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Estimating the Revenue Maximizing Top Personal Tax Rate

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  • Lawrence B. Lindsey
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    Abstract

    The idea that marginal tax rates and tax revenue may be inversely related is at least as old as Adam Smith's Wealth of Nations. The emergence of the "Laffer Curve" in the modern public debate on the subject has rekindled interestin this idea. The present paper uses data from the 1982 tax rate reductions to estimate the revenue maximizing top personal tax rate.This paper also examines the components of taxable income to consider the sources of taxpayer response to changes in marginal tax rates. The National Bureau of Economic Research TAXSIM model was used extensively in this study to estimate the magnitude of taxpayer response to tax rate changes.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1761.

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    Date of creation: Oct 1985
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    Handle: RePEc:nbr:nberwo:1761

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    1. Daniel R. Feenberg & Harvey S. Rosen, 1983. "Alternative Tax Treatments of the Family: Simulation Methodology and Results," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 7-46 National Bureau of Economic Research, Inc.
    2. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, Econometric Society, vol. 44(3), pages 485-507, May.
    3. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
    4. Buchanan, James M & Lee, Dwight R, 1982. "Politics, Time, and the Laffer Curve," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 816-19, August.
    5. N. Gregory Mankiw & Lawrence H. Summers, 1987. "Are Tax Cuts Really Expansionary?," NBER Working Papers 1443, National Bureau of Economic Research, Inc.
    6. Fries, Albert & Hutton, John P & Lambert, Peter J, 1982. "The Elasticity of the U.S. Individual Income Tax: Its Calculation, Determinants and Behavior," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 147-51, February.
    7. Feldstein, Martin & Slemrod, Joel & Yitzhaki, Shlomo, 1980. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(4), pages 777-91, June.
    8. Fullerton, Don, et al, 1981. "Corporate Tax Integration in the United States: A General Equilibrium Approach," American Economic Review, American Economic Association, vol. 71(4), pages 677-91, September.
    9. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
    10. G. Burtless & J. A. Hausman, 1977. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment," Working papers 211, Massachusetts Institute of Technology (MIT), Department of Economics.
    11. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
    12. Browning, Edgar K & Johnson, William R, 1984. "The Trade-Off between Equality and Efficiency," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(2), pages 175-203, April.
    13. Feldstein, Martin & Slemrod, Joel & Yitzhaki, Shlomo, 1984. "The Effects of Taxation on the Selling of Corporate Stock and the Realization of Capital Gains: Reply," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(1), pages 111-20, February.
    14. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(2), pages S3-27, April.
    15. Metcalf, Charles E, 1969. "The Size Distribution of Personal Income during the Business Cycle," American Economic Review, American Economic Association, vol. 59(4), pages 657-68, Part I Se.
    16. Joel Slemrod, 1978. "The Lock-In Effect of the Capital Gains Tax: Some Time Series Evidence," NBER Working Papers 0257, National Bureau of Economic Research, Inc.
    17. Feldstein, Martin & Clotfelter, Charles, 1976. "Tax incentives and charitable contributions in the United States : A microeconometric analysis," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 1-26.
    18. Grieson, Ronald E., 1980. "Theoretical analysis and empirical measurements of the effects of the Philadelphia income tax," Journal of Urban Economics, Elsevier, vol. 8(1), pages 123-137, July.
    19. Lawrence B. Lindsey, 1985. "The Effect of the Treasury Proposal on Charitable Giving: A Comparison of Constant and Variable Elasticity Models," NBER Working Papers 1592, National Bureau of Economic Research, Inc.
    20. Don Fullerton & Roger H. Gordon, 1981. "A Reexamination of Tax Distortions in General Equilibrium Models," NBER Working Papers 0673, National Bureau of Economic Research, Inc.
    21. Lawrence B. Lindsey, 1981. "Is the Maximum Tax on Earned Income Effective?," NBER Working Papers 0613, National Bureau of Economic Research, Inc.
    22. Budd, Edward C, 1971. "The Creation of a Microdata File for Estimating the Size Distribution of Income," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 17(4), pages 317-33, December.
    23. Canto, Victor A. & Joines, Douglas H. & Laffer, Arthur B., 1978. "An income expenditure version of the wedge model," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue 2, pages 27-62.
    24. Feldstein, Martin S, 1978. "The Rate of Return, Taxation and Personal Savings," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(351), pages 482-87, September.
    25. Minarik, Joseph J, 1979. "The Size Distribution of Income during Inflation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(4), pages 377-92, December.
    26. Clotfelter, Charles T, 1983. "Tax-Induced Distortions and the Business-Pleasure Borderline: The Case of Travel and Entertainment," American Economic Review, American Economic Association, vol. 73(5), pages 1053-65, December.
    27. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
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    Cited by:
    1. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    2. Mark Rider, 2006. "The Effect of Personal Income Tax Rates on Individual and Business Decisions - A Review of the Evidence," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0615, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Hansson, ├ůsa, 2004. "Taxpayers Responsiveness to Tax Rate Changes and Implications for the Cost of Taxation," Working Papers 2004:5, Lund University, Department of Economics.

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