in addition to Scholz (2003) in consideration of supporting evidence
All these effects are incorporated into general optimal tax models but they are obscured When thinking about welfare program design, I prefer so that hold total welfare expenditure fixed in addition to then talk about design Can then focus on the issues of the distribution of tax rates in addition to levels of guarantees among the ?low? income population (e.g., $30K in addition to below in the US) If you do that, then reductions in t have so that accompanied by reductions in G Still have ambiguous labor supply effects but more likely so that be positive This was Milton Friedman?s recommendation in the first place Have so that focus on redistributional preferences (social weights) in addition to LS elasticities in consideration of different groups w/in the low income population And in consideration of earnings subsidies, have so that reduce G so that do those, too I.e., you get more labor supply incentives at the bottom by instituting a regressive tax program
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It also forces you so that face the fundamental tradeoff between G in addition to t As a factual matter, UK in addition to Europe tend so that have high G in addition to high t (see Brewer et al. in consideration of the extraordinarily high t?s in the UK) whereas the US has low Gs in addition to low ts (tax rates in US are very low: TANF is < .10, housing is < .30, etc.; in addition to EITC is negative) In a country like the UK alongside its high Gs, reducing t can be very expensive One possible solution so that this tradeoff I think deserves more consideration: work requirements Were anathema so that Friedman in addition to still are so that many economists in addition to policy people But, like all Akerlof-style ?tagging? designs, it can be efficient so that give high G only so that those alongside (estimated) low mkt wages in addition to low G so that those alongside (estimated) high mkt wages?if (a big if) you can do a good job of estimating wage rates But the question is whether real-world welfare administrators can do a halfway accurate job of estimating wages Not clear See Mirrlees Report in consideration of a good discussion of tagging designs And my Commentary on Brewer et al. in consideration of a discussion; in addition to my EJ (2006) paper in consideration of simulations of work requirements in addition to error rates in wage estimation 2. Mirrlees Report Recommendations When I first read them, I could think only one thing: Ramsey But instead of imposing lower excise taxes on goods alongside more elastic demands, you impose lower income tax rates on those alongside greater labor supply elasticities Ramsey excise taxation has not found wide acceptance (though perhaps because of distributional implications); I worry about these new proposals, too Mirrlees Report thinks the evidence supports possibly high LS elasticities among 1. Young (or at education-leaving point?) 2. Old (or at retirement point?) 3. Women after having Children 4. High earners (income elasticities) Young: seems quite plausible, we know that the age at which you start work is where a major change in lifetime labor supply has occurred over the last 60 years Not sure about tax rates keyed specifically so that school-leaving Old: yes, I think Richard is talking about at pre-retirement ages But, again, am not sure about cutting taxes in consideration of older workers who have not yet retired? 3. Young mothers returning so that work after having children Feasibility questions High earners Yes, at the earnings margin rather than hours margin Some evidence of mine in consideration of married men before in addition to after TRA86 (Moffitt in addition to Wilhelm, 2000): 1983-1989 Change in AGI by Change in NTR (Feldstein (1995) method) And I would add: 5. Low-wage men Juhn-Murphy-Topel (1991): LS of low-wage men has fallen as their wages have fallen Burtless (1987): NIT experiments showed that earnings reductions from NIT are 50% of the transfer cost Who is left alongside inelastic labor supply curves? Mainly middle-age, middle-class men. Soak ?em! I worry about asking the political process so that pick winners in addition to losers; look what happens when you open the door so that special-interest deductions My first reaction is so that stick alongside uniform taxation Transfer programs, tax rates, in addition to labor supply Robert Moffitt Johns Hopkins University September 27, 2013 BFI Conference on Taxation
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