Tuesday, October 09, 2012 8:05pm

Taxing Capital and Labor

Question A: One drawback of taxing capital income at a lower rate than labor income is that it gives people incentives to relabel income that policymakers find hard to categorize as "capital" rather than labor".

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: Despite relabeling concerns, taxing capital income at a permanently lower rate than labor income would result in higher average long-term prosperity, relative to an alternative that generated the same amount of tax revenue by permanently taxing capital and labor income at equal rates instead.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question C: Although they do not always agree about the precise likely effects of different tax policies, another reason why economists often give disparate advice on tax policy is because they hold differing views about choices between raising average prosperity and redistributing income.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 6
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 5
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 9
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 9
See work of Diamond and Saez in JEP: The Case for a Progressive Tax: From Basic Research to Policy Recommendations
-see background information here
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 4
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Strongly Agree 8
Bio/Vote History
         
Chevalier Judith Chevalier Yale Strongly Agree 9
Bio/Vote History
         
Currie Janet Currie Princeton Agree 8
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Agree 10
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 8
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 3
The incentive this creates to recategorize is clear. That this results in a drawback seems right, but less clear to me.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 8
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 2
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Agree 10
yes
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Agree 7
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 6
Apart from the issue of carried interest, this is not a big issue in taxation.
Bio/Vote History
         
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 10
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Agree 5
don't know how successful they are, but the incentives are clear
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 5
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Did Not Answer
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 7
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Strongly Agree 9
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Agree 8
Bio/Vote History
         
Shin Hyun Song Shin Princeton Uncertain 3
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Agree 10
Bio/Vote History
         
Thaler Richard Thaler Chicago Strongly Agree 9
See Romney, Mitt.
Bio/Vote History
         
Udry Christopher Udry Yale Agree 7
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 8
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Disagree 6
Two things are ott confused. Continuously taxing savings is hugely inefficient. Taxing income at source even if it is capital income isn't.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 4
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 9
Bio/Vote History
         
Autor David Autor MIT Uncertain 5
My fear is that the distortions from relabeling the potential gains from lower capital taxes in the second best world in which we live.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 3
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Uncertain 9
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 6
Bio/Vote History
         
Currie Janet Currie Princeton Disagree 7
Bio/Vote History
         
Cutler David Cutler Harvard Agree 5
I prefer not to think of all capital as the same.
Bio/Vote History
         
Deaton Angus Deaton Princeton Uncertain 3
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 3
This seems right on average to me, but does it need to be true under all conditions? Of this I am less confident.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Uncertain 5
Bio/Vote History
         
Goldin Claudia Goldin Harvard Uncertain 1
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Uncertain 10
lots of conflicting results in the research in this area
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 2
Standard theory is clear that this is good for growth but empirical work is less clear. Is std theory wrong or is evidence not credible?
Bio/Vote History
         
Hall Robert Hall Stanford Agree 8
Mirrlees-type arguments for taxation of the return to capital involve a sacrifice of the total size of the pot to bring about redistribution
Bio/Vote History
         
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Strongly Agree 10
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Agree 1
But the levels of rates matter and just getting the rate capital down might have no meaningful effects.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 5
Not what every study finds, but most I have seen.
-see background information here
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 1
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
this is probably true if "average prosperity" means income per capita
Bio/Vote History
         
Nordhaus William Nordhaus Yale Did Not Answer
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 7
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Strongly Disagree 8
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 3
Bio/Vote History
         
Shin Hyun Song Shin Princeton Uncertain 3
Bio/Vote History
         
Stokey Nancy Stokey Chicago Disagree 8
Most evidence points to technical change as the main force behind long run growth. Capital accumulation plays a role only in the short run.
Bio/Vote History
         
Thaler Richard Thaler Chicago Disagree 5
If you tax investment income what will people do? Stuff their money in the mattress?
Bio/Vote History
         
Udry Christopher Udry Yale Agree 4
Bio/Vote History
         
Zingales Luigi Zingales Chicago Uncertain 3
Bio/Vote History
         

Question C Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Strongly Agree 7
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 5
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 7
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 7
Main reasons: diffs in social prefs and differ in priors about "elasticity" of responses to taxes + regs. Most agree on signs not magnitudes
Bio/Vote History
         
Baicker Katherine Baicker Harvard Strongly Agree 5
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Chetty Raj Chetty Harvard Strongly Agree 9
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 9
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 5
I don't like the phrasing of 'average' in the question.
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 7
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 9
My anecdotal experience is that economists differ widely on the relative costs of income heterogeneity (equity versus efficiency).
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Did Not Answer
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 8
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 1
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 9
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 7
Bio/Vote History
         
Hall Robert Hall Stanford Agree 9
The key parameter is the elasticity of substitution in the social welfare function across people. We don't agree on that.
Bio/Vote History
         
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 8
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Agree 7
This is a powerful factor that is often overlooked: the efficiency vs equity debate is still alive, even if sometimes hidden.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 5
Positive (more agreement) vs. Normative (less agreement).
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
if "average prosperity" means average income per capita
Bio/Vote History
         
Nordhaus William Nordhaus Yale Did Not Answer
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 7
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 8
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 5
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 8
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 10
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 4
duh
Bio/Vote History
         
Udry Christopher Udry Yale Strongly Agree 9
Bio/Vote History
         
Zingales Luigi Zingales Chicago Agree 4
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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