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See detailEvidence on the Insurance Effect of Redistributive Taxation
Koulovatianos, Christos UL; Grant, Charles; Michaelides, Alexander et al

in Review of Economics and Statistics (2010), 92(1), 965-973

If households face uninsurable idiosyncratic earnings risk, theory predicts that re- distributive tax and transfer systems have both an insurance and a distortionary e®ect. Exploiting the substantial ... [more ▼]

If households face uninsurable idiosyncratic earnings risk, theory predicts that re- distributive tax and transfer systems have both an insurance and a distortionary e®ect. Exploiting the substantial variation of tax and transfer systems across US states and over time we investigate the necessary traces of these two effects in the data: that state-level measures of redistributive taxation should correlate negatively with, (a) the standard deviation, and (b) the mean, of the within-state consumption distribution. We find that the first correlation is robust, supporting strongly the presence of an insurance effect. The distortionary effect can also be detected in the data but it is less precisely estimated. [less ▲]

Detailed reference viewed: 132 (3 UL)
See detailEvidence on the Insurance Effect of Marginal Income Taxes
Grant, Charles; Koulovatianos, Christos UL; Michaelides, Alexander et al

Report (2008)

Marginal income taxes may have an insurance effect by decreasing the effective fluctuations of after-tax individual income. By compressing the idiosyncratic component of personal income fluctuations ... [more ▼]

Marginal income taxes may have an insurance effect by decreasing the effective fluctuations of after-tax individual income. By compressing the idiosyncratic component of personal income fluctuations, higher marginal taxes should be negatively correlated with the dispersion of consumption across households, a necessary implication of an insurance effect of taxation. Our study empirically examines this negative correlation, exploiting the ample variation of state taxes across US states. We show that taxes are negatively correlated with the consumption dispersion of the within-state distribution of non-durable consumption and that this correlation is robust. [less ▲]

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See detailRedistributive Policies through Taxation: Theory and Evidence
GRANT, Charles; Koulovatianos, Christos UL; MICHAELIDES, Alexander et al

Report (2003)

Increasing marginal tax rates and making payments to the poor reduce inequality and introduce savings dis-incentives. Using a heterogeneous agent model with incomplete markets, we show that higher taxes ... [more ▼]

Increasing marginal tax rates and making payments to the poor reduce inequality and introduce savings dis-incentives. Using a heterogeneous agent model with incomplete markets, we show that higher taxes (and transfers) decrease consumption inequality but also mean savings and mean consumption. This demonstrates the trade-off between equity and efficiency. These theoretical predictions are tested by exploiting differences in tax rates across US states. Using two surveys, the Consumer Expenditure Survey and the Current Population Survey, we show that the empirical evidence supports the theory, and that there is a comparatively small fall in efficiency for a given gain in equity associated with higher taxation. [less ▲]

Detailed reference viewed: 46 (1 UL)