Tax Day Post

Via the twitter of Garett Jones, comes a presentation on the economics of taxation... by Garett Jones.

Here are some of the more interesting points on the impacts of taxation (Comments in parenthesis are mine):
  • On a micro basis, taxes influence the decision to work or not to work, not the amount of hours worked.
  • Married women are one of the more marginal groups of worked that are more impacted by changing incentives to work.
  • Older workers might respond to tax incentives by retiring earlier (Whether or not this is particularly important for the aging developed world depends on if the workers have saved enough to comfortably retire)
  • The choice to work taxable jobs vs. less-taxable jobs such as waiters
  • Low earnings respond to income incentives more than average earners.
  • Capital taxes hurt workers in the long run (But as we saw with health care reform, they are politically popular!).
  • The rich do respond by working different amount, by switching between different types of careers such as high stress vs low stress, investing vs wage labor, etc.
  • Economists prefer a consumption tax, which may lead to 0.2% faster growth rate with is a little more than a 10% larger economy over 50 years. Some economists think that this will increase the growth rate by 0.5% and lead to an economy that is over 25% larger over 50 years.
It is worth noting that the presentation seems to be more focused on micro studies. There has been some debate in the blogosphere about whether or not tax rates explain the difference in work hours between the United States and Europe. Most of the studies that Jones cited in his presentation are micro studies that follow people over time rather than macro labor supply elasticity measurements such as this one by Edward C. Prescott (Although the point about married women being a group of marginal workers is also referenced in Prescott's paper, but this is because he is looking at a change in tax treatment to two worker households between 1970-1974 and 1993-1996).