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A Sensitivity Analysis of the Elasticity of Taxable Income

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  • Giertz, Seth

Abstract

This 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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File URL: http://mpra.ub.uni-muenchen.de/17601/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17601.

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Date of creation: Feb 2005
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Handle: RePEc:pra:mprapa:17601

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Related research

Keywords: Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;

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References

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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. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  4. Wojciech Kopczuk, 2003. "Tax Bases, Tax Rates and the Elasticity of Reported Income," NBER Working Papers 10044, National Bureau of Economic Research, Inc.
  5. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  6. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
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Cited by:
  1. Giertz, Seth, 2008. "Panel Data Techniques and the Elasticity of Taxable Income," MPRA Paper 17600, University Library of Munich, Germany.
  2. Nada, Eissa & Giertz, Seth, 2006. "Trends in High Incomes and Behavioral Responses to Taxation: Evidence from Executive Compensation and Statistics of Income Data," MPRA Paper 17604, University Library of Munich, Germany.
  3. Giertz, Seth, 2008. "Taxable Income Responses to 1990s Tax Acts: Further Explorations," MPRA Paper 17602, University Library of Munich, Germany.
  4. Giertz, Seth, 2007. "The Elasticity of Taxable Income over the 1980s and 1990s," MPRA Paper 18313, University Library of Munich, Germany.
  5. Giertz, Seth, 2006. "The Elasticity of Taxable Income During the 1990s: A Sensitivity Analysis," MPRA Paper 17603, University Library of Munich, Germany.

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