Podcast
Questions and Answers
According to the material, what is a key question in macroeconomics related to labor supply?
According to the material, what is a key question in macroeconomics related to labor supply?
- What are the effects of technological advancements on job creation?
- Do hours worked decline if we get richer, and what do taxes do? (correct)
- How does monetary policy impact employment rates?
- How does globalization affect labor mobility?
In the context of labor economics, the lecture materials suggest an emphasis on understanding which empirical aspect?
In the context of labor economics, the lecture materials suggest an emphasis on understanding which empirical aspect?
- The impact of immigration policies on wage inequality.
- The estimation of labor supply elasticity. (correct)
- The historical trends in minimum wage legislation.
- The role of unions in wage bargaining.
According to the presentation, what is one of the theoretical learning goals related to static optimal taxation?
According to the presentation, what is one of the theoretical learning goals related to static optimal taxation?
- Examining the effects of automation on employment.
- Understanding the literature on static optimal taxation and inequality. (correct)
- Exploring the relationship between interest rates and investment.
- Analyzing the impact of globalization on tax revenues.
The numerical learning goals in the material include familiarity with which of the following?
The numerical learning goals in the material include familiarity with which of the following?
Which of the following books is recommended for background reading in the lecture materials?
Which of the following books is recommended for background reading in the lecture materials?
Which book is specifically recommended for those with an interest in labor economics, according to the presented materials?
Which book is specifically recommended for those with an interest in labor economics, according to the presented materials?
What programming language, beyond Matlab, is highlighted as a valuable tool for quantitative economics, particularly for the exercises?
What programming language, beyond Matlab, is highlighted as a valuable tool for quantitative economics, particularly for the exercises?
How does increased life expectancy potentially relate to lifetime labor supply, according to the presented economic models?
How does increased life expectancy potentially relate to lifetime labor supply, according to the presented economic models?
According to the lecture, what are some of the reasons to utilize Julia instead of Matlab?
According to the lecture, what are some of the reasons to utilize Julia instead of Matlab?
In the static labor supply model, what does $N_0$ represent?
In the static labor supply model, what does $N_0$ represent?
In a static labor supply model, if leisure is a normal good, then increasing non-wage income $T$ leads to what effect on the reservation wage $w_A$?
In a static labor supply model, if leisure is a normal good, then increasing non-wage income $T$ leads to what effect on the reservation wage $w_A$?
What is the primary risk when regressing log(hours) on log(wages) while controlling for standard socioeconomic factors?
What is the primary risk when regressing log(hours) on log(wages) while controlling for standard socioeconomic factors?
According to labor supply theory, what are the two effects that arise from wages reactions?
According to labor supply theory, what are the two effects that arise from wages reactions?
Based on the material presented, what is the potential impact of taxing (lowering net wages) on labor supply?
Based on the material presented, what is the potential impact of taxing (lowering net wages) on labor supply?
What key aspect is believed to be influential in explaining females' hours worked choices in Germany, as suggested by Bick and Fuchs-Schündeln (2017)?
What key aspect is believed to be influential in explaining females' hours worked choices in Germany, as suggested by Bick and Fuchs-Schündeln (2017)?
What is the term for when average labor tax and a progressivity parameter accounting for Ehegattensplitting are taken into consideration within the presented maximization problem?
What is the term for when average labor tax and a progressivity parameter accounting for Ehegattensplitting are taken into consideration within the presented maximization problem?
According to the material, what does a higher degree of joint filing in taxation imply for female labor supply?
According to the material, what does a higher degree of joint filing in taxation imply for female labor supply?
According to what is presented, what does setting μ(x,z) country specific as opposed to other factors cause?
According to what is presented, what does setting μ(x,z) country specific as opposed to other factors cause?
What is the focus of discussions about hours worked for optimal taxation?
What is the focus of discussions about hours worked for optimal taxation?
What should the objective function of ex-post utility be focused on, acccording to the information?
What should the objective function of ex-post utility be focused on, acccording to the information?
Which social welfare function supports the greatest utility should occur?
Which social welfare function supports the greatest utility should occur?
What describes the outcome of a world in which individuals can maximize, but do not change their behavior?
What describes the outcome of a world in which individuals can maximize, but do not change their behavior?
What is one of the main assumptions one needs to assume to have a society thrive?
What is one of the main assumptions one needs to assume to have a society thrive?
Given knowledge about Saez, what is one assumption about low income individuals and social mobility?
Given knowledge about Saez, what is one assumption about low income individuals and social mobility?
According to the Mirrlees model, what is the optimal form of transfer at the bottom?
According to the Mirrlees model, what is the optimal form of transfer at the bottom?
In regards to income utility what assumptions must be made when computing optimal taxation levels?
In regards to income utility what assumptions must be made when computing optimal taxation levels?
How does imposing a linear tax structure impact lump-sum transfer?
How does imposing a linear tax structure impact lump-sum transfer?
Which approach to optimal taxation rules out lump-sum taxes and considers linear taxes.
Which approach to optimal taxation rules out lump-sum taxes and considers linear taxes.
Which of the following is considered a central result in optimal tax theory?
Which of the following is considered a central result in optimal tax theory?
According to current information, how high should the elite be taxed?
According to current information, how high should the elite be taxed?
Which of these is typically the lowest decile to file?
Which of these is typically the lowest decile to file?
The textbook is primarily focused on what?
The textbook is primarily focused on what?
Why does income need to be stable for governments to act?
Why does income need to be stable for governments to act?
For labor policy can you have a baseline to work with?
For labor policy can you have a baseline to work with?
What describes a world with 100% taxation perfectly allocated?
What describes a world with 100% taxation perfectly allocated?
What variable is most responsible for social engineering?
What variable is most responsible for social engineering?
What is a lump transfer?
What is a lump transfer?
What would the utility be if spending = wage?
What would the utility be if spending = wage?
How do countries try to measure the elasticity effects people have on tax rates?
How do countries try to measure the elasticity effects people have on tax rates?
According to the presented material, what is one factor that influences females' hours worked choices in Germany?
According to the presented material, what is one factor that influences females' hours worked choices in Germany?
Within the context of optimal taxation, what is specifically highlighted as a primary focus of discussion regarding hours worked?
Within the context of optimal taxation, what is specifically highlighted as a primary focus of discussion regarding hours worked?
In the context of optimal taxation and social welfare functions, what does maximizing total ex-post utility imply?
In the context of optimal taxation and social welfare functions, what does maximizing total ex-post utility imply?
What is a key characteristic of the utilitarian social welfare function?
What is a key characteristic of the utilitarian social welfare function?
In a scenario without behavioral responses to taxation, what is the likely outcome of optimal tax policy?
In a scenario without behavioral responses to taxation, what is the likely outcome of optimal tax policy?
What does the parameter $\epsilon^u$ represent in the context of labor economics?
What does the parameter $\epsilon^u$ represent in the context of labor economics?
What is the primary implication of counteracting signs in labor supply responses due to the wealth effect?
What is the primary implication of counteracting signs in labor supply responses due to the wealth effect?
According to the material, what characterizes young workers' labor supply response to wage increases?
According to the material, what characterizes young workers' labor supply response to wage increases?
In the depicted static labor supply model, what direct impact does an increase in non-wage income $T$ have, assuming leisure is a normal good?
In the depicted static labor supply model, what direct impact does an increase in non-wage income $T$ have, assuming leisure is a normal good?
In the discussion of optimal commodity taxation, what is a primary consideration for designing taxes?
In the discussion of optimal commodity taxation, what is a primary consideration for designing taxes?
From an efficiency perspective, how should a government finance its operations, assuming it is feasible:
From an efficiency perspective, how should a government finance its operations, assuming it is feasible:
Following the Mirrleesian approach, how should one address the costs associated with lump sum taxes, assuming they are allowed?
Following the Mirrleesian approach, how should one address the costs associated with lump sum taxes, assuming they are allowed?
Which of the following is a condition for the inverse elasticity as presented by Ramsey?
Which of the following is a condition for the inverse elasticity as presented by Ramsey?
In the context of optimal tax theory, what does a break-even earnings point represent?
In the context of optimal tax theory, what does a break-even earnings point represent?
In the context of optimal income taxation, what is the implication of non-trivial marginal tax rates, according to Mirrlees?
In the context of optimal income taxation, what is the implication of non-trivial marginal tax rates, according to Mirrlees?
In a world with behavioral responses to taxation, what is considered an effect of preference heterogeneity and ability?
In a world with behavioral responses to taxation, what is considered an effect of preference heterogeneity and ability?
What does the Laffer curve describe in relation to tax revenue?
What does the Laffer curve describe in relation to tax revenue?
From the labor supply model, What is the interpretation of indifference curves that are negatively sloped and convex?
From the labor supply model, What is the interpretation of indifference curves that are negatively sloped and convex?
What would imply there was never a role for leisure, and that any labor supply can be used to increase income?
What would imply there was never a role for leisure, and that any labor supply can be used to increase income?
Lottery winnings may imply what for an individual's behavior?
Lottery winnings may imply what for an individual's behavior?
In a two person model, the degree of filing between couples may what?
In a two person model, the degree of filing between couples may what?
According to the material, which of the following features is most important when describing whether or not a society is social?
According to the material, which of the following features is most important when describing whether or not a society is social?
In the context of optimal taxation for the top 1%, there could be a loss if?
In the context of optimal taxation for the top 1%, there could be a loss if?
When implementing tax reforms with estimates for current weight what issue may one encounter?
When implementing tax reforms with estimates for current weight what issue may one encounter?
What has been the result of implementing tax reforms?
What has been the result of implementing tax reforms?
According to the content, what is one of the core limitations in tax policy creation:
According to the content, what is one of the core limitations in tax policy creation:
The Saez model assumes what?
The Saez model assumes what?
What results in a high tax rate such as the first model?
What results in a high tax rate such as the first model?
The EITC assumes who for their results?
The EITC assumes who for their results?
With non behavior responses, where should society apply taxes and what must they apply.
With non behavior responses, where should society apply taxes and what must they apply.
The material mentions one paper may describe why the formula is not useful, what is one of the components it leaves out?
The material mentions one paper may describe why the formula is not useful, what is one of the components it leaves out?
When the Saez formula is applied and it generates issues, what occurs?
When the Saez formula is applied and it generates issues, what occurs?
What factor regarding joint filing accounts for what effects people have on tax rates?
What factor regarding joint filing accounts for what effects people have on tax rates?
With heterogeneous populations in the FOC for a single person what can be implemented?
With heterogeneous populations in the FOC for a single person what can be implemented?
In a welfare maximizing model on average where is there the greatest consumption
In a welfare maximizing model on average where is there the greatest consumption
Why does heterogeneity matter when discussing a linear marginal tax
Why does heterogeneity matter when discussing a linear marginal tax
What is the primary focus when considering the labor supply of married couples in the context of taxation?
What is the primary focus when considering the labor supply of married couples in the context of taxation?
How can separate filing within a household impact a household's financial situation?
How can separate filing within a household impact a household's financial situation?
What describes when maximizing total ex-post utility is the right objective function?
What describes when maximizing total ex-post utility is the right objective function?
Which social welfare function has everyone's utility being equally counted?
Which social welfare function has everyone's utility being equally counted?
Assuming there are no other constraints, what best describes a government's finances from an efficiency perspective?
Assuming there are no other constraints, what best describes a government's finances from an efficiency perspective?
What is the primary characteristic of Mirrlees' approach to lump sum taxes?
What is the primary characteristic of Mirrlees' approach to lump sum taxes?
What is the inverse elasticity rule?
What is the inverse elasticity rule?
According to the study of taxes and transfers, what refers to an earnings level where tax liability is equivalent to earnings?
According to the study of taxes and transfers, what refers to an earnings level where tax liability is equivalent to earnings?
If an individual keeps 1−T′(z) for an additional $1 of earnings is relevant to what?
If an individual keeps 1−T′(z) for an additional $1 of earnings is relevant to what?
In Mirrlees' model, what does the optimal transfer at the bottom look like?
In Mirrlees' model, what does the optimal transfer at the bottom look like?
What does it mean when society maximizes weighted sum of utilities of ex-post consumption?
What does it mean when society maximizes weighted sum of utilities of ex-post consumption?
In what circumstance will the outcome of pointwise maximization occur?
In what circumstance will the outcome of pointwise maximization occur?
Define the term ϵ^u ?
Define the term ϵ^u ?
What does the Laffer curve describe?
What does the Laffer curve describe?
When will increasing taxes be simple to do?
When will increasing taxes be simple to do?
Define parameter α?
Define parameter α?
What occurs when political economics come into play for income theory?
What occurs when political economics come into play for income theory?
Why is it best to have a subsidy happen for the rich, i.e the Earned Income Tax Credit?
Why is it best to have a subsidy happen for the rich, i.e the Earned Income Tax Credit?
Why does the Mirrlees model fail?
Why does the Mirrlees model fail?
What best describes one function to make transfer programs?
What best describes one function to make transfer programs?
Flashcards
Hours worked
Hours worked
Trade off between leisure and working hours.
Utility function
Utility function
Represented by U(C, N), maps consumption and leisure to real numbers.
Budget set
Budget set
Given by C ≤ wH + T; consumption depends on wage, hours, and transfers.
Interior Solution
Interior Solution
Occurs when UN(C,N) / UC(C,N) = w and C + wN = T₀.
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Marshallian labor supply
Marshallian labor supply
Captures how leisure changes in response to wage changes.
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Wealth effect
Wealth effect
Leisure is valuable, so giving other sources of income discourages work .
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Reservation wage
Reservation wage
Wage rate where labor supply becomes positive; w ≤ wA = UN(T,N₀) / UC(T,N₀).
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Demogrant
Demogrant
A tax benefit with zero earnings; also called lumpsum grant.
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Marginal tax rate
Marginal tax rate
Individual keeps 1 - T'(z) for each extra dollar earned.
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Participation tax rate
Participation tax rate
The fraction kept when shifting from no earnings to some.
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Social welfare function
Social welfare function
Total utility is maximized where all households, i share the welfare
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Mirrlees
Mirrlees
1971 Model: income tax balances effective redistribution and optimal trade off.
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Tax Evasion
Tax Evasion
Elasticity: The fraction of non-working guys wrt to the bottem of that tax bracket (lowest earner) net of the tax rate change
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- Ph.D. Macroeconomics Part I covers Labor-Supply and Optimal Taxation, taught in October 2023 at TU Dortmund by Philip Jung.
Organizational Stuff
- Lectures will be held every Tuesday at 10:15, followed by exercises at 8:30
- Exercises involve Julia/Matlab
- Grades for Ph.D. candidates are based on weekly homework and an exam, while Master students receive a simple exam.
- The class structure includes empirical motivation, economic theory, technical challenges, numerical tools, Matlab/Julia code applications, homework, and next week's reading assignments.
- Julia will be the primary programming language, as it is free and modern.
- Matlab will still be taught for familiarity and potential use in other classes, syntax similarities allow knowledge transfer between the two.
- Matlab is becoming too slow for serious programming.
- Julia is new, free and seen as the future, though Python is the current industry standard
- Numerical Methods for Macroeconomists by Greenwood/Marto (2022) with Julia and Matlab code is highly recommended
- Macroeconomic Analysis by Dirk Niepelt (2019) is a recommended background reading.
- Macroeconomics by Sargent and Ljungquvist (4th edition) contains a wealth of content.
- Economic Dynamics in Discrete Time by Miao, Jianjun (2014) includes advanced topics.
- Cahuc, Carcillo, and Zylberberg’s (2014) Labor Economics is recommended for labor economics enthusiasts (second edition only).
- Jesse Perla, Thomas J. Sargent and John Stachurski (2021): Quantitative Economics with Julia (free download) is strongly recommended.
Chapter 1: Static Labor Supply and Optimal Taxation
- Learning goals include empirical estimation of labor supply elasticity and theoretical understanding of static optimal taxation literature and inequality, with a numerical focus on Matlab.
- Key literature includes Piketty and Saez (2013) on Optimal Labor Income Taxation, and Cahuc, Carcillo, and Zylberberg’s (2014) Labor Economics (second edition).
Chapter 2: Consumption and Saving
- Learning objectives cover the empirical estimation of intertemporal elasticity, understanding transitory and permanent shocks (Economics of Consumption, Japelli and Pistaferri) and theoretical dynamic optimization through basic life cycle models.
- Numerical methods will focus on finite-dimensional optimization, with technical skills covering Kuhn-Tucker conditions and envelope theorems.
- Japelli and Pistaferri (2017): The Economics of Consumption is essential
- Krueger, Mitman, and Perri (2016): Macroeconomics and Household Heterogeneity in the Handbook of Macroeconomics, is also key
Chapter 3: Consumption, Money and Growth in an OLG framework
- Learning includes empirical growth facts(Jones, handbook) and theoretical OLG structure)
- Numerical application includes dynamical difference equations and technical multiple equilibria.
- Key literature: Jones, C. (2016): Facts of economic growth from Handbook of Macroeconomics
- Krueger, Mitman, and Perri (2016): Macroeconomics and Household Heterogeneity, in Handbook of Macroeconomics, vol. 2, is an important text
Further Chapters
- Dynamic Programming and Bellman Equation in the neoclassical growth model
- Heterogeneous Agent models
- Stochastic Growth and Business Cycles
- Labor search and macro-business cycles
- Money (covered with Ludger)
Lecture 1 Overview
- Focuses on the development of labor supply over time and considers the correlation vs causation
- Key questions include whether people work less as they become richer, and the effects of taxes on labor.
- Boppart and Krusell (2018) is a key reading: Labor Supply in the Past, Present and Future.
- The lecture material compares labor hours in Germany and the U.S. using tax rate estimates by McDaniel (2007).
Static Labor Supply Basics
- Consumption (C) is part of all real numbers, and leisure (N) is within the range of 0 to N0
- N0 denotes the total time endowment.
- Trade off of leisure and hours, H+N = N0
- Utility function U is a function of Consumption * N -> Real Numbers, noted as U(C,N)
- UC(C, N) > 0 and UN(C, N) > 0
- Transfers (T) are provided from government or capital income
- Budget set is given by C <= wH + T. where w is wage rate and rearranging results in C + wN < wNo + T = To
Static Labor Supply per Period
- Within a Period - problem: max U(C, N) from C,N and with the condition: C + wN <= To
- Interior solution is marked by the Lagrange Multiplier:
- V(C,N, Lambda) is a result of Uc(C,N) = Lambda and Un(C,N) = Lambda * w where Lambda * [To - C - wN] = 0 with Lambda >=0
Static Labor Supply FOC
- Given the utility function assumption: lambda is greater than 0
- FOC and Bidget Constrains is displayed in the quotient: UN(C,N) / UC(C,N) = w then C + wN = To
Income vs Substitution Effects
- At an interior point the equations are: UN(C,N) / UC(C,N) = wage and C + wN = To
- These points implicitly define a function at the optimum where N = Lambda (w,To) and H = No - N*
- H is the Marshallian (uncompensated) labor supply equation
Marshallian Supply Properties
- Labor is a function of exogenous wages and income: N = Lambda (w, To)
- The reaction of leisure with wage changing is notated as aN / aW = value
- This is written as follows : wUc (To - wN*, N*) - UN (To - wN*, N*) = 0
Effects of Supply Equations
- Differentiating the earlier derived equation leads to several terms of differing variables
- Plugging in Un (c,N) / U (c,N) gets the values of the partial derivatives
- Denominator is positive if the indifference curve is convex
- An effect that increases wealth works in the opposite direction
Overall Sign
- Counteracting signs due to wealth effect
- There is a possible increase in worker wages and a decrease in leisure (substitution effect) for younger workers
- There is an older worker role
- Taxation has mixed effects such as lower tax wages and different tax codes
- Different results occur depending on wealth and age
Indifference Curves
- They are negatively sloped and convex, i.e., quasi-concave?
- Indifference Curve: U(C,N) = U
- This equation implicitly sets a function: U(C(N), N) = U.
- Differentiating with respect to N gives a result for solving Uc * (dC/dN) + UN = 0 therefore dC/dN = -UN / UC < 0 and delivers the negative slope
Reservation Wage
- Previously, it was assumed to be an interior solution, however what if it were a boundary solution?
- The result is that labor supply is zero and N (leisure) = No.
- This occurs when when w (wage) <= WA - the reservation wage
- The reservation wage occurs when UN(T,NO / UC(T,NO)
- In cases of leisures and raising income increases the wage, the disincentive occurs for work
Early Retirement in Germany Applications
- Problematically, you can regress log(hours) on log(wages), controlling for factors such as sex, education, and age
- Non-labor income elasticity - in lotteries at 100000 a drop occurs with 1100 labor earnings in one year, 1600 after 2, and 1800 after 3
- MATTEO PICCHIO, SIGRID SUETENS AND JAN C. VAN OURS (2016)'s study shows that marginal propensity to continue leisure is 0.45 when winning in lotteries
Taxation application and Labor Supply of Married Couples
- The study covers taxation
- The study is looked at paper by Bick, A. and N. Fuchs-Schündeln (2017): Taxation and Labor Supply of Married Couples across Countries: A MacroeconomicAnalysis, Restud
- Progressive taxation and tax splitting rules are studied for the role and the major role for female work hours is examined specifically within Germany
Findings for Taxation and Labor Supply of Married Couples
- Income Tax Rate when Only the Husband Works are graphed and explained in the document
- So are Avg. Marginal Income Tax Rate on Wives' Earnings
- There is also information on labor participation
- The labor market will be conditional from the female's POV, if she will choose to work
Model for Married Couples - both working
- the maximization conditions for couples is the conditional conditional choice if the female works, with various factors and formulas displayed
- t1 is average labor tax and e is b/w (0,1) to demonstrate progressivity parameter/ehegattensplitting
Model for Married Couples - only males work
- Formulas are shown with the conditional choice where the female does not work
The Discrete Choice Trick
- Stochastic costs exists if female is working
- The distribution, type, and shocks that affect couples all change the workload
Aggregation Model
- Formulas using integration from tax and balanced books are used in the model
Couple FOC, single, file separately
- First order conditions for all forms of marriage are laid out with formulas
Model Findings
- Eu-US hours are calculated along with fraction explained
- correlation is then found between variation in Europe & Regr. Slope
- Finally a data model is built
- The model includes finding Europe has lower taxes in comparison to the US.
Model Findings - Summary
- Consumption tax differences are found to explain a high number of rate changes for both genders
- Labor income tax determines European changes
- Progressivity of lower hours can be tracked with US or taxes
- Variations happen in the european tax brackets.
- Educational composition the most important factor in explaining US/Europe, with the US having a larger share of high educated individuals
- Extensive margin is covered in the paper
Optimality Findings
- Discussion focuses on work completed by female
- welfare is an important aspect, filing separate can be worse overall depending on unit of production
- Filing alone can help allocation assuming there is infighting b/w work allocation b/w partners.
- Taxation is studied, depending on the perspective
Outline on Optimal Taxation
- Commodity Taxation: Ramsey Rule
- Capital Income Taxation and Retirement Savings
- Income Taxation: Mirrlees Model vs Ramsey Model
- Optimal Transfer Programs
Optimal Commodity Taxation: Introduction
- Combination of efficiency costs and tax incidence lead to optimal design for tax
- Design on design (equtiy and efficiency)
Optimal Taxation Overview
- Efficiency wise, purely finance through lump sum taxation
- Distribution Wise, individual- specific lump sums would be preferred
- Higher net abilities need a larger burden
- Outcomes Taxed Include Income or consumption that leads to distortion. Ramsey vs Mirrleesian Approaches:
Approaches to Taxes
- Ramsey limits attention to linear tax systems
- Mirrleesian approaches use non-linear tax systems that dont have restricted T(X) Ramsey is a lump sum in its possibility and has liner taxing
- Mirlees is not necessarily the best and contains high heterogenity
Key Results in the area of Optimal Tax
- Ramsey's reverse elasticity measure form 1927
- Chamley's and Judd's Ramsey models with no capital taxation in 1985 and 1986 respectively
- Diamond and Mirlees's production efficiency from 1971
- Atkinson and Stiglitz found no consumption tax if income taxation is applied as an optimal non-linear solution
Tax Outline
- Statically Optimal income taxation from linear tax code
- Code specifically for the top 1 percent of earners
- Statically Optimal income fromm the 1971 mirrlees study
- Consumption and commodity tax from the 1976 Stiglitz study
- Optimal transfer from the 2002 Saez study
Concepts on Transfers and Tax
- T(z) represents the tax liability against functions of earnings through z
- A transfer benefit with nil earnings is known as T(0) [lumpsum or demogrant]
- Additional tax rate is listed as T ' (z), which creates +$1 through earnings (related to labor response)
- Participation in taxation follows T (z) is defined as (T(z) - T(0) )/z - individual takes earnings when moving Zero earnings are a break even point
Mirlees Key Results 1971:
- T(.) < 0 at bottom (transfer)
- T(.) > 0 further up (tax) Formulas is to used.
Mirlees Subsequent work
- Has massive effect of information and economics
- Has examples with assymetric information and constract theory
- Is limited with a practical tax policy
- Recently, is seen theoreically in Saez, Diamon, and Pickett
- Includes Sufficient Statistics from various other topics
Optimal Income Sufficiency With Data:
- Linear Tax [Max Linear Tax]
- Top Bracket [Saez]
- Full Income Tax Bracket [Saez]
- Chetty See also (Ann. Rev. 2009)
Social Impact Studies:
- Utilitarian (everybody should be treated equals)
- Rawlsian (Veil of ignorance)
What is Optimality and How to Use
- Have a look to analyze and graph income taxes within countries specifically with Germany/US taxes
- To evaluate this we need to utilize utility functions by using Social Welfare Function analysis.
Taxation Results:
- The paper focuses on the use of the "utilitarian social welfare" with all related function/outcomes associated.
- In short, with many results the paper describes the formula and steps required when setting each outcome.
Discussion and Set-up/Considerations:
- These results are dependent due to behavioral functions within the market. This sets up the considerations that should be considered when using the model.
Generalities and The Formula
- Formula is general and the criticisms include but not limited to :
- How they can be extended to random income and political economics the redistribution
- They are all dependent.
Modelling
- The model of choice is used
- Variables can change with what income the bracket is
Model Breakdown
- The model findings and elasticities are stated with formulas and conditions attached
- Average tax is taken into account
- Tax is then measured for all earnings levels
- If society increases to the lowest average in the formula is said to have a formula of:
- Tn / (1 - Tn) which has components such as average wellfare If is high, then that section works well
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