The Effect of Income Taxes on Household Income

Abstract

Research on the distribution of income during the 1980s has identified a trend towards increasing inequality, which may be the continuation and acceleration of trends spanning several decades. This paper explores to what extent behavioral responses to the tax changes during the 1980s may also explain the rising inequality. The 1986 Tax Reform Act is used as a natural experiment to explore the roles played by both taxes and a variety of nontax factors. Our principal finding is that both tax rates and nontax factors appear to have had significant effects on relative income growth during the late 1980s.

Estimating a Consumer Demand System of Energy, Mobility and Leisure: A Microdata Approach for Germany

“…In the literature, the endogeneity of the progressive income tax is overcome by instrumental variable technique, where the marginal tax rate is instrumented by a "synthetic" tax rate, which is simulated with a lagged income term (see e.g. Auten and Carroll, 1999). This approach cannot be applied here because no panel data including rich information on consumption is available for Germany.…”

Labor income responds differently to income-tax and payroll-tax reforms

“…Feldstein (1995), Auten and Carroll (1999), Gruber and Saez (2002), Saez (2003), Blomquist and Selin (2010), Cabannes, Houdré and Landais (2011) among others. Another strand of the literature estimates the effects of payroll-tax reforms (e.g.…”

“…In the literature, the standard procedure, proposed by Auten and Carroll (1999), uses the predicted change in the log of the net-of-tax rate should the real labor income not change from year t-1 to year t. By construction, the instrument captures changes in the tax rate in the absence of any behavioral response.…”

“…To control for reversion to the mean and trends in the gross wage distribution, the standard procedure in the literature is to include a function of base-year income, f(log w i,t-1 ), in the vector of controls X i,t-1 . Auten and Carroll (1999) use a linear function, while Gruber and Saez (2002) propose a flexible 10-piece spline.…”

Nonparametric structural estimation of labor supply in the presence of censoring

“…Nonetheless, Mroz (1987) and Blomquist (1996) show that the results are very sensitive to the set of in-struments used, which indicates that the exclusion restriction and instrument strength assumptions are seldom fulfilled at the same time. Several recent studies combine natural experiments and instrumental variables (e.g., Auten and Caroll, 1999;and Gruber and Saez, 2002). However, Mofitt and Wilhelm (2000) point out that it seems unlikely that the simultaneity issue is completely solved in those studies.…”