The elasticity of taxable income of high earners: Evidence from Hungary
The paper studies how high-income taxpayers responded to the introduction of the ‘extraordinary tax on individuals’ in Hungary in 2007. The study is based on a panel of tax returns compiled by the Hungarian Tax Authority for the purposes of this study, containing information on 10 percent of tax-filers from 2005 and three subsequent years. We estimate the elasticity of taxable income with respect to the marginal net-of-tax rate and find that the taxable income of Hungarian high earners is moderately responsive to taxation: the estimated elasticity is about 0.2. This means that if the upper tax rate of the 2010 Hungarian tax system were increased by a small amount, the behavioral response of taxpayers would reduce the additional tax revenue by about 60 percent. We find evidence suggesting that the elasticity is a reflection of a labor supply response to the tax change on the intensive margin, and not a reflection of tax shifting, avoidance or evasion.
|Date of creation:||2011|
|Date of revision:|
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"The Optimal Elasticity of Taxable Income,"
NBER Working Papers
7922, National Bureau of Economic Research, Inc.
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- Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009.
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NBER Working Papers
15012, National Bureau of Economic Research, Inc.
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