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Reported Taxable Income and Marginal Tax Rates: Evidence for Spain Based on the Fiscal Drag

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  • Jorge Onrubia?Fernández & José Félix Sanz?Sanz

Abstract

This paper quantifies the taxable income-marginal tax rate elasticities associated with Spanish Personal Income Tax. To that effect, according to Saez (2003), the fiscal drag between 1993 and 1994 was used as an instrument to identify the changes in the taxable income induced by changes in the marginal tax rates. The paper comes to the conclusion that income level, marital status and the tax declaration framework for married couples are determining factors of the fiscal response to changes in the marginal tax rates. Likewise, irregular income significantly increases the responses of taxpayers. The obtained elasticities suggest the existence of efficiency costs higher than those obtained by the traditional literature based exclusively on earned income.

Suggested Citation

  • Jorge Onrubia?Fernández & José Félix Sanz?Sanz, 2009. "Reported Taxable Income and Marginal Tax Rates: Evidence for Spain Based on the Fiscal Drag," Department of Economics - Working Papers Series 1075, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:1075
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0012/801111/1075.pdf
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    References listed on IDEAS

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    1. Aaron, Henry J, 1976. "Inflation and the Income Tax," American Economic Review, American Economic Association, vol. 66(2), pages 193-199, May.
    2. 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.
    3. 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.
    4. 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.
    5. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(2), pages 119-128, March.
    6. Lindsey, Lawrence B., 1987. "Individual taxpayer response to tax cuts: 1982-1984 : With implications for the revenue maximizing tax rate," Journal of Public Economics, Elsevier, vol. 33(2), pages 173-206, July.
    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. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
    9. 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.
    10. Martin Feldstein, 1999. "Introduction to "Costs and Benefits of Price Stability, The"," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 1-8, National Bureau of Economic Research, Inc.
    11. Martin Feldstein, 1999. "The Costs and Benefits of Price Stability," NBER Books, National Bureau of Economic Research, Inc, number feld99-1, Juni.
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    Citations

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    Cited by:

    1. Díaz-Caro, Carlos & Onrubia, Jorge, 2018. "How do taxable income responses to marginal tax rates differ by sex, marital status and age? Evidence from Spanish dual income tax," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 12, pages 1-25.
    2. Iris Claus & John Creedy & Josh Teng, 2012. "The Elasticity of Taxable Income in New Zealand," Fiscal Studies, Institute for Fiscal Studies, vol. 33(3), pages 287-303, September.
    3. 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.
    4. Carlos Díaz Caro & Jorge Onrubia Fernández, 2015. "Elasticidades de la renta gravable y costes de eficiencia en el IRPF dual," Studies on the Spanish Economy eee2015-02, FEDEA.
    5. John Creedy, 2009. "The Elasticity of Taxable Income:," Department of Economics - Working Papers Series 1085, The University of Melbourne.

    More about this item

    Keywords

    Personal income tax; taxable income elasticity; excess burden; fiscal drag.;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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