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1. Measuring US Fiscal Capacity Using Discounted Cash Flow Analysis

   Jiang, Zhengyang; Lustig, Hanno; Van Nieuwerburgh, Stijn; Xiaolan, Mindy Z. (April 2023, Brookings papers on economic activity)

   We use discounted cash flow analysis to measure the projected fiscal capacity of the US federal government. We apply our valuation method to the Congressional Budget Office (CBO) projections for the US federal government’s primary deficits between 2022 and 2052 and projected debt outstanding in 2052. The discount rate for projected cash flows and future debt must include a GDP or market risk premium in recognition of the risk associated with future surpluses. Despite current low interest rates, we find that US fiscal capacity is more limited than commonly thought. Because of the back-loading of projected primary surpluses, the duration of the surplus claim far exceeds the duration of the outstanding Treasury portfolio. This duration mismatch exposes the government to the risk of rising interest rates, which would trigger the need for higher tax revenue or lower spending. Reducing this risk by front-loading primary surpluses requires a major fiscal adjustment. 

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2. Tax Administration versus Tax Rates: Evidence from Corporate Taxation in Indonesia

   https://doi.org/10.1257/aer.20201237  

   Basri, M. Chatib; Felix, Mayara; Hanna, Rema; Olken, Benjamin A. (December 2021, American Economic Review)

   We compare two approaches to increasing tax revenue: tax administration and tax rates. We show that when Indonesia moved top regional firms into “medium taxpayer offices,” with high staff-to-taxpayer ratios, tax revenue more than doubled. Examining nonlinear changes to corporate income tax rates, we estimate an elasticity of taxable income of 0.579. Combining these estimates, improved tax administration is equivalent to raising top rates on all firms by 8 percentage points. On net, improved tax administration can have significant returns for developing countries. (JEL H25, H26, K34, O17) 

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3. Long-Term Impacts of Childhood Medicaid Expansions on Outcomes in Adulthood

   https://doi.org/10.1093/restud/rdz039  

   Brown, David W; Kowalski, Amanda E; Lurie, Ithai Z (July 2019, The Review of Economic Studies)

   Abstract We use administrative data from the Internal Revenue Service to examine long-term impacts of childhood Medicaid eligibility expansions on outcomes in adulthood at each age from 19 to 28. Greater Medicaid eligibility increases college enrolment and decreases fertility, especially through age 21. Starting at age 23, females have higher contemporaneous wage income, although male increases are imprecise. Together, both genders have lower mortality. These adults collect less from the earned income tax credit and pay more in taxes. Cumulatively from ages 19 to 28, at a 3% discount rate, the federal government recoups 58 cents of each dollar of its “investment” in childhood Medicaid. 

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4. FBBVA Lecture 2023 . The Importance of Modeling Income Taxes over Time: U.S. Reforms and Outcomes

   https://doi.org/10.1093/jeea/jvad053  

   Borella, Margherita; De_Nardi, Mariacristina; Pak, Michael; Russo, Nicolo; Yang, Fang (September 2023, Journal of the European Economic Association)

   Abstract The structure of taxes and their burden have undergone large and frequent changes over time. We provide a brief history of U.S. federal income tax reform since the 1960s, calculate effective federal income tax rates for each wave of the Panel Study of Income Dynamics, and discuss how effective taxation changed from 1969 to 2016. We show that most tax regimes are short-lived and that the variation in taxes over time and across groups is large. We also use an estimated dynamic model of couples and singles to show that the various tax regimes that we estimate imply very different labor market and saving behavior. These findings stress the importance of studying and modeling tax changes over time and across groups. 

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5. Lessons from the Biggest Business Tax Cut in US History

   https://doi.org/10.1257/jep.38.3.61  

   Chodorow-Reich, Gabriel; Zidar, Owen; Zwick, Eric (August 2024, Journal of Economic Perspectives)

   Williams, Heidi (Ed.)

   We assess the business provisions of the 2017 Tax Cuts and Jobs Act, the biggest corporate tax cut in US history. We draw five lessons. First, corporate tax revenue fell by 40 percent due to the lower rate and more generous expensing. Second, firms with larger declines in their effective tax wedge increased investment relatively more. In aggregate, we suggest a loose consensus from the literature that total tangible corporate investment increased by 11 percent. Third, the business tax provisions increased economic growth and wages by less than advertised by the Act’s proponents, with long-run GDP higher by less than 1 percent and labor income by less than $1,000 per employee. Fourth, provisions that increase foreign investment by US-based multinationals also boost their domestic operations. Fifth, some of the expired and expiring provisions, such as accelerated depreciation, generate more investment per dollar of tax revenue than others. 

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