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The elasticity of taxable income of high earners: Evidence from Hungary

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Author Info

  • Áron Kiss

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

  • Pálma Mosberger

    ()
    (Central European University)

Abstract

The paper studies how high-income taxpayers responded to the introduction of the ‘extraordinary tax on individuals’ in Hungary in 2007. The study is based on a panel of tax returns compiled by the Hungarian Tax Authority for the purposes of this study, containing information on 10 percent of tax-filers from 2005 and three subsequent years. We estimate the elasticity of taxable income with respect to the marginal net-of-tax rate and find that the taxable income of Hungarian high earners is moderately responsive to taxation: the estimated elasticity is about 0.2. This means that if the upper tax rate of the 2010 Hungarian tax system were increased by a small amount, the behavioral response of taxpayers would reduce the additional tax revenue by about 60 percent. We find evidence suggesting that the elasticity is a reflection of a labor supply response to the tax change on the intensive margin, and not a reflection of tax shifting, avoidance or evasion.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2011_11.pdf
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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2011/11.

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Length: 38 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mnb:wpaper:2011/11

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Keywords: taxable income elasticity; personal income tax; tax avoidance;

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  1. Slemrod, Joel & Kopczuk, Wojciech, 2002. "The optimal elasticity of taxable income," Journal of Public Economics, Elsevier, vol. 84(1), pages 91-112, April.
  2. 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.
  3. 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.
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Cited by:
  1. Gábor Kátay & Péter Benczúr & Áron Kiss & Olivér M. Rácz, 2014. "Income Taxation, Transfers and Labour Supply at the Extensive Margin," EcoMod2014 6925, EcoMod.

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