Mankiw 6e. Experience it.
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Chapter 8: Application: The Costs of Taxation

Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

February 23

Dynamic Scoring Redux

Mankiw provides a link to his paper on the extent to which tax cuts are self-financing. The possibility arises because if a tax cut creates growth, then the tax base grows as the tax rate falls.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 165-166 “The Laffer Curve and Supply-Side Economics”

June 22

Preaching to the Choir

Mankiw agrees with Paul Krugman that across-the-board cuts in tax rates will not typically increase tax revenue. But Mankiw takes issue with Krugman's evidence.

Textbook References:

Pages 34-35 “Why Economists Disagree”
Pages 163-166 “Deadweight Loss and Tax Revenue as Taxes Vary”

February 2

Donald Marron on Tax Reform

Donald Marron testifies before Congress about the tax code. He argues that reducing tax preferences ("credits, deductions, deferrals, exclusions, exemptions, and preferential rates") could reduce tax rates and improve fairness.

Textbook References:

Pages 167-171 “Deadweight Loss and Tax Revenue as Taxes Vary”
Chapter 12 “The Design of the Tax System”

December 7

The Tax Deal

Mankiw comments on the tax deal between President Obama and Congressional Republicans. He is generally pleased, but notes a peculiarity of the cut in the payroll tax.

Textbook References:

Page 127 “Can Congress Distribute The Burden Of A Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

November 16

Hubbard on the Bowles-Simpson Tax Plan

Glenn Hubbard likes the idea of broadening the tax base so as to reduce tax rates.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

November 7

Thaler on the Estate Tax

Richard Thaler argues in favor of retaining the estate tax. Greg Mankiw makes the opposite case.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 256-257 “Tax Incidence and Tax Equity”

October 29

A Rolling Stone gathers no taxes

The Rolling Stones make decisions on where to work and live based on the tax laws.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 167-171 “Deadweight Loss And Tax Revenue As Taxes Vary”

October 18

Hear Me Squawk

Mankiw discusses a variety of issues including marginal tax rates, long-term deficits, and ways to stimulate the economy.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Page 399 “The Trade-off Between Work and Leisure”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 749-751 “Why the Aggregate-Demand Curve Might Shift”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

October 12

Response to Queries

Mankiw responds to questions about his New York Times article that was posted on his blog on October 10.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Page 399 “The Trade-off Between Work and Leisure”

October 10

My Marginal Tax Rate

Mankiw explains how the marginal tax rate affects his decisions about how much to work.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Page 399 “The Trade-off Between Work and Leisure”

September 17

Glaeser on Goolsbee

Edward Glaeser discusses the new chair of the Council of Economic Advisers.

Textbook References:

Pages 30-33 “The Economist As Policy Adviser”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 164-167 “The Determinants Of The Deadweight Loss”
Pages 369-370 “How the Size of an Oligopoly Affects the Market Outcome”


September 15

How much would the President raise the top rate?

Alan Viard argues that while the marginal tax rate on top earners will rise to 39.6 percent, the elimination of itemized deductions and increases in the Medicare tax will make the effective rate 44.6 percent by 2013.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 164-167 “The Determinants Of The Deadweight Loss”

August 10

Where does the Laffer curve bend?

Ezra Klein asked a variety of economists and policy wonks what tax rate maximized government tax revenue. He received a wide range of responses.

Textbook References:

Pages 169-171 “The Laffer Curve And Supply-Side Economics”

May 1

Ambivalence

Mankiw explains the pros and cons of a value-added tax (VAT).

Textbook References:

Pages 160-164 “The Deadweight Loss of Taxation”
Page 251 “Should Income or Consumption Be Taxed?”
Pages 254-255 “The Ability-to-Pay Principle”

April 14

A Guest Post From John Galt

Mankiw suggests that the marginal tax rates on income have a significant effect on behavior.

Textbook References:

Pages 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 169-171 “The Laffer Curve And Supply-Side Economics”
Page 795 “Keynesians in the White House”

April 10

The Enormity of the Fiscal Gap

The Tax Policy Center argues that income taxes must rise by 40 per cent just to reduce the deficit to 3 per cent of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

March 20

A Warning About CBO Scoring

Mankiw warns that the CBO's assessment of the impact of the healthcare bill assumes that the growth rate of GDP will be unaffected. Mankiw argues that the higher marginal tax rates associated with the bill will likely reduce the growth rate of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”

January 31

Slow Growth and Rising Debt

Carmen Reinhart and Kenneth Rogoff warn that rising public debt may lead to default, higher taxes, or financial repression. All harm growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Chapter 8: Application: The Costs of Taxation
Archived Posts

 

January 28

Lazear on the Spending Freeze

Edward Lazear argues that the spending freeze is "optical rather than substantive." Higher taxes will be needed to pay for higher government spending, and higher taxes mean slower growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

January 22

The Height Tax Gets Some Publicity

Asher Meir discusses the argument by Mankiw and Weinzieri in favor of a tax on height.

Textbook References:

Pages 164-167 “The Determinants of Deadweight Loss”

January 13

The Rise of European Leisure

Mankiw discusses some possible explanations for Europeans working less than Americans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-163 “The Deadweight Loss of Taxation”
Page 170 “On the Way to France”
Page 243 “Table 1: Total Government Tax Revenue as a Percentage of GDP”
Page 399 “The Trade-off between Work and Leisure”

January 11

Learning from Europe

Mankiw takes issue with Paul Krugman's assertion that Europe's high social spending does not affect its economic performance.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-163 “The Deadweight Loss of Taxation”

December 22

The Case Against the Millionaire Surtax

Alan Viard argues that taxing the rich to pay for health-care reform will do significant damage to the economy.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 164-167 “The Determinants of the Deadweight Loss”
Pages 167-171 “Deadweight Loss and Tax Revenue as Taxes Vary”
Pages 583-593 “The Market for Loanable Funds”

November 24

Healthcare Reform and the Big Tradeoff

The healthcare debate illustrates the tradeoff between efficiency and equality.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 5-6 “Principle 2: The Cost of Something Is What You Give Up to Get It”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”

October 30

Average Marginal Tax Rates

Robert Barro and Charles Redlick present a graph of the average marginal tax rate, defined as the sum of the marginal rates of the federal and state income taxes plus the marginal FICA tax.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12 “The Design of the Tax System”

October 14

The Value Added Tax

Mankiw discusses his view of a Value Added Tax.

Textbook References:

Page 170 “On the Way to France”
Page 251 “Should Income Or Consumption Be Taxed?”
Pages 251-252 “Administrative Burden”


October 10

Marginal Tax Rates from Health Reform

The CBO estimates that the Baucus healthcare reform bill will add about 22 percentage points to the marginal tax rate of many working-class people.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”


August 21

We are all supply-siders now

David Leonhardt and Geraldine Fabrikant argue that in the three decades after WWII, high marginal tax rates reduced the pre-tax income of the rich.

Textbook References:

Pages 7-8 “Principle 4: People Respond To Incentives”
Pages 169-171 “The Laffer Curve and Supply-Side Economics”
Chapter 12 “The Design of the Tax System”


Mar. 8

Soaking the Rich?

A Washington Post article presents the views of a variety of people on the redistributive effects of Obama’s plan.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12: “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”


Jan. 13

Mankiw responds to a question about comparing the short-run benefits of fiscal stimulus to the long-term costs of higher taxes to pay for the stimulus.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”


Dec. 5

Ed Gleaser on Subsidized Mortgages

There is a link to an editorial by Ed Gleaser that argues that government subsidies for mortgages raise the price of houses and led to the current crisis in the housing market.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation” (Subsidies are not discussed in the chapter, but the model can be extended to subsidies.)