Rules often are complex in order to distinguish different types of behavior that may have different consequences. Greater complexity thus allows better control of behavior. But individuals may need to incur costs ex ante to determine how more complex rules apply to their contemplated conduct....

Rules often are complex in order to distinguish different types of behavior that may have different consequences. Greater complexity thus allows better control of behavior. But individuals may need to incur costs ex ante to determine how more complex rules apply to their contemplated conduct....

This paper examines estimation of the elasticity of taxable income using instrumental variable regression methods. It is argued that the ‘standard instrument' for the net-of-tax rate − the rate that would be applicable post-reform but with unchanged income levels − is unsatisfactory in...