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Revenue-Maximising Elasticities of Taxable Income in Multi-Rate Income Tax Structures

This paper provides a technical introduction to the use of the elasticity of taxable income in welfare comparisons and optimal tax discussions. It draws together, using a consistent framework and notation, a number of established results concerning marginal welfare changes and optimal taxes. Particular attention is given to the way value judgements can be specified when using this approach, and results are illustrated using the New Zealand income tax. In addition, some new results, particularly in terms of non-marginal tax changes, are presented.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2013/13-24/twp13-24.pdf
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Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 13/24.

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Length: 23
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:nzt:nztwps:13/24
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  1. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
  2. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
  3. Iris Claus & John Creedy & Josh Teng, 2010. "The Elasticity of Taxable Income in New Zealand," CAMA Working Papers 2010-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Trabandt, Mathias & Uhlig, Harald, 2010. "How far are we from the slippery slope? The Laffer curve revisited," Working Paper Series 1174, European Central Bank.
  5. 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.
  6. Feldstein, Martin, 1995. "Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Scholarly Articles 2766676, Harvard University Department of Economics.
  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 551-72, June.
  8. Seth H. Giertz, 2010. "The Elasticity of Taxable Income during the 1990s: New Estimates and Sensitivity Analyses," Southern Economic Journal, Southern Economic Association, vol. 77(2), pages 406-433, October.
  9. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
  10. Creedy, John & Gemmell, Norman, 2002. " The Built-In Flexibility of Income and Consumption Taxes," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 509-32, September.
  11. Adam Wagstaff & Eddy van Doorslaer, 2001. "What Makes the Personal Income Tax Progressive? A Comparative Analysis for Fifteen OECD Countries," International Tax and Public Finance, Springer, vol. 8(3), pages 299-316, May.
  12. Koen Caminada & Kees Goudswaard, 1996. "Progression and revenue effects of income tax reform," International Tax and Public Finance, Springer, vol. 3(1), pages 57-66, January.
  13. Martin Feldstein, 2012. "The Mirrlees Review," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 781-90, September.
  14. Austan Goolsbee, 1999. "Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 1-64.
  15. Creedy, John, 1998. "The Optimal Linear Income Tax Model: Utility or Equivalent Income?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(1), pages 99-110, February.
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