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Income tax rate increases and heterogeneous taxpayers’ reactions: a spatial regression discontinuity design

Author

Listed:
  • Augusto Cerqua

    (Department of Social Sciences and Economics, Sapienza University of Rome)

  • Emma Galli

    (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract

This paper exploits a sudden increase in the regional surcharge on the income tax rate in Lazio, one of the most populated regions of Italy, to compare taxpayers’ reported income in Lazio’s municipalities with those in the municipalities located in six neighboring regions. To this end, we have built a new yearly dataset (2012-2018) at municipal level containing the reported income of different categories of taxpayers and employ a spatial regression discontinuity design to estimate the response to an increase of the marginal tax rate in terms of reported taxable income by different types of taxpayers. We find a sizable and persistent decrease in reported income only for the self-employed and entrepreneurs, while the employees respond by slowly reducing their declared incomes. As expected, the retirees do not exhibit any response.

Suggested Citation

  • Augusto Cerqua & Emma Galli, 2020. "Income tax rate increases and heterogeneous taxpayers’ reactions: a spatial regression discontinuity design," Working Papers 17/20, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:17/20
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    File URL: http://www.diss.uniroma1.it/sites/default/files/allegati/DiSSE_Cerqua_Galli_wp17_2020.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Income tax; taxpayers’ responses; spatial regression discontinuity design;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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