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The Effect of Tax Expenditures on Automatic Stabilizers: Methods and Evidence
Author(s) -
Kingi Hautahi,
Rozema Kyle
Publication year - 2017
Publication title -
journal of empirical legal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 24
eISSN - 1740-1461
pISSN - 1740-1453
DOI - 10.1111/jels.12155
Subject(s) - economics , tax credit , exploit , consumption (sociology) , econometrics , tax basis , value added tax , ad valorem tax , tax reform , microeconomics , monetary economics , public economics , state income tax , computer science , gross income , social science , computer security , sociology
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.