elasticity of taxable income

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The elasticity of taxable income in Spain: 1999-2014 (1.017 KB)

The elasticity of taxable income in Spain: 1999-2014 (1.017 KB)

In an early critique of this literature, Slemrod (1992, 1998) pointed out that the ETI is not a stable parameter (neither over time nor across countries), and stressed the idea that government policy can have an effect on the ETI. For example, wide availability of tax deductions and exemptions is likely to lead to a larger elasticity of taxable income, all else equal. Similar arguments are made by Kopczuk (2005), who also warns about focusing only on marginal tax rate changes, when most reforms simultaneously modify the definition of the tax base. Taking these insights together, the literature highlighted the need to provide estimates on both the anatomy and the heterogeneity of the response of taxpayers, keeping a definition of taxable income stable over the period under analysis. Some recent work has challenged the “consensus” empirical strategies from Saez, Slemrod and Giertz (2012), proposing alternative estimation techniques. Weber (2014) shows that the Gruber-Saez instrument is endogenous because it is correlated with recent income shocks. She proposes using further lags of taxable income to construct the predicted net-of-tax rate instrument, as these lags are less correlated with current income shocks and provide more credible identification. Applying her method to the same dataset used by Gruber and Saez (2002), she estimates a larger elasticity in the range between 0.68 and 0.86. This elasticity is similar in order of magnitude to the baseline ETI estimate for Germany obtained following Weber’s proposal in Doerrenberg, Peichl and Siegloch (2017) which is in the range of 0.54 to 0.68. In contrast, the estimate of the EBI (0.47) reported in Weber (2014) is larger than the EBI estimates obtained in Doerrenberg, Peichl and Siegloch (2017), with estimates between 0.16 and 0.28. Using time-series methods and a “narrative” approach to describe post-war tax reforms in the US, Mertens and Olea (2018) estimate a substantially larger ETI of around 1.2, with an even larger elasticity for high-income earners and a positive and significant elasticity elsewhere in the income distribution.

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A Sensitivity Analysis of the Elasticity of Taxable Income

A Sensitivity Analysis of the Elasticity of Taxable Income

Research into the ETI is also complicated by the fact that the ETI appears to vary with income, rising as income increases. 9 If so, a single overall elasticity will not be applicable when considering the impact of rate changes that target only part of the income distribution or that differ across the distribution. In addition, a meaningful average overall estimated ETI must take into account the correlation between income and the elasticities. The average response of all filers may poorly assess how taxable income or tax revenue as a whole will respond. For example, suppose there are two types of people, that tax rates are the sole determinant of income, and that between the base and future years the net-of-tax rates rise by 10 percent for all filers. Now, suppose that half the population is in the first group and that each filer in that group has a base-year taxable income of $10,000 and a future-year taxable income of $10,100, while those in the second group have a base-year taxable income of $1,000,000 and a future-year taxable income of $1,090,000. In that instance, the low-income filers have an ETI of 0.1 and the high-income filers have an ETI of 0.9. 10 Under that scenario, the average person’s elasticity equals 0.5. But the ETI that accurately reflects the change in overall taxable income equals 0.82 because the 0.9 applies to a base that is 100 times as large as the base for the group with the ETI of 0.1.

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Estimating the Elasticity of Taxable Income: Evidence from Top Japanese Taxpayers

Estimating the Elasticity of Taxable Income: Evidence from Top Japanese Taxpayers

for an elasticity estimate, although the direction of the bias depends on whether pre-reform incomes are larger or smaller than those on average. Mean reversion can be controlled for by using one-year lagged income (here defined as log ) as a proxy. The second is a change in income distribution. In the United States, income inequality has widened over the past three decades, notably in the 1980s (Giertz, 2007). Turning to Japan, Moriguchi and Saez (2008) provide evidence that top wage income shares remained relatively stable from 1980 to 1997 (see their Figures 10 and 11). Some of the studies cited in their Figure 2, however, indicate that the Gini coefficients increased slightly from 1986 to 1989. The possibility of widening inequality over time might thus be present, even in Japan.

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The Elasticity of Taxable Income over the 1980s and 1990s

The Elasticity of Taxable Income over the 1980s and 1990s

This paper uses data on individual tax returns from the Statistics of Income (SOI) for years 1979 through 2001. The SOI is a stratifi ed random sample of tax fi lers, compiled by the Internal Revenue Service, and includes all information reported on fi lers’ tax returns, plus additional demo- graphic information. In addition to the full SOI, the Continuous Work History Survey (CWHS), a confi dential version of the data used by Gruber and Saez (2002), is used for the replication phase of the paper, as well as for some of the sensitivity analysis. The CWHS is a subset of fi lers from the SOI who are followed from year to year. Although the CWHS contains detailed and accurate information, it is defi cient in two important respects. First, although the CWHS sample is quite large (for some years, more than 20,000), relatively few returns are from the very top of the income distribution. If high–income taxpayers dominate an estimate, that estimate using the CWHS will depend heavily on just a few fi lers. This shortcoming of the CWHS can be overcome by moving to the full SOI, which heavily over–samples high–income fi lers. Second, the CWHS (and the full SOI) includes only people who fi le returns and are listed as the primary fi lers. Thus, attri- tion is an issue.

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Panel Data Techniques and the Elasticity of Taxable Income

Panel Data Techniques and the Elasticity of Taxable Income

correlated with mean reversion at the top of the income distribution. For tax rate increases, the NTR will be positively correlated with mean-reverting changes; for rate decreases, the reverse is true. Researchers often include control variables to account for mean reversion at the top, but the effectiveness of these controls is not known. A potential solution to this problem is to focus on samples that include both tax increases and decreases (see Giertz 2007), in the hope that mean reversion from the two tax changes will cancel each other out (i.e., will have a net effect of zero). However, mean reversion at the top of the income distribution may vary across the two time periods because of different macroeconomic conditions or other unobserved factors.

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The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados

The Responsiveness of Taxable Income to Changes in Marginal Tax Rates in Barbados

There are two main drawbacks of these early approaches: (1) the tax reform episodes considered usually involved a change in tax rates as well as allowances or deductions, making it difficult to separate these two effects, and; (2) the analysis was based on comparisons of high and low- to middle-income taxpayers, which could be affected by increased inequality. Saez (2003) employs a somewhat different approach to evaluate the relationship between tax rates and income. Instead, the author uses „bracket creep‟ as the source of variation in tax rates. Using observations on around 40,000 individuals observed between 1979-1981, Saez obtained elasticity estimates of 0.3 for the full sample, and 0.4 for married taxpayers and 0.2 for singles. While these estimates are significantly lower than earlier studies, such as those by Lindsey (1987) and Feldstein (1995), they are in line with recent studies in the area.

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Recent Literature on Taxable Income Elasticities

Recent Literature on Taxable Income Elasticities

Saez (2003), for example, finds elasticities ranging from -0.14 to 0.71 by separately analyzing four income groups that are further divided by marital status and the decision to itemize deductions. An elasticity of 0.40 applies only to the overall response for married taxpayers or to the overall response for married and single taxpayers who itemize. The estimated overall elasticity is more than 20 percent smaller: 0.31. The 0.38 overall elasticity found by Carroll (1998, for OBRA 90 and OBRA 93) falls to 0.33 when he includes taxpayers on the AMT and rises to 0.56 when he restricts his comparison group, a sample of taxpayers facing no change in rates, to taxpayers with incomes above $75,000 (instead of above $50,000) and below the threshold where rates begin to change. Gruber and Saez (2002) come to 0.40 by including a 10-piece spline of logged income to control for heterogeneous movements in the income distribution (assumed to be unrelated to tax changes). But Kopczuk (2003), using nearly the same data and methodology, finds the elasticity falls by nearly 50 percent, to 0.21, when he uses the full sample instead of only taxpayers with incomes greater than $10,000. Kopczuk provides additional evidence on the sensitivity of estimates to sample selection and, furthermore, uses elaborate controls for exogenous variations in income, which yield a wide range of taxable-income elasticities.

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Food demand for quality in Egypt

Food demand for quality in Egypt

The rural region showed the same effect on the value of the annual expenditure of the same set of commodities, regardless the per capita income level. Therefore, the rural consumers spend less than the urban consumers d o o n dairy products, tomatoes and oranges. ( Table 13) provides evidences that the less per capita expenditure on those commodities in rural region were not only due to less quantity consumption but it was also due to lower price in the rural market than in the urban market. The estimated weighted annual average of per capita consumption, as shown in Table 13, confirmed that the rural household consumes less than urban with respect to white cheese, liquid milk, orange and tomatoes at lower prices than the urban households do.

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Deadweight loss and taxation of unearned income: evidence from tax records of the UK self-employed

Deadweight loss and taxation of unearned income: evidence from tax records of the UK self-employed

Table 5 shows the results of the regression with the proportion of dividend income to earned plus dividend income as the dependent variable. Recall from section 4.4.3 that one concern is that the self-employed may have an incentive to incorporate their business and pay themselves in the form of dividend income if this is advantageous for the purpose of reducing their tax bill. Whilst income tax rates generally went down between 1985/6 and 1995/6, dividend income also became more tax favoured. We report results in three columns, contrasting in the same way as those of Table 5.2. That is to say, the first column uses general group year interactions as instruments while the second and third instruments with group level tax changes at fixed incomes. Results in the second and third columns are the more robust and show no evidence of any effect.

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Efficient taxation of multi national enterprises in the European Union  Bruges European Economic Policy (BEEP) Briefing 5/2003

Efficient taxation of multi national enterprises in the European Union Bruges European Economic Policy (BEEP) Briefing 5/2003

Even if it were possible to find satisfactory solutions to all the hurdles involved in defining a common consolidated base for corporate taxation, a specific difficulty would still remain concerning he very definition of corporate income. Corporate income is a largely conventional accounting magnitude, whose definition varies depending on the purpose one wants to serve. The increased importance of intangibles and human capital in company assets are blurring the traditional distinction between current and capital spending and changing the nature of risks and attendant allowances. Furthermore, the definition of taxable income often reflects implicit or explicit decisions to favour certain factors of production, form of investment and financing, and investment locations. Certainly, the arbitrary character of these differences does not help in finding a common ground internationally.

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Income elasticity of demand within individual consumer groups and the level of income elasticity of the entire market demand 

Income elasticity of demand within individual consumer groups and the level of income elasticity of the entire market demand 

For the evaluations and estimations of income elasticity of the consumer demands, the analysis of relationships between the income-elasticity values of the individual demand functions and the level of income elasticity in their aggregate is very useful as well. The given relationship may be researched under the aggregation by the consumption items or under the aggregation by the consumer subjects. The paper was focused on the determination of the mathematical term between the income elasticity level of the entire market demand and income elasticities of demand functions of differentiated consumer groups, purchas- ing on the given market. The formula was derived under the linearity assumptions of all the related de- mand functions. The defined formula was applied in the field of consumer behaviour of Czech households on the market for meat and meat products.

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Efficient taxation of multi national enterprises in the European Union  Bruges European Economic Policy (BEEP) Briefing 5/2003

Efficient taxation of multi-national enterprises in the European Union. Bruges European Economic Policy (BEEP) Briefing 5/2003

Even if it were possible to find satisfactory solutions to all the hurdles involved in defining a common consolidated base for corporate taxation, a specific difficulty would still remain concerning he very definition of corporate income. Corporate income is a largely conventional accounting magnitude, whose definition varies depending on the purpose one wants to serve. The increased importance of intangibles and human capital in company assets are blurring the traditional distinction between current and capital spending and changing the nature of risks and attendant allowances. Furthermore, the definition of taxable income often reflects implicit or explicit decisions to favour certain factors of production, form of investment and financing, and investment locations. Certainly, the arbitrary character of these differences does not help in finding a common ground internationally.

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Transfer Pricing: The Nigerian Perspective

Transfer Pricing: The Nigerian Perspective

The Income Tax (Transfer Pricing) Regulations 2012 requires that all records including ledgers, cashbooks, journals, cheque books, bank statements, deposit slips, paid cheques, invoices, stock list and all other books of account, as well as data relating to any trade carried out by the taxpayer, inclusive of recorded details from which the taxpayer‘s returns were prepared for assessment of taxes, are to be retained for a period of six years from the date on which the return relevant to the last entry was made 59 .

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Analysis of demand for vegetable in Malaysia

Analysis of demand for vegetable in Malaysia

The estimated demand elasticities show that the demands for all vegetables are found to increase when per capita income rises. This result is consistent with the finding in Tey et al. (2007), which shows that Malaysian food consumption pattern is moving towards functional foods in response to income growth. On another hand, most of the vegetables are found to respond substantially to changes in their own prices and in the directions as expected with estimated own-price elasticities more than unity (except podded vegetable).

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An Analysis Of The Relationship Between Accounting And Corporation Income Taxation: An Empirical Study In Vietnam

An Analysis Of The Relationship Between Accounting And Corporation Income Taxation: An Empirical Study In Vietnam

Abstract: Indentify and record the provisons on Corporate income tax in accordance with international regulartions, which has been and are being implemented in Vietnamese Enterprises. Initially applied, there were certain difficulties reflect in accounting and taxregulations. Studying International regulations in th relationship between accounting and taxation from which to draw research gaps, lesson learned. Develope a process to handle steps in the relationship between accounting and taxation, which has been a concern of accountant and tax departments. This paper outlines specific steps to implement in determining the relationship between accounting and taxationIndex Terms— Tax, Tax Accounting, Income Tax, Corporate Tax

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Determining Whether the Chinese Services Industry Is Stagnant: An Empirical Test of Baumol’s Model

Determining Whether the Chinese Services Industry Is Stagnant: An Empirical Test of Baumol’s Model

Also, empirical analyses indicate that significant performance in goodness-of-fit (R2) in the transportation, storage, post, telecommunication services, wholesale retail trade and catering, and comprehensive social services, which results are consistent with theory expectation basically. This result indicates that the main reason of the fast employment growth in those services sectors is due to the lagging labor productivity. According to the regression equation in Table 2, it is easy to calculate the price elasticity and income elasticity of demand for services in China (presented in Table 3).

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Taxable Income Responses to 1990s Tax Acts: Further Explorations

Taxable Income Responses to 1990s Tax Acts: Further Explorations

The interval over which behavior is measured could have implications for the size of responses. The year-to-year analysis is likely to capture transitory behavior, in addition to the beginnings of a longer-term shift in behavior. Some analysts have found very large short-term responses. 10 Examining behavior over 3-year intervals is intended to capture longer-term (or permanent) responses. In practice, however, shifting as a result of tax rate changes in years adjacent to the years used in differencing could bias this estimate. The end-year approach is intended to focus exclusively on permanent responses, avoiding potential biases resulting from shifting between years adjacent to the two years used in creating each paired observation. That is, the years used for the end-year analysis are chosen so that they are more than a year prior to the tax change takes effect and more than a year after it is fully phased in. However, the use of end years excludes some potentially valuable sources of variation. For example, data on income changes for other pairs of years (in which tax rates did not change) may be helpful in

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The Taxation of Multinational Enterprises in the European Union: Views on the options for an overhaul. CEPS Policy Brief No. 203, 4 February 2010

The Taxation of Multinational Enterprises in the European Union: Views on the options for an overhaul. CEPS Policy Brief No. 203, 4 February 2010

Even if it were possible to find satisfactory solutions to all the obstacles involved in defining a common consolidated base for corporate taxation, a specific difficulty would still remain concerning the very definition of corporate income. Corporate income is a largely conventional accounting magnitude, whose definition varies depending on the purpose to be served. The increased importance of intangibles and human capital in company assets is blurring the traditional distinction between current and capital spending and changing the nature of risks and attendant allowances. Furthermore, the definition of taxable income often reflects implicit or explicit decisions to favour certain factors of production, forms of investment and financing, as well as investment locations. Referring to corporate income made sense when company taxation was a ‘backstop’ for individual taxation within a system aiming at comprehensive progressive taxation of personal incomes; however, most countries have now renounced such ambitions and adopted ‘dual’ income taxation that treat capital income more leniently than other types of personal incomes.

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The Cyclicality of the Income Elasticity of Trade

The Cyclicality of the Income Elasticity of Trade

Previous studies have also analyzed the behavior of the income elasticity across very long time spans, relating them to the evolution of trade barriers, as re‡ected in changes either in tari¤ and non-tari¤ policies or in transportation costs. Irwin (2002), in particular, analyzed the income elasticity for the world economy since 1870, distin- guishing three main phases: (i) in the pre-World War I era (1870-1913), characterized by very stable tari¤ rates (which were also very low in Western Europe), the elasticity tended to lie around 1; (ii) in the interwar era (1920-1938), the rise of protectionism and the introduction of foreign exchange restrictions brought the elasticity down, to levels close to zero; (iii) in the post-World War II era (1950-2000), when the GATT and the WTO encouraged a sustained reduction in trade barriers, the elasticity rose well above 1. Interestingly, a study by the World Bank (1987) with data going back to 1720 …nds that the period in which the income elasticity reached its peak was between 1820 to 1870, when a sharp fall of freight costs occurred, favored by a wide di¤usion

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Ethnicity and tax filing behavior

Ethnicity and tax filing behavior

In our first empirical example we analyze how natives and immigrants respond differently to the tax system in terms of filing for commuting deductions. Commuting deductions are stan- dard elements in the tax systems of many European countries (such as the Nordic countries, Germany and France) but notably do not exist in countries such as the US, Canada and the UK. The purpose of commuting deductions is to compensate individuals for their differ- ent costs of earning income related to their expenses for traveling between their home and workplace. One important purpose of the commuting deduction is to incentivize individuals to search for and accept employment in a larger geographical area, thereby increasing labor market efficiency and positively impacting an individual’s career and earnings prospects. However, as such deductions require the taxpayer to actively inform the tax authority about their travel expenses, this will create heterogeneous take-up in the population, which has distributional and fairness consequences. In particular, it can create unmotivated differences in tax burden between less informed groups of the population and more informed groups of the population.

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