Author(s): James Bailey
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This is an open research idea! Claim (10 points)
Implicit marginal tax rates sometimes go over 100% when you consider lost subsidies as well as higher taxes. This could be trapping many people in poverty, but we don’t have a good idea of how many, because so many of the relevant subsidies operate at the state and local level. Descriptive work such as cataloguing where all these “benefits cliffs” are and how many people they effect would be hugely valuable. You could also study how people react to benefits cliffs using the data we do have (https://benefitscliffs.org).
Published: 2023-01-26 21:44:18 PT
Stage: Research Idea
Fields: Public Economics, Labor Economics
Research Group(s): Playground
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Versions: v1 (01/26/2023)
Anonymous Feb. 8, 2023, 11:43 a.m.
By the way, there is some recent evidence here (Richardson, Blizard, 2021) <https://www.tandfonline.com/doi/abs/10.1080/10875549.2020.1869665> indicating that marginal effective tax rates (accounting for federal, state and county) indeed go above 90%. They call it "disincentive deserts", but poverty traps might be a more traditional even if loaded term.
Obviously, you do not need to go above 100% to produce disincentive effects but measuring them seems to be hard. Diff-in-diff after benefit changes, regression discontinuity or a structural model identified through changes in equilibrium income/hours distribution?