Monday, 7 September 2015

Various teaching links: taxes on windows and the number of windows.

Do agents respond to incentives?   Yes they do: putting windows in their house for example.

 Oates, Wallace E., and Robert M. Schwab. 2015. "The Window Tax: A Case Study in Excess Burden." Journal of Economic Perspectives, 29(1): 163-80, show the following.

 They have tax records between 1747 and 1757 from the UK. As they say

We focus initially on the observations in our dataset from 1747 to 1757. As
we discussed above, the window tax was unchanged over this period and included
three notches. A homeowner in this period paid no tax if the house had fewer than
10 windows; a tax of 6 pence per window if the house had 10–14 windows; a tax
of 9 pence per window if the home had 15–19 windows; or a tax of 1 shilling per window if the home had 20 or more windows. Thus the marginal and average tax rate jumped sharply when a consumer installed the 10th, 15th, or 20th window.

 Do agents respond to incentives?  As they then say
If the window tax distorted behavior, then we should expect to see “too many”
homes with 9, 14, or 19 windows.
And this is just what they find on their sample of 496 homes during this period in Ludlow, a market town in Shropshire.

As they say
There are sharp spikes in the number of homes at all three
notches.12 At the first notch, 18.8 percent of the homes have 9 windows, while
4.2 percent have 8 windows and 4.2 percent have 10 windows; at the second notch,
17.7 percent have 14 windows, while 6.0 percent have 13 windows and 1.6 percent
have 15 windows; and at the third notch, 6.5 percent have 19 windows, while
3.4 percent have 18 windows and 1.0 percent have 20 windows.