NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Welfare Cost of Uncertain Tax Policy

Jonathan S. Skinner

NBER Working Paper No. 1947
Issued in June 1986
NBER Program(s):   PE

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.

download in pdf format
   (227 K)

download in djvu format
   (167 K)

email paper

This paper is available as PDF (227 K) or DjVu (167 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1947

Published: Journal of Public Economics, November 1988, vol. 37, pp. 129-145. citation courtesy of

 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us