Sunday, September 12, 2010

Incentives matter

I had posted earlier about the immortal Japanese (who collect their pensions at age 100+ despite being invisible to the untrained eye), and now LeBron posts this morning about the same phenomenon and another interesting manifestation thereof.

We can also toss in this paper by Raj Chetty et. al. showing how the Danish tax code creates sizable labor supply responses around the kinks in the tax brackets, thus creating a large macro elasticity.

What does it all mean?

How about that official estimates of the revenue consequences of tax changes will generally be incorrect in a systematic direction (overestimating the revenue gain of tax increases and underestimating the revenue loss of tax cuts).

1 comment:

Anonymous said...

models or it didn't happen.