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Empirical Evidence on the Effects of Marginal Tax Rates on Income – The German Case

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Author Info
Peter Gottfried ()
Hannes Schellhorn
Abstract

In 1990 the German personal income tax schedule underwent a major change. We interpret this reform as a ‘natural experiment´ and use a panel of individual income tax returns to analyze the response of income to changes in the individual tax rates. Our results suggest an average elasticity of taxable income with respect to the net-of-tax rate of around 0.4. Due to the detailed information the panel provides, we are not only able to distinguish between different levels of income but also between different types of income. We found very low elasticity estimates in the case of regular employment income, but values of up to 1.0 for business income and for high-income households.

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File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_15.pdf
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Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 15.

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Length: 29 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:iaw:iawdip:15

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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
J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other

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  1. Sillamaa, M. A., 1999. "How work effort responds to wage taxation: A non-linear versus a linear tax experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 219-233, June. [Downloadable!] (restricted)
  2. Robert A Moffitt & Mark Wilhelm, 2000. "Taxation and the Labor Supply - Decisions of the Affluent," Economics Working Paper Archive 414, The Johns Hopkins University,Department of Economics.
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  3. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November. [Downloadable!] (restricted)
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  4. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Sillamaa, Mary-Anne & Veall, Michael R., 2001. "The effect of marginal tax rates on taxable income: a panel study of the 1988 tax flattening in Canada," Journal of Public Economics, Elsevier, vol. 80(3), pages 341-356, June. [Downloadable!] (restricted)
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  6. Martin Feldstein & Daniel Feenberg, 1995. "The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases," NBER Working Papers 5370, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November. [Downloadable!] (restricted)
  8. Austan Goolsbee, 1997. "What Happens When You Tax the Rich? Evidence from Executive Compensation," NBER Working Papers 6333, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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