ASSESSING THE WELFARE IMPACT OF TAX REFORM: A CASE STUDY OF THE 2001 U.S. TAX CUT

Authors

Errata

This article is corrected by:

  1. Errata: Assessing the Welfare Impact of Tax Reform: A Case Study of the 2001 U.S. Tax Cut Volume 60, Issue 2, 404, Article first published online: 9 January 2014

  • Note: The views expressed in this paper do not reflect those of the Federal Reserve Bank of Atlanta nor the Federal Reserve System. The paper has benefited from comments from James Alm, Michael Leeds, Roberta Moore, John Robertson, Sally Wallace, Jennifer Ward-Batts, two anonymous referees, and participants of the University of California-Merced Conference on Earnings Inequality. Excellent research assistance was provided by Daniel Melaugh, M. Laurel Graefe, Navnita Sarma, Chinying Xie, Danyang Li, and Melissa Trussell.

Julie L. Hotchkiss, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St, NE, Atlanta, GA 30309-4470, USA (Julie.L.Hotchkiss@atl.frb.org).

Abstract

This paper implements a relatively simple methodological approach to estimate the impact on family welfare of a specific tax reform. The measured impact can differ greatly from simple marginal tax rate comparisons, and conclusions about the distribution of the welfare impact can vary depending on the basis of comparison. For example, absolute welfare gains from the 2001 U.S. tax reform were concentrated among the highest and lowest income families, whereas welfare gains measured as a share of pre-tax income are found to be nearly monotonically declining in income.

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