Public Economics.

• Author: Poterba, James M.
• Position: Program Report - Statistical Data Included

James M. Poterba (*)

There have been major changes in U.S. tax policy, and much discussion of possible changes in expenditure programs, since my report three years ago on the Public Economics (PE) Program. The Economic Growth and Taxpayer Relief Reconciliation Act of 2001 is the most significant change in federal tax policy since the Tax Reform Act of 1986.

While there have been no comparably dramatic recent changes in government expenditure programs, the policy debate on two major programs has shifted quite sharply. Reforming Social Security and Medicare, long viewed as a political impossibility; has risen high on the policy agenda. While policy debate on these important issues has received little attention since the tragic events of September 11, a political dialogue on these programs started before that date, and it will surely continue in the future. Recent events also have generated new interest in old questions about the government's role in the private economy, with particular emphasis on insurance markets and the transportation sector.

The extraordinary level of policymaking activity with respect to both taxation and expenditure programs has been accompanied by a great deal of research activity by NBER affiliates in the field of public economics. In the last three years, more than 400 Working Papers were published in the PE Program. Program affiliates published four major books on topics involving taxation and public expenditure, along with three special issues of refereed journals and three new Tax Policy and the Economy volumes. The 81 program members participated in more than 20 research meetings ranging from small working group gatherings on narrow topics to full-scale Program Meetings and the biennial Trans-Atlantic Public Economics Seminar. The researchers in the PE Program currently are studying the economic effects of taxation, social insurance programs, and a host of other government policies. Their work provides critical input for policymakers who are considering reform options.

Two new NBER initiatives, the Working Group on Environmental Economics and the Program on the Economics of Education, have been created under the direction of PE Program members Don Fullerton and Caroline M. Hoxby, respectively. These new organizational structures provide an important opportunity for researchers working on specific topics that are broadly within the purview of public economics to meet and discuss recent research developments. The NBER Program on the Well-Being of Children, directed by PE Program member Jonathan Gruber, is another example of such a specialized program.

In this report, I describe several components of the recent research by PE program members. The report is necessarily selective, and it excludes far more research than it includes. In light of the substantial recent policy interest and research activity on taxation and Social Security reform, I have focused most of this summary on new studies that bear on those topics. I also briefly describe new work on two emerging research areas.

Personal Income Taxes

Recent research by NBER affiliates provides new evidence on how taxes affect household decisions about labor supply, saving, charitable giving, and a range of other behaviors. The changes in the U.S. individual income tax that were enacted in 1993 and 1997 have provided an important opportunity to learn more about the impact of taxation. Researchers not only have analyzed these reforms, but also have developed new conceptual approaches for looking at a range of tax policy issues.

One of the most...