CG behavioral elasticity example -- should it rely on CG MTR from TC/TD?

[MattHJensen]

The CG behavioral elasticity example in the Behavior.response() docstring uses the capital-gains-weighted average (pre-reform) marginal tax rate from TPC to . I am wondering if we should switch to using the MTR from TC/TD.

Note: the nature of the capital-gains elasticity used here is similar
to that used in Joint Committee on Taxation, "New Evidence on the
Tax Elasticity of Capital Gains: A Joint Working Paper of the Staff
of the Joint Committee on Taxation and the Congressional Budget
Office", (JCX-56-12), June 2012. In particular, the elasticity
use here is equivalent to the term inside the square brackets on
the right-hand side of equation (4) on page 11 --- not the epsilon
variable on the left-hand side of equation (4), which is equal to
the elasticity used here times the weighted average marginal tax
rate on long-term capital gains. So, the JCT-CBO estimate of
-0.792 for the epsilon elasticity (see JCT-CBO, Table 5) translates
into a much larger absolute value for the _BE_cg elasticity used by
Tax-Calculator. So, for example, if the capital-gains-weighted
average (pre-reform) marginal tax rate was, say, 0.216 (as reported
by Tax Policy Center), then the _BE_cg elasticity to use here (that
corresponds to the -0.792) would be about -3.67.

@martinholmer, do you remember the history of thought on using TPC's to begin with?

@codykallen, do you remember which sources you used to derive the -3.49 elasticity that you have been using?

[codykallen]

Yes, I used the TPC marginal rates but the OSPC's income shares. And I still have the workbook I used to produce the -3.49 semi-elasticity.

[codykallen]

I just ran the numbers for 2016, using weights (taxable gain, as in the CBO-JCT paper) and marginal tax rates on p23250 from TC. I come up with a semi-elasticity of -3.45. This also corresponds to a net-of-tax-rate elasticity of 2.66.

[MattHJensen]

@codykallen, would you be interested in updating the behavior.response() docstring w your new finding?

[codykallen]

@MattHJensen I just updated it in PR #1076

[MattHJensen]

Thanks @codykallen! Closing by #1076.