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The Responses of Taxable Income Induced by Tax Cuts – Empirical Evidence from the German Taxpayer Panel

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    The elasticity of taxable income has gained increasing attention as a fiscal policy parameter. This paper provides empirical evidence for Germany and adds to the relatively small body of literature for European countries. We use a large new panel data set to analyze the taxable income response to tax rate changes in 2004 which were part of an extensive reform programme in Germany at the beginning of this century. We find an average elasticity of approximately 0.6. Separately estimated income effects however are mostly small or insignificant. The results vary when dividing taxpayers by income type and group.

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    Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 57.

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    Length: 38 pages
    Date of creation: Nov 2009
    Date of revision:
    Handle: RePEc:iaw:iawdip:57
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