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Scholars suggest that failure to include implicit taxes in analyses of vertical equity understates the progressivity of the tax system. This paper develops an analytic expression for imputing the implicit tax associated with tax-exempt bonds using the tax-exempt interest income reported on individual income tax returns. To measure progressivity, Kakwani indices are calculated using three definitions of income and three measures of tax liability. In addition, the indices are computed by adding implicit income to the income measure. Examination of the Kakwani indices leads to the conclusion that the tax system is progressive for all measures of tax liability. Total tax (explicit plus implicit), measured against explicit plus implicit income, is more progressive than explicit tax measured against explicit income. Including the implicit tax associated with tax-exempt interest in the measurement of tax progressivity increases the level of progressivity of the tax system slightly.

The impact of the “Great Recession” on inequality is unclear. Because the crises in the housing and stock markets and mass job loss affect incomes across the entire distribution, the overall impact on inequality is difficult to determine. Early speculation using a variety of narrow measures of earnings, income, and consumption yield contradictory results. In this chapter, we develop new estimates of income inequality based on “more complete income” (MCI), which augments standard income measures with those that are accrued from the ownership of wealth. We use the 1989–2007 Surveys of Consumer Finances, and also construct MCI measures for 2009 based on projections of assets, income, and earnings.

We investigate the level and trend in MCI inequality and compare it to other estimates of overall and “high incomes” in the literature. Compared to standard measures of income, MCI suggests higher levels of inequality and slightly larger increases in inequality over time. Several MCI-based inequality measures peaked in 2007 at their highest levels in 20 years. The combined impact of the Great Recession on the housing, stock, and labor markets after 2007 has reduced some measures of income inequality at the top of the MCI distribution. Despite declining from the 2007 peak, however, inequality remains as high as levels experienced earlier in the decade, and much higher than most points over the last 20 years. In the middle of the income distribution, the declines in income from wealth after 2007 were the result of diminished value of residential real estate; at the top of the distribution, declines in the value of business assets had the greatest impact.

We also assess the level and trend in the functional distribution of income between capital and labor, and find a rising share of income accruing to real capital or wealth from 1989 to 2007. The recent economic crisis has diminished the capital share back to levels from 2004. Contrary to the findings of other researchers, we find that the labor share of income among high-income groups declined between 1992 and 2007.

All of the above proposals are realities in Western Europe, and it is suggested that the adoption of such “reforms” would substantially reduce the transaction costs of providing compensation to deserving plaintiffs, improve the efficiency of the tort system, and provide manufacturers and service providers with greater predictability and “fairness” in potential tort damages in the United States.

We conduct an experiment asking participants to choose to purchase either a traditional or hybrid car to examine how federal-state conformity of tax incentives impacts the decisions of taxpayers. We also examine perceptions of taxpayers surrounding federal-state conformity. Consistent with theory related to the effects of information environment and using an experiment in which taxpayers are asked to evaluate tax incentives related to a purchase decision between a traditional and hybrid car, we find that conformity is a significant factor in increasing the propensity to take advantage of the tax incentive. Specifically, we find that participants with simple and conforming federal-state incentives are more likely to take advantage of the tax incentive than with complex and conforming federal-state incentives. In addition, the effects of conformity between federal and state incentives suggest that participant perceptions of the federal system were heavily influenced by the actions of the state.

The fragmentation can either lead to an all-out civil war as in Sri Lanka or a frozen conflict as in Georgia. One of the main characteristics of fragmentation is the control of group members by their respective leaders. The chapter applies standard models of non-cooperative game theory to explain the endogenous fragmentation, which seeks to model the equilibrium formation of rival groups. Citizens become members of these rival groups and some sort of clientelism develops in which political leaders control their respective fragments of citizens. Once the divisions are created, the inter-group rivalry can trigger violent conflicts that may seriously damage the social fabric of a nation and threaten the prospect of peace for the people for a very long time. In other words, our main goal in this chapter is to understand the formation of the patron–client relationship or what is called clientelisation.