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Jangting Guo - One of the best experts on this subject based on the ideXlab platform.
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A NOTE ON Progressive Taxation, NOMINAL-WAGE RIGIDITY, AND BUSINESS CYCLE DESTABILIZATION
Macroeconomic Dynamics, 2019Co-Authors: Miroslav Gabrovski, Jangting GuoAbstract:In the context of a prototypical New Keynesian model, this paper examines the theoretical interrelations between two tractable formulations of Progressive Taxation on labor income versus (i) the equilibrium degree of nominal-wage rigidity as well as (ii) the resulting volatilities of hours worked and output in response to a monetary shock. In sharp contrast to the traditional stabilization view, we analytically show that linearly Progressive Taxation always operates like an automatic destabilizer which leads to higher cyclical fluctuations within the macroeconomy. We also obtain the same business cycle destabilization result under continuously Progressive Taxation if the initial degree of tax progressivity is sufficiently low.
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resource misallocation and aggregate productivity under Progressive Taxation
Journal of Macroeconomics, 2019Co-Authors: Jangting Guo, Yutaro Izumi, Yichan TsaiAbstract:Abstract This paper quantitatively examines the long-run macroeconomic effects of resource misallocation in an otherwise standard one-sector neoclassical growth model with heterogeneous establishments, characterized by different ages and productivity levels, that are subject to Progressive Taxation as well as endogenous entry decisions. Under a Progressive fiscal policy rule, capital and labor inputs move from more productive to less productive establishments because the latter face a lower tax rate. When the tax progressivity rises, the economy’s overall production will fall since low-productivity establishments use an inefficiently high level of productive resources (the intensive margin). On the other hand, more Progressive Taxation reduces the economy’s total number of operating establishments, which in turn further decreases aggregate output (the extensive margin). Under our benchmark parameterization to match with the U.S. data, we find that the measured aggregate productivity also falls when the tax schedule becomes more Progressive. For the sensitivity analyses, we consider alternative specifications with fixed labor supply or different returns-to-scale in production; and undertake a counterfactual cross-country comparison with China and India.
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Progressive Taxation as an automatic destabilizer under endogenous growth
Journal of Economics, 2019Co-Authors: Shu-hua Chen, Jangting GuoAbstract:It has been shown that in an otherwise standard one-sector real business cycle model with an indeterminate steady state under laissez faire, sufficiently Progressive income Taxation may stabilize the economy against aggregate fluctuations caused by agents’ animal spirits. We show that this previous finding can be overturned within an identical model which allows for sustained endogenous growth. Specifically, Progressive Taxation may operate like an automatic destabilizer that leads to equilibrium indeterminacy and sunspot-driven cyclical fluctuations in an endogenously growing macroeconomy. This instability result is obtained under two tractable Progressive tax policy formulations that have been considered in the existing literature.
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Progressive Taxation, Nominal Wage Rigidity, and Business Cycle Destabilization
Research Papers in Economics, 2019Co-Authors: Miroslav Gabrovski, Jangting GuoAbstract:In the context of a prototypical New Keynesian model, this paper examines the theoretical interrelations between two tractable formulations of Progressive Taxation on labor income versus (i) the equilibrium degree of nominal wage rigidity as well as (ii) the resulting volatilities of hours worked and output in response to a monetary shock. In sharp contrast to the traditional stabilization view, we analytically show that linearly Progressive Taxation always operates like an automatic destabilizer which leads to higher cyclical fluctuations within the macroeconomy. We also obtain the same business cycle destabilization result under continuously Progressive Taxation if the initial degree of tax progressivity is sufficiently low.
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on indeterminacy and growth under Progressive Taxation and utility generating government spending
Pacific Economic Review, 2018Co-Authors: Shu-hua Chen, Jangting GuoAbstract:Author(s): Chen, SH; Guo, JT | Abstract: © 2017 John Wiley a Sons Australia, Ltd We examine the theoretical interrelations between Progressive income Taxation and macroeconomic (in)stability in an otherwise standard one-sector AK model of endogenous growth with utility-generating government purchases of goods and services. In sharp contrast to traditional Keynesian-type stabilization policies, Progressive Taxation operates like an automatic destabilizer that generates equilibrium indeterminacy and belief-driven fluctuations in our endogenously growing macroeconomy. Unlike the no-sustained-growth counterpart, this instability result is obtained regardless of (i) the degree of the public-spending preference externality and (ii) whether private and public consumption expenditures are substitutes, complements or additively separable in the household's utility function.
David Stasavage - One of the best experts on this subject based on the ideXlab platform.
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the conscription of wealth mass warfare and the demand for Progressive Taxation
International Organization, 2010Co-Authors: Kenneth Scheve, David StasavageAbstract:The dominant narrative of the politics of redistribution in political sci- ence and economics highlights the signature role of the rise of electoral democracy and the development of political parties that mobilize working-class groups+ We argue in this article that this narrative ignores the critical role played by mass warfare in the development of redistributive public policies+ Focusing attention on the determi- nants of Progressive Taxation, we argue that mobilization for mass warfare led to demands for increased Taxation of the wealthy to more fairly distribute the burden for the war effort+ We then show empirically that during the past century, mass mobi- lization for war has been associated with a notable increase in tax progressivity+ In the absence of war, neither the establishment of universal suffrage, nor the arrival of political control by parties of the left is systematically associated with large increases in tax progressivity+ In making these arguments, we devote particular attention to a "difference-in-differences" comparison of participants and nonparticipants in World War I+ Those who have made fortunes out of the war must pay for the war; and Labour will insist upon heavily graduated direct Taxation with a raising of the exemption limit+ That is what Labour means by the Conscription of Wealth+
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The Conscription of Wealth: Mass Warfare and the Demand for Progressive Taxation
SSRN Electronic Journal, 2009Co-Authors: Kenneth Scheve, David StasavageAbstract:The dominant narrative of the politics of redistribution in political science and economics highlights the signature role of the rise of electoral democracy and the development of political parties that mobilize working class groups. We argue in this paper that this narrative ignores the critical role played by mass warfare in the development of redistributive public policies. Focusing attention on the determinants of Progressive Taxation, we argue that mobilization for mass warfare led to demands for increased Taxation of the wealthy in order to more fairly distribute the burden for the war effort. We then show empirically that over the last century mass mobilization for war has been associated with a notable increase in tax progressivity. In the absence of war neither the establishment of universal suffrage, nor the arrival of political control by parties of the Left is systematically associated with large increases in tax progressivity. In making these arguments we devote particular attention to a "difference-in-differences" comparison of participants and non-participants in World War I.
Andreas Peichl - One of the best experts on this subject based on the ideXlab platform.
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Progressive Taxation and tax morale
Public Choice, 2013Co-Authors: Philipp Doerrenberg, Andreas PeichlAbstract:Due to strong evidence indicating that tax morale affects actual tax-paying behavior, finding the determinants of tax morale could help both to understand and to fight tax evasion. In this paper we analyze the effect of Progressive Taxation on individual tax morale using a cross-country approach—a research question that has not been investigated in the existing literature. Our theoretical analysis leads to two testable predictions. First, an individual’s tax morale is higher, the more Progressive the tax schedule is. Second, the positive impact of tax progressivity on tax morale declines with income. In our empirical analysis we make use of a unique dataset of tax progressivity measures, namely the World Tax Indicators, and follow most of the tax morale literature by employing the World Values Survey to measure individual tax morale. Controlling for a wide range of potential confounders, we are able to confirm both hypotheses in our empirical analysis.
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Progressive Taxation and Tax Morale
Social Science Research Network, 2010Co-Authors: Philipp Doerrenberg, Andreas PeichlAbstract:As the link between tax compliance and tax morale is found to be robust, finding the determinants of tax morale can help to understand and fight tax evasion. In this paper we analyze the effect of Progressive Taxation on tax morale in a cross-country approach which has not been investigated before. Our theoretical analysis leads to two testable predictions. First, an individual's tax morale is higher, the more Progressive the tax schedule is. Second, the impact of tax progressivity on tax morale is declining in income. In our empirical analysis, we make use of a unique dataset of tax progressivity measures and follow most of the tax morale literature by employing the World Values Survey to measure tax morale. Controlling for a wide range of variables, we confirm both hypotheses in our empirical analysis.
Benjamin Tabb - One of the best experts on this subject based on the ideXlab platform.
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Progressive Taxation in a tournament economy
Journal of Public Economics, 2016Co-Authors: Jeffrey P. Carpenter, Peter Hans Matthews, Benjamin TabbAbstract:Abstract Not enough is known about the responsiveness of individuals, in particular those who work under different incentives, to changes in marginal tax rates. We ask whether changes in tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more Progressive tax code, we first model the effort decisions of workers faced with Progressive Taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that competitive tournament workers are less sensitive and hint, in our discussion, at the possible welfare benefits of Progressive Taxation in tournament economies.
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Progressive Taxation in a Tournament Economy
Research Papers in Economics, 2014Co-Authors: Jeffrey P. Carpenter, Peter Hans Matthews, Benjamin TabbAbstract:Not enough is known about the responsiveness of individuals, in particular those who tend to work under different incentives, to changes in marginal tax rates. We ask whether changes in marginal tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more Progressive tax code, we first model the effort decisions of workers faced with Progressive Taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that tournament workers are less sensitive, and conclude with a tentative evaluation of the welfare benefits of Progressive Taxation in tournament economies.
Esteban F. Klor - One of the best experts on this subject based on the ideXlab platform.
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On the Popular Support for Progressive Taxation
Journal of Public Economic Theory, 2003Co-Authors: Esteban F. KlorAbstract:The “popular support for Progressive Taxation theorem” (Marhuenda and Ortuno-Ortin, 1995) provides an important formalization of the intuition that a majority of relatively poor voters over rich ones leads to Progressive income Taxation. Yet the theorem does not provide an equilibrium outcome. In addition, it assumes an overly restrictive domain of tax schedules and no incentive effects of income Taxation. This paper shows that none of these assumptions of the theorem can be relaxed completely. Most notably, it is shown that a majority of poor voters does not imply Progressive Taxation in a more general policy space and that a regressive tax schedule may obtain a majority over a Progressive one when individuals' income is endogenous.
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On the Popular Support for Progressive Taxation
SSRN Electronic Journal, 2002Co-Authors: Esteban F. KlorAbstract:The "popular support for Progressive income Taxation theorem" (Maruhenda and Ortuno-Ortin, 1995) provides an important formalization of the intuition that a majority of relatively poor voters over rich ones leads to Progressive income Taxation. Yet, the theorem does not provide an equilibrium outcome, is obtained for an overly restrictive domain of tax schedules, and ignores incentive effects of income Taxation. This paper shows that none of these assumptions of the theorem can be relaxed completely. I first provide a formal proof of the non-existence of a pure-strategy voting equilibrium. Then it is shown that a majority of poor voters does not necessarily imply Progressive Taxation, when the tax policy space is extended to include the class of all average-rate Progressive tax schedules. Finally, I demonstrate that, even in a restricted domain of tax schedules, a linear tax schedule may obtain a majority over a Progressive one when individuals' income is endogenous.
