Estimating taxable income responses with elasticity heterogeneity

• 成果类型: Article
• 署名作者: Kumar, Anil; Liang, Che-Yuan
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Dallas; Uppsala University
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2020.104209
• 发表日期: 2020
• 关键词: Elasticity of taxable income; Elasticity heterogeneity; Tax reforms; panel data

摘要

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. (C) 2020 Elsevier B.V. All rights reserved.