Incidence of capital income taxation in a lifecycle economy with firm heterogeneity

TTPI Working Paper 1/2021

Authors: Chung Tran & Sebastian Wende

We study the incidence of capital income taxation in a dynamic general equilibrium model with heterogeneous firms and lifecycle households. In this incomplete market setting, marginal excess burdens of three capital taxes, namely corporate income, dividend and capital gains taxes, are vastly different due to heterogeneous responses of firms and households, and heterogeneous effects of general equilibrium adjustments. Overall, taxing capital with a corporate income tax at the firm level results in higher excess burden than taxing capital with dividend and capital gains taxes at the household level. Given the salient features of the 2013 U.S. tax system, reforms that shift tax burden from the firm to household side potentially result in aggregate efficiency gains and overall welfare improving. However, the welfare benefits of these tax reforms are quite different across households and generations over transition, depending on skill type, age-cohort and government budget balancing rule. Thus, our findings highlight the importance of accounting for firm and household heterogeneity when analyzing the aggregate and distributional effects of capital income taxation.

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Escaping the long arm of the law? Racial disparities in the effect of drivers’ licence suspensions of offence probabilities

TTPI Working Paper 2/2021

Authors: Sian Mughan & Joanna Carroll

This paper studies the unintended consequences of failure-to-pay (FTP) driver’s license suspensions. Unlike other traffic enforcement papers which focus on the public benefit to increases in enforcement we focus on the private returns. Drawing on a unique administrative dataset and institutional features that result in as-good-as random assignment of FTP suspension we estimate the effect of these suspensions on the probability a driver receives additional tickets. We find that financial penalties and FTP suspensions reduce the probability of reoffence for White drivers. However, among Black drivers’ financial penalties have no effect and FTP suspension increases the probability of reoffence by six to nine percentage points. A series of additional analyses fail to produce evidence of racial differences in driver’s response to FTP suspension, leading us to conclude that following suspension drivers make behavioral adjustments to minimize the probability of future tickets. However, these behavioral adjustments are only effective for White drivers.

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