Income taxation and the validity of state capacity indicators

The Origins of State Capacity: Property Rights, Taxation, and Politics

Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn r...

Tax Man Cometh: Income taxation as a measure of state capacity

Taxation of Interest Income

Why is interest income taxed so much more heavily than other forms of capital income? This differential tax treatment has generated substantial tax arbitrage, resulting in lower tax revenue, efficiency costs, and apparently net gains to rich borrowers and net losses to poor lenders, together suggesting that this tax treatment makes no sense on welfare grounds. In examining this argument more fo...

Efficient Taxation of Income

Income taxation and marital decisions

Differential tax treatment of married and single people is a key feature of the tax code in the US and other countries. We analyze its equilibrium and welfare effects in a matching model with search frictions and nontransferable utility. We find that an increase in taxes on married people unambiguously reduces the equilibrium number of marriages, but it need not make both men and women more rel...