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Deadweight loss and taxation of earned income: evidence from tax records of the UK self-employed

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  • Laura Blow

    ()
    (Institute for Fiscal Studies)

  • Ian Preston

    ()
    (Institute for Fiscal Studies and University College London)

Abstract

Responses to changes in marginal income tax rates can be more complex than a simple adjustment in hours worked. Given this, a more inclusive way to assess the deadweight costs of taxes on labour income is to examine the effect of changes in the marginal tax rate on taxable income rather than on labour supply. In this paper we apply a grouping estimator to data from the UK Survey of Personal Incomes so assess the magnitude of taxable income responses of the self employed. Our results point to a modest degree of deadweight loss.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W02/15.

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Length: 28 pp
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:ifs:ifsewp:02/15

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References

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  1. Graeme Macdonald & Edward Whitehouse, 1993. "Changing tax for the self-employed," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 107-126, February.
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  9. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  10. 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.
  11. Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence from the Norwegian Tax Reform," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 319-38, June.
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  15. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.
  16. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  17. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
  18. Andrew Dilnot & C. N. Miller, 1981. "What do we know about the black economy?," Fiscal Studies, Institute for Fiscal Studies, vol. 2(1), pages 58-73, March.
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  20. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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Cited by:
  1. Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," NBER Working Papers 15012, National Bureau of Economic Research, Inc.
  2. Stuart Adam, 2005. "Measuring the marginal efficiency cost of redistribution in the UK," IFS Working Papers W05/14, Institute for Fiscal Studies.

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