The Welfare Cost of Uncertain Tax Policy / Jonathan S. Skinner.

By:

Skinner, Jonathan S

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1947.Publication details: Cambridge, Mass. National Bureau of Economic Research 1986.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

Online resources:

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Abstract: Frequent shifts in tax policy can increase uncertainty about futureAbstract: net-of-tax wages and interest income. This paper measures the impact ofAbstract: uncertain tax policy on savings, labor supply, and welfare in the UnitedAbstract: States. A vector autoregression model with six variables was estimatedAbstract: which found the standard error of the one-year-ahead forecast for the wageAbstract: tax to be 1.8 percentage points, and for the interest income tax 3.3Abstract: percentage points. Furthermore, the negative correlation betweenAbstract: unanticipated shifts in the real interest rate and changes in the interestAbstract: income tax amplifies the variability in the real after-tax return.Abstract: A two-period model of consumption and labor supply is developed thatAbstract: measures the effect of uncertain taxes on savings, work hours, and taxpayerAbstract: welfare. Using plausible empirical parameters, it is shown that removingAbstract: all uncertainty about future tax policy can lead to a welfare gain of 0.4Abstract: percent of national income, or about 12 billion dollars in 1985.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w1947 (Browse shelf(Opens below))	Not For Loan

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June 1986.

Frequent shifts in tax policy can increase uncertainty about future

net-of-tax wages and interest income. This paper measures the impact of

uncertain tax policy on savings, labor supply, and welfare in the United

States. A vector autoregression model with six variables was estimated

which found the standard error of the one-year-ahead forecast for the wage

tax to be 1.8 percentage points, and for the interest income tax 3.3

percentage points. Furthermore, the negative correlation between

unanticipated shifts in the real interest rate and changes in the interest

income tax amplifies the variability in the real after-tax return.

A two-period model of consumption and labor supply is developed that

measures the effect of uncertain taxes on savings, work hours, and taxpayer

welfare. Using plausible empirical parameters, it is shown that removing

all uncertainty about future tax policy can lead to a welfare gain of 0.4

percent of national income, or about 12 billion dollars in 1985.

Hardcopy version available to institutional subscribers

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