Harry S. Watson

Tax evasion and labor markets

Abstract Concern with revenue losses, inequities, and inefficiency that may result from tax evasion has produced a number of formal analyses of taxpayer dishonesty. Most of this work has concentrated on the behavior of individual evaders and has ignored the interaction between evasion and labor market equilibrium. To remedy this, our analysis uses a model with two labor markets — which differ in the potential for evasion — to examine how changes in various tax parameters affect evasion and labor market equilibrium. We also simulate the effect of switching from a proportional to a progressive tax system in order to evaluate the well-known claim that progressivity encourages evasion.

The hospital-physician interaction in U.S. hospitals: Evolving payment schemes and their incentives

Abstract Unlike the case in several European countries, where physicians are salaried employees of the hospital, in the U.S. physicians are independent agents who are granted admitting privileges by their affiliated hospitals. Hospitals and physicians bill separately for their components of inpatient care, and patients or insurers compensate them separately. This has raised questions about the degree of efficiency and cooperation between the agents. In the first part of this paper we review previous models that examined this interaction under cost-based and prospective reimbursement. In the second part, we consider an experimental mechanism (‘price-bundling’) in which payers allow a single payment for an episode of care, leaving the physician and the hospital to negotiate over how the fee should be split. Modelling this as a Nash bargaining game , we cast doubt on the notion that price bundling can ensure cooperation and efficiency from the perspective of the players, and suggest other incentives that may have led hospitals to participate in the experiment.

A Note on the Effects of Taxation on Charitable Giving Over the Life Cycle and Beyond

Recent changes in the Federal budget have sparked debate concerning the substitution of charitable activity for some types of government expenditures. The extent to which private replacement is successful depends upon two factors: the ability of charities to substitute their services for those reduced by the government and the ability of charities to garner more contributions as income and estate tax rates are reduced. This analysis will concentrate only on the latter factor. In particular, this analysis will deal with the following questions. Will a reduction in income and estate tax rates have a predictable effect on the level of charitable contributions over the life cycle and the level of charitable bequests? If the reduction in tax rates reduces charitable contributions over the life cycle, will there be an offsetting rise in charitable bequests; that is, will the reduction in tax rates affect only the timing of charitable giving? This question of timing is particularly important, since successful replacement of government programs by charitable activity requires that current contributions rise. The literature dealing with the effects of taxation on charitable giving does provide some information concerning these questions. For example, a number of authors including Feldstein and Clotfelter [1976], Feldstein and Taylor [1976], Schwartz [1970], and Taussig [1967] have measured the impact of the deductibility of charitable contributions under the income tax. Although the effects of the after-tax cost of contributing (one minus the marginal tax in the simplest case) vary widely, the best evidence appears to be given by Feldstein and Clotfelter [1976], who find that the elasticity of charitable contributions with respect to the after-tax cost of giving is around 1.5. Feldstein and Clotfelter also find that the elasticities of contributions with respect to a measure of permanent income and to net worth are both positive. These results imply that reducing income tax rates should result

The effects of taxation on partnership investment

Abstract Partnership are becoming more prevalent in the United States and may represent a significant source of investment in the future. Consequently, understanding the effects of taxation on partnership investment may become increasingly important. This paper examines how the level of taxation and the degree of progressivity of the tax system affect partnership investment. Our analysis also examines how such factors as partner outside income, partner preferences for risk-taking, and the manner in which the partnership is organized can interact with the tax code to alter partnership investment levels.

An Analysis of the Formation and Behavior of Partnerships

The partnership form of business has become increasingly popular in the United States and may account for a significant portion of new business formation in the future. In spite of the growth of partnerships, there has been little formal analysis of their formation or behavior. In this article, we consider the possibility that the level of partnership formation is inefficient and find conditions under which tax-subsidy schemes yield welfare-improving changes in the level of partnership formation. We also determine the effects of income taxation on partnership activity. Finally we examine the impact of government expenditure programs on partnership behavior. We find that some of these programs, for example those that are ostensibly designed to foster new business, may actually inhibit partnership formation and increase the likelihood of partnership failure.

Financing Industry—Government Cooperation in Industrial Research

Cooperative research ventures, in which several firms pool their resources in order to develop new technologies, have become more prevalent in recent years. As noted by Link and Tassey, collaborative research among industrial enterprises is not a new phenomenon [1]. For example, firms have supported the research efforts of trade associations since the turn of the century. However, it appears that both the scope and the nature of privately organized cooperative research programs have changed significantly. During the period from 1973 to 1980, there was only one year in which more than 200 joint ventures were reported, whereas in 1982 and 1983 the number had risen to 281 and 348, respectively. Moreover, earlier cooperative research efforts were relatively minor in scope, and not intended, for example, to develop radically new industrial products or processes. By comparison, the more recent cooperative research efforts have been more ambitious.

A note on pensions in a neoclassical model of the firm

Abstract Growing concern about the effects of private pensions has produced a number of models which are designed to answer specific questions concerning particular aspects of pensions. To provide a clearer understanding of how pension funding constraints, benefits, and worker behavior interact, however, it is useful to consider a rather general model of pensions within the framework of a neoclassical model of the firm. Manipulation of this model determines the effects of a pension on the firms investment policy, the optimal level of benefits and hiring, the manner in which the firm values pension fund assets, and the level of contributions the firm will make to the pension plan.