Essays on the Effects of Taxation.

Abstract

This dissertation focuses on under-explored impacts of taxation, including how it influences the behavior of individuals, the interaction between firms and workers, and the economy as a whole. In the three essays, I test theoretical predictions through empirical analyses, from both micro and a macro perspectives and using disparate methodologies as required by the disparate problems I address.

The first essay examines the Savers Credit, which is a tax credit given to low and middle income households for contributing to a retirement savings plan. I assess the response resulting from the policys incentive structure gauged through misreported income, and I test whether the policy was effective in achieving its goal of increasing retirement contributions. I find that individuals indeed responded to the policy's unintended incentive to misreport income. On the other hand, individuals failed to increase retirement contributions on the margin.

The second essay, co-written with Matthew Rutledge, analyzes whether changes made to marginal tax rates affect pre-tax wage rates. We formally test this assumption by focusing on the Tax Reform Act of 1986, which, most notably, made large changes to the personal income tax. We find that changes in net-of-tax rates are negatively associated with pre-tax wage rates. Our empirical analysis explores how taxes can affect the wage rates offered to workers, and fails to support the claim that pre-tax wage rates are invariant to changes in marginal tax rates.

The third essay, co-written with Brendan Epstein, studies the role that taxes play in determining aggregate labor hours. Past studies have explained differences in labor hours per population across countries by looking at differences in effective tax rates. Our study provides additional insight on this topic by showing that the standard neoclassical model with taxes is a better predictor of hours per worker rather than hours per population due to its inability to capture changes in employment. We then develop a model that incorporates this insight and find that our model accounts for a larger fraction of aggregate data on hours per worker than the standard neoclassical model with taxes.