Announcements

ECONOMICS SEMINAR -Laurent Simula

Author: CASE
Time: 16:00
Location: CASE 127

KOC UNIVERSITY
FACULTY OF ADMINISTRATIVE SCIENCES AND ECONOMICS
ECONOMICS SEMINAR

16 May 2019-THURSDAY

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Speaker  : Laurent Simula - ENS de Lyon

Title       : The Distortive Costs of Income Taxation 

Time       : 16:00-17:30

Place      : CASE 127

Date       : 16 May 2019-THURSDAY

Abstract: We determine the marginal deadweight loss of marginal income taxes, allowing for both intensive and extensive responses in taxable income. Contrary to earlier literature, we provide these costs for marginal tax rates at every point in the income distribution. Our results allow for three distinct insights as they help identify (i) the distortive costs of raising any marginal tax rate, (ii) opportunities for Pareto-improving reductions in marginal tax rates, and (iii) opportunities to redistribute from rich to poor without imposing additional distortions on the economy. We argue that these insights may often be more informative for actual tax reform than traditional optimal tax simulations. We present empirical evidence on the marginal deadweight loss of the United States income tax, and find that results crucially depend on whether one treats social security taxes as distortive or not. If not, our baseline simulations suggest that the marginal deadweight loss is roughly monotonically increasing with income from about $0 to $0.4 of loss per dollar of revenue gains. If we do treat social security taxes as distortive, the marginal deadweight loss is strongly non-monotonic in income due to the income limit for social security taxes. These results imply vast opportunities to redistribute from the rich (> $100,000 in 2007 terms) to the poor without imposing any additional distortions.