Essays in Taxation

Abstract

This dissertation studies the interaction of the income tax with other public policies. The first chapter examines subsidies for housing, with a specific focus on regional disparities and housing markets. I study a model where workers choose between places offering different wages, housing prices, and amenities. Housing subsidies induce workers to move towards high-price, high-wage cities, where they pay more income taxes. However, these subsidies are regressive, as skilled workers sort into these expensive cities. The optimal housing subsidy balances distorting location choice, raising housing prices, and its regressive incidence. Progressive housing subsidies can make a more efficient tax system, though worker mobility reduces this gain. The second chapter evaluates policies that compress the wage distribution through the college wage gap. I look at income tax adjustments, sector subsidies, and the management of the public sector labor force. Using U.S. data, I compare them using their effects on the labor market. Changing the composition of the public sector workforce has the largest effect on changing wages, however the overall adjustment to optimal policy is quite small. The third chapter shows how penalized early withdrawals from retirement savings improve efficiency in the tax code. I focus on the case when withdrawals are behavioral mistakes coming from myopia that is not anticipated beforehand. These penalties are a less salient method of raising revenue than a corresponding income tax and offer a Pareto improvement. Retirement policy includes a number of common features, like high subsidies and nudges to save, except they aim to boost the total penalty incurred rather than to improve the saver's welfare.