Matthew C. Weinzierl
Assistant Professor of Business Administration
Matt Weinzierl completed his PhD in economics at Harvard University in 2008 and is an Assistant Professor in the Business, Government, and the International Economy Unit at Harvard Business School. Prior to his doctoral studies, Professor Weinzierl worked in the New York office of McKinsey & Company, specializing in financial services. From 2003 to 2004, he served as the Staff Economist for Macroeconomics on the President’s Council of Economic Advisers.
Matt Weinzierl completed his PhD in economics at Harvard University in 2008 and is an Assistant Professor in the Business, Government, and the International Economy Unit at Harvard Business School. Prior to his doctoral studies, Professor Weinzierl worked in the New York office of McKinsey & Company, specializing in financial services. From 2003 to 2004, he served as the Staff Economist for Macroeconomics on the President’s Council of Economic Advisers.
Professor Weinzierl’s research focuses on the optimal design of tax policy. In particular, he has written on the potential value of age-dependent taxation, the dynamic feedback effects of tax changes, the use of fiscal policy to counteract recessions, and the impact of differences in beliefs and tastes across individuals on optimal tax design. His research has been published in Review of Economic Studies, Journal of Public Economics, American Economic Journals: Economic Policy, Brookings Papers on Economic Activity, Journal of Economic Perspectives, and has been discussed in the Economist, the New York Times, and the Wall Street Journal. In 2008, he was selected to participate in the Review of Economic Studies tour. He is a Faculty Research Fellow at the National Bureau of Economic Research.
Professor Weinzierl is married to Coventry Edwards-Pitt, a wealth advisor. Their family lives in the western suburbs of Boston and spends its free time enjoying music, the outdoors, and ice cream.
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Article
| Journal of Public Economics
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Preference Heterogeneity and Optimal Capital Income Taxation
Mikhail Golosov, Maxim Troshkin, Aleh Tsyvinski and Matthew Weinzierl
We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces determining optimal commodity taxation. We then calibrate the model to evidence on the relationship between skills and preferences and extensively examine the quantitative case for taxes on future consumption (saving). In our baseline case of a unit intertemporal elasticity, optimal capital income tax rates are 2% on average and 4.5% on high earners. We find that the intertemporal elasticity of substitution has a substantial effect on optimal capital taxation. If the intertemporal elasticity is one-third, optimal capital income tax rates rise to 15% on average and 23% on high earners; if the intertemporal elasticity is two, optimal rates fall to 0.6% on average and 1.6% on high earners. Nevertheless, in all cases that we consider, the welfare gains of using optimal capital taxes are small.
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Article
| Brookings Papers on Economic Activity
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An Exploration of Optimal Stabilization Policy
N. Gregory Mankiw and Matthew C. Weinzierl
This paper examines the optimal response of monetary and fiscal policy to a decline in aggregate demand. The theoretical framework is a two-period general equilibrium model in which prices are sticky in the short-run and flexible in the long-run. Policy is evaluated by how well it raises the welfare of the representative household. While the model has Keynesian features, its policy prescriptions differ significantly from textbook Keynesian analysis. Moreover, the model suggests that the commonly used "bang for the buck" calculations are potentially misleading guides for the welfare effects of alternative fiscal policies.
Keywords: Business Cycles;
Framework;
Theory;
Business Model;
Markets;
Welfare or Wellbeing;
Policy;
History;
Balance and Stability;
Business Organization;
Price;
Citation: Mankiw, N. Gregory, and Matthew C. Weinzierl. " An Exploration of Optimal Stabilization Policy." Brookings Papers on Economic Activity (spring 2011). (Also Harvard Business School Working Paper, No. 11-113, May 2011 and NBER Working Paper Series, No. 17029, May 2011.)
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Journal Article
| Review of Economic Studies
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The Surprising Power of Age-Dependent Taxes
Matthew C. Weinzierl
This article provides a new, empirically driven application of the dynamic Mirrleesian framework by studying a feasible and potentially powerful tax reform: age-dependent labor income taxation. I show analytically how age dependence improves policy on both the intratemporal and intertemporal margins. I use detailed numerical simulations, calibrated with data from the U.S. PSID, to generate robust policy implications: age dependence (1) lowers marginal taxes on average and especially on high-income young workers and (2) lowers average taxes on all young workers relative to older workers when private saving and borrowing are restricted. Finally, I calculate and characterize the welfare gains from age dependence. Despite its simplicity, age dependence generates a welfare gain equal to between 0.6% and 1.5% of aggregate annual consumption, and it captures more than 60% of the gain from reform to the dynamic optimal policy. The gains are due to substantial increases in both efficiency and equity. When age dependence is restricted to be Pareto-improving, the welfare gain is nearly as large.
Keywords: Age Characteristics;
Income Characteristics;
Policy;
Taxation;
Mathematical Methods;
Welfare or Wellbeing;
United States;
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Journal Article
| American Economic Journal: Economic Policy
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The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution
N. Gregory Mankiw and Matthew C. Weinzierl
Should the income tax include a credit for short taxpayers and a surcharge for tall ones? The standard Utilitarian framework for tax analysis answers this question in the affirmative. Moreover, a plausible parameterization using data on height and wages implies a substantial height tax: a tall person earning $50,000 should pay $4,500 more in tax than a short person. One interpretation is that personal attributes correlated with wages should be considered more widely for determining taxes. Alternatively, if policies such as a height tax are rejected, then the standard Utilitarian framework must fail to capture intuitive notions of distributive justice.
Keywords: Taxation;
Wages;
Personal Characteristics;
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Article
| Journal of Economic Perspectives
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Optimal Taxation in Theory and Practice
N. Gregory Mankiw, Matthew C. Weinzierl and Danny Yagan
We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.
Keywords: Taxation;
Theory;
Practice;
Policy;
Distribution;
Capital;
Assets;
History;
Equality and Inequality;
Personal Characteristics;
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Article
| Journal of Public Economics
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Dynamic Scoring: A Back-of-the-Envelope Guide
Matthew C. Weinzierl and N. Gregory Mankiw
This paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth. The model yields simple expressions for the steady-state feedback effect of a tax cut. The feedback is surprisingly large: for standard parameter values, half of a capital tax cut is self-financing. The paper considers various generalizations of the basic model, including elastic labor supply, general production technologies, departures from infinite horizons, and non-neoclassical production settings. It also examines how the steady-state results are modified when one considers the transition path to the steady state.
Keywords: Taxation;
Venture Capital;
Financial Services Industry;
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Working Paper
| 2012
The Promise of Positive Optimal Taxation: A Generalized Theory Calibrated to Survey Evidence on Normative Preferences Explains Puzzling Features of Policy
Matthew C. Weinzierl
At the heart of modern optimal tax research is the assumption that the objective of taxation is Utilitarian. I present new survey evidence that most people disagree with this assumption, preferring tax policies based at least in part on a classic alternative objective: the principle of Equal Sacrifice. I generalize the standard model to accommodate this preference for a mixed objective. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence, quantitatively matches several features of existing tax policy that are incompatible in the conventional model but widely endorsed in reality, including the coexistence of substantial redistribution and limited tagging. Additional implications increase the appeal of these steps toward a positive theory of optimal taxation.
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Working Paper
| HBS Working Paper Series
| 2012
Why Do We Redistribute so Much but Tag so Little? Normative Diversity, Equal Sacrifice and Optimal Taxation
Matthew Weinzierl
Tagging is a free lunch in conventional optimal tax theory because it eases the classic tradeoff between efficiency and equality. But tagging is used in only limited ways in tax policy. I propose one explanation: conventional optimal tax theory has yet to capture the diversity of normative principles with which society evaluates taxes. I generalize the conventional model to incorporate multiple normative frameworks. I then show that if the principle of equal sacrifice--a classic, comprehensive criterion of fair taxation proposed by John Stuart Mill and associated with the Libertarian normative framework--is given some weight in the social objective function, tagging generates costs that must be weighed against the benefits it generates through conventional channels. Only tags that are sufficiently predictive of ability, such as disability status, will be used. Calibrated simulations using micro data from the United States show that optimal policy may simultaneously include substantial redistribution across income-earning abilities, as in the standard model, and reject three prominently-proposed tags--gender, race, and height--as in actual policy. This explanation for limited tagging also implies that optimal marginal tax rates at high incomes are lower than in standard analysis and closer to those observed in policy. NBER Working Paper #18045, HBS WP #12-064.
Keywords: Forecasting and Prediction;
Cost;
Framework;
Policy;
Taxation;
Data and Data Sets;
Performance Efficiency;
United States;
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Working Paper
| HBS Working Paper Series
| 2012
Equalizing Outcomes vs. Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources
Alexander Gelber and Matthew Weinzierl
Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore will treat future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate optimal policy numerically. Optimal policy is more redistributive toward low-income parents than existing U.S. tax policy. The optimal policy increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of 1.28% of consumption in our baseline case.
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Working Paper
| HBS Working Paper Series
| 2012
De Gustibus non est Taxandum: Theory and Evidence on Preference Heterogeneity and Redistribution
Benjamin B Lockwood and Matthew Weinzierl
Preferences over consumption and leisure play no role in the standard optimal tax model, which attributes all variation in earnings to differences in income-earning ability. We show how to incorporate these preferences, which like ability are publicly unobservable, into the standard model in a tractable way. In this more general model, the policy designer must guess at the relative importance of ability and preferences in explaining variation in earnings. We show that such preferences could, in principle, increase or decrease optimal redistribution. In the most plausible specifications of the model, however, the result is clear: greater variation in preferences lowers the optimal extent of redistribution. To generate more redistribution than in standard results, one must assume that the desire for income is inversely related to income earned. This result holds even when the conventional model accurately describes the average individual, and it suggests one potential resolution to the puzzle of why observed redistribution is in some cases weaker than conventional theory would suggest. We then establish a new empirical finding that confirms this model's central policy prediction across developed countries and U.S. states. In countries and states with more heterogeneous tastes for consumption relative to leisure, redistribution is statistically significantly lower.
Keywords: Spending;
Policy;
Taxation;
Theory;
United States;
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Working Paper
| HBS Working Paper Series
| 2011
Preference Heterogeneity and Optimal Capital Income Taxation
Mikhail Golosov, Maxim Troshkin, Aleh Tsyvinski and Matthew Weinzierl
We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces determining optimal commodity taxation. We then calibrate the model to evidence on the relationship between skills and preferences and extensively examine the quantitative case for taxes on future consumption (saving). In our baseline case of a unit intertemporal elasticity, optimal capital income tax rates are 2% on average and 4.5% on high earners. We find that the intertemporal elasticity of substitution has a substantial effect on optimal capital taxation. If the intertemporal elasticity is one-third, optimal capital income tax rates rise to 15% on average and 23% on high earners; if the intertemporal elasticity is two, optimal rates fall to 0.6% on average and 1.6% on high earners. Nevertheless, in all cases that we consider, the welfare gains of using optimal capital taxes are small.
Keywords: Income Characteristics;
Capital;
Saving;
Goods and Commodities;
Taxation;
Demand and Consumers;
Citation: Golosov, Mikhail, Maxim Troshkin, Aleh Tsyvinski, and Matthew Weinzierl. " Preference Heterogeneity and Optimal Capital Income Taxation." Harvard Business School Working Paper, No. 11–104, April 2011. (Also NBER Working Paper Series, No. 16619, December 2010. Revise and resubmit to Journal of Public Economics.)
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Background Note
| HBS Case Collection
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2013
Comparative Advantage
Matthew Weinzierl
The theory of comparative advantage is a factor in international trade. In this note, we introduce the basic economics of comparative advantage and study its key implications.
Keywords: Business and Government Relations;
Comparative Advantage;
economics;
International trade;
Citation: Weinzierl, Matthew. "Comparative Advantage." Harvard Business School Background Note 713-080, April 2013.
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Case
| HBS Case Collection
|
2011
(Revised from original 2009 version)
Barack Obama and the Bush Tax Cuts (A)
Matthew C. Weinzierl and Eric D. Werker
As his inauguration approached, President-elect Obama faced a financial sector meltdown, a costly bailout, and massive government deficits. With the economy in recession, interest rates near zero, and joblessness on the rise, Obama needed to decide whether, and how much, to use fiscal stimulus to resuscitate the economy. To help students understand Obama's options, the case reviews both the recent tax cuts under President George W. Bush, including the supply-side and demand-management justification given for them, and the broad history of fiscal policy in the United States.
Keywords: Decision Choices and Conditions;
Financial Crisis;
Borrowing and Debt;
Financial Management;
Policy;
Government Administration;
Taxation;
United States;
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Teaching Note
| HBS Case Collection
|
2011
(Revised from original 2009 version)
Barack Obama and the Bush Tax Cuts (A) (TN)
Matthew C. Weinzierl and Eric D. Werker
Teaching Note for 709037.
Keywords: Government and Politics;
Taxation;
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Supplement
| HBS Case Collection
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2011
(Revised from original 2011 version)
Barack Obama and the Bush Tax Cuts (B)
Matthew Weinzierl and Jacob Kuipers
President Obama signs a major fiscal stimulus package and then must debate whether to extend the Bush tax cuts.
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Teaching Note
| HBS Case Collection
|
2011
(Revised from original 2011 version)
Barack Obama and the Bush Tax Cuts (TN) (B)
Matthew Weinzierl and Jacob Kuipers
Teaching Note for 712-012.
Keywords: Taxation;
Government and Politics;
United States;
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Case
| HBS Case Collection
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2011
(Revised from original 2010 version)
Ben Bernanke: Person of the Year?
Lakshmi Iyer and Matthew C. Weinzierl
In response to the economic and financial crisis of 2008–2009, the Federal Reserve greatly expanded the scale and scope of its activities. Though lauded by many experts for its actions, the Fed and its chairman, Ben Bernanke, faced harsh criticism from some public commentators and members of Congress. This document summarizes that criticism and Chairman Bernanke's responses to it, highlighting the tension between congressional oversight of the Fed and the Fed's independence from political influence.
Keywords: Financial Crisis;
Central Banking;
Governance Controls;
Policy;
Crisis Management;
Power and Influence;
Public Administration Industry;
United States;
Citation: Iyer, Lakshmi, and Matthew C. Weinzierl. " Ben Bernanke: Person of the Year?" Harvard Business School Case 710-051, March 2011. (Revised from original January 2010 version.)
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Case
| HBS Case Collection
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2013
(Revised from original 2010 version)
California's Budget Crises, Tax Reform, and Domestic and International Tax Competition
Matthew C. Weinzierl and Jacob Kuipers
How do (and how should) governments design fiscal policies to compete in a globalized economy while meeting internal policy priorities including redistribution? In 2009, Governor Arnold Schwarzenegger repeatedly declared fiscal emergencies as California's state budget deficit reached all-time highs. The Governor and legislative leaders established the Commission on the Twenty-first Century Economy to recommend tax reforms that would improve the state's fiscal health and competitiveness. But when the Commission issued its recommendations, many of which were consistent with domestic and international trends in taxation, legislative leaders were highly critical and the prospects for reform dimmed. The case describes the political and economic contributors to California's persistent fiscal deficits and the reforms recommended by the Commission. It summarizes recent trends in taxation by U.S. states and OECD nations, relating the empirical trends to tax theory. Finally, it engages the issue of inter-jurisdictional tax competition from both positive and normative perspectives.
Keywords: Budgets and Budgeting;
Economy;
Globalization;
Governing Rules, Regulations, and Reforms;
Policy;
Taxation;
Competition;
California;
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Teaching Note
| HBS Case Collection
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2012
Californias Budget Crises, Tax Reform, and Domestic and International Tax Competition (TN)
Matthew Weinzierl
Keywords: Financial Crisis;
Budgets and Budgeting;
Taxation;
Governing Rules, Regulations, and Reforms;
California;
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Background Note
| HBS Case Collection
|
2011
(Revised from original 2010 version)
GUIDES: Insight through Indicators
Matthew C. Weinzierl, Jonathan Schlefer and Ann Cullen
GUIDES is an easily remembered framework that can help the business leader and student to confidently and quickly identify, organize, and interpret a country's key economic indicators. Alternatively, it can help them to evaluate third-party analyses and to compare such analyses across countries. In either case, this framework provides a structured way to complete and communicate analysis of a country's economic data.
Keywords: Economy;
Macroeconomics;
Framework;
Country;
Performance Evaluation;
Citation: Weinzierl, Matthew C., Jonathan Schlefer, and Ann Cullen. " GUIDES: Insight through Indicators." Harvard Business School Background Note 710-044, December 2011. (Revised from original January 2010 version.)
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Background Note
| HBS Case Collection
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2011
GUIDESlines: Benchmark Values for the GUIDES Framework
Matthew C. Weinzierl, Jacob Kuipers and Jonathan Schlefer
GUIDESlines provides benchmark values of the key economic indicators identified in the GUIDES framework for both developed countries (the OECD) and fast-growing emerging markets (the BRINCS countries).
Keywords: Economics;
Business Cycles;
Macroeconomics;
Framework;
Business and Government Relations;
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Case
| HBS Case Collection
|
2012
(Revised from original 2011 version)
Hungary: Economic Crisis and a Shift to the Right
Rafael M. Di Tella, Matthew C. Weinzierl and Jacob Kuipers
Keywords: Economics;
Financial Crisis;
Hungary;
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Teaching Note
| HBS Case Collection
|
2012
Hungary: Economic Crisis and a Shift to the Right (TN)
Matthew Weinzierl
Keywords: Financial Crisis;
Government and Politics;
Hungary;
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Course Overview Note
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2013
(Revised from original 2010 version)
Introduction to Business, Government, and the International Economy (BGIE)
Catherine S. M. Duggan, Aldo Musacchio and Matthew C. Weinzierl
Keywords: Business and Government Relations;
International Relations;
Trade;
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Other Teaching and Training Material
| From Optimal Tax Theory to Tax Policy: Retrospective and Prospective Views, by Robin Boadway
| 2013
"From Optimal Tax Theory to Tax Policy: Retrospective and Prospective Views," by Robin Boadway
Matthew C. Weinzierl
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Article
| Harvard Business Review
|
Macroeconomic Policy and U.S. Competitiveness
Richard H.K. Vietor and Matthew Weinzierl
The United States is on a glide path to fiscal disaster, with experts projecting that the federal government will take in far less money than it spends-indefinitely. Our current fiscal policy is eroding competitiveness in several ways, and business conditions in the U.S. will deteriorate if there's no change in direction. The authors examine how fiscal policy relates to the three drivers of productivity: improving human capital, increasing physical capital (equipment or software, for example), and using these forms of capital more efficiently. Government spending for many public goods, such as education and infrastructure, contributes directly to one or more of them, whereas spending on health care and entitlements does little to enhance competitiveness directly. Taxes are needed to fund public goods, but they sometimes distort the allocation of human and physical capital. And large government deficits put upward pressure on the cost of borrowing for companies. The authors propose a plan-they call it "20/21 by 2021"-to reduce the deficit from 3.8% of GDP (the Congressional Budget Office's most likely scenario) to just over 1%.
Keywords: Macroeconomics;
Government and Politics;
Financial Crisis;
Policy;
Competition;
Public Administration Industry;
United States;
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