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The elasticity of taxable income of high earners: Evidence from Hungary

  • Áron Kiss

    ()

    (Magyar Nemzeti Bank (central bank of Hungary))

  • Pálma Mosberger

    ()

    (Central European University)

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.

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File URL: http://www.mnb.hu/letoltes/wp-2011-11.pdf
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Paper provided by Magyar Nemzeti Bank (Central Bank of Hungary) in its series MNB Working Papers with number 2011/11.

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Length: 38 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mnb:wpaper:2011/11
Contact details of provider: Web page: http://www.mnb.hu/

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