A Sensitivity Analysis of the Elasticity of Taxable Income
AbstractThis paper applies the methods of Gruber and Saez (2002) to a panel of tax returns spanning 1979 through 2001 in order to examine the sensitivity of the elasticities of taxable and broad income to an array of factors. The paper finds that that Gruber and Saez’s approach yields an estimated elasticity of taxable income (ETI) for the 1990s that is about half the size of this paper’s corresponding estimate for the 1980s. In general, the addition of demographic information has little impact on elasticity estimates for the 1980s, but lowers the 1990s estimates, especially for broad income, which is a more encompassing income measure than is taxable income. Finally, the paper finds that weighting regression results by income not only has a substantial impact on the estimates, but also results in overall estimates that are influenced by a small number of predominately high-income filers. For example, excluding 100 of the most influential observations (just 0.2 percent of the sample) lowers the estimated ETI for the 1980s from 0.37 to 0.11.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17601.
Date of creation: Feb 2005
Date of revision:
Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
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