We wish to acknowledge the help of three referees and of John Pencavel on several earlier drafts, as well as the assistance of the modelers, whose work is referred to in the paper. They corrected our lack of understanding of their work and provided many other helpful comments. Excellent research and bibliographical assistance have been provided by Debbie Fretz, Radwan Shaban, and Janet Stotsky. Helpful comments have been made by Charles Ballard, Michael Boskin, Lans Bovenberg, Sylvester Damus, Harvey Galper, Glenn Harrison, Gordon Lenjosek, Jack Mutti, Serena Ng, T. N. Srinivasan, Charles Stuart, and Eric Toder. The authors also acknowledgefinancial support from the National Bureau of Economic Research, the National Science Foundation, International Business Machines, and the Social Sciences and Humanities Research Council: Ottawa, Canada.

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Applied General Equilibrium Models of Taxation and International Trade

Globalization is making it increasingly easy for corporations to shift profits to low-tax countries. Modern technology has also made it simpler for wealthy individuals to move funds to undeclared bank accounts in offshore tax havens. Both issues have featured prominently in the news and global economic debates since the financial crisis, but the arguments tend to be based on relatively little empirical evidence. Measuring the costs of tax havens to foreign governments is fraught with difficulties. However, balance of payments data and corporate filings show that US companies are shifting profits to Bermuda, Luxembourg, and similar countries on a large and growing scale. About 20 percent of all US corporate profits are now booked in such havens, a tenfold increase since the 1980s. This profit-shifting is typically done within the letter of the law and thus would be best described as tax avoidance rather than fraud. I attempt to quantify its cost for government coffers by taking a fresh look at the most recent macroeconomic evidence and combining it in a systematic manner. Over the last 15 years, the effective corporate tax rate of US companies has declined from 30 to 20 percent, and about two-thirds of this decline can be attributed to increased profit-shifting to low-tax jurisdictions. Wealthy individuals, too, use tax havens, sometimes legally—to benefit from banking services not available in their home country—and sometimes illegally—to evade taxes. A number of changes have sought, with some success, to curb that form of tax evasion over the last years. Yet the available evidence from Switzerland and

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Taxing across Borders: Tracking Personal Wealth and Corporate Profits

This paper explores the characteristics of individual portfolio holdings in a world economy with a unified securities market where there are many countries, each with its own tax rates and inflation rate. When nominal interest is taxable but income to equity owners is tax exempt in all countries, I show that the highest tax bracket investors specialize in equity and, among the remaining investors, those with lower tax rates buy bonds of countries with higher inflation rates. Because of the tax system, countries with a higher inflation rate must pay a higher real interest rate on their debt. This is necessary in equilibrium to compensate those who purchase the debt for their higher taxable income. This diversity of real rates of return in the world securities market has a variety of effects on the optimal tax policy of a small open economy. I also explore a model where there is a unified world market in bonds, but no international trade in equity. Here, I find a strong tax incentive for firms owned by investors in countries with high personal tax rates to become multinationals and invest abroad. If domestic investors do end up purchasing both bonds and domestic equity, then the optimal corporate tax rate on real corporate income in a small open economy would be quite high relative to the personal tax rate on nominal interest income, in order not to distort the portfolio composition of domestic investors.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w1723.pdf?abstractid=227405&mirid=1

Taxation of Investment and Savings in a World Economy: The Certainty Case

The equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market, mobile capital, no uncertainty, and varying tax rates on different sources of income in each country. The paper then characterizes optimal tax rates for a small country in this setting, focusing on the peculiar incentives created when the before-tax rate of return differs among securities due to differences in their typical tax treatment. Copyright 1986 by American Economic Association.

Taxation of Investment and Savings in a World Economy

Although there have been many reviews of the retirement literature in recent years, the issue of retirement timing has received less attention, neglecting some large and important issues. Further, a significant number of empirical articles about retirement timing have been published across multiple disciplines since these review articles were written. The purpose of our study is to review and integrate prior research regarding retirement timing. We define retirement timing as the age or relative point at which workers exit from their position or career path (e.g., early, on time, and later). We propose a model to serve as an organizing framework for understanding retirement timing. Our model includes antecedents and consequences that are each grouped in terms of individual, family, work, and sociocultural factors related to the timing of the retirement process. We identify and discuss key factors that serve to moderate the relation between retirement timing and consequences. Finally, we identify gaps in the current literature and provide recommendations for future research.

Retirement Timing: A Review and Recommendations for Future Research

This report details the development of a third version of MINT (Modeling Income in the Near Term), a tool for simulating the retirement incomes of members of the Baby Boom and neighboring cohorts. MINT3 can produce projections of economic and demographic characteristics in the year 2020, at the time of retirement, and for other years and ages. It can be used both to construct a baseline using alternative economic and demographic assumptions and to analyze the distributional consequences of a variety of Social Security policy changes.

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Modeling Income in the Near Term: Revised Projections of Retirement Income Through 2020 for the 1931-1960 Birth Cohorts: Final Report

The long-term shift in coverage from defined benefit (DB) pensions to defined contribution (DC) plans may accelerate rapidly as more large companies freeze their DB pensions and replace them with new or enhanced DC plans. This paper uses the Model of Income in the Near Term to simulate the impact of an accelerated transition from DB to DC pensions on the distribution of retirement income among boomers. A scenario in which employers freeze all remaining private sector DB plans and a third of all state and local plans over the next five years will on balance produce more losers than winners among boomers and reduce their average incomes at age 67. Income changes will be largest among higher-income boomers, who have the highest DB coverage rates and projected pension incomes. Furthermore, the numbers of winners and losers and net income changes are much greater for the last wave of boomers (born between 1961 and 1965) than for earlier boomers. Younger boomers are most likely to have their DB pensions frozen with relatively little job tenure and to lose their high accrual years for DB pension wealth, but also to have relatively more years to accumulate DC pension wealth before retirement.

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The Disappearing Defined Benefit Pension and its Potential Impact on the Retirement Incomes of Boomers

Tax expenditures measure the cost of spend? ing programs run through the tax system. In preparing their annual lists, the Office of Management and Budget (OMB) and Congress's Joint Committee on Taxation (JCT) define tax expenditures as deviations from the "normal" individual and corporate income tax bases. OMB has recently also listed tax expenditures measured against consumption tax and compre? hensive income tax bases. Tax expenditures are "static," meaning that they assume no change in economic behavior if they are eliminated. Tax expenditure estimates may thus be much larger than revenue estimates for eliminating a par? ticular provision. The measurement of tax expenditures is controversial, mainly because there is no com? monly agreed tax baseline against which to measure departures. In spite of this and other measurement issues, most public finance econo? mists believe that measuring tax expenditures is an important part of good budget management because tax benefits can have the same effect on beneficiaries as direct spending programs, and impose similar opportunity costs in terms of higher taxes, reduced federal spending, and higher deficits. We should assess their effects on the federal budget and on achieving program objectives the same way we assess direct spend? ing programs. Non-business tax expenditures?the focus of this paper?are large relative to the size of the economy and to total tax revenues.1 They rose sharply between 1976 and 1985, from 4.2 to 6.4 percent of GDP. They dropped between 1985 and 1990 as a result of the Tax Reform Act of

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How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them?

A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.

Tax Policy Issues in Designing a Carbon Tax

This paper focuses on the design, development, and use of the Individual Taxpayer Burden Model (ITBM)— a microsimulation model developed jointly by IBM and the 1RS to estimate the amount of time an...

Eric Toder

Papers

Modeling Income in the Near Term: Revised Projections of Retirement Income Through 2020 for the 1931-1960 Birth Cohorts: Final Report

The Disappearing Defined Benefit Pension and its Potential Impact on the Retirement Incomes of Boomers

How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them?

Tax Policy Issues in Designing a Carbon Tax

Estimating the Compliance Cost of the U.S. Individual Income Tax