scholarly journals How do tax progressivity and household heterogeneity affect Laffer curves?

10.3982/qe653 ◽  
2019 ◽  
Vol 10 (4) ◽  
pp. 1317-1356 ◽  
Author(s):  
Hans A. Holter ◽  
Dirk Krueger ◽  
Serhiy Stepanchuk
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Labor Supply ◽  
Income Tax ◽  
Labor Income ◽  
Tax Progressivity ◽  
Laffer Curve ◽  
Market Experience ◽  
The Government ◽  
The U.S

How much additional tax revenue can the government generate by increasing the level of labor income taxes? In this paper, we argue that the degree of tax progressivity is a quantitatively important determinant of the answer to this question. To make this point, we develop a large scale overlapping generations model with single and married households facing idiosyncratic income risk, extensive and intensive margins of labor supply, as well as endogenous accumulation of human capital through labor market experience. We calibrate the model to U.S. macro, micro, and tax data and characterize the labor income tax Laffer curve for various degrees of tax progressivity. We find that the peak of the U.S. Laffer curve is attained at an average labor income tax rate of 58 % . This peak (the maximal tax revenues the government can raise) increases by 7 % if the current progressive tax code is replaced with a flat labor income tax. Replacing the current U.S. tax system with one that has Denmark' s progressivity would lower the peak by 8 % . We show that modeling the extensive margin of labor supply and endogenous human capital accumulation is crucial for these findings. With joint taxation of married couples (as in the U.S.), higher tax progressivity leads to significantly lower labor force participation of married women and substantially higher labor force participation of single women, an effect that is especially pronounced when future wages of females depend positively on past labor market experience.

scholarly journals Reforming the individual income tax in Spain

SERIEs ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 369-406 ◽  
Author(s):  
Nezih Guner ◽  
Javier López-Segovia ◽  
Roberto Ramos
Keyword(s):  
Labor Supply ◽  
Income Taxes ◽  
Tax Revenue ◽  
Labor Income ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Percentage Points ◽  
The Mean ◽  
The Government ◽  
The Individual

AbstractCan the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.

scholarly journals Accumulated Human Capital, Unemployment, And Subsequent Wages

2011 ◽  
Vol 22 (4) ◽  
Author(s):  
Vera Adamchik ◽  
Thomas Hyclak
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Significant Determinant ◽  
Font Size ◽  
Wage Setting ◽  
Market Experience ◽  
Economic Forces ◽  
Data Source ◽  
Specific Human Capital ◽  
The Impact

<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in; mso-layout-grid-align: none;"><span style="font-size: 10pt; mso-bidi-font-family: 'Times New Roman';"><span style="font-family: Times New Roman;">The objective of this paper is to empirically examine the determinants of post-unemployment wages and to identify the underlying economic forces triggering the observed wage setting mechanisms. Specifically, the paper focuses on the impact of accumulated human capital on post-unemployment wages and investigates the following issues: (1) Is formal educational attainment a significant determinant of post-unemployment wages? (2) What type of previous labor market experience (general vs. job-specific) is more valued by a new employer? (3) Are workers who find a new job in the same sector, industry or occupation more likely to retain their specific human capital and, thus, earn higher post-unemployment wages? The 1994-2001 Polish Labor Force Surveys are used as the data source for this study. </span></span></p>

scholarly journals Laffer Curves and Home Production

2017 ◽  
Vol 2017 (1) ◽  
pp. 59-69
Author(s):  
Mauri Kotamäki
Keyword(s):  
Labor Supply ◽  
Income Tax ◽  
Private Consumption ◽  
Home Production ◽  
Consumption Tax ◽  
Tax Base ◽  
Tax Rate ◽  
Related Literature ◽  
Laffer Curve ◽  
Laffer Curves

Abstract In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see Trabandt and Uhlig (2011)). In this paper, a general equilibrium macro model is augmented by introducing a substitute for private consumption in the form of home production. The introduction of home production brings about an additional margin of adjustment – an increase in consumption tax rate not only decreases labor supply and reduces the consumption tax base but also allows a substitution of market goods with home-produced goods. The main objective of this paper is to show that, after the introduction of home production, the consumption tax Laffer curve exhibits an inverse U-shape. Also the income tax Laffer curves are significantly altered. The result shown in this paper casts doubt on some of the earlier results in the literature.

scholarly journals Employment recovery in the wake of the COVID-19 pandemic

2020 ◽  
Author(s):  
Elizabeth Handwerker ◽  
Peter Meyer ◽  
Joseph Piacentini ◽  
Michael Schultz ◽  
Leo Sveikauskas
Keyword(s):  
United States ◽  
Labor Market ◽  
Labor Supply ◽  
Job Loss ◽  
The United States ◽  
Full Recovery ◽  
Economic Research ◽  
Partial Recovery ◽  
The U.S

The coronavirus disease 2019 (COVID-19) pandemic’s impact on the U.S. labor market is unprecedented. This article reviews economic research on recent pandemic-related job losses in the United States in order to understand the prospects for employment recovery. The research examines telework use, the incidence of job loss, disruptions in labor supply, and progress toward recovery. Massive temporary layoffs drove a spike in unemployment, and subsequent recalls of unemployed workers drove a rapid but partial recovery. The prospects for full recovery are murkier, both because the fraction of the remaining unemployed expecting to be recalled is decreasing and because the pandemic’s future course remains uncertain.

Health Insurance and Labor Supply

2019 ◽  
Author(s):  
Gregory Colman ◽  
Dhaval Dave ◽  
Otto Lenhart
Keyword(s):  
Labor Market ◽  
Health Insurance ◽  
Labor Supply ◽  
Economies Of Scale ◽  
Low Cost ◽  
Market Effects ◽  
Job Lock ◽  
Individual Market ◽  
The Individual ◽  
The U.S

Health insurance depends on labor market activity more in the U.S. than in any other high-income country. A majority of the population are insured through an employer (known as employer-sponsored insurance or ESI), benefiting from the risk pooling and economies of scale available to group insurance plans. Some workers may therefore be reluctant to leave a job for fear of losing such low-cost insurance, a tendency known as “job lock,” or may switch jobs or work more hours merely to obtain it, known as “job push.” Others obtain insurance through government programs for which eligibility depends on income. They too may adapt their work effort to remain eligible for insurance. Those without access to ESI or who are too young or earn too much to qualify for public coverage (Medicare and Medicaid) can buy insurance only in the individual or nongroup market, where prices are high and variable. Most studies using data from before the passage of the Patient Protection and Affordable Care Act (ACA) in 2010 support the prediction that ESI reduced job mobility, labor-force participation, retirement, and self-employment prior to the ACA, but find little effect on the labor supply of public insurance. The ACA profoundly changed the health insurance market in the U.S., removing restrictions on obtaining insurance from new employers or on the individual market and expanding Medicaid eligibility to previously ineligible adults. Research on the ACA, however, has not found substantial labor supply effects. These results may reflect that the reforms to the individual market mainly affected those who were previously uninsured rather than workers with ESI, that the theoretical labor market effects of expansions in public coverage are ambiguous, and that the effect would be found only among the relatively small number on the fringes of eligibility.

Migration Policy and Immigrants’ Labor Market Performance

2019 ◽  
Vol 54 (1) ◽  
pp. 35-57 ◽  
Author(s):  
Massimiliano Tani
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Labor Supply ◽  
Empirical Analysis ◽  
Policy Change ◽  
Migration Policy ◽  
Longitudinal Survey ◽  
Employment Policy ◽  
Skill Utilization ◽  
The Empirical Analysis

This article studies whether migration policy is a suitable tool to improve the inefficient use of immigrants’ human capital. This line of investigation complements the traditional analysis of migration policy as a tool to manage labor supply. The effect of migration policy is studied, using a policy change that occurred in Australia in the late 1990s that tightened the selection applied to certain economic immigrants. The empirical analysis, based on data collected by the Longitudinal Survey of Migrants to Australia, confirms that the policy change raised, on average, the human capital of the affected group. It also, however, consistently reveals that the change had no detectable impact on indicators measuring immigrants’ skill utilization. This result suggests that migration policy, by itself, may not be best suited to address issues related to the efficient use of foreign talent in the labor market. Better coordination with employment policy may alleviate this problem. Additional research on migration policy’s effect on efficiency-related issues is also called for.

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