Arbeitspapier

Estimating Income Responses to Tax Changes: A Dynamic Panel Data Approach

to connected objects

elasticity of taxable income with respect to the net-of-tax rate, i.e., one minus the marginal tax

rate. We offer new evidence on this matter by making use of a large panel of Swedish tax payers over the period 1991-2002. Changes in statutory tax rates as well as discretionary changes in tax bracket thresholds provide exogenous variations in tax rates that can be used to identify income responses. We estimate dynamic income models which allow us to distinguish between short-run and long-run effects in a straightforward fashion. The estimates of the long-run elasticity of income with respect to the net-of-tax rate typically hover in a range between 0.20 and 0.30. The short-run elasticities are in general smaller but less precisely estimated. We use the estimates to simulate the fiscal consequences of a tax reform that reduces the top marginal tax rate by five percentage points. Such a reform turns out to have negligible effects on tax revenues and may even yield a fiscal surplus.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 2007:25

Classification
Wirtschaft
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
Time Allocation and Labor Supply
Subject
marginal tax rates
progressive taxes
earned income
tax reform
Steuerreform
Einkommensteuer
Einkommenselastizität
Grenzsteuersatz
Steuerprogression
Schätzung
Schweden

Event
Geistige Schöpfung
(who)
Holmlund, Bertil
Söderström, Martin
Event
Veröffentlichung
(who)
Uppsala University, Department of Economics
(where)
Uppsala
(when)
2007

Handle
URN
urn:nbn:se:uu:diva-11559
Last update
10.03.2025, 11:42 AM CET

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Object type

  • Arbeitspapier

Associated

  • Holmlund, Bertil
  • Söderström, Martin
  • Uppsala University, Department of Economics

Time of origin

  • 2007

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