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Emmanuel Saez - One of the best experts on this subject based on the ideXlab platform.
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a simpler Theory of optimal capital Taxation
2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper develops a Theory of optimal capital Taxation that expresses optimal Tax formulas in sufficient statistics following the methodology of optimal labor income Taxation. We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth. In this case, there are no transitional dynamics, the steady-state is reached immediately and has finite elasticities of capital with respect to the net-of-Tax rate. This allows for a simple and transparent optimal Tax analysis with formulas expressed in terms of empirical elasticities and social preferences (as in the optimal labor income Tax Theory). These formulas have the advantage of being easily taken to the data to simulate optimal Taxes, which we do using U.S. Tax return data on labor and capital incomes. Second, we show how these results can be extended to a much broader class of utility functions and models. The same types of formulas carry over.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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generalized social marginal welfare weights for optimal Tax Theory
The American Economic Review, 2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper proposes a new way to evaluate Tax reforms, by aggregating losses and gains of different individuals using “generalized social marginal welfare weights.” A Tax system is optimal if no budget neutral small reform can increase the weighted sum of (money metric) gains and losses across individuals. Optimum Tax formulas take the same form as standard welfarist Tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. Weights directly capture society’s concerns for fairness allowing us to cleanly separate individual utilities from social weights. Suitable weights can help reconcile discrepancies between the welfarist approach and actual Tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, Equality of Opportunity, or Poverty alleviation.
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generalized social marginal welfare weights for optimal Tax Theory
The American Economic Review, 2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper proposes to evaluate Tax reforms by aggregating money metric losses and gains of different individuals using "generalized social marginal welfare weights." Optimum Tax formulas take the same form as standard welfarist Tax formulas by simply substitut- ing standard marginal social welfare weights with those generalized weights. Weights directly capture society's concerns for fairness without being necessarily tied to individual utilities. Suitable weights can help reconcile discrepancies between the welfarist approach and actual Tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, equality of opportunity, or poverty alleviation. (JEL D60, D63, H21, H23, I38)
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optimal labor income Taxation
PSE-Ecole d'économie de Paris (Postprint), 2013Co-Authors: Thomas Piketty, Emmanuel SaezAbstract:This handbook chapter reviews recent developments in the Theory of optimal labor income Taxation. We emphasize connections between Theory and empirical work that were initially lacking from optimal income Tax Theory. First, we provide historical and international background on labor income Taxation and means-tested transfers. Second, we present the simple model of optimal linear Taxation. Third, we consider optimal nonlinear income Taxation with particular emphasis on the optimal top Tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including Tax avoidance and income shifting, international migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal Tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society's value for redistribution, behavioral elasticities capturing the efficiency costs of Taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from Theory, and in particular the limitations of both Theory and empirical work in settling the political debate on optimal labor income Taxation and transfers.
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the case for a progressive Tax from basic research to policy recommendations
Journal of Economic Perspectives, 2011Co-Authors: Peter A Diamond, Emmanuel SaezAbstract:The fair distribution of the Tax burden has long been a central issue in policyhe fair distribution of the Tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal Tax making. A large academic literature has developed models of optimal Tax Theory to cast light on the problem of optimal Tax progressivity. In this Theory to cast light on the problem of optimal Tax progressivity. In this paper, we explore the path from basic research results in optimal Tax Theory to paper, we explore the path from basic research results in optimal Tax Theory to formulating policy recommendations. formulating policy recommendations. Models in optimal Tax Theory typically posit that the Tax system should maximize a Models in optimal Tax Theory typically posit that the Tax system should maximize a social welfare function subject to a government budget constraint, taking into account social welfare function subject to a government budget constraint, taking into account that individuals respond to Taxes and transfers. Social welfare is larger when resources that individuals respond to Taxes and transfers. Social welfare is larger when resources are more equally distributed, but redistributive Taxes and transfers can negatively are more equally distributed, but redistributive Taxes and transfers can negatively affect incentives to work, save, and earn income in the fi rst place. This creates the clasaffect incentives to work, save, and earn income in the fi rst place. This creates the classical trade-off between equity and effi ciency which is at the core of the optimal income sical trade-off between equity and effi ciency which is at the core of the optimal income Tax problem. In general, optimal Tax analyses maximize social welfare as a function of Tax problem. In general, optimal Tax analyses maximize social welfare as a function of individual utilities—the sum of utilities in the utilitarian case. The marginal weight for individual utilities—the sum of utilities in the utilitarian case. The marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds. Such welfare weights depend on of consumption expressed in terms of public funds. Such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income. Therefore, optimal income Tax Theory is fi rst a normative more equality of income. Therefore, optimal income Tax Theory is fi rst a normative Theory that shows how a social welfare objective combines with constraints arising from Theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to Taxation in order to derive specifi c limits on resources and behavioral responses to Taxation in order to derive specifi c
Stefanie Stantcheva - One of the best experts on this subject based on the ideXlab platform.
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a simpler Theory of optimal capital Taxation
2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper develops a Theory of optimal capital Taxation that expresses optimal Tax formulas in sufficient statistics following the methodology of optimal labor income Taxation. We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth. In this case, there are no transitional dynamics, the steady-state is reached immediately and has finite elasticities of capital with respect to the net-of-Tax rate. This allows for a simple and transparent optimal Tax analysis with formulas expressed in terms of empirical elasticities and social preferences (as in the optimal labor income Tax Theory). These formulas have the advantage of being easily taken to the data to simulate optimal Taxes, which we do using U.S. Tax return data on labor and capital incomes. Second, we show how these results can be extended to a much broader class of utility functions and models. The same types of formulas carry over.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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generalized social marginal welfare weights for optimal Tax Theory
The American Economic Review, 2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper proposes a new way to evaluate Tax reforms, by aggregating losses and gains of different individuals using “generalized social marginal welfare weights.” A Tax system is optimal if no budget neutral small reform can increase the weighted sum of (money metric) gains and losses across individuals. Optimum Tax formulas take the same form as standard welfarist Tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. Weights directly capture society’s concerns for fairness allowing us to cleanly separate individual utilities from social weights. Suitable weights can help reconcile discrepancies between the welfarist approach and actual Tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, Equality of Opportunity, or Poverty alleviation.
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generalized social marginal welfare weights for optimal Tax Theory
The American Economic Review, 2016Co-Authors: Emmanuel Saez, Stefanie StantchevaAbstract:This paper proposes to evaluate Tax reforms by aggregating money metric losses and gains of different individuals using "generalized social marginal welfare weights." Optimum Tax formulas take the same form as standard welfarist Tax formulas by simply substitut- ing standard marginal social welfare weights with those generalized weights. Weights directly capture society's concerns for fairness without being necessarily tied to individual utilities. Suitable weights can help reconcile discrepancies between the welfarist approach and actual Tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, equality of opportunity, or poverty alleviation. (JEL D60, D63, H21, H23, I38)
Judith Scottclayton - One of the best experts on this subject based on the ideXlab platform.
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the cost of complexity in federal student aid lessons from optimal Tax Theory and behavioral economics
National Tax Journal, 2006Co-Authors: Susan Dynarski, Judith ScottclaytonAbstract:The federal system for distributing student financial aid rivals the Tax code in its complexity. Both have been a source of frustration and a focus of reform efforts for decades, yet the complexity...
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the cost of complexity in federal student aid lessons from optimal Tax Theory and behavioral economics
National Tax Journal, 2006Co-Authors: Susan Dynarski, Judith ScottclaytonAbstract:The federal system for distributing student financial aid rivals the Tax code in its complexity. Both have been a source of frustration and a focus of reform efforts for decades, yet the complexity of the student aid system has received comparatively little attention from economists. We describe the complexity of the aid system, and apply lessons from optimal Tax Theory and behavioral economics to show that complexity is a serious obstacle to both efficiency and equity in the distribution of student aid. We show that complexity disproportionately burdens those with the least ability to pay and undermines redistributive goals. We use detailed data from federal student aid applications to show that a radically simplified aid process can reproduce the current distribution of aid using a fraction of the information now collected.
Peter A Diamond - One of the best experts on this subject based on the ideXlab platform.
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the case for a progressive Tax from basic research to policy recommendations
Journal of Economic Perspectives, 2011Co-Authors: Peter A Diamond, Emmanuel SaezAbstract:The fair distribution of the Tax burden has long been a central issue in policyhe fair distribution of the Tax burden has long been a central issue in policymaking. A large academic literature has developed models of optimal Tax making. A large academic literature has developed models of optimal Tax Theory to cast light on the problem of optimal Tax progressivity. In this Theory to cast light on the problem of optimal Tax progressivity. In this paper, we explore the path from basic research results in optimal Tax Theory to paper, we explore the path from basic research results in optimal Tax Theory to formulating policy recommendations. formulating policy recommendations. Models in optimal Tax Theory typically posit that the Tax system should maximize a Models in optimal Tax Theory typically posit that the Tax system should maximize a social welfare function subject to a government budget constraint, taking into account social welfare function subject to a government budget constraint, taking into account that individuals respond to Taxes and transfers. Social welfare is larger when resources that individuals respond to Taxes and transfers. Social welfare is larger when resources are more equally distributed, but redistributive Taxes and transfers can negatively are more equally distributed, but redistributive Taxes and transfers can negatively affect incentives to work, save, and earn income in the fi rst place. This creates the clasaffect incentives to work, save, and earn income in the fi rst place. This creates the classical trade-off between equity and effi ciency which is at the core of the optimal income sical trade-off between equity and effi ciency which is at the core of the optimal income Tax problem. In general, optimal Tax analyses maximize social welfare as a function of Tax problem. In general, optimal Tax analyses maximize social welfare as a function of individual utilities—the sum of utilities in the utilitarian case. The marginal weight for individual utilities—the sum of utilities in the utilitarian case. The marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds. Such welfare weights depend on of consumption expressed in terms of public funds. Such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income. Therefore, optimal income Tax Theory is fi rst a normative more equality of income. Therefore, optimal income Tax Theory is fi rst a normative Theory that shows how a social welfare objective combines with constraints arising from Theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to Taxation in order to derive specifi c limits on resources and behavioral responses to Taxation in order to derive specifi c
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economic Theory and Tax and pension policies
Economic Record, 2011Co-Authors: Peter A DiamondAbstract:Studying and advising about mandatory pension systems while also researching optimal Tax Theory, with particular attention to the Taxation of capital income, brought attention to differences in both analyses and policies, while these two subjects intersect in the common practice of the Tax-favouring of retirement savings. I have long been concerned about the implicit methodology used by the profession in going from theoretical analyses to policy advice. In this essay, I touch on all four of these topics - pensions, capital income Taxes, Tax-favoured retirement savings and methodology. I give particular attention to the pension systems in Australia and New Zealand.
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the case for a progressive Tax from basic research to policy recommendations
2011Co-Authors: Peter A Diamond, Emmanuel SaezAbstract:This paper presents the case for Tax progressivity based on recent results in optimal Tax Theory. We consider the optimal progressivity of earnings Taxation and whether capital income should be Taxed. We critically discuss the academic research on these topics and when and how the results can be used for policy recommendations. We argue that a result from basic research is relevant for policy only if (a) it is based on economic mechanisms that are empirically relevant and first order to the problem, (b) it is reasonably robust to changes in the modeling assumptions, (c) the policy prescription is implementable (i.e., is socially acceptable and is not too complex). We obtain three policy recommendations from basic research that satisfy these criteria reasonably well. First, very high earners should be subject to high and rising marginal Tax rates on earnings. Second, low income families should be encouraged to work with earnings subsidies, which should then be phased-out with high implicit marginal Tax rates. Third, capital income should be Taxed. We explain why the famous zero marginal Tax rate result for the top earner in the Mirrlees model and the zero capital income Tax rate results of Chamley-Judd and Atkinson-Stiglitz are not policy relevant in our view.
Meng Xiaol - One of the best experts on this subject based on the ideXlab platform.
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the study of the fairness in endowment insurance under the perspective of the negative income Tax Theory
Social Security Studies, 2011Co-Authors: Meng XiaolAbstract:The starting point of social security is to realize social justice.However,as the implementation of Endowment Insurance system,its fairness is always controversial.As the author’s point, the unfair among the insured is more serious than the unfair in the covering area, the expends level and the level of overall planning.And the root lies in the different possession of social resources.The Negative Income Tax Theory is do well in resolving fairness problems.This study will try to analyze and solve the fairness in endowment insurance by this effective Theory.
