Estimating dynamic income responses to tax reforms: Swedish evidence
AbstractWe study income responses to income tax changes by using a large panel of Swedish tax payers over the period 1991–2002. Changes in statutory tax rates as well as discretionary changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. For men, the estimates of the long-run elasticity of income with respect to the net-of-tax rate hover in a range between 0.10 and 0.30. The estimates for women are imprecise and statistically insignificant. We simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform may have negligible effects on tax revenues even for relatively small elasticities when the interactions between income taxes and other taxes are taken into account.
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Bibliographic InfoPaper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2008:28.
Length: 34 pages
Date of creation: 03 Dec 2008
Date of revision:
Marginal tax rates; progressive taxes; earned income; tax reform;
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-02-14 (Accounting & Auditing)
- NEP-ALL-2009-02-14 (All new papers)
- NEP-PBE-2009-02-14 (Public Economics)
- NEP-PUB-2009-02-14 (Public Finance)
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- Gelber, Alexander, 2010. "Taxation and the Earnings of Husbands and Wives," MPRA Paper 20345, University Library of Munich, Germany.
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