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The Elasticity of Taxable Income over the 1980s and 1990s

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  • Giertz, Seth

Abstract

Taxable (and broad) income elasticities are estimated using tax return data from 1979 to 2001. Data from the Continuous Work History Survey (CWHS) yield an estimated taxable income elasticity for the 1990s that is about half the corresponding 1980s estimate. Estimates from the full Statistics of Income, which heavily oversamples high–income filers, generally confirm the CWHS results. More sophisticated income control brings the estimates for the two decades closer together—to 0.40 for the 1980s and 0.26 for the 1990s. Work by Kopczuk (2005) implies that the narrowing of the tax base since 1986 could account for 14 to 29 percent of the remaining difference.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18313.

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Date of creation: Dec 2007
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Handle: RePEc:pra:mprapa:18313

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Keywords: Taxable Income Elasticity; Behavioral Responses to taxation; Efficiency;

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References

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  1. Imbens, G. & Lancaster, T., 1991. "Efficient estimation and stratified sampling," Discussion Paper, Tilburg University, Center for Economic Research 1991-45, Tilburg University, Center for Economic Research.
  2. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
  3. Feldstein, Martin & Wrobel, Marian Vaillant, 1998. "Can state taxes redistribute income?," Journal of Public Economics, Elsevier, Elsevier, vol. 68(3), pages 369-396, June.
  4. Thomas Piketty & Emmanuel Saez, 2007. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 3-24, Winter.
  5. Thomas Lemieux, 2006. "Post-Secondary Education and Increasing Wage Inequality," NBER Working Papers 12077, National Bureau of Economic Research, Inc.
  6. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 1-39, February.
  7. 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.
  8. Austan Goolsbee, 1999. "Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 1-64.
  9. Joel Slemrod & Wojciech Kopczuk, 2000. "The Optimal Elasticity of Taxable Income," NBER Working Papers 7922, National Bureau of Economic Research, Inc.
  10. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
  11. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
  12. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 831-849, June.
  13. Giertz, Seth, 2005. "A Sensitivity Analysis of the Elasticity of Taxable Income," MPRA Paper 17601, University Library of Munich, Germany.
  14. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, Elsevier, vol. 84(1), pages 1-32, April.
  15. 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.
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Cited by:
  1. Creedy, John & Gemmell, Norman, 2012. "Measuring Revenue Responses to Tax Rate Changes in Multi-Rate Income Tax Systems: Behavioural and Structural Factors," Working Paper Series 2430, Victoria University of Wellington, Chair in Public Finance.
  2. Christina D. Romer & David H. Romer, 2014. "The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 6(3), pages 242-81, August.
  3. Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," NBER Working Papers 15012, National Bureau of Economic Research, Inc.
  4. John Creedy & Norman Gemmell, 2011. "Tax Rates and Revenue Changes: Behavioural and Structural Factors," Treasury Working Paper Series 11/05, New Zealand Treasury.
  5. Blomquist, Sören & Selin, Håkan, 2010. "Hourly wage rate and taxable labor income responsiveness to changes in marginal tax rates," Journal of Public Economics, Elsevier, Elsevier, vol. 94(11-12), pages 878-889, December.
  6. Heim, Bradley T., 2010. "The responsiveness of self-employment income to tax rate changes," Labour Economics, Elsevier, Elsevier, vol. 17(6), pages 940-950, December.
  7. John Deskins & William Fox, 2008. "Measuring Behavioral Responses to the Property Tax," 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 paper0816, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  8. Bev Dahlby & Ergete Ferede, 2012. "The effects of tax rate changes on tax bases and the marginal cost of public funds for Canadian provincial governments," International Tax and Public Finance, Springer, Springer, vol. 19(6), pages 844-883, December.
  9. Hakan Yilmazkuday, 2011. "Intranational Trade and Regional Tax Rates: A Welfare Analysis on the U.S. Economy," Working Papers 1106, Florida International University, Department of Economics.
  10. Henrik Jacobsen Kleven & Esben Anton Schultz, 2011. "Estimating Taxable Income Responses using Danish Tax Reforms," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 2011-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  11. Robert McClelland & Shannon Mok, 2012. "A Review of Recent Research on Labor Supply Elasticities: Working Paper 2012-12," Working Papers, Congressional Budget Office 43675, Congressional Budget Office.
  12. Singleton, Perry, 2011. "The Effect Of Taxes On Taxable Earnings: Evidence From The 2001 And Related U.S. Federal Tax Acts," National Tax Journal, National Tax Association, vol. 64(2), pages 323-51, June.

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