Michael J. Boskin

Taxation, Saving, and the Rate of Interest

This study presents new estimates of consumption functions based on aggregate U.S. time-series data. The results are striking: a variety of functional forms, estimation methods, and definitions of the real after-tax rate of return invariably lead to the conclusion of a substantial interest elasticity of saving. The implications of this result for the analysis of the efficiency and equity of the current U.S. tax treatment of income from capital are explored. In reducing the real net rate of return, current tax treatment significantly retards capital accumulation. This in turn causes an enormous waste of resources and redistributes a substantial fraction of gross income from labor to capital. Rough estimates of the loss welfare exceed 50 billion per year (a present value close to 1 trillion!) and of the redistribution from labor to capital exceed one-seventh of the capitals share of gross Income.It also suggests that the usual calculations of tax burdens by income class substantially overestimate both the progressivity of the income tax and the alleged regressivity of consumption taxes.

Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income

I. Introduction, 589. — II. An optimal negative income tax model, 591. — III. The maximin criterion, 594. — IV. A utilitarian social objective, 597. — V. Conclusion, 598. Our theory … depends upon the validity of a single hypothesis, viz.: that the utility index is a function of relative rather than absolute consumption expenditure. — J. Duesenberry Income, Saving and the Theory of Consumer Behavior

Optimal Tax Treatment of the Family: Married Couples

This paper examines the appropriate tax treatment of the family in a series of analytical models and numerical examples. For a population of taxpaying couples which differ in earning capacity, we derive the optimal tax rates for each potential earner. These rates depend crucially upon own and cross labor supply elasticities and the joint distribution of wage rates. Our results suggest that the current system of income splitting in the United States, under which husbands and wives face equal marginal tax rates, is non-optimal. Using results from recent econometric studies, and allowing for a sensitivity analysis, the optimal tax rates on secondary workers in the family are much lower than those on primary earners. Indeed, our best estimate is that the secondary earner would face tax rates only one-half as high as primary earners.

A MARKOV MODEL OF TURNOVER IN AID TO FAMILIES WITH DEPENDENT CHILDREN

In order to gain some insight into turnover in the welfare population, a two-state (on and off welfare) Markov chain transition probability matrix is estimated with longitudinal data on welfare recipients coming on welfare in 1965. Results indicate that an enormous amount of turnover occurs in the welfare population and that the average duration of time on welfare per time on welfare is relatively modest for this group. Persons facing a wage below the minimum wage and/or high unemployment are less likely to leave welfare and more likely to return, likely to stay off for shorter periods and on for longer periods, and more likely to be on welfare than are those with low expected unemployment or wages above the minimum.

Estate taxation and charitable bequests

Abstract Charitable bequests in the United States amount to

Some Thoughts on Teaching Principles of Macroeconomics

2 billion annually and account for a substantial share of the total resources devoted to education, health, science, culture, welfare and religion. The amount and composition of such bequests are affected by the rate structure and deductibility of charitable bequests in the estate tax. A model of charitable bequests is estimated on data from the 1957–1959 Treasury Special Study and the 1969 Estate Tax returns. The price elasticity of charitable bequests is considerably greater than one for all but the very largest estates. Hence, the deduction is efficient in the sense of stimulating at least as much additional giving to charity as revenue lost by the Treasury. A variety of alternative policies are simulated. Those policies raising the price of charitable bequests will substantially curtail charitable bequests. This decrease will come almost exclusively at the expense of the education-science and health-welfare sectors.

Fiscal Policy for Economic Growth

Some suggestions are offered for making the macroeconomics principles course more relevant, timely, and effective.

From edgeworth to Vickrey to Mirrlees: The Vickrey Lecture

Its very simple says Michael Boskin – as he said in 1986, and he says again – “Too Many Promises.” Simple reforms to Social Security and a shift to premium based Medicare together with a broader tax base and lower tax rates is necessary – but so is critical investment.

Modern developments in public finance : essays in honor of Arnold Harberger

William VickreysAgenda for Progressive Taxation is perhaps his best-known work. It stands roughly half way between Edgeworth and Mirrlees, both historically and intellectually. Edgeworth argued that the optimal tax (and transfer) system equalized incomes by taxing above-average incomes at 100 percent and transferring the proceeds to those below average. Mirrlees argued optimality in the presence of disincentive effects, which Edgeworth ignored, placing severe limits on high tax rates. Vickrey proposed 21 tax reforms to make a practical system of personal progressive taxation workable. The two most famous were cumulative lifetime averaging and decreasing power succession taxes. This paper reviews the proposals in light of subsequent intellectual and historical developments. Many of the issues Vickrey explored are relevant today whether the tax system is flat or progressive and whether the base is income or consumption.

A Longer-term Perspective on Macroeconomics and Distribution: Time, Expectations, and Incentives

Weighted-average discount rates in public expenditure analysis - a generalization, Alan J. Auerbach the federal budget and deposit insurance - a suggested framework and comparison to current practice, Michael J. Boskin the welfare cost of social securitys impact on private saving, Martin Feldstein the welfare cost of resource taxation, Marc S. Robinson the wage-productivity hypothesis - its economic consequence and policy implications, Joseph S. Stiglitz the welfare cost of achieving progressivity in a VAT via exemptions, Charles Ballard and John Shoven taxation and the size and composition of the capital stock - an asset price approach, Lawrence H. Summers costs and consequences of the new protectionism - the case of Canadas clothing sector commercial policy for Panama in the 1980s, Larry A. Sjaastad.