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Taxable Income Responses to Tax Changes - A Panel Analysis of the 1990/91 Swedish Reform

  • Selén, Jan

    (Trade Union Institute for Economic Research)

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    The elasticity of taxable income indicates the effects on income from a change in the marginal tax rate. In a number of studies on U.S. data rather strong effects have been found, although estimates seem lower in more recent papers. Studies based on data from other countries are only a few and indicate lower effects. A difference-in-differences approach utilising differences in tax changes is the standard approach for analysis. Here a large Swedish tax reform is employed. Estimated effects of a tax cut are modest, in the interval 0.2 to 0.4 at the most. Problems of income variables and income groups for the analysis are extensively examined. According to an extended model there is a positive income effect of the tax change, implying a difference between the compensated and the uncompensated elasticity, contrary to earlier results for the U. S.

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    Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 177.

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    Length: 30 pages
    Date of creation: 07 Aug 2002
    Date of revision:
    Handle: RePEc:hhs:fiefwp:0177
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    1. Aarbu, Karl O. & Thoresen, Thor O., 2001. "Income Responses to Tax Changes--Evidence from the Norwegian Tax Reform," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 319-38, June.
    2. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer, vol. 8(2), pages 119-128, March.
    3. Saez, Emmanuel, 2003. "The effect of marginal tax rates on income: a panel study of 'bracket creep'," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1231-1258, May.
    4. Robert A. Moffitt & Mark Wilhelm, 1998. "Taxation and the Labor Supply: Decisions of the Affluent," NBER Working Papers 6621, National Bureau of Economic Research, Inc.
    5. Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
    6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
    7. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
    8. Joel Slemrod & Wojciech Kopczuk, 2000. "The Optimal Elasticity of Taxable Income," NBER Working Papers 7922, National Bureau of Economic Research, Inc.
    9. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
    10. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
    11. Agell, S.A. & Meghir, C., 1995. "Male Labour Supply in Sweden : Are Incentives Important?," Papers 12, Uppsala - Working Paper Series.
    12. Austan Goolsbee, 1998. "It's Not About the Money: Why Natural Experiments Don't Work on the Rich," NBER Working Papers 6395, National Bureau of Economic Research, Inc.
    13. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    14. Klevmarken, N Anders, 2000. "Did the Tax Cuts Increase Hours of Work? A Statistical Analysis of a Natural Experiment," Kyklos, Wiley Blackwell, vol. 53(3), pages 337-62.
    15. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
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