Identifying the Elasticity of Taxable Income

Sarah K. Burns, James P. Ziliak

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

We use matched panels from the Current Population Survey along with a grouping instrumental variables estimator to provide new estimates of the elasticity of taxable income. Our identification strategy exploits the fact that federal and state tax reforms over the past three decades have differentially affected cohorts across states and over time. We find that the elasticity is in the range of 0.4–0.55. The implication of our new estimates for tax policy is that the revenue-maximising tax rate is nearly 30 percentage points lower than that obtained when we use the typical identification strategy in the literature.

Original languageEnglish
Pages (from-to)297-329
Number of pages33
JournalEconomic Journal
Volume127
Issue number600
DOIs
StatePublished - Mar 1 2017

Bibliographical note

Publisher Copyright:
© 2015 Royal Economic Society

ASJC Scopus subject areas

  • Economics and Econometrics

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