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... The variable P f,t is the policy maker's choice of index. As noted by Altig and Carlstrom (1991), the US federal income tax code is indexed to lagged inflation, which would imply the use of P f,t ≡ P t−1 under this specification. 9 This could be replaced by the current price level, making it perfectly indexed, or even lagged expectations of the current price level E t−1 (P t ), for example. ...
... As is noted by Altig and Carlstrom (1991), the Federal Income Tax in the United States is not perfectly indexed. Rather, the index used is lagged by 16 months. ...
This paper considers the consequences of automatically indexing the US federal income tax code to inflation. Indexation, implemented during the 1981 federal tax overhaul, and active monetary policy constitute necessary conditions for a unique rational expectations equilibrium in standard New Keynesian models with a generalized, progressive labor income tax. Additionally, fixing the monetary regime shows that indexation reduces overall volatility in the model as well as the contribution of supply-side disturbances. Together, these results support a fiscal extension to the “good policy” hypothesis of the Great Moderation and encourage further indexation of the United States tax code.
... The bracket creep -the situation, repeatedly, where inflation pushes income into higher tax brackets, although the real income remains unchanged, and consequently this fictitious extra income causes the increases in real tax burden for taxpayers -is not a new tax policy issue (see also von Furstenberg, 1975;Sunley and Pechman, 1976;Bailey, 1976;Jarvis, 1977;Altig and Carlstrom, 1991;Immervoll, 2005). In particular taxpayers near the top-end of a tax bracket are more likely to creep to a higher bracket and thus experience a rapid rise in marginal rates (Saez, 2003). ...
Using filing‐level data, we compute the average marginal income tax rate for the State of Missouri. We have data from 2000 through 2015. We start with a simple experiment: consider the effect that a 9,000 for the entire sample period. In addition, we compute the average marginal income tax rate for different types of income in order to compare directly with the NBER’s reported state rate.
We present new empirical evidence for the way inflation reduces the inequality of the income distribution in the U.S. economy. The main mechanism emphasized in this paper is the "bracket creep" effect according to which inflation pushes income into higher tax brackets. Governments adjust the nominal income tax brackets slowly due to the rise in prices, typically less often than once every other year in the U.S. postwar history. We also develop a theoretical general equilibrium monetary model with income heterogeneity. In line with our time series evidence, it is rather the frequency of income tax schedule adjustments than the overall level of inflation that has a perceptible impact on the distribution of income. We find that a longer duration between two successive adjustments of the schedule reduces employment, savings, and output significantly.
An examination, using the overlapping-generations approach, of how the interactions between inflation and the nominal taxation of capital income affect the cyclical behavior of the U.S. economy. (This abstract was borrowed from another version of this item.)
A simple model of the price level illustrates how Milton Friedman's k-percent monetary policy rule provides for price stability. His rule can, in particular, largely eliminate the problem of long-run price-level uncertainty emphasized by Irving Fisher.
Economists and policymakers disagree on the lengths central banks should go in pursuit of price stability and, in fact, on exactly what price stability means. This essay advocates that central banks try to maintain stable price levels in their countries, and it argues that the benefits of achieving this objective are worth the transition costs. The essay reviews some of the relevant academic literature on the economic effects of inflation and specifically addresses the issues of transition cost, fiscal dominance, and credibility.
An examination, using the overlapping-generations approach, of how the interactions between inflation and the nominal taxation of capital income affect the cyclical behavior of the U.S. economy. (This abstract was borrowed from another version of this item.)
A comparison of U.S. saving rates with those of 15 OECD countries, finding that saving is generally higher in countries that do not subsidize borrowing through interest deductibility.
Because wealth estimates from survey data have usually fallen substantially short of independent aggregate estimates, survey data have not been seen as adequate for assessing questions dependent on a good representation of the entire distribution of wealth, such as estimates of wealth concentration. The 1983 Survey of Consumer Finances (SCF), which contains a supplementary sample of very high income households drawn from a tax-file sample frame, is the first U.S. survey since the 1963 Survey of Financial Characteristics of Consumers that offers hope of accurately measuring the entire wealth distribution. In this paper, we discuss the design of the survey, the critical issue of proper weighting to merge the supplementary sample with an area probability sample, and the role of imputation. We show that the use of ordinary area probability samples alone leads to probable bias in the measurement of highly concentrated assets such as stocks and bonds. We compare the SCF data with aggregates derived from the flow-of-funds accounts of the Federal Reserve Board. While methodological issues cloud exact comparisons, it appears overall that the SCF estimates are at least as credible as other aggregate measurements. Finally, we use the data to assess the change in concentration of wealth from 1963 to 1983. We estimate that the concentration of wealth in terms of households did not change significantly over this period.
Towards an Understanding of the Costs and Consequences of Inflation,@@ reprinted in S. exina. Inflation. and Economic Policv Fischer
Jan 1978
S Fischer
F Modigliani
Fischer, S. and F. Modigliani, "Towards an Understanding of the
Costs and Consequences of Inflation,@@ reprinted in S.
exina. Inflation. and Economic Policv
Fischer, Ind
, MIT
Press, Cambridge, Mass., 1978.
nFederal Income Tax Reform in 1985: Indexationfn Review, Federal Reserve Bank of St
Mar 1985
J Tatom
Tatom, J., nFederal Income Tax Reform in 1985: Indexationfn
Review, Federal Reserve Bank of St. Louis February 1985.