IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2018-132.html
   My bibliography  Save this paper

Are Elasticities of Taxable Income Rising?

Author

Listed:
  • Mr. Alexander D Klemm
  • Mr. Philippe Wingender
  • Ms. Li Liu
  • Victor Mylonas

Abstract

This paper assesses a possible explanation for the global downward trend in top personal income tax rates over the last decades: globalization and the related tax evasion and avoidance opportunities could have raised elasticities of taxable income, which would imply lower optimal tax rates. The paper estimates elasticities of taxable income for top income earners using a large sample of economies and years with a common method, allowing an analysis of trends in such elasticities. The paper finds that elasticities do not appear to exhibit any clear pattern over the years. The downward trend in tax rates must have other possible explanations, which are briefly discussed.

Suggested Citation

  • Mr. Alexander D Klemm & Mr. Philippe Wingender & Ms. Li Liu & Victor Mylonas, 2018. "Are Elasticities of Taxable Income Rising?," IMF Working Papers 2018/132, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2018/132
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=45925
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    3. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2013. "Optimal redistributive taxation with both extensive and intensive responses," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1770-1805.
    4. Lockwood, Benjamin B. & Weinzierl, Matthew, 2016. "Positive and normative judgments implicit in U.S. tax policy, and the costs of unequal growth and recessions," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 30-47.
    5. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2020. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," Econometrica, Econometric Society, vol. 88(2), pages 469-493, March.
    6. Martin Ardanaz & Carlos Scartascini, 2011. "Why Don’t We Tax the Rich? Inequality, Legislative Malapportionment, and Personal Income Taxation around the World," Research Department Publications 4724, Inter-American Development Bank, Research Department.
    7. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    8. Kleven, Henrik Jacobsen & Schultz, Esben Anton, 2014. "Estimating taxable income responses using Danish tax reforms," LSE Research Online Documents on Economics 66122, London School of Economics and Political Science, LSE Library.
    9. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
    10. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    11. Carina Neisser, 2017. "The elasticity of taxable income: A meta-regression analysis," Working Papers 2017/10, Institut d'Economia de Barcelona (IEB).
    12. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
    13. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    14. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    15. Henrik Jacobsen Kleven & Esben Anton Schultz, 2014. "Estimating Taxable Income Responses Using Danish Tax Reforms," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 271-301, November.
    16. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
    17. Martin Ardanaz & Carlos Scartascini, 2011. "Why Don’t We Tax the Rich? Inequality, Legislative Malapportionment, and Personal Income Taxation around the World," Research Department Publications 4724, Inter-American Development Bank, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nerijus Cerniauskas & Alain Jousten, 2020. "Statutory, Effective and Optimal Net Tax Schedules in Lithuania," Bank of Lithuania Working Paper Series 72, Bank of Lithuania.
    2. Miguel Almunia & David Lopez-Rodriguez, 2019. "The elasticity of taxable income in Spain: 1999–2014," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 281-320, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carina Neisser, 2017. "The elasticity of taxable income: A meta-regression analysis," Working Papers 2017/10, Institut d'Economia de Barcelona (IEB).
    2. Spencer Bastani & Jacob Lundberg, 2017. "Political preferences for redistribution in Sweden," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 345-367, December.
    3. Lawson, Nicholas, 2019. "Taxing the job creators: Efficient taxation with bargaining in hierarchical firms," Labour Economics, Elsevier, vol. 56(C), pages 1-25.
    4. Jacobs, Bas & Jongen, Egbert L.W. & Zoutman, Floris T., 2017. "Revealed social preferences of Dutch political parties," Journal of Public Economics, Elsevier, vol. 156(C), pages 81-100.
    5. Lockwood, Benjamin B. & Weinzierl, Matthew, 2016. "Positive and normative judgments implicit in U.S. tax policy, and the costs of unequal growth and recessions," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 30-47.
    6. Joshua Rauh & Ryan J. Shyu, 2019. "Behavioral Responses to State Income Taxation of High Earners: Evidence from California," NBER Working Papers 26349, National Bureau of Economic Research, Inc.
    7. Michaël Sicsic, 2020. "Does Labor Income React more to Income Tax or Means-Tested Benefit Reforms?," TEPP Working Paper 2020-03, TEPP.
    8. Johannes Hermle & Andreas Peichl, 2018. "Jointly Optimal Taxes for Different Types of Income," CESifo Working Paper Series 7248, CESifo.
    9. Miguel Almunia & David Lopez-Rodriguez, 2019. "The elasticity of taxable income in Spain: 1999–2014," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 281-320, November.
    10. Kristoffer Berg & Thor O. Thoresen, 2020. "Problematic response margins in the estimation of the elasticity of taxable income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 721-752, June.
    11. Simeon Schächtele, 2020. "Tax Responses at Low Taxable Incomes: Evidence from Germany," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 411-439, June.
    12. Abdoulaye Ndiaye, 2017. "Flexible Retirement and Optimal Taxation," Working Paper Series WP-2018-18, Federal Reserve Bank of Chicago.
    13. Emmanuel Saez, 2017. "Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase," Tax Policy and the Economy, University of Chicago Press, vol. 31(1), pages 71-120.
    14. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
    15. Rolf Aaberge & Ugo Colombino, 2018. "Structural Labour Supply Models and Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 162-197.
    16. Håkan Selin & Laurent Simula, 2017. "Income Shifting as Income Creation? The Intensive vs. the Extensive Shifting Margins," CESifo Working Paper Series 6510, CESifo.
    17. Jarkko Harju & Tuomas Matikka, 2016. "The elasticity of taxable income and income-shifting: what is “real” and what is not?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 640-669, August.
    18. Etienne Lehmann & Laurent Simula & Alain Trannoy, 2014. "Tax me if you can! Optimal Nonlinear Income Tax Between Competing Governments," The Quarterly Journal of Economics, Oxford University Press, vol. 129(4), pages 1995-2030.
    19. Gian Maria Tomat, 2018. "The elasticity of personal income: evidence from survey data," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 433-462, August.
    20. Laun, Lisa, 2017. "The effect of age-targeted tax credits on labor force participation of older workers," Journal of Public Economics, Elsevier, vol. 152(C), pages 102-118.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2018/132. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.