Document Type

Article

Comments

How Income Taxes Should Change During Recessions, TAX L. REV. (forthcoming) (with William Gui Woolston).

Abstract

This paper offers recommendations for how the design of labor income taxes should change during recessions, based on a simple model of a recessionary economy in which jobs are rationed and some employees value working more than others do. The paper draws two counter-intuitive conclusions for maximizing social welfare. First, subsidize non-employment. This draws marginal workers out of the labor force, creating “space” for those who really need jobs. Second, subsidize employers for hiring, not the employees themselves. The problem during recessions is having too few jobs; subsidizing employers creates more jobs, while subsidizing employees confers benefits on those who already won the job lottery. Tax policy in the recent recession has
done a poor job of following these recommendations.

Date of Authorship for this Version

2014

Keywords

Tax Law

Included in

Tax Law Commons

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