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The Effect of Changes in the Tax Structure on the Reported Income of High-Income Individuals

Author

Listed:
  • Hernan Acuna

    (Planning Ministry of Chile, Santiago, Chile)

  • Randall G. Holcombe

    (Florida State University, Tallahassee, FL, USA, holcombe@fsu.edu)

Abstract

Tax incidence theory shows how taxes initially placed on one group can be shifted and ultimately borne by others. This paper shows that income of high-income taxpayers is affected both by the rates they face and by the rates faced by non-high-income taxpayers. The income of high-income taxpayers rises when they face lower tax rates, but also rises in response to lower tax rates imposed on non-high-income taxpayers. While high-income responses to own statutory tax changes may be explained—at least partially—by their making a ‘‘smart use of the tax code,’’ high-income responses to tax changes on non-high income individuals indicate the presence of structural effects of tax changes.

Suggested Citation

  • Hernan Acuna & Randall G. Holcombe, 2010. "The Effect of Changes in the Tax Structure on the Reported Income of High-Income Individuals," Public Finance Review, , vol. 38(3), pages 321-345, May.
  • Handle: RePEc:sae:pubfin:v:38:y:2010:i:3:p:321-345
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