Tax Policy and the Economy

Tax Policy and the Economy

An NBER conference on Tax Policy and the Economy took place online September 24. Research Associate Robert A. Moffitt of Johns Hopkins University organized the meeting, sponsored by the Harry and Lynde Bradley Foundation. These researchers' papers were presented and discussed:

Jeffrey Clemens, University of California, San Diego and NBER; Joshua D. Gottlieb, University of Chicago and NBER; and Jeff Hicks, University of British Columbia

How Would Medicare for All Affect Health System Capacity? Evidence from Medicare for Some

Zhao Chen and Zhikuo Liu, Fudan University; Yuxuan He, Duke University; Juan Carlos Suarez Serrato and Daniel Xu, Duke University and NBER

The Structure of Business Taxation in China

This paper documents facts about the structure of business taxation in China using administrative tax data from 2007 to 2011 from the State Taxation Administration. Chen, He, Liu, Suárez Serrato, and Xu first document the importance of different business taxes across industries. While corporate income taxes play an important role for manufacturing firms, these firms also remit a large share of their tax payments through the value-added tax system, through the excise tax system and through payroll taxes. Gross receipts taxes play an important role for firms in other industries, leading to spillovers that may affect the overall economy. Second, the researchers evaluate whether the structure of China's tax revenue matches its stage of development. A cross-country comparison of sources of government revenue shows that China collects a high share of tax revenue from taxes on goods and services and a high share of income tax on corporations. Finally, they study whether firm-level differences in effective tax rates can be an important source of allocative inefficiencies. Decomposing the variation in effective tax rates across firms, Chen, He, Liu, Suárez Serrato, and Xu find that government policies, including loss carry-forward provisions and preferential policies for regional, foreign, small, and high-tech firms, have significant explanatory power. Nonetheless, while effective tax rates vary along a number of dimensions, tax policy does not explain the large dispersion in the returns to factors of production across firms.

Youssef Benzarti, University of California, Santa Barbara and NBER

Estimating the Costs of Filing Tax Returns and the Potential Savings from Policies Aimed at Reducing These Costs

Mark Duggan and Gopi Shah Goda, Stanford University and NBER, and Gina Li, Stanford University

The Effects of the Affordable Care Act on the Near Elderly: Evidence on Health Insurance Coverage and Labor Market Outcomes

The Affordable Care Act (ACA) not only changed the landscape of health insurance coverage in the United States, but also affected the relationship between working decisions and health insurance. In this paper, Duggan, Goda, and Li estimate the impact of the ACA on the near-elderly (ages 60-64) in the five years after the implementation of its key provisions in early 2014. The researchers exploit variation across geographic areas in the pre-existing level of uninsurance and use 65-69 year olds, whose insurance coverage was unaffected by the ACA, as a within-region control group. Their findings indicate that the ACA increased health insurance coverage among the near elderly by 4.2 percentage points and reduced their labor force participation rate by 0.6 percentage points.

Benjamin Lockwood, University of Pennsylvania and NBER; Afras Sial, University of Pennsylvania; and Matthew C. Weinzierl, Harvard University and NBER

Designing, not Checking, for Policy Robustness: An Example with Optimal Taxation

Economists typically check the robustness of their results by comparing them across plausible ranges of parameter values and model structures. A preferable approach to robustness -- for the purposes of policymaking and evaluation --is to design policy that takes these ranges into account. Lockwood, Sial, and Weinzierl modify the standard optimal income tax model to include the policymaker's subjective uncertainty over parameter values, and they characterize robust optimal policy as that which maximizes expected social welfare. After calibrating uncertainty over the elasticity of taxable income from past empirical work and novel survey data on economists' beliefs, the researchers compare the implied robust optimal marginal tax rates to the alternative benchmark policy based on the best point estimates of relevant parameters. Their results suggest that robust optimal marginal tax rates are typically more progressive than in benchmark analyses, raising top marginal tax rates by between 5 and 7 percentage points, and generating modest expected welfare gains.

Diane Whitmore Schanzenbach, Northwestern University and NBER, and Michael R. Strain, American Enterprise Institute

Employment Effects of the Earned Income Tax Credit: Taking the Long View
B The Earned Income Tax Credit (EITC) is the cornerstone U.S. anti-poverty program, typically lifting over 5 million children out of poverty each year. Targeted to low-income households with children, and only available to those who work, the EITC includes strong incentives for nonworkers to become employed. Most of the existing economics literature focuses on federal EITC expansions in the 1980s and 1990s. This paper takes a longer view, studying all federal expansions since the program’s inception in 1975. Schanzenbach and Strain find robust evidence that EITC expansions increases the extensive margin of labor supply.