Behavioral Responses to Taxation and Social Insurance Programs

Article excerpt

An NBER-Universities Research Conference on "Behavioral Responses to Taxation and Social Insurance Programs" took place in Cambridge on December 8-9. Organizers Raj Chetty and Emmanuel Saez, both of NBER and University of California, Berkeley, chose these papers for discussion:

Anton Korinek, Columbia University, and Joseph E. Stiglitz, Columbia University and NBER, "Dividend Taxation and Intertemporal Tax Arbitrage"

Discussant: James M. Poterba, MIT and NBER

John D. Wilson, Michigan State University, and Joel B. Slemrod, University of Michigan and NBER, "Tax Competition with Parasitic Tax Havens"

Discussant: James R. Hines, University of Michigan and NBER

Jennifer Huang, University of Texas at Austin; Gene Amromin, Federal Reserve Bank of Chicago; and Clemens Sialm, University of Michigan and NBER, "The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings"

Discussant: Brigitte Madrian, Harvard University and NBER

Nicole Maestas, RAND Corporation, and Dana Goldman, NBER and RAND Corporation, "Medical Expenditure Risk and Household Portfolio Choice"

Discussant: Amy Finkelstein, MIT and NBER

James P. Ziliak, University of Kentucky, "Taxes, Transfers, and the Labor Supply of Single Mothers"

Discussant: Bradley Helm, Department of the Treasury

Anil Kumar, Federal Reserve Bank of Dallas, and Gary V. Engelhardt, Syracuse University, "Employer Matching and 401(k) Saving: Evidence from the Health and Retirement Study"

Discussant: John Karl Scholz, University of Wisconsin, Madison and NBER

Adam Looney, Federal Reserve Board, "Trading Tax Benefits for Child Support"

Discussant: Melissa Kearney, The Brookings Institution and NBER

Dean Karlan, Yale University, and John A. List, NBER and University of Chicago, "Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment"

Discussant: Lise Vesterlund, University of Pittsburgh

Korinek and Stiglitz develop a lifecycle model of the firm to analyze the effects of dividend tax policy on aggregate investment. They find that new firms raise less equity and invest less the higher the level of dividend taxes, in accordance with the traditional view of dividend taxation. However, the dividend tax rate is irrelevant for the investment decisions of internally growing and mature firms, as postulated by the new view of dividend taxation. Since aggregate investment is dominated by these latter two categories, the level of dividend taxation, as well as unanticipated changes in dividend tax rates, have only a minor impact on aggregate investment and output. Anticipated dividend tax changes, on the other hand, allow firms to engage in inter-temporal tax arbitrage so as to reduce investors' tax burden. This can significantly distort aggregate investment. Anticipated tax cuts (increases) delay (accelerate) firms' dividend payments, which leads them to hold higher (lower) cash balances and, for capital constrained firms, can significantly increase (decrease) aggregate investment for periods after the tax change. Furthermore, the authors show that the analysis of dividend taxation in a contestable democracy has to take into account expectations about future regime changes and the ensuing dividend tax changes. This can significantly change the evaluation of a given dividend tax policy.

Slemrod and Wilson develop a tax competition framework in which some jurisdictions, called tax havens, are parasitic on the revenues of other countries. The havens use real resources to help companies camouflage their home-country tax avoidance, and countries use resources in an attempt to limit the transfer of tax revenues to the havens. The equilibrium price for this service depends on the demand and supply for such protection. Recognizing that taxes on wage income are also evaded, the authors solve for the equilibrium tax rates on mobile capital and immobile labor, and demonstrate that the full or partial elimination of tax havens would improve welfare in non-haven countries, in part because countries would be induced to increase their tax rates, which they have set at inefficiently low levels in an attempt to attract mobile capital. …