3 ms·

Apologies, I think I'm describing something more like the EITC which is phased out. I remember reading something by Mankiew briefly describing their equivalence

• eru 6y ago
  No worries. For something like an income tax, you can basically always describe any phase-ins and phase-outs equivalently in terms of marginal rates on different brackets without any phase-ins or outs. No matter whether you talk about EITC or negative income taxes. Even the British example I cited can be re-contextualised as just a 60% marginal rate for people with around 120k GBP of income, that then slides down again to a 45% marginal rate at a higher income. (Or something like that. You do the arithmetic.) Even though the law as written is formulated in terms of a phase-out. The blog post you linked talks about exactly that reframing. Many economists find it useful to talk in terms of the marginal rates instead of phase-in and phase-out. Mostly because the former lends itself more to a net perspective over all taxes and welfare programs. When those net marginal rates approach 100% or even go over for some people, you can immediately see that earning an extra dollar from work would make people worse off after taxes. That's less obvious in the other formulation.