Journal article
Estimating taxable income responses with elasticity heterogeneity
Journal of public economics, Vol.188, p.104209
08/01/2020
DOI: 10.1016/j.jpubeco.2020.104209
Abstract
We explore elasticity heterogeneity in the estimation of the elasticity of taxable income (ETI) and propose potentially valid instruments. We show that previously used instruments are not valid and yield weighted averages of ETIs of different taxpayers plus a bias. Using the NBER tax panel for 1979–1990, we find a weighted average ETI of 0.57 when using all available variation in budget set changes provided by the tax reforms in the data. Our results also demonstrate that elasticity heterogeneity is an important explanation for the remarkable divergence of estimates in the previous literature.
•We propose valid instruments for estimating the ETI (elasticity of taxable income) when the ETI varies across taxpayers.•We show that previous instruments are not valid.•Using the NBER tax panel for 1979-1990, we estimate a weighted average ETI of 0.57.•We find that ETI heterogeneity explains much of the remarkable divergence of ETI estimates in the previous literature.
Details
- Title: Subtitle
- Estimating taxable income responses with elasticity heterogeneity
- Creators
- Anil Kumar - Federal Reserve Bank of DallasChe-Yuan Liang - Uppsala University
- Resource Type
- Journal article
- Publication Details
- Journal of public economics, Vol.188, p.104209
- DOI
- 10.1016/j.jpubeco.2020.104209
- ISSN
- 0047-2727
- eISSN
- 1879-2316
- Publisher
- Elsevier B.V
- Grant note
- DOI: 10.13039/501100006636, name: Forskningsrådet om Hälsa, Arbetsliv och Välfärd; DOI: 10.13039/100007439, name: Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse
- Language
- English
- Date published
- 08/01/2020
- Academic Unit
- Economics
- Record Identifier
- 9984618630602771
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