An influential literature on the effects of marginal tax rates on the behavior of the rich has claimed that the elasticity of taxable income with respect to the net of tax share is very high possibly exceeding one. These high estimated elasticities imply that cutting taxes on the rich does not lose much revenue possibly increases it and that progressivity generates a large amount of deadweight loss. To identify this elasticity, these studies have conducted natural experiments' comparing the rich to other income groups and assuming that they are the same except for changes in their tax rates. This paper tests the natural experiment assumption using alternative data on the compensation of a panel of several thousand corporate executives and finds it to be false. Relatively, the very rich have incomes which trend upward at a faster rate are more sensitive to economic conditions, and are more likely to be in a form whose timing can be shifted in the short run. Interpreted broadly, these facts might reduce existing elasticity estimates by as much as 75%. The paper also suggests ways of improving existing methods.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6395.
Length: Date of creation: Feb 1998 Date of revision: Handle: RePEc:nbr:nberwo:6395
Note: PE Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)