IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Estimating dynamic income responses to tax changes Massarrat-Mashhadi: Evidence from Germany

  • Massarrat-Mashhadi, Nima
  • Werdt, Clive
Registered author(s):

    This paper provides new empirical insights on the elasticity of taxable income to the net-oftax rate. Using a panel of German income tax return data, we followed taxpayers from 2001 to 2006 to analyze the effects of the German tax reforms of 2004 and 2005. Implementing a dynamic model as proposed by Holmlund and Söderström (2011), we are able to disentangle short-term and long-term responsiveness. These estimates allow us to distinguish between different dimensions of behavioral changes: short-term income reactions in contrast to 'real' changes in (reporting) behavior. We compare our results with recent German estimates from the established approach by Gruber and Saez (2002) applied by Gottfried and Witzcak (2009). Following Chetty's (2009) theoretical considerations, we use multiple (tax code related) income concepts and alternative sample choices. We provide several robustness and validity analyses of the most common income concept, i.e. taxable income excluding capital. Our preferred specification yields (very) high short-term yet small long-term elasticites. The latter range from 0 to 0.16, implying none or only modest persistent behavioral changes to marginal tax rate cuts.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://econstor.eu/bitstream/10419/67502/1/732460832.pdf
    Download Restriction: no

    Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2012/22.

    as
    in new window

    Length:
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:zbw:fubsbe:201222
    Contact details of provider: Postal: Garystr. 21, 14195 Berlin (Dahlem)
    Phone: (030) 838 2272
    Fax: (030) 838 2129
    Web page: http://www.wiwiss.fu-berlin.de/en/index.html
    Email:


    More information through EDIRC

    References listed on IDEAS
    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.:

    as in new window
    1. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
    2. Martin Feldstein, 1993. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the1986 Tax Reform Act," NBER Working Papers 4496, National Bureau of Economic Research, Inc.
    3. Raj Chetty, 2008. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," NBER Working Papers 13844, National Bureau of Economic Research, Inc.
    4. Slemrod,Joel, 1997. "Tax Progressivity and Income Inequality," Cambridge Books, Cambridge University Press, number 9780521587761.
    5. O'Donoghue, Cathal & Sutherland, Holly, 1999. "Accounting for the Family in European Income Tax Systems," Cambridge Journal of Economics, Oxford University Press, vol. 23(5), pages 565-98, September.
    6. Austan Goolsbee, 1997. "What Happens When You Tax the Rich? Evidence from Executive Compensation," NBER Working Papers 6333, National Bureau of Economic Research, Inc.
    7. Johnson, Terry R & Pencavel, John H, 1984. "Dynamic Hours of Work Functions for Husbands, Wives, and Single Females," Econometrica, Econometric Society, vol. 52(2), pages 363-89, March.
    8. Bradley T. Heim, 2009. "The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(1), pages 147-163.
    9. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
    10. Slemrod, Joel, 1995. "Income Creation or Income Shifting? Behavioral Responses to the Tax Reform Act of 1986," American Economic Review, American Economic Association, vol. 85(2), pages 175-80, May.
    11. 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.
    12. Burman, Leonard E & Randolph, William C, 1994. "Measuring Permanent Responses to Capital-Gains Tax Changes in Panel Data," American Economic Review, American Economic Association, vol. 84(4), pages 794-809, September.
    13. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
    14. 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.
    15. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
    16. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2009. "From Bottom To Top: The Entire Income Distribution In Germany, 1992-2003," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 303-330, 06.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zbw:fubsbe:201222. 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: (ZBW - German National Library of Economics)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.