Measuring Revenue-Maximising Elasticities of Taxable Income: Evidence for the US Income Tax
A recent review of empirical estimates of the elasticity of taxable income (ETI) concluded that ‘the US marginal top rate is far from the top of the Laffer curve’ (Saez et al, 2012, p.42). This paper provides a detailed examination of the analysis underlying this conclusion, and considers whether other tax rates in the US income tax system are on the ‘right’ side of the Laffer curve. Conceptual expressions for ‘Laffer-maximum’ or revenue-maximizing ETIs, based on readily observable parameters, are presented for individuals and groups of taxpayers in a multi-rate income tax system. Applying these to the US income tax in 2005, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected for individual taxpayers within and across tax brackets, and in aggregate. For many taxpayers these revenue-maximizing ETIs are well within the range of empirically estimated elasticities.
|Date of creation:||2014|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +64 (4) 463 5775
Fax: +64 (4) 463 5076
Web page: http://www.victoria.ac.nz/sacl/about/chair-in-public-finance
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reed, W. Robert & Rogers, Cynthia L & Skidmore, Mark, 2011. "On Estimating Marginal Tax Rates For U.S. States," National Tax Journal, National Tax Association, vol. 64(1), pages 59-84, March.
- 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.
- 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.
- Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009.
"The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review,"
NBER Working Papers
15012, National Bureau of Economic Research, Inc.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:vuw:vuwcpf:3137. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Library Technology Services)
If references are entirely missing, you can add them using this form.