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The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials

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  • James E. Long

Abstract

The relationship between marginal tax rates and taxable income is analyzed with a large cross section of income tax returns filed by individuals who face different marginal tax rates because of state income tax differentials. The empirical results suggest that an increase in the marginal tax rate reduces taxable income primarily because taxpayers claim larger deductions. High-income taxpayers are found to be more responsive to tax rate changes than lower-income individuals. The findings are compared to those of other recent studies incorporating a wider range of taxpayer responses to tax rate changes than considered in this study.

Suggested Citation

  • James E. Long, 1999. "The Impact of Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 855-869, April.
  • Handle: RePEc:sej:ancoec:v:65:4:y:1999:p:855-869
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    1. repec:ntj:journl:v:70:y:2017:i:2:p:367-392 is not listed on IDEAS
    2. repec:clu:wpaper:0304-15 is not listed on IDEAS
    3. Moore, Winston, 2008. "The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados," MPRA Paper 21583, University Library of Munich, Germany.
    4. Weber, Caroline E., 2014. "Toward obtaining a consistent estimate of the elasticity of taxable income using difference-in-differences," Journal of Public Economics, Elsevier, vol. 117(C), pages 90-103.
    5. Kopczuk, Wojciech, 2005. "Tax bases, tax rates and the elasticity of reported income," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2093-2119, December.
    6. Giertz, Seth, 2004. "Recent Literature on Taxable-Income Elasticities," MPRA Paper 16159, University Library of Munich, Germany.
    7. 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;International Institute of Public Finance, vol. 19(6), pages 844-883, December.

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