Soundbuzz's Music - Implications for Tax Policy - Thesis Proposal Example

TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION 0 BACKGROUND INFORMATION…………………………………………………………………………………………………... 1.1 THE PROBLEM STATEMENT…………………………………………………………………………………………………………. 1.2 RESEARCH QUESTIONS…………………………………………………………………………………………………………………. 1.3 OBJECTIVES…………………………………………………………………………………………………………………………………………. 1.3.1 MAIN OBJECTIVE……………………………………………………………………………………………………………………………….. 1.3.2 SPECIFIC OBJECTIVES…………………………………………………………………………………………………………………….. 1.4 SIGNIFICANCE OF THE STUDY…………………………………………………………………………………………………. 1.5 SCOPE OF THE STUDY…………………………………………………………………………………………………………….…… 1.6 LIMITATIONS OF THE STUDY…………………………………………………………………………………………………. 1.7 ORGANIZATION OF THE STUDY…………………………………………………………………………………………… CHAPTER TWO: LITERATURE REVIEW………………………………………………………………………………….……. 2.O INTRODUCTION…………………………………………………………………………………………………………………….……. 2.1 THEORETICAL LITERATURE……………………………………………………………………………………….………… 2.2 CONCEPTUAL FRAMEWORK………………………………………………………………………………….…………… In review of empirical evidence, focus is on studies of strategy of Asia Pacific Planning supply responses to tax changes. These studies typically find small elasticity’s of hours worked in response to tax rate changes for most demographic groups. Small elasticity’s in the planning multiplied by the moderate size of the tax cuts yield the small overall hours effect. Evidence suggests that in the soundbuzz’s music strategy for information system, labor supply is highly responsive to taxes for some demographic groups on some margins. Thus, labor market entry and exit is very sensitive to taxes, especially for female household heads but also for married women. We also notes that labor supply responses to taxes are not limited to the decision of how many hours to work and whether to get a job. Several studies find larger elasticities of hours worked with respect to country-level changes and differences in tax rates. Examples include Davis and Henrekson (2005), Rogerson (2006) and Gordon (2007). One reason these macro studies find bigger elasticities is that they capture government spending-side responses to tax changes, responses that are usually ignored in studies of individual labor supply. Spending-side responses matter for labor supply outcomes, perhaps as much or more than the direct effects operating on the tax side. The tax hike in the pacific region affects labor supply through direct effects of tax rates on individual work incentives and through general equilibrium responses. The individual work incentives involve the substitution and income effects that are staples pacific planning supply studies. Thus, the basic approach taken by Nada Eissa in the article Evidence on Labor Supply and Taxes, and Implications for Tax Policy and other micro-oriented studies like CBO, 2007, captures the full effect of tax rate changes on aggregate hours worked in the pacific when there are no important general equilibrium effects on labor supply. The available evidence indicates that labor supply elasticities in the pacific with respect to benefits for unemployment insurance, worker compensation and disability insurance are substantially higher than those found in traditional labor supply studies (Krueger and Meyer, 2002). Spending-side responses to tax changes are an important determinant of the overall response of hours worked. Macro studies find bigger labor supply responses to tax changes than micro-oriented studies on the information management, partly because the macro studies capture the spending-side responses of government behavior. Recent studies show that not only health but also tax affects entrepreneurial activity. Gentry and Hubbard (2005) stress the potential for high tax rates and a progressive tax schedule to discourage risk taking activities by acting as a tax on “success.” Because of tax progressivity, a risk-neutral investor in the information centre requires a higher pretax expected return to undertake a risky project or business enterprise. The effect is to discourage risk-taking business activities. Cullen and Gordon (2007) point out that the option to incorporate weakens or reverses this effect when the information income tax rate is lower than the personal tax rate. In this case, the option to incorporate effectively allows the entrepreneur to choose a lower tax rate ex post in the event that the enterprise succeeds. Cullen and Gordon also analyze other channels through which the tax system affects entrepreneurship and risk taking. . Equilibrium responses to this changes in management are also likely to unfold slowly over time and to involve effects not captured by micro-oriented studies.To see these points, consider the example of underground economic activity motivated by a desire to evade information taxes. High tax rates on music labor income encourage households to supply labor and procure goods and services in the underground economy. Tax evasion of this sort requires cooperation between at least two persons, a buyer and a seller. A key point is that it becomes easier to find a willing accomplice for off-the-books exchange in a higher tax environment. When taxes are high generally, more people seek accomplices to help evade taxes. In this respect, the underground economy is a network that becomes more attractive as more people participate. Such networks are slow to evolve and, once in place, can be difficult to eradicate. Traditional micro-oriented studies of labor supply behavior also understate the long run response to tax rate changes for another set of reasons. At the individual level, an adjustment in hours worked may require a job switch, a change in child care arrangements, or other significant lifestyle changes. Such changes often involve large fixed costs and some time to bring about. As a result, the full response of hours worked to tax rate changes involves lumpy adjustments at the individual level and unfolds slowly over time in the population. Most micro-oriented studies of labor supply behavior are not well designed to capture this type of dynamic response. A fundamental point is the following: the negative impact of income taxes on information efficiency is potentially large even when hours and employment are not very responsive to taxes. What matters for efficiency under reasonable conditions is the elasticity of taxable information income, as shown by Feldstein (1999). Chetty (2008) generalizes the Feldstein analysis to cover situations where part of the cost of tax evasion and tax avoidance involves a transfer of resources to other persons in the economy. Tax systems affects the types of jobs that workers choose.Results reported in Aaberge et al.1998 based on a discrete labour information supply model confirm that there is a weak tendency for workers to select better paying jobs when the degree of tax progressivity is reduced.To the extent that pre information wages reflect the true value of the entertainment contribution in each alternative job match, higher information tax progressivity hence yields a less efficient allocation of workers into jobs. Non working low wage type of workers may have access to social security assistance or unemployment benefits that are relatively high compared to their expected market wage.Older workers may have access to early retirement benefits, that also involve higher replacement ratios, the lower is the income forgone. These transfers are typically lost if these people take up paid work. Thus, the formal tax rates for these workers are only partial; if the social security system is taken into account, low wage workers often face very high marginal tax rates, as well as large fixed costs associated with participation. This is one of the driving forces behind the high labour supply elasticities estimated for low wage men. References. Nada Eissa (2008)“Evidence on Labor Supply in the information systems and Taxes, and Implications for Tax Policy” Chetty, Raj (2008) “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance,” working paper. Gordon, Robert J. (2007), “Issues in the Comparison of Welfare Between Europe and the United States.” Mimeo, Northwestern University. Available at http://faculty-web.at.northwestern.edu/economics/gordon/BRU_071125.pdf. Congressional Budget Office (2007) “The Effect of Tax Changes on Labor Supply in CBO’s Microsimulation Tax Model,” background paper, April. Davis, Steven J. and Magnus Henrekson (2005) “Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons. Feldstein, Martin (1999) “Tax Avoidance and the Deadweight Loss of the Income Tax,” Review of Economics and Statistics Rogerson, Richard (2006) “Understanding Differences in Hours Worked,” Review of Economic Dynamics 9(3), 365–409 Gentry, William M. and R. Glenn Hubbard (2005) “`Success Taxes,’ Entrepreneurial Entry, and Innovation” in Adam B. Jaffee, Joshua Lerner and Scott Stern, eds., Innovation Policy and the Economy, 5, MIT Press, 87-108. Schneider, Friedrich and Dominik H. Enste (2000) “Shadow Economies: Size, Causes, and Consequences,” Journal of Economic Literature, 38(1) (March), 77-114. Read More