By Martin Feldstein
Those 13 papers and accompanying commentaries are the 1st culmination of an ongoing learn undertaking that has focused on constructing simulation types that include the behavioral responses of people and companies to replacement tax ideas and charges and on increasing computational normal equilibrium types that study the long-run results of alterations at the economic climate as a whole.The crucial concentration of the undertaking has been at the microsimulation of person habit. hence, this quantity contains reports of person responses to an over relief in tax charges and to alterations within the maximum tax premiums; a research of different tax remedies of the kinfolk; and reports of such particular elements of family habit as tax therapy of domestic possession, charitable contributions, and person saving habit. Microsimulation options also are used to estimate the consequences of different guidelines at the long-run monetary prestige of the social safeguard software and to envision the results of different tax ideas on company funding and of foreign-source source of revenue on in a foreign country investment.The papers dedicated to the improvement of basic equilibrium simulation types to incorporate an exam of the consequences of foreign alternate and capital flows, a examine of the consequences of capital taxation that makes use of a closed economic climate equilibrium version, and an exam of the impression of switching to an inflation-indexed tax approach. within the volume's ultimate paper, a life-cycle version within which participants maximize lifetime software topic to an entire life price range constraint is used to simulate the consequences of tax principles on own reductions.
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Extra info for Behavioral Simulation Methods in Tax Policy Analysis (National Bureau of Economic Research Project Report)
3b) 19. This includes own and cross wage effects. e. her earnings exceed the husband's, the wife's labor supply is assumed to be perfectly inelastic, as is the husband's. 20. See, for example, Heckman et al. (1979, pp. IHausman (1980) also finds a small wage effect but a fairly substantial income effect. 21. Clearly, this procedure cannot be implemented for noriworkers. For these individuals, the following ad hoc procedure is used: calculate the aver age H, w ,and A members of the individual's AGI group who work between 0 and 100 hours per year.
The residual is due entirely to error in the prediction of the wife’s earnings, since the husband’s earnings are taken as given. The tax revenue under a new hypothesized regime (step 11) is taken to be the predicted revenue-based on the model and the new tax code-plus a term equal to the error ui in prediction of the baseline revenue. Although the authors take this to be an unbiased estimate, it is unbiased only if the entire residual is taken to represent a fixed effect with respect to alternative tax regimes.
Setting up a useful general equilibrium model in this context currently appears infeasible. g. Fullerton, Shoven, and Whalley 1978). 4. What about macroeconomic considerations? The previous question concerned how much the gross wage might change if people desired to work more hours; here it is asked whether the hours could be absorbed by the economy at all. It is beyond the scope of this paper to develop a complete macroeconomic model of the employment effects associated with tax reform. Similarly, ~' we have made no attempt to assess how the macroeconomic feedbacks due to changing tax revenues might affect our substantive results.