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The Tax Effect on Taxable Income from Privately Held Businesses


  • Shih-Ying Wu

    () (Department of Economics, National Tsing Hua University)


The implications of the tax elasticity of taxable income have been widely discussed in the literature. This study uses the reported rate of return to capture the effects of tax changes on taxable income from privately held businesses. Households' decisions concerning reporting rates of return are embedded in a selection model of business investment decisions. With 1983–1989 Survey of Consumer Finances panel data, the tax elasticity of the reported rates of return on privately held businesses is found to be positive and large. The tax elasticity of taxable income from privately held businesses is thus crucial for policy evaluation. Several reasons for the high tax elasticity and the implications of it are also discussed.

Suggested Citation

  • Shih-Ying Wu, 2005. "The Tax Effect on Taxable Income from Privately Held Businesses," Southern Economic Journal, Southern Economic Association, vol. 71(4), pages 891-912, April.
  • Handle: RePEc:sej:ancoec:v:71:4:y:2005:p:891-912

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    Cited by:

    1. Heim, Bradley T., 2010. "The responsiveness of self-employment income to tax rate changes," Labour Economics, Elsevier, vol. 17(6), pages 940-950, December.
    2. Kristoffer Berg & Thor O. Thoresen, 2016. "Problematic response margins in the estimation of the elasticity of taxable income," Discussion Papers 851, Statistics Norway, Research Department.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics


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