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

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Abstract

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.

Suggested Citation

  • Peter Gottfried & Daniela Witczak, 2009. "The Responses of Taxable Income Induced by Tax Cuts – Empirical Evidence from the German Taxpayer Panel," IAW Discussion Papers 57, Institut für Angewandte Wirtschaftsforschung (IAW).
  • Handle: RePEc:iaw:iawdip:57
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    File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_57.pdf
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    Cited by:

    1. Áron Kiss & Pálma Mosberger, 2015. "The elasticity of taxable income of high earners: evidence from Hungary," Empirical Economics, Springer, vol. 48(2), pages 883-908, March.
    2. Neisser, Carina, 2017. "The elasticity of taxable income: A meta-regression analysis," ZEW Discussion Papers 17-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Arrazola, María & de Hevia, José & Romero, Desiderio & Sanz-Sanz, José Félix, 2014. "Personal Income Tax Reforms and the Elasticity of Reported Income to Marginal Tax Rates: An Empirical Analysis Applied to Spain," Working Paper Series 3593, Victoria University of Wellington, Chair in Public Finance.
    4. Peter Gottfried & Daniela Witczak, 2009. "Reformoption Duale Einkommensteuer - Aufkommens- und Verteilungseffekte," IAW Discussion Papers 58, Institut für Angewandte Wirtschaftsforschung (IAW).
    5. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2014. "Sufficient Statistic or Not? The Elasticity of Taxable Income in the Presence of Deduction Possibilities," IZA Discussion Papers 8554, Institute for the Study of Labor (IZA).
    6. repec:eee:pubeco:v:151:y:2017:i:c:p:41-55 is not listed on IDEAS
    7. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516, April.
    8. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2017. "The elasticity of taxable income in the presence of deduction possibilities," Journal of Public Economics, Elsevier, vol. 151(C), pages 41-55.

    More about this item

    Keywords

    elasticity of taxable income; tax reform; net-of-tax rate;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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