37 Pages Posted: 7 Jan 2016 Last revised: 18 Sep 2016
Date Written: September 17, 2016
We analyze the effect of tax expenditures on the stabilizing power of the tax system. We propose a microsimulation strategy which exploits links that we identify between automatic stabilizers, tax expenditures, and effective marginal tax rates. Using the Survey of Consumer Finances from 1988 to 2009, we estimate that, on average, the Mortgage Interest Deduction and the Charitable Contributions Deduction increased the sensitivity of consumption to income fluctuations from a baseline of 0.14 by 1.13% and 0.97%, respectively.
Keywords: Tax Expenditures, Automatic Stabilizers, Marginal Propensity to Consume, Hand-to-Mouth, Effective Marginal Tax Rates
JEL Classification: H23, H24, H31, E62, K34
Suggested Citation: Suggested Citation
Kingi, Hautahi and Rozema, Kyle, The Effect of Tax Expenditures on Automatic Stabilizers: Methods and Evidence (September 17, 2016). Available at SSRN: https://ssrn.com/abstract=2711499 or http://dx.doi.org/10.2139/ssrn.2711499