TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, August 16, 2017

Kingi & Rozema: The Effect Of Tax Expenditures On Automatic Stabilizers

Hautahi Kingi (Cornell) &  Kyle Rozema (Chicago), The Effect of Tax Expenditures on Automatic Stabilizers: Methods and Evidence,  14 J. Empirical Legal Stud. 548 (2017):

We study the effect of tax expenditures on the stabilizing power of the tax system. We propose a micro‐simulation strategy that exploits links that we identify between automatic stabilizers, tax expenditures, and effective marginal tax rates. Using U.S. tax return micro data from 2000 to 2010, we estimate that, on average, the mortgage interest deduction and the charitable contributions deduction decreased the ability of the tax system to absorb fluctuations in aggregate consumption by an average of 7.4 percent and 3.9 percent, respectively.

Figure 1

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