Behavioral Simulation Methods in Tax Policy Analysis by Martin Feldstein

By Martin Feldstein

Those 13 papers and accompanying commentaries are the 1st culmination of an ongoing study undertaking that has focused on constructing simulation versions that contain the behavioral responses of people and companies to replacement tax principles and premiums and on increasing computational basic equilibrium types that research the long-run results of adjustments at the financial system as a whole.The crucial concentration of the undertaking has been at the microsimulation of person habit. hence, this quantity comprises experiences of person responses to an over relief in tax premiums and to adjustments within the optimum tax charges; a examine of other tax remedies of the kin; and experiences of such particular facets of loved ones habit as tax remedy of domestic possession, charitable contributions, and person saving habit. Microsimulation thoughts also are used to estimate the consequences of other guidelines at the long-run monetary prestige of the social defense software and to envision the consequences of other tax principles on company funding and of foreign-source source of revenue on out of the country investment.The papers dedicated to the improvement of common equilibrium simulation versions to incorporate an exam of the consequences of overseas exchange and capital flows, a examine of the consequences of capital taxation that makes use of a closed economic climate equilibrium version, and an exam of the impact of switching to an inflation-indexed tax approach. within the volume's ultimate paper, a life-cycle version during which participants maximize lifetime application topic to a life-time price range constraint is used to simulate the results of tax principles on own reductions.

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What about general equilibrium considerations? Our simulations assume that pretax wages and interest rates remain constant despite the presence of some substantial changes in labor supply. It would clearly be desirable to make gross factor returns endogenous. Unfortunately, if we want detailed and careful information on tax burdens by income class, marital status, or virtually any other characteristic, a very large microdata set is necessary. Setting up a useful general equilibrium model in this context currently appears infeasible.

2 has information for the current system. 4. 1, respectively, for married women. 1 are reasonable estimates of the wage and income elasticities, respectively. 5 for the wage elasticity. 7. 8 of the text. Both sets of tables look at the same tax regimes as they affect the subsample of married couples. The only difference is in the assumed value of the wage elasticity. 4. Because these regimes do not induce major changes in marginal tax rates, the particular value of the wage elasticity of supply is not of major importance.

One expects, then, that if confronted with the choice between complete 28. R. 3609) would allocate each itemized deduction to the spouse who actually makes the payment. As Sunley (1980) points out, this would lead to great complications in tax planning. 29. In contrast, the Fenwick bill would allocate unearned income on the basis of ownership (see Sunley 1980). 305 x 10" - 269 5 - 422 ~ Note: Regime c is complete income splitting. Regime d is optional single filing. 206 ... 978 x 10’’ income splitting and optional single filing, one-earner families would tend to support the former, ceteris paribus.

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