mckeehan-_-jmc-_2I received my Ph.D. in economics from Rice University  May 13, 2017. My research interests include public finance, with an emphasis on international capital income taxation, and labor economics. I will be joining The Brattle Group in July, 2017.


How Should We Tax Capital Income? Optimality Under Policy Constraints in a Global Economy

(Job Market Paper)

While there are economic arguments supporting and opposing positive capital income taxation, public perception may determine the level of capital income taxation more than economic arguments. Consistent with this view, several recent tax reform proposals treat the existing level of capital income taxation as roughly fixed and focus instead on changing the structure of capital income taxation. In this paper, I adopt such an approach, evaluating tax reforms in the context of a fixed capital income tax revenue requirement with a government that chooses the optimal balance between source-based and residence-based capital income taxes. This decision is captured in an equilibrium model that includes individual savings decisions, variable capital mobility, and tax evasion. In this context, I focus on how globalization affects the optimal balance, where globalization is a combination of increased capital mobility and increased opportunities for tax evasion. I find that in the context of globalization an optimal tax reform will generally focus on mitigating economic distortions, not tax evasion.

Balancing Act: Weighing the Factors Affecting the Taxation of Capital Income in a Small Open Economy

(With George R. Zodrow)

Alternative economic theories yield dramatically different prescriptions for optimal capital taxation in small open economies. On the one hand, foreign firms, including those with investments that yield firm-specific above-normal returns, have a large number of alternative investment opportunities; this suggests that the supply of foreign direct investment is highly elastic, which implies that small open economies should avoid imposing any source-based taxes on capital income. On the other hand, governments invariably want to tax any above-normal returns earned by location-specific capital, especially if the returns accrue to foreigners, and to take full advantage of the potential revenue increase from any “treasury transfer” effect that arises due to residence-based tax systems with foreign tax credits, such as that utilized by the USA. These factors suggest that investment is highly inelastic with respect to capital taxation, so that source-based capital income taxation is desirable; indeed, in one special case, the capital income tax rate for a small open economy should equal the relatively high US tax rate. Moreover, this difficult trade-off is in practice complicated by numerous additional factors: deferral of unrepatriated profits and cross-crediting of foreign tax credits for the US multinationals, foreign direct investment from firms from countries that, unlike the USA, operate territorial systems, and the existence of opportunities for both international capital income shifting and labor income shifting. In this paper, we analyze optimal capital income taxation in a small open economy model that attempts to balance these conflicting factors. (International Tax and Public Finance, Volume 24 Issue 1)

The EITC and the Labor Supply of Adult Dependents: Direct Effects and Family Income Effects

Tax data suggest that the population of adult dependents — adults relying on the support of others for the majority of their financial needs — has more than doubled over the last decade. However, little is known about how taxes affect the labor supply decisions of this population. This paper provides an initial investigation, studying the impact of the Earned Income Tax Credit (EITC) expansions of the early 1990s on the labor supply of adult dependents living with their relatives. I find that dependent individuals who were not a part of the nuclear family responded to the EITC expansions, increasing labor force participation by about 5 percentage points. For adult children, I show that the absence of a net response is likely due to an unexpected consequence of the EITC: expanded family credits led to a decrease in their labor force participation. (Forthcoming, Review of Economics of the Household)

Hesitating at the Altar: An Update on Taxes and the Timing of Marriage

(With Nick Frazier)

This paper provides evidence that the U.S. tax code’s dependence on marital status continues to generate an implicit marriage tax and distort marital decisions. By looking at the timing of marriage rather than the decision to marry (see Alm and Whittington (1997)) we capture a specific distortion while allowing for heterogeneity in other costs of marriage. Using data on couples from the Panel Study on Income Dynamics between 1986 and 2011, we find that a one percent rise in the size of the marriage tax relative to a couple’s income increases the probability of delay by 1.2 percentage points. We further demonstrate the robustness of this result across a variety of alternative specifications and assumptions regarding tax-filing behavior. (Forthcoming, Public Finance Review)

The Effects of Sales Tax Reform with Taxation of Intermediate Goods

(With George R. Zodrow)

In this paper we study the economic effects of the most commonly recommended reform of a typical U.S. state sales tax — the inclusion in the tax base of services and other commonly exempted consumption goods coupled with the elimination of taxation of business purchases of intermediate goods. We analyze the effects of such a reform within the context of a small open economy model with two consumption goods, one of which is also used as an input in production.

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