tax models

michael gilson de lemos
Tue, 30 May 2000 11:46:56 -0400

MG: My concerns are somewhat more subtle. No one seems to have a prediction
model that also describes how, why, and to what measure people react to
taxes, let alone different types of taxes, at least on a unified basis. We
seem to have some partial models out there.

Some other thoughts below. Thanks.

Also, it seems to follow from Libertarian ideas that taxes must be viewed as
losses, always losses. I am not convinced that many economists distinguish
clearly between costs and losses, or even at all. Are losses a special
subset of costs? People react quite differently depending on whether they
see something as a cost or a loss. I might add that costs are in practice,
and some losses too, viewed as potential revenue or profit centers centers.
On this line of reasoning economists need not only a model of taxes, but of
transition away from taxes, to converting them into sources of revenue, i.e.
taxes should not only be minimized, but the situation turned around so
government pays us in some sense, probably by government being provided as
an incidental service, produced automatically by doing something else.

Be that as it may, it would seem that until there is a model of tax and loss
behavior, saying this tax is better or worse is very imprecise.  I think
there is growing awareness among economists that when a tax is imposed
people smply don't sit and take it. Such a model must take a broad view of
tax, looking at compliance or avoidance, anticipation and expectation
effects, transaction factors, regulation to some degree, and so forth, as

(Also, it seems to me that such a model  also must be aware or be capable of
taking account of the subtle things governments are prone to do to manage
revenue and taxes. As an example,  in many States the recent decline in
welfare rolls was accomplished by posting police at the welfare offices,
with dire warnings that the slightest error in the application forms could
result in lengthy imprisonment. This to my knowledge is unknown to most
observers.who do not actually examine the welfare offices. Another example
might be internal "taxes" in the bureaucracy, such as powerful economic
pressures in police departments to report certain crime statistics: in some
departments at least, crime reporting is driven by overtime. Failing to
account for this sort of thing makes most studies on the subject open to
question, but a model would be interesting. Once a tax system is in place,
what does it do to keep itself in place? Should such factors be treated as a
class of tax, elasticity effects, what? A first step might be some sort of
model that at least had an eye to these things, and the Public Choice model
has gone some distance in putting some of these issues on the table at


***The issue at hand is the best source of taxes, not the amount.
> My view is that the best amount of taxes is zero, but this conversation
> is not about that, but on which taxes are least worst.