With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the...

This paper proposes a theoretical explanation of the empirical finding that private consumption increases in response to an increase in government spending. The explanation requires two ingredients. First, labor demand expands (e.g. prices are sticky). Second, general non-separable preferences...

We study the incentives of parents to invest in their children when these investments improve their marriage prospects, in a frictionless marriage market with non-transferable utility. Stochastic returns to investment eliminate the multiplicity of equilibria that plagues models with...

A growing economic literature stresses the importance of relative comparisons, e.g., for savings and consumption or happiness. In this literature it is usually assumed that reference standards against which people compare themselves are exogenously given. In contrast, findings from social...

Consumers, when buying health insurance, do not know the exact value of each treatment that they buy coverage for. This leads them to overvalue some treatments and undervalue others. We show that the insurance market cannot correct these mistakes. This causes research labs to overinvest in...

Given its signiÖcance in practice, piecewise linear taxation has received relatively little attention in the literature. This paper o§ers a simple and transparent analysis of its main characteristics. We fully characterize optimal tax parameters for the cases in which budget sets are convex...

While acknowledging the importance of fairness and the need to avoid creating disincentives in the design of tax reform, the Henry Review recommends a simplified Personal Income Tax and child payments withdrawn on a single family income test. This paper shows that the proposed reforms would...

This paper presents for the .rst time the properties of optimal piece-wise linear tax systems for two-earner households, based on joint and individual incomes respectively. A key contribution is the analysis of the interaction of second earner wage di¤erences, variation in prices of bought-in...

The Mirrlees Review of the UK tax system, together with its companion volume of research papers, can be expected to influence future discussions of tax reform. Indeed, this can already be recognised in the Henry Review. As far as income taxation is concerned, the most substantive recommendation...

What structure of income taxation maximizes the social benefits of redistribution while minimizing the social harm associated with distorting the allocation of labor input? Many authors have advocated scrapping the current tax system, which redistributes primarily via marginal tax rates that...