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Author
Title Essays on income taxation and idiosyncratic risk.
URL
Publication Date
Degree PhD
Discipline/Department Economics
Degree Level doctoral
University/Publisher University of Iowa
Abstract I study the role of heterogeneity and idiosyncratic risk in Macroeconomics, and their implications on problems of income taxation. In the first chapter, I study the effects of redistributive taxation in an incomplete market economy with heterogeneous agents and idiosyncratic risk. I focus on the role of distortions in labor supply decisions and the interplay of heterogeneity and uninsurable idiosyncratic shocks, conducting the first general equilibrium analysis of a Negative Income Tax (NIT). I show that a NIT is a serious candidate to replace the current income tax in the United States. I find that the optimal NIT has a marginal tax rate of 28% and a transfer of 10% of per capita GDP, roughly $4600. The welfare gains of replacing the current US income tax with a NIT are equivalent to a 6.3% increase in annual consumption in every state of the world. Low-ability agents, in the bottom quintile of the productivity distribution, benefit the most, while high-ability agents are worse off. A consequence of the reform is that the composition of the labor force changes, with high-productivity agents working more, in relative terms, than low-productivity agents. Finally, I find that the riskier the economy, the higher the welfare gains of the NIT as a provider of public insurance. In the second chapter, I study labor income dynamics over the life cycle and introduce a novel methodology that can detect the presence of patterns in the idiosyncratic earnings shocks and recognize economic forces in action. Using a sample from the Panel Study of Income Dynamics (PSID), I estimate a Bayesian Logistic Smoothed Transition Autoregressive model of order 1 (LSTAR(1)) with a rich level of heterogeneity in the innovations. I find that there is a life-cycle pattern in the earning shocks: before the age 29, young workers experience shocks with higher variance and a positive probability of lower persistence than older workers. A comparison with conventional models shows that an incorrect model specification introduces bias in the estimates. The proposed model can be easily approximated with a discrete Markov process. This means that this model can be used by macroeconomists to calibrate income processes.
Subjects/Keywords Distribution; Efficiency; Income Processes; Income Tax; Negative Income Tax; Nonlinear Time-Series Models; Economics
Contributors Ventura, Gustavo (supervisor)
Language en
Country of Publication us
Format application/pdf
Record ID oai:ir.uiowa.edu:etd-3400
Repository iowa
Date Retrieved
Date Indexed 2020-02-25
Grantor University of Iowa
Issued Date 2012-07-01 07:00:00

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…and uninsurable idiosyncratic shocks, conducting the first general equilibrium analysis of a Negative Income Tax (NIT). I show that a NIT is a serious candidate to replace the current income tax in the United States. I find that the optimal…

…NIT has a marginal tax rate of 28% and a transfer of 10% of per capita GDP, roughly $4600. The welfare gains of replacing the current US income tax with a NIT are equivalent to a 6.3% increase in annual consumption in every state of the world. Low…

…xi CHAPTER 1 THE MACROECONOMIC EFFECTS OF A NEGATIVE INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 . . . . . . . . . . . . . . . . . . . . . . . 1 5 7 8 9 10 10 12 14 16 16 17 17 18 19 21 22 28 36 36 38 41…

…x29;. . . . . . . . . . . . . . . . . 89 2.16 Posterior distribution of the precision g in a LSTAR(1). . . . . . . . . . . 90 xii 1 CHAPTER 1 THE MACROECONOMIC EFFECTS OF A NEGATIVE INCOME TAX 1.1 Introduction There has been a…

…continuous demand for a reform of the U.S. Federal income tax, and numerous reform proposals have been floated. Some, like the flat tax (Hall and Rabushka, 1985), sank, while others did not—e.g., the significant reduction of marginal tax rates that…

…took place in the 1980s. This study focuses on a particular reform proposal, the Negative Income Tax1 (NIT; M. Friedman, 1962), and for the first time carries out the quantitative analysis of the tax in a general equilibrium setting. A NIT…

…x28;$2000/0.2) pay no taxes and receive a positive net transfer (negative tax). As income increases, the effect of the transfer declines. Under the NIT, all households have a guaranteed minimum income. In this chapter, I ask the…

…following questions: What are the general equilibrium effects of replacing the actual income tax with a NIT? Specifically, what are the macroeconomic effects on income and earnings, labor supply, savings and welfare? 1 There was a failed attempt to…

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