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Taxable Income Responses to 1990s Tax Acts: Further Explorations

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  • Giertz, Seth

Abstract

This paper examines alternative methodologies for measuring responses to the 1990 and 1993 federal tax increases. The methodologies build on those employed by Gruber and Saez (2002), Carroll (1998), and Auten and Carroll (1999). Internal Revenue Service tax return data for the project are from the Statistics of Income, which heavily oversamples high-income filers. Special attention is paid to the importance of sample income restrictions and methodology. In general, estimates are quite sensitive to a number of different factors. In contrast to some of the literature, estimates are larger when behavior is measured over three-year intervals as opposed to over one-year intervals – suggesting small transitory responses to tax changes, but larger longer-term responses. When including the richest set of income controls, income-weighted elasticity estimates based on one year differencing range from 0 to 0.19. Similarly estimated elasticities over three year intervals are about 0.32. When adding adjacent year tax rates to model, estimates based on one year differencing now range from 0.30 to 0.43 and estimates when differencing over three year intervals range from 0.97 to 1.37. In most cases, estimates from an end-year approach are not statistically different from 0 for the 1990s. However, even for the approaches that produce statistically significant results, estimates are sensitive to an array of factors and plausible sensitivity checks often result in estimates that differ greatly. A major conclusion is that isolating the true taxable income responses to tax changes is inherently complex and little confidence should be placed on any single estimate.

Suggested Citation

  • Giertz, Seth, 2008. "Taxable Income Responses to 1990s Tax Acts: Further Explorations," MPRA Paper 17602, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17602
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    References listed on IDEAS

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    1. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
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    6. Gruber, Jon & Saez, Emmanuel, 2002. "The elasticity of taxable income: evidence and implications," Journal of Public Economics, Elsevier, vol. 84(1), pages 1-32, April.
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    8. Giertz, Seth, 2005. "A Sensitivity Analysis of the Elasticity of Taxable Income," MPRA Paper 17601, University Library of Munich, Germany.
    9. Seth H. Giertz, 2008. "A Sensitivity Analysis of the Elasticity of Taxable Income: Working Paper 2008-01," Working Papers 19435, Congressional Budget Office.
    10. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, vol. 95(3), pages 831-849, June.
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    Cited by:

    1. Carina Neisser, 2021. "The Elasticity of Taxable Income: A Meta-Regression Analysis [The top 1% in international and historical perspective]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3365-3391.
    2. Seth H. Giertz, 2008. "Panel Data Techniques and the Elasticity of Taxable Income: Working Paper 2008-11," Working Papers 20407, Congressional Budget Office.
    3. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.

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    More about this item

    Keywords

    Elasticity of Taxable Income; Behavioral Responses to Taxation; Taxation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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