Toward obtaining a consistent estimate of the elasticity of taxable income using difference-in-differences

Weber, Caroline

doi:10.1016/j.jpubeco.2014.05.004

Cited by 138 publications

(197 citation statements)

References 20 publications

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“…is correlated with log(w i,t-1 ), which biases the estimates if the residuals are auto-correlated, despite the presence of pre-reform income controls (Weber (2011)). For instance, Kopczuk (2005) illustrates how sensitive the estimates of taxable income elasticity for the US are to the specification of pre-reform income controls.…”

mentioning

confidence: 99%

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

Lehmann

Marical

Rioux

2013

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We estimate the responses of gross labor income with respect to marginal and average net-oftax rates in France over the period [2003][2004][2005][2006]. We exploit a series of reforms to the incometax and payroll-tax schedules affecting individuals who earn less than twice the minimum wage. Our estimate for the elasticity of gross labor income with respect to the marginal netof-income-tax rate is around 0.2, while we find no response to the marginal net-of-payroll-tax rate. The elasticity with respect to the average net-of-tax rate is not significant for the incometax schedule, while it is close to -1 for the payroll-tax schedule. A plausible explanation is the existence of significant labor supply responses to the income-tax schedule, combined with sticky posted wages (i.e., the gross labor income minus payroll taxes divided by hours worked). Finally, the effect of the net-of-income-tax rate seems to be driven by participation decisions, in particular those of married women. Terms of use: Documents inJEL-Code: H240, H310, J220, J380.

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confidence: 99%

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

Lehmann

Marical

Rioux

2013

Journal of Public Economics

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“…That corresponds to a statistically insignificant nonlinear elasticity of 0.06. Weber (2014) on the other hand obtained an estimated linear elasticity between 0.48 and 0.70 that translates to a nonlinear elasticity between 0.26 and 0.37. Therefore, our estimates lie within the range of the estimated elasticities in these two studies.…”

Section: Broad Incomementioning

confidence: 96%

“…Of course, this only helps if the effect of base-year income is the same for different base years. Weber (2014) investigated whether the standard instrumental variable and other related instrumental variables that are functions of taxable income are valid. She found that they cannot overcome the mean reversion problem, even when they include a base-year income control function.…”

Section: Regression Specificationsmentioning

confidence: 99%

“…We use data from the NBER panel of tax returns over the 1979-1990 period, also known as the Continuous Work History File, which is also the data used by Gruber and Saez (2002) and Weber (2014). The data contains detailed administrative information on tax and income variables but does not contain any demographic background variables.…”

Section: Datamentioning

confidence: 99%

“…The literature has addressed these concerns by controlling for base-year income (Auten and Carroll, 1999;Saez, 2003;Gruber and Saez, 2002). Weber (2014), however, recently showed that including controls for base-year income does not ensure instrument validity. She demonstrated that even alternative income-based instrumental variables proposed in the previous literature (e.g., Carroll, 1998;Kopczuk, 2005;Blomquist and Selin, 2010) have similar drawbacks.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The Taxable Income Elasticity: A Structural Differencing Approach

Kumar¹,

Liang²

2016

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We extend a standard taxable income model with its typical functional-form assumptions to account for nonlinear budget sets. We propose a new method to estimate taxable income elasticity that is more policy relevant than the typically estimated elasticity based on linearized budget sets. Using U.S. data from the NBER tax panel for [1979][1980][1981][1982][1983][1984][1985][1986][1987][1988][1989][1990] and differencing methods, we estimate an elasticity of 0.75 for taxable income and 0.20 for broad income. These estimates are higher than those obtained by specifications based on linearization. Our approach offers a new way to address the problem of endogenous observed marginal tax rates.

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A maximum likelihood bunching estimator of the elasticity of taxable income

Aronsson,

Jenderny,

Lanot

2024

J of Applied Econometrics

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SummaryThis paper develops a maximum likelihood (ML) bunching estimator of the elasticity of taxable income (ETI). Our structural approach provides a natural framework to simultaneously account for unobserved preference heterogeneity and optimization errors and for measuring their relative importance. We characterize the conditions under which the parameters of the model are identified and show that the ML estimator performs well in terms of bias and precision. The paper also contains an empirical application using Swedish data, showing that both the ETI and the standard deviation of the optimization friction are precisely estimated, albeit relatively small.

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Toward obtaining a consistent estimate of the elasticity of taxable income using difference-in-differences

Cited by 138 publications

References 20 publications

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

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

The Taxable Income Elasticity: A Structural Differencing Approach

A maximum likelihood bunching estimator of the elasticity of taxable income

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