The French National Research Agency selected the MIDDLECLASS project I coordinate for a 48-month grant. The team of economits @GATE – ENS DE LYON will collaborate with #Aix Marseille School of Economics and #CREST-Ecole Polytechnique. Looking forward to keeping you posted on our progress and findings!
My article “Marginal Deadweight Loss when the Income Tax is Nonlinear” joint with Sören Blomquist has been published in the Journal of Econometrics.
Most theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising because most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the proper procedure to calculate the marginal deadweight loss for variations in nonlinear income taxes, a common procedure has been to linearize the nonlinear budget constraint and apply methods that are correct for variations in a linear income tax. Such a procedure leads to incorrect results. The main purpose of this paper is to show how to correctly calculate the marginal deadweight loss when the income tax is nonlinear. A second purpose is to evaluate the bias in results that obtains when a linearization procedure is used. Our main theoretical result is that the overall curvature of the tax system plays the same role as the curvature of indifference curves for the size of the marginal deadweight loss. Using numerical simulations calibrated on US data, we show that common linearization procedures may lead to substantial overestimation of the marginal deadweight loss.
“Comment taxer et dépenser localement au XXIème siècle ?” In this lecture, I explain the challenges faced by current policies and introduce the tools and key mechanisms citizens and governments should keep in mind when thinking about income and wealth redistribution through taxation at the local level. Click here for the video.
This multi-disciplinary conference is sponsored by the Max Planck Institute for Tax Law and Public Finance, the Norwegian Centre for Taxation, and the University of Notre Dame. Notre Dame funding is provided by the Nanovic Institute for European Studies, Notre Dame International, and the Kellogg Institute for International Studies. Within this framework, I was invited to present my work “Income shifting as income creation? The intensive vs. extensive” (joint with Håkan Selin from IFAU, Sweden).