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The Elasticity of Taxable Income:

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  • John Creedy

Abstract

This paper provides an introduction to the concept of the elasticity of taxable income with respect to the net-of-tax rate. This elasticity aims to capture all potential responses to income taxation in a single elasticity measure, without the need to specify the nature of the various adjustment processes involved or consider the details of tax regulations. These adjustments include, as well as labour supply changes, income shifting between sources which are taxed at different rates, and tax evasion through non-declaration of income. The use of such a ‘reduced form’ approach has proved to be very attractive. The elasticity of taxable income has the added attraction that, under certain assumptions, it is sufficient to obtain a measure of the excess burden of income taxation. Emphasis is placed on the assumptions behind the approach.

Suggested Citation

  • John Creedy, 2009. "The Elasticity of Taxable Income:," Department of Economics - Working Papers Series 1085, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1085
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0004/801175/1085.pdf
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    References listed on IDEAS

    as
    1. John Creedy, 1998. "Measuring Welfare Changes and Tax Burdens," Books, Edward Elgar Publishing, number 1579.
    2. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    3. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    4. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    5. John Creedy & Norman Gemmell, 2006. "Modelling Tax Revenue Growth," Books, Edward Elgar Publishing, number 4073.
    6. Jorge Onrubia?Fernández & José Félix Sanz?Sanz, 2009. "Reported Taxable Income and Marginal Tax Rates: Evidence for Spain Based on the Fiscal Drag," Department of Economics - Working Papers Series 1075, The University of Melbourne.
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    Cited by:

    1. John Creedy & Norman Gemmell, 2010. "Behavioural responses to corporate profit taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 193(2), pages 109-130, June.
    2. John Creedy & Norman Gemmell, 2020. "The elasticity of taxable income of individuals in couples," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 931-950, August.
    3. Vincenzo Prete & Alessandro Sommacal & Claudio Zoli, 2016. "Optimal Non-Welfarist Income Taxation for Inequality and Polarization Reduction," Working Papers 23/2016, University of Verona, Department of Economics.
    4. Iris Claus & John Creedy & Josh Teng, 2012. "The Elasticity of Taxable Income in New Zealand," Fiscal Studies, Institute for Fiscal Studies, vol. 33(3), pages 287-303, September.
    5. Yu kun Wang & Li Zhang, 2021. "Underground economy and GDP growth: Evidence from China’s tax reforms," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(1), pages 87-107.
    6. Johannes Hermanus Kemp, 2020. "The elasticity of taxable income: New data and estimates for South Africa," WIDER Working Paper Series wp-2020-29, World Institute for Development Economic Research (UNU-WIDER).

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