TY  - JOUR
AU  - Fullerton,Don
AU  - Gan,Li
TI  - A Simulation-Based Welfare Loss Calculation for Labor Taxes with Piecewise-Linear Budgets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10139
PY  - 2003
Y2  - December 2003
UR  - http://www.nber.org/papers/w10139
L1  - http://www.nber.org/papers/w10139.pdf
N1  - Author contact info:
Don Fullerton
Department of Finance
University of Illinois
BIF Box#30 (MC520)
515 East Gregory Drive
Champaign, IL  61820
Tel: 217/244-3621
Fax: 217/244-3102
E-Mail: dfullert@illinois.edu

Li Gan
Department of Economics
Texas A&M University
College Station, TX 77843-4228
Tel: 979/862-1667
Fax: 979/847-8747
E-Mail: gan@econmail.tamu.edu
AB  - Graduated income tax rates and transfer programs create piecewise-linear budget constraints that consist of budget segments and kink points. With any change in these tax rules, each individual may switch between a kink point and a budget segment, between two budget segments, or between two kink points. With errors in the estimated labor supply equation, the new choice is uncertain, and so the welfare effects of a tax change are uncertain. We propose a simulation-based method to compute expected welfare effects that is easy to implement and that fully accounts for uncertainties about choices around kink points. Our method also provides information about expected changes in working hours.
ER  -