Charles A.M. de Bartolome

Which tax rate do people use: Average or marginal?

Abstract I investigate by experiment the tax rate used by individuals when making marginal economic decisions. I find that there are at least as many individuals who use the average tax rate ‘as if’ it is the marginal tax rate, as individuals who use the true marginal tax rate. The cause of the widespread use of the average tax rate is shown to be the presentation of the tax table: almost all individuals use the true marginal tax rate if the tax table is redesigned to stress the marginal rate. However, the misperception is socially beneficial: using reasonable parameter estimates, it lowers the excess burden of a typical household by 43%, and is likely to make all households better-off.

Equilibria with Local Governments and Commuting: Income Sorting vs. Income Mixing

Tiebouts (1956) model of fiscal competition suggests income sorting between jurisdictions while the Alonso (1964), Mills (167) and Muth (1969) model of the monocentric city suggests income sorting over space. However, strict income sorting is not empirically observed. We add fiscal competition to the spatial model by considering a circular inner city surrounded by a suburb. The fiscal difference between the jurisdictions and the commuting advantage of locations closer to the city center are capitalized into house prices. In addition to the traditional equilibrium with income sorting, there are equilibria with income mixing - both across jurisdictions and across space.

Choosing between public and private health-care: a case study of malaria treatment in Brazil.

Individuals infected with malaria may be treated either in the public sector in in a private clinic. Private treatment is better, but expensive. Using micro-level data from a colonization project in Brazil, we estimate the factors that determine an individuals choice between the two sectors. Private treatment is (strongly) price sensitive and (weakly) wealth sensitive. Rural individuals are more likely to choose private treatment, but long distances to the treatment source deter private treatment. Individuals belonging to small, literate households are more likely to choose private treatment. Gender, age, and number of previous infections are unimportant. Policy implications are discussed.

Who's in charge of the central city? The conflict between efficiency and equity in the design of a metropolitan area

A circular metropolitan area consists of an inner city and a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show (1) there typically exist two equilibria: one in which the poor form the majority in the inner city and the other in which the rich form the majority in the inner city; (2) there is an efficiency vs. equity trade-off as to which equilibrium is preferred; and (3) if the inner city contains only poor households, equity favors expanding the inner city to include rich households.

Property Tax Capitalization in a Model with Tax-Deferred Assets, Standard Deductions, and the Taxation of Nominal Interest

Previous property tax capitalization studies assume that families itemize, that they save in taxable assets, and that real interest income is taxed. However, many families do not itemize, many families invest in tax-deferred assets, and nominal interest income is taxed. As a consequence, prior studies likely misspecify the property tax capitalization equation for roughly ninety percent of their samples. Taking federal tax provisions into account increases the precision of our estimated capitalization rate. In addition, our results suggest that biases in prior studies likely contribute to the variety of capitalization estimates in the literature.

Integrating Tax Distortions and Externality Theory

Tax distortions are interpreted as fiscal externalities. By purchasing a taxed commodity, the individual generates tax revenue that is a benefit external to the purchaser. Behaving noncooperatively, the individual chooses a quantity that is less than the efficient level. The excess burden is interpreted as the benefit of choosing quantities cooperatively. The analysis clarifies the difference between the marginal cost of funds and the marginal excess burden, and explains the presence of compensated demands in the Harberger Triangle, in the Index of Discouragement, and in the Ramsey Equations. Copyright 1999 by Blackwell Publishing Inc.

Population uncertainty, social insurance,

Abstract Uncertainty in the size of the working population leads to uncertainty in wages and in the return to capital, and to the possible desirability of an insurance contract between unborn workers and future retirees. However Green (1977, 1988) finds that an insurance contract is unlikely to benefit both generations. We show that a worker has two potential sources of actuarial bias: Greens result is due to workers in his model being of different types and some workers having only one source of bias. A representative worker must have both sources of bias, and an insurance contract will benefit both generations. The results are generalized.

Redistributive state aid to local communities

Abstract State aid to communities is used for redistribution and is limited by self-selection – a wealthy household in the taxed community must not benefit from migration into the community of poor households which receives the transfer. In the community of poor households, I show that state aid should subsidize the public services for which an in-migrating wealthy household would buy a private substitute, and should tax housing; it is likely that other public services should also be taxed. However, all aid to the community of wealthy households should be lump-sum. I use these predictions to qualitatively explain the New York State educational aid formula.

The fiscal effect of community composition on public services and welfare

Abstract I consider the changes in the public service level and in the utility of wealthy families when a community of wealthy families expands to include more poor families. Public expenditure is financed by a property tax and set by majority voting. Because adjustments in housing are sluggish, families vote treating house sizes as fixed, and utility is not maximized. The model structure suggests that the signs of the changes are a priori ambiguous—in particular, the fiscal deterioration may cause the public service level to rise and the utility of the wealthy resident to be increased. The changes are estimated in a model with typical parameter estimates.

A Comprehensive Experiment for an Introductory Course in Microeconomics

I present a classroom experiment designed to help students learn (1) decision-making using marginal analysis; (2) the prediction of the price; (3) the decentralized determination of a price by the market; (4) specialization; (5) the gains from trade; and (6) the ability of a competitive market to create a Pareto-efficient outcome. The innovation of the experiment lies in its comprehensiveness and in the identical opportunities faced by all students. The experiment has two parts. There is a warm-up which is assigned as homework and the experiment proper which takes two 50-minute class sessions. I have run it in classes at the undergraduate introductory level, at the undergraduate intermediate level and at the MA introductory level; these classes have varied in size from 20 to 200 students.