No.9

3 4 4 5 6 9 9 13 15 15 17 21 23 27 31 2

1990 95 3

1 1 65 1 50 50 1 (2000) 4

1989 2 20% 26% 90 1 2 89 12 5 95 3 94 96 98 99 5 4 50 4 1 3 5 700 1,200 40 1,000 2 87 70% 15 60% 12 89 50% 5 3 95 1 4 90 2 5 5

6 7 8 9 1 4 1 4 78 5 84 10.5 70 15 3 78 80 90 80 6 (2000a) 7 (1999) 8 (2000) 9 (2000) (2000) (1999) 6

80 90 90 10 1 5 90 98 6.6 11.7 13.3 9.3 5.0 11 98 22.8 5 40 98 42.1 41.6 97 65.4 55.9 90 5 1 6 12 5 1 7 1,000 2,000 10 11 (2000a) 3 12 4 7

5,000 8

13 14 70 2 1 1,000 1,000 70 74 15 80 87 89 90 94 95 90 13 (2000a) 14 15 bracket creep 9

80 90 90 90 2 2 2 500 1,000 2,000 90 94 95 500 90 2,000 90 70 2 3 70 74 80 87 89 95 98 91 100 90 2 4 10

(1995) 300 400 18.6 900 1,000 72.9 1,000 (1995) 16 2 5 89 94 99 17 500 800 89 94 99 800 800 2 5 800 800 1 89 99 2,000 90 16 1.3 17 (2000) 11

0 18 2 6 90 90 19 90 0.06 0.07 95 0.05 95 2 7 20 95 2 7 95 95 5 90 95 2 7 95 2 7 10 18 19 20 12

90 80 2 8) 2 9 45 55 30 2 9 65 30 45 30 90 2 9 45 2 13

99 2 10 20 24 6.3% 55 60 14.6 35 44 100 14

deadweight loss 1995 21 p E P A P B A D O c C C D P C C ACOE ACOP APE 21 Stiglitz (1988) Feldstein (1999) 15

22 P P C C AA P P A BPP AA B 2 2 1 net of tax share Feldstein (1999) 2 23 Harberger (1964) 2.5% Feldstein (1999) 1 2 Lindsey (1987) Feldstein (1995a, b) Feldstein-Feenberg (1995) Carroll (1998) Auten-Carroll (1999) 24 tax avoidance 22 No.7 23 24 5 16

25 95 95 30 1,000 1,800 15 95 94 96 96 94 B A* A g* g 25 Feldstein (1999) 17

B A g B A* B g* g g* g g* 2 DID: differences-in-differences treatment group control group 2 B b A a B A G b a g G G g g 2 26 26 18

95 27 3 1 1 0.074 1 28 0.074 1 0.17 Feldstein (1999) 95 0.074 96 3 2 95 12 95 29 Feldstein 95 Feldstein-Feenberg (1995) 0.74 Auten-Carroll (1999) 0.6 Lindsey (1987) 1.58 Carroll (1998) 0.4 4 30 3 3 3 2.6 31 27 95 treatment group 28 1 29 2.4 1.4 1.0 0.6 30 5 31 19

32 2 5 2% 8% 5 8 2 2 8 3 3 4 5 19.2 16.0 21.5 32 20

1990 95 80 90 80 3 95 5 1 0.03 5 1.9 80 95 95 21

1 0.17 95 12 12 95 22

(1999) 99 6. (1995) vol.31, No.2. (1995) 1940 2. (2001) mimeo. 2000. (1987a) 6. (1987b) 12. (1997) Dec.1997. (1993). (1986) 8. (1991) 91 1. (2000) 4. (1998). (1997). (1997) 1997. (1997) 52 15. (1998). (2001). (1995). (1983) ESP 83 6. 23

(1984) Autumn 1984. (1991). (1995) 1995. (1999). (2001), DP/01-4. (1989). (2000) 21. (1995) TSP 2. Auerbach, A. and D. Feenberg (2000), The Significance of Federal Taxes as Automatic Stabilizers, NBER Working Paper 7662, April 2000. Auten, G. and R. Carroll (1999), The Effect of Income Taxes on Household Income, Review of Economics and Statistics 81 4, Nov. 1999. Bosworth, B. and G. Burtless (1992), Effects of Tax Reform on Labor Supply, Investment, and Saving, Journal of Economic Perspectives, Vol.5 No.1. Carroll, R. (1998), Do Taxpayers Really Respond to Changes in Tax Rates? Evidence from the 1993 Tax Act, U.S. Department of the Treasury, OTA Working Paper 79, Nov. 1998. Dalsgaard, T. and M. Kawagoe (2000), The Tax System in Japan: A Need for Comprehensive Reform OECD, Economics Department Working Papers No.231 Duncan, A. and C. Giles (1996), Labour Supply Incentives and Recent Family Credit Reforms, Economic Journal 106, Jan. 1996. Eissa, N. (1995), Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment, NBER Working Paper 5023, Feb. 1995. Eissa, N. and J. Liebman (1996), Labor Supply Response to the Earned Income Tax Credit, Quarterly Journal of Economics, May 1996. Eissa, N. and H. Hoynes (1998), The Earned Income Tax Credit and the Labor Supply of Married Couples, NBER Working Paper 6856, Dec. 1998. Feenberg, D. and E. Coutts (1993), An Introduction to the TAXSIM Model, Journal of Analysis and Management, vol.12, No.1. Feldstein, M. (1995a), The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act, Journal of Political Economy, vol.103, No.3. Feldstein, M. (1995b), Behavioral Responses to Tax Rates: Evidence from the Tax Reform Act of 1986, American Economic Review, Papers and Proceedings, vol.85. No.2 revision of NBER Working Paper 4496, Oct. 1993. 24

Feldstein, M. (1999), Tax Avoidance and the Dead Weight Loss of the Income Tax, Review of Economics and Statistics 81 4, Nov. 1999 revision of NBER Working Paper 5055, March 1995. Feldstein, M. and D. Feenberg (1995), The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases, NBER Working Paper 5370, Nov. 1995. Greene, W. (2000), Econometric Analysis, 4 th ed., Prentice-Hall. Harberger, A. (1964), Taxation, Resource Allocation, and Welfare in J. Due ed. The Role of Direct and Indirect Taxes in the Federal Revenue System (conference report), Princeton University Press. Heckman, J. (1979), Sample Selection Bias as a Specification Error, Econometrica, vol.47, No.1. Hotz, V. and J. Scholz (2000), The Earned Income Tax Credit, prepared for the NBER Conference on Means-Tested Transfers (May 11-12 2000). Lindsey, L. (1987), Individual Taxpayer Response to Tax Cuts: 1982-1984 With Implication for Revenue Maximizing Tax Rate, Journal of Public Economics 33. Meyer, B. and D. Rosenbaum (1999), Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers, NBER Working Paper 7363, Sep. 1999. Moffitt, R. and M. Wilhelm (1998), Taxation and the Labor Supply Decisions of the Affluent, NBER Working Paper 6621, June 1998. Scholz, J. (1996), In-work Benefits in the United States: the Earned Income Tax Credit, Economic Journal 106, Jan. 1996. Slemrod, J. (1995) High-income Families and the Tax Changes of the 1980s: the Anatomy of Behavioral Response NBER Working Paper No.5218, Aug. 1995. Stiglitz, J. (1988), Economics of the Public Sector, 2 nd ed.. (1988). (1998) 6. (1999) 2. (2000) 13 2000 9. (1995) 7 1995 6 (1993) 1993 11 (2000a) 21 25

2000 7. (2000b) 16 2000 4. (2000c) 5. (2001) 6. (2001) 2001 6. Inland Revenue (2000), Your Guide to Working Families Tax Credit: For employees and the self-employed (leaflet), Aug. 2000. IRS (2000), Earned Income Credit EIC : For use in preparing 2000 returns, (catalog) Publication 596, Internal Revenue Office, U.S. Department of the Treasury. 26

(2001) 1995 33 95 34 35 38 135 141 (2001) 2 33 (2001) 34 95 2 27

(2001) 4 1 1 0.12 0.10 (2001) 90.0 84.1 6.0 38.5 40.9 2.4 8.4 95 25.2 90.1 115.3 28

29 95 3

30

35 p G p 0 + E A p 0 E B A D O F C C 0 -dc C 0 D 36 AA B 0.5 dc 2 37 35 Stiglitz (1988) Feldstein (1999) 36 37 R DWL DWL 1 τ = εc c: R 2 p 0 31

DWL C C 2 1 τ DWL = ε C C 1 2 1 τ t TI T t 1 t Feldstein 1999 38 2 1 t DWL = 2 1 t ε T TI 2 1 t dti = TI d t (1 ) comp 3 T 39 38 39 Lindsey (1987) 32

95 96 94 aging differences-in-differences differences-in-differences treatment group treatment group control group 2 Treatment group TItb TIta e TIta gta e gta ttb tta tta Control group TIcb TIca e TIca gca e gca tc tc tc treatment group ttb tta TItb TIta gta TIta e 33

gta e gta gta gta e TIta<TIta e ttb tta 1 ttb gta/ ttb tta 1 ttb gta gta e / ttb tta differences-in-differences treatment group treatment group control group control group TIca e TIca control group treatment group T 1 ttb [ gta gta e (gca gca e )] ttb tta 40 T uncompensated elasticity compensated elasticity T dtave dti = (1 t) 4 d (1 t) dy 20 60 94 95 96 97 96 94 5 2 96 40 control group tcb tca 1 ttb [ gta gta e (gtc gtc e )] [ ttb tta tcb tca ] T 34

94 96 Treatment Group 95 600 900,1000 1800,2000 3000 Control Group 0 300,330 600 t Treatment Group 26.6% 24.5%) T (4) T dti dy Feldstein-Feenberg (1995) 0.37 ( ave T Feldstein (1999) 95 2 tb ta DWL = 1 2 t 2 a t 1 t 2 b b ε TI 5 T T 96 95 1000 1500,1500 2000,2000 2500 3 Feldstein-Feenberg (1995) Auten-Carroll (1999) Lindsey (1987) Carroll (1998) ta tb 35

Feldstein-Feenberg Auten-Carroll Lindsey Carroll 1995 1999 1987 1998 e 0.074 0.74 0.6 1.58 0.4 ta(100 ) 1000 1500 0.44 0.29 0.35 0.44 0.20 1500 2000 0.51 0.36 0.45 0.51 0.30 2000 2500 0.49 0.34 0.45 0.49 0.30 tb(100 ) 1000 1500 0.52 0.37 0.45 0.52 0.30 1500 2000 0.60 0.45 0.55 0.60 0.40 2000 2500 0.58 0.43 0.55 0.58 0.40 TI( ) 1000 1500 130,299 130,299 130,299 130,299 130,299 1500 2000 37,220 37,220 37,220 37,220 37,220 2000 2500 15,716 15,716 15,716 15,716 15,716 1000 1500-772 -4,022-5,686-16,431-1,861 1500 2000-329 -1,741-2,481-6,996-868 2000 2500-137 -722-1,048-2,906-367 -1,237-6,485-9,215-26,333-3,097 41 5 3 2000 2000 41 Feldstein (1999) 36

2000 e 0.074 700-8% 700-2% -5 700-2% 700-8% tb(100 ) 200 0.31 ta(100 ) 200 0.26 0.23 0.29 300 0.31 300 0.26 0.23 0.29 400 0.31 400 0.26 0.23 0.29 500 0.31 500 0.26 0.23 0.29 600 0.36 600 0.31 0.28 0.34 700 0.36 700 0.31 0.28 0.34 800 0.45 800 0.40 0.43 0.37 900 0.43 900 0.38 0.41 0.35 1000 0.42 1000 0.37 0.40 0.34 1500 0.44 1500 0.39 0.42 0.36 2000 0.50 2000 0.45 0.48 0.42 2500 0.55 2500 0.50 0.53 0.47 2500 0.53 2500 0.48 0.51 0.45 TI( ) 200 9,822 200 15 23 6 300 45,602 300 71 108 30 400 87,523 400 137 207 58 500 100,983 500 158 239 66 600 95,445 600 189 288 79 700 80,865 700 156 238 65 800 74,727 800 212 88 327 900 64,306 900 172 72 266 1000 49,582 1000 127 53 196 1500 128,506 1500 347 144 535 2000 42,686 2000 152 63 236 2500 15,749 2500 69 29 108 2500 28,980 2500 117 48 182 824,777 1,922 1,600 2,153 41,239 41,710 40,768 37