In Congress
Elizabeth Popp Berman & Nicholas Pagnucco
Politics & Society, September 2010, Pages 347-372
Abstract:
While sociologists and political scientists have become interested in the role of ideas in the political process, relatively little work looks at how ideological claims are actually deployed in political discourse. This article examines the economic claims made in two pairs of Congressional debates over tax cuts, one (in 1962 and 1964) generally associated with Keynesian economic theories, and one (in 1978 and 1981) tied to supply-side ideas. While these bills were indeed initiated by groups subscribing to different economic ideologies, subsequent debates look surprisingly similar. The bills were closer in substance than one might expect, and while their proponents came from opposite political camps, in both cases supporters focused more on supply-side than demand-side effects and emphasized tax cuts' ability to pay for themselves through economic stimulation. The authors propose that politically acceptable economic claims may evolve more slowly than the economic theories that inspire policy entrepreneurs, and that this "discursive opportunity structure" may not only constrain the political process but may potentially shape the political effects of expert knowledge.
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Claudia Sahm, Matthew Shapiro & Joel Slemrod
NBER Working Paper, July 2010
Abstract:
Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of "free responses" concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies.
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Falling Short of the Promise: Poverty Vulnerability in the United States and Britain, 1993-2003
Diana Worts, Amanda Sacker & Peggy McDonough
American Journal of Sociology, July 2010, Pages 232-271
Abstract:
The welfare state promises to moderate the duration and concentration of poverty. The authors ask how well this promise has been fulfilled in the United States and Britain from 1993 to 2003. They examine two aspects of poverty vulnerability during this period of welfare reform: (1) its persistence and associated risk factors and (2) the efficacy of social transfers. After accounting for measurement error, sociodemographic characteristics, and the impact of redistributive programs, the authors find that poverty is often persistent and risk is concentrated, especially in the United States. Moreover, the British safety net appears to better protect those at risk.
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Income Inequality and Local Government in the United States, 1970-2000
Leah Platt Boustan, Fernando Ferreira, Hernan Winkler & Eric Zolt
NBER Working Paper, August 2010
Abstract:
The income distribution in many developed countries widened dramatically from 1970 to 2000. Scholars speculate that inequality contributes to a host of social ills by weakening the public sector. In contrast, we find that growing income inequality is associated with an expansion in revenues and expenditures on a wide range of services at the municipal and school district levels in the United States. These results are robust to a number of model specifications, including instrumental variables that deal with the endogeneity of local expenditures. Our results are inconsistent with models that predict heterogeneous societies provide lower levels of public goods.
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Do Taxpayers Bunch at Kink Points?
Emmanuel Saez
American Economic Journal: Economic Policy, August 2010, Pages 180-212
Abstract:
This paper uses tax return data to analyze bunching at the kink points of the US income tax schedule. We estimate the compensated elasticity of reported income with respect to (one minus) the marginal tax rate using bunching evidence. We find clear evidence of bunching around the first kink point of the Earned Income Tax Credit but concentrated solely among the self-employed. A simple tax evasion model can account for those results. We find evidence of bunching at the threshold of the first income tax bracket where tax liability starts but no evidence of bunching at any other kink point.
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Giving Mom a Break: The Impact of Higher EITC Payments on Maternal Health
William Evans & Craig Garthwaite
NBER Working Paper, August 2010
Abstract:
The 1993 expansions of the Earned Income Tax Credit created the first meaningful separation in the benefit level for families based on the number of children, with families containing two or more children now receiving substantially more in benefits. If income is protective of health, we should see improvements over time in the health for mothers eligible for the EITC with two or more children compared to those with only one child. Using data from the Behavioral Risk Factors Surveillance Survey, we find in difference-in-difference models that for low-educated mothers of two or more children, the number of days with poor mental health and the fraction reporting excellent or very good health improved relative to the mothers with only one child. Using data from the National Health Examination and Nutrition Survey, we find evidence that the probability of having risky levels of biomarkers fell for these same low-educated women impacted more by the 1993 expansions, especially biomarkers that indicate inflammation.
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How the European Union constrains the state: Multilevel governance of taxation
Philipp Genschel & Markus Jachtenfuchs
European Journal of Political Research, forthcoming
Abstract:
This article challenges the common assumption that the European Union (EU) has little power over taxation. Based on a comprehensive analysis of EU tax legislation and European Court of Justice (ECJ) tax jurisprudence from 1958 to 2007, the article shows that the EU exerts considerable regulatory control over the Member States' taxing power and imposes tighter constraints on Member State taxes than the American federal government imposes on American state taxation. These findings contradict the standard account of the EU as a regulatory polity that specialises in apolitical issues of market creation and leaves control of highly politicised core functions of government (defence, taxation, social security, education, etc.) to the Member States; despite strong treaty safeguards, national tax autonomy is undermined by EU regulation.
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State Minimum Wages and Business Location: Evidence from a Refined Border Approach
Shawn Rohlin
Journal of Urban Economics, forthcoming
Abstract:
This study examines the effect of state minimum wage changes on new and existing business establishments. It employs a refined border approach in conjunction with other differencing methods to control for unobserved heterogeneous area characteristics. The findings suggest that state minimum wage increases deter new establishments from locating in an area, particularly in industries that rely on low-education workforces, such as the retail and manufacturing industries. However, existing establishments, regardless of industry type, are not found to be adversely affected by minimum wage policy.
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The Redistributive Effects and Cost-Effectiveness of Increasing the Federal Minimum Wage
John Formby, John Bishop & Hoseong Kim
Public Finance Review, September 2010, Pages 585-618
Abstract:
Simulation methods are used to investigate the cost-effectiveness and poverty-reducing effects of the Fair Minimum Wage Act of 2007 (FMWA). The data set is created by matching and merging the Annual Social and Economic Supplement (March CPS) with the Earner Study files, which contain the best available information on wages, hours, and earnings. Three 70¢ increments in the minimum wage are compared to alternative labor market policies that could have been adopted in lieu of the FMWA. Specifically, the costs of rising minimum wages are compared to the costs of equiproportionate increases in the earned income tax credit (EITC) and equiproportionate reductions in Federal Insurance Contributions Act (FICA)(payroll) taxes of workers in low-income families that achieve the same poverty-reducing policy objective. The FMWA simulations are expanded to evaluate a hypothetical extension of the federal minimum wage to $9.50. The overall redistributive effects of the FMWA, the hypothetical $9.50 minimum wage, and the alternative EITC and FICA labor market policies are also compared.
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The Insurance Value of State Tax-and-Transfer Programs
Hilary Hoynes & Erzo Luttmer
NBER Working Paper, August 2010
Abstract:
This paper estimates the effective total value that individuals derive from their state's tax-and-transfer program, and shows how this value varies by income. The paper decomposes this total value into two components: redistributive value, which is due to predictable changes in income (and family circumstances), and insurance value, which occurs when taxes and transfers compensate for unexpected income shocks. Our approach is a forward-looking one, where we examine income and transfers net of taxes over a 10-year period. We model state taxes (personal income taxes, the EITC, and sales taxes) and state means-tested transfers (AFDC/TANF and Medicaid/SCHIP). The calculations are made using the Panel Study of Income Dynamics and allow for analysis of the determinants of changes in the value of state net benefits over a more than 30 year period. We find that the redistributive value of state tax-and-transfer programs sharply declines with income, but that the insurance value of transfers is increasing in income. The resulting effective total value is positive across the income distribution and is relatively flat across income groups. This latter finding may explain why mobility does not "undo" state redistributive spending.
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Welfare Programs and the State Economy
Bruce McDonald & Ryan Miller
Journal of Policy Modeling, forthcoming
Abstract:
Welfare policy has been controversial and support is often drawn along political affiliation lines, the economic return of investment in welfare programs is frequently cited as a justification for new and expanded policies. To investigate the direct and indirect effects of welfare programs on economic performance, the authors develop a multilink approach, through employment and investment. The relationship is then tested with data from each of the United States from 1976 to 2006. Findings show welfare programs have no direct effect on a state's economy. Indirectly, welfare has a negative effect through investment, though the effect on employment is minimal.
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Mark Duggan, Robert Rosenheck & Perry Singleton
Journal of Law and Economics, May 2010, Pages 379-398
Abstract:
The U.S. Department of Veterans Affairs compensates 13 percent of the nation's military veterans for service‐related disabilities through the Disability Compensation (DC) program. In 2001, a legislative change made it easier for Vietnam veterans to receive benefits for diabetes associated with military service. In this paper, we investigate this policy's effect on DC enrollment and expenditures as well as the behavioral response of potential beneficiaries. Our findings demonstrate that the policy increased DC enrollment by 6 percentage points among Vietnam veterans and that an additional 1.7 percent experienced an increase in their DC benefits, which increased annual program expenditures by $2.85 billion in 2007. Using individual‐level data from the Veterans Supplement to the Current Population Survey, we find that the induced increase in DC enrollment had little average impact on the labor supply or health status of Vietnam veterans but did reduce labor supply among their spouses.
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Residential Property Tax Abatements and Rebuilding in Cleveland, Ohio
Mark Rosentraub, Brian Mikelbank & Charlie Post
State and Local Government Review, August 2010, Pages 104-117
Abstract:
In the late 1980s the city of Cleveland began offering residential property tax abatements in an effort to (1) reduce blight, (2) attract home owners, and (3) build upon the momentum established by the construction of several downtown attractions. When Cleveland's legislation authorizing part of the abatement program was to be renewed in 2005, a new mayor asked for an assessment of the program's status and its fiscal effects. Utilizing property tax and assessment files and a survey of individuals who had purchased a home that received the property tax abatement, this study finds that Cleveland's investment through forgone property taxes will likely result in overall fiscal gains for the city. Despite this success, property tax abatements, even coupled with the building of an impressive set of cultural amenities, have yet to reverse the demographic and economic trends that have plagued Cleveland for more than fifty years.
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Automatic Stabilizers and Economic Crisis: US vs. Europe
Mathias Dolls, Clemens Fuest & Andreas Peichl
NBER Working Paper, August 2010
Abstract:
This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the US. In the case of an unemployment shock 47 percent of the shock are absorbed in the EU, compared to 34 per cent in the US. This cushioning of disposable income leads to a demand stabilization of up to 30 per cent in the EU and up to 20 per cent in the US. There is large heterogeneity within the EU. Automatic stabilizers in Eastern and Southern Europe are much lower than in Central and Northern European countries. We also investigate whether countries with weak automatic stabilizers have enacted larger fiscal stimulus programs. We find no evidence supporting this view.
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Redistribution at the State and Local Level: Consequences for Economic Growth
Howard Chernick
Public Finance Review, July 2010, Pages 409-449
Abstract:
Fiscal redistribution varies substantially across U.S. states, both on the tax and spending side. A compensating differential framework is used to show that greater redistribution will tend to increase the gross wage of skilled workers but that any increase could be offset by stronger preferences for redistribution. An increase in gross wages raises the cost of output in the more redistributive state, leading to a predicted decline in income and output. To test the model, five- and ten-year per capita and aggregate growth rates are estimated as a function of initial measures of tax and expenditure incidence. Data are a four-period panel of U.S. states from 1977 to 1995. Tax progressivity is measured both overall and for the income tax alone. Expenditure progressivity is measured by spending on welfare and higher education, and the state share of elementary and secondary education spending. Tax structure and welfare spending are instrumented. State tax progressivity shows no effect on growth. Welfare spending has a negative effect on aggregate income growth but not on per capita income. Higher education spending is unrelated to growth. Fiscal spillovers within regions are asymmetric. Progressive taxation and more higher education spending by a state's geographic neighbors have positive effects on own-state growth. The asymmetry in tax effects explains why interstate tax competition does not lead to geographic convergence in fiscal structures. The results suggest that interstate differences in fiscal redistribution are welfare enhancing in the Pareto sense.
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Who Benefits from the Earned Income Tax Credit? Incidence among Recipients, Coworkers and Firms
Andrew Leigh
B.E. Journal of Economic Analysis & Policy, 2010
Abstract:
How are hourly wages affected by the Earned Income Tax Credit? Using variation in state EITC supplements, I find that a 10 percent increase in the generosity of the EITC is associated with a 5 percent fall in the wages of high school dropouts and a 2 percent fall in the wages of those with only a high school diploma, while having no effect on the wages of college graduates. Given the large increase in labor supply induced by the EITC, this is consistent with most reasonable estimates of the elasticity of labor demand. Although workers with children receive a much larger EITC than childless workers, and the effect of the credit on labor force participation is larger for those with children, the hourly wages of both groups are similarly affected by an EITC increase. As a check on this strategy, I also use federal variation in the EITC across gender-age-education groups, and find that those demographic groups that received the largest EITC increases also experienced a drop in their hourly wages, relative to other groups.
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Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance
Anna Batyra & Henri Sneessens
Journal of Policy Modeling, July-August 2010, Pages 531-543
Abstract:
We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and non-targeted tax cuts, both with or without over-education effects. Introducing over-education changes substantially the employment, productivity and welfare effects of a tax cut, although tax cuts targeted on the least skilled workers always have larger effects.
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François Velde
Financial History Review, October 2010, Pages 185-209
Abstract:
The French government currently honors a very unusual debt contract: an annuity that was issued in 1738 and currently yields €1.20 per year, payable to the descendants of its original recipient. I tell the story of this unique debt, which serves as an anecdotal but symbolic summary of French public finances since the eighteenth century. Created by a powerful nobleman for one of his servants, it survived the turmoil of the French Revolution, became part of the public debt and has been scrupulously honored to this day, even though its value has been eroded away by decades of inflation.