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Efficiency Effects of Tax Deductions for Work-Related Expenses

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Author Info
Wolfram Richter ()

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Abstract

In this paper it is shown that allowing the deduction of work-related expenses has a strictly positive effect on tax efficiency only if two conditions hold jointly: (i) The expenses should be interpretable as real cost and (ii) the expenses should be required for increasing taxable income. Otherwise deductions are inefficient, neutral or ambiguous. Thus it is argued that the cost of commuting to work should not be deductible as commuting does not increase taxable income. The efficiency enhancing effect of deducting other expenses like educational ones or expenses for housework and child care is challenged on the grounds that these expenses are largely pecuniary costs.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1311.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1311

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Related research
Keywords: income tax deductions; commuting; housework; child care; educational expenses; efficient taxation; production efficiency;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February. [Downloadable!] (restricted)
  2. Wrede, Matthias, 2001. "Should Commuting Expenses Be Tax Deductible? A Welfare Analysis," Journal of Urban Economics, Elsevier, vol. 49(1), pages 80-99, January. [Downloadable!] (restricted)
  3. Baldry, Jonathan, 1998. "Income Tax Deductions for Work-Related Expenses: The Rationale Examined," Australian Economic Papers, Blackwell Publishing, vol. 37(1), pages 45-57, March. [Downloadable!] (restricted)
  4. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Nerlove, Marc & Razin, Assaf & Sadka, Efraim & Weizsaecker, Robert K. von, 1992. "Comprehensive Income Taxation, Investments in Human and Physical Capital, and Productivity," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
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  6. Pio Baake & Rainald Borck & Andreas Löffler, 2004. "Complexity and Progressivity in Income Tax Design: Deductions for Work-Related Expenses," Discussion Papers of DIW Berlin 409, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  7. Judd, Kenneth L, 1998. "Taxes, Uncertainty, and Human Capital," American Economic Review, American Economic Association, vol. 88(2), pages 289-92, May. [Downloadable!] (restricted)
  8. Bovenberg, A Lans & Jacobs, Bas, 2001. "Redistribution and Education Subsidies are Siamese Twins," CEPR Discussion Papers 3099, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Jan K. Brueckner, 2003. "Transport Subsidies, System Choice, and Urban Sprawl," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Julie Hope & Paul Miller, 1988. "Financing Tertiary Education: An Examination of the Issues," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 21(4), pages 37-57. [Downloadable!] (restricted)
  11. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "On the taxation of human and physical capital in models of endogenous growth," Journal of Public Economics, Elsevier, vol. 70(2), pages 237-254, November. [Downloadable!] (restricted)
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  12. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January. [Downloadable!] (restricted)
  13. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Salvatore Barbaro & Jens Suedekum, 2009. "Voting on income tax exemptions," Public Choice, Springer, vol. 138(1), pages 239-253, January. [Downloadable!] (restricted)
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