What Does the Taxable Income Elasticity Say About Dynamic Responses to Tax Changes?

Carroll, Robert; Hrung, Warren B.

doi:10.1257/000282805774670004

Cited by 23 publications

(8 citation statements)

References 10 publications

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“…On the other hand, the long-run revenue offset could be overstated to the extent that some of the observed behavior refl ects shifting between the individual and corporate tax bases (Gordon and Slemrod, 2000) or refl ects the recovery from the recession in 2004 and 2005, which was likely partly due to the macroeconomic effects of the tax cuts. Carroll and Hrung (2005) discuss issues in applying taxable income elasticities. 33 Feldstein (1997Feldstein ( , 1999 and Slemrod (2001) discuss the sources of behavioral responses.…”

Section: Discussionmentioning

confidence: 99%

The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response

Auten¹,

Carroll²,

Gee³

2008

National Tax Journal

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The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) incorporated the main elements of the Bush Administration's tax proposals. The principal feature of this legislation was the reduction in individual income tax rates. Reducing marginal tax rates was intended to improve the economic incentives to work and invest, reduce the other economic distortions associated with high tax rates, lower overall tax burdens and improve the prospects for economic growth. The paper examines the effects of the lower marginal tax rates by estimating the response of reported taxable income to the lower rates. Using a panel of tax returns spanning the enactment of EGTRRA and JGTRRA, the paper estimates a taxable income elasticity in the base model of about 0.4, with estimates for other specifi cations and samples ranging from about 0.2 to 0.7.

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Section: Discussionmentioning

confidence: 99%

The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response

Auten¹,

Carroll²,

Gee³

2008

National Tax Journal

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“…Feldstein (2006) examines a 1 percent increase in all marginal tax rates, assuming a price elasticity of taxable income of 0.4 and an income elasticity of taxable income of 0.15, and estimates a revenue offset of 32 percent. Carroll and Hrung (2005) examine an increase in the top two brackets to 36 and 39.6 percent and estimate an offset of 54 percent, assuming an elasticity of 0.2 for taxpayers with income between $50,000 and $100,000 that increases linearly to 0.4 for taxpayer with income of $300,000 or more. Thus, given an estimated taxable income elasticity of 0.317, found in this study's base specification, these results suggest that the revenue offset due to a taxable income response are likely to be in the neighborhood of 20 percent, though they may be higher.…”

Section: Policy Implicationsmentioning

confidence: 99%

The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns

Heim

2008

J Policy Anal Manage

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This paper estimates the elasticity of taxable income to the net-of-tax share using a panel of tax returns that follows a random sample of taxpayers from 1999 to 2005, spanning the EGTRRA 2001 and JGTRRA 2003 tax changes. Results suggest that the elasticity of taxable income to the current year's net-of-tax share lies between 0.3 and 0.4 overall, and that the elasticity of a broader measure of income falls between 0.1 and 0.2 overall, with substantially higher elasticities for taxpayers reporting income in excess of $500,000. © 2009 by the Association for Public Policy Analysis and Management.

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“…R evenue estimation practices in the United States have recently received widespread attention (Diamond and Moomau, 2003;Altshuler et al, 2005;Auerbach, 2005;Carroll and Hrung, 2005;Page, 2005;Diamond, 2005;Gale and Orszag, 2005;Mankiw and Weinzierl, 2006;Feldstein, 2008;Leeper and Yang, 2008), but much less attention has been paid to this issue in other countries. In this paper, we consider this issue in the context of Norway, using as an example the personal income tax cuts enacted in 2006.…”

Section: Introductionmentioning

confidence: 99%

“…We estimate the magnitudes of these various effects, i.e., behavioral effects and interactions with other tax bases, and compare aggregate measures from this more ambitious revenue estimating approach to estimates obtained under current static revenue estimating practices. The paper thus presents an estimate of the extent to which tax cuts may be "self-fi nancing" due to such behavioral and interaction effects, as discussed by Lindsey (1987), Feldstein (1995Feldstein ( , 2008, Carroll and Hrung (2005), and Mankiw and Weinzierl (2006).…”

Section: Introductionmentioning

confidence: 99%

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

Thoresen¹,

Aasness²,

Jia³

2010

National Tax Journal

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This article discusses revenue estimating procedures for changes to the personal income tax. Using partial equilibrium revenue estimates of the personal income tax cuts introduced in Norway in 2006 as an example, we fi nd wide variation in the estimates of the revenue costs of cuts depending on various factors, even in the short term. Our revenue estimates take into account labor supply responses and changes in revenues from payroll taxes and indirect taxes, and we compare our results to those obtained using current static revenue estimating procedures. In general, we fi nd that more than 60 percent of the static revenue cost of personal income tax cuts is offset with higher tax revenues from other tax bases and higher personal income taxes due to increases in labor supply.

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What Does the Taxable Income Elasticity Say About Dynamic Responses to Tax Changes?

Cited by 23 publications

References 10 publications

The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response

The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response

The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns

The Short-Term Ratio of Self-Financing of Tax Cuts: An Estimate for Norway's 2006 Tax Reform

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