Taxation, match quality and social welfare

Brendan Epstein and Ryan Nunn

No 1079, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A large public finance literature argues that taxable income elasticities are a sufficient statistic for the social welfare consequences of taxation. We develop calibrations that show such deadweight loss calculations are overestimates proportional to the quantitative significance of heterogeneity in amenities across job matches. In particular, the endogenous supply of amenities can substantially exacerbate this overestimation in both static and dynamic environments. Given the possibility of gradual migration of workers into more amenity-focused job matches in response to tax increases, welfare calculations based on long-run taxable income elasticities can be more misleading than those based on short-run elasticities.

Date: 2013
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mig, nep-pbe and nep-pub
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1079

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