R-3 Repository :: Browsing by Author "Zodrow, George R."

Browsing by Author "Zodrow, George R."

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Balancing act: weighing the factors affecting the taxation of capital income in a small open economy
(Springer, 2016) McKeehan, Margaret K.; Zodrow, George R.; Baker Institute
Alternative economic theories yield dramatically different prescriptions for optimal capital taxation in small open economies. On the one hand, foreign firms, including those with investments that yield firm-specific above-normal returns, have a large number of alternative investment opportunities; this suggests that the supply of foreign direct investment is highly elastic, which implies that small open economies should avoid imposing any source-based taxes on capital income. On the other hand, governments invariably want to tax any above-normal returns earned by location-specific capital, especially if the returns accrue to foreigners, and to take full advantage of the potential revenue increase from any “treasury transfer” effect that arises due to residence-based tax systems with foreign tax credits, such as that utilized by the USA. These factors suggest that investment is highly inelastic with respect to capital taxation, so that source-based capital income taxation is desirable; indeed, in one special case, the capital income tax rate for a small open economy should equal the relatively high US tax rate. Moreover, this difficult trade-off is in practice complicated by numerous additional factors: deferral of unrepatriated profits and cross-crediting of foreign tax credits for the US multinationals, foreign direct investment from firms from countries that, unlike the USA, operate territorial systems, and the existence of opportunities for both international capital income shifting and labor income shifting. In this paper, we analyze optimal capital income taxation in a small open economy model that attempts to balance these conflicting factors.
Capital Mobility and Capital Tax Competition
(James A. Baker III Institute for Public Policy, 2009) Zodrow, George R.; James A. Baker III Institute for Public Policy
Competition in Business Taxes and Public Services: Are Production-Based Taxes Superior to Capital Taxes?
(National Tax Association, 2015) Gugl, Elisabeth; Zodrow, George R.; Baker Institute for Public Policy
Although most of the tax competition literature focuses on the provision of local public services to households, several papers analyze tax competition when capital taxes are used to finance local public services provided to businesses, examining the conditions under which such services are provided efficiently, under-provided, or over-provided. In addition, several prominent observers have noted that “benefit-related” business taxation is desirable on both efficiency and equity grounds and argued that such taxation should take the form of a tax based on production, such as an origin-based value-added tax. We evaluate this contention in this paper, comparing the relative efficiency properties of these alternative business taxes. Our simulation results suggest that under many, but not all, circumstances it is more efficient to finance business public services with an origin-based production tax rather than a source-based capital tax.
Computable General Equilibrium Modeling of Tax Reform in New Zealand
(2012) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Consumption-Based Direct Taxes: A Guided Tour of the Amusement Park
(James A. Baker III Institute for Public Policy, 2007) McLure, Charles E. Jr.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Although consumption-based direct taxation has long been advocated in academic and policy circles, very few countries have actually implemented such taxes. This article provides an overview of alternative approaches to direct consumption taxation and examines arguments favoring consumption taxes over income taxes. It then describes and analyzes efforts at “fundamental tax reform” involving replacing an income tax with a consumption tax in both the United States and several developing countries and countries in transition from socialism in which the authors have been involved. This paper is a preliminary version of a paper that is forthcoming in the journal FinanzArchiv. The paper was originally presented at a conference on “Alternative Methods of Taxing Individuals,” Andrew Young School of Policy Studies, International Studies Program, Georgia State University, Atlanta, Georgia, June 8-9, 2006.
Dynamic Estimates of the Macroeconomic Effects of the House Republican Tax Reform Blueprint
(2018) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Essays on the taxation of capital income
(1996) Aemkulwat, Chairat; Zodrow, George R.
This dissertation consists of three essays on the taxation of capital income. The first essay examines the effects of the interactions of home and host country tax provisions on capital investment decisions by a U.S. multinational before and after a capital-importing country switches from a conventional corporate income tax to a consumption-based business cash flow tax. The analysis considers the cases in which the U.S. deems the cash flow tax to be creditable, non-creditable or partially creditable. In addition, two methods of implementing a consumption-based business tax are considered--the R-base and the R+F-base--and the importance of the firm's choices between local debt finance and parent multinational finance is analyzed. A numerical application considers the case in which a U.S. multinational invests in Thailand. The second essay examines the incidence of a general and a classified property tax, using an n-community, two-sector, three-factor general equilibrium model in which residents are assumed to benefit from property taxation. The government distributes residential tax revenues so that a worker, a capitalist or a landlord receives benefits equal to the amount of housing tax paid, and distributes commercial property tax revenues such that either each resident receives equal benefits, or only workers receive equal benefits. Aggregate welfare depends on labor population and most of the tax burden is borne by the individuals whose resources are taxed. The third essay provides a review of the literature on the optimal taxation of capital income in a small open economy setting and of the econometric evidence that examines the effects of taxation on business location decisions. Theoretical analyses generally suggest that the optimal tax on capital income is zero, although there are some exceptions. Various explanations of why capital may not be perfectly mobile are also discussed. In the econometric review, it is argued that if the tax has a negative effect on business location measures, the small open economy assumption is to some extent a valid proposition. The essay argues that this assumption is a valid one.
Essays on wealth distribution and tax reform
(2007) Tung, Joyce Chia-Hsing; Zodrow, George R.; Mieszkowski, Peter; Diamond, John W.
The first essay applies a panel approach to investigate household wealth accumulation and distribution across lifetime income groups for all existing cohorts. Differentiating lifetime income groups with self-reported wages from the Panel Study of Income Dynamics and imputing missing pension values with multiple-imputation procedure improves previous estimates of lifetime wealth profiles. The findings suggest a very wide dispersion in the distribution of accumulated wealth both across and within lifetime earnings groups. The second essay reviews different methods of modeling the foreign sector and assesses the ways in which the estimated effects of a fundamental tax reform might be altered when different specifications of the foreign sector are utilized. The last essay employs a dynamic overlapping-generations lifecycle computable general equilibrium (LC-CGE) model to evaluate various macroeconomic effects of a Flat Tax reform in a large open economy setting. Simulation results indicate the welfare gains of a Flat Tax reform in a large open economy are about 15-20 percent larger than in a closed economy model with similar structural settings and parameter values. Access to international capital market provides an additional channel through which the domestic economy can expand its capital stock and investment. Also, potential declines in the values of the two non-corporate non-housing sectors during transition could be significant.
Evaluation of a consumption tax reform in a dynamic simulation model
(2000) Johnson, Craig E.; Zodrow, George R.
In this dissertation, I develop a dynamic general equilibrium simulation model with overlapping generations divided into 12 lifetime income groups to examine the economic effects of replacing the current U.S. federal personal and corporate income tax system with a broad-based consumption tax. This model extends previous research in a number of directions; in particular, it models tax-deferred assets explicitly and allows for progressive capital income tax rates. The results indicate that the inclusion of tax-deferred assets favorably affects the welfare of the oldest generations at the time of reform in middle and upper income groups. In addition, the consumption tax reform is more regressive in the transition and steady-state with the explicit inclusion of tax-deferred assets when compared to a base case where the taxation of pensions is modeled as a flat rate consumption tax. Allowing capital tax rates to vary progressively across the 12 income groups has the expected effect of increasing welfare gains to upper income groups during the transition and steady-state, while reducing the welfare of lower income groups. This dissertation also examines the importance of wage profiles and bequests on consumption tax reform-induced welfare changes. Age-wage profiles estimated from the Panel Study of Income Dynamics greatly improve previous estimates. Wage profiles from a sample consisting only of heads of households leads to a wider distribution in income earned across the lifetime income groups compared to a sample that includes wives, and thus a larger variance in the distribution of welfare changes induced by a consumption tax reform. Bequests are a significant determinant of welfare changes only for elderly households alive at the time of reform.
Fiscal Imbalance in the United States: Where Do We Stand?
(James A. Baker III Institute for Public Policy, 2015) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Fundamental Tax Reform: Then and Now
(James A. Baker III Institute for Public Policy, 2011) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Housing and non-housing asset values under a consumption tax reform: A general equilibrium analysis
(2000) Diamond, John William; Zodrow, George R.
This study focuses on two potential problems that often arise in the discussions of the feasibility of consumption tax reform: (1) the potential negative effect of a consumption tax reform on the value of owner-occupied housing, and (2) the tendency of such a reform to impose a one-time windfall loss on the owners of existing capital other than owner-occupied housing. The results suggest that the reform-induced one-time windfall tax on the owners of existing assets tends to be overstated in models that do not explicitly account for owner-occupied housing. The study also suggests that the potential decline in the value of owner-occupied housing could be significant, approximately 10 percent of the total value of owner-occupied housing, immediately after reform. However, the value of owner-occupied housing is likely to rebound during the transition, resulting in significant increases in the value of owner-occupied housing in the long run.
Income Variability: Effects on U.S. Income Inequality and Tax Progressivity
(2012-09-05) Splinter, David; Zodrow, George R.; Diamond, John W.; Narajabad, Borghan N.; Ostdiek, Barbara
Income variability explains a significant fraction of the increase in annual income inequality. Chapter 1 considers the impact of variability on tax unit inequality. Using income tax return panel data, I estimate that between a tenth and a quarter of the increase in top one percent income shares between the early 1980s and 2000s was caused by variability. Increased income variability over this period resulted from mean-reverting fluctuations in the bottom quintile and top one percent. Variability in the top of the distribution seems partly driven by permanent income shifting in response to the Tax Reform Act of 1986. Chapter 2 examines the individual earnings distribution. Using Social Security Administration earnings panel data, I estimate that variability explains half of the increase in annual inequality in the bottom half of the distribution between 1973 and 1985. When workers with years of zero earnings are included, increasing earnings variability explains almost all of this group's increase in inequality. The increase in earnings variability appears to be explained by an increased fraction of working age men with years of zero earnings. Annual individual earnings inequality in the bottom half of the distribution not only increased with variability in the 1970s and 1980s, but also fell with variability in the 1950s and early 1960s. This suggests that the U-shaped trend in income inequality observed over these four decades was partly caused by first a fall and then a rise in earnings variability. Between 1985 and 2000, falling variability caused most of the decline in annual earnings inequality within the bottom half of the distribution. Within the top of the distribution, earnings inequality increased over this period because of changes in permanent earnings and not increasing variability. Income variability means that in a progressive tax system annual and lifetime federal tax rates can diverge. Chapter 3 shows that on an annual basis, those at the bottom of the distribution pay little or no federal income taxes, while on a lifetime basis they pay average tax rates about five percentage points higher. Income variability also means there is a trade-off between vertical and horizontal equity.
Intrajurisdictional capitalization and the incidence of the property tax
(2014) Zodrow, George R.; James A. Baker III Institute for Public Policy
Two views dominate the debate about property tax incidence — the “capital tax” or “new” view, under which the tax distorts capital allocation and is borne primarily by capital owners, and the “benefit tax” view, under which the tax is an efficient user charge. Evidence of both interjurisdictional and intrajurisdictional capitalization of property taxes and public services has been argued to provide compelling evidence for the benefit tax view. This paper focuses on the latter — the intra-jurisdictional capitalization effects that underlie what is arguably the most plausible derivation of the benefit tax view of the property tax. The analysis provides a model in which the capital reallocations that characterize the capital tax view induce intrajurisdictional capitalization effects that are generally similar — indeed, in the benchmark case, identical — to those that arise under the benefit tax view, suggesting that empirical evidence supporting such capitalization effects cannot distinguish between the two views. In addition, the analysis shows that these capitalization effects imply that even under the stringent assumptions of the benefit view, the property tax is not a benefit tax for a property-tax-financed increase in local public services; rather, it only becomes a benefit tax for future home purchasers — after the modeled intrajurisdictional capitalization effects occur.
Modeling U.S. and Foreign Multinationals in an OLG-CGE Model
(James A. Baker III Institute for Public Policy, 2015) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Moving Forward with Tax Reform
(2013) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
A New Search-and-Matching Computable General Equilibrium Model: Progressive Consumption Taxation and Unemployment Equilibrium Effects on Growth, Unemployment, and Incidence
(2017-04-21) Del Carpio Neyra, Victor; Zodrow, George R.
I simulate the effects of the enactment of two comprehensive consumption-based tax reforms in the United States - a Hall-Rabushka style flat tax, and the Bradford X-tax. My analysis includes a search and matching model for unemployment in the labor market with endogenous wage bargaining. I examine the long-run economic effects of these reforms, including those in the labor market, as well as the distributional effects on twelve different income groups. In this context, a reform-induced wage reduction that reduces the incentive to work could nevertheless create jobs. However, it may also affect disproportionately the welfare of lower-income groups.
Pillars of Public Finance
(James A. Baker III Institute for Public Policy, 2009) Zodrow, George R.; James A. Baker III Institute for Public Policy
Promoting Growth, Maintaining Progressivity, and Dealing with the Fiscal Crisis CGE Simulations of a Temporary VAT Used for Debt Reduction
(2013) Diamond, John W.; Zodrow, George R.; James A. Baker III Institute for Public Policy
Trade-offs between economic efficiency, growth, and distributional equity permeate economics, including discussions of tax policy and tax reform. Computable general equilibrium (CGE) modeling is one tool that is often used to estimate the magnitudes of the variables that determine the efficiency, growth, and equity properties of alternative tax reforms. In this article, we report the results of simulations of a CGE model that examines the economic and distributional effects of the enactment in the United States of a temporary value-added tax used to reduce the level of the national debt. The results suggest that such a reform is generally moderately progressive both for cohorts alive at the time of reform and for future generations, at least within the context of lifetime measures of tax burden, and that current middle-aged and elderly generations must bear a burden to confer a gain, relative to the status quo, on younger and future generations.
Promoting Growth, Maintaining Progressivity, and Dealing with the Fiscal Crisis: CGE Simulations of a Temporary VAT Used for Debt Reduction
(Sage, 2013) Diamond, John W.; Zodrow, George R.; Tax and Expenditure Policy Program, Baker Institute for Public Policy
Trade-offs between economic efficiency, growth, and distributional equity permeate economics, including discussions of tax policy and tax reform. Computable general equilibrium (CGE) modeling is one tool that is often used to estimate the magnitudes of the variables that determine the efficiency, growth, and equity properties of alternative tax reforms. In this article, we report the results of simulations of a CGE model that examines the economic and distributional effects of the enactment in the United States of a temporary value-added tax used to reduce the level of the national debt. The results suggest that such a reform is generally moderately progressive both for cohorts alive at the time of reform and for future generations, at least within the context of lifetime measures of tax burden, and that current middle-aged and elderly generations must bear a burden to confer a gain, relative to the status quo, on younger and future generations.

Browsing by Author "Zodrow, George R."

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