Tax Policy and the Economy. (Conferences)

NBER Reporter, Winter 2002 | Go to article overview

Tax Policy and the Economy. (Conferences)


The NBER's Seventeenth Annual Conference on Tax Policy and the Economy, organized by James M. Poterba of NBER and MIT, took place in Washington, DC on October 8. These papers were discussed:

David Figlio, NBER and University of Florida, "Fiscal Implications of School Accountability Initiatives"

Edward Glaeser, NBER and Harvard University, and Jesse Shapiro, Harvard University, "The Benefits of the Home Mortgage Interest Deduction"

Matthew D. Shapiro and Joel B. Slemrod, NBER and University of Michigan, "Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys"

Jagdeesh Gokhale, Federal Reserve Bank of Cleveland, and Laurence J. Kotlikoff, NBER and Boston University, "Who Gets Paid to Save?"

Julie H. Collins and Douglas A. Shackelford, NBER and University of North Carolina, "Do U.S. Multinational Face Different Tax Burdens than Other Companies?"

Mihir Desai, NBER and Harvard University, "The Corporate Profit Base, Tax Sheltering Activity, and the Changing Nature of Employee Compensation" (NBER Working Paper No. 8866)

The No Child Left Behind Act of 2001 established new national rules for school accountability, requiring mandated testing of all students in grades three through eight, mandated state grading of schools, and provided financial rewards and sanctions for schools based on their aggregate test performance. Figlio describes some of the key direct and indirect fiscal consequences of school accountability systems, focusing particularly on this new federal law. His analysis of the direct consequences suggests that the federal law likely will offset, perhaps considerably, school equalization systems in some states. The indirect fiscal consequences may exacerbate the effects of the direct fiscal consequences, because school accountability systems likely have effects on the classification (and attendant costs) of disabled students, as well as on input prices and on the property tax base.

Glaeser and Shapiro study the home mortgage interest deduction which creates incentives to buy more housing and to become a homeowner. The case for the deduction rests on the social benefits from housing consumption and homeownership. But there is little evidence of large externalities from the level of housing consumption, although there appear to be externalities from homeownership. The externalities from living around homeowners are far too small to justify the deduction. The externalities from home ownership itself are larger, but the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership because it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time-series data which show that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.

In 2001, many households received rebate checks as advance payments of the benefit of the new, 10 percent federal income tax bracket. A survey conducted at the rime the rebates were mailed finds that few households said that the rebate led them to (mostly) spend more. A follow-up survey in 2002, as well as a similar survey conducted after the attacks of 9/11, also indicates low spending rates. Shapiro and Slemrod investigate the robustness of these survey responses and evaluate whether such surveys are useful for policy evaluation. They also draw lessons from the surveys for macroeconomic analysis of the tax rebate.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) greatly expands the limits on contributions to tax-deductible accounts, including 401(k), 403b, Keogh, and traditional IRA plans. It also raises the limit on contributions to non-tax-deductible Roth IRAs.

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