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The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act

  • Feldstein, Martin

This paper uses a Treasury Department panel of more than 4,000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. The analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply. The evidence shows an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and that could be substantially higher. The implications for recent tax rate changes are discussed. Copyright 1995 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/261994
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 103 (1995)
Issue (Month): 3 (June)
Pages: 551-72

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Handle: RePEc:ucp:jpolec:v:103:y:1995:i:3:p:551-72
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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