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Estimating the Revenue Maximizing Top Personal Tax Rate

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  • Lawrence B. Lindsey

Abstract

The idea that marginal tax rates and tax revenue may be inversely related is at least as old as Adam Smith's Wealth of Nations. The emergence of the "Laffer Curve" in the modern public debate on the subject has rekindled interestin this idea. The present paper uses data from the 1982 tax rate reductions to estimate the revenue maximizing top personal tax rate.This paper also examines the components of taxable income to consider the sources of taxpayer response to changes in marginal tax rates. The National Bureau of Economic Research TAXSIM model was used extensively in this study to estimate the magnitude of taxpayer response to tax rate changes.

Suggested Citation

  • Lawrence B. Lindsey, 1985. "Estimating the Revenue Maximizing Top Personal Tax Rate," NBER Working Papers 1761, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1761
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    References listed on IDEAS

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    1. Lawrence B. Lindsey, 1981. "Is the Maximum Tax on Earned Income Effective?," NBER Working Papers 0613, National Bureau of Economic Research, Inc.
    2. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters,in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
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    5. Don Fullerton & Roger H. Gordon, 1983. "A Reexamination of Tax Distortions in General Equilibrium Models," NBER Chapters,in: Behavioral Simulation Methods in Tax Policy Analysis, pages 369-426 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Lawrence B. Lindsey, 1985. "Taxpayer Behavior and the Distribution of the 1982 Tax Cut," NBER Working Papers 1760, National Bureau of Economic Research, Inc.
    2. Hansson, Åsa, 2004. "Taxpayers Responsiveness to Tax Rate Changes and Implications for the Cost of Taxation," Working Papers 2004:5, Lund University, Department of Economics.
    3. Stanisław Cichocki & Ryszard Kokoszczyński, 2016. "The evolution of the Laffer curve as a framework for studying tax evasion: from simple theoretical to DSGE models," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 45.
    4. Mark Rider, 2006. "The Effect of Personal Income Tax Rates on Individual and Business Decisions - A Review of the Evidence," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0615, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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