DOCSLIB.ORG

Consumption Behavior of German Households

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Consumption Behavior of German Households Intertemporal and Intratemporal Household Consumption Allocation – Empirical Analysis and Policy Reform Simulation based on German Microdata INAUGURAL-DISSERTATION zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaft (doctor rerum politicarum) des Fachbereichs Wirtschaftswissenschaft der Freien Universität Berlin vorgelegt von Diplom-Volkswirt Martin Beznoska Berlin, 2013 Erstgutachter: Prof. Viktor Steiner, Freie Universität Berlin Zweitgutachter: Prof. Frank Fossen, Freie Universität Berlin Tag der Disputation: 25. Oktober 2013 Intertemporal and Intratemporal Household Consumption Allocation – Empirical Analysis and Policy Reform Simulation based on German Microdata Thesis Acknowledgements First of all, I would like to thank my principle supervisor, Viktor Steiner, who encouraged me to write a doctoral thesis and continuously supported me. While writing my thesis, I have benefited a lot from his thoughtful suggestions and the inspiring and motivating discussions we had. I would also like to thank my second supervisor, Frank Fossen, for writing the secondary report and for the helpful comments in several seminars at Freie Universität Berlin. I would also like to especially thank my co-author Richard Ochmann for the great collab- oration on our two papers (Chapter1 and Chapter2) and his continuous support and help covering all kinds of challenges of scientific work. I learned a lot from him and benefited from his LATEX skills. I also want to thank him for reading major parts of this thesis, giving helpful comments and correcting language mistakes. I had the opportunity to write my doctoral thesis as a research associate in the public economics department of DIW Berlin. I would like to thank all members of the department for helpful comments, the support and the motivating atmosphere during all stages of my work. My special thank goes to Peter Haan, the head of the department. I am grateful to him for his intense support and for being always available for discussion. Another special thank goes to Stefan Bach for the interesting collaboration on policy consulting projects, which were very instructive experiences. Moreover, I profited very much from his acquisition of project funding. Throughout my work at DIW Berlin and FU Berlin I benefited from discussions with my colleagues: Hermann Buslei, Ronny Freier, Johannes Geyer, Luke Haywood, Daniel Kempt- ner, Holger Lüthen, Kai-Uwe Müller, Davud Rostam-Afschar, Erika Schulz, Martin Simmler, Johanna Storck, Natasha Volodina and Katharina Wrohlich. I am also grateful to Nicole Haase for always helping me in administrative issues, to Adam Lederer who corrected lan- guage mistakes and to the IT department of DIW Berlin for providing the great research infrastructure. Supply of the EVS and the LWR data by the Federal Statistical Office (Statistisches Bundesamt) via scientific use file or research data center (Forschungsdatenzentrum) is also gratefully acknowledged. I would like to thank the whole team of the Forschungsdatenzentrum iii iv and especially Matthias Klumpe for the support and commitment of providing the data. Last but not least, I want to thank Christoph Strangfeld for long and intensive discussions about economics, as well as Matthias Manhertz for reading parts of this thesis and correcting language mistakes. I would also like to thank my brother and my parents for the support during the whole time. Contents Preface 1 1 The Consumption-Savings Decision in the Short-Run9 1.1 Introduction.....................................9 1.2 The Model...................................... 13 1.2.1 Consumption and Savings in a Demand Context............. 14 1.3 Empirical Strategy................................. 17 1.3.1 Definition of Consumption and Savings.................. 17 1.3.2 Estimation.................................. 18 1.3.3 Quantile Regressions............................ 19 1.4 Data and Descriptive Evidence on Household Consumption........... 20 1.4.1 Data and Simulation of the Tax Rate................... 20 1.4.2 Descriptive Micro Evidence on Household Consumption......... 21 1.5 Results........................................ 23 1.6 Conclusion...................................... 30 1.7 Appendix - Data and Definition of Income and Savings............. 32 1.7.1 Data..................................... 32 1.7.2 Treatment of Durables........................... 32 1.7.3 Definition of Income and Savings..................... 33 1.7.4 Imputation of Wealth............................ 34 1.8 Appendix - A Module of Income Taxation.................... 36 1.9 Appendix - Interest Rate Elasticity........................ 44 1.10 Appendix - Results................................. 45 2 Consumption over the Life Cycle - The Relevance of Liquidity Constraints 49 2.1 Introduction..................................... 49 2.2 The Model...................................... 52 2.2.1 The Income Process and the Consumption Growth Equation...... 53 v CONTENTS vi 2.2.2 The Excess Sensitivity Test........................ 55 2.2.3 The Switching Regression Approach.................... 56 2.3 Data and Descriptive Evidence.......................... 58 2.3.1 Data..................................... 58 2.3.2 Construction of the Pseudo-Panel..................... 59 2.3.3 Descriptives................................. 60 2.4 Results........................................ 61 2.4.1 Results for the Income Process...................... 62 2.4.2 Results for the Shock Model........................ 63 2.4.3 Results for the Excess Sensitivity Test.................. 68 2.5 Conclusion...................................... 70 2.6 Appendix - Results................................. 72 3 A Demand System of Energy, Mobility and Leisure 79 3.1 Introduction..................................... 79 3.2 A Demand System Involving Leisure....................... 81 3.3 Data and Empirical Strategy............................ 84 3.3.1 Lewbel Prices................................ 84 3.3.2 Data Issues and the Constructing of the Commodity "Leisure"..... 85 3.3.3 Estimation.................................. 86 3.3.4 Combining the Extensive and Intensive Elasticities of Leisure...... 92 3.4 Descriptive Evidence................................ 93 3.5 Results........................................ 98 3.6 Interim Conclusion................................. 109 3.7 The Incidence of the Green Taxes on Gasoline and Diesel in Germany..... 110 3.8 Data for the Microsimulation........................... 111 3.9 Results from the Distributional and Welfare Analysis.............. 112 3.10 Conclusion...................................... 116 3.11 Appendix - Descriptives.............................. 118 3.11.1 Distribution of the Simulated Marginal Tax Rates............ 118 3.11.2 Distributions of the Hours Worked by Year and Subsample....... 120 3.12 Appendix - Results................................. 122 3.12.1 Heckman Wage Equations......................... 122 3.12.2 Discrete Choice Participation Model and Demand System Estimation - Parameters.............. 125 3.12.3 Demand System Estimation - Uncompensated Elasticities....... 131 CONTENTS vii General Conclusions 133 List of Tables 139 List of Figures 143 Bibliography 154 Summary 155 German Summary 159 Preface Motivation Since 2000, an increasing inequality of incomes and wealth, as well as frequently appearing global macroeconomic turbulences have put no longer considered research questions back on the agenda.1 In times of volatile financial markets and income and a growing inequality, questions about the welfare of people and of the economy gain importance. Volatility and a trend of increasing concentrations at the tails of the welfare distribution yielded a rethinking in economic research and fiscal policy. The theory of Keynes(1936) got a comeback as a guideline for stabilization policy in terms of the crisis. In micro analysis, welfare economists are searching for new ways to define true economic wealth and to measure the wealth of people and distributional analyses as well as economically efficient and sophisticated methods of redistribution are of interest among economists. Furthermore, increased public debt and deficits due to the financial crisis in 2008 and the lasting Euro crisis force governments in Europe and the United States to increase the public revenue. The thesis at hand focuses on several issues regarding the consumption behavior of private households. The contributions of this dissertation have micro- and macroeconomic perspec- tives and implications relating to intertemporal consumption and the taxation of consumption goods. Due to increased public debt and deficits, the value-added tax (VAT) is seen as a cost- efficient instrument to raise the public revenue (see e.g. Alt, 1983) and there is a shift in the relevance for the public budget from income taxation toward this tax over the last decades in Germany. Though, recent studies on the tax incidence of the VAT find a regressive distri- butional effect, which means that the poorest individuals face the highest relative tax burden compared to their net income (see e.g. Ochmann, Bach, and Beznoska, 2012). Besides the value-added tax, there are other commodity taxes that became popular in the last years, for instance taxes on polluting goods in the course of a rising environmental awareness in the 1See for the evolution of income concentration Bach, Corneo, and Steiner(2009), and for an estimated wealth distribution Bach, Beznoska, and Steiner(2013), which both studies consider the case of Germany. 1 PREFACE
Load more

Recommended publications
  • SHOULD WE TAX UNHEALTHY FOODS and DRINKS? Donald Marron, Maeve Gearing, and John Iselin December 2015
    SHOULD WE TAX UNHEALTHY FOODS AND DRINKS? Donald Marron, Maeve Gearing, and John Iselin December 2015 Donald Marron is director of economic policy initiatives and Institute fellow at the Urban Institute, Maeve Gearing is a research associate at the Urban Institute, and John Iselin is a research assistant at the Urban-Brookings Tax Policy Center. The authors thank Laudan Aron, Kyle Caswell, Philip Cook, Stan Dorn, Lisa Dubay, William Gale, Genevieve Kenney, Adele Morris, Eric Toder, and Elaine Waxman for helpful comments and conversations; Joseph Rosenberg for running the Tax Policy Center model; Cindy Zheng for research assistance; Elizabeth Forney for editing; and Joanna Teitelbaum for formatting. This report was funded by the Laura and John Arnold Foundation. We thank our funders, who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to our funders, the Urban-Brookings Tax Policy Center, the Urban Institute, or its trustees. Funders do not determine our research findings or the insights and recommendations of our experts. For more information on our funding principles, go to urban.org/support. TAX POLICY CENTER | URBAN INSTITUTE & BROOKINGS INSTITUTION EXECUTIVE SUMMARY A healthy diet is essential to a long and vibrant life. But there is increasing evidence that our diets are not as healthy as we would like. Obesity, diabetes, hypertension, and other conditions linked to what we eat and drink are major challenges globally. By some estimates, obesity alone may be responsible for almost 3 million deaths each year and some $2 trillion in medical costs and lost productivity (Dobbs et al.
    [Show full text]
  • Paying for Government in South Carolina: a Citizen's Guide
    P Paying for Government in South Carolina A Citizen’s Guide by Holley Hewitt Ulbrich Ada Louise Steirer June 2003 Strom Thurmond Institute of Government and Public Affairs Clemson University Funded by the R.C. Edwards Endowment and the Office of the President Contents ◗ Before You Read This Booklet . Three ◗ The Ideal Revenue System . Five ◗ Answering Tax Questions . Eight ◗ State Sales and Use Taxes . Ten ◗ Local Sales Taxes . Twelve ◗ State and Local Excise Taxes . Fourteen ◗ Local Property Taxes . Sixteen ◗ State Income Tax . Nineteen ◗ Fees and Charges . Twenty-one ◗ What Can a Citizen Do? . Twenty-three About the Authors Dr. Ulbrich is Alumna Professor Emerita of Economics at Clemson University and Senior Fellow of the Strom Thurmond Institute. She has written extensively about tax policy. Ms. Steirer is a research associate in community and economic development at the Institute. Both have experience as elected and appointed officials. The views presented here are not necessarily those of the Strom Thurmond Institute of Government and Public Affairs or of Clemson University. The Institute sponsors research and public service programs to enhance civic awareness of public policy issues and improve the quality of national, state, and local government. The Institute, a public service activity of Clemson University, is a nonprofit, nonpartisan, tax-exempt public policy research organization. Before You Read This Booklet the purpose ◗ This booklet has been written to help citizens of South Carolina understand how their state and local tax system works and why we use the revenue sources we do. Understanding how the system works may not change how you feel about taxes.
    [Show full text]
  • WHO, WHAT, HOW and WHY Fact Sheet
    Ta x , Super+You. Take Control. Years 7-12 Tax 101 Activity 2 WHO, WHAT, HOW AND WHY Fact sheet How do we work out what is a fair amount of tax to pay? • Is it fair that everyone, regardless of Different types of taxes affect their income and expenses, should taxpayers in different ways. pay the same amount of tax? • Is it fair if those who earn the most pay the most tax? • What is a fair amount of tax TYPES OF TAXES AND CHARGES for people who use community resources? Taxes can only be collected if a law has been passed to permit their collection. The Commonwealth of Australia Constitution Act established a federal system of government when it created TAX STRUCTURES the nation of Australia in 1901. It distributes law-making powers between the national government and the states and territories. There are three tax structures used in Australia: Each level of government imposes different types of taxes and Proportional taxes: the same percentage is levied, charges. During World War II the Australian Government took regardless of the level of income. Company tax is a over all responsibilities for income tax and it has remained the proportional tax as the same rate applies for all companies, major source of federal tax revenue ever since. regardless of the profit earned. Progressive taxes: the higher the income, the higher the Levels of government and their taxes percentage of tax paid. Income tax for individuals is a Federal progressive tax. State or territory Local (Australian/Commonwealth) Regressive taxes: the same dollar amount of tax is paid, regardless of the level of income.
    [Show full text]
  • Hakelberg Rixen End of Neoliberal Tax Policy
    Is Neoliberalism Still Spreading? The Impact of International Cooperation on Capital Taxation Lukas Hakelberg and Thomas Rixen Freie Universität Berlin Ihnestr. 22 14195 Berlin, Germany E.mail: [email protected] and [email protected] Postprint. Please cite as: Hakelberg, L. and T. Rixen (2020). "Is neoliberalism still spreading? The impact of international cooperation on capital taxation." Review of International Political Economy. https://doi.org/10.1080/09692290.2020.1752769 Acknowledgments Leo Ahrens, Fulya Apaydin, Frank Bandau, Benjamin Braun, Benjamin Faude, Valeska Gerstung, Leonard Geyer, Matthias vom Hau, Steffen Hurka, Friederike Kelle, Christoph Knill, Simon Linder, Daniel Mertens, Richard Murphy, Sol Picciotto, Nils Redeker, Max Schaub, Yves Steinebach, Alexandros Tokhi, Frank Borge Wietzke, Michael Zürn and other participants at the ECPR General Conference in Oslo 2017, the IBEI Research Seminar and Workshop ‘Pol- icy-Making in Hard Times’ in Barcelona in 2017, the Conference of the German Political Sci- ence Association’s (DVPW) Political Economy Section in Darmstadt 2018, the Tax Justice Network’s Annual Conference 2018 in Lima and the Global Governance Colloquium at the Social Science Research Center Berlin (WZB) in May 2019 as well as three anonymous re- viewers provided very helpful comments and suggestions. We thank all of them. Is Neoliberalism Still Spreading? The Impact of International Cooperation on Capital Taxation Abstract The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates diverged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance.
    [Show full text]
  • SUGARY DRINK TAXES: How a Sugary Drink Tax Can Benefit Rhode Island
    SUGARY DRINK TAXES: how a sugary drink tax can benefit Rhode Island As of now, seven cities across the nation have successfully implemented sugar-sweetened beverage (SSB) taxes, also known as sugary drink taxes. Evaluations of these taxes not only show the important health benefits of adopting this tax but shed light on the best strategies for implementation of this policy. Below are some valuable findings from the cities that have implemented SSB taxes and how this data can be used to implement the tax in Rhode Island. How do SSB taxes impact health? Currently, SSBs are the leading source of added sugar in the American diet and there is extensive evidence showing an association between these beverages and an increased risk of type 2 diabetes, cardiovascular disease, dental caries, osteoporosis, and obesity.1 Yet, multiple cities that have implemented the SSB tax have seen downward trends in the consumption of SSBs that could lead to improved health outcomes and greater healthcare savings.1 Three years after implementing the tax, Berkeley saw a 50% average decline in SSB consumption with an increase in water consumption. Similarly, in Philadelphia, the probability of consuming regular soda fell by 25% and the intake of water rose by 44% only six months after the tax was effective.2 Philadelphia adults who typically consumed one regular soda per day before the tax transitioned to drinking soda every three days after the tax.2 This shift in behavior has very important health implications; SSB taxes are linked with a significant reduction in the incidence of cardiovascular diseases and with a decrease in BMI and body weight.
    [Show full text]
  • Environmental Taxes and Equity Concerns: a European Perspective
    Environmental taxes and equity concerns: A European perspective Background paper prepared for the Spring Alliance conference “Go green, be social” Lucas Chancel Simon Ilse This document contains three sections and an annex: The first section summarizes the main issues at stake when considering energy-climate tax policies from a social point of view. è This section shows that environmental tax reforms and social progress should not be opposed. Policy tools to neutralize short run negative social effects of carbon taxes exist and in the long run, carbon taxes can have positive social impacts. The second section presents a tale of three European countries; it briefly illustrates challenges faced and opportunities seized by each one of them when trying to implement carbon-energy tax reforms over the past twenty years. è This section shows that countries which included carbon taxes in wider fiscal reform packages, included into wider energy transition packages were successful at integrating environmental, social and economic objectives. The third section discusses options and tools for EU policy makers in order to help Member States pursue fair energy transition pathways. è This section shows that EU level policy instruments, such as the European Semester, can help give general directions for fair energy transitions. But the subsidiarity principle should apply and policy instruments used to protect vulnerable actors should remain at the national, or sub-national level (regions, communities). The annex presents EU Semester recommendations on environmental fiscal reforms for the 27 Member States. The authors would like to thank Paulus Arnoldus, Malgorzata Kicia, Manfred Rosenstock, Emmanuel Combet, the Social Platform Secretariat, Constanze Adolf, Diane Strauss and the participants of the Spring Alliance Conference for their precious comments.
    [Show full text]
  • On the Road to Heaven: Self-Selection, Religion, and Socioeconomic Status
    13-04 On the Road to Heaven: Self-Selection, Religion, and Socioeconomic Status Mohamed Saleh ON THE ROAD TO HEAVEN: SELF-SELECTION, RELIGION, AND SOCIOECONOMIC STATUS* Mohamed Saleh† (August 28, 2013) Abstract The correlation between religion and socioeconomic status is observed throughout the world. In the Middle East, local non-Muslims are, on average, better off than the Muslim majority. I trace the origins of the phenomenon in Egypt to a historical process of self-selection across religions, which was induced by an economic incentive: the imposition of the poll tax on non-Muslims upon the Islamic Conquest of the then-Coptic Christian Egypt in 640. The tax, which remained until 1856, led to the conversion of poor Copts to Islam to avoid paying the tax, and to the shrinking of Copts to a better off minority. Using a sample of men of rural origin from the 1848- 68 census manuscripts, I find that districts with historically stricter poll tax enforcement (measured by Arab immigration to Egypt in 640-900), and/or lower attachment to Coptic Christianity before 640 (measured by the legendary route of the Holy Family), have fewer, yet better off, Copts in 1848-68. Combining historical narratives with a dataset on occupations and religion in 640-1517 from the Arabic Papyrology Database, and a dataset on Coptic churches and monasteries in 1200 and 1500 from medieval sources, I demonstrate that the cross-district findings reflect the persistence of the Copts’ initial occupational shift, towards white-collar jobs, and spatial shift, towards the Nile Valley. Both shifts occurred in 640-900, where most conversions to Islam took place, and where the poll tax burden peaked.
    [Show full text]
  • International Trade Policy That Works for U.S. Workers
    Washington Center for Equitable Growth | equitablegrowth.org 54 International trade policy that works for U.S. workers By Kimberly A. Clausing, Reed College Overview International trade comes with many benefits for Americans. It lowers the cost and increases the variety of our consumer purchases. It benefits work- ers who make exports, as well as those who rely on imports as key inputs in their work. It helps fuel innovation, competition, and economic growth. And it helps strengthen international partnerships that are crucial for addressing global policy problems. Yet trade also poses risks. Because the United States is a country with large amounts of capital and a highly educated workforce, we tend to specialize in products that use those key resources intensively. That’s why we export complex products such as software, airplanes, and Hollywood movies. Yet we import products that reduce demand for our less-educated labor be- cause countries with lower wages are able to make labor-intensive products more competitively. As a consequence, international trade has harmed many U.S. workers by lowering demand for their labor. Studies find that increased imports, par- ticularly those from China during the early 2000s, displaced more than 1 million U.S. workers.1 There is no evidence that particular trade agreements, such as the North American Free Trade Agreement, or NAFTA, created any- where near so much displacement, yet many U.S. workers are also skeptical of trade agreements, which they associate with poor labor market out- comes in the U.S. economy over prior decades.2 Indeed, since 1980, the U.S.
    [Show full text]
  • Restructure Tax Codes One Pager
    A Progressive Restructuring of All Tax Codes at the Local, State, and Federal Levels to Ensure a Radical and Sustainable Redistribution of Wealth What is the problem? ● There is a desperate need to replace the current practice of collecting revenue in regressive ways with a more just system for collecting taxes. ● Across the United States, there are major political obstacles to raising any kind of revenue, along with a false perception of who pays and how this has changed over time. ● As with most injustices in our economic and political systems, regressive taxation has hit Black people, low­income people, and people of color the hardest. ● Many municipalities have increasingly decreased the use of progressive taxation and instead resorted to privatization and new fees and higher sales taxes in order to maintain bare­boned public infrastructure with minimal social support. As a result, residents are being forced to pay more for public services like trash collection, access to water, sewage, public property maintenance, and parking meters. ● Across the country, low­income people, disproportionately Black and other people of color, pay proportionally more in state and local taxes than the wealthy: In the ten states with the most regressive tax structures, the poorest fifth pay up to seven times as much in state and local taxes and fees as the wealthiest residents, as a percentage of their income. ● The wealth gap between white and Black households keeps growing, with the average white family now owning over 7.5 times as much wealth as the average Black family. Tax breaks for homeowners, retirement savings, employer­sponsored health insurance, and capital gains contribute to widening this gap.
    [Show full text]
  • Tax Policies for Inclusive Growth in a Changing World │ 1
    TAX POLICIES FOR INCLUSIVE GROWTH IN A CHANGING WORLD │ 1 Tax policies for inclusive growth in a changing world OECD report to G-20 Finance Ministers and Central Bank Governors, July 2018 Executive Summary Globalisation and technological change, including digitalisation and advances in automation, have generated substantial increases in quality of life for many households, and have reduced poverty rates in many emerging economies. Global integration, new technology and flexible work arrangements create benefits for society and offer significant opportunities to improve well-being. Consumers face a wider range of consumption goods of higher quality at cheaper prices. Flexible work arrangements can provide workers with opportunities to better reconcile work and broader life priorities across the life-cycle. Equally, businesses face increased opportunities to innovate and sell their goods and services to a global market. While these changes have resulted in increased incomes and increased opportunities, these benefits have not been shared equally. Despite recent improvements in economic performance, many economies continue to experience low productivity growth and often stagnating wages, as well as increased levels of inequality. Moreover, technological changes may shift labour demand towards jobs that will require greater use of cognitive skills for which many workers are not currently adequately trained. This may lead to increased gaps in wages, access to stable and secure work and life opportunities between those with high, medium and low skills. New technologies may also facilitate the rise of non-standard employment and the “gig economy”, challenging traditional work arrangements and social protection systems. These factors may further exacerbate inequality. Policymakers face challenges in simultaneously addressing the problems of low productivity growth and rising inequality.
    [Show full text]
  • On the Road to Heaven: Taxation, Conversions, and the Coptic-Muslim Socioeconomic Gap in Medieval Egypt∗
    On the Road to Heaven: Taxation, Conversions, and the Coptic-Muslim Socioeconomic Gap in Medieval Egypt∗ Mohamed Salehy October 26, 2016 Abstract Self-selection of converts is an under-studied explanation of inter-religion socioe- conomic status (SES) differences. Inspired by this conjecture, I trace the Coptic- Muslim SES gap in Egypt to self-selection-on-SES during Egypt's conversion from Coptic Christianity to Islam. Selection was driven by a poll tax on Copts, imposed from 641 until 1856. I hypothesize that taxation caused Copts to shrink into a better-off minority and induced non-converts to invest more in human capital lead- ing the initial selection to perpetuate. Using novel data, I document that high-tax districts in 641-1100 had in 1848-1868 relatively fewer Copts but greater SES and human-capital investment differentials. Keywords: conversion; self-selection; discriminatory taxation; inter-group inequal- ity in human capital JEL Classification: N35; O15 Word count: 13,668 ∗The current version of the article replaces previous working-paper versions (Toulouse School of Economics Working Paper No. 13-428) entitled: \On the Road to Heaven: Self-Selection, Religion, and Socioeconomic Status," and dated August 28, 2013 and December 22, 2015. yThe author is an assistant professor at Toulouse School of Economics and Institute for Advanced Study in Toulouse, Manufacture des Tabacs, 21 All´eede Brienne, Building F, Office MF 524, Toulouse Cedex 6, F - 31015, FRANCE, [email protected]. I thank my advisors, Dora Costa, Leah Bous- tan, and Jeffrey Nugent for their advice and support. I am grateful to Jean Tirole and Yassine Lefouili for very useful discussions.
    [Show full text]
  • Taxing Wealth 89
    Taxing Wealth 89 Taxing Wealth Greg Leiserson, Washington Center for Equitable Growth Abstract The U.S. income tax does a poor job of taxing the income from wealth. This chapter details four approaches to reforming the taxation of wealth, each of which is calibrated to raise approximately $3 trillion over the next decade. Approach 1 is a 2 percent annual wealth tax above $25 million ($12.5 million for individual filers). Approach 2 is a 2 percent annual wealth tax with realization-based taxation of non-traded assets for taxpayers with more than $25 million ($12.5 million for individual filers). Approach 3 is accrual taxation of investment income at ordinary tax rates for taxpayers with more than $16.5 million in gross assets ($8.25 million for individual filers). And Approach 4 is accrual taxation at ordinary tax rates with realization-based taxation of non-traded assets for those with more than $16.5 million in gross assets ($8.25 million for individual filers). Under both the realization-based wealth tax and the realization-based accrual tax, the tax paid upon realization would be computed in a manner designed to eliminate the benefits of deferral. As a result, all four approaches would address the fundamental weakness of the existing income tax when it comes to taxing investment income: allowing taxpayers to defer paying tax on investment gains until assets are sold at no cost. Introduction In fiscal year 2019 the federal government collected revenues equal to 16.3 percent of GDP, well below the 17.4 percent average of the prior 50 years (Congressional Budget Office [CBO] 2019b).
    [Show full text]