Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Welfare Cost of Uncertain Tax Policy

Contents:

Author Info

  • Jonathan S. Skinner

Abstract

Frequent shifts in tax policy can increase uncertainty about future net-of-tax wages and interest income. This paper measures the impact of uncertain tax policy on savings, labor supply, and welfare in the United States. A vector autoregression model with six variables was estimated which found the standard error of the one-year-ahead forecast for the wage tax to be 1.8 percentage points, and for the interest income tax 3.3 percentage points. Furthermore, the negative correlation between unanticipated shifts in the real interest rate and changes in the interest income tax amplifies the variability in the real after-tax return. A two-period model of consumption and labor supply is developed that measures the effect of uncertain taxes on savings, work hours, and taxpayer welfare. Using plausible empirical parameters, it is shown that removing all uncertainty about future tax policy can lead to a welfare gain of 0.4 percent of national income, or about 12 billion dollars in 1985.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1947.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1947.

as in new window
Length:
Date of creation: Jun 1986
Date of revision:
Publication status: published as Journal of Public Economics, November 1988, vol. 37, pp. 129-145.
Handle: RePEc:nbr:nberwo:1947

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

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.:
as in new window
  1. Barro, Robert J & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 56(4), pages 419-52, October.
  2. Alan J. Auerbach & James R. Hines Jr., 1986. "Tax Reform, Investment, and the Value of the Firm," NBER Working Papers 1803, National Bureau of Economic Research, Inc.
  3. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 249-65, April.
  4. Robert J. Barro, 1984. "The Behavior of U.S. Deficits," NBER Working Papers 1309, National Bureau of Economic Research, Inc.
  5. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, American Economic Association, vol. 65(5), pages 900-922, December.
  6. Weber, Warren E, 1975. "Interest Rates, Inflation, and Consumer Expenditures," American Economic Review, American Economic Association, American Economic Association, vol. 65(5), pages 843-58, December.
  7. Robert E. Hall, 1985. "Real Interest and Consumption," NBER Working Papers 1694, National Bureau of Economic Research, Inc.
  8. Alan J. Auerbach & Laurence J. Kotlikoff & Jonathan Skinner, 1981. "The Efficiency Gains from Dynamic Tax Reform," NBER Working Papers 0819, National Bureau of Economic Research, Inc.
  9. Seater, John J., 1985. "On the construction of marginal federal personal and social security tax rates in the U.S," Journal of Monetary Economics, Elsevier, Elsevier, vol. 15(1), pages 121-135, January.
  10. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1.
  11. Kanbur, S M Ravi, 1983. "Labour Supply under Uncertainty with Piecewise Linear Tax Regimes," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 50(200), pages 379-94, November.
  12. Stiglitz, Joseph E, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 83(2), pages 263-83, May.
  13. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  14. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 14(3), pages 365-374, December.
  15. Don Fullerton & Marios Karayannis, 1987. "The Taxation of Income from Capital in the United States, 1980-86," NBER Working Papers 2478, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series 2075, CESifo Group Munich.
  2. Young Chun, 2001. "The Redistributive Effect of Risky Taxation," International Tax and Public Finance, Springer, Springer, vol. 8(4), pages 433-454, August.
  3. Rainer Niemann, 2001. "Tax Rate Uncertainty and Investment Behavior," CESifo Working Paper Series 557, CESifo Group Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1947. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.