Recipe 2: Estimating Behavioral Response to Reform¶

This is an advanced recipe that should be followed only after mastering the basic recipe. This recipe shows how to analyze the behavioral responses to a tax reform using the Behavioral-Responses behresp package.

import taxcalc as tc
import behresp

# use publicly-available CPS input file
recs = tc.Records.cps_constructor()

# specify baseline Calculator object representing current-law policy
pol = tc.Policy()
calc1 = tc.Calculator(policy=pol, records=recs)

CYR = 2020

# calculate aggregate current-law income tax liabilities for cyr
calc1.advance_to_year(CYR)
calc1.calc_all()
itax_rev1 = calc1.weighted_total('iitax')

# specify Calculator object for static analysis of reform policy
pol.implement_reform(tc.Policy.read_json_reform('github://PSLmodels:[email protected]/docs/recipes/_static/reformA.json'))
calc2 = tc.Calculator(policy=pol, records=recs)

# calculate reform income tax liabilities for cyr under static assumptions
calc2.advance_to_year(CYR)
calc2.calc_all()
itax_rev2sa = calc2.weighted_total('iitax')

# specify assumed non-zero response-function substitution elasticity
response_elasticities = {'sub': 0.25}

# specify Calculator object for analysis of reform with behavioral responses
calc2 = tc.Calculator(policy=pol, records=recs)
calc2.advance_to_year(CYR)
_, df2br = behresp.response(calc1, calc2, response_elasticities)

# calculate reform income tax liabilities for CYR with behavioral response
itax_rev2br = (df2br['iitax'] * df2br['s006']).sum()

# print total income tax revenue estimates for CYR
# (estimates in billons of dollars)
print('{}_CURRENT_LAW_P__itax_rev($B)= {:.3f}'.format(CYR, itax_rev1 * 1e-9))
print('{}_REFORM_STATIC__itax_rev($B)= {:.3f}'.format(CYR, itax_rev2sa * 1e-9))
print('{}_REFORM_DYNAMIC_itax_rev($B)= {:.3f}'.format(CYR, itax_rev2br * 1e-9))

2020_CURRENT_LAW_P__itax_rev($B)= 712.666
2020_REFORM_STATIC__itax_rev($B)= 714.207
2020_REFORM_DYNAMIC_itax_rev($B)= 702.852

Create multi-year diagnostic tables for

baseline,
reform excluding behavioral responses, and
reform including behavioral responses

NUM_YEARS = 3  # number of diagnostic table years beginning with CYR
dtable1 = calc1.diagnostic_table(NUM_YEARS)
dtable2 = calc2.diagnostic_table(NUM_YEARS)
dvar_list3 = list()
year_list3 = list()
for year in range(CYR, CYR + NUM_YEARS):
    calc1.advance_to_year(year)
    calc2.advance_to_year(year)
    _, df2br = behresp.response(calc1, calc2, response_elasticities)
    dvar_list3.append(df2br)
    year_list3.append(year)
dtable3 = tc.create_diagnostic_table(dvar_list3, year_list3)

Diagnostic table for baseline:

dtable1

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11338.150	12178.876	12493.156
Itemizers (#m)	27.080	28.040	26.590
Itemized Deduction ($b)	733.405	760.876	728.223
Standard Deduction Filers (#m)	177.400	179.040	183.070
Standard Deduction ($b)	3088.310	3145.577	3324.598
Personal Exemption ($b)	0.000	0.000	0.000
Taxable Income ($b)	8372.943	9125.979	9363.127
Regular Tax ($b)	1457.696	1585.907	1630.634
AMT Income ($b)	10791.922	11610.774	11949.966
AMT Liability ($b)	0.436	0.983	0.990
AMT Filers (#m)	0.080	0.240	0.220
Tax before Credits ($b)	1458.132	1586.890	1631.624
Refundable Credits ($b)	657.660	834.182	105.901
Nonrefundable Credits ($b)	98.801	2.124	103.661
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.995	11.777	12.343
Ind Income Tax ($b)	712.666	762.361	1434.404
Payroll Taxes ($b)	1206.584	1268.248	1323.029
Combined Liability ($b)	1919.249	2030.609	2757.434
With Income Tax <= 0 (#m)	135.980	130.830	99.840
With Combined Tax <= 0 (#m)	98.670	100.050	69.540
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Diagnostic table for reform, excluding behavioral responses:

dtable2

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11338.150	12178.876	12493.156
Itemizers (#m)	27.010	27.960	26.550
Itemized Deduction ($b)	730.891	758.366	726.407
Standard Deduction Filers (#m)	177.470	179.110	183.120
Standard Deduction ($b)	3089.620	3146.904	3325.433
Personal Exemption ($b)	375.177	383.210	394.035
Taxable Income ($b)	8126.314	8866.336	9101.213
Regular Tax ($b)	1456.849	1587.259	1633.317
AMT Income ($b)	10794.272	11613.144	11951.765
AMT Liability ($b)	0.453	1.087	1.083
AMT Filers (#m)	0.080	0.260	0.240
Tax before Credits ($b)	1457.302	1588.346	1634.400
Refundable Credits ($b)	661.001	834.182	109.581
Nonrefundable Credits ($b)	93.088	2.002	97.967
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.995	11.777	12.343
Ind Income Tax ($b)	714.207	763.938	1439.195
Payroll Taxes ($b)	1206.584	1268.248	1323.029
Combined Liability ($b)	1920.791	2032.186	2762.224
With Income Tax <= 0 (#m)	138.300	133.050	102.350
With Combined Tax <= 0 (#m)	99.410	100.960	70.230
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Diagnostic table for reform, including behavioral responses:

dtable3

	2020	2021	2022
Returns (#m)	204.480	207.080	209.660
AGI ($b)	11313.495	12149.972	12463.369
Itemizers (#m)	26.980	27.930	26.530
Itemized Deduction ($b)	729.487	756.879	725.086
Standard Deduction Filers (#m)	177.500	179.150	183.140
Standard Deduction ($b)	3090.316	3147.648	3325.834
Personal Exemption ($b)	375.177	383.210	394.035
Taxable Income ($b)	8101.871	8837.583	9071.797
Regular Tax ($b)	1445.701	1574.544	1620.143
AMT Income ($b)	10770.754	11585.459	11923.151
AMT Liability ($b)	0.445	1.143	1.134
AMT Filers (#m)	0.080	0.270	0.240
Tax before Credits ($b)	1446.146	1575.687	1621.277
Refundable Credits ($b)	660.699	834.152	109.300
Nonrefundable Credits ($b)	93.329	2.011	98.203
Reform Surtaxes ($b)	0.000	0.000	0.000
Other Taxes ($b)	10.734	11.486	12.036
Ind Income Tax ($b)	702.852	751.010	1425.810
Payroll Taxes ($b)	1205.953	1267.382	1322.175
Combined Liability ($b)	1908.804	2018.392	2747.986
With Income Tax <= 0 (#m)	138.280	133.020	102.190
With Combined Tax <= 0 (#m)	99.380	100.930	70.040
UBI Benefits ($b)	0.000	0.000	0.000
Total Benefits, Consumption Value ($b)	3617.949	4011.607	4064.249
Total Benefits Cost ($b)	3617.949	4011.607	4064.249

Tax-Calculator

Recipe 2: Estimating Behavioral Response to Reform

Recipe 2: Estimating Behavioral Response to Reform¶