Do Payroll Taxes Matter in Estimating Taxable Income Elasticities?
A growing literature examines the responsiveness of taxable income to changes in federal income tax rates. The literature has found evidence of small but consistent taxable income elasticities to changes in federal tax rates. This article extends the analysis to examine the responsiveness of taxable income and labor income measures to changes in payroll tax rates. Using data to exploit the change in payroll taxes from 1979 to 1981, this article finds that taxpayers respond in the same way to changes in payroll taxes and individual income taxes.
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