The Welfare Cost of Uncertain Tax Policy / Jonathan S. Skinner.

Format:

Book

Author/Creator:

Skinner, Jonathan S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1947.

NBER working paper series no. w1947

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

Frequent shifts in tax policy can increase uncertainty about future

net-of-tax wages and interest income. This paper measures the impact of

uncertain tax policy on savings, labor supply, and welfare in the United

States. A vector autoregression model with six variables was estimated

which found the standard error of the one-year-ahead forecast for the wage

tax to be 1.8 percentage points, and for the interest income tax 3.3

percentage points. Furthermore, the negative correlation between

unanticipated shifts in the real interest rate and changes in the interest

income tax amplifies the variability in the real after-tax return.

A two-period model of consumption and labor supply is developed that

measures the effect of uncertain taxes on savings, work hours, and taxpayer

welfare. Using plausible empirical parameters, it is shown that removing

all uncertainty about future tax policy can lead to a welfare gain of 0.4

percent of national income, or about 12 billion dollars in 1985.

Notes:

Print version record

June 1986.