Measuring Revenue-maximizing Elasticities of Taxable Income

2016 ◽  
Vol 45 (2) ◽  
pp. 174-204 ◽  
Author(s):  
John Creedy ◽  
Norman Gemmell
Keyword(s):  
Income Tax ◽  
Tax Rates ◽  
Marginal Rate ◽  
Tax System ◽  
Tax Rate ◽  
Taxable Income ◽  
Wide Range ◽  
The Us ◽  
Marginal Tax Rates ◽  
The Right

This article considers the question of whether marginal tax rates (MTRs) in the US income tax system are on the “right” side of their respective Laffer curves. Previous attention has tended to focus specifically on the top MTR. Conceptual expressions for these “revenue-maximizing elasticities of taxable income” (ETI L), based on readily observable tax parameters, are presented for each tax rate in a multi-rate income tax system. Applying these to the US income tax, with its complex effective marginal rate structure, demonstrates that a wide range of revenue-maximizing ETI values can be expected within, and across, tax brackets and for all taxpayers in aggregate. For some significant groups of taxpayers, these revenue-maximizing ETIs appear to be within the range of empirically estimated elasticities.

scholarly journals The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era

2014 ◽  
Vol 6 (3) ◽  
pp. 242-281 ◽  
Author(s):  
Christina D. Romer ◽  
David H. Romer
Keyword(s):  
Time Series ◽  
Income Tax ◽  
Positive Impact ◽  
Tax Rates ◽  
Marginal Rate ◽  
Taxable Income ◽  
Incentive Effects ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Section Analysis

This paper uses the interwar United States as a laboratory for investigating the incentive effects of marginal income tax rates. We examine the impact of the large changes in rates in this period on taxable income using time-series/cross-section analysis of data by small slices of the income distribution. We find that the effect operated in the expected direction but was economically small, and that it is precisely estimated and highly robust. We also find suggestive time-series evidence of a positive impact of marginal rate cuts on business formation, but no evidence of an important effect on other indicators of investment. (JEL D31, H24, H31, M13, N42)

scholarly journals The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review

2012 ◽  
Vol 50 (1) ◽  
pp. 3-50 ◽  
Author(s):  
Emmanuel Saez ◽  
Joel Slemrod ◽  
Seth H Giertz
Keyword(s):  
The United States ◽  
Critical Discussion ◽  
Future Research ◽  
Tax Rates ◽  
Empirical Estimation ◽  
Sufficient Statistic ◽  
Tax Rate ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates

This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research. (JEL H24, H31, J22)

The Impact of the Source of Changes in Marginal Tax Rates on Participation in Individual Retirement Accounts

2002 ◽  
Vol 24 (1) ◽  
pp. 46-59 ◽  
Author(s):  
David H. Eaton
Keyword(s):  
Fixed Effects ◽  
Tax Reform ◽  
Tax Rates ◽  
Tax Rate ◽  
Taxable Income ◽  
Individual Retirement Accounts ◽  
Retirement Accounts ◽  
Marginal Tax Rates ◽  
The Impact ◽  
Participation Decisions

This paper uses a series of two-year panels of tax return data to estimate the effects of two sources of tax rate changes on the participation in Individual Retirement Accounts (IRAs). This paper uses a panel logit approach to control for individual specific fixed effects, which may also influence IRA participation behavior. This paper examines participation during the years of open eligibility for IRAs, as well as examining the impact of the 1986 tax reform on participation. A key finding of this paper is that taxpayers' IRA participation decisions are more sensitive to changes in tax rates due to changes in taxable income than to direct changes in the tax tables.

scholarly journals The elasticity of taxable income in Spain: 1999–2014

SERIEs ◽  
2019 ◽  
Vol 10 (3-4) ◽  
pp. 281-320 ◽  
Author(s):  
Miguel Almunia ◽  
David Lopez-Rodriguez
Keyword(s):  
Estimation Methods ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Capital Income ◽  
Tax Rate ◽  
Taxable Income ◽  
Elasticity Of Taxable Income ◽  
Marginal Tax Rates ◽  
Tax Deductions ◽  
The One

Abstract We study how taxable income responds to changes in marginal tax rates, using as a main source of identifying variation three large reforms to the Spanish personal income tax implemented in the period 1999–2014. The most reliable estimates of the elasticity of taxable income (ETI) with respect to the net-of-tax rate for this period are between 0.45 and 0.64. The ETI is about three times larger for self-employed taxpayers than for employees and larger for business income than for labor and capital income. The elasticity of broad income is smaller, between 0.10 and 0.24, while the elasticity of some tax deductions such as the one for private pension contributions exceeds one. Our estimates are similar across a variety of estimation methods and sample restrictions and also robust to potential biases created by mean reversion and heterogeneous income trends.

The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

2014 ◽  
Vol 6 (2) ◽  
pp. 19-53 ◽  
Author(s):  
Michael P. Devereux ◽  
Li Liu ◽  
Simon Loretz
Keyword(s):  
Tax Revenue ◽  
Tax Rates ◽  
Corporate Tax ◽  
Marginal Rate ◽  
Tax Rate ◽  
Taxable Income ◽  
Corporation Tax ◽  
Tax Returns ◽  
The Difference ◽  
New Evidence

We estimate the elasticity of corporate taxable income with respect to the statutory corporation tax rate using the population of UK corporation tax returns. We analyze bunching in the distribution of taxable income at kinks in the marginal rate schedule. We decompose this elasticity into an elasticity of total income with respect to the corporation tax rate, and an elasticity of the share of income taken as profit with respect to the difference between the personal and corporate tax rates. This implies a marginal deadweight cost at the £10,000 kink of around 29 percent of tax revenue. (JEL G32, H24, H25, L25)

Measuring “Schmeduling”

2019 ◽  
Vol 87 (5) ◽  
pp. 2399-2438 ◽  
Author(s):  
Alex Rees-Jones ◽  
Dmitry Taubinsky
Keyword(s):  
Income Tax ◽  
Mental Representations ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Policy Relevance ◽  
Marginal Tax Rates ◽  
Federal Income Tax ◽  
The U.S ◽  
Empirical Framework

Abstract What mental models do individuals use to approximate their tax schedule? Using incentivized forecasts of the U.S. Federal income tax schedule, we estimate the prevalence of the “schmeduling” heuristics for constructing mental representations of nonlinear incentive schemes. We find evidence of widespread reliance on the “ironing” heuristic, which linearizes the tax schedule using one’s average tax rate. In our preferred specification, 43% of the population irons. We find no evidence of reliance on the “spotlighting” heuristic, which linearizes the tax schedule using one’s marginal tax rate. We show that the presence of ironing rationalizes a number of empirical patterns in individuals’ perceptions of tax liability across the income distribution. Furthermore, while our empirical framework accommodates a rich class of other misperceptions, we find that a simple model including only ironers and correct forecasters accurately predicts average underestimation of marginal tax rates. We replicate our finding of prevalent ironing, and a lack of other systematic misperceptions, in a controlled experiment that studies real-stakes decisions across exogenously varied tax schedules. To illustrate the policy relevance of the ironing heuristic, we show that it augments the benefits of progressive taxation in a standard model of earnings choice. We quantify these benefits in a calibrated model of the U.S. tax system.

Can Income Tax Rules Affect Management Strategies for Forest Roads?

1986 ◽  
Vol 1 (1) ◽  
pp. 26-28 ◽  
Author(s):  
John Sessions
Keyword(s):  
Income Tax ◽  
Management Strategies ◽  
Important Variable ◽  
Capital Investments ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Forest Roads ◽  
Tax Rate ◽  
Management Objectives ◽  
Marginal Tax Rates

Abstract Income tax rules on capital investments in forest roads affect strategies for managing forest land. Costs of roads plus harvesting are divided into expensable, depreciable, and nondepreciable components. Tax rules that differentiate among types of costs can influence investments in both the number and standard of roads. The marginal tax rate of the landowner is an important variable. Income tax rules may lead landowners with similar management objectives but different marginal tax rates to adopt different strategies of road management. West. J. Appl. For. 1:26-28, Jan. 1986.

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