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

  • Feldstein, Martin
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    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.

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    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 2766676.

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    Date of creation: 1995
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    Publication status: Published in Journal of Political Economy
    Handle: RePEc:hrv:faseco:2766676
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